All right.

Good afternoon, everybody, and welcome to the Administration, Investment, and Fiscal

Management Board 1 p.m. meeting.

Before we take the role, I do want to welcome and acknowledge our newest board member, Michael

Tamayo, so thank you for serving, and Mr. Clerk, can you take the role, please?

Thank you, Chair.

Members, please unmute your microphones.

Member Tamayo?

Present.

Member Colville?

Here.

Vice Chair Zemanudin is absent.

Member O'Toole?

Here.

And Chair Coletto?

Here.

Thank you.

We have a quorum.

All right.

Let's start with the land acknowledgments, so please rise for the opening acknowledgments

in honor of Sacramento's indigenous people and tribal lands.

To the original people of this land, the Nisenan people, the Southern Maidu, Valley and Plains

Miwok, Putwin-Wintoon peoples, and the people of the Wilton Rancheria, Sacramento's only federally

recognized tribe.

May we acknowledge and honor the native people who came before us and still walk beside us

today on these ancestral lands by choosing to gather today in the active practice of

acknowledgement and appreciation for Sacramento's indigenous peoples' histories, contributions,

and lives.

Thank you.

So we'll turn to the pledge.

Salute.

Pledge.

I pledge allegiance to the flag of the United States of America and to the republic for

which it stands, one nation, under God, indivisible, with liberty and justice for all.

Okay.

Well, thanks.

First, let's take up the consent calendar.

So...

Do we have a second?

Second.

Second by O'Toole.

Do we have any public comment?

Thank you, Chair.

I have no speaker slips.

Are there any member comments or questions?

No?

So let's take a vote.

Can all in favor say aye?

Can we do that with one person out here?

I'm not sure.

We can?

We can do a roll call.

To the attorney, I believe we can do a voice vote with an absent member.

I believe so, too.

Okay.

But I would assume you can, so go ahead.

All right.

Okay.

These are just for the minutes and the receiving files.

None opposed.

No abstentions.

So let's move on to our discussion calendar.

So item number eight, Siegel Macro Advisors Quarterly Investment Performance Report.

All right.

Hello, everybody.

Let me get our report up.

So as usual, this is a report ending last quarter, so ending March 31st.

I'll talk a little bit, as Stacy will, too, I'm sure, about what's happened since then.

And we continue to be in very, very volatile times.

But the first thing to note about last quarter is that it was almost the exact opposite of pretty much all of last year.

You can see here U.S. stocks, the S&P 500, down over 4% in the quarter after having been up 25% last year.

In fact, the last two, each of the last two years.

International stocks developed markets up almost 7%.

They were up, you know, mid-single digits last year, but did even better than that in one quarter this year.

Emerging markets up almost three.

And further to that, if you look here in the table at the top, the Russell 1000 growth, Russell 1000 value.

So those are the large cap indices.

The growth index is where all the big tech companies are, the magnificent seven that dominated returns last year in what was a very concentrated market.

Well, that index was down 10% in the first quarter of this year.

And you've seen in the press Tesla, which is one of those companies under quite a bit of pressure.

NVIDIA, one of those companies, was down 17% in one day in January, I believe.

Now, some of that's recovered since then.

But you can see the value index was actually up 2%.

So that's oil companies, utilities, you know, more defensive type stocks.

Again, very different than what we had seen last year.

And I think we'll see that reflected in the performance in a minute.

I want to skip ahead a couple pages.

Here are the yield curves on the upper right.

The green line is where we ended March.

The yellow line is where we had been at the end of last year.

So except at the very short end, rates generally fell during the first quarter.

The Fed obviously has not made any moves since December.

They had done a 50 basis point cut in September, 25 cut in November, 25 cut in December.

Been sitting still since.

And their meeting last week, they continued to sit still.

I think they're very much in wait and see mode.

What kind of data they're going to get on inflation, perhaps due to tariffs.

And economic impacts.

So they're standing pat right now.

There's still expectations in the marketplace for, you know, maybe a couple cuts this year.

But they want more data, basically.

But with rates having fallen in the market, even with the Fed not actively doing anything,

that leads to positive bond market performance.

So we've seen the last three quarters have been really volatile in the bond market, unusually volatile.

The third quarter of last year was a very good quarter for bonds.

Interest rates dropped pretty sharply.

