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HomeMy WebLinkAbout2009-05-14 MinutesBoard Members Mayor Jordan Chairman Sondra E. Smith Secretary Marion Doss Position 1/Retired Pete Reagan Position 2/Retired Gene Warford Position 3/Retired Ron Wood Position 4/Rctired Firemen's Pension and Relief Fund Meeting Minutes May 14, 2009 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 1 of 12 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 10:00 AM May 14, 2009 in Room 326 of the City Administration Building. Mayor Jordan called the meeting to order. Present: Mayor Jordan, Ronnie Wood, Marion Doss, Pete Reagan, Gene Warford, Sondra Smith, City Attorney Kit Williams Trish Leach, Accounting, Paul Becker Finance & Internal, Elaine Longer & Kim Cooper, Longer Investments, John Jenkins, Jeremy Ashley, Bud Thompson and press. Approval of the Minutes: February 11, 2009 Special Firemen's Pension meeting minutes February 11, 2009 Special Firemen's Pension and Policemen's Pension Joint meeting minutes Pete Reagan moved to approve the February 11, 2009 Special Firemen's Pension meeting minutes and the February 11, 2009 Special Firemen's Pension and Policemen's Pension Joint meeting minutes. Ronnie Wood seconded the motion. Upon roll call the motion passed unanimously. Approval of Pension List: April, 2009 Revised Pension List (Donald Watts and Randall Wright deceased in March their widows are now drawing. Mayor Jordan: What discussion do we have on that? Sondra Smith: The reason we need to approve a revised April list is because you already approved it with Donald Watts and Randall Wright on the list. We had to go back and change that list to reflect their widows. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 2 of 12 Pete Reagan moved to approve the Revised April 2009 pension list. Gene Warford seconded the motion. Upon roll call the motion passed unanimously May, June, and July, 2009 Pension List Marion Doss: I assume there are no changes except names, correct? Sondra Smith: No changes. Marion Doss moved to approve the May, June, and July 2009 pension lists. Pete Reagan seconded the motion. Upon roll call the motion passed 6-0. New Business: Donald Watts Deceased Randall Wright Deceased Sondra Smith: There is a copy of the affidavit that we received from their widows showing that they are eligible to draw in the packet. City Attorney Memo — March 5, 2009 FOIA applicability to Police and Fire Pension Board Meetings Sondra Smith: This is a copy of memo that Kit wrote. I think the board has already received it. Mayor Jordan: Kit do you have anything on that? Kit Williams: No, I think we've always treated the meetings as FOIA. City Attorney Memo — March 12, 2009 May the Pension Board of Trustees reduce current benefits Copy of memo is in the packet. Kit Williams: I wasn't aware that Sondra was going to put these memos in. These have already been submitted to the pension board on the date they were written. Sondra Smith: We put those in for the archive record because if they are given to the Board and not with the agenda then they are not archived. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 3 of 12 Kit Williams: We have requested an Attorney General's opinion about the reduction of benefits but we have not heard anything yet. I did not expect to hear anything quickly because that was during the Legislative Session and the Attorney General is very busy at that point and time looking at the laws that the legislature is looking at. Old Business: 2009 Board Member Elections — Election Ballot Deadline is May 15, 2009 Marion Doss: Are you getting a good return of ballots? Sondra Smith: No. Marion Doss: We got the nominees we're just waiting on the ballots. Sondra Smith: We always get more nominees returned to us than we do ballots for some reason. Marion Doss: I wonder if some people think they are voting when they send the nomination in. Sondra Smith: I think they do. Police doesn't do the nominations and they have a very good return on their letters, over 50%. Fire has never had that because I think they are confused even though we say it's a nomination. I think they think they get it again and think I've already gotten this and they don't send it back in. That's something that you all might want to think about changing in the future. Ron Wood: How did Police do theirs? Sondra Smith: We just send a ballot out. Kit Williams: Anybody that's eligible is nominated. Sondra Smith: I do the same thing like I do with you guys. I do the list of the people that's currently drawing and then I put on the list who can not serve because they are already serving on the board and their term is not up and they just vote. Pete Reagan: We might want to consider that next time. Marion Doss: Is there anything in the state statue that suggests the nomination? Kit Williams: No. It's basically left to your decision just like it was the Police Pension boards. You have to have elections but they leave the details up to you all. Marion Doss: Do you get votes for people that are already serving on the board too? