Okay, good afternoon, and thank you all for joining us.

I will call our joint Fort City Council and Fourth Employees Retirement Fund Board meeting to order.

Today is Tuesday, June 9th, and we greatly appreciate the effort by the triumph board staff and our board members for taking time to attend today.

This time I will call on Chairman Doug Wilson for a few opening remarks, and then we'll not go around the table and make introductions before we start the substance of the meeting.

Thank you.

Doug?

Thank you, Mayor.

We are honored to be here with you guys and uh believe that we've got a very positive report to bring to your attention today.

Uh the state of the fund is doing well with Linda Webb, our new executive director.

Definitely getting some traction on board with us.

Um, Mary El Shot, I mean, just the team is is in good shape as I've seen it since I've been appointed.

And the one vacant seat that we needed a mayor oral appointee.

We are proud to have our brother David Cook filling those shoes.

David has hit the ground running, he's uh done his orientation, and we've got him appointed to committees, and Katie holds the door.

He's he's off to the races.

Anyway, things are going well.

So thanks very much for allowing us to join you today, and we look forward to the the rest of today's report.

Thank you, Doug.

Appreciate that.

And David, you don't have the excuse of not knowing what you're getting into because you know exactly what you were getting into, right?

Um that's great.

Well, I'll maybe I'll start over here, Andrew, if you don't mind kicking things off, and we'll go around the table with our um our board appointees first, and then council members want to tag along they can.

Sure, thank you.

Good afternoon.

I'm Andrea Wright, uh, the vice chair of the retirement fund.

I've been on the board for eight years now, and I represent 50 percent of the active general employees.

Thank you, Michael.

Thank you, Michael.

I've been on the board since my first year, I'll represent the race of three.

Very well.

Thank you, David.

Thank you.

Thanks, Wanda.

Uh Roger Zeno, CFO for the city.

That was just our reminder to turn your microphones on so they can broadcast appropriately.

Thank you.

Um, and Linda, before I turn it over here, we have our council members are here, some of which you've gotten to meet before.

Some of them, this is their first joint board meeting, and we've started this tradition years ago.

I think it's an important update to so the partnership between the city of Fort Worth and our retirement fund on behalf of our employees and really heavy cooperation, especially on Reggie's part on the city finance team.

So, Dr.

Hall, if you want to introduce yourself, please go ahead on Path of District Six.

Hi, Dr.

Mia Hall, uh City Councilwoman for District Sixth, and obviously I think I celebrated my one year, it's coming up.

Well, elected one year on the 7th.

One year is coming up.

Thank you, Mia.

Michael?

Michael Crane, representing District 3 on the city council.

Carlos, we heard from you earlier to Jeanette.

Sorry.

Jeanette Martinez representing District 11.

Chris Jameson celebrate or representing District 10, and I'm about to sell celebrate my one month.

Elizabeth Beck, District 9.

AC Hill representing District 7.

Okay, Linda.

I guess I can turn it over to you at this time if you want to kick things off or move us into our first presentation.

And remind me now how long have you been with us here in Fort Worth.

Yeah.

Um I started in August of 23, so nearly three years now.

That's great.

We're really excited about the agenda today.

Um I think we have some some news the city's going to really like hearing.

Um, we've made some really a lot of good progress in the last year, and I think you'll be able to see that from the reports that you'll be hearing today.

So we look forward to sharing that information with you.

That's very helpful.

Thank you.

I think our first agenda item is going to be kicked off by Joseph Newton, who's our pension market leader and actuary with Gabriel Roder Smith and company.

I might suggest these are usually dense presentations with lots of great information.

If you have questions or comments, let's do that along the way rather than writing to the end because it can be kind of hard to keep track.

And Joseph, I'll turn it over to you.

Great.

Yes, thank you.

I agree with that.

If you have any questions, ask them as you have them because sometimes these presentations build on previous information.

And as Linda just said, this I think you're gonna see this is uh that's definitely a year of highlights on the outcome of the pension plan.

It's uh it's a process, it's a it's a long process, and so any given year you can't expect to go from you know poorly funded to really really well funded.

It's it's gonna take a while, but you can see all of the positive uh metric improvements here today as we talk about it.

The main thing that's happened actually is just a basic increase in active membership.

So active members have payroll, the retirement plan receives all of its contributions, its revenue into the pension plan based on how much payroll there is.

