Why the P&F System is
Unique
...and our decade-long odyssey to reduce risk while
generating a competitive return...
3/24/2023 Board & City Council 1
2b
Disclaimer
• The following slides are just Drew’s journey since he joined the board in 2011
• They do not represent the thinking of his fellow board members, or staff, or consultants
3/24/2023 Board & City Council 2
A Brief, One-Act Play
3/24/2023 Board & City Council 3
Please meet the Sanjose family...
Federa
Fed system
Grandparents
City Council
Pif
P&F system
Dad
Fed board
Mom
P&F board
and the local
workers of the
pensionsystem
school district:
Principal
Consultant
(Verus)
Pif’s tutor
Alpha
and the
elusive
tutor,
Alpha:Teacher
Actuary
(Cheiron)
Fed board
actuary
P&F board
1st Parent Teacher Conference in 2011
3/24/2023 Board & City Council 4
Hi, mom and dad,
nice to meet you
... I have some
good news and
some bad news...
I take care of
Federa’s school
issues ... is this
about her?
...and I take care
of Pif’s school
issues ... is this
about him?
Fed board
actuary
P&F board
1st Parent Teacher Conference in 2011
3/24/2023 Board & City Council 5
PIF isn’t normal ...
he’s different
from all the other
pension plans I
have as students
Is Federa normal?
How is Pif
different?
Fed board
actuary
P&F board
1st Parent Teacher Conference in 2011
3/24/2023 Board & City Council 6
Federa is a little
underfunded, but she’s
otherwise normal, Pif,
however, suffers from a
rare, congenital
disorder – the most
extreme I’ve ever seen
We know Federa
is underfunded
and we’re working
hard to get her
fully funded
What’s Pif ’s
problem??
Fed board
actuary
P&F board
1st Parent Teacher Conference in 2011
3/24/2023 Board & City Council 7
I’ll show you the chart next, but Pif
is abnormally sensitive to his
grandparents well being and his
GPA (discount rate) suffers because
of that We’re standing by
ready to help
Please show us
the chart
actuary
1st Parent Teacher Conference in 2011
3/24/2023 Board & City Council 8
This chart shows that
Pif is an extreme
outlier...
Pif
1st Parent Teacher Conference in 2011
3/24/2023 Board & City Council 9
I’m Federa – my chart on the
previous page is normal – it’s
my brother, Pif, who’s the
weirdo. But I admit I’m
underfunded
Fed system
Federa
actuary
1st Parent Teacher Conference in 2011
3/24/2023 Board & City Council 10
Pif makes up for that increased
sensitivity to his grandparents by
accepting a lower GPA (discount
rate) than his peers
peer median discount rate = 7%
Fed board
actuary
P&F board
2nd Parent Teacher Conference in 2012
3/24/2023 Board & City Council 11
Have you
considered how
to help Pif get his
grades (discount
rate) up?
Yes, we have, but
we’ve decided his
grandparents
come first and his
grades (discount
rate) second
We’re going to look for a
tutor to help him keep up
with his peers ... his name
is Alpha, ever heard of
him?
Fed board
actuary
P&F board
3rd Parent Teacher Conference in 2014-16
3/24/2023 Board & City Council 12
I’ve heard of
Alpha, but I’ve
never met him ...
are you sure you
can find him? Will
the grandparents
support him?
Not sure. We’ve asked
the grandparents
permission to try and
they’re supportive
(Measure G)
We’re going to
hire a private
investigator called
Prabhu Pilani to
find Alpha
consultant
P&F boardFed board
4th Parent Teacher Conference in 2018
3/24/2023 Board & City Council 13
I’m the principal
... I hear you’ve
found Alpha! How
can I help?
We understand
that you’re an
expert in Alpha’s
subject area
Can you please
help us to set a
learning plan for
Alpha and Pif?