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 4 of 12 Sondra Smith: Not normally because I do give them that list so that's pretty clear. I don't think I've ever gotten a vote for someone that's already serving except maybe once or twice, not very often. On the Police Pension elections we send out 50 ballots and 33 were returned. Marion Doss: Did you get any nominations back where when you contacted the people they didn't want to serve? Sondra Smith: Some of the people feel like they have already done that and they don't need to do that again. The ballot is the important part because the nominations don't really mean anything. That's up to the board. We don't mind doing it however you want us to do it. Marion Doss: I guess we will wait until tomorrow and see how many votes we get back and think about it for next year. Sondra Smith: What we will do is we will compare the number we get back from the nominations and the number we get back from the actual ballots and that will give you an idea if we need to eliminate nominations. Pete Reagan: Can we put that on the agenda for the next meeting? Sondra Smith: Yes. Kit Williams: Have we decided when that meeting is going to be? Sondra Smith: No, we need to decide that. Attorney General's Opinion — We have not received a reply. Actuarial Study Letter Sondra Smith: I emailed that letter to everyone. I don't know if you received it or not but no one responded to my email. Marion Doss: I didn't get anything. Sondra Smith: Maybe I need to check your email address. Marion Doss: When did you email it? Sondra Smith: A couple weeks ago. Gene Warford: At least two weeks ago. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 5 of 12 Sondra Smith: I thought everyone wanted to review it before I sent it out and no one responded. Kit Williams: I told her to send it out. I told her if no one liked it someone would have said something. Gene Warford: I thought it was a copy showing what you sent to them. Mayor Jordan: When nobody responded back I figured it was okay with everybody or I'm sure you all would have said something if you didn't like it. Kit Williams: It went through a number of revisions here. I thought it was going to be real easy until I started trying to write out the questions. It went through numerous drafts before I thought it was maybe what you wanted. Mayor Jordan: I take it that you all are okay with it. Marion Doss: I thought you were referring to the answer back on it already. I saw the one you sent. Sondra Smith: I just sent it because at the board meeting I thought you all wanted to see it before it was mailed. Pete Reagan: Mayor, on the next meeting date; and I have checked with the three of us; how about July 16th? Sondra Smith: I thought you wanted to meet monthly now. Pete Reagan: We do except that you all are going to be gone to your convention. I am out the 4tH I I th 25th and you all are out the 18tH Kit Williams: I don't have to be here but you probably should have the Mayor and the Clerk here if possible. Marion Doss: This meeting was actually the April meeting. Mayor Jordan: Sondra lets just wait to July. I think they have a good idea. Marion Doss: If we get any information back on the actuarial study I would like to have a special meeting for that. Pete Reagan: We need to make sure everybody is here to have a special meeting. Marion Doss: Yes, but if we get back the letter about the actuary or the Attorney General's opinion I would like to know about it right away. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 6 of 12 Sondra Smith: Okay, if I get anything back I always try to forward it to you guys as soon as I get it. On July 16th there is a Policemen's Pension meeting at 1:30 p.m. It would probably be over by 3:00 p.m. Pete Reagan: If the room is available. Kit Williams: July 16th would work and that's the same day the Police Pension Board meets. That should work for you Mayor. Pete Reagan: Is that a problem for you Sondra? Sondra Smith: No not at all. Pete Reagan: Let's do it then. Mayor Jordan: Set it up for July 16th at 3:00 p.m. Is there anything else you all want to talk about? Sondra Smith: We will warn you all if the Policemen's Pension is not over with we may have to wait a few minutes but they should be able to wrap it up in an hour and a half. Longer Investments: Longer Investments — February 20, 2009 market update letter A copy of the letter was given to the Board Longer Investments — March 4, 2009 letter regarding Northern Trust A copy of the letter was given to the Board Longer Investment Report Elaine Longer: The markets have really started behaving a lot better since March. I know you follow this in the news but just to give you a little bit of back ground of what is happening out there at this point in time. We have had some positive changes in the tone of the market but also some of the things that were implemented last year in the fourth quarter like TARP, the commercial paper back stop that the Federal Reserve did and the liquidity that's been added to the system by the Fed. The stimulus program is starting to kick in because people will spend in advance of actually receiving the tax benefits that are coming. It takes time for these things to actually impact the market and the economy. What we saw in March when the market bottomed at 6500 on the DOW the market always leads the economy by six to nine months and that's why it's a member of the leading economic indicators because the market will peak out before economic growth peak out and goes into a decline but it also will bottom before you actually see any improvement in the economy. So when the market bottomed back in March we went fully invested and it's really difficult because you don't have proof yet that the economic fundamentals have turned. Now what you are seeing is the market is 30% off of that low that we Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 7 of 12 hit in March and you are starting to see why. Earnings aren't as bad as expected and we have had some dividend increases in companies like Proctor and Gamble, IBM, and Johnson & Johnson. We just come through the quarterly earnings announcements for the first quarter and of course everyone just hangs on to their desk when the earnings come out because a bad conference call by a CEO