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HomeMy WebLinkAbout08-01-2012 Minutes Minutes of the Regular Meeting of the CITY OF OCOEE GENERAL EMPLOYEES' RETIREMENT TRUST FUND BOARD OF TRUSTEES (GERB) Held on August 1, 2012 At 150 N. Lakeshore Drive Ocoee, FL 34761 CALL TO ORDER — Chairman Wagner Chairman Russ Wagner called the meeting to order at 10:07 a.m. in the Commission Chambers at City Hall. A. Roll Call Chairman Wagner welcomed Trustee Bob Godek, the board's newest trustee. After additional remarks, the chairman called the roll. Present were Chairman Russ Wagner, Trustees Grafton, Wheeler, Gleason and Godek. The recording clerk declared that a quorum was present. Also present was Mr. Tim Nash of Bogdahn Consulting, LLC, Senior Administrative Assistant Sharon Zink, and GERB Recording Clerk Stella M Absent was the board's attorney, Mr. Lee Dehner, Esq., due to a medical issue. B. Approval of Minutes Chairman Wagner directed the board's attention to the minutes for the July 9, 2012 special meeting (Exhibit #1). A motion having been made by Trustee Grafton and seconded by Trustee Wheeler, and that motion having carried unanimously, the board RESOLVED to approve the July 9, 2012 special meeting minutes. CONSENT AGENDA A. Invoices Ratification (Exhibit #2) For the benefit of new Trustee Godek, the chairman made a brief explanation of how invoices are ratified. B. Quarterly Report Review (Exhibit #3) General Employees Retirement Board August 1, 2012 Page 2 of 8 C. Retiree List Review (Exhibit #4) There were no additional questions regarding consent agenda items. A motion having been made by Trustee Wheeler, seconded by Trustee Grafton, and that motion having carried unanimously, the board RESOLVED to approve the consent agenda. NEW BUSINESS A. Performance Monitor Report — Mr. Tim Nash of Bogdahn Consulting, LLC Mr. Nash greeted the board. He remarked that his prediction last year was that the meeting for this year would show good news for the fund. He acknowledged with some chagrin that the fund ended barely positive as of this most recent reporting period. Chairman Wagner asked if there would be any improvement of the market towards the end of the year. Mr. Nash responded that the more there is uncertainty, the more volatility one will see in the market which makes it hard to make predictions with any real certainty. He said that China's growth is slowing down, but then again, he continued, it was slowing around this time last year. Mr. Nash continued by remarking that although the health care bill passed, if the country changes presidents, that policy could be undone. There really is no certainty either way. He mentioned an interesting statistic that he heard on NBC. If tax cuts are not extended to folks making over $250,000, it would only allow the government to have eight more days of cash funding. He summarized that it will be pretty hard for either political party to not fully extend those cuts for another year and get the matter resolved by year's end. If the tax cuts expire, the capital gains tax could increase from 15% to whatever the tax rate is now. This could be very onerous on the retired population whose incomes are fixed. One positive thing is that the U.S. seems to be ahead of the world as far as improving trends. One of the key metrics is the price earnings ratio of the S &P 500. It is down close to twelve when it is normally between 15 and 17 times earnings. This means stocks are pretty cheap. Conversely, the ten -year treasury bond income is almost negative. The stock market is a better investment option for pension funds now. Mr. Nash introduced himself to the new trustee and explained his firm's role in managing the pension fund. He added that Ocoee's fund is quite good in the long term, but there are changes that are going to be made. General Employees Retirement Board August 1, 2012 Page 3 of 8 Page 3 Mr. Nash drew the board's attention to the 3` quarter performance. The first two quarters were good, but the third quarter was not. Looking at the written report, he pointed out the changes in the portfolio stocks. He said that 60% of the portfolio is in the US and international markets, and 40% of the portfolio is invested in bonds and real estate to make sure that there is money to pay pension obligations. The good news is that the Barclay's Aggregate Index was positive for the quarter at 2.1 %. Page 9 On the bond side, corporate and treasury bonds did well during this quarter with respect to average return on investment. Triple A corporate bonds were up 3.6% and investment grade corporate bonds in the U.S. were up 2.5 %. Treasury bonds did well short term, but Bogdahn is very concerned about treasury bonds longer term as is Agincourt, your money manager. Treasury bonds make up less than 15% of the portfolio which is a good thing long term. Page 11 It gives a big picture snapshot of the plan by quarter. He said the plan had $22,128, 950.00, at the end of March 22, 2012. Overall fund allocation was almost 47% in U.S. stocks, 9.5% in international securities, 36% in fixed income (real estate had not funded at that time), about 7% in cash waiting to fund real estate. To the right of that, a quarter later, the plan was at $21,876,299.00. The allocation is shown below that. The real estate investment was $676,000.00. Mr. Nash explained how Bogdahn recommended to the board to add real