No preview available
HomeMy WebLinkAbout1988-10-20 Minutes• • MINUTES OF A POLICE PENSION BOARD MEETING A meeting of the Fayetteville Police Pension and Relief Fund Board of Trustees was held on Thursday, October 20, 1988 at 2:00 p.m. in Room 326 of the City Administration Building at 113 W. Mountain Street. PRESENT: Members Scott Linebaugh, Eldon Roberts, Hollis Spencer, Jerry Friend and Rick Hoyt, Jr. Also present were City Clerk Suzanne McWethy, Accounting Supervisor Zelda Parson, and representatives from the A. G. Edwards firm. ABSENT: Members Jim Pennington and James Mashburn MINUTES Linebaugh introduced consideration of approval of minutes of the last three meetings. It was moved by Spencer and seconded by Roberts to approve the minutes. The motion passed unanimously. OLD BUSINESS Linebaugh introduced approval of agreements between the Board and Mcllroy Bank, and Elaine Longer. He said, if the Board approved the agreements, they should be contingent upon changes being made as required by the City Attorney. Linebaugh said he discovered that, in order to deal directly with some of the investment firms the Board had chosen, they demand minimum investments of $3-5 million or higher. He said the firms do allow accounts to go through brokers and take a lot of $200,000 accounts and lump them together. He said it became apparent some of the firms not only do not want small accounts, but won't even visit us except when they happen to be in the area. Linebaugh said one alternative would be to invite brokers to get us their best money managers and give a presentation to the Board. He said the Board could select a money manager at that point and have a clause in the investment policy that the brokerage firms have to "bid out" on a quarterly basis. He said apparently the companies will agree as long as they have a right to compete for the transactions. Linebaugh said A. G. Edwards has suggested the possibility of the Board using an "asset performance monitoring system." A.G. EDWARDS PRESENTATION ON ASSET MONITORING Bill Conrad, of A. G. Edwards, said the system is a service Edwards has had for about the last ten months. He said the service means A. G. Edwards would hold the assets in trust, insured for $10 million, with no trustee fee. He said Edwards would do the trades, would not make any recommendations or push any • • Police Pension Board October 20, 1988 Page 2 stocks. He said the firm would monitor for the Board what the money manager is doing against "the universe", against the other money managers in the country, and against the Standard and Poors and the Dow Jones. Conrad suggested the Board, instead of transferring their assets to Mcllroy Bank, let Edwards hold the funds for a few months while the Board finds a manager. Conrad said he could bring three money managers or more to the Board to interview. Conrad said Edwards could provide the asset monitoring service for 45% discount off their trades, and would encourage the money manager who is hired to get one bid from A. G. Edwards and two bids from others, on any government bonds or treasuries they purchase, and select the best. Jerry Friend asked what the difference was between what Conrad was proposing and what Merrill Lynch was supposed to be doing. Conrad said Merrill Lynch selected one money manager for the Board, but wasn't really performing a true monitoring service, nor was A. G. Edwards. Linebaugh said Merrill Lynch and RNC had an agreement between them. Linebaugh asked what the difference was between this system and what other firms might offer. Conrad said he wasn't sure he knew the answer to that, but said the Board would have to feel really comfortable with the firm they choose. Linebaugh asked if, in arrangements with the money managers, all the transaction fees go through the investment firm. Conrad said they would. Linebaugh asked if firms would agree to the right to compete for the transactions with the money manager that is selected. Conrad said the Board should still have a recipient for the securities and if they start scattering it out, they lose that capability. He said he was not really sure the Board would save that much on transaction costs, and would be putting restrictions on the money manager. Linebaugh said the Board's investment policy requires quarterly bids on a percentage of discount. Linebaugh said there were several local companies such as Shearson Lehman, Merrill Lynch, A. G. Edwards, and Dean Witter, most of whom have gone to a system such as that described by Conrad. He said perhaps the Board ought to go to each local broker in Fayetteville and ask them to chose their top money managers and bring a presentation before the Board. Don Trumbo, of A. G. Edwards, commented that if anyone is cheaper or better than A. G. Edwards, it isn't by very much. Hoyt asked, if the Board had started monitoring a while back, what would the monitor have said about the performance of A. G. Edwards. Conrad said, before the crash, it wasn't very good but that, since the crash, they had outperformed. Linebaugh said a lot of questions had been asked about why A. G. Edwards and Merrill Lynch didn't do something before the investments got into the hole as much as they have. Conrad said, before the crash, when the Board wanted to invest more money, he advised them not to, and they