I think the bond index, the aggregate index, the broad market index, was up something like 5% in the third quarter of last year.

But then gave back about 3% in the fourth quarter as rates rose.

Well, with rates falling, here we go.

Almost 3% positive return in the broad market index for the quarter.

Again, since then, rates have come back up a little bit.

So maybe a percent or so of that has been given back since the end of the quarter.

But still, that's pretty dramatic performance for bonds.

Almost 3% in one quarter is unusual.

But we've had three consecutive quarters of numbers like that or bigger.

And it's that bond market volatility.

You hear people talk about maybe one of the reasons why there's been some backing off on some of the tariffs has been because of the bond market.

And it's clearly being reflected in the volatility within that market.

So with that backdrop, let me skip ahead a few pages.

Here's the portfolio as of the end of December on the right and March on the left.

You can see the value at the top, just over $250 million at the end of March, down slightly from end of December,

despite actually positive returns, as we'll see in a moment.

And you can see the allocations at the bottom to the various asset classes.

Another view of the allocations, just in dollar terms, how much is where.

And then here are the allocations relative to the policy targets.

Everything's pretty close.

Fixed income over the quarter actually increased on a relative basis.

Most of that's just due to relative performance versus domestic equity.

With domestic equity down a few percent and fixed income up.

And then performance is here.

So I mentioned it was actually positive, 0.4% for the quarter.

And so for the first nine months of the fiscal year, 5.6%.

Given what's happened since the end of March.

April, interestingly, while very volatile, you remember Liberation Day, the tariff announcements, that was April 2nd, I think.

And the stock market, U.S. market, was down sharply for about two days.

And then a couple days later, went up by 9% in one day.

So, again, huge volatility.

Still pretty weak for about the first three weeks of April overall.

But since then, the U.S. market has been trending up pretty sharply.

And I think it's up again today.

So, having said that, I think your fiscal year to date number, as we sit here today, I'm pretty sure is above 6%.

Thanks to really the last two or three weeks in the U.S. stock market.

In terms of the quarter, you can see the various components.

So, the large-cap growth portfolio, less exposure to the Magnificent Seven.

So, down but not as much as the index.

The equity income portfolio, that's the value portfolio up, pretty much in line with the benchmark.

And then fixed income down at the bottom, you can see up 2.5% in the quarter.

Another interesting thing about the first quarter was that treasuries actually outperformed most other sectors of the bond market.

Usually, the higher-yielding sectors will produce better performance over time.

That's corporates and mortgages and that sort of thing.

But in this environment, it was treasuries leading the way.

So, that's really all I had to say.

I think this is very much in line with what I would have expected to see, given the nature of this portfolio.

Stacey had asked me, you know, how does this compare to other clients I work with?

This is actually better than most.

Most of my pension fund clients down, you know, half a percent to one and a half percent in the first quarter.

I think that's largely due to a couple things.

One is, you've got 40% fixed income in this portfolio.

Most of the plans I work with have less than that.

So, that definitely helped in this quarter.

And then just the nature of the equities.

Having that kind of defensive equity income piece in there also was beneficial.

So, I think everything's going fine.

Questions?

You have a question for you.

It seems like, you know, in the past there was these asset classes weren't so correlated.

And what are you seeing other clients doing or putting into different asset classes to try to get some defensive?

I mean, when bonds and equities move in the same direction, you're kind of losing your diversification ability to mute some of this volatility.

Yeah.

One of the great things about the first quarter, even though the U.S. stock market was down, was diversification worked.

Because bonds were up.

And if you had international stocks, they were up.

Last year, all you wanted was to own those few big tech companies and let them run.

You didn't want to take any money off the table.

You didn't want to rebalance.

You didn't want to diversify.

But, you know, that's not the way things work over time.

Diversification matters.

So, being able to rebalance to policy targets, kind of sell high and buy low, that's a valuable thing to do.

And it was, to me, it was refreshing to see in the first quarter, oh, yeah, okay, there's some issues in the stock market, but the bonds are doing well.

Now, so far this quarter, that's flipped back around.

Stocks are doing well.

Bonds are down a little bit.

But it's just nice to see not everything moving in lockstep one way or the other.

Yeah.

That was 2022 when everything was down, really ugly.

We don't want to go through that again.

Do we have any other member questions or comments?

