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HomeMy WebLinkAbout2008 09 17 Board of Trustees Special MinutesCITY OF WINTER SPRINGS, FLORIDA DRAFT MINUTES BOARD OF TRUSTEES SPECIAL MEETING SEPTEMBER 17, 2008 CALL TO ORDER The Board of Trustees Special Meeting of Wednesday, September 17, 2008 was called to Order at 6:31 p.m. by Chairman A. Mark Sardo in the West Conference Room of the Municipal Building (City Hall, 1126 East State Road 434, Winter Springs, Florida 32708). Roll Call: Chairman A. Mark Sardo, present Vice Chairman Michael S. Blake, present Board Member Maria Fair, present Board Member David W. McLeod, present Board Member Vernon Rozelle, Jr., present Board Member Vernon Rozelle, Jr. led the Pledge of Allegiance. A moment of silence followed. REGULAR AGENDA REGULAR 600. General Services Department Representatives From Federated/SBA (State Board Of Administration) And The Florida League Of Cities Will Be On Hand To Make Presentations To The Board Regarding Their Respective Investment Vehicles. Mr. Kevin Smith, Director, General Services Department explained to the Board that the City Commission was interested in the Board's recommendation on whether to invest the Reserve monies back into the State Board of Administration (SBA); the Florida League of Cities (FLC); a combination of both; stick with T [Treasury]-Bills or to use another vehicle to invest the funds. Mr. Mark W. Blocs, Participant Consultant -Florida SBA Relationship, Federated Investors, Inc., Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania: addressed the Board as the new manager of Florida's Local Government Investment Pool (LGIP) Fund and on the merits of his organization. Mr. Blocs passed out a handout called "Presentation to: Winter Springs, FL September 17, 2008". CITY OF WINTER SPRINGS, FLORIDA DRAFT MINUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 2 OF I I Mr. Bloss then commented on Federated Investment's management function which includes Analysts, Portfolio Managers, and Traders. Mr. Bloss addressed preservation of capital, liquidity, and yield. Due to technical difficulties, the portion of the above Meeting was not recorded. Mr. David West, CFA, The Bogdahn Group, 340 West Central Avenue, Suite 300, Winter Haven, Florida: asked Mr. Bloss, "How long has this team been together; turnover of the teams?" Mr. Bloss replied, "The three (3) Portfolio Managers have been there -the average is nineteen (19) years -and for the Investment Analysts - if you lumped them together, that's about twelve (12) years. So, there is virtually no turnover. I mean, the turnover's been practically non-existent." Discussion. Next, Mr. West inquired, "Structurally, is -this [Local Government Investment] Pool, is this -group's sole responsibility?" Mr. Bloss responded, "No, this group does all the Prime Funds -now, the [Local Government Investment] Pool will soon hopefully, let's say by January 1St, be exactly like our other AAA rated Prime Funds." Much discussion. Vice Chairman Michael S. Blake asked, "So far nothing's been paid out of [Local Government Investment] Pool B or [Local Government Investment Pool] A at a discount?" Mr. Bloss replied, "Everything in - [Local Government Investment] Pool B has been at par." Vice Chairman Blake continued, "And [Local Government Investment] Pool A, of course, as well, right?" Mr. Bloss remarked, "Right." Further discussion. Mr. West inquired, "Could you explain how the structure of the Agreement would work? You're a registered Investment Manager working for, essentially working for the [Local Government Investment] Pool. Now -the City engages into an Agreement with who?" Mr. Bloss replied, "The [Local Government Investment] Pool -not with Federated [Investors, Inc.]. Our contract is with the SBA (State Board of Administration)." Mr. West asked, "In that contractual Agreement is there any provision for guarantee of loss?" CITY OF WINTER SPRINGS, FLORIDA DRAFT MINUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 3 OF 11 Mr. West continued, "Since the City's contracting with the [Local Government Investment] Pool, not with an Investment Manager, could you maybe explain the - differences of recourse available?" Mr. Bloss said, "Certainly we have E & O (Errors & Omissions) coverage, that kind of thing -we're not guaranteeing the [Local Government Investment] Pool if there were a loss, an Investment loss. That's something that we, no, we do not put our guarantee and is kind of clear the [Local Government Investment] Pool in the State of Florida didn't guarantee it the last time around. So, bear in mind -we've been in this business now for thirty-five (35) years. We have hundreds of Funds. We've never broken a dollar; we've never had to kick any money back to a Fund." Much discussion continued. Mr. West said, "Since we're contracting with the [Local Government Investment] Pool, if let's say there's a Lehman Brothers [Inc.] issue type, like some Money Market Funds are experiencing out there, the -make whole, if you will, if there is one, has to be done through the [Local Government Investment] Pool, not through Federated [Investors, Inc.]