HomeMy WebLinkAbout2002 10 08 Board of Trustees Special Minutes
CITY OF WINTER SPRINGS
MINUTES
BOARD OF TRUSTEES - PENSION PLAN
SPECIAL MEETING
OCTOBER 8, 2002
I. CALL TO ORDER
The Board of Trustees - Pension Plan Special Meeting was called to order by Chairman
Robert Nippes, on Tuesday, October 8, 2002 at 6:40 p.m. in the Commission Chambers
of the Municipal Building (City Hall, 1126 East State Road 434, Winter Springs, Florida
32708).
Roll Call:
Chairman Robert Nippes, present
Vice Chairman Vernon Rozelle, arrived at 6:43 p.m.
Board Member Vincent Giannoni, present
Board Member Mark Queen, absent
Board Member Mark Sardo, present
II. REGULAR
REGULAR
A. Opening Comments.
Mr. Steven Alexander, CCM, Senior Managing Consultant, Public Financial
Management, 201 South Orange Avenue, Suite no, Orlando, Florida: presented to the
Board, a booklet which included a "Scoring sheet" for each firm's proposal.
Vice Chairman Vernon Rozelle arrived at 6:43 p.m.
REGULAR
B. Presentation By Trusco Capital Management.
Presentation commenced with Mr. Steve Gordon, Vice President, Trusco Capital
Management, 300 South Orange Avenue, Suite 1600, Orlando, Florida.
Board Member Mark Sardo asked Mr. Gordon regarding the fourth quarter and the first
quarter, "Would you change your positions?" Mr. Gordon said, ''No sir. Tim [Nash,
Trustco Capital Management] will talk to asset allocation. But just from the stock funds
that we manage, it is a continuous process - it is an ongoing process so we will position
ourselves with the stocks that we think have the best earnings trends. And if one falls off,
then another one will bubble to the top. It is a continuous evaluation process. We do not
start at the top and say it is now time to buy whatever sector, and then go in and look for
the individual stocks in that sector. We start at the bottom and see which companies have
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good earning trends. And then within our parameters of making sure we do not have too
much in anyone sector, or too much in anyone stock, we build a portfolio from the
bottom up. So it is a continuous, evolving type of thing."
Board Member Vincent Giannoni asked about "Cross-selling products and services". Mr.
Gordon stated, "If you indicated you had a need for some other service that we are not
providing, and we have it, we would be happy to offer it to you."
Board Member Giannoni then inquired, "Do you have any relationship with - for
example IPO's. Do you promote?" Mr. Gordon stated, "We have a completely separate
subsidiary in Suntrust called Suntrust Securities that does brokerage. We do not do any
marketing ofIPO's or anything of that nature. We occasionally buy an IPO, for instance
a spin-off of a major corporation may well have a documented track record with earnings
that have been split out. We would look at an IPO if it is a company that it established
and has good earnings. And we are able to buy IPO's for you if that is an attractive thing.
But we are not involved in any way in bringing companies to market or anything of that
nature."
Mr. Tim Nash, Vice President, Trusco Capital Management, 300 South Orange Avenue,
Suite 1600, Orlando, Florida: addressed the Board.
Chairman Nippes asked, "What assurance, or probability do we have of achieving our
goal of nine percent (9%) expected return, and how do we assure this?" Mr. Nash stated,
"Your actuarial assumption compared to the - as Steve [Gordon] talked about, we manage
about one hundred (100) municipalities, ninety-two (92) within the state of Florida. Your
actuarial assumption is a little bit high compared to the average plan within the state of
Florida. It is typically about eight percent (8%). In the current investment environment
that we are in, none of these plans clearly are going to meet their actuarial assumption for
this year, even if they used a four (4) year smoothing technique. Actually when we look
at the snapshot in time, the numbers that are out there for the last five (5) years, you will
see - that is also below your nine percent (9%) or eight percent (8%). It is about six point
eight percent (6.8%) on average over the last five (5) years. I think when you are looking
at your actuarial assumption you have to go back to longer time periods and look at how
have stocks and bonds performed over more meaningful time periods, rather than just a
snapshot at the last five (5) years."
