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HomeMy WebLinkAbout07-31-2013 Minutes Minutes of the Regular Meeting of the CITY OF OCOEE GENERAL EMPLOYEES' RETIREMENT TRUST FUND BOARD OF TRUSTEES (GERB) Held on July 31, 2013 At 150 N. Lakeshore Drive Ocoee, FL 34761 CALL TO ORDER — Chairman Wagner Chairman Russ Wagner called the meeting to order at 10:02 a.m. in the Commission Chamber at City Hall. A. Roll Call Chairman Wagner called the meeting to order and the clerk called the roll. In addition to the chairman, present were Vice - Chairman David Wheeler, and Trustees Grafton, Gleason and Godek. The recording clerk declared that a quorum was present. Also present were Board Attorney Lee Definer, Mr. Tim Nash and Mr. Cadmiel Onodje, both of Bogdahn Consulting, LLC, Senior Administrative Assistant Sharon Zink, and GERB Recording Clerk Stella M B. Approval of Minutes Chairman Wagner welcomed everyone and invited Mr. Nash to introduce his guest. Mr. Cadmiel Onodje, colleague of Mr. Nash was at the meeting so that Mr. Nash could introduce him to the firm's clients. The board welcomed Mr. Onodje. The chairman then directed the board's attention to the minutes for the regular May 1, 2013 (Exhibit #1). A motion having been made by Vice - Chairman Wheeler and seconded by Trustee Godek, and that motion having carried unanimously, the board RESOLVED to approve the May 1, 2013 regular meeting minutes. CONSENT AGENDA A. Invoices Ratification (Exhibit #2) B. Retiree List from Fifth Third Bank (Exhibit #3) General Employees Retirement Board July 31, 2013 Page 2 of 11 Chairman Wagner directed the board's attention to the consent agenda. Trustee Grafton remarked that it would be helpful if the portion of the report pertaining to FPPTA expenses were to include the name of the person for whom a particular expense was incurred. Discussion ensued. Ms. Zink agreed to list names in the report from now on. A motion having been made by Trustee Grafton, and seconded by Vice- Chairman Wheeler, and that motion having passed unanimously, the board RESOLVED to approve the consent agenda. NEW BUSINESS A. Quarterly Retiree Report* Chairman Wagner directed the board's attention to the specific quarterly administrative actions taken on behalf of the retirement members. Ms. Kathy Simanski went on DROP. Mrs. Gloria Petrone retired. Mr. James Dunn received a refund of contributions. Mr. Thomas King purchased five years of service. B. Performance Monitor Report — Timothy J. Nash, The Bogdahn Group 1. Quarterly Performance Report Mr. Nash stated that so far the portfolio's performance looked fairly strong and the fund is ahead of the 8% actuarial target. Mr. Nash directed the board's attention to Bogdahn's June 30 performance reporting booklet, page 2. Mr. Nash said that they would look at how the indices had performed for the quarter and then take a look at each of the fund's managers. He reminded them that there has been quite a bit of change with the portfolio, and that he thinks the board will be quite satisfied with the managers that the board has put in place and the strategies going forward. Page 2 This contains a list of emerging markets and developed international stocks, both of which have been struggling for the last two quarters. Currently about 10% of portfolio's funds are in those two equity areas. Developed has done a lot better than emerging markets which were down over 8% compared to developed which was down about .75 %. Barings has about a 15% exposure in emerging market countries. The S &P 500 was up 2.9 %; the Russell 2000 was up 3.1%. The Russell 2000 represents small cap stocks, some of the best performers for the quarter. Small and mid -cap index funds and actively General Employees Retirement Board July 31, 2013 Page 3 of 11 managed funds both did well for the quarter. Bonds were the difficult spot for all portfolios across the world due to the perceived remarks by Federal Reserve Chairman Ben Bernanke about the tapering off or slowing down of the buying of mortgage bonds by the Fed. Mr. Nash stated that this was not what Mr. Bernanke said at all. Towards the latter part of May there was a big spike in rates which hurt longer term bonds. The good news is that Ocoee's fund is positioned with a shorter duration so there's less exposure; nevertheless, the Barclays US aggregate was down 2.3% which is a fairly hefty number for a bond portfolio. Treasury inflation protected securities were down over 7 %. They are 10 -year and longer securities. Page 3 - Growth and Value Stocks Russell 2000 (small and mid -cap stocks) did very well compared to large cap growth or value stocks. The biggest driver of the fund's performance is on page 5: Apple was down another 10% for this quarter. Apple is the third largest group of stock in Brown's portfolio, hence it pulled down Brown's performance. Chairman Wagner asked if Brown is going to stick with Apple. Mr. Nash responded that they (Apple) were actually underweighted in the portfolio and that Brown added to it, so they like Apple. Brown is well weighted in technology stock and tech stocks did not