Board of Investment Commissioners 9/24/2026

The three of Providence Board of Investment Commissioners meeting to order it on Thursday, 09/24/2026. On that number, please call on hold. Chairman, Mayor Smiley is absent. Vice Chairman Siberia? Present.

City of charge, husband?

Present.

Councilwoman Ryan is absent. Mister Costello? Absent, mister Hirsch? Here. Mister O'Keefe?

Here. Forward present. Three absent. We have four. Perfect.

So you're out of line one. That's what performance analysis. I'll hand it over to Julian Green. Take attention.

Thank you very much. Good afternoon, Randall. Are going to review start as we always do, actually, on page one of the report titled City Province Employee Returning System Investment Performance, 08/31/2026. And page one is just a snapshot of the market and economic environment through the end of the so the more detailed report will be more of you in the age of the time. But as the Board of Investment Commissioner, I'd like to recall, I was just pretty strong with with the markets.

Our public equities were positive. Bonds were flat, but public equities were positive. A lot of that was because corporate profits reported by public trade companies in The US for the second quarter of twenty twenty six. We're actually at 53% year over year, which is pretty incredible. So the very good profit moves, which more or less offset the tough moves in terms of the conflict with Iran, high energy prices, concerns about interest rates, and the bond market.

And the bond market is very much front and center today, which is September 24. So the bottom line is in the through for the first eight months of calendar year, equity returns, the returns that they the equity indexes that the retirement system is invested against range anywhere from 14.4% in the S and P 500 to 17.4% for small gap stocks. That's through Russell two thousand. So 20.2%, my apologies. With the Russell two thousand, I should say 13.1 for the S and P 500 through through the end of August, and international stocks were also positive.

Subsequently, little bit of backtracking in small cap stocks. Large cap stocks have been favorable. If we think about interest rates, interest rates very much in the mood because of energy prices, outstanding government debt being in focus. One good part of it is that one of the yields, thirty year treasury yields reached its highest level, I believe, since 2004 today at over 5.4% because we have strong bonds. So notwithstanding all these challenges, we're shipping tougher bonds, resulting in a flat return to negative return to bonds.

When bond yields go up, bond prices go down. Good environment for stocks, two general buyers. And if we go to the report itself, just to keep things moving, in the August environment, things three, we'll tell the real investment in interest and honest nature, we can see that the market value for the retirement system portfolio at the end of the month was around that, just a little bit here, 698,800,000. And full comps, as you can see, in that modest investment environment or market environment that I just described, the return was 1.8%. And that growth was from equities, which returned over 2% into your portfolio as well as hedge funds, which also contributed, whereas bonds were more than flat.

If you look six columns to the left hand side, you can see year to date return. This is calendar year thing. Yeah. Of course, 10.3% trailing the benchmark index. But if you look one one column to the left, you can see for the quarter of the date in plain English the last three three months, you've actually had some outperformance.

So early in the year, a little bit of underperformance. Some of that is persisted with two of your public equity managers. We'll call small cap value, sometimes called the loss in partners, mid cap value. But I will point out that their returns have been in the teens. You can see their returns.

Those returns at the middle part of the bottom of the page, year to date, but they trail a benchmark index. Importantly, those two firms, since you hired them, they have outperformed their benchmark index net of fees. Public equities, and I'll let Peter speak to the financial reconciliation as well as the allocations. I should make the point that at the end of the period, public equities were approximately 66.9% of the total portfolio. The return for the total public equity portfolio was 14% and in line with the market environment.

The small cap stock portfolio was the best performing sub asset. Go to the next page, Page four. If you go to fixed income, fixed income at the end of the balance reporting period account for 18.6% of total portfolio assets, as I mentioned before. Tough environment for fixed income. Actually, there's a modest and positive return of the two tenths of percent in a month.

The return of the year to date, the tenth percent. So, again, if you think about the bond market, the yields on a bond that one of your bond managers, let's say, Lewis Sales buys today might be around 5% Mhmm. If it's in line of the market. The dilemma is that when you have to go up, the price goes down. So what you've had is the decline in bond prices more or less offsetting those yields.

The good news is those yields are meaningful going forward in terms of providing an expected return. And finally, on page five, we will walk up being formed by this report. You can see the hedge fund portfolio, only 7% of the assets. The return to the hedge fund portfolio, just highlight year to date, £6 and 9%. Some outperformance there also contributed to in the last few months.

And then you could see cash. 7.5% of the portfolio, I'll let Peter speak to that. That's from contributions to the fund. Interestingly enough, with the Fed hiking interest rates again and with interest rates being sticky on the upside along with inflation, contrary to what a lot of economists and market watchers would have expected, say, six months ago or twelve months ago when they were expecting rates to come down, they would expect that cash will also be yielding a more modest number. There is some generation of turnoff debt.

But Peter should speak to that momentarily. So that's in for the for the performance of the fund. Again, 10.3 calendar year to date ending the period with six hundred nine weeks and $8,000,000. If you go to page six, I'm not sure if you have page six or seven.

David, this financial reconciliation really focused on month of August. Portfolio began the month that I think

a bit over $646,000,000.

