Minutes - City of Punta Gorda

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Minutes - City of Punta Gorda Powered By Docstoc
					                            FIREFIGHTERS’ PENSION BOARD
                                  NOVEMBER 1, 2011

MEMBERS PRESENT:        John Mooney, Chairman
                        Robert Amick, John Beane, John Briggs

MEMBERS ABSENT:         Holden Gibbs

OTHERS PRESENT:         Grant McMurry, Jack Evatt, Patrick Donlan

                          CALL TO ORDER/ANNOUNCEMENTS
A.   Roll Call
B.   Next Scheduled Meeting
-    Mr. Briggs announced the following meeting dates for 2012:        January 31, May 1,
     August 7, November 6, 2012.
                                 APPROVAL OF MINUTES
A.   Meeting of August 2, 2011
-    Mr. Briggs MOVED, Mr. Amick SECONDED approval of the August 2, 2011 minutes.
1.   Salem Trust
-    No discussion.
2.   ICC Capital Management
-    Mr. Grant McMurry, ICC Capital Management, drew members’ attention to ICC’s
     Investment Review for the Quarter Ending September 30, 2011, as delineated in the
     agenda material, urging members to read the ICC Quantitative Strategies Group write-
     ups behind Section III, specifically “Q3, 2011 Performance and Market Commentary”;
     “Third Quarter 2011 ICC Fixed Income Comments”; “Third Quarter 2011 ICC Multi-Cap
     Equity Review”. He noted the Board’s portfolio was comprised primarily of growth and
     value products. He pointed out a review of investment performance by asset category
     was charted on page 3, stating same had been extremely poor.              He recalled
     performance in the third quarter of 2010 had been the complete opposite as had the
     first quarter of 2011. He explained Chart 1 on page 1 of the first write-up depicted a
     variety of equity markets and their performance around the world, all of which had
     been poor. He commented during the last 50 days of the quarter, the average volatility
     in the Dow Jones index was 2% per day, adding the Dow Jones moved more than 400
     points each day over 5 straight days during the second week of August 2011.        He
     continued with a review of the Fund’s top ten holdings on page 4, stating same
     depicted somewhat of a rebound.       He cited Microsoft Corporation as an example,
     stating its return for the quarter was -3.67% but up 8% in October 2011. He clarified
     those sectors which had performed the most poorly as of the end of the third quarter
     were the best performers as of the end of October 2011. He commented the ten year
     treasury was almost as volatile as the stock market, below 2% at some points, stating
     when the yield reached such extreme lows, prices were high. He noted the yield on the
     total stock portfolio was 2% while the value portfolio was 2.6% on that portion,
     indicating bonds were far more expensive and stocks far less costly than anticipated.
     He concluded with a brief review of Chart 2, ICC Core Value Equity Relative to the
     Russell 1000 Value, as depicted on page 2 of the write-up.
3.   The Bogdahn Group
-    Mr. Jack Evatt, The Bogdahn Group (TBG), drew members’ attention to the 3rd Quarter
     Performance Review, as delineated in the agenda material, acknowledging returns had
     not been favorable. He opined there was much more emotional and much less rational
     behavior than expected. He noted major market index performance was detailed for
     the quarter as well as the one year period on page 3, specifically international equities,
     domestic equities and domestic fixed income, adding same clearly showed investors
     were comfortable only with treasuries. He opined index performance over the past
     quarter was a testament to investors primarily seeking ways to avoid risk as opposed
     to increased returns. He commented favorably on what had been a large reversal since
     that time up until the past few days, stating that reversal had essentially undone
     almost all of the negative impact seen in 3Q/11. He reported a balance of $6,942,516
     as of June 30, 2011, and $6,451,077 as of September 30, 2011, acknowledging
     returns from the Intercontinental Real Estate Corporation (IREC) portion of the portfolio
     were not depicted; thus, the balance was actually higher than was shown.               He
     announced a balance of approximately $6,944,000 as of the close of business on
     October 28, 2011, asking members to keep same in mind when reviewing the
     performance report.    He then advised a certain amount of rebalancing within the
     portfolio should be done, pointing out the value equity portion was somewhat
     overweighted.    He explained page 14 delineated the different sub-accounts and
     individual strategies within the portfolio; thus, the “picture” would continue to clarify
     as time progressed. He commented on the recent changes to the Investment Policy
     Statement (IPS), specifically a target of 20% to 35% established for the core value