. I understand Federated [Investors, Inc.] has an excellent track record in managing Money Market, but -the City would be engaging with the [Local Government Investment] Pool, so - has a line of credit been arranged or -are there other make whole provisions available to preserve the buck, if you will, because this would happen to be done through the [Local Government Investment] Pool, obviously not through Federated [Investors, Inc.]." Mr. Bloss said, "While I cannot speak for the SBA (State Board of Administration) because - I don't work for them - I don't believe there has been - I don't think there is any. I think what they're doing is to prevent this kind of issue from happening again. They're not trying to come up with a line of credit to make good on a Security that goes bad. They're trying to hire a professional Money Manager that has an unblemished track record for thirty (30) years and -that's how they're -trying to see that this -never happens again." Discussion. Regarding FedPorts, Mr. Bloss mentioned, "We have a trading system; it's a proprietary trading system and what we do in the case of the SBA (State Board of Administration) [Local Government Investment] Pool, we program into this -trading system all of the restraints; all the things we can do or can't do. It's a AAA rated [Local Government Investment] Pool; there's Florida Statutes we have to comply. It all goes in there; average maturity, whatever. And then when our Traders go - to make trades, if for some reason -that they were to buy something that wasn't eligible, this kicks it out -and so, you have the human factor, but you also have a -computer here also checking to make sure that if there is some human error, that it can't happen. CITY OF WINTER SPRINGS, FLORIDA DRAFT MINUTES BOARD OF TRl1STEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE40F it Mr. Blocs continued, "It can't happen; there can't be any mistakes made because of this proprietary system that -Federated [Investors, Inc.] designed it; we maintain it ourselves and we're very proud of it." Discussion ensued on Rule 2a-7. Mr. Smith asked Mr. Blocs, "Is there something then to prevent the SBA (State Board of Administration) from changing their mindset and saying, `We're going to go the exemption route then as opposed to follow the [Rule] 2a-7'? Are they perhaps doing it now because -times are tough and they're under the gun?" Mr. Blocs stated, "I don't know." Mr. Blocs continued, "I don't see them -moving off of that -quite frankly, they'd -probably have to get rid of us because that's the only way we run a company. Every Fund we run, every Money Fund we run is under [Rule] 2a-7." Mr. Smith said, "I think that's an important point - is it fair to say from Federated [Investors, Inc.] standpoint that if the SBA (State Board of Administration) came to you -and said, `You know what guys, we don't want to operate like [Rule] 2a-7. We want to -take advantage of this exemption'. You all would pack your bags?" Mr. Blocs replied, "I mean, we'd have to - I can't say that for sure, Kevin [Smith]." Much discussion. Mr. Blocs mentioned, "Here's the five (5) reasons why I think you should invest in the [Local Government Investment] Pool. First off, because of Federated [Investors, Inc.]; we're -one of the biggest and best Investment Managers and most conservative Investment Managers - of Money Market Fund Managers in the country. Number two (2), it's run under tighter constraints; it's got the AAA rated. Number three (3), you can put any money in now and it's a hundred percent (100%) liquidity. Number four (4), the new legislation gives -new safeguards to the participants." Mr. Blocs continued, "The yield is very attractive with this Fund. But I'll tell you why it's attractive. It's not attractive because Federated [Investors, Inc.] is reaching for yield. It's attractive because the expense ratio is ridiculously low." Board Member Maria Fair asked, "And that is?" Mr. Blocs replied, "That is three and a half (3 '/2) basis points; three point six (3.6) basis