CALSTRS July 12, 2017 Investment Committee Meeting Agenda + Items

July 2017 Meeting Investment Committee Agenda + Items

Selected Highlights of the July 12, 2017 Meeting

Jonathan Gray of Blackstone to Speak – Item 10

Real Estate Policy Revisions – Item 15

2017 – 2018 Business Plans across Plan – Item 20

Private Equity Investment Policy – Item 21

Co-Investment Plan Review – Item 22

CIO Christopher Ailman Report as of April 30, 2017 – Item 11

Includes Summer Reading List

Listed below are some of the best investment books on the market. This book list has been compiled over the years from lists of seasoned investment professionals from coast to coast.

While a long list, keep in mind that Amazon carries 110,579 books that touch on “investment” and another 258,274 that focus on money. It is very important to note, this list does not imply that CalSTRS, nor the CIO endorses any of these publications. It is merely a list of books, nothing more.

The LEGENDS of investment theory:

Benjamin Graham, The Intelligent Investor, Harper, 1949.

Graham and Dodd, Security Analysis, Harper, 1951. (The reported bible of value investing.)

Gerald Loeb, The Battle for Investment Survival, Random House, 1957. (One great idea; Put all your eggs in one basket and stare at that basket.)

John Kenneth Galbraith, The Great Crash, 1929, Houghton Mifflin, 1961. (Good study of the crash of ‘29.)

A. Frost, The Elliott Wave Principle, R. Prechter. New Classic Library: 1978. (Important to helping understand Fibonacci charts and theory of technical analysis through charting.)

Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk (John Wiley & Son) in 1996 published most of his best-known books in the last 20 years of his life.

John C. Bogle, The Little Book of Common Sense Investing: The Only Way to Guarantee Your

Fair Share of Stock Market Returns (Little Book of Big Profits), Wiley & Sons, 2007

(Amazon’s Editors top investment pick for 2007. Cap’t. John Bogle is the founder of Vanguard.)

2017 Trending Topics: Behavior Economics & Risk

Richard H. Thaler, Misbehaving: The Making of Behavioral Economics; 2015; Prof. Thaler is Professor of Economics and Behavioral Science at the University of Chicago’s Booth Graduate School of Business; an Amazon best seller.

Daniel Kahnema, Thinking Fast and Slow, 2011; Selected by the New York Times Book

Review, the UK Globe & Mail, and The Economist as one of the ten best books of 2011

Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises; History doesn’t repeat, but it hums the same tune, this provides a critical history lesson that human emotions control markets.

Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable; A New York Times bestseller that outlines the theory of randomness and unpredictable events that rock the world.

Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds, 1841; reissued by Metro Books: 2002. (An ancient classic, but still worth a read.)

William Bonner, Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, Wiley & Sons, 2007 (The most recent account of books on mob mentality, entertaining and packs a serious punch according to one review.) Modern era All-Stars:

Roger Lowenstein, When Genius Failed: The Rise and Fall of Long Term Capital Management,

Fourth Estate; New Ed edition, 2002. (Great look into the culture and history of an early hedge fund collapse that nearly took the market with it.) William N. Goetzmann, Money Changed Everything: How Finance made Civilizations

Possible, Princeton University Press, 2016. (Fascinating intellectual adventure across history in the concepts of money and human interaction, from 3000 BC to present day.)

Martin S. Fridson, It Was a Very Good Year, Wiley & Sons, 1998. (Investment history book on the great market years and their culture.)

Keith P. Ambachtsheer & Don Ezra, Pension Fund Excellence, Wiley & Sons, 1998 (one of the few books on pension governance and Trustee excellence.)

Jim Ware, Investment Leadership: Building a Winning Culture for Long-Term Success, Wiley Finance, 2003 (The best and latest book on how to lead an investment office and establish a successful culture.)

Peter L. Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street; (Free Press) in 1991.

