HomeMy WebLinkAbout1989-06-15 MinutesMINUTES OF A MEETING OF THE POLICE PENSION BOARD OF TRUSTEES
A special meeting of the Fayetteville Police Pension and Relief Fund Board of
Trustees was held on Thursday, June 15, 1989, in Room 327 of City Hall, 113 W.
Mountain Street, Fayetteville, Arkansas.
PRESENT: Chairman James Pennington, Secretary Eldon Roberts, members
Hollis Spencer, Jerry Friend, Rick Hoyt, Jr., and Dr. James
Mashburn; also present were City Clerk Suzanne McWethy,
Accounting Clerk Lois Cox and Mlke Kirkland of Shearson -Lehman
Hutton
ABSENT: Treasurer Scott Linebaugh
CALL TO ORDER
The meeting was called to order by the Chairman.
CASH FLOW PROJECTION/ACTIVE SECURITIES
Accounting Clerk Lois Cox distributed a cash flow projection which had been
prepared by the staff for the Fund, based on activity in the account over the
first five months of the year. This is attached, and}.represented cash in a
Mcllroy Bank Super Now Account earning a rate of 4.851%. It indicated cash in
the bank on 6/15/89 of $98,896.91, as well as projecting income and disbursements
for the remainder of the year.
Also distributed by Cox was a report on active securities for the fund as of June
14, 1989 (attached). Mike Kirkland said he would like to make a recommendation
to Treasurer Linebaugh to deposit the securities in the Shearson Lehman account.
Kirkland said he was not recommending selling the securities before they mature,
but was recommending holding them in a money market account which he said was
earning an average of 8 1/2 to 8 3/4%.
Following discussion, it was moved by Mashburn and seconded by Roberts that City
of Fayetteville Police Pension Fund #680 maintain a balance of approximately
$65,000 and the balance of the account be transferred to Shearson Lehman for
investment, preferably at a higher rate of interest. The motion passed
unanimously.
OLD BUSINESS
Eldon Roberts distributed a list of current pension beneficiaries (attached).
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Police Pension Board of Trustees
June 15, 1989 Minutes
Page 2
NEW BUSINESS
RETIREMENT APPLICATION
Roberts told the Board that Sgt. Mike Mitchell had submitted an application for
retirement based on medical disability, after about 14 years service. Roberts
said he had reports from Mitchell's physicians to turn over to Dr. Mashburn to
review. Roberts said Mitchell wished to retire as of July 1, that his benefit
amount would be $1104.75 per month, or $13,257 per year. It was decided the
request would be considered by the Board at a later meeting.
AFFIDAVITS
It was decided that Suzanne McWethy should send affidavits to all retirees or
their widows on an annual basis, as has been done by the Fire Pension Board.
SHEARSON-LEHMAN REPORT
Mike Kirkland said he was not able to obtain a scattergram for the first quarter
because it wasn't available, but said he had results for the first quarter. He
said Oppenheimer was not the highest or the lowest, and.their return for the
first quarter was 5.91%. He said the S & P was 7.08%. ;He -said he believed the
reason they lagged the S & P was because they had $900,000 in treasury bills at
that time. He said other managers ranged from 4.5% to 9%.
Roberts said he didn't really understand the law which prohibits us from going
outside the State to buy CDs. Kirkland explained the law states the Board may
only diversify its investment program if it places a professional investment
advisor under contract for compensation. He said investments in savings and
loans associations must be in the State of Arkansas. He said if the Board is
not utilizing Act 6 procedures for all of its assets, but only for a portion,
the assets not under professional management must remain under the old investment
code, which he said meant CDs must stay in the State. He said if you hire an
investment advisor to buy CDs they can buy CDs anywhere. He said under this law
he is not an "investment advisor" so he can't buy CDs outside the State He said
Oppenheimer is an investment advisor. He said unfortunately we have missed some
9 1/2% - 10% CD money because of the guidelines of the law. He said Cathyrn
Hinshaw told him a lot of Pension Funds across the State are not adhering to the
letter of the law. Kirkland said there has been some 10% money in the State at
some savings and loan associations.
Dr. Mashburn said he liked the idea of being able to invest locally as long as
it brings a reasonable rate.
Roberts said he would like to know the difference between local and out-of-state
interest rates.
Kirkland reported the value of the Oppenheimer account as of close last night
was $2,383,155. He said the value of the money market account was $934,710, for
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June 15, 1989 Minutes
Page 3
a total of $3,317,865. He said this does not include the T-bills which have a
face value of about $377,000.