chose not to invest more at • • • Police Pension Board October 20, 1988 Page 3 that time. Conrad said he didn't like the performance of their money manager, but said that in another six weeks the investment might have turned out alright. Conrad said, for having gone through the crash, the investment may not have earned that much, but it will be a very negligible loss. Linebaugh said the people the Board represents may not feel good unless the entire local market is checked out. Spencer said he thought the Board had an obligation to listen to some other presentations. After further discussion, it was moved by Spencer to get some other local brokerage houses with asset monitoring programs in and listen to their presentations. Linebaugh suggested each presentation be limited to 1/2 hour. The motion was seconded by Friend and passed unanimously. Conrad distributed material showing the Board the value of the account, which was shown to be $470,779. CONTRACTS WITH MC ILROY AND LONGER Linebaugh introduced consideration of a contract with Elaine Longer for temporary management of the investment, and with Mcllroy Bank as custodian of the account. Linebaugh said the contract with Mcllroy as suggested by Elaine Longer would cost a yearly $940 base fee, plus $28 per security held, plus $21 per transaction. Linebaugh distributed copies of Longer's agreement. He said her fees would be .25% of the portfolio to cover the transfer of the assets, the accounting, establishment of the account, and computerized records. He said, in addition, there is an annual fee equal to 1% of the average net asset value of the funds invested. Linebaugh said 1% of $1 million should be $10,000 per year. Linebaugh said Longer's contract says she won't buy any investments until we enter into a permanent agreement with her. Conrad said rather than paying all the fees and setting up new accounts temporarily, the Board should think about selling all the stocks and starting out fresh. Trumbo said the Board was going to a lot of expense with front-end fees with Longer on a temporary basis. Trumbo suggested the Board authorize Edwards and Merrill Lynch to liquidate the investments and not get into temporary fee situations. Linebaugh said he was bothered by the fees for Longer and Mcllroy which he said were a lot higher than it was originally thought they would be. Trumbo suggested the Board could authorized A. G. Edwards to sell the investments, place them in the money market and hold them until a permanent decision can be made. Linebaugh said it could take two or three months to find a money manager, and said he thought the Board would make a mistake by entering into the high-cost contracts, if they are going to hire an asset monitor in a week or so. He • • Police Pension Board October 20, 1988 Page 4 suggested the Board wait on the contracts and wait until the asset monitor is chosen and can advise the Board what to do temporarily. Roberts asked, if the investments are just left alone, if Merrill Lynch or A. G. Edwards cannot trade if one of the stocks started going down. Linebaugh said we would be in that situation anyway with Longer because she won't trade stocks unless we enter into a permanent contract with her. He said both First National Bank and Mcllroy Bank told him itcould take two to three weeks to transfer stocks from Merrill Lynch. Linebaugh said it worried him to cash in about $1 million in securities when the Board could take a loss on some of them. Zelda Parson said if all the money was put in a money market, it would earn about 7.2%, netting about $16,000 in three months. Linebaugh asked the Board to decide whether to cash in the investments and put the money in a money market account, leave the investments as they are while waiting to listen to the asset monitors, or deposit the investments with Longer and the bank. Roberts asked what the cost would be to cash in the investments. Conrad estimated the cost could be $2,000-$2500. It was moved by Hoyt that the Board not sell the investments, not enter into a contract with Elaine Longer, but wait and get some asset monitors to make presentations to the Board. The motion was seconded by Friend. Conrad said, in the meantime, A. G. Edwards can make the value of the portfolio available to the Board anytime, and can look at individual stocks every day. It was agreed a meeting be set for next Thursday, October 27 at 2:30 p.m. The motion passed unanimously. Linebaugh proposed the Board give temporary authority to Bill Conrad to monitor the transactions and contact the Pension Board if some action needs to be taken on any investments. He asked if the Board wanted to consider instructing Merrill Lynch to transfer the investments placed with them to A. G. Edwards to monitor all the investments. Conrad told the Board that A. G. Edwards was not a registered investment advisor, but their office in St. Louis could probably monitor the investments. It was moved by Friend and seconded by Roberts that Scott Linebaugh have the authority to make emergency transactions, should he be advised to by A. G. Edwards; and to get the assets held by Merrill Lynch transferred to A. G. Edwards. The motion passed unanimously. • Police Pension Board October 20, 1988 Page 5 There being no further business before the Board, the meeting was adjourned at 3:40 p.m.