Loading...
HomeMy WebLinkAbout2014 02 27 Board of Trustees Special Meeting Minutes CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING FEBRUARY 27, 2014 CALL TO ORDER The Special Meeting of Thursday, February 27, 2014 of the Board of Trustees was called to Order by Chairperson Watkins at 5:31 p.m. in the Commission Chambers of the Municipal Building (City Hall, 1126 East State Road 434, Winter Springs, Florida 32708). Roll Call: Chairperson Barbara Watkins,present Vice-Chairperson Frank Mundo, present Board Member Shelly Burlon, absent Board Member Brian Fricke,present Board Member Vincent Giannoni, absent Assistant to the City Clerk Sean Beaudet, present •• AGENDA NOTE: THE INVOCATION AND PLEDGE OF ALLEGIANCE WERE HELD UNDER REPORTS,AS DOCUMENTED. •• REGULAR AGENDA- PART I REGULAR 600. Office Of The City Clerk Requesting The Board of Trustees Hold An Election For The Position Of Chairperson For Calendar Year 2014. "I THINK WE SHOULD CONTINUE WITH OUR CURRENT CHAIRPERSON (BARBARA WATKINS)." MOTION BY BOARD MEMBER FRICKE. SECONDED BY VICE-CHAIRPERSON MUNDO. DISCUSSION. VOTE: VICE-CHAIRPERSON MUNDO: AYE CHAIRPERSON WATKINS: AYE BOARD MEMBER FRICKE: AYE MOTION CARRIED. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING-FEBRUARY 27,2014 PAGE 2 OF 9 REGULAR 601. Office Of The City Clerk Requesting The Board of Trustees Hold An Election For The Position Of Vice- Chairperson For Calendar Year 2014. "I NOMINATE FRANK (MUNDO)." MOTION BY BOARD MEMBER FRICKE. SECONDED BY CHAIRPERSON WATKINS. DISCUSSION. VOTE: VICE-CHAIRPERSON MUNDO: AYE BOARD MEMBER FRICKE: AYE CHAIRPERSON WATKINS: AYE MOTION CARRIED. AWARDS AND PRESENTATIONS AWARDS AND PRESENTATIONS 100. Not Used INFORMATIONAL AGENDA INFORMATIONAL 200. Not Used PUBLIC INPUT No one addressed the Board of Trustees. CONSENT AGENDA CONSENT 300. Not Used CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING-FEBRUARY 27,2014 PAGE 3 OF 9 400. REPORTS No Reports were given. A moment of silence was followed by the Pledge of Allegiance. PUBLIC HEARINGS AGENDA PUBLIC HEARINGS 500. Not Used REGULAR AGENDA- PART II REGULAR 602. Finance And Administration Services Department Requesting The Board of Trustees Receive From The Bogdahn Group, Alternative Fixed Income Analysis,And To Enter Into Discussion. Mr. Dave West, Senior Consultant, The Bogdahn Group, 4901 Vineland Road, Suite 600, Orlando, Florida: gave a brief overview of the Agenda Items that would be presented and discussed; a need for the Pension to be less dependent on Equities; and that Alternative Fixed Income investments could potentially help to diversify the portfolio. Much discussion. Continuing, Mr. West noted that the Bogdahn Group focused their analysis on Lower Middle Market Private Debt as an attractive investment and explained, "The opportunity is to go out and be an originator of senior loans —the focus here would be on companies with annual revenue of seventy-five million [dollars] ($75,000,000.00) to four hundred million [dollars] ($400,000,000.00). These are all going to be private companies. They are too small to go public, they are too small to go public with debt, and typically their earnings are going to be between five million [dollars] ($5,000,000.00) and fifty million dollars ($50,000,000.00)." Further comments. Mr. West also noted that "Collectively, the Middle Market Private Debt really provides an enhanced downside protection. Number one (1), it is not a publicly traded security. So, it is not subject to the whims and agitated sell-offs. Structurally, since these companies and the debt covenants are so significant, the default rates for Middle Market Debt are actually much lower than the publicly traded debt market." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING—FEBRUARY 27,2014 PAGE 4 OF 9 Discussion ensued on whether the Managers offered leveraged funds and unleveraged funds, and the ratios. Vice-Chairperson Frank Mundo inquired, "As our advisor, where do you see the risks in this product?" Mr. West answered, "The risks in the product are — number one (1) - credit risk of the underlying loans. Number two (2) —the capital is locked up. So, we get capital called up to two and half(2 1/2) years, but their ramp up schedule is much faster than that from what they have talked about. So, our capital is going to be locked up for three (3) to five (5) years."Further comments. REGULAR 603. Finance And Administration Services Department Requesting The Board of Trustees Receive From Crescent Direct Lending, An Alternative Fixed Income Product,And To Enter Into Discussion. Mr. John Bowman, Managing Director, Crescent Direct Lending, 24 Federal Street 9`h Floor, Boston, Massachusetts: presented a brief overview of the firm's history and personnel. Continuing, Mr. Bowman noted that direct lending, "Has become a less well served sector, which creates opportunities for us. It is less competitive", as the larger banking institutions are less likely to lend to the middle market companies." Mr. Bowman covered returns in the handout provided and explained that as a direct lender, "With