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HomeMy WebLinkAbout2006-07-20 MinutesFiremen's Pension and Relief Fund Board of Trustees Meeting Minutes July 20, 2006 Page t of 5 Firemen's Pension and Relief Fund Meeting Minutes July 20, 2006 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 AM on July 20, 2006 in Room 326 of the City Administration Building Mayor Coody called the meeting to order Present: Mayor Coody, Marion Doss, Dennis Ledbetter, Ted O'Neal, Pete Reagan, Ronnie Woods, City Clerk Sondra Smith, Assistant City Attorney David Whitaker, Trish Leach, Accounting, Elaine Longer and Kim Cooper, Longer Investments. Approval of the June 29, 2006 Meeting Minutes: Marion Doss moved to approve the June 29, 2006 Meeting Minutes. Pete Reagan seconded the motion. Upon roll call the motion passed unanimously. Approval of the Pension Lists: Approval of the Revised December, 2005 Pension List: Sondra Smith: The year to date amount on the December, 2005 Pension List was not correct. This new Pension List has the correct year to date amount. Pete Reagan moved to approve the revised December, 2005 Pension List. Dennis Ledbetter seconded the motion. Upon roll call the motion passed unanimously. Approval of the Revised July, 2006 Pension List: Sondra Smith: Arnold King changed his withholding after the July, 2006 Pension List was approved. Pete Reagan moved to approve the revised July, 2006 Pension List. Dennis Ledbetter seconded the motion. Upon roll call the motion passed unanimously. Approval of the Au2ust, 2006 Pension List: Sondra Smith: The August, 2006 Pension List is less due to Eileen Morrison's amount being removed because she deceased July 10, 2006. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 20, 2006 Page 2 of 5 Mayor Coody moved to approve the August, 2006 Pension List. Pete Reagan seconded the motion. Upon roll call the motion passed unanimously. New Business: Eliene Morrison Deceased: A copy of the obituary for Eileen Morrison was given to the Board. Merrill Lynch- Information: Sondra Smith: Merrill Lynch sent information they would like the Board to review. A copy of the information is in your agenda pack. Merrill Lynch would like to attend a meeting of the Board. Pete Reagan asked Sondra Smith to write a letter to Merrill Lynch stating we are currently happy with our investment company and we are not interested in them attending our Board meeting. Pete Reagan moved to send Merrill Lynch a letter stating at this time the Board is not interested in someone attending a meeting. Dennis Ledbetter seconded the motion. Upon roll call the motion passed unanimously. 2005 Actuarial Valuation: A copy of the December 31, 2005 Actuarial Evaluation was given to the Board for review. Old Business: There was no old business. Longer Investments: Elaine Longer, Longer Investments: Our newsletter talks about the volatility that we are seeing in the market. There are a number of reasons for it, the increased tensions in the Middle East is one of them We don't really have any relief on the energy prices yet so energy has continued to be very volatile. We are also dealing with a new Fed chairman and everybody is trying to get a handle on this guy which is very important because we are really in the late stages of the credit tightening cycle that started in 2004. The economy started to show signs of weakness but the inflation numbers are still threatening and so everyone is trying to guess Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 20, 2006 Page 3 of 5 whether or not we will stop at 5.25%, which they did in June or whether we will have another .25% increase in August. Every time he gets in front of the microphone he is wearing a different hat. This is why we have such incredible volatility going on. A lot of the key factors that you base your outlook on are inflation numbers, Fed policy and interest rates which affect not only the economic growth outlook but also the price earnings multiple as applied to earnings, all of these things are sort of up in the air. That is why you see these incredible gyrations, like 200 points up yesterday which was about earning back what we lost the week before. It is a lot of uncertainty and you have a lot of leverage players in the market now with hedge funds making up over 50% of the volume on the major exchanges. You get not only volatility but you have leveraged so that is why everything is in such a state of flux. What is good about the economy is that the corporate sector continues to deliver good earnings, the corporate sector is in very good shape financially because they have been in hunker down mode since 911. They have paid down debt and there is still excess cash flow so what are they doing, they are increasing dividend and buying back stock. The first quarter's pace was a record, over $100 billion in stock repurchase and then also doing merges and acquisitions which you read about almost every time you pick up a newspaper. So the corporate sector is in a very good position to weather the storm but the financial markets are the ones that are showing all the volatilities. As we took forward six months from now the economy will definitely be slowing from the first quarter pace which was 5.6%. 1 have been saying that we are in the ninth ending of the Fed tightening cycle we don't know if it is the bottom of the ninth or the top of the ninth but it is the ninth inning. Whether or not we go to 5.5%, which I don't think we will is not the point, the point is that we are very close to the end of the tightening cycle that has been two years in the making, that's good news. In 1995 when we came off the last tightening cycle the market was up dramatically even though the economy slowed because you had relief from those interest rate pressures. I think we could have another situation like that. We have pent up valuation in the stock market because you have had a rising level of earnings that have not resulted in stocks going any where. So you have a good valuation level if we get some relief on interest rates the market can perform better. All of the uncertainty has been creating this valuation floor because last year earnings were up 22% this year we are looking at 14% year to date and the stock market has done nothing, so you have earnings moving up, price stays stable and so the price earnings multiple or valuation goes down. So we have the same thing that happened in 1994/1995 happening in 2005/2006. When we get to the end of some of this uncertainty there is every reason in the world for people to buy US corporation stock but at this point it is like everybody wakes up every day to a new set of variables and has to readjust their thinking. That is why you have so much incredible volatility. In fact by one measure the last month that we went through was the most volatile in 55 years. That might answer some of the questions on why you see what you see on the news, it has been quite wild. The first page of your report shows your June 30 ending value. As of yesterday's close the market is down about 1% month to date after having been down as much as 3 V2% or 4% month to date before the rally yesterday. Not a lot has changed since the end of the quarter but you can see that you have about 52.7 % stocks both in your domestic stocks plus the international. So we are over the 50% of equity. We do have to have the overage approved. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 20, 2006 Page 4 of 5 Pete Reagan moved to approve the Equity Overage. Dennis Ledbetter seconded the motion. Upon roll call the motion passed unanimously. Page 4 shows the ending valuation as $8.8 million. You still have a 3.5% income yield, even with 52% invested in stocks. So as interest rates have come up, we have been able to maintain the same income yield on the portfolio, even with more of it invested in the stock market. Page five shows the realized gains year to date of $192,000, income return has been $105,000. Page six is a summary of your top holdings Citigroup, Sigma-Aldrich, Walmart, DuPont and Coca Cola; all of them are within your policy requirements of nothing exceeding 5% of equity exposure. Pate Reagan: Elaine, can you tell me what Sigma Alrich is? Elaine Longer: It's a chemical company, but it's not as cyclical as DuPont. They sell a lot to the pharmaceutical and scientific research industry. Page seven, is a summary of the contributions and distributions from account inception and you can see that $622,000 has come into the portfolio and $4,017,000 has gone out. Page eight is a summary of performance, inception to date equities have returned 8.8% annual return, and then equity mutual funds have returned 9% annualized. The fixed income has been 3.3%, because in the past 3 years with rising interest rates the bond return has been less then the coupon interest rate on the bond, as prices have suffered in the rising rate environment, REIT's are 21% and so your total and we didn't push this number, this is not cooking the books, but it's right at the 6% annualized rate return that the actuaries use. Comparing it to the index returns, the S & P 500 during that time did 8.4%, the DOW with compound dividends has done 8.6% and the Solomon Brothers Treasury Index has done 2.8%. So even your 3.3% return doesn't sound like a lot on an absolute basis, but on a relative basis you have outperformed the endices. Year to date, the market is up by about 1.8% through June 30, 2006 and you are showing a 6% return in equity, so this has been a real good year so far. Last we have the investment policy. I don't have anything to really cover on the investment policy, because there is nothing that I would recommend changing. The change that we did enact last time has been finalized with the paper work, and that is to raise the restriction on the international. We haven't acted on that at this point in time because international out performed domestic stock year to date through June 30, as well as dramatically last year. So at this point in time with the stock market in the United States still under so much pressure, the large cap growth companies in the US look relatively attractive to just about everything else we are looking at. So, at this point in time we are not pushing the envelope to increase exposure at the international level relative to the US, but it is good to have it in our pocket to do it in the future. Are there any questions about the reports? Did everyone get a news letter, because we have extra copies if you have not received one? Well, it's hard to write a newsletter in this kind of environment and get it to the editor and to the printer before it's outdated, and we hit that this time because when I wrote it, we always put in a caveat at the end about what could hurt our Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 20, 2006 Page 5 of 5 cautiously optimistic scenario is increased tensions geopolitically and a significant move above the recent high and energy prices, both of which we saw before it came back from the printer. So we included a late breaking news update just to say that we have taken a more defensive posture because of those events and that has resulted in a few of our stop limits going off so we do have a little bit more cash reserve then what we show in our June 30 report. We received the actuary report and we updated the performance. Apparently this cuts off on June 30, 2005, we report on a calendar year basis, so we went back to June 30, 2005 through June 30, 2006 to give you a performance update from this report. I'll go ahead and hand this out. The equity returns during that time frame were 10.2% and that compares to 6.6% in the S & P 500 so that was a good twelve months following the reduce of this report. The fixed income return was a -0.7 and that compares to Solomon Brothers Treasury of -0.17, so again you have out performed the bond index but the bonds have been a drag on a total return basis in the portfolio. So your total return with bonds included during that time period is 5.7% from where the actuary report broke off. The important thing about that is that you had a great relative return year and good stock market performance, in fact it exceeds what we had it estimated our average expected total return. When we started managing the portfolio, we estimated 7% to 8% equity return for a number of reasons, they were valuation related. Still you are right at the actuarial return of 6% to just stay constant with where this cut off. Pete Reagan: We had a retirees dinner last month and we have a 3% temporary COLA that they would like to have renewed, I think it ends at the end of this year so at the next meeting we will down load the proper forms off the LOPFI PRB website and get those filled out, signed and sent in. Sondra Smith: Do we have to have a cash flow report done or an actuary study done? Pete Reagan: Yeah but that's all part of it, but they will be able to use these number to update it, so it won't take them that long to do. I do know that they are behind. Sondra Smith: I haven't got the police actuarial reports yet. You all are fortunate to get yours. Pete Reagan: I was at the June LOPE meeting and they reported that they were done with most of the Fire and were pretty much done with the Police. Marion Doss: Do they wait to release those when they get all the Fire done do they release them all the same time Pete Reagan: They release them all at the same time. Meeting Adjourned at 11:30 AM