or a poor outlook can really negatively impact the market on a stock and if it is a Bellwether stock like Cisco or Intel or something like that it can impact the market because people really pay attention to what these CEO's are saying as opposed to an ivory tower economist, no offense to an ivory tower economist but these people are the ones that have their finger on the pulse. What we came through the earnings season with is a better outlook, a better tone from the board room, from the CEO's of the outlook going into the second half of the year. That's a big deal. We were able to hold the advance off the March lows which was pretty dramatic. At one point we were up 39% off that low in a fairly quick time period. To hold those advances through the earnings season is another positive. What we are seeing right now is that you have some resolution of the banks stress test. Of the nineteen banks that were put through the stress test ten of them will have to come up with more capital but the number is $75 billion. Although that's a big number the market is relieved just to have a number. This has been opaque and so non transparent and we know that there's this big ugly monster up in the attic but we just don't know how big and there was almost a collective sigh of relief just getting a number. The next step is going to be the PPIP which is the partnership between government and the private sector to try to form a subsidized mechanism to take some of these toxic assets off the bank balance sheets. We don't know how that's going to go yet because there's a question about whether or not the private sector is going to be willing to pay a price for these toxic assets that the sellers, the bankers are going to be willing to sell at. Whether or not the private sector buy price matches up with the offer price on the sell side we still don't know. The government is subsidizing this by putting in a leverage factor where by they are going to contribute debt of 75% or so of the total price. So that gives us a floor under the price as opposed to whether or not it would just be the private sector bidding on it. This is still a drama that's unfolding by the day. It used to be that you didn't have to watch the government every day to manage money but in this market it is the biggest factor right now as we continue to work through the crisis. Some of the positives are that the earnings have come through okay. We have seen some dividend increases. The credit spreads have narrowed between investment grade bonds and treasuries and also debt that isn't rated investment grade. The spreads have shortened or come together between those levels of debt and treasuries. What that means is there's a feeling of sort of a collective sigh of relief that it's not the end of the world. People are coming back into the risk side of the market and that would be bonds that are not treasuries, stocks and real estate. We've also seen some real estate investment trusts have come forward and have been able to issue stock. We have seen several financial institutions Goldman Sachs, last week US Bank Corp., BB&T and a couple of others were actually able to issue stock into the market. Their intent is to pay back TARP as quickly as possible and get government out of running their business. This is a good thing three months ago you couldn't have seen these companies come to the market to issue stock so that's a big plus. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 8 of 12 The VIX which is a measure of the volatility in the market and it's also a measure of the fear factor has dropped below 40. It actually went down to 32 this month. That's the lowest level we have seen since September when the whole thing sort of broke apart. There is an over all better tone to it. We have come off of these lows fairly quickly, 39% in a very short time period but the market is still not over valued relative to where bonds are. We're still searching for what is the appropriate earnings outlook and what does the earnings look like for 2010. So it's still a lot of uncertainty but I think the real crisis that we hit in mid March has really subsided and there's a much better tone to the market. Page one shows the cut off on your portfolio appraisal for May 12th. You will see that the stock part of the portfolio is 49% and the international equity is 7.9%. We are about 56% or so that takes a resolution to approve being over the 50%. We are still within the investment policy of plus or minus 10% but that requires an approval. Pete Reagan made a motion to approve the equity overage. Ronnie Wood seconded the motion. Upon roll call the motion passed unanimously. Page three your total portfolio value has recovered up to the $5.4 million. The income yield on the total portfolio is 3.1%. The importance of that is that you have a 56% growth component but the over all portfolio income yield is still above what you would have if it was all invested in 10 year treasuries. The reason is we have been able to maintain a high income yield on the fixed income side of the portfolio but also as we have reinvested we have emphasized going for a good dividend income on the stock side of the portfolio. So your over all income on the portfolio is higher than what you would have if you were 100% invested in bonds at the current 10 year rate. Page four is your investment performance the equities in your portfolio are up 5.7% year to date. That compares to the indices where the S&P is up only .6% and the DOW through that time is minus 3.5% so you have a substantial out performance in this year. A lot of that has to do with the fact that we were light in our equity exposure on the down