Glad to hear we're where you thought we would be now, even though it's been a wild ride since April 2nd to get there.

So that's great.

Mr. Clerk, do we have any public comment?

Thank you, Chair.

I have none.

Can I have a motion?

I'll move approval.

Good.

Moved.

Seconded.

Seconded.

All in favor, please say aye.

Aye.

Aye.

Opposed?

Abstentions?

All right.

Passes unanimously.

The next item is item number nine, the SCURS quarterly investment report for March 2025.

Thank you.

Good afternoon.

I just wanted to mention a few broad things before I jump into some of the slides here.

As we look back, as Jeff mentioned, that most of these reports are going to reflect March 31st, so it completely eliminates what happened in April.

April was absolutely nauseating to watch, to be perfectly honest.

I think I mentioned to John that if you had left the country and gone on a vacation March 30th and came back April 30th, you may have wondered what all the fuss was about.

But having to watch that with what we do, not only every day, but every moment, and waiting for the next headline to drop was really, really a difficult month to manage.

We did have operating needs during the month, and we had a bond mature in the fixed fund.

Normally, I would never use those funds for operating, but I chose to do that knowing I could refill it at a later date because I didn't want to be a forced seller in these markets during all the volatility.

So we were able to sidestep having to be a seller in these markets.

So going forward, we will obviously have to keep looking at operating.

We did take proactively a little bit of the international off the table in advance of the asset allocation discussion we'll have in a little while, and added that over to the fixed fund.

The fixed fund's currently yielding over 4%, and now that it's almost $100 million, it's issuing over $4 million of income a year.

So we view that as probably the most important piece of this portfolio moving forward.

Okay, so Jeff has pulled up the options for me.

I just wanted to update everybody on the options.

Through the end of April, the option program was up 0.34%, which was a nice boost to the portfolio.

It's been really small, just doing little things here and there.

And then with everything that started happening at the end of March and beginning of April, I was very wary of putting new options on because I felt like it could snap all the way back.

But I did do a couple, and they have completely come back and come through.

So I am actually booking losses today and tomorrow.

We won't get rid of all the gains for the year, but it was exactly as I was concerned about.

The total amount that we wrote in options was $5 million notional value, so a very, very small portion of the portfolio.

So as I think I've mentioned at the other meetings, I don't view this as an important part of the portfolio as it was even probably three to five years ago.

So that's, hopefully we're going to end the year on a positive, but the last 48 hours the market has really just taken off.

We did write on semiconductors in mid-April, and they have moved 23% in three and a half weeks.

So it's really hard to write appropriately when you have moves of that nature.

Okay.

I wanted to talk about the risk in the portfolio.

Overall, if you can pull up 26 on your page.

Overall, our risk in the domestic equities is much lower than the S&P 500 and even in our benchmark index.

As Jeff said, it's really, the S&P is really driven by 10 names, and those 10 names now make up 36% of the S&P.

So I strongly believe that the S&P 500 is no longer a diversified benchmark.

We have had Siegel study different benchmarks, and we have failed to come up with an alternative.

So we just kind of have what we have right now.

We choose not to buy, in addition to the fund, we choose not to add on individual names that have those really high beta quality attached to them.

So while out of that top 10 we will own things like Amazon, and we'll own Google, we won't own outright things like NVIDIA and Tesla.

As Jeff mentioned, there was a day where NVIDIA was down 17%, and I don't think that those are the type of funds that are appropriate for this portfolio.

So as a result, when the market's really charging upwards, we're always going to underperform, and in the reverse, when things are softer, we're always going to outperform, which is what you saw in the first quarter.

So we would always be looking for an alternative benchmark, but at this point, I don't think that there's really any options on the table.

So I just wanted you guys to be aware of it.

If we're underperforming the S&P 500, it is completely attributable to our underweighting of those high beta names.

And then the last thing I wanted to touch on was the fixed portfolio.

We continue to be short maturity, short duration.

As new funds are coming in and being allocated, we're more comfortable now looking out on the 7-10 year horizon.

For a long time, the curve was so flat and even somewhat inverted in some portions of it, it really didn't make sense to go longer on the curve.

But now we have seen that start to stabilize, and we can conceivably get paid appropriately to go out longer on the curve.

So as we continue to get funds, and if we go forward with the asset allocation, which is the next item, we'll look to fill in that 7-10 bucket.