So when you act when you add active membership to the pool, that increases that revenue that comes into the pension plan, but it doesn't necessarily increase what's owed from the pension plan in the same proportion.

One of the big items we're gonna talk about today is called the unfunded accrued liability, which is kind of the debt that's owed to the past uh related to the pension plan.

That's almost entirely associated with current retirees and current active members, either that are eligible to retire or close to it.

So adding a bunch of new people at the low end of the service schedule doesn't change that unfunded liability that that past debt.

All it does is increase the revenue.

So that really helps.

You can see here just this last year we had a 10% increase in overall people, which means we actually had a 10% increase in revenue just from that one item.

Also, salaries for individuals uh were up, and so we had actually about almost a 14% increase in total covered payroll from just one year to the next.

Our assumption is that's going to be about 3% a year.

So you can see that's a significantly higher than the assumptions.

This has actually been a trend now for about three years.

We've had a 20% total increase in active membership uh in the last three years.

Six and a half percent of that from the Med Star recent uh transition, but you know, a lot of it, you can see two-thirds of it is just from a natural increase in active membership, and we'll show you the impact a little more specifically as we go through it.

In addition to that, the investment performance of the fund has been favorable, a 14% return in fiscal 25.

And if you look at it for a little bit longer term, 7.6% compound return over the last five years.

We assume is 7% return over time, so that's in excess of that.

So that means there's extra money being generated in the fund to help pay off that unfunded liability.

And so, as a result of that, how long we expect the unfunded liability to be paid off is now shortened to 24 years from this year.

Uh that's four years sooner than last year's expectations.

Last year we were expecting it to be paid off by 2053.

Right now, if all assumptions are met, that should be paid off by 2049.

So a four-year improvement uh in that one number there, and that's a six-year improvement compared to two years ago, which was uh projecting out to twenty fifty-five.

So uh that's very good news.

And we're actually almost all the way back in line, and we'll talk a couple of slides about the uh the pension reform that occurred back in 2018 actually set a timeline, and it was a 30-year timeline from 2018.

And if you count forward in time, we should be at a 23 right now.

Um these last few years, as we've been talking about it, we've been pretty far off from that timeline.

Now we're within, you know, we're 24 compared to a 23.

Um, and in fact, if we could measure down to months, it was like two months uh from being a 23.

So very, very close to being back on that original timeline, which is again a very very positive outcome.

So why does adding increased membership help finance the unfunded sooner?

Uh I just hit on it a little bit just to kind of go into a little bit more.

It's it's similar to you know the unfunded liability.

Think of it as a debt.

Think about it as a mortgage that you may have as an individual.

Um, when you're 25 or these days 30, and you get that first mortgage, um, you know, it it hurts out of your budget a certain amount but over the next six or eight years as you get pay increases that that mortgage payment hasn't changed and so it's getting easier and easier to pay that amount so it looks like a lot like that in that our revenue stream is going up because we're adding these active people but that debt that was owed is not going up in the same way because again that that debt is mostly owed to current retirees and people eligible to retire of everyone that we hire you get 36% of payroll coming into the plan.

About half of that 16% goes to pay for the benefits for that new person but the remainder of it can all go to pay for the the amount that's owed to the retirees and the to the past so that's why it really accelerates uh the funding it can also be offset by salaries to continuing active members but that has an offset.

If you give an individual that's currently got 20 years of service a salary increase bigger than expected it does increase our revenue but it also increases what you're gonna end up paying that person.

So it's kind of an offsetting idea versus a new person it's all just new revenue so it's very good.

So this is just to give you an idea of of why that's had that much impact.

This is a new slide this year and it's a little busy this is mainly my uh you know I'm not that great of an artist here.

This is what I could come up with.

But this is showing you this history since 2017 2018 for anyone that was around to kind of give you a little bit of a history of how we got to today.

The blue line on here is what's called the funding period that's how long it was expected to take to pay off that unfunded liability you can see here back in 2017 that was never and in fact it was projected that if you go long enough we would it would deplete the assets of the trust fund.

And so that was found to be unacceptable and so there was significant pension reform with the city council and the retirement board at that time which included benefit modifications it also included included direct increases in contribution rates and also some risk sharing provisions which we'll talk about.

