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