do well for the quarter. Gabelli (GAMCO) did not do as well as the benchmark. A small amount of their portfolio is weighted to materials which did not do well for the quarter. Utilities were down and Gabelli owns utility stocks as well. Page 12 Ocoee's portfolio overall asset allocation shows the termination of Rockwood and ICC. It is shown that the money was moved around as they funded GAMCO and Brown. The board also decided to change the portfolio to a dedicated allocation (changing from Rockwood and ICC which are opportunistic managers that could go into small and mid - cap funds when they deemed it appropriate) so that 1 3% of portfolio is always in small and midcap with half in index funds (small fees) and the remainder in the Eaton Vance growth fund which is the actively managed part of fund. Both did really well for the quarter. At the bottom of the page, last year the portfolio was at $21.8M and is now at $25.5M. Mr. Nash remarked that those are pretty impressive gains. Some of the gains were City and employee contributions and the remainder was due to investment gains. Page 15 This page shows fiscal year -to -date cash flows. In the 9 -month period since June of last year, $1.7M came in and the fund paid out just shy of $800,000 in the form of General Employees Retirement Board July 31, 2013 Page 4 of 11 distributions such as pensions or lump sums. Gains for the 9 months ending June were up just below $2M which is pretty substantial. Page 16 Expressed as a percentage, the quarterly gain ($141,000) was a .5% return. Gross of fees, the fund beat the index for the quarter. The Ocoee Fund's return ranked in the top 23 gain across the nation. Fiscal year to date the Ocoee fund is in the top 20 percentile. Chairman Wagner asked how the Police and Fire fund did for the quarter. Mr. Nash could not remember the exact numbers, but he said the Police and Fire fund performed similarly to Ocoee's general employee fund since the two funds have almost the same investment picks. The fund has not had Brown and GAMCO very long, but GAMCO has increased the City's investment by 19.76% beating the index (up 18 %), and Brown by up 14.25 (with the index up 13.64 %). Eaton and Vance (growth fund and the extended market index fund) did better than large cap growth and a little less well than all -cap value, but they were up 2.18% and 2.43% respectively for the quarter. Both generated over an 8% return over a five -month period. International fund Barings had negative numbers. A stronger US dollar hurt international returns as well. They were down a little less than 46 basis points after fees. They protected us on the downside. Fiscal year to date they (the growth fund and the extended market index fund) are still behind the pack. They were more heavily weighted with Japan's stock. The team has fully reviewed Barings and still likes the strategy, but, as evident, there is short-term underperformance. Mr. Nash said that Bogdahn thinks they will do well for Ocoee's fund going forward, but he did bring an evaluation book if the board wants to make a change. Page 17 On bond side fiscal year -to -date, Agincourt was down 1.5% and the index was down over 2.25 %. One of the most important things active managers can do is help us navigate this rising rate environment that will probably be seen over the next couple of years. Their performance is excellent for both the short and long term. American Realty Fund performed very well, and Ocoee's fund will just continue to accept those income checks. Fiscal year -to -date it is up 8.5% which is very good. Page 18 Fiscal year -to -date the returns show that net of fees the fund is at 7.64 through the end of June. The negative returns will be dropping off and the overall four -year smooth will improve the City's returns. On page 14 the contribution to the Templeton Global Bond General Employees Retirement Board July 31, 2013 Page 5of11 Fund is shown. It was made the 1 week in June. International bonds were down at that time. Ocoee was not in the fund for the full quarter, so it did not experience all of that down side. Page 38 and 39 Compliance check list contains a few no's and quite a few yes's. For three years there was a 10.3% return and the index benchmark was 11.5 %. The plan was in the 78 percentile rather than the 40 percentile which was the target. On a five year time period, the plan at 6.5 outperformed the index which was 5.7. Bonds were in compliance across the board. The equity portfolio was up 15.5% with the index up 18 %, but still, Mr. Nash said, that is fine. Chairman Wagner said that on equity side, changes have been made, and it is a little early to worry, but he said performance should always be equal to or better than the index. Going forward, that is something that really needs to be focused on. If the fund doesn't maintain the index, then what is the point of spending the money on investment advice? Mr. Nash agreed that it has been a short time period. Chairman Wagner asked if anyone anticipated going through another downturn. Mr. Nash said he thinks those same issues are still