And so you can see coming out of that reform it was expected that the funding period would drop all the way down to 30 and so that's that 30 year clock from 2018 that was expected.

However before that could even be finalized two things happened by 2018 one was a non-a minus four percent return on the assets of the trust fund so that pulled it back a little bit but the bigger item was actually the retirement board through our recommendations lowered the future expected return on assets from seven and a half down to seven and so that extended out that period of time.

Now as in all assumptions assumptions are only assumptions what's going to happen reality is what drives the where we're going and so since you've outperformed the seven since that point in time we've pulled back a lot of those years and gotten closer to back on that original timeline.

So that's what you can see here in the blue dark line is what that funding period has been as we move through time on a smooth basis on a market basis you can see it's more volatile but it's tracking in a similar pattern.

Through 2022 it was mostly pretty consistent going from 44 down to 36 about you know a year per year.

However since then those last three years you can see a lot of acceleration going from 36 all the way down to 24 that is why I have the top line on there which is the active headcount you can see from 2017 to 2022 the head active head count was basically the same 6579 to 6656 and then now in these last three years has gone up that 20% to 7983 and that has been the main driving force to bring that funding period down to 24 years.

The average market return of 9% has also been a big part of it.

Joe and apologies for interrupting and anyone can jump in here I think this slide is important especially for those of us that weren't serving on the council at the time these were very difficult decisions that required actually two bites of the apple on the pension and one important employee vote, and it took careful consideration and communication from city staff two employees in that voting process, and then great management and investment strategy at the board.

So this is a good news story.

I'm sort of curious from your perspective as an actuary, what you're seeing in other peer cities across the country, because I do think it maybe reflects a financial strategy that was maybe different in Fort Worth that other cities probably going to benefit.

Yes, it was.

I mean, don't do this, but say you know, one thing you could do is hey, we're better than we were three years ago.

Let's slow down, right?

Like, no, don't do that.

That that would be a we would just move it backwards at that point.

Um, but yeah, your risk-sharing contributions, the way those automatically adjust to get uh when things did fall behind, you didn't just leave the contributions, it it brings those up to try to make up and get back on track.

Uh, very positive uh reform there, um, now I will go ahead and bring it up now because part of your job as an actuary is to make sure that you always leave a downer in every conversation you ever have with anybody.

Um, and so uh we have to talk about risk a little bit, right?

And so there's always risks, and there's a lot of times the obvious ones, but here, you know, the main story on this page is that active headcount growth.

That's so what I always like to step back and say, well, if I can have 20% increase in headcount in three years, are there worlds would be get contraction of head count, right?

And so uh this is just to say that if there were to be contraction and head count over the next five or eight years back to closer to that 6,600 number, we would basically likely unwind back to a similar time frame as we were three years ago.

Okay, so just to give a graphic representation of what that funding period means when we use that term.

Uh, here you've seen the line the red line on top is the liabilities.

So that's what was owed to the membership at that point in time, and this is in millions, so that five point five that's five billion five hundred million dollars.

There, that red number.

The red in the back that's solid is what the actual history has been.

So you can see the liabilities were a little lower, and then that 2018 we had that jump up.

That's when the investment return assumption changed, and then you can see it's been steadily growing since.

So the idea here is not that we're gonna stop the liability from growing because you have membership, membership or earning new benefits, the liability should be going up.

We just want to make sure that the assets are there to cover those liabilities.

And so here you can see in the last decade the assets have gone from 2.2 billion up to about 3.2 billion.

That's how we get to the current unfunded liability.

So we haven't made a lot of progress yet on that unfunded liability.

However, you can see from now going forward, we begin to have uh progress and begin to move to where the assets cover those liabilities in that 2048 time frame.

So that's what how we come up with what's called the funding period.

Another point here is compared to a mortgage or debt, any other debt the city has, the city could just write a check and get rid of it and be done and walk away, right?

Um, in this case, it's not like that.

If if I owe you a hundred dollars, I can't just give you the hundred dollars today.

In a retirement plan, the best I can do is start giving you a dollar a month, and so what we do is want to securitize that debt.

We would like we want a hundred dollars over in this other account so you can show the membership.

Hey, we're good for it.

The money's right over here in this account, and when you get to retire, it will be there to pay your benefits.

So that's what we're trying to do is cover that liability with the asset.

Now, of course, there's gonna be sensitivity.