estate to the portfolio via a real estate fund (American Realty Advisor) which directly owns buildings. This allows the plan to collect the rents. Bond money funded this venture. It is believed that bonds will be lower yielding going forward. On June 1 the first real estate call (for cash) came. In total $2.2 million has been allocated as the amount dedicated to real estate (about 10% of the portfolio). On July 2nd they called for another $523,600. That money has been transferred and invested. There is about $1.5 million left which will be called for probably over the next two quarters. The fund will then be fully invested. The investment will send the plan income checks on a quarterly basis. Page 13 This report shows plan activity year to year by quarter, the market values of all the investment and percentage allocations. At the top are the two U.S. managers, Rockwood and ICC. The international manager is Barings; Agincourt handles the plan's bonds, and American Realty Advisor manages the real estate investments. A year ago the market value of the plan was $21,515,000.00 and by the end of June this year it was $21,876,000.00. General Employees Retirement Board August 1, 2012 Page 4 of 8 Page 14 This shows cash flow activity. At the very bottom line it shows the total fund composite at the start of the fiscal year being $19, 257,000 in the plan; contributions were $1.5 million, distributions paid out was $845,000, and management fees for nine months was $78,000. There was over a $2 million dollar gain over the nine months. Page 15 Shows total fund fees gained. Comparing ourselves to the other 438 plans around the country give us an idea of how Ocoee's fund performed. Ocoee's plan is in the 53` percentile. The plan had a negative 1.84% return. Ocoee's domestic equities were down by about 3.8% and the Russell index was down 3.15 %. Rockwood Capital has had more volatility as of late, Mr. Nash explained, but was positive by almost half a percent which was good considering that the whole market was down. ICC at 7.5% was down almost double the index at 3 %. On the international side Baring was down slightly less than the index and Agincourt was 1.95% which is pretty close to the index. Real estate's return was 2.5% which was better than bond performance. Chairman Wagner said that now that he is looking at the numbers, he wonders if they changed the wrong manager (Rockwood versus ICC). Rockwood performed well this quarter. Mr. Nash confirmed with Mr. Nash that we will be closely watching ICC. He explained to Trustee Godek the importance of the plan having a `smooth ride' with little volatility. He explained that Rockwood's inability to meet this standard led the board to make a change. He added that the board minimized the money they had in ICC. Mr. Nash continued to explain the events that led up to changing money managers. Page 23 This page shows more of the volatility of the managers. Mr. Nash stated that the City's fund is trying to be in the top 40% percentile. Rockwood did really well for this quarter. The previous quarter they were at the bottom of the pack. Last year the fiscal year ended and Rockwood was down by 23% with the index down only 15 %. This was too much volatility given the plan's goals. He pointed out previous years that reflected the same performance by Rockwood. The manager is still quite volatile; it was just volatile in a positive direction in this last quarter. The chairman said that ICC may be running a close second to Rockwood with respect to volatility, and that the board might be taking a look at changing it as well. Chairman Wagner asked if the board should have Mr. Nash start preparing for a change. Mr. Nash said that it is in the plan's benchmark as to what to do if the plan is not in the 40 percentile. Mr. Nash added that the board does not want to be managing the plan quarter by quarter because it would be a bad cycle for the plan. He said that Bogdahn has five professionals whose job it is to watching all of the plan's managers and staying in communication with them. General Employees Retirement Board August 1, 2012 Page 5 of 8 For the last nine months the plan was still up 10.55% even with being down 1.84% for the quarter. The three year and five -year numbers show that for the last three years the plan has earned 11.37% which places the plan in the top 49 percentile. The 49 percentile is not bad, but Bogdahn would like to see the plan improve and make it to the top 40 percentile. For the last 5 years the plan has earned 3.27% on average each year, beating the target policy of 2.23 %. The plan is in the top 21 percentile among public pension plans across the nation. Five year, full market cycle of the plan, looks good, but Bogdahn would like to see the plan do even better. The three and five -year numbers are listed on page 16. Page 16 Last year the plan was down just under 1%. In 2010 the plan was up 11.91%. In 2009 the plan up 5.33 and in 2008 the plan was down negative 13.09 %. In 2007 the plan was up 16 %. Mr. Nash asked for questions from the trustees. There were none. The compliance check list is on page 23. The list has boxes that are checked `yes' or `no' depending on whether or not the plan met the benchmark. The total fund for three years is a little behind the benchmark, so the box was checked `no'. For the five -year range, the plan beat the benchmark and the box is