Kate Kelly, “Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street”; Ms. Kelly who covered the saga for the Wall Street Journal captures the events like a suspense thriller.

Larry Swedroe, Wise Investing Made Simple, Charter Financial Pub Network, 2007. (Author of over 10 books on investing, this author has a popular following due to his simple style and longterm advice.)




Annual Report (for 2016) on LACERS Emerging Investment Manager Program

LACERS Emerging Manager Annual Report 2016


LACERS’ Emerging Investment Manager Policy (Policy), adopted on February 14, 2012, and revised on September 24, 2013, identifies guidelines and goals in hiring and retaining Emerging Investment Managers in order to add value to the LACERS investment portfolio. The Policy includes Emerging Investment Manager goal metrics and criteria for investment firms that wish to qualify as an Emerging Investment Manager under the Policy definition. This annual report includes information pursuant to the Policy for the year ending December 31, 2016.

The Policy reporting requirements are as follows:

  1. Names of Emerging Investment Manager firms hired.
  2. Dollar amounts awarded to Emerging Investment Managers.
  3. Report of Emerging Investment Manager Goals Metrics.
  4. List of all investment manager searches.
  5. Staff and consultant efforts to increase the visibility of LACERS investment manager searches and

    representation of Emerging Investment Managers in the LACERS investment portfolio.

  6. PerformancedataforEmergingInvestmentManagers.

Reporting Requirements 1 & 2: Names and Dollar Amounts Awarded to Emerging Investment Managers



Asset Class

Investment/ Commitment

Bain Double Impact Fund, LP


Private Equity

$10 million

Sunstone Partners I, L.P


Private Equity

$7.5 million

Asana Partners Fund I

Value Add

Real Estate

$20 million


Reporting Requirement 3: Emerging Investment Manager Goal Metrics

Policy metrics are reported along broad asset classes including those that are within the domain of public markets, or those that are within the private markets including private equity and real estate. The policy metric goal for each of the broad asset classes is 10% on an aspirational basis.

For each public market asset class, there are two metrics for measuring Emerging Investment Manager exposure: 1) Asset Class Metric: the total market value of Emerging Investment Managers within a respective asset class divided by the total market value of the respective asset class; and 2) Manager Search Metric: total of all dollars awarded to Emerging Investment Managers in a particular public asset class manager search divided by the total dollars awarded for the respective manager search.

For each private market asset class, there are two metrics for measuring Emerging Investment Manager exposure: 1) Asset Class Metric: the total committed dollars of Emerging Investment Managers within a respective asset class divided by all the dollars within that respective asset class on a market value basis; and 2) Manager Search Metric: the total of all committed capital awarded to Emerging Investment Managers of completed searches within a respective private market asset class divided by all committed capital awarded within the respective private market asset class over a 36-month rolling period ending December 31, 2016.

The following tables provide an overview of Emerging Investment Manager exposure within public markets and private markets, based on the Policy metrics:

Public Markets

Private Markets

Asset Class Metric

Note: There are no emerging investment managers under contract within Fixed Income, Credit Opportunities, or Public Real Assets.

Manager Search Metric
 No public market searches were conducted during calendar year 2016.

Asset Class

Emerging Investment Manager Exposure

U.S. Equity


Non-U.S. Equity


Asset Class

Asset Class Metric

Manager Search Metric

Private Equity



Private Real Estate



On a fund-number basis for the 36-month period ending December 31, 2016, LACERS authorized commitments to a total of eight private equity Emerging Investment Managers out of 53 private equity funds (15%) and two real estate Emerging Investment Managers out of 12 real estate funds (17%).1

1 Four of the 12 real estate funds commitments were additional commitments to existing open-ended core funds pursuant to the Real Estate Investments Fiscal Year 2015-2016 Strategic Plan.


Reporting Requirement 4: Searches Conducted in 2016
No public market searches were conducted during the calendar year.