The main sensitivity is gonna be to investment performance, and so you can see here that funding period changes by between four and six years, uh, depending on if we outperform by about half a percent of year in assets, or if we underperform by about half a percent in assets.

So even if it's the returns are only six and a half percent going forward, we should we still should have improvement.

Uh, it's just gonna take a little longer.

So here's a slide we've had in the last few years.

I like to keep this kind of stuff uh to show the history and to be accountable to what those previous decisions were.

So here the the light blue dotted line is what that projected unfunded liability was from 2018.

You can see that's because that's when that assumption change occurred, the reform occurred, and so you can see the unfunded liability was expected to grow to be about 2.8 billion in 2040.

That was the original, and that was that 44 year time horizon.

The red X's are what the actual has come in at.

You can see it follows that light blue line pretty well, a little bit ahead of schedule, but it's really now the higher revenue is going to turn this over and begin to pay this unfunded liability off quicker.

The difference between those two lines is $3.9 billion in total savings, again, from this accelerated revenue that we're getting from these higher head counts.

So very positive message and outcome.

Okay, let's go.

We'll go ahead and talk about this one for a second.

It's probably the last year we'll keep this one in the deck.

Um, but it's one of those things where it's a it's telling you where you're going before you start to see any results.

The unfunded liability by itself only matters so much, right?

You say, well, we have a two, you know, we have a two billion unfunded liability.

Okay, well, is that a lot?

Is that a little?

Like you have to compare that to something, right?

You know, as for the state of Texas, that wouldn't be very much at all.

Um, but you know, for the state of foot worth, it's a certain amount, and if that was for you know Bridgeport where I live, that would be catastrophic, right?

And so relate putting it in some sort of relationship uh matters here.

And so what the unfunded liability over payroll is saying, okay, how big is that debt compared to uh the our revenue stream or the the payroll that's supporting that debt?

It's kind of like a debt to income ratio for banking.

And so what we're wanting to see here, and what you have been seeing here is improvement, we want it going down.

And so you can see we've actually gone from around four and a half times payroll down to three and a half times payroll just in the last seven or eight years.

So that's a lot of improvement in this metric, and this is one of those things is once this one's continuing to go down, eventually everything has to come with it and start to improve as well.

Um, and so you can see here the same, we expect that to pay off in the same 2048 time.

This is just to make the point where you do use smooth assets and all of these results.

We do that not to hide anything, but basically try to have a longer term view.

Because any point in time, you know, on any three at three o'clock in the afternoon on a Tuesday afternoon, that's when you do the market basis.

Well, that can change a lot by the next Tuesday afternoon.

So what we're trying to do here is just smooth that out.

So we use a five-year smoothing process, and you can see that the red line and the blue line track each other, but the peaks are higher in the red line, which is the market, and the troughs are lower in the red line as well.

Right now, we're sitting in a situation where there's actually more money in the bank, the market value is higher than our current smooth result.

And so, what that gives us is one of two things.

The next few years, if things go well, then we'll get to recognize all that extra money, and so it'll accelerate this process even more.

Or if we have a couple of struggle years, there's money there to help offset that and keep us on the same path we currently expect to be on.

So it's a good good position to be in, but it's just to make the point that we do use a smooth value in all of our numbers.

So here to walk through, because this is a turning point you're at actually.

Uh, this is how did the unfunded liability change from last year?

The red numbers there are things that go up.

So the first thing that happened was normal cost, that is the value of new benefits being earned.

So your active employees worked a year, so they earned another year of benefits.

That was about $112 million, and that's between them the active members' contributions and the cities.

Now there's also interest on the unfunded liability itself.

So it's $163 million, and so then you put contributions against that, just like a mortgage, $272 million comes all the way down and doesn't quite cover the interest and the normal cost.

If you see here, so if you do if you're on mortgage, you would expect some principal to be paid, right?

So you pay the interest and then some principal so that next year your unfunded liability is lower.

Here you can see we weren't quite there.

Uh three million dollars of uncovered interest.

Um, however, starting next year, if we do the same chart, we should cover it, should cover the whole thing and be a positive three or three three or five million dollars.

So this is a pretty big turning point in the life cycle of the plan of turning over to we now expect the unfunded liability to start coming down every year.

The things on the right, the asset performance and how the liabilities grow, those are the things we can't predict.

