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Home My WebLink About2008 08 11 Informational 102 City Pension Plan's FY 2008 Year to Date Investment Performance COMMISSION AGENDA August 11, 2008 Regular Meeting Consent Informational X Public Hearin Re ular MGR. ~i~~:~'~ ITEM 102 REQUEST: Providing the City Commission with information regarding the City Pension Plan's FY 2008 year to date investment performance. PURPOSE: This agenda item is presented to provide the City Commission with information regarding the City Defined Benefit Pension Plan's fiscal year 2008 to date investment performance. CONSIDERATIONS: The City Pension Plan Advisor, Bogdahn Consulting, presented its review and evaluation of the 3rd Quarter FY 2008 performance of the Plan to the Board of Trustees at its meeting of July 22, 2008. This report evaluates the investment performance of the plan as obtained by the Plan's various new investment managers who began investment management effective October 1,2007. Those managers are as follows: · Snow - All Cap Growth Manger (Domestic) · Lateef - All Cap Value Manager (Domestic) · Voyageur - International Equity Manager · Galliard - Intermediate Fixed Income & TIPS Manager · American Realty - Core Real Estate Manager Bogdahn's report, presented in a new format, continues to include an analysis of fund performance including two basic points of analysis: 1. Comparison of the City Plan's investment performance to associated benchmark returns. Benchmarks are commonly used industry comparisons for investment performance. In other words, "How are we doing compared to the standard?" 2. Comparison of the City Plan's investment performance to a group of other investment portfolios with similar investment profiles. This group is known as a "universe." In other words, "how are we doing compared to other similar plans?" PORTFOLIO PERFORMANCE SUMMARY As of June 30, 2008 Total net return form the fund portfolio is down 10.97% for the fiscal year to date. Total asset value (inclusive of contributions, expenses and earnings) of the fund portfolio as of June 30, 2008 is $16,270,849, down $714,733 from September 30,2007 as follows: Market Value 9/30/07 $16,985,582 6/30/08 $16,270,849 Decrease $714,733 A key factor driving this decrease is the performance of the domestic equity portfolio (Managers Snow & Lateef). This portfolio has returned a negative 17.80% for the fiscal year to date as follows: Domestic Manager Benchmark Equity Manager Performance Performance Delta Snow (20.91)% (18.41)% (2.50)% Lateef (14.71)% (9.75)% (4.96)% Total Domestic Equity Portfolio (17.80)% (14.85)% (2.95)% Additionally, International equity performance is also down 20.17% for the fiscal year to date as follows: International Equity Manager Voyageur Manager Performance (20.17)% Benchmark Performance (12.11)% Delta (8.06)% This performance of the equity managers was mitigated somewhat by the positive performance of the fixed income and real estate portfolio as follows: Fixed Income Manager Benchmark Manager Performance Performance Delta Galliard Core Fixed 1.38% 4.29% (2.91)% Galliard TIPS 10.93% 11.11% (0.18)% Manager Benchmark Real Estate (REIT) Performance Performance Delta American Realty 4.33% n!a n!a The Board of Trustees has expressed its concern over the performance of domestic equities and instructed Bogdahn to provide monthly reports on their performance. Bogdahn's current recommendation regarding these managers is to "maintain the course" for now, continue to closely monitor performance, and revisit a decision on retaining these managers at the next regular Board meeting. If any negative indicators emerge prior to that meeting, Bogdahn will contact staff and request a special emergency Board meeting. FUNDING: n/a. RECOMMENDATION: Informational. ATTACHMENTS: 1. Investment Summary Report page from Bogdahn Consulting Performance Evaluation Report for the Period Ended June 30, 2008. 