HomeMy WebLinkAbout2005-10-27 MinutesFiremen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 27, 2005
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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.
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Board of Trustees Meeting Minutes
October 27, 2005
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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
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Board of Trustees Meeting Minutes
October 27, 2005
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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
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Board of Trustees Meeting Minutes
October 27, 2005
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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.