As you can see on that slide up there, we are in blue.

So that's the most significant underweight we have in our portfolio versus the benchmark.

So that's all I have for the quarterly review, if you have any questions.

Do we have any member questions or comments?

I'll just do a quick one.

I'm looking at the total plan performance summary and the large cap growth, the negative trend down there.

I know you just mentioned benchmarks, but I'm just curious, can you put that in any other context for, sorry, the page number is four?

I'm sorry, what was the page number?

Page four.

Page four.

Oh, are you in this item or are you in the next item?

I'm sorry.

I go off Jeff's, but I can pull apart.

I thought it was the same item.

Asks under management, total plan, performance summary.

But you're under item number, the second item on the discussion calendar.

I believe it is.

Yeah.

Let me just go to that page, because we're on, I use Jeff's, which is the first item.

Let me pull that up for you there.

Yeah.

Yeah, that one.

Is this one?

That's it.

Yep.

Okay.

And I'm sorry, what was your question again?

Oh, I was just asking the large cap growth decline there.

I was just, was there a reference or a benchmark that you could sort of comment how we did relative to others?

Oh, yeah.

So you're talking about, so on the left we have 2024, the end where it was 75 million?

Yep.

And on the right, 70 million.

So we, so we did withdraw 1.4 million out of that.

So we probably took some for operating.

I don't, we did do some operating raise in February, as I mentioned, before the market kind of got crazy.

So the decrease there is going to be a combination of the withdrawals for operating and then the just softer market performance.

On Jeff's report here that goes over the returns, the S&P for that time period was negative 4.6%.

And so our portfolio was negative 3.8%.

So obviously we're down.

But we outperformed the benchmark by 80 basis points in that quarter.

So, and part of the reason we probably did a little better is I did take funds off the table in February.

In February things were still looking pretty good.

Even into the beginning of March things didn't look terrible.

So selling in that fund and selling in the international fund really helped us to not participate as much in the downward swings.

Let's put it that way.

Does that answer your question?

Thank you.

I have a question for you, Stacey.

How far out on the bond horizon would you look to invest in?

How far would you feel comfortable given the maturity of the portfolio?

I mean, are we looking, would you buy 15-year bonds?

Would you buy 20-year bonds?

I think 7 to 10 years seems pretty appropriate still.

You know, our curve doesn't look straight up, right?

In the old days when a curve went straight up, you were really paid to go farther out on the curve.

Our curve is much more modest now.

So I think that you don't need to be in the front end.

It's not the same now.

If you go 3, 5, 7, 10 years, you do get paid.

Beyond that, I feel like, you know, with this plan, we really don't know what the long term,

even though our actuary says it's a 50-year plan,

I feel like this plan needs to be reevaluated every 3 to 5 years for its ultimate,

where it's ultimately going.

So I would say I wouldn't go past 10, I would definitely not go past 15 years.

Let's put it that way.

And that's based on both the yield curve and the trajectory of the plan?

Correct.

Okay.

Yep.

And you know why I asked this question.

Are there any other member comments or questions?

I appreciate the strategic cash flow management not making us a distressed seller.

So it's definitely a good thing.

Do we have any members of the public who wish to comment?

Thank you, Chair.

I have no slips.

Okay.

Can I get a motion?

Moved.

Seconded.

All in favor say aye.

Aye.

Opposed?

Abstentions?

Passes unanimously.

So let's move to item number 10, the SCRS fiscal year 2526 asset allocation policy.

Thank you.

So every year we go through an asset allocation study.

We look at the plan and we work with Siegel

and they create a report that shows the projected 10 and 20 year returns on the portfolio as is.

And on the portfolio, if we are going to make any changes, we communicate that with them

and they'll run those hypotheticals both ways.

So at the end of the item is Jeff Siegel's report and we asked them to look at the portfolio if we took 2.5% out of international and added that to our fixed fund.

So having Jeff run that on his document, he showed a long-term 20 year return between 6.1% and 6.7%.

So really what we're looking at is if we add more money to the fixed fund and take that out of equities, does it hurt us?

Does it hinder our ability to hit our actuarial return of 6%?

And so according to their studies, it would not.

So staff is suggesting that we take that 2.5% out of international fund, put it into the fixed fund, reinvest it at the what is right now higher interest rates than we had seen over the last few years.

