MINUTES of the Board of Trustees of the State Universities ...

MINUTES

Meeting of the Investment Committee of the Board of Trustees of the

State Universities Retirement System Thursday, September 14, 2017, 10:15 a.m.

State Universities Retirement System 1901 Fox Drive

Main Conference Room Champaign, IL 61820

The following trustees were present: Mr. Craig McCrohon, Chair; Mr. Aaron Ammons, Mr. Mark Cozzi, Mr. Tom Cross, Mr. Dennis Cullen, Dr. John Engstrom, Dr. Fred Giertz, Mr. Paul R. T. Johnson Jr., Ms. Dorinda Miller, Dr. Steven Rock and Mr. Antonio Vasquez.

Others present: Martin Noven, Executive Director; Ms. Phyllis Walker, Chief Financial Officer; Ms. Bianca Green, General Counsel; Mr. Douglas Wesley, Chief Investment Officer; Mr. Steve Hayward, Director of Internal Audit; Ms. Kimberly Pollitt, Mr. Joe Duncan, and Mr. Shane Willoughby, Senior Investment Officers; Mr. Brian Deloria and Mr. Alex Ramos, Investment Officers; Ms. Kelly Valle, Investment Analyst; Ms. Kristen Houch, Legislative Liaison; Ms. Kelly Carson and Ms. Annette Ackerman, Executive Assistants; Ms. Mary Pat Burns of Burke, Burns & Pinelli; Mr. Kevin Leonard, Mr. Mike Yang, Mr. Reino Eklord and Ms. Kristin FinneyCooke of NEPC; Ms. Angela Myers of Loop Capital Management and Ms. Patricia Sommerville-Koulouris of Northern Trust.

Investment Committee roll call attendance was taken. Trustee Cross, present; Trustee Cullen, present; Trustee Giertz, present; Trustee Johnson, present; Trustee McCrohon, present; and Trustee Rock, present

APPROVAL OF MINUTES

Trustee Craig McCrohon presented the minutes from the Investment Committee meetings of April 20, 2017, and June 8, 2017.

Trustee Paul R. T. Johnson made the following motions:

? That the minutes from the April 20, 2017 Investment Committee meeting be approved as presented.

? That the minutes from the June 8-9, 2017 Investment Committee meeting be approved as presented.

Trustee Steven Rock seconded and the motions carried with all trustees present voting in favor.

APPROVAL OF CLOSED MINUTES

Trustee McCrohon presented the closed minutes from the Investment Committee meeting of June 8, 2017.

Trustee McCrohon made the following motion:

? That the closed session minutes from the June 8, 2017 Investment Committee meeting be approved as presented and remain closed.

Trustee Johnson seconded and the motion carried with all trustees present voting in favor.

CHAIRPERSON'S REPORT

Trustee McCrohon did not have a report.

CHIEF INVESTMENT OFFICER REPORT

Mr. Doug Wesley did not have a formal report but did provide the board with final dates for the Senate hearings; those dates have been set for October 16 -17, 2017. Mr. Wesley reached out to the board for input regarding interest in receiving an electronic subscription of the Financial Times publication.

CONSIDERATION OF NON-CORE REAL ESTATE ? DUNE REAL ESTATE FUND IV

Mr. Shane Willoughby presented key characteristics for Dune Real Estate Partners Fund IV and performance metrics relating to the previous commitments to Dune Real Estate Partners Fund II and III. Included in the presentation were recommendations and insight from SURS staff relating to the firm's background, as well as advantages and concerns. Mr. Mike Yang of NEPC discussed the process for their Focus Placement List (FPL) and addressed questions with SURS staff posed by trustees regarding the FPL and the SURS procurement process. After a lengthy discussion, Dune Real Estate Partners joined the group for further discussion.

Mr. Dan Neidich and Ms. Cia Buckley Marakovits of Dune Real Estate Partners presented the board with the background of the firm and explained investment strategies, including that of Dune Real Estate Fund IV, the fund being recommended .

After further discussion by the board, Trustee McCrohon made the following motion:

? The Investment Committee recommends to the board that based on the recommendation of staff and SURS investment consultant, a commitment of $20 million be authorized, contingent on successful contract negotiations, to Dune Real Estate Partners Fund IV LP.

Trustee Johnson seconded and the motion carried with all trustees present voting in favor.

A copy of staff's memorandum titled "Executive Summary ? Dune IV Fund Recommendation" is incorporated as part of these minutes as Exhibit 1. NEPC's presentation titled "Dune Real Estate Fund Tear Sheet" is also incorporated as part of these minutes as Exhibit 2. Dune's Diversity Disclosure is incorporated at part of these minutes as Exhibit 3.

RFP POLICY DISCUSSION

Trustee McCrohon discussed the RFP process and the need to have more flexibility in our policy. Trustee McCrohon suggested two options to streamline the procurement process. Discussion ensued with additional follow-up expected at a future meeting.

NEPC PERFORMANCE REPORT

Ms. Kristin Finney-Cooke and Mr. Kevin Leonard of NEPC presented an overview of financial markets, as of June 30, 2017. Total plan investment performance was also discussed. SURS achieved a total return of 12.2 percent, net of fees, for the year ending June 30, 2017. When compared to a universe of other large public funds, the SURS return ranked in the third quartile for the one- and three-year periods and the SURS return was at or above median for the five- and ten-year periods ending June 30, 2017. Discussion followed.

