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HomeMy WebLinkAbout2011 08 09 Board of Trustees Regular Meeting Minutes CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING AUGUST 9, 2011 CALL TO ORDER The Regular Meeting of Tuesday, August 9, 2011 of the Board of Trustees was called to Order by Chairperson Maria Fair at 5:35 p.m. in the Commission Chambers of the Municipal Building (City Hall, 1126 East State Road 434, Winter Springs, Florida 32708). Roll Call: Chairperson Maria Fair, present Board Member Vernon Rozelle, Jr., present Board Member Max Swaim, present Board Member Barbara Watkins, present A moment of silence was followed by the Pledge of Allegiance led by Chairperson Fair. INFORMATIONAL AGENDA INFORMATIONAL 100. Finance And Administrative Services Department Providing A Summary Of The Pension - Related Expenditures For The Third Quarter Of Fiscal Year 2011. Mr. Shawn Boyle, Director, Finance and Administrative Services Department presented this Agenda Item and stated, "I just want to point out one (1) thing that is absent from that `P' and `L' (Profit and Loss) and that is the Actuarial Fees. I have spoken to Larry (Wilson, Gabriel, Roeder & Smith Company) on many occasions. I do not understand what the hold up is and I have asked him to bill us over the last four (4) months." Mr. Boyle then added, "I would expect that bill to be substantially large." Discussion ensued on Legal Fees expended on indirect expenses. Board Member Barbara Watkins asked, "Is there any way of billing it back to the Attorney requesting this ?" Mr. Boyle commented, "I can ask that question for you." Continuing, Board Member Watkins mentioned incorrect dates on the Quarter Ending, June 30, 2011 as shown on the Informational Item. Mr. Boyle stated, "I will take care of that." CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING - AUGUST 9, 2011 PAGE 2 OF 10 CONSENT AGENDA CONSENT 200. Office Of The City Clerk Requesting Approval Of The May 10, 2011 Board Of Trustees Regular Meeting Minutes. Chairperson Fair stated, "We are requesting Approval of the Minutes of the May 10 2011 Board of Trustees Regular Meeting." "SO MOVED." MOTION BY BOARD MEMBER ROZELLE. SECONDED BY BOARD MEMBER SWAIM. DISCUSSION. VOTE: BOARD MEMBER WATKINS: AYE BOARD MEMBER ROZELLE: AYE BOARD MEMBER SWAIM: AYE CHAIRPERSON FAIR: AYE MOTION CARRIED. AWARDS AND PRESENTATIONS AWARDS AND PRESENTATIONS 300. Not Used 400. REPORTS No Reports were given. PUBLIC INPUT No one spoke. PUBLIC HEARINGS AGENDA PUBLIC HEARINGS 500. Not Used CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING - AUGUST 9, 2011 PAGE 3 OF 10 REGULAR AGENDA REGULAR 600. Finance And Administrative Services Department Request Acceptance Of The 2011 Actuarial Forecast Of The Pension Modifications By Gabriel, Roeder, Smith & Company (GRS). Mr. Boyle commented that, "What Larry (Wilson) has done — he has taken all the changes that we have incorporated, and he incorporated them into a projection, not an evaluation, it is just a projection." Mr. Boyle added, "We came in at twenty point nine percent (20.9 %). I believe by looking at the numbers that we had forecasted for our Budget that we would hit eighteen point eight [percent] (18.8 %) to eighteen point nine [percent] (18.9 %). The differential is that — Kevin's (L. Smith, City Manager) first proposal was elimination of overtime hours in the base pay." Discussion. "I WILL MAKE A MOTION THAT WE ACCEPT THE FORECAST OF THE PENSION MODIFICATIONS BY GRS (GABRIEL, ROEDER, SMITH & COMPANY)." MOTION BY CHAIRPERSON FAIR. SECONDED BY BOARD MEMBER SWAIM. DISCUSSION. VOTE: BOARD MEMBER ROZELLE: AYE BOARD MEMBER SWAIM: AYE CHAIRPERSON FAIR: AYE BOARD MEMBER WATKINS: AYE MOTION CARRIED. REGULAR 601. Finance And Administrative Services Department Presentation From Bogdahn Consulting, LLC Of The Investment Review Report For The Second Quarter Ending June 30, 2011. Mr. Dave West, Bogdahn Consulting, LLC, 4901 Vineland Road, Suite 600, Orlando, Florida: presented an overview of the "Winter Springs General Employees General Plan and Trust for 2 Quarter 2011" and remarked, "Obviously, since this print, we have had very contentious debt ceiling debate. We have had very disappointing economic data and we have had considerable financial stress in the Euro(pean) Zone not to mention the least of which was the European Banking Consortium purchasing Bonds from Spain and Italy over the weekend. CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING - AUGUST 9, 2011 PAGE 4 OF 10 But in conclusion — getting the collective talent and intelligence of the economists in the various Investment Managers, that we have the privilege of working with out there. The balance of evidence continues to support modest economic growth; the yield curve right now is very steep — long rates are much higher than short rates." Continuing, Mr. West