points." Discussion. Mr. Blocs said, "You're going to have a AAA rated product with a stable Net Asset Value and a very attractive yield. And the yield is going to be so attractive because the fee is so low, not because we're reaching for yield." Further discussion. CITY OF WINTER SPRINGS, FLORIDA DRAFT MINUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 5 OF 11 Mr. West asked, "The Fund engages in Securities lending?" Mr. Bloss replied, "No." Mr. West continued, "Any plans to engage in Securities lending?" Mr. Bloss continued, "No -there are some Funds that we have that we have to get specific and it's -not permissible in the SBA (State Board of Administration), so we -will not be doing sec [securities] lending." Discussion continued. Chairman Sardo called a Recess at 7:23 p. m. The Special Meeting was called back to Order at 7:31 p. m. Mr. Dustin Heintz, Investment Services Manager, Florida League of Cities, Inc., Post Office Box 1757, Tallahassee, Florida: addressed the Board on what the Florida League of Cities offers and its structure and handed out a documents called `Florida League of Cities, Inc. Department of Financial Services' and `FMIvT The Key To Unlocking A Diversified Portfolio'. Much discussion. Mr. West asked, "The City would be contracting with this legal entity, the [Florida] League [of Cities]?" Mr. Heintz replied, "You would actually be joining the [Florida Municipal Investment] Trust, so, you would be a Member of the [Florida Municipal Investment] Trust. The [Florida] League [of Cities] is just the Administrator of the [Florida Municipal Investment] Trust. So -you would have to join the [Florida Municipal Investment] Trust in order to invest." Further discussion. Tape 1/Side B Discussion continued. Regarding an additional benefit, Mr. Heintz said, "Our liquidity on our High Quality Government [Fund] in the 1-3 [Year High Quality Bond Fund] is twice a month. It's not daily liquidity; we're not a Money Market type account or we're not a checking account like a lot of the people are using the SBA (State Board of Administration) for; where they are paying payroll out of it and doing a lot of things out of that. We're an Investment Trust and we're looking more towards Investments." Further discussion. CITY OF WINTER SPRINGS, FLORIDA DRAFT MINUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 6 OF 11 Mr. West asked, "Should we view the -High Quality Government Fund as kind of the [Rule] 2a-7 equivalent?" Mr. Heintz said, "It's the closest." Mr. West continued, "And for that Fund, are there liquidity provisions available, a line of credit - in the event there is a run at the door?" Mr. Heintz explained, "There is not a liquidity provision." Mr. Heintz continued, "It's Investments; there's no guarantee in Investments." Discussion continued. Mr. Heintz distributed a document called, `FMIvT High Quality Government Fund Unaudited Holdings as of 9/16/08'. Further discussion. Mr. Heintz said, "The intent is definitely there to make sure that -we're protecting participants; we're protecting the Cities and we're really looking out for the best interest of -the [Florida Municipal Investment] Trust itself" Discussion. Mr. Heintz said, "We don't follow the [Rule] 2a-7 perimeters exactly, but we feel like we're even more conservative then them. Because we don't follow the [Rule] 2a-7 perimeters exactly, S&P (Standard & Poors) [500] rates it as a -AAA `F' Fund." Brief discussion. Mr. West asked, "Does the [Florida] League [of Cities] follow the same general - [Rule] 2a-7; the same SEC (U.S. Securities and Exchange Commission) disclosure, performance calculations, etc..." Mr. Heintz replied, "...Yes..." Mr. West continued, "...Even though it's not technically?" Mr. Heintz added, "Yes, we use performance -information. All of our performance reporting comes from our Asset Consulting Group. They run everything within those perimeters and even more so, they run everything within CFA (Chartered Financial Analyst) and AIMR (Association for Investment Management and Research)." Much discussion. Mr. Heintz said, "We are in Securities lending, I'm afraid to say. The High Quality Government Fund is not. We wanted to maintain the high quality nature of that; we wanted to maintain the safety of that and we didn't want to have any problems with that. So, that is strictly Treasuries and Agencies only." Discussion continued. CITY OF WINTER SPRINGS, FLORIDA DRAFT MINUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 7 OF 1 I Regarding the 1-3 Year High Quality Bond Fund, Mr. Heintz said, "Quite honestly, I don't feel comfortable