Board Member Mark Sardo asked, "How quickly do you invest assets once you receive?"
Mr. Nash responded, "Typically once the check arrives on day one (1), the assets are
invested on day two (2). And actually it is good you bring up that point because you
were using our Common Trust funds, which prior to June were valued two (2) times a
month, on the fifteenth (15th) and the thirtieth (30th), actually the last business day. So
we, in the past, only had the ability to move money in or out twice a month. We have
gone to a daily evaluation on all of these funds so that is how we are able to invest on a
daily basis, or withdraw money on a daily basis should you need that for pension, or
checks. So that's actually an enhanced service from the funds."
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Tape I/Side B
REGULAR
C. Presentation By Wachovia Retirement Services.
Mr. William Callaway, Vice President Business Development, Wachovia Capital
Management Group, One Wachovia Center, Charlotte, North Carolina, 28288:
addressed the Board.
Ms. Louise Frangoul, Finance Department Director, asked Mr. Callaway, "Is it my
understanding - for the fee that you have stated we get all the actuarial services?" Mr.
Callaway stated, "No, that was just to let you know that it is there down the road if you
want that. But it will be a basis point charge. I have seen most of them in the one
hundred ten (110), one hundred twenty (120) basis point range." Ms. Frangoul asked,
"And the employee education?" Mr. Callaway said, "That all comes with it. We would
certainly quote secondly on that."
Pension Payroll was discussed with Mr. Callaway stating, "We would do that. It is two
dollars ($2.00) per periodic payment and twenty dollars ($20.00) for a lump sum" in
addition to the basis points.
Board Member Sardo stated, "I noticed in the RFP [Request For Proposal] that we had
asked a question - about how many accounts you had gained, how many accounts you
had lost over the past twelve (12) months and there was no response on your end of that."
Mr. Callaway answered, "I think the reason being is because we had Evergreen assist us
with this response because it was all investment driven. Wachovia Retirement Services
versus Evergreen, I guess we did not know which one to respond to but let me find that. I
do know that it is not in our practice to give you names of departed clients. We do not
give references until we are done. I apologize. I think we can probably get you that
number. There is no reason why we could not answer that. And I will just give you
Wachovia Retirement Services because that is who we are representing, because that is a
product ofWachovia Retirement Services. I think that was probably an oversight."
Board Member Giannoni asked, "Can you provide a percentage right now? What
percentage of clients - what kind of payroll do you have right now?" Mr. Callaway
asked, "Mary Lou [Dixon, Senior Relationship Manager, Wachovia Capital Management
Group], just in our Florida office, how many accounts have we lost in the last twelve (12)
months?"
Ms. Mary Lou Dixon, Senior Relationship Manager, Wachovia Capital Management
Group, One Wachovia Center, Charlotte, North Carolina, 28288: responded, "Well
there are different ways of losing them - so excluding the mergers and acquisitions, we
have got about one hundred ten (110) accounts in our Tampa office. In the last twelve
(12) months I would have to say about four (4)." Board Member Sardo asked, "How
,
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about gaining?" Ms. Dixon stated, "Gains, I think we have added five (5)." Mr.
Callway stated, "I think my RFP team can come up with a number and I can get that to
you tomorrow morning. I can have them fax it to you."
Chairman Nippes asked, "Do you have any client references we can check on?" Mr.
Callaway answered, "Sure, not with me tonight but I can get those to you tomorrow if
that is what you would like."
Board Member Sardo asked, "How do you propose to handle the transfer of assets from
our current Manager to the Evergreen funds? How will you minimize the costs that are
associated with that transaction?" Mr. Callaway answered, "What are you invested in?
Is it all STI funds?" Board Member Sardo stated, "For the most part." Mr. Callaway
said, "They will liquidate on one day and wire the same day, and we can invest it at the
end of the business day." Ms. Dixon said, "But there should not be any fees."
Board Member Giannoni asked, "Do you do any kind of cross-selling in terms of, like if
you have an IPO, would you actually consider other investments that you have other than
the Evergreen - to be put into the portfolio, or just sticking with what you are
recommending here?"