added, "Since this print June 30 (2011), the S & P (Standard & Poor's), if we use this as a proxy, is down fifteen percent (15 %) that is as of yesterday's close. As of the April 29 (2011) - it was down seventeen point nine percent (17.9 %). On a positive note — remember we did have a similar decline of this magnitude last year. On around — the first week of July (2010), the market declined between fifteen and sixteen percent (15 -16 %) and it ended up closing the Fiscal Year with a fantastic end result." Discussion ensued on the overall Market and Investments. Mr. West stated, "We checked with your Managers, there has been no change in strategy. They are reviewing this market decline as an opportunity to put money to work." In summary, Mr. West remarked, "There has been a five (5) week decline in equities; it offsets the positives here, because of the diversification efforts in the Fund. Your two (2) Real Estate Funds had an excellent quarter; the operating rates and the pay out rates remain constant. There should not be any adjustment to the Market Values to either Fund. If Treasury rates continue to decline, remember the Intercontinental Real Estate Fund, which is our more leveraged Fund because they use leverage when rates decline, that is actually a negative for them; so, we will have to see from what extent that impacts their total return." With further discussion, Mr. West reviewed the "Financial Reconciliation Quarter to Date" on page 18 and continued with the "Comparative Performance Trailing Returns as of June 30, 2011" detailing Manager Performance. Discussion. REGULAR 602. Finance and Administrative Services Department Presentation From Bogdahn Consulting, LLC Of A Discussion On Global Bond Diversification Investment Alternatives. Mr. West introduced this Agenda Item and distributed "Non -Core Global Fixed Income, Overview & Manager Evaluation, 1st Quarter 2011" and "Non -Core Global Fixed Income, Third Quarter 2011" to the Board Members. CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING — AUGUST 9, 2011 PAGE 5 OF 10 Mr. West stated, "We are recommending that consideration be given to an allocation to non U.S. Fixed Income. The primary reason — we were concerned about the low absolute rates of the U.S. and - if rates do at some point start to go up as the economy recovers, we have the potential for actually negative returns coming out of the U.S. Bond Market. Another primary — reason would be for the increased diversification of the Global Bonds and obviously if we are one hundred percent (100 %) in Bonds in the U.S., we are subject to the U.S. economy." Tape 1 /Side B Mr. West continued with a summary of Market Bond investing. Next, Mr. West remarked, "The Bogdahn Group receives no compensation, no benefit whatsoever from any of the Managers or products that we might bring to the table or recommend to clients. We are paid only by check that you send to us. So, hopefully what we are presenting is clean, structured and completely unbiased and puts us in a position to give you an unbiased and honest opinion." Discussion ensued of investments and diversifications of Funds. Mr. West stated, "The PIMCO (Pacific Investment Management Company, LLC) Diversified Income Fund and the Templeton Global Bond Fund would be the most suitable for Pension application." Chairperson Fair spoke about the "Morning Star" ratings. Chairperson Fair stated, "You are basically saying, you are narrowing it down to if we are going to add any Global Bond exposure that Bogdahn's (Group) recommendation is going to be between PIMCO (Pacific Investment Management Company, LLC) Diversified Income and Templeton Global Bond ?" Mr. West replied, "Right." Discussion. Mr. West commented, "We cannot proceed with anything — and just want to determine if there is an interest to move forward with the recommendation, and if there is, then the next step we have to do, we need to address the Policy Statement which we discussed reviewing once a year. While we are on that annual review, we would need to make some changes to the Investment Policy Statement to allow for this expanded investment." Further discussion ensued on investments. Chairperson Fair commented, "The question really then for the Board is to determine, do we want to have — obviously, we do not have the final say and we can only make a recommendation to the Commission that we would like to see a Global Bond allocation be added to the Portfolio and then it is ultimately their decision to be able to do that." Discussion. CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING — AUGUST 9, 2011 PAGE 6 OF 10 Mr. West remarked, "Our immediate recommended source of Funds would be the Domestic Bond Portfolio allocation and our standing recommendation — would be a five percent (5 %) allocation with again the rebalancing." Chairperson