bubbling to the top, yet it is hard to say how the markets will react. He thinks that we are seeing the market be more a function of the actual earnings of the stock more so than whether or not the economy is good or bad. The economy stinks right now, Mr. Nash said, given unemployment. The stock market, however, has been steadily gaining. He thinks that we will still have political gridlock, but it becoming less important in the evaluation of what the stock market will do. Chairman Wagner asked if Bogdahn saw anything on the horizon that could influence the action of the stock market. Mr. Nash replied that aside from the overall political climate, they do not see anything that would be a dramatic roadblock that would cause the fund's performance to deviate from where it is. Chairman Wagner asked if the board members had questions /comments. None did. Chairman Wagner said the auditors were performing the audit and in talking with them, the comment was made that the consultant is not being timely with getting policies implemented. The auditors are looking at last year. He concluded that they need to have the paperwork done and ready. Mr. Nash said that he would make the case that the investment policy statement fully allows for everything that they are doing (the board and its consultant) with the only thing being changed is specifically listing benchmarks. Real estate, he explained, was a brand new asset class. This should be added to the investment General Employees Retirement Board July 31, 2013 Page 6 of 11 policy statement and filed with the city clerk and the state 31 days prior to investing. He reminded the board that last year they had a special meeting to make such changes last year in December. Further discussion ensued. Mr. Nash concluded there is now an investment policy statement which includes the official benchmarks for the global bonds. He said that he will make sure going forward that care is taken so that this will not happen again. 2. Investment Policy Implementation Board Attorney Dehner reminded the board that any change to the investment policy statement must be in compliance with the plan's ordinance. The chairman asked if Mr. Nash had a statement to present to the board today. Mr. Nash answered affirmatively. The board had asked Mr. Nash to bring information regarding potential replacements for Barings. Mr. Nash presented his findings. Barings is the current international equity fund. They have 2 million of the 25million portfolio. The 2 million in stock is actually on the small side of the range in terms of purchasing stock. Mr. Nash went over the various choices that could serve as a suitable replacement for Barings. All of the managers are using a fundamental process to pick the funds securities. They look at the balance sheets and income statements to select the stocks that should go in the portfolio. Dodge & Cox would look to buy the least expensive securities if they were selected. They apply a value process to the task looking for the cheapest international stocks. The Europacific fund, though has a growth bias, will get growth and value stocks. Manning and Napier has a growth bias. WHB is a growth manager. Barings has a growth bias. In general all of these managers would fit equally well in Ocoee's fund. Using the printed report that was distributed to the board, Mr. Nash proceeded to discuss the features of the different money managers, comparing them so that the board would be able to make an informed decision. With respect to the performance compared to the index, each of the money managers discussed had exceeded the index including the current money manager, Barings. He concluded that the Europacific fund and Barings had the lowest risk. Barings gets the most upmarket capture followed by Dodge & Cox and Manning & Napier. The fund that will protect the fund when the market is up or down, Barings and Europacific are the best funds. General Employees Retirement Board July 31, 2013 Page 7 of 11 Trustee Gleason asked about the annual long term turnover on page 1. Mr. Nash answered that it is how much we buy and sell stock. Ideally that number should be low because there are costs to trading stocks. Mr. Nash said that turnover is a great feature to look at. Barings came out a bit higher because they've increased their Japanese stock. The fund has reduced their exposure to Japan. The number of holdings is important as well. The Europacific has 200 securities; Dodge & Cox has 81; Manning and Napier has 72 names, WHV has only 32, and Barings has 58 names in their portfolio. The index has 25% of its stocks in emerging markets. Dodge & Cox has 15% in emerging markets. Europacific is the same as the index at 25 %, Maiming and Napier has 6.7 %, WHP has 6% and Barings has a little less than 1 %. Mr. Nash reiterated that his firm is confident about Barings performance going forward, but he acknowledged that it is ultimately the decision of the trustees. Chairman Wagner queried the board for their input. Vice - Chairman Wheeler said that it is a coin toss. Trustee Gleason said that she favors slow and