sitting here and saying that right now is a great time to be in the 1- 3 [Year High Quality Bond Fund] because of Securities lending; because of we're at with that and with the market its really a challenging environment and we don't know. We feel like we kind of got everything ear-marked and we hope that we're in a good place, but we're going forward." Mr. West asked, "Going forward, are you able to renegotiate the -Pool indemnification with providers?" Mr. Heintz replied, "We're just looking at it and working on that." Mr. Heintz continued, "We're looking at it; we're trying to figure out how we can do that going forward, but we haven't been able to do anything yet." Discussion. Mr. Heintz said, "I hope that if you have any questions, even if you're not invested with us; even if you're not interested in working with us and things like that, if you need any information; if Kevin [Smith] needs any information or Michelle [Greco, Director, Finance Department], if you guys need anything, I hope you know you're more than welcome to call us. We'll do anything that we can in our effort to help provide that for the City." Much discussion. Board Member Fair asked, "How are you and The Bogdahn Group compensated for partnering this Fund for the City with this?" Mr. West stated, "We get absolutely no compensation." Vice Chairman Blake noted, "Dave [West] and The Bogdahn Group is here this evening merely as - an accommodation to a request by the City that they have another engagement with, really just to give us a separate set of eyes." Discussion continued. Mr. Smith said, "In the scenarios that we presented to the Commission - we have included a hundred and twenty-five thousand dollar ($ 125,000.00) -increased interest earning factor in those calculations -and that's based on either going back to the SBA (State Board of Administration) or some Investment vehicle that would return more -than T [Treasury]-Bills." Vice Chairman Blake asked, "I'm curious as to what assumptions were used for -the base number that you added one twenty-five ($ 125,000.00) onto?" Mr. Smith said, "Well, we're always conservative." Brief discussion. CITY OF WINTER SPRINGS, FLORIDA DRAFT MINUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 8 OF 11 Mr. Smith continued, "We did significantly discount and be -extra conservative on our - numbers." Vice Chairman Blake recommended, "I think it's a question that you need to consider going forward because if you're using a number that's currently artificially high..." Mr. Smith stated, "...No, it's artificially low." Vice Chairman Blake continued, "If you are using a number that's artificially high, especially based on the change in the marketplace in the last two (2) weeks, then you're flawed from the beginning." Mr. Smith stated, "That is the reason that we significantly discounted our -projections, even more than we would, quote, normally do in being conservative. So, I understand and they are not artificially high." Further discussion. Tape 2/Side A Discussion continued. Board Member Fair distributed information to the Board about Federated Investors, Inc. and commented, "I just absolutely cannot see how we could possibly recommend to the City Commission to put any money at all currently into the SBA (State Board of Administration)." Board Member Fair continued, "Now in December [2008], if all this gets washed out and according to the maturity dates on this list of Securities currently held in Pool `A', then I would like to see a new list. I want to see the Securities that are held in that Portfolio. But as - it stands now, I absolutely could not recommend, me personally." Further discussion. Next, Board Member Fair passed out information to the Board related to Atlanta Capital Management Company, LLC. and noted, "Now looking at the Asset Quality, I can see how it would be AAA. You do not see anything in here that lends itself to say `red flag'. So, between the two (2), I -personally see that it would be prudent for the City to consider utilizing at least the High Quality Government [Fund]. Now the other would depend. It would depend on your short term cash needs. There is the issue of the twice a month liquidity." Manager McLemore stated, "That's not a problem." Board Member Fair continued, "I felt like the quality of the Portfolio was exceptional." Lastly, Board Member Fair passed out a handout called `Failed Bank List' and discussion ensued on this information that was provided to the Board. C[TY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 9 OF 11 Board Member Fair stated, "I do believe that