    portion of the portfolio; however, he pointed out that portion was slightly
    overweighted by approximately 12.5%. He explained that overage would be rebalanced
    into the two underweighted portions, Growth and American Depository Receipts (ADRs)
    or International. He confirmed the other strategies were on target.
-   Mr. Beane questioned the frequency of such reallocations.
-   Mr. Evatt replied reallocations were done whenever investments fell outside of the
    established ranges.
-   Mr. Beane asked if the IPS required this to be done on a quarterly basis.
-   Mr. Evatt replied affirmatively but only if certain portions became underweighted or
    overweighted. He explained rebalancing was typically only needed one to two times
-   Mr. Beane then asked if the currently allowed range for real estate investments could
    be increased, expressing hope that portion of the portfolio would increase in value. He
    suggested consideration be given to increasing the range from 5%-15% as opposed to
-   Mr. Evatt replied same was at the Board’s discretion. He clarified the above mentioned
    rebalancing of the core value portion of the portfolio due to overweighting would not
    be “stocks to bonds” but rather “stocks to stocks.” He reiterated the portfolio was
    currently underweighted in the growth and international side and overweighted in the
    value side; thus, the intent was not to reduce the overall equity weighting.
-   Mr. Beane clarified the Board’s IPS represented fairly standard wording.
-   Mr. Evatt asked members if they wished to rebalance the equity side of the portfolio by
    taking 12.5% out of the value side and reallocating 7.5% to growth and 5% to
-   Mr. Beane MOVED, Mr. Briggs SECONDED to rebalance the portfolio as stated by The
    Bogdahn Group this date. MOTION CARRIED UNANIMOUSLY.
-   Mr. Evatt concluded he would advise Salem Trust accordingly. He continued his review
    of TBG’s current performance review, stating trailing returns for the Total Fund (Net)
    were -11.04% for the quarter and -1.15% for the fiscal year to date as compared to the
    Russell 3000 benchmark of -8.51% and 1.27%, respectively.        He explained the main
    cause for this significant underperformance was related to Growth and Value Equities,
    specifically -19.04% and -20.14% compared to benchmarks of -13.14% and -13.87%,
    respectively. He mentioned he anticipated IREC performance results to be available in
    two to three weeks; however, preliminary figures were in the 3% to 3.5% range. He

    reminded members the entire portfolio – growth, value, ADR - was essentially being
    managed by the same group, ICC.
-   Mr. Beane commented on the Total Fixed Income Composite figures, as delineated on
    page 17, noting the return “since inception” was 5.82% as compared to the benchmark
    of 6.15% (-.33% difference). He asked Mr. Evatt if he believed same was satisfactory or
    if the Board should be taking action.
-   Mr. Evatt replied he believed the difference should be positive on a net of fees basis.
    He clarified TBG did not view a small deficit as a gain but rather the Board should
    expect positive outperformance, acknowledging there would be periods where same
    was not realized.
-   Mr. Beane commented changes had been made to the portfolio over the past few years
    such as addition of a growth component and real estate; however, there had been
    major underperformance over the past year at the very least.
-   Mr. Evatt opined the problem was with the fixed income portion of the portfolio. He
    explained the Fund was relatively small, comparatively speaking, adding it was difficult
    to find a manager who would accept $1.8 million or $2 million, for example, in fixed
    income assets in a separately managed portfolio. He explained the majority of such
    managers required an initial $5 million to $10 million investment unless the Board
    wished to scale back to include only corporate and government; however, he opined
    there was a great deal of “group think” going on in the portfolio. He explained the
    same manager was currently handling the core value, growth and international
    investments, which led to a fair amount of overlap within those portfolios; thus,
    another component in the portfolio could provide a different strategy and/or
    management style. He acknowledged the portfolio’s dependence on fixed income had
    been reduced. He clarified TBG remained comfortable with ICC’s product even in light
    of significant underperformance over the past 12 to 18 months.
-   Mr. Beane clarified TBG was recommending a change, asking how same could be
    accomplished in light of the Fund’s relative small size.
-   Mr. Evatt explained an aggregate portfolio would have corporate bonds, government
    agencies and mortgage backed securities, thus providing a broader index.             He
    acknowledged the difficulty in diversifying $2 million, for example, into that type of
    pool. He noted the problem was not necessarily with getting into such a portfolio but
    rather with getting out.
-   Mr. Beane suggested tapping the equity side.