Ms. Robin Herzog Vice President Investment Officer, Wachovia Capital Management
Group, One Wachovia Center, Charlotte, North Carolina, 28288: responded, "If what
you are talking about is individual securities, no. What we are talking about is basically
giving you access to different investment funds. I think the most conservative approach
that we can offer for a plan such as yours, and for all of our retirement plans, is to offer
these different types of investments. Now if the underlying managers take part in IPO's,
any gains that they receive from them would be reflected in the underlying...." Mr.
Callway said, "...I think we are going to stick to your investment policy and I do not
think your policy statement allows for that."
Chairman Nippes asked, "How quickly do you invest assets once the money is received
from us?" Mr. Callaway said, "Same day if we receive them by four (4:00)."
Board Member Sardo asked, "Traditionally, what kind of meetings would you set up with
us as a Committee, how frequently would you meet with us?" Mr. Callaway stated, "We
determine that on a need basis. Some clients need us once a year. Some clients do not
ever want to see us; they want us to deal directly with their Consultant and then they
work with you. If you want us to meet with you on a quarterly basis we will be happy to,
semi-annually we would be happy to. It is whatever frequency. We let you set the
prescribed frequency of our meetings."
Brief discussion developed on Wachovia Retirement Services' capability of providing
web-site access to customers.
Tape 2/Side A
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Mr. Callaway distributed a "Sample" Defined Benefit Statement to Members of the
Board.
Board Member Rozelle inquired about the web-site access. Mr. Callaway stated, "The
sixty (60) to eighty (80) basis points, depending on your portfolio structure that is strictly
for asset management - there will be some additional fees, maybe forty (40) to sixty (60)
more basis points, for the actuarial and the internet, and everything else except for the
Pension payments which is we have a two bucks ($2.00) per check, per month fee. But
we can certainly discuss that. I am not prepared to give you pricing tonight but we can
certainly do that at a later date."
Mr. John Molloy, Consultant, PMF Assest Management LLC, One Keystone Plaza, Suite
300, North Front and Market Streets, Harrisburg, Pennsylvania: asked of Mr. Callaway,
"How do we know when these funds that you are replacing in the line up are funds that
are going to perform well in the future?"
Mr. Callaway said, "It is a consistency of performance that Robin [Herzog] spoke of. It
is a due diligence process that we go through. We are looking at style adherence.
Performance is just one thing. We are looking at performance over the long terms, we
are looking at consistency of performance, we are looking at performance versus peer
group, we are also looking at manager tenure." Ms. Herzog added, "We also do on-site
interviews. Not only do we first have to figure out which Managers are going to be
included in our program to start with, and then once they are in, every single quarter they
have to prove to us why they should continue to be part of our program."
Mr. Alexander asked, "Can you describe what happened from the time that the proposal
was formulated - to your strategy today - your due diligence process, what triggered the
change from your - RFP?" Mr. Callaway stated, "To be honest with you, we responded
to this RFP August 30th. September lih I was at a sales conference in Charlotte and this
new process was written out. This 630 Defined Benefit approved list - something we
have been doing at the Bank for a long time with our wealth management client - but our
bundle of product, we could not go to the market and say it's Evergreen. We needed
more. We have relegated Mass Mutual to an actuary. It was rolled out to me and I said
you know what, this was before we were notified, but I said this is great for our DB
[Defined Benefit] plan prospects, customers. It is going to make our bundle of product
just soar because we have that flexibility. That is what happened. It is not new to the
Bank, it is new to me, it is new to our group. It is a tool we have that we did not know
that we had. And quite honestly, it is going to benefit you and all of my other clients."
Mr. Molloy asked, "In light of the way that that program is put together, do you see any
problems or issues with compliance on our investment policy?" Mr. Callaway said,
"Given the Florida Statutes?" Mr. Molloy said, "Given the City of Winter Springs
investment policy." Mr. Callaway asked, "Are you referencing a particular section?' Mr.
Molloy said, "I am thinking about the whole thing." Page eight (8) was referenced. Mr.