2. Pages 10, 11, 12, 15 & 16 from Bogdahn Consulting Performance Evaluation Report for the Period Ended June 30, 2008. COMMISSION ACTION: Investment Market Summary 2nd Quarter 2008 A Tale of Two Markets . A quarter marked by contrast ended on a negative note with the S & P 500 erasing early gains of as much as 9% only to finish in negative territory down 42.70 points, or -3.2%. This marks the third straight quarterly decline, and the worse second quarter since 2002. Market volatility remained high with 40% of the trading days experiencing swings of more than 1 % so far this year. A period of contrast, the quarter began on a positive note as Investor sentiment shifted with the perception that Fed's innovative actions had dramatically reduced the risk of a financial system collapse. As a result, credit market spreads tightened dramatically and equity markets moved higher. This relief rally soon faded as the market shifted the focus to the worsening macro economic environment. In a dramatic rise oil spiked 38% to $140 a barrel registering the best quarterly performance since the first quarter of 1999. Other commodities rose as well with food stocks registering gains, led by corn rising 28%. Gold experienced its largest one-day move in 23 years finishing the quarter up 1.1 %. Federal Reserve policy makers, on the heals of seven interest rate cuts since last September, held rates steady and communicated a policy stance that lead to speculation that there could be rate increases later in the year to curb inflation. The quarter closed with investor angst over the economies ability to withstand high energy and food prices placing the Fed policy makers in a quandary between a weak financial sector and rapidly growing inflation pressures. With negative implications for the financial sector concerns of more write downs at financial institutions took center stage once again, including the insolvency of Indy Mac, and prospects of a tax payer lead bailout FNMA and FHLMC. . U.S. equities experienced a period best described as a tale of two markets. Overall market breadth was exceptionally narrow with optimism concentrated in the Energy sector (20.4%), and extreme pessimism continuing in Financials (-16.4%). Information Technology stocks provided a boost for Growth stocks in aggregate which outperformed the financially heavy value indexes. The average growth stock returned 1.25% as measured by the Russell 1000 Growth Index, the Russell 1000 Value composite was down 5.31%. Style affect was consistent across capitalization as small-cap growth stocks delivered 4.47% (Russell 2000 Growth Index) vs. an average decline of 3.55% for the Russell 2000 Value Index. Within the value sector, financial institution woes were expressed most acutely in the share prices of investment banks such as Lehman Brothers Holdings Inc., Morgan Stanley, and Citigroup Inc. amid announcements of more write-downs coming from illiquid and mortgage related assets. Regional banks were also hit especially hard with shares of Fifth Third Bancorp plummeting 51% during the quarter, National City Corp. falling 52%, and Indy Mac Bancorp decling 87.5%. Calendar year to date results shows only two sectors in the S & P 500 delivered positive returns; Energy 8.1 %, Materials 1.3%. All other eight sectors experienced negative returns despite reporting an average earnings growth rate of 12% for the period. The Information Technology, and Consumer Stables sectors reported solid earnings growth of 20% and 15%, yet the average stock with in the sectors has declined 13.2% and 7.5% respectively. . International equity markets: With inflation carrying global implications, and financial repercussions spreading, international equities suffered. Both developed and emerging markets declined