Reporting Requirement 5: Efforts to Increase Visibility and Representation of Emerging Investment Managers


LACERS actively engages the emerging manager community to help achieve the policy objectives established by the Emerging Investment Manager Policy. During the 2016 calendar year, staff participated in the following emerging manager events:


2016 Emerging Manager Events


Consortium West


National Association of Securities Professionals


National Association of Investment Companies


New America Alliance
LOFT Institute Forum/Hispanic Heritage Foundation


Association of Asian American Investment Managers


GCM Grosvenor Emerging Manager Conference


National Association of Investment Companies Conference Green Pearl Women’s Real Estate Forum

In addition, staff regularly meets with emerging managers at LACERS’ offices. During the 2016 calendar year, staff held a total of 36 emerging manager meetings, which included discussions among the following investment asset classes: Public Markets – 25%; Private Equity – 56%; Real Estate – 19%.


LACERS retains three investment consultants. The consultant’s respective emerging manager activities for the one-year period ending December 31, 2016, are summarized below.



Meetings or Calls

Emerging Manager Conferences

Awarded to Emerging Managers

Wilshire Associates Incorporated (General)



$600.0 million/ 26 managers

Portfolio Advisors, LLC (Private Equity)



$265.5 million/ 10 managers

The Townsend Group (Real Estate)



$1.0 billion/ 9 managers

Note: The definition of “Emerging Manager” for this matrix is based on the emerging investment manager criteria unique to each consultant.


Reporting Requirement 6: Performance Data of LACERS Emerging Investment Managers (as of 12/31/2016)

Public Markets (Net-of-Fees)

One Year

Two Years

Three Years

Five Years

Since Inception

Oberweis Asset Management, Inc.2 MSCI EAFE Small Cap Index

-4.97 2.55

4.87 6.18

– –

– –

0.80 1.98

Excess Return




EAM Investors LLC3
Russell 2000 Growth Index

4.65 11.32

– –

– –

– –

5.05 12.71

Excess Return



Private Markets

Emerging Fund Managers

Vintage Year

Net IRR4

Return Multiple

Private Equity

High Road Capital Partners Fund II, LP




Blue Sea Capital Fund I, LP




Oak HC/FT L.P.




1315 Capital, L.P.




New Water Capital Partners, L.P.




Angeles Equity Partners I, L.P.




CenterGate Capital Partners I, L.P.




Bain Double Impact Fund, LP




Sunstone Partners I, L.P




Emerging Fund Managers

Vintage Year

Net IRR4

Return Multiple

Private Real Estate

Gerrity Retail Fund 2, L.P.




Asana Partners Fund I




Strategic Plan Impact Statement

The objective to hire and retain Emerging Investment Managers in order to add value to the LACERS investment portfolio is consistent with Goal IV (achieve satisfactory long-term risk adjusted investment returns). The presentation and discussion of the policy goals, metrics, manager outreach, and manager performance information is consistent with Goal V (uphold good governance practices which affirm transparency, accountability, and fiduciary duty).

This report was prepared by Barbara Sandoval, Investment Officer II, Investment Division. RJ:BF:BS:ag

2 Account funded on January 15, 2014. Manager no longer meets the LACERS definition of an emerging manager as of the fourth quarter of 2015; firm assets under management exceed $2 billion.
3 Account funded on October 1, 2015.
4 A private market fund typically yields a low or negative IRR during its early life “J Curve” period.

5 LACERS committed to fund in calendar year 2016.

ERFC Real Assets Strategic Plan

All commentary below is property of NEPC
NEPC’s Real Estate General Market Thoughts and 2017 Implementation Views
Core/REIT market environment normalized

– Real estate fundamentals (rent growth, occupancy, net absorption) remain strong; however, valuations are high on an absolute and relative basis

– Rising interest rates have been baked into existing valuations but excess cap rate expansion (beyond general expectations) will reset valuations

– REIT sector has been volatile and remain at historically high FFO multiples

• Opportunity remains in non-core strategies

– In the US, we favor managers that are attentive to duration risk at the current stage of the expansion cycle, are focused on cash flow, and may have niche areas of expertise

– Outside the US, Europe remains a relatively attractive opportunity for asset focused managers who are not making macro bets on growth. Current US-dollar denominated investors with currency exposure will feel near-term impact of Brexit, but new investors may benefit from strong US-dollar amidst asset repricing in select cities (e.g. London). Long-term Brexit implications, however, remain unclear.