checked `yes'. The plan did not meet the percentile for the three -year range (it is in the 49 percentile rather than the desired 40 percentile), but it did for the five -year span. For the last three years the plan exceeded the 8% growth. For five years, it still has a ways to go, Mr. Nash said. The top plan only made 4% growth for the last five years. Mr. Nash added that other than the changes that have already been put in place (which the trustees will see in the portfolio when the September quarter is reviewed), Bogdahn does not have any additional recommendations at this time. B. Status Report on Changes to Investment Managers Chairman Wagner asked where the board is regarding implementation of the changes. Mr. Nash answered that Bogdahn is working with the plan's attorney to get the Brown and GAMCO contracts completed. Brown wanted the fund to use the mutual fund vehicle, but Ocoee did not want to. The issue has been resolved favorably for the plan and Board Attorney Lee Dehner will forward the contracts to them. Once the contracts are signed, things can move quickly. A termination letter will be sent to Rockwood and a liquidation letter will be sent to ICC. A new custody account will be opened for GAMCO and Brown so that cash and securities can be moved over to the new managers. Chairman Wagner asked how long that should take. Mr. Nash answered that he estimates that this should be done by the end of the month. He added that he believes that Florida contracts have been done before General Employees Retirement Board August 1, 2012 Page 6 of 8 so there should not be anything in them that would be something Brown or GAMCO would not agree to. Mr. Nash stated that he does not like to move money before contracts are signed. Chairman Wagner said that by the next meeting the board should see a whole lot of time whereby expenses, transfers and fees have been moved. He asked if that will be bad for the fund. Mr. Nash answered that it should be a mix because part of the quarter will contain Rockwood and ICC. It would be great if ICC has a rebound between now and the time the plan makes the switch, he added. The plan should not see the volatility that it has seen before. Chairman Wagner said that the argument that is used against the plan is that the plan does not make the 8% benchmark. Mr. Nash said that the hardest part is that with the four -year smooth (including every plan across the country) there is '08 the worst year in the stock market since the depression and '11, which because of one quarter ends up being down 1 %. Now there is two years out of four that have a terrible showing. The snapshot makes the numbers bad. But for the 9 nine months in the fiscal year the plan is at 10% growth. Chairman Wagner explained the implications of the report as it relates to maintaining a defined benefit plan. Mr. Nash said that he is looking forward to the day when the plan has several good years in a row to report. The chairman noted that the plan has made the transfer for the real estate call; the plan's auditors are performing the audit at this time and there has been quite a bit of activity with retirees in the plan. Going forward, this budget year will be tight, the chairman said. He hopes for the better years as well. The chairman spoke of the ordinance which contains the changes to the pension. It is due to be reviewed at the August 21 meeting so that it can proceed with first and second readings. Chairman Wagner thanked Mr. Nash for his report. OTHER BUSINESS Florida Public Pension Trustees Association (FPPTA) — Upcoming events. Chairman Wagner explained that each member is required to attend conferences and become certified within three years. The meetings are held throughout the year at different locations around the state. If it is held in Orlando, the board does not pay for a hotel stay. Once certification is obtained, the only thing one has to do is attend conferences. Trustee Godek said that he would like to attend the January session. Chairman Wagner confirmed with Trustee General Employees Retirement Board August 1, 2012 Page 7 of 8 Gleason that she will be attending the meeting in October. Trustee Wheeler said that he will attend the conference in Spring this year. Chairman Wagner said that Board Attorney Lee Dehner is absent due to a medical issue that needed tending to. Chairman Wagner asked Mr. Nash what the Prudential claim form was. Mr. Nash said that it seems as though the form has something to do with life insurance. Chairman Wagner said that he will have HR Director Williford take a look at it. ATTORNEY COMMENTS None — board attorney was absent. COMMENTS FROM TRUSTEES / CITY LIAISON The chairman asked if he had any comments. HR Director Williford said that he had no other comments other than the date for the pension ordinance. Chairman Wagner stated that the board is welcome to attend the commission meetings to listen to the readings. He confirmed with the director that Director Williford will put together the staff report for the ordinance. AGENDA FOR NEXT MEETING Auditor's Report COMMENTS FROM PUBLIC None. ADJOURNMENT There being no other business, the meeting was adjourned at 11:23 a.m. General Employees Retirement Board August 1, 2012 Page 8 of 8 ' - ► - ctfully submitted b Ap ro ed b : :tella McLeod, Muni' ,, _ / . / L. a ' - ' oordinator Russell B. Wagner, ERB Chairman GERB Recording Clerk