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HomeMy WebLinkAbout2012 12 04 Board of Trustees Special Meeting Minutes CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING DECEMBER 4, 2012 CALL TO ORDER The Special Meeting of Tuesday, December 4, 2012, of the Board of Trustees was called to Order by Chairperson Maria Fair at 5:34 p.m. in the West Conference Room of the Municipal Building (City Hall, 1126 East State Road 434, Winter Springs, Florida 32708). Roll Call: Chairperson Maria Fair, present Vice Chairperson Barbara Watkins, present Board Member Shelly Bur lon, absent Board Member Brian Fricke, present Board Member Frank M. Mundo, present City Clerk Andrea Lorenzo-Luaces, present PUBLIC INPUT No one addressed the Board. INFORMATIONAL AGENDA INFORMATIONAL 100. Not Used CONSENT AGENDA CONSENT 200. Not Used AWARDS AND PRESENTATIONS AWARDS AND PRESENTATIONS 300. Not Used CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING-DECEMBER 4,2012 PAGE 2 OF 7 400. REPORTS No Reports were given. PUBLIC HEARINGS AGENDA PUBLIC HEARINGS 500. Not Used • + AGENDA NOTE: THE FOLLOWING AGENDA ITEMS WERE HEARD IN THE ORDER DOCUMENTED. •• REGULAR AGENDA REGULAR 601. Finance And Administration Services Department Requesting The Board Of Trustees Receive Information From Dave West Of The Bogdahn Group And Enter Into Discussion On Investment Policy Change. Mr. Dave West, Senior Consultant, The Bogdahn Group, 4901 Vineland Road, Suite 600, Orlando, Florida: presented information to the Board of Trustees related to a review of the Investment Policy Statement and remarked, "We're changing our Domestic Equity benchmark target and range to a Broadcast Equity benchmark. The target then goes to fifty percent (50%) because we're removing the style based allocation completely, then we're adjusting the range to be consistent with rebalancing to the five percent (5%) rule, off that fifty percent(50%) target." Furthermore, Mr. West noted, "Obviously, depending upon the Fund that gets selected, I put the slash there so that we could use an alternative benchmark that was appropriate for the particular Index Fund we're using. Obviously, the idea of the Policy is to make this in perpetuity to the extent we can; so, that any time we make a change we can select another Index Fund or something, we don't have to go back in and revise the Policy. We need the ability to have operating flexibility in the Policy." Mr. West noted, "Related to Section 'III. INVESTMENT PERFORMANCE OBJECTIVES', if you look at Item A, number 1., when we — obviously when we calculate the performance of the total plan we have a passive benchmark weighted by these dollar allocation targets, so we'll need to adjust that Domestic Equity benchmark commensurate to the targets. And then while we are here, I thought it might be a good time to address an outside item which is on page 3, and that's the 'Real Estate Perfoimance', item E. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING DECEMBER 4,2012 PAGE 3 OF 7 Our research group is recommending moving the peer percentile to a 5u-th' percentile for the simple reason that — Core Real Estate Investments are obviously very different in their form and performance; they're all long term in nature. It's a slow shift to steer because you're dealing with hard assets. And their suggestion or their recommendation is that we move to a'50th percentile." Continuing, Mr. West pointed out, "So the thought is since we're using the [NFI-]ODCE, the Odyssey benchmark which is comprised of other like Core Real Estate Funds, as long as we're coming in at around average, or better than average, for a slow turnover asset like Real Estate, they felt that was a more appropriate peer group benchmark to go to." Further, Mr. West stated, "We have Policy violations if we finish below 40th percentile, so now we're going to liquidate one Core Real Estate Manager and go into another Core Real Estate Manager who could be completely susceptible to the same interim period performance issues — so it's my group's recommendation that we lower that to a `50th percentile." Discussion followed on any significance and underperformance concerns. Mr. West then pointed out, "As Trustees, and as the Consultant we don't want to be going out with a compliance checklist that constantly has or has a higher probability of having a compliance flag in the Report. Because, publically other individuals are not aware of the discussion that's taken place surrounding the Manager." Mr. Boyle added, "There's a fiduciary responsibility on your part to manage the Fund to the best of your ability for the rest