Fair replied, "So, of the thirty percent (30 %) Bond — in the Investment Policy (Statement), twenty -five percent (25 %) would be Domestic and five percent (5 %) would be Global." Mr. West stated, "Correct." With further discussion, Chairperson Fair stated, "Do we want to make a recommendation to the Commission to add Global Bond Exposure in — basically Global Allocation as an alternative ?" Mr. Boyle remarked, "I think Dave (West) has a good point. I think — Policy modifications on a couple of things that you pointed out and I think there are a couple of things that need to be changed above that before you can make a recommendation." Mr. West distributed the "City of Winter Springs General Employees' Retirement System Investment Policy Statement" to the Board Members. Chairperson Fair remarked, "If you will Dave (West) just give us the page number that you are going to be looking at and point out the changes that you would recommend." Mr. West responded, "Okay." Mr. West stated, "I am going to do this in order of material impact. If you could turn to Page 3 first, under section IV. INVESTMENT GUIDELINES, A. Authorized Investments, number 2. Fixed Income. The Policy currently reads, `All fixed income investments shall have a minimum rating of investment grade or higher'. All fixed income investments — by our definition or our interpretation, that means, we cannot own a Fund unless its — investment grade. So, our intent in this language adjustment would be to say, `All direct investment in fixed income securities shall have a minimum rating'. So, in other words, if we have an Investment Manager that is buying individual Bonds for us, it still has to be investment grade. However, then we can make indirect investments that are not investment grade, and that is where a comingle Fund or Mutual Fund would be considered an indirect investment." With further discussion on investing in foreign securities, Mr. West stated, "Currently, we have a twenty percent (20 %) limitation so, it would be beneficial just to expand that working ability to go to the twenty -five (percent) [25 %]. The rest of the changes would merely pertain to the allocations. Those are really the material changes to the policy — so, now let's address the allocation and let's put some limitations and risk controls on those allocations. Target Allocations and Investment Performance Objectives were then discussed. Tape 2 /Side A CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING -- AUGUST 9, 2011 PAGE 7 OF 10 Referencing the Investment Policy Statement, Mr. West remarked, "Not much change, and we have reviewed this Policy again, and I think this is an appropriate time to review the Investment Policy anyway. The Investment rate of return still stays at eight percent (8 %) which is another item that is in the Policy and — based on the brief overview that I had of the changes to the Pension, the required rate of return is going to remain the same. Looking at the summary overview of the pension changes that were made, it looks like the liability is essentially staying the same, so there would not be any need to change the allocation." "PENDING CLARIFICATION OF COMPLIANCE WITH LOCAL POLICY, I WOULD LIKE TO MAKE A MOTION THAT THE BOARD RECOMMEND ADDING GLOBAL BOND ALLOCATION TO THE INVESTMENT POLICY STATEMENT ALONG WITH AN AMENDMENT TO BE FORWARDED TO THE CITY COMMISSION FOR APPROVAL AND IMPLEMENTED BY THE BOGDAHN GROUP." MOTION BY CHAIRPERSON FAIR. SECONDED BY BOARD MEMBER WATKINS. DISCUSSION. VOTE: BOARD MEMBER ROZELLE: AYE BOARD MEMBER SWAIM: AYE CHAIRPERSON FAIR: AYE BOARD MEMBER WATKINS: AYE MOTION CARRIED. Next, discussion on the two (2) recommendations from the Bogdahn Consulting, PIMCO (Pacific Investment Management Company, LLC) Diversified Income and Templeton Global Bond. Mr. West commented, "Our recommendation is to fund both Funds at a fifty -fifty (50 -50) allocation or essentially two and a half percent (2% %) each of total plan assets as a target and again the PIMCO (PACIFIC INVESTMENT MANAGEMENT COMPANY, LLC) (Diversified Income) funding is contingent upon them for allowing us to continue with the waiver of minimum funding requirement." Discussion. Chairperson Fair stated, "For the Record, the PIMCO (Pacific Investment Management Company, LLC) is a four (4) star." Continuing, Chairperson Fair noted, "I do think that the Templeton Global Bond has much lower risk levels than the PIMCO (Pacific Investment Management Company, LLC) does." Mr. West commented, "The reason we selected the PIMCO (Pacific Investment Management Company, LLC) Diversified Income Fund was that it only invested a third of its assets in high yield." CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING - AUGUST 9, 2011 PAGE 8 OF 10 Further discussion ensued. Manager Smith remarked, "Depending upon how this recommendation