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HomeMy WebLinkAbout1990-07-03 Minutes• • • MINUTES OF A SPECIAL MEETING OF THE POLICE PENSION BOARD A meeting of the Fayetteville Police Pension Board was held on Tuesday, July 3, 1990, at 10:40 a.m. in Room 326 of City Hall, 113 West Mountain, Fayetteville, Arkansas. PRESENT: Eldon Roberts, Jerry Friend, Rick Hoyt, Retiree Hollis Spencer, City Manager Scott Linebaugh, Administrative Services Director Kevin Crosson, and City Clerk Sherry Thomas. CALL TO ORDER The meeting was called to order by City Manager Scott Linebaugh. MINUTES Motion was made by Hoyt, seconded of the three groups of meetings. SPECIAL BUSINESS by Spencer, to approve minutes The motion passed unanimously. Elaine Longer, of Longer Investments, Inc., addressed by board. She presented a copy of the Actuary Report from the office of Katherine Henshaw and called the Board's attention to several items on the report. The statement on the cover sheet of the report stating that the Pension Fund was not actuarially sound under state law was researched, and it was found that the portion of liability covered by the assets has dropped to 1% of the liabilities of the fund. She stated the amount needed to make the fund actuarially sound would increase the covered liabilities from 1% to 35%, or entail a difference of $769,000 which is a return of approximately 19% over present returns. All liabilities are required to be covered by assets by the year 2003. She suggested the possibility of having a study done to pinpoint the rate of return needed to make the fund sound over a five or ten year period. This study would cost approximately $1,500 or 0.03% from the plan. She stated it was optional, but such a study would aid in better defining risks to be taken and what rates of return are needed. Longer also questioned the type of administrative set up required by the Board. Brokerage fees on a custodial account would be between 7 and 10 cents per share which figures to be an approximate 90% discount from street commission. Linebaugh asked who would be doing the actual brokerage work, and she responded that A.G. Edwards in Fayetteville at the rate of 7 cents per share. Longer explained that several other firms were used from time to time, but A.G. Edwards was the firm used the most locally. July 3, 1990 She stated that her firm would execute a contract between Longer Investments and the City of Fayetteville, with papers to be signed for the custody arrangements and the brokerage accounts. Longer stated that Northern Trust reports monthly, including reports on current account position and all transactions for the month. Longer Investments report quarterly, including current account position, realized gain/loss position year-to-date, statement of account value (including costs, current market position and income yield on market), transaction summary, performance history (with stocks and bond performance separated), performance reporting on Standard & Poor's 500 and Wilshire 5000 for comparison purposes, bond durations, estimated income summary, and transaction costs summary. She stated the account could be set up to be billed quarterly for Longer Investments' fees. The account origination fee is billed at the time of the assets transfer to Northern Trust. This fee covers the expense of setting up the account. Linebaugh stated it was the general consensus that a custodial account would be best and then asked the Board for any questions. Hoyt stated he had missed Longer's presentation at a previous meeting and questioned whether or not a wrap fee would cover these various expenses. Longer explained that a wrap fee was possible but stated the best rate on a wrap fee for the size of the account would be 1% and it would be required to be set up separate from the rest of the investments and traded with a separate phone call. She stated this was not very cost effective. Hoyt, seconded by Roberts, made a motion to authorize the actuary study. The motion passed unanimously. Longer stated the Board's investment policy regarding returns suggests they want to have both relative and absolute returns, and she explained that it is realistically impossible to have both. She encouraged the Board to take another look at the statements and re-establish performance and investment objectives. Longer stated the actuary study would probably aid the Board in addressing whether it was more important to realize relative performance from the account or absolute performance. Linebaugh questioned whether or not the Board should discuss the changes now or wait until after the actuary report was received. Longer assured the Board her firm would never violate the investment policy. She explained that her firm would write up an investment policy that applied to everything they would be doing for the account, specifying the certain risks to be taken, the July 3, 1990 equities to be managed, the type of volatility, administrative set- up, credit policy and so forth. She explained that this was the hard part, the "game plan", but once this was established, the rest could go relatively smoothly. Longer led a discussion with the Board regarding the degree of conservative approach the Board should take with the portfolio. She explained that it was not her position to set the policy, only to clarify and follow specific instructions and that was the purpose for the meeting today. Linebaugh stated that he felt they differed from most of her other accounts for the reason that this group answered to a public body and it was important to keep the overall plan simple and easily explained. Longer suggested the possibility of defining the plan's universe as being