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HomeMy WebLinkAbout1989-10-19 Minutes• MINUTES OF A MEETING OF THE POLICE PENSION BOARD OF TRUSTEES A regular meeting of the Fayetteville Police Pension and Relief Fund Board of Trustees was held on Thursday, October 19, 1989, in Room 326 of City Hall, 113 W. Mountain Street, Fayetteville, Arkansas. PRESENT: Chairman James Pennington, Treasurer Scott Linebaugh, Secretary Eldon Roberts, members Hollis Spencer, Rich Hoyt, Jr., and Dr. James Mashburn; others present were City Clerk Sherry Thomas, Mike Kirkland of Shearson -Lehman Hutton; member Jerry Friend arrived later in the meeting. CALL TO ORDER The meeting was called to order by the Chairman. MINUTES Motion was made by Mashburn, seconded by Hoyt, to approve the minutes of the last meeting. The motion passed unanimously. PENSION LIST Linebaugh stated there were no changes in the pension list. Hoyt, seconded by Roberts, made a motion to approve the pension list. The motion passed unanimously. INVESTMENT REPORT - MIKE KIRKLAND, SHEARSON-LEHMAN HUTTON Kirkland reported that the fund currently has two accounts --a cash account and the Oppenheimer account. Year-to-date, $2.25 million has been invested with Oppenheimer which had a 9.86% annual yield as of October 18, 1989. The cash account has earned around 8.25% the last couple of weeks. Dr. Mashburn stated that most any good account from the first of the year until now would have returned around 22%. Kirkland agreed, stating that the Fund's money had not all been deposited with Oppenheimer at the beginning of the year- -rather being invested when old investments matured. He recommended giving the manager time to prove their abilities. Kirkland handed out material on two different money managers for the Board to consider. In addition he distributed scattergrams showing how Oppenheimer had performed in relation to other money managers. On the three-year scattergram, Oppenheimer was #7, and on the five year scattergram, they were #15. They do have a lower risk than some of the others, however, and they do have a balanced account between equity and bonds. He further stated that the manager has been following the investment policy, and the investment is at approximately its maximum on stocks. Linebaugh stated that the reason the fund appeared to be so high in cash was the fact that an investment the City had has just been cashed out and is waiting to be reinvested. That is what the Board is trying to do today, decide on how to reinvest these funds. There was general discussion about the performance of the Oppenheimer account in relation to the stock market as a whole. The stock market since the beginning of the year was up quite a bit more than the Oppenheimer investment. Kirkland agreed with this and further pointed out that Oppenheimer had only been working with the money for about 7 or 7 1/2 months and had not had the full amount of money at one time to invest. Therefore, he encouraged giving the manager time to operate under their philosophy and give them time to work with the money on an annual basis before becoming too concerned about their performance. Roberts asked if the City still had any funds invested for the pension fund. Linebaugh stated that the City had a little over $300,000 in treasury bills that mature in 1990, 1992, and 1993. Kirkland presented the Board with information on three different money managers. The first two discussed were Siebel Capital Management and Consistent Asset Management Co. (CAMCO). Both of these have basically the same strategies and use strictly U.S. Government Securities Agencies. Over the long run, both managers outperform the T-bill rate by about 2%. Kirkland also presented the Board with scattergrams showing the performance of these two managers. CAMCO had earned 9.96% over the past three years, and Siebel was only around 7%. Kirkland checked with Siebel regarding their low three-year return. Siebel had stayed mainly in the cash market as they felt the rates in the bond market would be going up. Over a 5 year period, both managers were about the same with about an 11% return. CAMCO had a little less volatility than Seibel. Over a 7 year period, they were about the same and returned around 12%. The third manager Kirkland presented to the Board is Madison Investment Managers. They are one of the few fixed income managers that will take $1 million as a minimum investment, so Kirkland thought the Board should be informed about them. Their returns have been good since their beginning about 16 years ago. Their three year return was a little over 11%, and their 5 year return was a little over 14%. Their volatility was about the same as that of CAMCO. There is more return with this manager, but a little more risk because they are using corporates and governments. Over the last 10 years, they have averaged about 55% corporates and 45% governments. In the past 16 years, they have only been down 3 quarters. They have not had a down year since their inception (16 years), and the average return the past 16 years has been 12.63%. Kirkland stated the Madison people will be glad to come before the Board and make a presentation and answer any questions. Mashburn asked what the cost would be for this manager. Kirkland stated the current fees are a little less than 1%. Oppenheimer is charging 1.287%. He stated the fee on the new manager would never be over .952% on the fixed income side. If the Board decides on Madison, fees can be determined two ways: (1) competitive bid basis or (2) stated amount. Mashburn stated that the "junk bond" market had many people upset with the corporate market at this time. He expressed his concern that some corporates that had been considered a sound investment could quickly change with a leverage buy-out. • Kirkland further explained that the cost could be a flat fee plus commission (there is a charge for each trade) or a flat fee of .95% (Madison's fee would be .5 and Shearson Lehman's would be .45). Madison likes to have the second type of fee, the "wrap around" because they can trade as many times as they want to without additional costs to the fund. The total fee would be .952 or about $9,500. This would make a total fee for all money combined at 1.17%. Friend asked who decided on when to trade under the non "wrap around" fee. Kirkland stated that Madison made the decision. Mashburn stated that most people were getting out of the corporate market, and he was concerned about the fund getting into this market at this time. Kirkland stated that if few trades were done per year, the wrap fee may not be better. In addition, Madison is familiar with police and fire investment policies as they have several of them invested. Linebaugh stated the Board's decision was if they wanted to take a chance on corporate bonds for about a 2% increase in return. Roberts stated that if the fund were invested with either of the other two managers discussed (Siebel or CAMCO), the return would about 4% better than they are currently receiving without risking corporate bonds. Kirkland stated that the money could be split between Siebel and CAMCO if the Board preferred at no additional cost. He stated that the Madison people would be glad to come to Fayetteville or perhaps a conference call could be arranged to help answer some of the Board's questions. Kirkland further stated the Board could limit the amount of corporates or structure the investment however they wanted. Kirkland also stated that it made no difference to him or Shearson Lehman which manager the Board decided on using. He just wanted to make the Board aware of the different managers available and some of their options. Pennington stated that he felt the Board would have to made a decision about where they want to be regarding their investments and the best way to get there. The Board decided they would need some time to decide which way to invest. At this time, Kirkland left the meeting. Pennington asked if anyone had comments. Mashburn stated he was disappointed in the return by the Oppenheimer account when the equity market as a whole has gone up about 22%. He would like to earn a higher rate of return but does not want to do anything that might jeopardize the fund. Most investment people he is aware of at this time are pulling out of the corporate market. Linebaugh stated that you don't lose a lot of money going into a treasury manager like you do going into an equity manager if the Board decided to change their investments later on. Roberts stated he was not uncomfortable with the rate of return of the Siebel and CAMCO managers. • Pennington asked about the possibility of splitting the investment between both managers. Hoyt stated this had been done with Merrill Lynch, and it really just cost the fund additional fees. Linebaugh stated in this situation, however, the fees would remain the same but the Board would get a diversity of managers in case one of the managers went bad and did not do a good job. Hoyt felt the Board should give Oppenheimer more time to improve their record, but he felt that if their performance did not increase, perhaps the money should be reinvested with someone like Siebel or CAMCO where the rate of return is greater and the amount of risk is less. It wasdecided to have another meeting on November 2 to try and decide on how .to invest the money. ADJOURNMENT There being no further discussion, the meeting adjourned at 3:34 p.m.