4th Parent Teacher Conference in 2018
3/24/2023 Board & City Council 14
consultant
Let’s pick a target for the
core portfolio that makes
San Jose hurt no more than
its peers in an economic
downturn
4th Parent Teacher Conference in 2018
3/24/2023 Board & City Council 15
As you can see from the previous slide, Pif will be
‘normal’ with respect to his grandparents if we set
his vol to 12%, but that will cause him to have a
lower GPA than his peers
(same effect on San Jose as the city’s peers in a
downturn by having a less risky [i.e. lower] discount
rate)
consultant
4th Parent Teacher Conference in 2018
3/24/2023 Board & City Council 16
Hi, Pif, I’m your new
tutor ... your parents
went looking for me and
Prabhu found me
Alpha
Hi, Alpha, my disability doesn’t
bother me because I love and want
to make sure my grandparents are
cared for, but it causes me to have
lower grades which bugs my parents
and grandparents, can you help me
to get better grades while still caring
for my grandparents?
P&F system
4th Parent Teacher Conference in 2018
3/24/2023 Board & City Council 17
Yes, I think so – your report card will
continue to show lower grades in
core subjects but higher grades in
electives we’ll have you start taking
and your combined GPA should
match that of your peers
Alpha
But I’ll still be just as good
to my grandparents?
P&F system
4th Parent Teacher Conference in 2018
3/24/2023 Board & City Council 18
Yes, Pif, your poor grades in core
subjects will give you the time to
care for your grandparents while
your great grades in electives will
allow you to match the GPA of
your peers
This sounds too good to be true... the
principal has already told my parents
what grades I need to aim for in my core
subjects and I’ll rely on you to tell me
what my grades need to be in electives
to give me a median GPA
Alpha P&F system
4th Parent Teacher Conference in 2018
3/24/2023 Board & City Council 19
Here’s the magic – a lower rate
core portfolio keeps the city as
secure as its peers in a downturn
but our hard-working staff adds a
tiny bit of alpha on top so that our
discount rate matches those of
our peers
Alpha
peer median discount rate = 7%
5th Parent Teacher Conference in 2021
3/24/2023 Board & City Council 20
We’ve succeeded! Pif’s still supporting his
grandparents by maintaining lower grades in core
subjects but my tutoring has allowed him to get good
enough grades in his electives that his GPA could now
be on par with his peers
Alpha
Fed board
actuary
P&F board
5th Parent Teacher Conference in 2021
3/24/2023 Board & City Council 21
I have great news,
Alpha has worked
wonders and now
Pif’s GPA could
keep up with his
peers, despite his
handicap Yes, and Federa is
doing better, too
But we’re worried
about keeping
Alpha ... he’s
elusive and
expensive
consultant
P&F boardFed board
6th Parent Teacher Conference in 2022
3/24/2023 Board & City Council 22
Alpha keeps
helping Pif ... Pif’s
GPA could now be
in line with his
peers
Yes, and Pif’s still
as sensitive as
always to his
grandparents
We plan to keep Alpha -
if Pif keeps this up, who
knows, he could be even
more sensitive to his
grandparents while still
having a GPA like his
peers
city council
Fed board
P&F board
Fed board
6th Parent Teacher Conference in 2022
3/24/2023 Board & City Council 23
We’re so happy
for Pif, that report
card you gave us
last year blew us
away, how can we
help?
Yes, he was near
the top of his
pension system
peers
We credit it all to
Alpha and to your
and our good
parenting, but we
may need your
help to keep
Alpha around
city council
P&F board
P&F system
7% discount rate
6.5% core portfolio
What’s at Stake? Phase One (2025?)
3/24/2023 Board & City Council 24
We get to see Pif
all the time and
he supports us as
he always has but
now his grades
match those of his
peers
Alpha’s still tutoring Pif,
without him Pif couldn’t
support you in the manner
you’ve grown accustomed to
AND still have a good GPA
I know this seems
impossible but it’s true – I
fully support my
grandparents AND my
GPA now matches my
peers
At a parent teacher conference in a few years...
P&F system
I started out unlike my peers but mom
and dad found Alpha and now I take
even better care of my grandparents – I
could get better grades than my peers
but I’ve decided to use that energy to
help my grandparents instead
city council
P&F board
What’s at Stake? Phase Two (2030?)
3/24/2023 Board & City Council 25
At a parent teacher conference in the far future...
Pif is better to us
than ever before
and his grades are
still in the middle
of his peers
Alpha’s still
tutoring Pif,
and they’re a
strong team
7% discount rate
6% core portfolio