-   Mr. Evatt agreed with that possibility, stating he believed the Board would end up with
    some type of co-mingled fund.
-   Mr. Beane commented he was aware certain companies with full-time, protected
    portfolios used a specific strategy, acknowledging same limited the upside; however,
    the downside was certainly reduced.
-   Mr. Evatt expressed uncertainty the Board had that ability from a lawful standpoint.
-   Mr. Beane reiterated he felt ICC had done an outstanding job for many years; however,
    there seemed to be some type of ongoing aberration. He asked if Mr. Evatt had made
    similar recommendations to any of their other clients.
-   Mr. Evatt replied affirmatively.    He clarified his recommendation was to seek to
    establish a growth component, specifically outside of that currently in place, offering
    to conduct a search and present the results of same at the Board’s next meeting. He
    clarified he would provide members with those results prior to their next meeting, thus
    providing an opportunity to thoroughly discuss same at that time.
-   Mr. Amick recalled the Board had a similar discussion approximately one year earlier.
-   Discussion ensued with regard to perhaps scheduling a special meeting as opposed to
    waiting until January 31, 2012.
-   Mr. Amick asked if TBG’s fee schedule would change as a result of expanding the
    Plan’s investment strategy.
-   Mr. Evatt replied it would not nor would there be any additional charge associated with
    the above mentioned search. He confirmed there were no other questions relative to
    TBG’s quarterly report. He then drew members’ attention to an Equity Best Execution
    Letter and a Recapture Service Instructions letter, both delineated in the agenda
    material, stating he had prepared same for the Chairman’s signature. He explained LJR
    Recapture Services, a division of BNY ConvergEx Solutions LLC, ensured the Board’s
    expectations were met relative to best execution for trades done on behalf of the Fund.
-   Mr. Beane clarified both letters represented a re-affirmation of current practice.
-   Mr. Beane MOVED, Mr. Briggs SECONDED to issue an Equity Best Execution Letter and
    Recapture Service Instructions as recommended by The Bogdahn Group.              MOTION
-   Mr. Evatt then submitted into the record a copy of a portion of the City’s ordinance
    relative to the Police Officers’ Pension Fund, stating he had highlighted the portion
    outlining that Board’s authority as it pertained to investment requirements and
    limitations. He explained the highlighted verbiage provided the flexibility necessary to

