FROM: Don Pierce, Chief Investment Officer
SUBJECT: Informational Item: Update on the wind-down of the offshore investment platform
RECOMMENDATION:
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Update on the wind-down of the offshore investment platform.
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BACKGROUND:
On April 9, 2019, staff brought an informational item to the Investment Committee, and subsequently to the Board, regarding SBCERA's holdings of approximately $1.5 billion of plan assets in an offshore investment platform ("Gold Coast"). By way of background, the Cayman-domiciled Gold Coast structure was originally created to address concerns raised by counsel regarding the perceived risk of incurring Unrelated Business Income Tax (UBIT) related to SBCERA's alternative investments. Over time it has become clear that this risk is much lower, and the costs of the offshore platform much higher, than originally anticipated. Accordingly, staff has been proceeding over the last few months with the wind-down, including working with Maples Finance, State Street, Kreischer Miller, and Foley & Lardner to ensure a smooth transition. This report provides the Investment Committee and the Board with a status report on those activities.
Negotiations with State Street (which already provides the vast majority of SBCERA's custody services) for the transition of manager accounts from Maples have been completed. State Street services will include custody, board reporting, administration, and risk transparency services for an approximate cost increase to the existing service agreement of $950,000 per year. Maples costs for Fiscal Year 2017 and 2018 were approximately $2,170,000 and $1,700,000, respectively. Accordingly, staff anticipates that the savings to SBCERA will average roughly $1,000,000 per year. Foley and Lardner, and SBCERA's Chief Counsel, are reviewing the terms of the agreement for State Street's additional services; staff anticipates executing the amendment to the service agreement under the delegated authority cited ...
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