the capital structure, we are the first one to get re-paid, the last one to lose money. So, you have the same safeguards, in terms of first out when you have a problem with the credit." Comments continued. In addition, Mr. Bowman noted Crescent Direct Lending is a more conservative investor; lends to steady, established companies; and exclusively lends to North American companies. Mr. Bowman did note that a Senior Loan, "Is a less liquid investment. Typically the loans we make are on the books for two (2)to three (3) years." Much discussion. Tape 1/Side B Mentioning returns, Mr. Bowman remarked that "The higher yielding loans are our smaller companies" and gave some examples of companies Crescent Direct Lending works with which included a couple in the food industry; and mentioned that companies they do not like to lend to are those with short operating histories, and others including the technology and energy fields. Further comments. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING-FEBRUARY 27,2014 PAGE 5 OF 9 Next, Mr. Bowman covered both levered and unlevered funds that they offer, which utilize the same companies for investing; the duration of the "locked up" funds; the fact that returns on the investments are paid out quarterly to their clients; and the process for which Crescent Direct Lending invests in the loans. Further discussion. Vice-Chairperson Mundo asked about diversification of the funds, to which Mr. Bowman said, "We generally manage the funds to fifteen (15%), maybe twenty percent (20%) exposure to any one industry." Further remarks followed. Lastly, Vice-Chairperson Mundo inquired if Crescent Direct Lending took into consideration over-investing into a particular geographic region of the country. Mr. Bowman noted that their spread of investments is national and assured that, "If we found ourselves with a heavy concentration in say New England or the Northeast, we would spread that out." REGULAR 604. Finance And Administration Services Department Requesting The Board of Trustees Receive From LBC Credit Partners III, An Alternative Fixed Income Product,And To Enter Into Discussion. Ms. Amy Miller, Vice President Investor Relations, Quaker Partners, Cira Centre, 2929 Arch Street, Philadelphia, Pennsylvania: offered a brief overview of the firm's history, personnel,partners, and specialties. Mr. John Brignola, Managing Partner, LBC Credit Partners, Cira Centre, 2929 Arch Street, Suite 1550, Philadelphia, Pennsylvania: Gave the investment performance overview for the presentation, past investment performance, and covered various fund options. Vice-Chairperson Mundo inquired about the default rates of the loans. Mr. Brignola replied, "Through 2013, we've made a hundred and twenty (123) loans. We've had twelve (12) defaults. We define default just like Moody's does — payment default, bankruptcy, or equity exchange. The average, annual default rate is one point three percent (1.3%). If you think about delinquencies at a bank, the top 100 banks for that same eight (8) year period have had a delinquency rate of about two and a half percent (2.5%)." Further comments. Mr. Brignola briefly referenced the rate of returns with"Fund III". CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING—FEBRUARY 27,2014 PAGE 6 OF 9 Next, Vice-Chairperson Mundo inquired if LBC Credit Partners III took into consideration over-investing into a particular geographic region of the country or if also they invested overseas. Mr. Brignola explained, "We have some provisions within the partnership agreement that restrict us. We can only put ten percent (10%) in European businesses." Vice-Chairperson Mundo followed by asking about diversification of the funds and limitations to any one industry, to which Mr. Brignola answered, "The limitation is fifteen percent (15%) of commitments. Our internal guidelines are fifteen percent (15%) in an industry." Further discussion. Mr. Brignola mentioned that the types of businesses LBC Credit Partners III lend to are those that have about twenty million [dollars] ($20,000,000.00) in earnings, that are upper middle market businesses, and that "Two thirds (2/3) are owned by Private Equity buyout shops and the other third are owned by families." Touched on next by Mr. Brignola was that they produce a monthly newsletter distributed to all clients on all investment activity; the operating cash flow on the investments; and that investment returns are distributed quarterly. Further discussion ensued on the expected returns from the investments. Lastly, Vice-Chairperson Mundo asked if there were any limits to how much clients could invest in funds. Mr. Brignola answered, "We don't have any restrictions. The restrictions would be upon us to do that. We do have significant public pension plans in the Fund today. They have a two hundred million dollar ($200,000,000.00) commitment — so, they are relatively big. They make suggestions and we tend to have to take those suggestions." Tape 2/Side A REGULAR 605. Finance And Administration Services Department Requesting The Board of Trustees Review And Approve, The Revised City Of Winter Springs General Employees Investment Policy Statement, And To Enter Into Discussion. Mr. West covered the revised Investment Policy Statement and in regards to the Alternative Investments presented stated, "We believe the investment would be compliant with the current Policy as it is structured." Mr. West also pointed out the specific changes to the Investment Policy Statement. Discussion ensued on compatibility of the statement with the Pension Ordinance,possible legal review and assurance of the change, and a recommended Motion. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING—FEBRUARY 27,2014 PAGE 7 OF 9 "I WOULD LIKE TO MAKE A MOTION TO CHANGE THE INVESTMENT POLICY STATEMENT, AS AMENDED, CONTINGENT UPON LEGAL REVIEW." MOTION BY CHAIRPERSON WATKINS. SECONDED BY VICE- CHAIRPERSON MUNDO. DISCUSSION. VOTE: VICE-CHAIRPERSON MUNDO: AYE BOARD MEMBER FRICKE: AYE CHAIRPERSON WATKINS: AYE MOTION CARRIED. Before further discussion on the products that the Board of Trustees previously received, Mr. West assured the members that the Bogdahn Group does not receive any compensation from the firms for such presentations; the previous firms had been fully vetted; and that they are suitable investments and Managers. Much discussion. Mr. West covered the minimum investment threshold for each investment and mentioned that only one(1) firm could be selected, due to the minimum investment requirements. Furthermore, Mr. West stated, "Our recommendation is to consider moving five percent (5%) of total Plan assets into this space. In this case here, we would be using both the TIPS (Treasury Inflation-Protected Securities) allocation and the Equity allocation. Part of our effort here is to reduce our dependence on Equity. We would be recommending the TIPS (Treasury Inflation-Protected Securities) to a half (1/2) weight — two and half percent (2.5%) rate from the five percent (5%) target; and the balance can come out of Equity." Discussion. Vice-Chairperson Mundo noted that he felt more comfortable with Crescent Direct Lending as an option. Chairperson Watkins and Board Member Fricke both verbally agreed. Much discussion. "I WOULD LIKE TO MAKE A MOTION THAT WE ALLOCATE FIVE PERCENT (5%) OF ASSETS TO CRESCENT (DIRECT LENDING) LEVERAGED PORTFOLIO." MOTION BY BOARD MEMBER FRICKE. DISCUSSION. Tape 2/Side B SECONDED BY VICE-CHAIRPERSON MUNDO. DISCUSSION. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING-FEBRUARY 27,2014 PAGE 8 OF 9 VOTE: BOARD MEMBER FRICKE: AYE VICE-CHAIRPERSON MUNDO: AYE CHAIRPERSON WATKINS: AYE MOTION CARRIED. The rebalancing of the current portfolio was discussed next. Mr. West recommended doing so by, "Removing five percent (5%) of total Plan assets — rebalancing the Vanguard Total Market Index Fund, back to policy targets." Further, Mr. West noted that five percent (5%) of the Funds in the Vanguard Total Market Index Fund would be removed and redistributed to the various Bond Funds. Much discussion. "I WOULD LIKE TO MAKE A MOTION TO REBALANCE TO POLICY TARGETS." MOTION BY CHAIRPERSON WATKINS. SECONDED BY BOARD MEMBER FRICKE. DISCUSSION. VOTE: VICE-CHAIRPERSON MUNDO: NAY BOARD MEMBER FRICKE: AYE CHAIRPERSON WATKINS: AYE MOTION CARRIED. In regards to the rebalancing of the portfolio, Mr. West noted that the American Core Reality Fund is under allocated and recommended pledging additional capital to the Fund. Discussion continued. MOTION TO PLEDGE ADDITIONAL CAPITAL TO AMERICAN CORE REALITY FUND. MOTION BY VICE-CHAIRPERSON MUNDO. SECONDED BY BOARD MEMBER FRICKE. DISCUSSION. VOTE: CHAIRPERSON WATKINS: AYE BOARD MEMBER FRICKE: AYE VICE-CHAIRPERSON MUNDO: AYE MOTION CARRIED. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES SPECIAL MEETING—FEBRUARY 27,2014 PAGE 9 OF 9 REGULAR 606. Finance And Administration Services Department Requesting The Board of Trustees Receive From The Bogdahn Group, The Year Ending January 2014-Investment Return Report,And To Enter Into Discussion. Mr. West gave a brief presentation on the Investment Return Report; noted the Pension Plan had netted a respectable 7.49% investment return; and mentioned the returns of some of the funds. In other business Mr. Shawn Boyle, Director, Finance and Administrative Services Department stated, "I sent out a memo to the entire organization about two to three (2 - 3) weeks ago, complimenting the fact that you all have worked hard on this and that we actually had a twenty-seven percent (27%) growth from year over year. It's not all investment; some of it was extra contributions from the City Manager. But, it is outstanding. The fund grew by almost seven million dollars ($7,000,000.00). So, we all greatly appreciate your hard work here." PUBLIC INPUT Chairperson Watkins opened "Public Input". No one spoke. Chairperson Watkins closed "Public Input". ADJOURNMENT Chairperson Watkins adjourned the Special Meeting at 8:31 p.m. RESPECTFULLY SUBMITTED: SEAN BEAUDET ASSISTANT TO THE CITY CLERK NOTE: These Minutes were Approved at the May 8,2014 Board of Trustees Regular Meeting.