     make changes to their IPS without requiring the City’s approval. He mentioned the
     General Employees’ Pension Plan already included this language.             He stated he
     understood Mr. Ken Harrison, Board Attorney, may be drafting certain ordinance
     changes relating to compensation.
-    Mr. Amick clarified Mr. Evatt was recommending similar verbiage be included in the
     Firefighters’ Pension Plan.
-    Mr. Briggs acknowledged there were a number of other pending ordinance changes as
     a result of changes to State and Federal laws, offering to speak with Mr. Harrison
     regarding same.
-    Mr. Briggs MOVED, Mr. Beane SECONDED to include the verbiage as recommended by
4.   Foster & Foster
-    Mr. Patrick Donlan, Foster & Foster, submitted Personal Statements to Mr. Briggs for
     distribution to all members of the Firefighters’ Pension Plan, stating same were
     provided on an annual basis. He then drew members’ attention to Foster & Foster’s
     Actuarial Valuation Report as of October 1, 2011, as delineated in the agenda material,
     stating the valuation was required annually to determine whether assets and
     contributions were sufficient to provide the prescribed benefits and to develop the
     appropriate funding requirements for the applicable plan years. He pointed out an
     increase in the City’s funding requirement from 34.7% to 38.6%, noting same was a
     result of the asset side of the equation, specifically the 4 year average was significantly
     lower than the 8% anticipated rate of return. He stated the asset smoothing technique
     was denoted on page 17, providing a detailed explanation of same. He reported an
     annualized rate of return for the prior 4 years of -1.97%.
-    Mr. Briggs observed the worst rate of return, -12.64%, was seen in Plan Year Ending
     September 30, 2008.
-    Mr. Donlan agreed, expressing hope the four year average would be much higher in
     the October 1, 2012, report, as that return rate of -12.64% would be removed from the
     4 year equation at that time; however, he reminded members even if the Plan realized
     the full 8% rate of return each year, an increase in funding requirements of
     approximately 3.7% of payroll would still be needed due to use of the smoothing
     technique. He commented favorably on the liability side of the equation, noting only
     two terminated members took refunds of their contributions.            He mentioned the
     turnover figure of two was slightly more than the one expected. He announced salary

    increases were lower than expected, as detailed on page 7, stating 6% was expected
    each year while the average was 3.7% in the year ending September 30, 2011, and 0%
    in years ending September 30, 2010, and September 30, 2009, all of which partially
    offset the investment loss.     He reviewed the reconciliation of unfunded actuarial
    accrued liabilities depicted on page 9, noting an actuarial loss of $358,857 as of
    October 1, 2011. He then drew members’ attention to a table of State Fund Monies
    Reserves on page 9, reminding the Board of the change in State law in 1999 which
    required any increases in same to be used for increased benefits. He stated a benefit
    improvement was implemented in 2003 to increase the benefit rate to 3%.                  He
    announced a total State monies reserve amount of $322,692.01 as of the end of the
    current reporting period.
-   Mr. Amick asked what type of benefit improvement could be realized as a result of
    same. He requested clarification of what was referred to as a “share plan.”
-   Mr. Donlan replied the equivalent of that reserve was approximately 2.4% of payroll,
    adding a multiplier typically cost roughly .1% for each percentage increase; thus, the
    current reserve amount could be utilized for a 2/10th increase in multiplier to 3.2%;
    however, the City was hesitant about increasing the multiplier. He explained a share
    plan would allow the excess State monies reserve to be divided or shared among active
    firefighters for distribution upon retirement as a lump sum.
-   Mr. Briggs asked if a share plan was beneficial to the City.
-   Mr. Donlan replied it was not nor was it detrimental.
-   Mr. McMurry interjected ICC managed a number of share plans, stating if the City ever
    decided to not follow Florida Statute (F.S.) 175, they would incur no negative impact.
-   Mr. Donlan confirmed there were no other questions regarding the valuation report.
-   Mr. Beane MOVED, Mr. Briggs SECONDED approval of the valuation report presented
-   Mr. Donlan then provided a brief review of recently implemented legislative changes,
    advising Mr. Harrison would need to prepare an ordinance amendment in order to be
    in compliance with revised State and Federal regulations. He reminded members the
    Board must make a declaration of the expected annual return each time the annual
    valuation report was reviewed and approved.
-   Mr. Evatt recommended no change to the current expectation of 8%.

-     Mr. Briggs MOVED, Mr. Amick SECONDED to determine an 8% total expected annual
      rate of return net of investment related expenses for the current year, the next several
      years and the long term thereafter. MOTION CARRIED UNANIMOUSLY.
                                  UNFINISHED BUSINESS
A.    Signing Investment Policy Statement
-     No discussion.
-     Meeting Adjourned: 2:57 p.m.

                                                     John Mooney, Chairman
Mary Kelly, Recording Secretary


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