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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). • • 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 • • Police Pension Board of Trustees 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. • Police Pension Board of Trustees June 15, 1989 Minutes Page 4 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.