Loading...
HomeMy WebLinkAbout2005-10-27 MinutesFiremen's Pension and Relief Fund Board of Trustees Meeting Minutes October 27, 2005 Page of 4 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 27, 2005 A meeting of the Fayetteville Firemen's Pension and Relief Fund Board of Trustees was held at 11:00 AM on October 27, 2005 in Room 326 of the City Administration Building. Mayor Coody called the meeting to order. Present: Mayor Coody, Marion Doss, Dennis Ledbetter, Pete Reagan, Ronnie Wood, Sondra Smith, Trish Leach, Accounting Department, Kit Williams, City Attorney, Fire Chief Johnson, Elaine Longer and Kim Cooper, Longer Investments. Absent: Danny Farrar Approval of the September 29, 2005 Meeting Minutes Dennis Ledbetter moved to approve the September 29, 2005 meeting minutes. Marion Doss seconded the motion. Upon roll call the motion passed 6-0. Danny Farrar was absent. Approval of the November, 2005 Pension List Pete Reagan moved to approve the November, 2005 pension list. Dennis Ledbetter seconded the motion. Upon roll call the motion passed 6-0. Danny Farrar was absent. New Business: 2006 Meeting Schedule A copy of the meeting schedule for 2006 was given to the Board. NCPERS Website A copy of the NCPERS website was given to the Board. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 27, 2005 Page 2 of 4 NCPERS Membership Invoice Pete Reagan moved to renew the NCPERS membership for 2006. Ronnie Wood seconded the motion. Upon roll call the motion passed. 6-0. Danny Farrar was absent. Longer Investments: Monthly Report Elaine Longer: The economy has grown about 3.5% year to date. The fourth quarter of 2005 will be the 10th consecutive 3% plus quarter of growth. That is a pretty strong economic recovery. Although employment has strengthened this year, we are no where near where we have been in previous economic expansions, 10 quarters into it. That is why it doesn't feel like we have been in such a strong economic expansion. Wages have lagged previous economic expansions at this point; in fact household income is down 4 out of the last 5 years. Even though we have had a strong economic expansion it has not been felt by the household sector for the most part. Short term interest rates have risen to 3.75%; we expect two more increases before the end of the year. The Katrina situation sort of forced the Federal Government to become more vigilant because of the fact that the Bush Administration came out and said $200 billion dollars. We are looking at one more increase after the first of the year and I would not be surprised to see two before the Federal Government pauses. Capital spending has been healthy as has consumer spending, but the consumer spending for the most part has been supported by withdrawing asset value out of the home via home refinancing. The mortgage refinancing has extracted about $600 billion out of home equity which has basically been the prop to consumer spending in a sluggish economy with slow rate growth. Kit Williams: I noticed a lot of the bank's equities are now based on home mortgage lending. Is that something that concerns you? Elaine Longer: The banks do have a big exposure to the mortgage market and they have been pushing home equity loans because it is a very high quality loan and the corporate sector has not had the need to borrow much. That's why bank loans have increasingly been tied to the housing market as opposed to a more balanced bank loan portfolio. Kit Williams: So you do not see any similarities between this and the savings and loan problems that occurred in the 90's. Elaine Longer: At this point no. There are some concerns about what is going on in California where they are making interest only loans with no down payment based on the idea that housing prices will always go up. If you have a fly in the ointment there and housing prices go down even by just 5% then you have a real problem when these interest only loans come up. When the balloon hits and you have to roll into a traditional mortgage you may end up owing money on the Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 27, 2005 Page 3 of 4 house and these are people who do not have capital that is why they went into interest only no down payment loans. We have moderate economic growth and continued strong earnings growth. The corporate sector is very strong as opposed to the household sector being weak on the balance sheet basis; you can see this by rising corporate cash flows. All this increase cash flow has found its way into rising dividends; dividends are up 20% year to date. Cash balances have increased, capital spending has increased, share re -purchases are an ongoing part of the use of corporate cash and then merger and acquisition activity. Corporate balance sheets are very strong, they have paid down debt, they have a lot of cash they have increased dividends, they are buying back stocks and they are buying companies and that is very different from what we see on the household sector which is over leveraged and stretched. We do have valuation improvement in the stock market because most market averages are down year to date and earnings have continued to go up. The price earnings multiple in the market because the market is down year to date and because earnings have continued to improve by about 15%, the PE multiple the valuations applied to the earning has come down even further this year. Now we are at the long term average of about 15 times forward earnings and that compares to about 29 or 30 times earnings at the peak of the stock market before we headed into a three year correction. We do have evaluation correction that has taken place and that is a positive. If you just look at the earnings on the S&P 500 and you value those relative to the ten year treasury the stock market is under valued relative to bond. The problem this year and what we have been writing about in our newsletter is that there are all these macro economic risks out there that are over shadowing the good things that are going on at the corporate level and those include the rising energy prices. In the fixed income market we are still very short in our maturities and still waiting for a better buying opportunity. We have a good position in the bond market in that about 35% of our bonds mature within three years. Anything that has a maturity of three years or less as far as we are concerned is as good as cash. We just haven't used those funds yet, we are still waiting for a better opportunity. Equities, we are still overweight the capital goods sector, we are overweight energy, we are under weight the consumer and also financial stocks, mostly because of the pressure from rising interest rates on the financial. We have ample liquid reserves for purchasing power we are just waiting. Our international exposure that we have had in Japan has done real well. Page 1 of you report, September 30, 2005 when we closed we were about 51% equities, your policy is up to 50% and then we can go over by 5% but we need to have your approval. Pete Reagan moved to approve the overage in Equity. Ronnie Wood seconded the motion. Upon roll call the motion passed 6-0. Danny Farrar was absent. Elaine Longer: On page 6 you are at 41% stocks. We have ample cash reserves to invest. Page 11 is a summary of realized gains year to date, about $230,000. Net income has been $156,000 year to date. Page 12 just summarizes the fixed income holdings in your portfolio. The most important is that your weighted average yield to maturity is about 4.8%, the average maturity on your bonds is 6.7 years so that compares to a 4.5% in a ten year treasury, you have a much Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 27, 2005 Page 4 of 4 higher yield and a shorter maturity. You have about 31% of all of your bonds mature within three years. On page 19 is a summary of your distributions and contributions from August, 2002 through September 30, 2005. Your distributions have been about 2.8 million and contributions have been about $622,000. On page 20 there is a summary of your investment returns. Your equity returns have been about 29.4% and you have 8.6% average annual returns. Mutual funds have returned about 6.2%, fixed income about 4% average annual return. Your total return has compounded at about 6% return over that time frame. Your net investment return has been about 1.78 million. Pete Regan: Our contributions show $145,000 is that our insurance turn back? Our turn back was $225,000 did we keep some funds here for payroll? Trish Leach: When we get the turn back money we look at how much money is in the cash account we then use what we need of the funds for the current month's pension checks and send the balance of the turn back funds to Longer. Longer investments 3rd Quarter Quarterly Report dated September 30, 2005. A copy of the Longer Investment 3rd quarter report was given to the Board. Other: Pete Reagan introduced Chief Johnson to the Board and thanked him for attending the meeting. Meeting Adjourned at 11:35 PM.