Mhmm. In the contribution column, so see the contributions during the plan of roughly $48,000,000 has occurred August. Less the pension payroll distribution of $8,000,000, I think we have a net contribution of about $40,000,000. You know, with the return positive for the month, that that means that the investment return approximated $11,000,000. And, again, with the number of sixty ninety eight point seven, which is frustratingly low, below our $700,000,000 target.

Yeah. Any questions about that? I could probably stop there and see if there's any other questions about the Florence or Mhmm.

I have a couple of just

Yes, sir.

You have any concern about any concentration in any of our

investments relative to targets some of them are off?

So the portfolio is very close to its targets. The I'm talking about the individual investments. Individual investments. So are you talking about individual managers

in the portfolio? Or individual asset class. Yeah. If it's an index, I don't care if it's a specific The portfolio manager. Sure.

Sure. You know, the

portfolio the portfolio is relatively simple, right, by design, largely passive in equity. We have some modicum on, you know, probably appropriate level of active risk in in midcap as well as Brandis Investment Partners in international equity. We believe those exposures are appropriate. Right? They're sized well, so we're not concentrating active risk in any one part of the portfolio.

It's distributed broadly. We could quibble about having Boston partnership eco in the mid cap and small cap portfolio. Arguably, that is a concentration of another strategy, but it's it's not that typical. And and, you know, if we if we looked at it a different way, we we borrow. So I don't I don't have any concerns about the implementation of the portfolio broadly, but he does highlight the hedge funds.

We have talked about concentration, and not necessarily concentration, but exposure to Renaissance and the volatility of that portfolio. So that would that has been the area that we've highlighted in the past. That that's probably the the one area.

Doctor. Big one point. It may not be the question you were asking, but I I really should have mentioned artificial intelligence in the market update because, as we know, time for everything Yeah. Mainstream data centers, infrastructure investments. The bond market bond yields have been affected by concerns about how much foreign issuance is gonna be.

And one area where concentration risk has been a back and forth debate that was on a state retirement system event the other day, and a panel who talked about this is how the index itself, the Russell one thousand Index, is now greatly concentrated at 40% of the market capitalization index is attributable to 10 companies. Those companies that the market expects to benefit disproportionately from increased profits from artificial intelligence, I would say that's the challenging news. I think the better news is with this portfolio, to your credit, you've got exposures, small cap, international stocks and mid cap. And that plus good discipline rebalancing is a good way to to kinda manage that risk. With the understanding that great article in Wall Street Journal today about the huge infrastructure investments that will apparently equate to 3.6% of the size of our economy by the hyperscaler between 2025 and 2032.

But that's not a portfolio concentration issue, but it does kind of come back to the index. So I think you have a good balance to tack for that. And as long as we have good reallocation of cash, which we do between period and period, you're in sound shape.

So Maybe a better way to figure an answer. If you if you had $29,000,000 in zero Renaissance today, when Renaissance set up that spot, I'd like to place for you. You know? They're not an easy, you know, push competition, would you invest that money in rent?

Yeah. I

I gotta answer that. We're we're in the process of recommending a change to Renaissance specifically to reduce it and actually replace Renaissance. So our view our view is to terminate renaissance. Because Because the volatility of the of the strategy Mhmm. It's a long short equity manager that has a track record that is very good historically.

But the volatility of the strategy relative to long short equity managers is outsized. And it has a meaningful impact on performance than it did last year. So our view is that volatility introduced by Renescence specifically relative to other long short equity managers is not not appropriate given really a desire to minimize the volatility of the total fund's performance versus its benchmark. So on our docket and work plan is a recommendation to alter hedge from portfolio with the goal of managing risk. Not

to prolong that, but one other issue is transparency. So hedge funds are not famous for being the most transparent asset class to begin with. But within that class, transparency is not what we'd like to see. And putting that in plain English, knowing the component parts of the portfolio, getting timely and useful and accurate information, understanding those exposures is bit of a challenge, would you say?

It is. Yes. Renaissance is unique. Mhmm. It's probably considered one of the most opaque, lowest transparency manager out there.

And in a blank sheet of paper, we would not have employed Renaissance for your portfolio. So that's a that's a challenge. There's also some normal kind of life cycle changes in acting renaissance. The founder, longtime founder, mister Simon, he did pass away several years ago. But ultimately, it's the volatility of that strategy.

It has rewarded the fund over an extended period of time, and it's had a very significant positive impact on the fund, which is why we wanted to be very careful about dislodging that manager from the portfolio. So that's that's been a focus of ours, and that's on the docket to address. Okay. So it's

the beta you're trying to draw more? Yeah. Well, it has

yes and no. The the the beta sensitivity to equity markets, it is uncorrelated, so it's not technically beta. But it is as it is twice as volatile in terms of risk. So the ups and downs in the respective return is twice that of of the typical long short equity manager, which also long short equity enhances increases risk in a hedge fund portfolio together. So this is a risk management exercise first and foremost.

Okay.

We're continuing on on that. Yeah. We can. If you add our cash position to our fixed income allocation on target, do

you have any plans to use that cash and invest it? So the expectation is that we will I'm not gonna say rebalance because it's

not true that we're