limited to investment grade stocks and bonds as they are the most public funds. Friend, seconded by Roberts, made a motion that investments be made in investment grade stocks and bonds and incorporate this into the investment policy. This would change the outlook of the plan from extremely conservative to moderately conservative. The motion passed unanimously. Longer discussed market exposure and volatility and explained that it was incorporated into the equity investment style. Foreign securities had not been addressed to this point and she stated that at present, the policy called for no investments in foreign securities without prior approval by the Board. Longer explained that her firm frequently traded in and out of exchange -listed ADR's (American Depository Receipts). She stated that some very large companies never thought to be foreign in origin, are and are traded in this way, for example, Nestle's. She suggested changing the wording to read "Investment in international securities that are not exchange -traded ADR's should be subject to approval by the Board." Linebaugh asked the Board their feelings on the foreign securities subject. Friend, seconded by Roberts, made a motion to change the wording regarding foreign securities to read as Ms. Longer had suggested earlier. The motion passed unanimously. Longer questioned wording in the policy that stated "the limits to exposure on any one company". She stated that in one instance, it was defined as "5% maximum exposure -5% of total portfolio" and then mentioned in another part of the policy as "5% of equity allocation only". After discussion on the subject, Friend, seconded by Roberts, made a motion to clarify the wording of the policy to read "5% of 40% or 2% of the total equity allocation." The motion was unanimously passed. • • • July 3, 1990 Longer explained that the total portfolio asset allocation was at 40% equities. She asked the Board to state the percentage of allocation they wanted on the account her firm would be managing for them. Linebaugh stated it was determined Longer could go all the way up to 100% and still not violate the policy. He stated that it was agreed that she could invest as she felt prudent, then give the remainder to Mike Kirkland at Dean Witter to invest as he saw fit. Longer stated that she felt $1 million in equities and $500,000 in bonds would give her the chance to show what could be done in fixed income. Linebaugh asked Longer when she would decide to sell a certain stock and discontinue holding the company. She stated when company parameters decline, and she tends to watch the long term activity rather than short term. Roberts, seconded by Hoyt, made a motion to turn over $1 million in equities and $500,000 in fixed income funds to Longer Investments. The motion passed unanimously. Friend, seconded by Roberts, made a motion to authorize Linebaugh to sign all necessary papers involved regarding the Longer Investments contract. The motion passed unanimously. ADJOURNMENT The meeting was adjourned at noon. • LONGER INVESTMENTS, INC. REGISTERED INVESTMENT ADVISOR P. 0. Box 490 18 E. CENTER STREET SUITE 201 FAYETTEVILLE. ARKANSAS 72701 TELEPHONE 501/443-5851 ELAINE M. LONGER. C.F.A. • • TO: FROM: Elaine Longer RE: Investment Policy Investment Objective: Primary Objective - The primary investment objective is to maximize growth of principal over a five-year time period. The total return objective (income plus capital appreciation) is to achieve an average annual 15% return over time. Secondary Objective - Preservation of capital is also an investment objective and will be accomplished by adhering to conservative valuation techniques on securities purchased for the account. Within the context of the overall policy, the client is willing to sacrifice some stability of principal to accomplish the long-term objective of achieving an average annual return of 15%. Appropriate Risk Level: New purchases in preferred stocks, convertible securities and corporate obligations will be rated BBB by Standard & Poor's or better. In the equity section of the portfolio, securities of corporations will be judged based on credit quality, profit- ability and stability of growth. Stocks will be selected after an evaluation of the fundamentals has been performed. Within the equity section of the portfolio, diversification among economic sectors and industries will be stressed to avoid overexposure to any one segment. In the equity fund, systematic risk will be acceptable up to a weighted average Beta of 1.2. D AGENDA I. Review Actuary Report II. Administrative Set -Up A. Custodian B . Brokerage Arrangements C. Contract and Other Paperwork D . Reports - Type and Frequency E . Billing III. Invlestment Policy Review A. Return Objective - Absolute vs. B . Risk Parameters 1. Market Exposure 2. Credit Risk 3. Volatility 4. Capitalization C. Equity Investment Style 1. Aggressive Growth, 2. Conservative, High 3. Foreign Securities 4. Limits on Exposure Relative Low Dividend Income to One Company D . Asset Allocation 1. Total Portfolio 2. Longer Investments, Inc: Managed Account FAYETTEVILLE skE CITY OF FAYETTEVILLE, ARKANSAS SHERRY THOMAS, CITY CLERK TO: Police Pension Board Members �jnTy� FROM: Sherry L. Thomas, City Clerk µ� DATE: June 27, 1990 SUBJECT: Next Meeting There will be a meeting of the Police Pension Board with a presentation by Elaine Longer at 10:30 a.m. on July 3, 1990, in Room 326 of City Hall. Attached are copies of the minutes from the May 9, May 24 and May 31 meetings for your reviewal. Thank you. Attachment List: Eldon Roberts Dr. James Mashburn Rick Hoyt Jerry Friend Hollis Spencer Scott Linebaugh Ben Mayes 113 WEST MOUNTAIN 72701 501 575-8323