in a market environment that remains extremely narrow by historical standards. Viewed by sector, Energy and Materials were the only areas to significantly outperform the index over the last quarter. Like domestic equity, Financials continued to perform poorly and were the worst performing sector in the quarter. Developed country stocks declined 1.9%, which brings the year to date return to -7.4%. Emerging markets, largely influenced by commodity exporting countries faired better declining 0.8% as measured by the MSCI EM Index. . The U.S. dollar managed to strengthen during the quarter diluting international equity investment returns for U.S. investors. The dollar managed a gain of 0.3% against the Euro and 6.5% against the Yen. Tracked against a broader group of 26 currencies, the dollar was roughly flat for the quarter. Remarks by Federal Reserve Chairman, Ben Bernanke early in the quarter suggested U.S. policy makers have become more concerned about the risks posed by inflation, raising the prospect for a rate increase as early as August of this year. Prospects for changes in the relationship between interest rates in the U.S. and Europe lead to speculation that the U.S. currency may bottom after a six year decline. . Fixed income markets began the quarter with a sharp reversal of the flight to quality trade. With prospects for a more restrictive interest rate policy, risk free U.S. Treasuries declined in aggregate, 2.1%. The previous quarters actions by the Fed to sure up liquidity alleviated investors' fears of a systemic financial collapse. This resulted in a relief rally in markets for riskier types of debt. The unwinding of the quality trade resulted in credit spreads tightening dramatically reversing the effects of months of turmoil and uncertainty in a bond market at the epicenter of the financial crisis. The incremental yield or risk premium over U.S. Treasuries declined to 2.68 percentage points from 3.0% at the start of the quarter. Other signs of market optimism included record issuance for new investment-grade bond issues. In aggregate, the bond market declined 1.0%. o BOGDAHN GROUP Defined Benefit Plan & Trust for Employees of the City of Winter Springs Financial Reconciliation As of June 30, 2008 Financial Reconciliation Quarter \Iarket Value \' ,t C 't I "arket 'alue ,\s of T ' el, Contrihutions Uistrihutions Fees E"\penses Income \ ap/ll)a \s of 3/31/211(IS rans ers , ppn'('. epn'c. 6I30/20()S Lateef Asset Mgmt.Equity 4,116,300 106,200 -9,819 -334 14,253 -319,597 3,907,004 Snow Capital Mgmt. Equity 3,765,219 106,200 -6,691 -466 20,593 -226,189 3,658,666 International Equity Portfolio 2,431,259 63,760 .270,411 2,224,548 Voyageur Asset Mgmt. International 2,431,259 63,700 -270,411 2,224,548 Total Fixed Portfolio 5,194,673 118,900 -2,988 4,807 -30,083 5,284,665 Galliard Core Fixed Portfolio 4,203,401 97,600 -2,988 -524 114 -25,933 4,271,670 Galliard TIPS 991,271 21,300 -120 4,693 -4,150 1,012,994 American Stable Value Fund RElT 1,000,756 -12,161 -2,545 14,706 499 1,001,256 R&D Account Cash 147,272 -395,000 541,608 -94,241 -5,570 -398 1,040 194,710 Total Fund Portfolio 16,655,479 541,608 -106,402 -27,614 -1,842 55,400 -845,780 16,270,849 \Iarket Value 1'i,t C 't I "arket Value .\s of l' ' e, Contrihutions Distributions Fees Expenses Income \ ap/IDa \s of 9/30/2007 ranS,l'rs , ppre('. cpn-c, 6/30/2008 Financial Reconciliation Fiscal Year to Date Domestic Equity Portfolio Lateef Asset Mgmt.Equity Snow Capital Mgmt. Equity 538,000 269,000 269,000 49,476 4,324,400 4,331,276 7,124 -190 -7,227 34,149 -20,582 -13,567 1,565 -649 -916 107,344 68,432 61,940 International Equity Portfolio 161,400 12,800 Voyageur Asset Mgmt. International 161.400 2,594,700 Total Fixed Portfolio 301,300 23,906 -164 -4,988 -1,270 Galliard Core Fixed Portfolio 247,400 3,978,500 -168 -4,672 -1,033 Galliard TIPS 