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Callaway said, "Item VII, no. Without knowing the portfolio structure of those two (2)
funds at this time, no I can't." Ms. Herzog stated, "I believe many Mutual Funds out
there have a five percent (5%) roll just as you do in your policy statement. So I can
quickly check this. Some of these oppositions are a little dated - but my guess is that the
majority of the funds that we put before you have the same five percent (5%) restriction
that your investment policy statement does."
Mr. Molloy asked, "How often are you adding and deleting managers from this approved
list, and is there a target that you guys have for the number of managers to put in each of
the boxes here. Some of your competitors have thirty (30) to forty (40) funds...." Mr.
Callaway answered, ". ..On our DC [Defined Contribution] side we do. Where I guess
planned sponsors feel that participants need more of a choice.' We do not feel that way on
the DB [Defined Benefit] side. Their ultimate goal is to comply with your policies and
meet your actuarial assumption. If Evergreen is working you are going to see it is not
turning our head on some things. They are currently reviewing for third quarter right
now. As far as adding and deleting, it has got to be on a quarterly basis if any. There
may not be a need for additions or deletions in every quarter. It will happen on a
quarterly basis should that happen."
Mr. Molloy asked, "As you consider changing managers in a program like this, one of the
reasons to change a manager is because performance - and you are looking to replace it
with a manager who's past performance was - worse. So again, how do we make sure
that we are just not chasing performance? If you are going to replace managers - is their
style performance - you are not going to replace them with someone who is worse
performing most likely, but somebody much better. Again, how do we make sure this is
not a process of chase and performance?" Mr. Callaway stated, "Performance is just one
of the due diligence steps that we go through." Ms. Herzog added, "And we do not
necessarily suggest replacing a manager based on one (1) bad quarter, two (2) bad
quarters, four (4) bad quarters. They have got to be falling below our expectation levels
or below that fiftieth percentile (50%) mark on the three (3) and five (5) year basis unless
something dramatic has happened. For example, a manager changes or a company
changes ownership structure; but we are not going to come back here every quarter and
say you know what, one (1) quarter you are underperforming the market, it is time to
replace it. We take a much longer view of the market and a much longer view of the
retirement plan and if it is only on a consistent basis, if we get that three (3) and five (5)
year number, usually when the three (3) year number goes below fiftieth percentile
(50%), that is when I start speaking to my clients about maybe we need to think about
this and I am on the phone with the company finding out what the problem is.
Unfortunately, no one has got a crystal ball. But the best we have is this past
performance, which is no guarantee of future results."
Mr. Molloy asked, "How do you look at the risks of the combined portfolio - how do you
look at the risks of those Managers as they combine with each other?" Ms. Herzog
stated, "We look at the standard metrics out there, standard deviation. We look at what is
available on - Morning Star. Morning Star has got this - function where it will tell you
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the three (3) year or five (5) year risk and return of a fund, below average, above average.
Those are the types of things we look at. What we do not want to see is something with
an above average risk with a below average return. We want to see below average or
average risk, and average or above average, or high returns. Again, when I see those
metrics start to shift, that is when I say something is going on there and I have got to find
out what is going on with the company through my network of wholesalers and speaking
to portfolio managers, and go back and report to my client what is going on."
Mr. Molloy questioned, "All of the managers here are running Mutual Funds - not
separate accounts?" Ms. Herzog stated, "Yes, that is correct. They are all Mutual
Funds. "
Mr. Molloy asked, "And the numbers that you showed on them, are those the net per June
30th?" Ms. Herzog stated, "No, I have the August 31,2002 numbers." Mr. Molloy said,
"So our book that we all have is June 30th?" Ms. Herzog stated, "Yes." Mr. Callaway
stated, "And they are net."
Ms. Herzog stated in regards to Mr. Molloy's earlier question, "The only thing I was able
to find is that occasionally the cash allocation will be more than five percent (5%). I do
not think that violates your policy, or does it - if a cash position in a fund goes above five
percent (5%)."