of the employees." Chairperson Fair mentioned that in terms of the proposed changes, "The charts, which basically is the target and the range allocations, the benchmarks — in order to allow the Index Funds and then the Real Estate performance requirements." Discussion followed on Exchange-Traded Funds (ETFs). Chairperson Fair commented for the Record that Regular Agenda Item "601" was being discussed first. "1 WOULD MOVE THAT WE ACCEPT THE INVESTMENT POLICY CHANGES AS RECOMMEDED BY OUR CONSULTANT." MOTION BY BOARD MEMBER FRICKE. SECONDED BY BOARD MEMBER WATKINS DISCUSSION. VOTE: BOARD MEMBER WATKINS: AYE BOARD MEMBER FRICKE: AYE CHAIRPERSON FAIR: AYE BOARD MEMBER MUNDO: AYE MOTION CARRIED. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING-DECEMBER 4,2012 PAGE 4 OF 7 REGULAR 600, Finance And Administration Services Department Requesting The Board Of Trustees Receive Information From Dave West Of The Bogdahn Group And Enter Into Discussion On Domestic Equities Index Funds. Discussion followed on Mutual Funds, Collective Funds, and related legal concerns. Mr. Boyle offered to obtain an Attorney Opinion, if the Board so desired. Mr. West added, "From an immediate cost issue, obviously not engaging the Attorney to draft an Engagement Agreement, because the custodian in the case of the Mutual Fund is going to go out and they're going to be holding that Fund, the Transition Manager is going to be purchasing that Fund and the Custodian will be holding that." Discussion followed on different Funds and transitions. Mr. West noted, "It's possible, I would have to confifill that the size of the transactions that we're working with are really below the window; definitely below the window for any Mutual Fund — Vanguard or Fidelity..." Board Member Fricke inquired, "Is there any cost advantage or cost savings?" Mr. West responded, "There might be an opportunity but I still think we may be below the window with a Northern Collective Fund, in which case, certain securities could be transferred in kind and so obviously we're saving a commission cost." Continuing, Mr. West noted, "I'd have to confirm that liquidation window." Further, Mr. West pointed out, "I think the other issue is looking at the ongoing Fees incurred, the Northern Trust Collective Fund is at a slight premium, at 8 basis points, versus 6 or 4 for the Vanguard or Fidelity; so any savings in transition arguably is going to be lost in the translation as the investments are held over time." Continuing, Mr. West spoke for the Record on the information compiled in the book, and commented on risk rewards and smaller capitalization stocks and noted, "If our objective here is to remove any style any capitalization decisions, and just be honestly pure, one hundred percent (100%) Index, then arguably, Vanguard Broad Market Fund would be the most representative." Risk components were addressed next and Mr. West noted, "I think the recommended Fund would be the Vanguard Total Stock Market Index." Discussion followed on the Plan, and related to concerns with changing the Plan assets, Chairperson Fair noted, "I am thinking that maybe when you are changing fifty percent (50%) of your Plan assets, maybe this is the time if you are going to that measure, to change that much of it, well then why not just change all of it— change all the structure. Why are we just piecemealing fifty percent (50%) to go with an Index Fund, maybe this is an appropriate time to look at all of it?" CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING—DECEMBER 4,2012 PAGE 5 OF 7 Active management, Fees, and indexing were further addressed. Tape 1/Side 13 Much discussion. Chairperson Fair stated, "I think what we have to do is take all the information that we have available to us, our Consultant's advice and make the best decision we can possibly make. That is what we can do. That is it. Nothing more." "BASED ON THAT INFORMATION AT HAND, I WOULD MOVE THAT WE AS A BOARD RECOMMEND TO THE CITY COMMISSION — THAT WE TERMINATE THE ACTIVE MANAGERS WITH THE U.S. EQUITY PORTION AND REPLACE THEM WITH AN INDEX APPROACH USING THE VANGUARD TOTAL MARKET INDEX FUND." MOTION BY BOARD MEMBER FRICKE. SECONDED BY BOARD MEMBER MUNDO. DISCUSSION. CHAIRPERSON FAIR REMARKED, "SO, WE HAVE A MOTION BEFORE THE BOARD TO REPLACE LATEEF AND EDHM COMPLETELY, THIRTEEN POINT THREE MILLION DOLLARS ($13,300,000.00) WITH VANGUARD TOTAL MARKET INDEX FUND." VOTE: BOARD MEMBER MUNDO: AYE BOARD MEMBER FRICKE: AYE BOARD MEMBER WATKINS: AYE CHAIRPERSON FAIR NAY MOTION CARRIED. Mr. West explained, "To implement this again for the Record, we recommend utilizing a Transition