steady progress with little volatility. Chairman Wagner said that when one looks at bonds in the longer term, there is not as much difference between the managers. He said that it is the recent history where Barings has not done well. He asked if they are doing something now that makes them look better than the other choices. The chairman noted that in the past, Barings had performed well. In answer to Trustee Gleason's question about what caused the poor performance Mr. Nash said it was the Japan involvement that hurt Barings. The manager benefited from its stocks in Japan for a while, but then the situation reversed itself. Mr. Nash concluded that the underperformance of the Barings was specific to the one quarter in December. The manager has not yet done worse in a down quarter. Barings, he said, has been in this business a long time. They are headquartered in the UK so they have great exposure to and understanding of the international markets. Bogdahn expects them to continue to do a great job given their process and the fact that there team (the folks working there) has not changed, but Mr. Nash acknowledged that the trustees are focused on returns. If the board is looking to change and gain a manager that does well during down turns and have less volatility, he would recommend Europacific. Vice - Chairman Wheeler pointed out, however, that Europacific has 25% percent of its stock in emerging markets. Mr. Nash acknowledged that fact, but pointed out that the manager had performed well despite this fact. Vice - Chairman Wheeler noted that the fees (that they would charge Ocoee's fund) of Europacific were low. Trustee Grafton said that she was on the board when they stuck to Merrill Lynch to the bitter end out of loyalty. She said that she would like to stay with Barings for another General Employees Retirement Board July 31, 2013 Page 8 of 11 quarter. Trustee Gleason agreed about waiting a bit longer before making a change. Mr. Nash said that predicting with any certainty how a manager will perform is one of the biggest challenges. Chairman Wagner said that he did not see any reason to change right now. He said that the board could hang in there another quarter, since over the long term, Barings looks okay. If the board needs to readdress the matter, they can. The trustees agreed with the chairman. Chairman Wagner took that as consensus that they will take the report as education, and give Barings a bit longer. Mr. Nash agreed and said that if the board should change its mind, they now have lots of information to make an informed change. With respect to the investment policy statement (IPS), Mr. Nash went over the changes with the board. Page 2 has two changes: on the performance table the target was 25, it used to be 35. The range was 20 to 40, now it is 20 to 30. Global fixed income has an asterisk. There used to be a line item labeled tips, but that has been removed since there is no tips portfolio. With global fixed income the target is 5 %, the range is 0 to 10. The index for Templeton Global Bond Fund is City Group World Government Bond Fund. Lastly, real estate has a target of ten, range of 0 to 15 and it is the NAREIT Property index. At the bottom of section 3, line item A, number one in the target table, number one is the official overall policy going forward. The fund will always be compared to 45% Russell 3000 index, 15% MSCI All Country World Index, 25 % Barclay Aggregate, 5% Citigroup World Bond Index, and 10% Core Real Estate Index. Those are the two sections where the changes are with everything else remaining the same. Behind page 8 there are individual manager addendums. Brown's addendum shows their growth limitations, etc. GAMCO's addendum is on the second page and is identical to Brown's. Agincourt is the last one, with the only change being that they need to follow Ocoee new master IPS. Motion having been made by Vice - Chairman Wheeler, seconded by Trustee Grafton, to adopt the investment policy statement dated July 31, 2013, authorizing the board chairman to sign the statement, and that all necessary filings be handled by Bogdahn, and that motion having passed unanimously, the board RESOLVED to accept the new investment policy statement. The attorney acknowledged that Mr. Nash stated that Bogdahn will see that a copy of the signed statement will be sent to the State, the city, and the actuary, with a signed copy to Mr. Dehner, the fund's attorney. General Employees Retirement Board July 31, 2013 Page 9 of 11 C. Interim Auditor's Report The chairman reported that one of the things the auditor's noticed right away was a $76,000 deposit to the fund above and beyond the City's regular contribution. The finance department realized that this was the normal contribution made to the Police and Fire pension fund. About 26 days later, there was a reversal and the money went back to the City. The auditor said this was not handled correctly. The chairman concluded: 1) the board should have been notified of the matter and 2) the money should not have been removed from the fund. The auditor says that the board