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HomeMy WebLinkAbout1990-07-03 Minutes•
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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.
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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.
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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.
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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