Manager — a Transition Manager again as this Board knows, specializes in institutional assets, portfolio transitioning. These two (2) entities who responded to the request for an Engagement Agreement, to the one time agreement, both of these entities are what are called Agency Managers; in other words, they do not have a propriety trading desk." Continuing, Mr. West added, "Our recommendation is to go with established houses who are independent and who trade on what industry jargon calls an `Agency basis'. An `Agency basis', that means they are trading on your behalf, solely on your behalf for the commission dollars amount stated in the agreement. So, the order would be obviously to send the termination notices, once everything is done and approved to the Managers. I suggest we not contact the Manager until this is final." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING-DECEMBER 4,2012 PAGE 6 OF 7 Further, Mr. West commented, "One of these two (2) Managers would need to be selected as the Transition Manager. Again, I took the liberty to get the Engagement Agreements so they can be expedited to the Attorney for review and approval. Both Managers are highly used by other Florida Public Plans. Both Managers have provided very competitive and actually the same commission rates, a penny and quarter a share; and both Managers we've used exhaustively with other clients very successfully and they've done transitions for the year." Mr. West added, "I think we used ConvergEx (Group) for the last Manager transition — I need to check the record; but both Managers are amply used in the public space so the Attorney shouldn't have any issues with them, with these Agreements, because they were written with Florida Public Funds' issues in mind. So, then the issue then is to select the Transition Manager; then once that's approved, then there are a series of letters that we can assist with we'll provide Shawn (Boyle) that leads the Managers, the Custodian, the Transition Managers through the whole process. We have got all the documentation, and direction set which obviously has to be authorized. This is outside our purview and then the Transition Manager essentially takes over for a day. They'll make sure there's a clean book of assets; we'll have a cease trading order because that's what the Money Managers allow for a three (3) day settlement window, no activity; so, then the Transition Manager will work through the Custodian, get the bill basically on the assets. Then in a single day the Transition Manager selected will then liquidate the portfolio and subsequently purchase the Mutual Fund that was selected." Brief discussion ensued on the two (2) submitted Contracts with CAPIS (Capital Institutional Services, Inc.) and ConvergEx (Group). Mr. West remarked, "We feel comfortable recommending both Managers." Continuing, Mr. West commented, "The Bogdahn Group receives no compensation from any Vendor that we bring or recommend to the table. We are paid solely by you the client, the check that you write us." "I WILL MAKE A MOTION THAT WE HIRE CAPIS (CAPITAL INSTITUTIONAL SERVICES, INC.)" MOTION BY BOARD MEMBER MUNDO. SECONDED BY BOARD MEMBER FRICKE. DISCUSSION. VOTE: BOARD MEMBER FRICKE: AYE BOARD MEMBER MUNDO: AYE CHAIRPERSON FAIR: NAY BOARD MEMBER WATKINS: AYE MOTION CARRIED. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING—DECEMBER 4,2012 PAGE 7 OF 7 Board Member Barbara Watkins asked if the rates could be reduced. Brief discussion. Board Member Fricke then asked Mr. West, "Any idea how many shares we are talking about?" Mr. West did not have an exact number to state. PUBLIC INPUT No one addressed the Board. Related to what happens next, Mr. Boyle explained, "What I'm going to do is I'm going to take this to the Commission on Monday, the 10th (December 2012). I have got to write the Agenda Item tonight - they will approve it. I at the same time, or actually I will probably shoot this off to the Attorney, the Pension Attorney to review. Simultaneously, the Commission will approve it, the Attorney will approve it at the same time, Kevin (Smith) will sign the paperwork, probably have it to Dave (West), probably Tuesday or Wednesday of next week and he'll send me some letters to send to the different folks that are involved." Further comments ensued on whether this could be completed by year-end. ADJOURNMENT Chairperson Fair adjourned the Special Meeting at 6:55 p.m. RESPECTFULLY SUBMITTED: 2 9/A i i —.0144VIIIiiii AN ' E'7!rs `_ 'LO-T.IJACES, MMC CITY LERK NOTE: These Minutes were Approved at the February 21,2013 Board of Trustees Regular Meeting.