Mr. Molloy asked, "Could you give us a little bit more explanation on the managers
program. I believe you said it is new to you -." Mr. Callaway stated, "This group in
Jacksonville, - from Wealth Management Group. They have been doing this, they are
part of the Capital Management Group and they just became a part of the Capital
Management Group in 2001. So what they were doing, they were a part of the General
Bank, they came into the Capital Management Group structure, then it became known to
us what they were doing. As integration goes, it takes a while for information to trickle
out. So we realized it was a good thing they were doing for their clients, could we tap
into that. And all they are doing for us is managing this process, going through the due
diligence, applying - results. And then from there, we structure." Ms. Herzog added,
"Once we have the results, you have someone like myself looking at it on behalf of the
plan to make sure that the funds are still meeting the needs and requirements, and doing
the job we put them in the plan to do."
Mr. Molloy clarified, "Let me now try to separate a little bit. With the selection of
managers for the overall program, the recommendation and advice that you have given us
on which managers to use in this plan is the Wealth Management Group that formerly-
manages the overall program, and now is doing that for institutional?" Mr. Callaway
stated, "They are still part of the Wealth Management Group which is now under the
Capital Management umbrella. So we are working together. We are duplicating what
they are already doing. We are tapping into what they have already got established." Mr.
Molloy asked, "How long have they been doing that?" Ms. Herzog stated, "I would
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venture to say that they have been performing the services as long as they have been in
the investment management business."
Ms. Frangoul asked, "On your proposal you listed City of Orlando as one of your
municipal clients for twelve (12) years. Did I understand you say that they are no longer
- and did you just recently lose them, and what would be the reason for that?" Mr.
Callaway stated, "They could be an Evergreen Plan and we would not have that
knowledge because they assisted us with this RFP."
REGULAR
D. Discussion.
Discussion evolved between the Board Members and the Consultants, including appraisal
of the two (2) firms.
Chairman Nippes stated, "As far as performance is concerned, I believe Trustco has
performed over five (5) years better." Board Member Sardo stated, "It seems to me that
Trustco might be more efficient because they have less risk and generate more return for
the same amount at seventy percent (70%), at our large asset allocation."
Regarding Wachovia's asset allocation, Board Member Sardo stated, "I did not get any
clear cut direction on how they came up with their asset allocation."
Tapc 2/Side B
In summary, out of a possible score of one hundred (100) points, the average score for the
firms were as follows:
. Trustco Capital Management: 99
. Wachovia Capital Management: 84.5
MOTION BY VICE CHAIRMAN ROZELLE. "I MOVE THAT WE RETAIN
TRUSTCO AND BEGIN THE PROCESS OF NEGOTIATING A NEW
CONTRACT WITH THEM. THAT MAY BE TWO (2) MOTIONS IN ONE (1)."
SECONDED BY BOARD MEMBER SARDO WHO STATED, "I WILL GO
AHEAD AND SECOND THAT INITIAL MOTION ANYWAY TO RETAIN
TRUSTCO." VICE CHAIRMAN ROZELLE STATED, "I WILL AMEND IT
[MOTION] TO JUST THE FIRST CLAUSE, THE MOVE TO RETAIN
TRUSTCO FOR THE NEXT CONTRACT PERIOD." SECONDED BY BOARD
MEMBER SARDO. DISCUSSION. WITH CONSENSUS OF THE BOARD, THE
MOTION WAS APPROVED.
MOTION CARRIED.
Mr. Alexander stated he would present a draft copy of the contract to the Board Members
because, "It would be a good idea for the Committee to take a look at the contract."
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III. FUTURE AGENDA ITEMS
This Item was not discussed.
IV. ADJOURNMENT
MOTION BY BOARD MEMBER SARDO.
ADJOURN." SECONDED. DISCUSSION.
BOARD, THE MOTION WAS APPROVED.
MOTION CARRIED.
"I MAKE A MOTION TO
WITH CONSENSUS OF THE
Chairman Nippes adjourned the Meeting at 9:09 p.m.
City Clerk\Boards and Committees\Board ofTrustees\all1\MINUTES\1 00802 SPECIAL.doc
NOTE: These Minutes were approved at the October 30, 2002 Board of Trustees-Pension Plan Meeting,