A copy of NEPC's presentation titled "Quarter Ending June 30, 2017 Investment Performance Analysis" is incorporated as a part of these minutes as Exhibit 4.

REAL ESTATE DEBT MANAGER FINALIST INTERVIEWS

Finalists were interviewed for non-core private commercial real estate debt commingled fund investment management services.

Ms. Lisa Kenyon, Mr. John Brady and Mr. Bill Loskota of Oaktree Capital Management presented the board with the background of the firm and investment strategies, including that of Oaktree Real Estate Debt Fund II.

Mr. Clay DeGiacinto, Mr. Brendan McCormick and Mr. Canem Arkan of Axonic Capital LLC presented the board with the background of the firm and investment strategies, including that of Axonic Income Debt Fund.

Ms. Tammy Jones, Mr. Kunle Shoyombo and Mr. Rich Cadigan of Basis Investment Group LLC presented the board with background of the firm and investment strategies, including that of BIG Real Estate Fund I.

CLOSED SESSION

Trustee McCrohon moved that the Investment Committee go into closed session pursuant to ?2(c)(7) of the Open Meetings Act to consider the sale or purchase of securities or investments or to consider an investment contract. Trustee Johnson seconded and the motion carried in a roll call vote:

Trustee Cross Trustee Cullen Trustee Giertz Trustee Johnson Trustee McCrohon Trustee Rock

- aye - aye - aye - aye - aye - aye

RETURN TO OPEN SESSION

Upon motion by Trustee McCrohon that was seconded by Trustee Johnson and carried, the Investment Committee resumed the meeting in open session.

Trustee McCrohon made the following motion:

? The Investment Committee recommends to the board that based on the recommendation of staff and the SURS investment consultant, that commitments be made as follows:

a.) Axonic Income Fund ("Axonic"): $20 million, so long as Axonic consummates the investment of $250 million in the fund no later than May 1, 2018;

b.) BIG Real Estate Fund I, GP ("Basis"): the lesser of $30 million or 10 percent of the assets under management of Basis as of May 1, 2018; and

c.) Oaktree Real Estate Debt Fund II, L.P.: $30 million;

All of the above investments being subject to successful contract negotiations.

Trustee Cross seconded and the motions carried with the majority of trustees present voting in favor.

Copies of the staff memorandum titled "Non-Core Private Real Estate Debt Search Update" and the staff matrix titled "Private Real Estate Debt Fund Finalist Comparison" are incorporated as part of these minutes as Exhibit 5 and Exhibit 6. NEPC's presentation titled "Real Estate Debt Finals Summary" is also incorporated as part of these minutes as Exhibit 7. The Diversity Disclosures for each finalist are also incorporated at part of these minutes as Exhibit 8, Exhibit 9 and Exhibit 10.

PRESENTATION OF FISCAL YEAR 2018 INVESTMENT PLAN (EDUCATIONAL TOPIC)

Mr. Wesley presented the SURS Fiscal Year 2018 Investment Plan noting that this was the seventh year for presenting such a plan to the board with the purpose of recapping the prior year's performance and establishing the work plan for the upcoming year. Mr. Wesley highlighted some of the FY 17 accomplishments while also addressing the significant objectives set forth in FY 2018.

A copy of the staff memorandums titled "SURS Fiscal Year 2018 Investment Plan Cover Memo" and "2018 Investment Plan" are incorporated as part of these minutes as Exhibit 11 and Exhibit 12.

Mr. Leonard and Mr. Reino Eklord of NEPC presented the board with an educational topic regarding opportunistic credit.

The educational topic lasted for 45 minutes ending at 3:25 p.m.

A copy of NEPC's presentation titled "Credit Opportunities" is incorporated as part of these minutes as Exhibit 13.

SURS MANAGER DASHBOARDS

Mr. Wesley presented an overview of the manager dashboards. The dashboards presented highlight the performance of managers and also include assessments of risk and regression, efficiency measures and rolling return information. Discussion was held throughout Mr. Wesley's presentation.

Copies of the SURS presentations titled "Manager Status Review," "Mondrian Reassessment," "Performance Dashboards," "Qualitative Dashboards" and "GlobeFlex Capital Manager Summary" are incorporated as part of these minutes as Exhibit 14, Exhibit 15, Exhibit 16, Exhibit 17 and Exhibit 18.

US EQUITY SEARCH UPDATE

Mr. Alex Ramos updated the board on the recently approved search for qualified U.S. equity managers owned by minorities, females, and persons with a disability (MFDB). Mr. Ramos stated that semi-finalist interviews with selected firms will be held later in September. Finalists will present to the SURS Board of Trustees during the October Investment Committee meeting.

A copy of the SURS memorandum titled "MDP US Equity Search Update" is incorporated as part of these minutes as Exhibit 19.

CONSULTANT SEARCH UPDATE

CLOSED SESSION

Trustee McCrohon moved that the Investment Committee go into closed session pursuant to ?2(c)(1) and ?2(c)(7) of the Open Meetings Act to consider the sale or purchase of securities or investments or to consider an investment contract. Trustee Ammons seconded and the motion carried in a roll call vote:

Trustee Cross Trustee Cullen Trustee Giertz Trustee Johnson Trustee McCrohon Trustee Rock

- aye - aye - aye - aye - aye - aye

RETURN TO OPEN SESSION

At the conclusion of discussion, Trustee McCrohon moved that the meeting resume in open session. The motion was seconded by Trustee Cross and carried with all trustees present voting in favor.

Trustee Ammons made the following motion:

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