That would take the international bucket to a 0% allocation.

However, we do have the ability to move between the bands, which is in the policy, up to 5%.

So if, as we saw in the first quarter, because there was a lot of unknown in the domestic markets, international markets did much better.

So having that ability to go back up to 5%, taking the fund down to 0% would not preclude us from adding funds to the international sector

if at some point in the future we deemed that would be the direction we would want to go.

That's it.

Thank you.

Do we have any, Council Member, comments or questions?

Member Colville?

Yeah, I was wondering, Jeff, why would you attribute the outperformance in non-U.S. markets?

I mean, was it just kind of a reflex to get away from Trump and his tariff?

Because it's not like non-U.S. economies are growing as fast as the U.S.

I mean, what would you attribute that?

Just a result?

Well, there's two main things.

One is currencies.

The U.S. dollar has weakened pretty substantially.

So those foreign company earnings in foreign currencies are worth more.

So that's a big part of it right there.

The other is more nuanced somewhat.

But a lot of the best performers have actually been in Europe and especially in things like the defense sector.

Because with the Ukraine situation, the markets are saying, okay, European defense spending is going to go up.

And they're going to use their local companies to produce stuff.

So I think there's a German company, Rheinmetall or something like that, that was maybe the best performer, one of the best performers.

Because markets are saying, okay, they're going to be getting more business.

And the U.S. sort of backing away in some sense from Ukraine has benefited those.

So that's a pretty specific item.

But you definitely saw that in the quarter.

I think the currency was the biggest reason.

But just also, you know, some U.S. companies not looking as attractive if tariffs are going to hit.

Is there an alternative somewhere else?

So any other member comments or questions?

You know, I'll just say I'm given the disposition of our plan where the bond market is.

I'm fully in favor of taking a little bit of risk off the table.

So I appreciate the proposed asset allocation.

Can I get a motion?

I'll move the approval.

So moved.

Second?

I'll second.

Okay.

Seconded.

So all in favor, please say aye.

Aye.

Opposed?

Abstentions?

Passes unanimously.

So the next item on the agenda are member comments, ideas, and questions.

For the record, we had no public comments on item 10.

Oh, sorry.

Thank you, Jacob.

I hate to monopolize the questions, but this is again to you, Jeff.

Are you seeing a lot of corporate governance restrictions on portfolios from oversight committees?

I mean, specifically, you know, CalPERS is ex-tobacco.

And they also, there's a big push for ex-fossil fuels.

And most recently had a conversation about ex-defense stocks.

Are you seeing that played out?

And are you seeing as an, what would you explain someone's fiduciary responsibility versus that?

And are you seeing muted returns because people are having to avoid investing in that and creating diversification issues?

The short answer to your question is no.

We are not seeing it.

Occasionally, a question will come up.

I got one a few months ago from a client where some of the participants in the plan had raised a concern about weapons being sold to Israel and, you know, what about divesting from companies who do that?

And so we looked into that issue for them.

They didn't do anything.

The one area, and this is just the nature of some of the clients that I work with, I've got a few sort of religious-type institutions that have, do have some restrictions on their portfolios in line with their faith-based beliefs.

And that, it's different depending on the institution.

One of the institution's fossil fuels is a really big deal for them.

So they've actually made an effort.

They're not completely out, but they've made an effort to avoid fossil fuels.

So I'm meeting with them in a couple weeks.

I can tell you right now they're going to underperform in the first quarter because I've said energy, you know, was like the best-performing sector.

And they know it, and they're willing to live with that.

But their board has said, you know, we want to avoid this as much as possible.

Others in that vein, some Catholic institutions, there are certain health care companies involved with abortion or stem cell research or whatever it may be that they exclude those.

And again, sometimes that helps, sometimes that hurts.

But, you know, those are kind of very specific to those particular clients.

But even the public fund clients that I work with, really, that issue has not come up on any of the topics.

Thank you.

Okay.

Do we have any other member comment, questions, suggestions?

No?

Are there any public comments for matters not on the agenda?

Thank you, Chair.

I have no public comment for matters not on the agenda.

Great.

Well, that concludes the meeting.

We are adjourned.

Thank you, everyone.

Good evening.

Thank you.

Shut up.

So

we leave there, man.

Thanks, Mama.

Go together.

Thank you.

Thank you.