HomeMy WebLinkAbout2004 11 09 Attachment Handed Out by Blake Myton/Michelle GrecoDate: November 9, 2004
ATTACHMENT GIVEN TO BOARD
MEMBERS DURING MEETING BY
BLAKE MYTON/MICHELLE GRECO
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One Keystone Plaza
Suite 300
North Front & Market Streets
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~- The PF~L Group Harrisburg, PA 1 71 0 1-2044
Ms. Michelle Greco, CPA
Finance Director
City of Winter Springs
1126 East S.R. 434
Winter Springs, Florida 32708
Dear Ms. Greco:
November 8, 2004
717-232-2723
717-233-6073 fax
www. pfm. co m
On behalf of PFM Asset Management, thank you for the opportunity to review the proposed
Investment Policy Statement changes for the City of Winter Springs General Employees Pension
System. We have carefully evaluated the proposal from Blake Myton of Trusco Capital Management
from his letter dated October 29, 2004. Mr. Myton's proposed changes are below; our opinion
follows.
Current Policy
High Grade Equity 10% - 30%
High Grade Equity Income 1 S% - 25%
Small Caps I S% - 30%
Mid Caps 1 S% - 30%
International S% - I S%
Recommended Changes
Large Cap Growth 10% - 30%
Large Cap Value 10% - 30%
Small Caps S% - 20%
Mid Caps S% - 20%
International S% - 20%
Fixed Income IS% - 35%
Cash Equivalents 0% - 10%
The overall requirement is for 70% of the Plan's assets to be allocated to equity
investments (stock) and for other 30% to be allocated to fried income securities
(bonds) with no more than a 5% deviation. The variance of between 65% to
75% for equity investments and 25% to 35% for fixed income securities will
remain unchanged.
PFM's position:
Overall, we believe these to be positive changes for the Systems' Investment Policy and have
potential to realize the benefits that Trusco identified -lessening of the requirement to have assets
invested in the generally more volatile mid-cap, small-cap and international equity asset sub-classes
and the flexibility to change the fixed income allocation from a fixed 30°/a The current policy
percentages were developed in conjunction with Trusco and we think it appropriate to seek its
counsel in any changes.
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Ms. Michelle Greco
November 8, 2004
Page 2
We would however recommend that the System consider some modification to the proposal.
1) A range of fixed income assets from 15% to 35% is very broad and puts a great deal of
discretion in the hands of the manager. VG'e recommend that the range be reduced to 25% -
35%; in other words, a 5% range on each side of the neutral position of 30%.
2) The large cap growth and value ranges can permit a very strong tilt in favor of one strategy
over the other. We recommend that there be another constraint placed in the policy that the
ratio of one category to the other should not exceed 2:1.
3) A statement of the rebalancing policy should be added. Commonly, this will either occur
quarterly or whenever the policy limits are violated. How the System's assets will be
rebalanced should also be addressed - is there a neutral position within each asset sub-class,
or is it enough to simply reduce or increase the position's percentage to once again fall
within the range specified in the policy.
4) If Trusco intends to change the underlying investment options into which the System's
assets are invested, it should provide complete information for these strategies. Specific
investment options were proposed in the RFP process under which this contract is awarded.
The System should have the opportunity to review any changes in proposed investment
options. Additionally, Trusco should ensure the System that any higher fees for other
investment options under this broader policy will not be passed along to the System; and
that any lower fee options employed will result in a fee reduction.
Please do not hesitate to contact me or John Molloy if you have any questions or would like further
clarification on any of the points we raised above. Thank you again for the opportunity to be of
service to the City of Winter Springs and the City's Retirement System.
Sincerely,
PFM Asset Management LLC
Steven Alexander, CTP, CGFO
Managing Director
C: John Molloy, PFM