Those will just happen to us.

You can see here this year the assets outperformed, decreasing that unfund liability by 36 million, and then the liabilities because salary increases were a little higher than our historical expectations, that added about 9 million.

So overall on a net basis, we did decrease, but it took the asset performance to make that happen.

But again, it's a very positive position, it's called positive amortization, and it should begin to have.

I would be surprised if your bond raters, for example, don't comment on this factor as it occurs.

Because this is a big, this is one of the things that they really look at.

They want to see you getting to where every year you're expecting to be paying off some of that unfunded liability.

Okay, so how do the infund or how did that fund impairing change?

We were at 29 last year, expected it to go down one.

Again, the asset performance brought us down an extra year.

That membership growth brought us down a total of three years.

So that's how we get from the 29 down to the 24.

Okay, so you guys do have a quite complicated setup in how some of the different funding and benefits work, and it can be confusing because sometimes the same words are used to mean different things throughout the process.

So this is trying to uh iron that out and be a little clear in what the different numbers mean.

So the first one, and we bolted it because it's the official funding period, that's the one we've been talking about.

The 24 years that takes everything into account.

There's nothing off the table on that basis.

We take all risk sharing contributions, ad hoc colas, when they're supposed to kick in or built in, and we run that out.

When is the unfunded liability projected to be fully eliminated?

That's 24 years.

That's what's going to be used by the pension review board in Texas to determine are you meeting their guidelines?

That is that is the official number.

There's another number, the baseline funding period, and it is in statute and used for determining when ad hoc colas will turn back on.

So we have to do another estimate where we assume the risk sharing contributions stopped.

So if we didn't get any more future risk sharing contributions, how long would it take to pay off the unfunded liability?

You can see that extends from 24 up to 32 years.

So those that extra 4% of pay that we're getting risk sharing contributions, you know, takes eight years off the funding period alone.

And so that's 32 years.

The ad hoc colas do commence when that gets down to 28 years after a cola has been given.

So that probably means we have to get to 27, maybe as low as 26 before a call is given.

That way we give the coal and it pushes back up to 28, and that would be passing the test.

So we're getting quite closer.

You know, two years ago we thought this was two decades away.

Um now we're getting to where you're you know five or six years away from likely coming back on with ad hoc colas.

There's another item that's similar, and that's the amortization period.

That actually turns around and says, no, we're gonna fix the period, and that is based on that 30-year period from 2048.

That's the 23 years from this year.

And to meet that, you can see we would need a total of 4.09%, and we're getting risk sharing contributions of 4%.

So that's how close it is from actually being meeting the uh ADEC.

And I guess here's what I'll also go ahead and throw in.

Um, based on ordinance, let's say next year we determine that 4.09 is not necessary, that 3.9 would be enough.

Um, that wouldn't do anything immediately.

In the ordinance, it has to be two years where that's true, that the full 4% is not needed, and then the city council would be able to opine on whether they want to go down to that 3.9 or stay at the four.

So there's not an automatic lowering, does have to measure twice cut once situation.

Um, but you can see here we're actually very, very close to that.

So just to wrap up, the unfunded liability did improve uh unexpectedly.

We did not expect it to go down, but it did, which is great news: 2.41 billion down to 2.38 billion.

Funded ratio, which is just what percentage of the liabilities are covered with assets in the bank right now improved from 55% to 57%.

And we anticipate that will continue to improve as we go forward.

And then that funding period how long until that unfunded liability should be paid off was 29 years last year down to 24 this year.

Membership growth being the main story again for the third year.

So any questions or further comments on those results.

Questions or comments for Joe thank you for your presentation we appreciate it.

Thank you guys.

Next up is um Derek Dagnan who is presentation on the investment performance of the fund as CIO for the retirement fund.

Good afternoon everyone thank you to the mayor, the council and our board for having me today I'm Derek Dagna I'm the chief investment officer for for your retirement fund.

Ready?

Alright so today we'll uh we'll go a little bit over uh the plan of the investment performance and and the investment outlook following up uh Joe here GRS has done it has done a great job for us.

I know the the materials a you know a little dense and and this material is too so we'll try not to repeat uh too much information.

So so our retirement plan works very similar to any any sort of defined benefit plan.