should have cut a check back to the City and a notation made to the record. The auditor will include this in his report. Chairman Wagner sought the legal opinion of the attorney because the fund is a trust fund. If the bank can pull money out the fund at will, it is disturbing. Board Attorney Dehner said that the money should not have come out of the fund the way it did. Trustee Grafton asked who reads the report that the bank sends. Chairman Wagner answered that the bank sends a very thick statement each month. The auditor says that it is within the first few pages whereby deposits are discussed. Further discussion ensued. Board Attorney Dehner said the custodian should not have done anything without direction by the board. Chairman Wagner said that he does not want this to happen again but he needs to know how to proceed. Board Attorney Dehner recommended contacting City staff first. Chairman Wagner said it might be good to have the City send written communication to the board as to what happened. Further discussion ensued. The attorney recommended that the board have a bank representative at the next meeting. Mr. Nash was asked if the fund made any money off of the deposit. Mr. Nash responded that the amount would have been de minimus. The chairman stated that he will contact the bank to have a bank representative present at the next meeting. Board Attorney Dehner asked if there are standing directions to the bank as to what to do if a large lump sum is presented to the fund. Mr. Nash answered that there is a standing letter of direction, but if the amount is over $200,000, the bank is to notify the board. The attorney said that the board does not know where the deposit was allocated. He asked if Mr. Nash could check on that. Further discussion ensued. Chairman Wagner said that he would investigate further, invite a bank representative to the next meeting, and the chairman will discuss the matter with the city manager. Chairman Wagner asked what would happen if the bank made the mistake of depositing the funds in the wrong account. Board Attorney Dehner responded that if there were damages, then the bank would be responsible. The attorney asked to be kept informed of the progress made concerning this matter. General Employees Retirement Board July 31, 2013 Page 10 of 11 DISCUSSION ITEMS Florida Public Pension Trustees Association (FPPTA) — Upcoming events. *The chairman realized that he missed the quarterly retiree activity report, so he went back to it. Returning back to this item, the chairman asked who would be attending this next meeting. Trustee Grafton reported that at the last FPPTA function she attended, that the organization will be placing their institute online which will be cheaper than having to attend and pay for a hotel and food. There has been no word as to when this will happen, but it is being planned. No trustees will be attending the upcoming FPPTA event. ATTORNEY COMMENTS Senate Bill 534 — This imposes additional filing requirements on defined benefit programs across the state. Several groups are challenging the bill on constitutional grounds. There is no value to the fund to complying with the bill. There needs to be a calculation of the liability of compliance. The attorney will keep the board posted. He is optimistic that the board may not have to comply until October 1, 2014, if at all. The attorney has drafted an amendment to the ordinance of the new Internal Revenue Service policies. The attorney reminded members to file their financial disclosure forms. Chairman Wagner said that he thought that the city clerk notified those who have yet to file. The recording clerk that there is a report provided by the supervisor of elections, but she was not sure if the city clerk has access to the report as of yet. Chairman Wagner brought up an employee (Officer Butler) who had been in both the Police /fire pension fund and the general employee's pension fund. The employee wanted to know if he could combine the years together from both funds. Chairman Wagner said that his thoughts are that they are two separate pension funds and cannot be combined. Board Attorney Dehner said that the ordinance provides that total city service counts in each plan for vesting purposes and for eligibility for retirement purposes, but not for benefits, negating combining the years of service for the two plans. General Employees Retirement Board July 31, 2013 Page 11 of 11 COMMENTS FROM TRUSTEES / CITY LIAISON Elections will be held in September (Chairman Wagner) and Trustee Grafton is up for reappointment. The attorney's records agree with the chairman. Further discussion ensued. The chairman remarked that the clerk's office will conduct the election. AGENDA FOR NEXT MEETING 1. Auditor will be present. 2. Bogdahn's report 3. Fifth Third representative and city staff COMMENTS FROM PUBLIC None. ADJOURNMENT There being no other business, the meeting was adjourned at 12:06 a.m. ' -sp ctfully submitted by: Ap. o -ed by: 1� AI / /( /_t-e( :tella McLeod, Muni. ? : ec. Coordinator Russell B. Wagner, RB Chairman GERB Recording Clerk