53,900 865,000 -37 -316 -237 American Stable Value Fund RElT 750,000 250,000 -24,021 -5,754 R&D Account Cash -1,680,319 18,508,282 -16,648,372 -9,398 -724 Total Fund Portfolio 16,985,582 70,381 34,867,654 -33,694,050 -54,288 -3,558 20,165 19,417 15,064 32,775 25,240 235,824 Page 10 of31 6,913,'89 -733,407 -981,839 2,050,348 -531,552 4,945,721 32,225 79,620 -1,745 1 -2,136,696 7,565,670 3,907,004 3,658,666 2,224,548 2,224,548 5,284,665 4,271,670 1,012,994 1,001,256 194,710 16,270,849 THE BOGDAHN GROUP Defined Benefit Plan & Trust for Employees ofthe City of Winter Springs Comparative Performance Trailing Returns As of June 30, 2008 Oct-2007 . I 1 I (I 1 2 3 .. 5 Smce InceptIOn II Quarfl'r .Jun~2008 \ ear 'ears \ e.us 'ears \ eal S IncepflOn B.lte Total hmd Policy -2.03 (80) ~9.ri3 (76) -6.9] (65) 4.27 (33\ 'i ,., (29) 5.83 (28) 746 (23) 2.78 Nh\ ~ ._~-' Difference -2.78 -1.94 -2.38 -1.91 -1.76 -1.17 -0.69 0.94 Mixed-Asset Target AlIoc Moderate Funds (MF) Median -0.99 -7.05 -5.55 3.55 4.33 4.93 6.01 N/A T"tol Fund PolK)' Difference -2.03 -903 -1.66 -6.91 -1.80 4.27 5.33 oX, -0.47 7.46 2.78 1.65 -2.63 -1.26 -1.08 0.04 Total Equity Policy -'1.57 -14.28 -12.50 3 16 5.80 6.21 898 2.17 Difference -4.85 -3.84 -3.81 -2.37 -1.99 -1.01 -0.22 114 .6.34 S&P 500 -2.73 (83\ -1 '1.85 (77) -13.12 (71) 2.36 (69) 4.41 (78) 488 (85) 7-59 (85) 0.30 N!A Difference -3.61 -2.95 -2.48 -1.71 -1.58 -0.56 0.22 2.25 US CorelLarge Cap Equity (SA+CF) Median -119 -13.25 -11.85 3.09 5.24 6.13 8.58 N/A Lateef Asset Mgmt.Equity -7.28 (99) -14.71 (89) N/A N/A N/A N/A N/A -14.71 N/A 10/01/2007 Russell 1000 Growth Index. U5 (53) -9.75 Wi) -5.96 {56l 5.81 (49) 5.91 {58j 4.84 (7?:) 7.32 OS) -9.75 N/A Difference -8.53 -4.96 N/A N/A N/A N/A N/A -4.96 US Growth/Large Cap Equity (SA+CF) Median 1.43 -9.83 -5.36 5.71 6.64 6.31 8.84 N/A Snow Capital Mgmt. Equity -5.30 (96) -20.91 (96) N/A N/A N/A N/A N/A -20.91 N/A 10/01/2007 Rm;sl'll 3000 Value Index -5.17 (94} -1841 (92) -19.02 (75) -O.S8 (74) 3.34 os) 5.93 02) 8.99 (74) -18.41 N'A Difference -0.13 -2.50 N/A N/A N/A N/A N/A -2.50 US All Cap Value Equity (SA+CF) Median -0.34 -13.14 -12.52 3.10 5.83 7.11 10.85 N/A 1.:U N/A MSC EAFE -1.9~ (<121 -12.11 (49) -10.15 (.13) 7.05 (51) 13.."1 (46) 13.54 (59) 17.16 (66) 6.38 N!A Difference -9.01 -8.06 -10.22 -5.74 -3.83 -3.03 -2.50 -0.42 International Active Value Equity (SA+CF) Median -2.23 -12.16 -10.70 7.05 12.72 14.41 17.99 N/A Voyageur Asset Mgmt. International -10.94 (100) -20.17 (95) N/A N/A N/A N/A N/A -20.17 N/A 10/01/2007 Vise I FAFE -1.93 (42) -12 I I (49) -10.15 (43) 7.05 (51) 13 -'4 (46) 13.54 159) 17.16 {(6) -12.1 I N/A Difference -9.01 -8.06 N/A N/A N/A N/A N/A -806 International Active Value Equity (SA+CF) Median -2.23 -12.16 -10.70 7.05 12.72 14.41 17.99 N/A Returns for periods greater than one year are annualized. ?' THE Returns are expressed as percentages. BOGDAHN Total Fund Policy= 60% S&P 500,10% MSCI EAFE, & 30% LB Intermediate Aggregate Total Equity Policy= 80% S&P 500, & 20% MSCI EAFE GROUP Page II 001 Defined Benefit Plan & Trust for Employees of the City of Winter Springs Comparative Performance Trailing Returns As of June 30, 2008 I Oct-2007 2 3 - S . I T 1 "':'l Inee IncC'ptlOn Quarter .JlIn-~008 'ear '('ars Ycars 'cars 'ears Inception Date I 6;21 3.72 Total Fixed Income Policy -078 5.30 8.30 720 4.46 5.05 4.08 6.07 Difference 0.29 -1.56 -1.31 -0.99 -0.74 -0.61 -0.67 -0.17 GaUiard Core Fixed Portfolio -0.61 (24) 1.38 (92) N/A N/A N/A N/A N/A 1.38 N/A 10/0112007 LB Intennediate Aggregate -0.96 (43) 4.29 (52) 7.17 (53) 6.58 (47) 4.35 (61) 4.61 (45) 3.85 (38) 4.29 N/A Difference 0.35 -2.91 N/A N/A N/A N/A N/A -2.91 US Intermediate Fixed Income (SA+CF) Median -1.07 4.39 7.29 6.51 4.46 4.56 3.72 N/A Galliard TIPS 0.03 (51) 10.93 (37) N/A N/A N/A N/A N/A 10.93 N/A 10/0112007 LB U.S. Treasury Inf1?tioll Notes: 1-10 Year 0.23 (33) ILll (27) 15.20 (67) 957 (46) 637 (38) 6.42 (68\ 5.78 1\'A 11.11 -N/A Difference -0.20 -0.18 N/A N/A N/A N/A N/A -0.18 US TIPS (SA+CF) Median 0.04 10.61 15.38 9.57 5.94 6.57 N/A N/A :American Sta.ble Value:FundREIT N/A 10/01/2007 RC::i! Estate Policy [71 NiA 5.21 N!A "ilA. NiA N/A N!;\, N!A 5.2i NiA Difference -0.20 -0.88 N/A N/A N/A N/A N/A -0.88 US Private Real Estate-Open End (SA+CF) Median N/A N/A N/A N/A N/A N/A N/A N/A Returns for periods greater than one year are annualized. Returns are expressed as percentages. Total Fund Policy= 60% S&P 500, 10% MSCI EAFE, & 30% LB Intermediate Aggregate Total Equity Policy= 80% S&P 500, & 20% MSCI EAFE Page 12 of31 r THE BOGDAHN GROUP Winter Springs General Employees Total Fund Portfolio (Net) June 30, 2008 Financial Reconciliation 1 Quarter Total Fund Portfolio (Net) Market Value Asof 3/3112008 16,655 Net Transfers Distributions Fees Expenses Income Capital Apprec.! Depree. Market Value Asof 613012008 16,271 -2 -846 Contributions 542 -106 -28 55 Financial Reconciliation Fiscal Year To Date Total Fund Portfolio (Net) Market Value As of 9/30/2007 16,986 Net Transfers Distributions Contributions Fees 70 34,868 -54 -33,694 Peer Group Analysis - Mixed-Asset Target Alloc Moderate Funds (MF) 20.0 10.0 ~ 0.0 I ''':'': E = ~ . g: -10.0 ~..- -20.0 1 Oct-2007 1 2 3 4 5 Quarter To Year Years Years Years Years Jun-2008 . Total Fund Portfolio (Net) -4.8 (100) -11.0 (91) -9.3 (87) 2.4 (74) 3.6 (67) 4.7 (56) 6.8 (31) @ Total Fund Policy -2.0 (80) -9.0 (76) -6.9 (65) 4.3 (33) 5.3 (29) 5.8 (28) 7.5 (23) Median -LO -7.0 -5.6 3.5 4.3 4.9 6.0 Capital Apprec.! Depree. Market Value Asof 6/30/2008 16,271 Expenses Income -4 236 -2,137 Cumulative Performance $160.0 $145.0 $130.0 $115.0 $100.0 $85.0 $70.0 $55.0 10/00 7/02 1/06 6/08 4/04 Comparative Performance - Total Fund Portfulio (Net) - Total Fund Policy Total Fund Portfolio (Net) T olal Fund Policy Mixed-Asset Target AlIoc Moderate Funds (MF) Median Page 15 of31 1 Quarter Ending Mar-2008 -4.35 (31) -5.95 (66) -5.41 1 Quarter Ending Dec-2007 -2.22 (84) -1.27 (65) -0.86 1 Quarter Ending Sep-2007 1.89 (49) 2.33 (33) 1.87 1 1 1 Quarter Quarter Quarter Ending Ending Ending Jun-2007 Mar-2007 Dec-2006 4.48 (Il) 1.46 (69) 4.64 (54) 4.27 (14) 1.26 (76) 5.41 (22) 3.07 1.71 4.72 r THE \,~,,# BO~t~~ Winter Springs General Employees Total Fund Portfolio (Net) June 30, 2008 3 Yr Rolling Under/Over Performance - 5 Years Under P errormance 2.0 8.0 14.0 20.0 Total Fund Policy (%) .... Over Perfunnance .... Under Perfunnance -.tr- Dec-2003 -+- Jun-2008 Peer Group Scattergram - 3 Years 3 Yr Rolling Percentile Ranking - 5 Years 0.0 ~ 25.0 os i>: " " 50.0 " ~ " =- E 75.0 ::l -.z i>: 100.0 9/03 9/05 9/06 9/07 6/08 5-25 25-Median Median-75 75-95 Count Count Count Count 2 (10%) 16 (80%) 1(5%) 0(0%) 10 (50%) 6 (30%) 3 (15%) 0(0%) 9/04 Total Period . Total Fund Portfolio (Net) * Total Fund Policy 20 20 Peer Group Scattergram - 5 Years 12.5 10.0 7.5 ~ 5.0 E 2.5 a " 0.0 i>: -2.5 10.5 12.0 3.0 10.0 7.5 5.0 C 2.5 E 0.0 a " -2.5 i>: -5.0 3.0 4.5 7.5 9.0 6.0 Risk (Standard Deviation %) Return Standard Deviation . Total Fund Portfolio (Net) @ Total Fund Policy - Median 3.6 5.3 4.3 6.2 7.0 6.4 4.5 7.5 9.0 6.0 Risk (Standard Deviation %) Return Standard Deviation . Total Fund Portfolio (Net) @ Total Fund Policy - Median 6.8 7.5 6.0 6.4 6.5 6.1 Historical Statistics - 3 Years Tracking Up Down Sharpe Downside Market Market Alpha IR Beta Error Capture Capture Ratio Risk Total Fund Portfolio (Net) 2.8 78.4 86.2 -0.8 -0.6 -0.1 0.8 4.5 Total Fund Policy 0.0 100.0 100.0 0.0 N/A 0.2 1.0 4.9 Historical Statsistics - 5 Years Tracking Up Down Market Market Alpha Error Capture Capture Total Fund Portfolio (Net) 2.5 92.4 93.8 0.0 Total Fund Policy 0.0 100.0 100.0 0.0 Page 16 of31 IR Sharpe Ratio Downside Risk Beta -0.3 N/A 0.6 0.7 0.9 1.0 4.1 4.1 ~i THE 'C~,,,,:+ BO~t~~