You know you have contributions from from the employees and and the sponsor we have a board that oversees the the program sets the governance and policies and and reviews actuarial information and then staff administers the plan the two main functions are paying the benefits and and and investing the assets and you know we all have the same ultimate goal of getting the checks in the mailbox on time.

So our our any like Joe mentioned the unfunded liability that's a key issue for for any uh retirement plan you know so our contributions plus our investment returns need to eat our equal our uh liabilities uh the board and and city council have implemented a very effective plan to reduce the unfunded liability and and as Joe mentioned we are ahead of schedule at this point uh and the reason why this is important to this plan sponsor is uh in many ways is it relates to the bond rating uh and and for any bond rating agency when they review um a a miss municipality or a state and and and rate the the entity they're gonna look at the pension plan they're gonna look at the unfunded liability and they're gonna look at the contribution policy and those are the key inputs into their decision so our investment program our investment program is is over is is governed by an investment policy which is established by the board uh the key aspect of the investment program is is this strategic asset allocation and that is the asset allocation that's designed to achieve the target return and our target return is seven percent we manage the program the program is highly diversified.

It's an institutional investment management program, global exposure, liquid stocks, liquid bonds and and then riskier illiquid alternative investments that's what makes up uh what makes up the program and and the investment program is is crucial to the retirement plan overall because for any sort of pension plan typically 60 to 70 percent of the benefits that are paid the dollars that go out 67 60 to 70 percent of the dollars that go out are from the investment returns on the assets we'll talk a little bit about the uh calendar year 2025 economy we'll talk about markets uh and then we'll move into performance and an outlook going forward so uh 2025 was a a very uh resilient year.

Uh the global real GDP growth was better than expected, came in at around 2.9%.

Emerging markets led the way.

India was really strong up seven and a half, China up five.

Um when you go to developed markets like the United States, United States led developed markets up around two two percent um it was a real choppy year uh and so and there was significant shifts uh in sentiment, investment sentiment, business sentiment, consumer sentiment shifted from positive to negative to positive, but ultimately it ended up being a good year.

Um global inflation was pretty stable.

You pick the country, it's gonna end up somewhere between two and three and a half percent.

Um, and labor, a lot of other things remain solid.

Um, what was different for 2025 was the US Treasury and the yield curve.

So we have a normal yield curve today, or at the end of 2025, and that's really the first time since 2022, and that's important because the yield curve is the foundation of all finance.

The the big another big shift in 2025 was artificial intelligence.

It shifted from being a big idea into being an economic driver and a driver of markets, and it was a clear driver in the U.S.

economy and global economy.

When we shift to markets, um markets were volatile, similar to the economy, but we ended up in a really good place.

So global stocks were up around 22%.

Emerging market stocks led the way up 34%.

Um, when you look at risky bonds, high-yield bonds were up nine percent in the US, and global bonds outperformed.

Uh when you look at safe assets like uh core fixed income, they were up around 7% of the U.S., with the international markets outperforming.

And then cash still gave us a nice return of around 4%.

So very, very strong year in global markets uh in liquid assets like stocks and bonds, and uh with the with international markets outperforming U.S.

markets for 2025.

When you shift to more alternative investments, the picture's more mixed.

Commodities did not uh were performed very uh very unevenly in 2025.

Uh private markets uh performance was was fairly uneven, uh private debt performed well, infrastructure performed well, but private equity was was hit or miss, and real estate continued to be a challenge.

Uh, and so when you look at our portfolio, the biggest parts are our portfolio, stocks and bonds that did very well, and that's why um we have really good um performance in uh 2025.

Uh one thing to think, one thing to consider is the link to artificial intelligence.

It was it artificial intelligence impacts several different asset classes, it's not just stocks, and and when you look at companies or or different bonds or even real estate, you have to could be concerned with what is with the impact of artificial intelligence.

Is it a tailwind or a headwind?

Because you absolutely saw it in 2025, it continues to be the case in 2026.

So for our investment performance for the fund, your fund ended with a balance of about 3.3 billion dollars.

This is the market value at the end of December.

Um, asset allocation was overweight stocks.

Uh, we were underweight private equity.

The one-year return was was over 14%, uh, and it was driven by by stocks, but it was driven by stocks for the most part.

You can see stocks were up, our stock portfolio was up um just under 22% for for the year, but we really had good performance across the board.

Uh uh almost every asset class is doing what it's supposed to do.

And that's not usual.

