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.
MOTION CARRIED UNANIMOUSLY.
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
- 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
- Mr. Briggs MOVED, Mr. Beane SECONDED to include the verbiage as recommended by
The Bogdahn Group. MOTION CARRIED UNANIMOUSLY.
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
this date. MOTION CARRIED UNANIMOUSLY.
- 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.
A. Signing Investment Policy Statement
- No discussion.
- Meeting Adjourned: 2:57 p.m.
John Mooney, Chairman
Mary Kelly, Recording Secretary