Dr. Mashburn asked Kirkland to report on the percentages invested in cash, stocks
and bonds. Kirkland said there was currently $1,574,000 in cash. He said
$700,000 is included in the $2.38 million. Kirkland said around $1.28 million
was in equities, and a little over $1 million in bonds. He said there was about
33% in equities right now.
Kirkland said he believed there to be three alternatives for fixed income
investments.
1) CDs in the State: Kirkland suggested, with this alternative, the
Board could choose not to put all the assets under a manager, but
invest in CDs inside the State, with the Board either doing it on
their own, or have Shearson Lehman help them find the best CD rates
in the State. Kirkland said he would be glad to do "a rolling
program" for the Board.
2) A money manager: Kirkland said Oppenheimer bought close to $900,000
in treasuries back in February, and sold one of those issues
yesterday, taking a profit of about 6% in four. months. He said this
is an example of what active management can do. He said under the
second alternative, the Board could hire a fixed income manager to
deal strictly in fixed income securites and trade the account as they
see fit. He said there may be losses from time to time.
Kirkland distributed a five-year scattergram to the Board which
showed risk/return analysis for selected fixed-income managers. The
scattergram was prepared by Shearson Lehman Hutton using performance
data provided by managers and is attached to these minutes.
Pointing out rates of return for certain of the managers (attached
to scattergram), Kirkland noted Madison Investment Advisors had
little volatility with a 13.68% return. He said their portfolio
makeup is about 60% corporates, 20% treasuries and the rest in cash,
with their average maturity on the portfolio being six years.
Kirkland advised that, if the Board chooses a manager, they should
select one which has low volatility above average risk. Kirkland
said his firm had no ties with one particular manager. He said the
fee is not that big of an issue on a fixed income manager. Kirkland
pointed out a money manager employed by Shearson with a decent track
record shown on the scattergram was SLH Government Securities
Management averaging about 11.5% with volatility around 5. He noted
another manager, Midwest Investment Advisory, had a 10% yield and
volatility of around 4. He said the Board had initially discussed
Liberty Capital Management who he said showed 2 points over treasury
bills as far as risk, and about 2 points more in return.
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June 15, 1989 Minutes
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Kirkland said the fee on a fixed income manager generally ranges from
.6 to .85%, depending on the management style. He said the
management style of Madison is to keep maturity at 6 years or less,
and to meet with the Board four times a year. He said Liberty,
Shearson Lehman and Midwest managers would also meet with the Board
four times a year.
Kirkland said an active manager has the potential of. earning 10% -
12% over time, but cautioned the Board to be aware of the five-year
time frame during which there is the potential of taking some losses.
Kirkland said he wished the Board
year over a five-year cycle. He
done, but not under an investment
for example, to set up a rolling
would be to hire a money manager
realizing capital gains.
could just have a staggered CD program every
said the investment policy allows this to be
advisor. He said the safest thing would be,
treasury program He said the next step up
to manage the assets, with the potential of
Dr. Mashburn said, when the Board hired Shearson Lehman, there was an
understanding that the fee would be kept under 1%. He said he understood this
included the entire portfolio. He asked Kirkland if his firm would still be able
to pay someone like Madison a fee and still stay under, 1%. Kirkland said
Madison, for example, would get paid .7%. He explained"tha't.Shearson Lehman does
not actually get a commission with a fixed income manager, but they get a
"credit" which he said would be 1/32 on a $1 million account, or $1500. Kirkland
said the all-inclusive fee for Shearson's Government Security Manager is .6%.
He said the fee with Midwest is .75%, and with Liberty Capital (the "select"
program) is .7875%. He said Madison invests in corporate and government
securities, Shearson Lehman in all government securities, and Midwest in
corporate securities. He said adding corporates will add a little bit of yield.
3) Kirkland advised the third alternative was for the Board to make
investment decisions, but allow Shearson Lehman to initially set up
the rolling investments. He said the Board couldn't invest in CDs
through Shearson Lehman, but could invest in treasuries, corporates,
or even zero coupons. He said he could advise the Board of what is
available, but the Board would have to direct Shearson Lehman on what
to do. He said he would monitor the investments and the interest
paid would go into the account. He said this would mean building
a portfolio directed by the Board outside of a money manager. He
said he wouldn't be managing the account.
Roberts said, rather than take any action today, he wished to discuss the matter
with Treasurer Scott Linebaugh.
It was agreed that the Board would consider Mike Mitchell's retirement request
at the next regular meeting on July 20 and get input from Linebaugh regarding
the matter of investments in the meantime.
There being no further business, the meeting was adjourned.