So usually you have some good and some bad.

This was kind of a good story for the year.

It was all good.

So that's very positive, but but maybe not repeatable.

Um the next slide we'll look at the longer term.

So if you look over the longer term, uh three, five tenure annualized net returns, they exceed that 7% target.

We're outperforming benchmarks, and we're in line or better than other pension funds from a peer standpoint.

Today, if you look at the five-year returns for the overall fund, we're now kind of in the top quartile versus pension funds.

Uh that's a very positive outcome uh compared to uh 2020 or the years 2010 through 2020 where we were in the bottom quartile, and really what that says is that says that this board and the investment committee of the board have done a really good job of setting up a program that can achieve the best of what's out there in the opportunity set.

Because that's peer reviews aren't always like a great comparison, but it does define really what the opportunity set is.

And so we're we're doing really well compared to the opportunity set.

So over the long term, the positive.

Sorry, is there a question?

Alright.

So over the long term, the positive contributors would be what would be basically most asset classes.

But really, you know, anything risky is done well for us.

And we've done well on an absolute basis, but then also on a relative basis versus benchmarks.

On the negative side, uh real estate's been tough for about three years.

Uh it continues to be uh kind of perform under trend.

And then our stock portfolio, we're doing well uh overall, but but we're kind of underperforming benchmarks, and and so we've got some room to improve there.

So that's uh something we're definitely working on.

Um, and then while we mentioned 2025 being driven by global markets rather than US markets, um, historically over the long term, the US has really run, run uh driven markets higher uh compared to international.

Council Member Hills, you have a question.

Derek, when you talk about peer um funds that you compare as two, are those cities?

Are there the size of the fund?

Can you explain that a little bit?

Yeah, it's um uh basically every U.S.

pension fund over the over with a size greater than one, one billion dollars.

So uh and the the issue with peer comparisons is the longer the time frame, the you don't always have the same uh friends in your in your in your playground.

And so uh so there's a it's a it's a count of around a hundred pension funds.

Okay, so looking forward for this is economic and market outlook, uh 2026 and 2027, uh it's good news.

So we look at IMF, the International Monetary Fund, we look at World Bank and look at their global real GDP growth uh forecast.

And so 2026 3.1%, 2027, 3.2.

This really breaks a kind of a multi-year cycle where um all of these you know large major international um uh banks had had assumed positive GDP growth but decelerating GP GDP growth.

And so this is the first time in several years where there's actually accelerating GDP growth in the forecast.

That recognizes uh the the strength of the consumer, it recognizes the resilience of economies to kind of face some of the challenges that economies have had, you know, not just the US, but you know, Europe and Asia.

Um what we have today is from a market standpoint is very positive uh sentiment uh from an investor standpoint, consumer standpoint, um and so what comes with that is it was is very rich um valuations.

So stocks trade at all-time highs essentially, uh bonds are uh credit credit spreads are very tight, and so that means that you know risky assets are priced with a lot of optimism today.

Uh the flip side, the caveat really is the bond market.

If you look at the bond market and the US US bond market in particular, in particular, you have uh long-term treasury yields are at a basically a 30-year high at this point, and that shows there's some ex the bond market sees some elevated risk.

The bond market sees sticky inflation that that maybe the stock market's looking through, and and that's a real problem.

That's a problem for the U.S., it's a problem for any sovereign nation with a lot of debt, which is basically every sovereign nation.

Um so that's that's really the caveat to to this optimism on this on the risky side and the and the safe part of the market is saying hang on a second.