it is in the City's best interest to consider extremely high quality product and the insurance part really matters not at this point because we have already had so many bank failures that it is - a problem no matter where you go. And so I don't know we are not going to see other problems down the road and maybe revisit some of it a little bit later, but Iwould -definitely stick with the higher quality. Iwould not go with the SBA (State Board of Administration)." Discussion. Next, Board Member Fair remarked, "I do think all these things weigh into the decision that you have before you at least in the short term, between now and the end of the year - why can't you revisit this again later? And maybe the SBA (State Board of Administration) will have a better choice then when some of these bad Securities are washed out of its [Local Government Investment] Pool." City Manager Ronald W. McLemore asked, "My question would be, based on what you said, then is the [Florida] League [of Cities] an acceptable alternative at this time?" Board Member Fair answered, "I think it is a great alternative, based on the research that I have done and the underlying quality of the Investments." Further discussion. Board Member Fair suggested, "I definitely would not do the SBA (State Board of Administration) at this time. Iwould like to see their -new line up with Federated [Investors, Inc.] at the beginning of the year when these things have matured." Discussion continued. Next, Board Member Fair said, "I would go -strong to say that the Treasuries and the Government Agencies that are in this High Quality [Government] Fund are far more safe right now than a Certificate Of Deposit simply because of the aggravation and the hassle that we would have to go through if we had money in CDs (Certificate of Deposit) in Washington Mutual [Inc.] or FAIRWINDS Credit Union and those banks failed." Further discussion. Board Member Fair mentioned, "I actually visited both websites for the [Florida] League of Cities as well as the SBA (State Board of Administration). And I can tell you that all of the information in the [Florida] League of Cities is very transparent; it is right there everyday. Anything you want to know about these Funds is on there. Now SBA (State Board of Administration), not so much." Discussion. CITY OF WINTER SPRINGS, FLORIDA DRAFT M[NUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 10 OF 11 Regarding the State Board of Administration (SBA), Vice Chairman Blake said, "They are still in the transitional stage which is exactly the reason I would not want to put money in there." Further discussion. "I WOULD LIKE TO MAKE A MOTION THAT WE RECOMMEND TO THE CITY COMMISSION THAT THEY VOTE TO KEEP THEIR CURRENT INVESTMENT POLICIES IN PLACE WITH THE RESERVE TREASURY - FUND, BUT ALSO RECOMMEND THAT THEY MOVE UP TO, BUT NOT TO EXCEED TWENTY-FIVE PERCENT (25%) OF THEIR FREE AVAILABLE CASH RESERVES INTO THE FLORIDA LEAGUE OF CITIES MUNICIPAL INVESTMENT TRUST TYPE QUALITY GOVERNMENT FUND PORTFOLIO." MOTION BY VICE CHAIRMAN BLAKE. BOARD MEMBER McLEOD ADDED, "WE WOULD LIKE TO REVIEW THIS AGAIN IN SIX (6) MONTHS." DISCUSSION. SECONDED BY BOARD MEMBER FAIR. DISCUSSION. VOTE: VICE CHAIRMAN BLAKE: AYE BOARD MEMBER McLEOD: AYE BOARD MEMBER ROZELLE: AYE CHAIRMAN SARDO: AYE BOARD MEMBER FAIR: AYE MOTION CARRIED. Manager McLemore asked for a point of clarification, "Are you saying in terms of our total overall assets that no more than twenty-five percent (25%) would be in the High Quality [Government] Fund?" Board Member David W. McLeod replied, "Of the twenty million [dollars] ($20,000,000.00)." Vice Chairman Blake added, "Of the twenty million [dollars] ($20,000,000.00) - of the currently liquid reserve. Now, if more comes out of SBA (State Board of Administration) than that can then be part of that -pot that twenty- five (25%) can be calculated on." Discussion. Manager McLemore asked, "And we review it again in March [2009]?" Board Member Fair said, "March [2009]." Vice Chairman Blake noted, "There about." Board Member McLeod said, "End of March [2009]." C[TY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING -SEPTEMBER 17, 2008 PAGE 11 OF l l Further discussion. Mr. Smith said, "On behalf of the Commission, we appreciate your participation in a non- Pension event, but I know the Commission appreciates it." ADJOURNMENT Chairman Sardo adjourned the Special Meeting at 8:58 p.m. RES'~~C'.TF~`LL v.S UBMITTED: `. _ l ~ ~~'~ DR JIELL'1/ HARDER DEP~JTY CIS F CLERK. NOTE: These Minutes were approved at the October 28, 2008 Board of Trustees Regular Meeting.