Strategy Outlook Commentary


Private – 0

Hold to target allocation; focus on quality managers/portfolios in primary locations that should better navigate a downturn

Public REITs – 0

Hold to target allocation; if under-allocated leg into a target allocation to minimize entry point risk; expect high volatility in the near term


Value-Add + & Opportunistic +

Flight to quality will continue to favor US real estate, while opportunities to capitalize on distress or capital markets inefficiencies in Europe and select emerging markets will remain; emphasize more defensible demographically driven sectors vs. GDP driven sectors and watch for “emerging institutional” asset classes with high cash yields

Real Estate Debt +-

Low interest rate environment is challenging for senior loans but mezzanine strategies can offer favorable terms with downside protection

Real Estate Private Equity Secondaries

Due Diligence Report from NEPC on Landmark Real Estate Fund VIII

Report Author: NEPC

Sponsor: Landmark Realty Advisors LLC

Fund: Landmark Real Estate Fund VIII, LP

Strategy: Real Estate Private Equity Secondaries

Date: Report as of November 2016

Fund Target AUM: $2B

Fund Target IRR: 15%

Fund Target Net TVPI Multiple: 1.5x

Highlights from the NEPC report:

Firm founded in 1989;

Over $15B of capital in 1,850 underlying partnerships;

Transacted in first secondary deal in RE sector in 1996;

Greater than $4.1 billion of capital in over 100 transactions, representing 350 different partnership interests.

NEPC believes RE secondaries attractive due to three pillars:

  1. Hyper-diversification
  2. J-curve mitigation
  3. Ability to acquire interests at a discount to intrinsic value

Additionally, NEPC believes growth and acceptance of RE secondaries market is such that opportunity exceeds capital available, leading to supply and demand imbalance which bodes well for investors.

According to NEPC, Landmark’s strong reputation and experience in the industry positions the Firm at the top tier when sellers need liquidity or a recapitalization.

CALSTRS Investment Committee Meeting April 5, 2017 Board Materials

Asset Class Policy Revisions – First Reading

Chief Investment Officer’s Report

ESG:21 Risk Factors Policy Rewrite

Fiscal Year 2017-2018 Work Plan Discussion

Investment Beliefs Statement

Private Equity – Semi-Annual Performance Report Period Ending Sept. 30, 2016

Real Estate – Semi-Annual Performance Report, Period Ending Sept. 30, 2016

Private Equity Policy Revision – First Reading


Investment Advisory Committee Meeting State of Michigan Retirement Systems March 9, 2017

Investment Advisory Committee Meeting March 9, 2017

Investment Performance

Org Chart Investment Staff


Basket Clause Review and Disclaimer

Absolute and Real Return Review

Executive Summary and New Commitments

Private Equity Review

Domestic Equity

Fixed Income Review

Asset Allocation Review

International Equity Review

Agenda and Minutes IAC Meeting March 9, 2017

Markets Review and Outlook

Real Estate and Infrastructure Review

March 14-16, 2017 Meeting of the Regents of the University of California


Endowment Investment Review as of December 31, 2016


Pension Investment Review as of December 31, 2016

The Regents of the University of California


UC Retirement Savings Program as of December 30, 2016

University of California Executive Summary UPDATE ON INVESTMENT PRODUCTS

Working Capital Investment Review as of December 31, 2016

February 28, 2017 New Mexico State Investment Council Meeting