And so that's what we're we're uh looking forward we don't see a lot of risk for recession in 2026 um but but in the forecast are are very positive and and markets have priced in that positive growth the next slide is um a 10 year outlook for for our fund um we use uh serity partners are as is our investment consultant uh every year they publish what's called a capital markets outlook it has uh a 10 year forecast for returns for all kinds of different asset classes and so there's a table that shows our target allocation that's the strategic asset allocation and then the the return for those different asset classes and kind of simple math and you end up with a blended return blended return uh 10 year forward annualized return of 6.7% today you know our target seven so that's a bit of an issue now no real change from last year the the forecast a year ago was almost identical to to what it looks like today so no real change on the blended uh expected return uh so to achieve our target we have to run a uh a higher risk portfolio that's that would be the requirement to to hit the 7% that opens us up to increased volatility liquidity risk and then um risk of a of the impact of a drawdown like when when the bad news comes the fund draws down as a negative month or a negative quarter and uh and we have to recover from that so that's a key risk today and and so the reason why we're really focused on this 6.7 and can we get to 7.0 is because every time we're every 25 basis points of a shortfall on on that total return below the 7% target um it kind of equates to around a 2% increase in the in in what Joe talked about the ADEC the actual determined employer contribution rate and you know clearly we need to avoid that so in summary i know we executed on efforts to reduce the unfund line unfunded liability um the in the and the decisions made in this room with this group with this these two this bodies have been effectively implemented and they're working um 2025 was volatile uh but but it ultimately ended up being a really really strong year with the fund up 14% um and so and sitting here today there's kind of expanding economic outlook uh optimism really and a lot of that optimism is already priced into into risky markets um and so going forward in the long term the outlook is is kind of similar today as it was a year ago for our fund and uh and frankly we've we've benefited from very strong stock market in last last year but even the the previous two years um any questions about the fund the investment performance economics what we're doing what we're not doing yeah councilman flores uh thank you for that presentation I want to go back to I guess there are a few slides on this uh your uh outlook you know when it comes to uh global equities um I was trying to look up some projections on um emerging markets you know for India and China and basically my question is the administration is currently going through a lot of rigorous uh renegotiations with India and the projections show that there's gonna be an increase there I really don't know what's happening in China but in general I guess we could expect an overall decrease in uh what those projections will be for 2026 would that be a correct statement?

I mean, still room for optimism, right?

But the decrease nonetheless so um the question on on on markets, global markets uh and emerging yeah as it retains the trade policy okay um the China and and the U.S.

are in a um a a significant competition for the to try to compete or at least dominate or compete on uh artificial intelligence.

Um India has uh massive demographic tailwinds that that are that are driving it, and India is also um modernizing their legal system in a lot of ways, and that's one of the major drivers for the uh the performance of India.

Um the another major driver is currency uh so all almost all international foreign currencies appreciated versus the US dollar in the last um really 12 months because of uh the US uh tariff policy and the impacts of that.

And so the the currency appreciation is part of the driver of emerging market um stock performance and emerging market bond performance, and and that doesn't necessarily go away because of trade policy, um and but your trade policy is certainly a driver, but our trade policy has been pretty um a bit uneven, right?

It changes um periodically more more so than it used to, and so that makes it very difficult for investors to to make long-term decisions about um China or India versus the US.

But I would say one key thing about China is the valuation of of assets is a lot lower than in the U.S.

So there's there's room to grow for uh for asset valuations in China, and that's one of the main reasons why it did so well.

Any other questions or comments from board members or council?

No, thank you for the presentation.

Okay, at this time we are required by state law section 5.11 of Article 6243i of the Texas Revised Civil Statutes Code to determine or to address any of the unfunded liabilities and discuss the performance of the fund.

So that is the amount of time we have allotted here.

Are there any other discussion or follow-up items from the presentations today?

Not even you, Jim LeCamp.

Can't believe it.

Well, we've had about 32 meetings this year, so I'm kind of your meeting out, you're good to go.

Okay.

Uh anyone else.

If not, Doug, I'll turn it back over to you and we can request future agenda items and then close the meeting out.

Microphone.

Uh, see, there you go, Jim.

Go ahead.

I want to make sure everybody understands what Jared was saying about um uh projections for the uh financial markets.

And our current rate is 7%.

So it's gonna be a very challenging environment versus what we've seen over the last three years, uh, but it's something we change very seriously as we find out in every day and every uh investment.

But I just want to make sure you're not mentioning that anybody has any questions that I think understood that it's going to be a very challenging environment again moving forward versus what we've seen over the last three years.

Thank you, Jim.

Any other questions or comments for Jim or others?

Very helpful.

Um I'll just say on the closing thank you for all of you who uh spend your time and attention to be on the board.

I know that it can be tedious and very time consuming, and we are much appreciated because I think it's a reflection of the performance of the fund, having professionals and folks that really do care, um, and including our employee representatives.

We know that it's an incredible amount of time on your part too.

So we really do appreciate your service on the board.

If there are no other future agenda items or comments from council or the board, when one's going twice sold, we will call this meeting adjourned and see you next time.

Thank you.