comes down — how do I and Shawn (Boyle) present this item to the Commission; how do we answer the following question — `Why we have exposure to Junk Bonds in our Pension Fund' ?" Chairperson Fair commented, "Diversification." Manager Smith asked, "Is that consistent with the intent of a Pension Fund in your experience Dave (West) ?" Mr. West stated, "Yes." Chairperson Fair added, "Yes. Absolutely — it's actually unusual for a Pension Fund not to have a Global Allocation in Bonds." Manager Smith remarked, "Inclusive of high yield Bonds ?" Chairperson Fair stated, "Absolutely." Manager Smith then added, "Including public Pension Funds ?" Chairperson Fair replied, "Absolutely." Manager Smith stated, "Then I think to the Chair's point, our goal should be to quantify or minimize that exposure to the greatest extent as possible while still having the vehicle to our utilization." Manager Smith asked, "Did we determine — that the twenty -five percent (25 %) on the Templeton - the upper threshold or is that a target ?" Chairperson Fair replied, "Maximum." Discussion. Manager Smith asked, "Why wouldn't we invest in a Manager that only invested in Government BBB or above ?" Chairperson Fair replied, "You need to give your Manager flexibility because you don't know what the economic climate is going to be at any given time. So, if you box your Manager in to only be able to buy just investment grade then buy a Treasury Fund, then you now just defeated the purpose of diversification." Tape 2 /Side B Further discussion ensued on various Bonds. REGULAR 603. Finance and Administrative Services Department Presentation From Bogdahn Consulting, LLC To Discuss Required Amendment To The Investment Policy Statement. Mr. West distributed a draft copy of "City of Winter Springs General Employees' Retirement System Investment Policy Statement" to the Board Members. Discussion ensued on investments. Next, Chairperson Fair stated, "The recommendation by Bogdahn (Consulting, LLC) is to add the Global and they were recommending two and a half percent (21/2%) in each." CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING - AUGUST 9, 2011 PAGE 9 OF 10 Mr. West remarked, "In light of appropriate discussion and education on the issue on all sides, I think an appropriate recommendation from our part would be to listen to the implementation issues and we would we comfortable to recommend - although we don't like to recommend a single Manager at any time, we would be comfortable recommending a single Fund approach in this case, the Templeton Global Bond." "I WOULD LIKE TO MAKE A MOTION THAT WE MAKE A RECOMMENDATION TO THE COMMISSION FOR THE ALLOCATION OF GLOBAL BONDS TO USE TEMPLETON GLOBAL BOND FUND." MOTION BY CHAIRPERSON FAIR. SECONDED BY BOARD MEMBER ROZELLE. DISCUSSION. VOTE: BOARD MEMBER SWAIM: AYE BOARD MEMBER WATKINS: AYE BOARD MEMBER ROZELLE: AYE CHAIRPERSON FAIR: AYE MOTION CARRIED. Manager Smith commented, "Just check listing that we have a complete package to effect the Board's recommendation to the Commission. We have a recommendation to the Global Bond Fund; we have a recommendation to change the Investment Policy Statement as required — and we have a recommendation for a Manager." Chairperson Fair added, "And I even added — to have Bogdahn (Consulting, LLC) implement upon Approval of the Commission — I did put approval and implementation." Mr. West remarked, "We have two (2) sub policies. We have Dalton Greiner, (Hartman, Maher & Co.) and Lateef (Asset Management Equity) operating under their own Investment Policy Statements - technically, I need to update those, so that they reference the master. So, there is a complete set of Policy documents and those should be included in that so that everything is updated and everything is done. So, I will forward those — complete documents." Chairperson Fair indicated that, "It is just a matter of Kevin (Smith) presenting this to the Commission and upon their Approval. Then Kevin (Smith) will then direct either Shawn (Boyle) or Bogdahn (Consulting, LLC) to implement as Approved." Next, Chairperson Fair stated, "As soon as you get that Approved - I can come up and sign it." Mr. West commented, "Technically, we would be filing that with the City — a thirty -one (31) day filing and then on the first business day after that then we can accept the change." Mr. West then added, "We can only make this allocation change at month end." Discussion ensued on tentatively forwarding this to the City Commission at the August 22 2011 Regular Meeting. CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING — AUGUST 9, 2011 PAGE 10 OF 10 ADJOURNMENT Chairperson Fair adjourned the Regular Meeting at 8:09 p.m. RESPECTFULLY SUBMITTED: 'T AN L. BROWN EPIJTY CITY CLERK NOTE: These Minutes were approved at the November 8, 2011 Board of Trustees Regular Meeting.