draft. Then we got reinvested fairly quickly before the stock market recovered so we come up with more invested in stocks as a percent of portfolio than what we went down with. The foreign funds are up 4.3%. The fixed income has delivered about a I% return year to date. REITs are negligible, cash is negligible, and so the total portfolio is up 3.3% now year to date. I don't know what the worst point was in March but the S&P at one point in March was down 25% year to date. That's been a dramatic recovery back up. Your cumulative returns your equity return has been 7.3%. During that same time period the S&P is down 2.4% and the DOW is down 4%. You have out performed the indices inception to date. Your total return has been 19.4%, while a mix of 50% S&P and 50% of the Lehman Government Corporate bond index would have given you a performance return of 16%. Your return in a balanced portfolio of 19.4% has out performed the index returns which have been 16%. Last year with the minus 20%, that took some performance off of our annualized compound return. The annualized return was 7.2% before we had that negative year, but you're still out performing all of the indices by comparison. Page five is your fixed income summary the weighted average yield to maturity on the fixed income side of the portfolio is 4.7%. The average maturity is four years. The importance of this page is that bonds have a price sensitivity to rising interest rates. For instance if the ten year Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 9 of 12 treasury yield goes from 3% up to 4% as this economic recovery takes hold you can lose 8% of the value of the 10 year treasury. In essence you can lose 2 1/2years worth of income return with the price fluctuation that would take place if the interest rates just increased by 1% from these low levels. We're trying to maintain a very conservative structure in terms of the maturity or the length of the bonds in your portfolio as we face a rising price pressure from economic recovery and we see the 10 year yields are clicking higher. In fact the 10 year reached the low of 2.35% and now has come up to about 3% to 3.1%. I expect that to go higher as we have more of this economic recovery kick in and we see more traction from all of this liquidity that's been put into the system. You have about 80% of your total bond portfolio that matures within five years and 55% matures within three years. We've seen before that as we face rising interest rates we don't need to hold a bond to maturity we can sell the bond today through our institutional traders and have cash in hand tomorrow. If something is maturing in the next year and we see that interest rates are close to an attractive level to buy we can roll these things forward and capture the higher rates. The way that the bond portfolio is structured right now you still have a very good income yield but we have a lot of flexibility. Page six shows your top holdings in stocks. Basically your policy calls for nothing to exceed 5% of equity portfolio exposure. Your highest is Microsoft at 4.4% and then going down to AT&T at 2.8%. The last page shows the sectors where we are overweight and underweight. This hasn't changed a lot in the past two years where we went very underweight in the financials but we're still over weight energy and technology. We are underweight the consumer, financials and utilities. We are about even weight capital goods, cyclical industries and health care. The exposure we have in health care we typically hold a few of the major pharmaceutical companies that have a very strong dividend yield, Johnson & Johnson, Pfizer, AstraZeneca, we just recently purchased Merck and then we hold companies that will be beneficiaries of healthcare legislation that may increase the utilization of healthcare. Those would be the distributors like McKesson and Cardinal Health. We are positioned I think very conservatively. We have a lot of diversification in the names that we own but I think you have to maintain a lot of diversity as we go forward because the biggest risk to performance at this point is what we call single issue stock risk, if a company disappoints the next trade can be down 25% when you come to your desk in the morning. We spread the risk by really investing in very top quality companies but limiting our exposure to each individual company to what is a prudent level. Page eight shows the contributions and distributions and this would be inception to date. It shows distributions of $7,460,000 verses contributions of $902,000. Page nine shows the asset reconciliation. The beginning value of $9,900,000 additional contributions have been $902,000, distributions $7,460,000 and then your components of return which have been net income and accrued income realized and unrealized gains would be your growth component. Ending value is $5,400,000 and investment return has been $2,063,000. The final page just summarizes your realized net losses year to date. Realized losses are what have been sold and typically that comes off the highest cost in the portfolio. It's not the Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 10 of 12 performance you actually do have that positive performance on the equities side. It's just that as we trim positions or maneuver within the market it's coming off your high cost. Are there any questions? Kit Williams: I see that two of our top investments Microsoft and Intel were just fined by the Europeans they set a record fine on Intel. How does that hold for their earnings or their activities in Europe now with those funding? Elaine Longer: It's interesting the finding was released yesterday morning and it's $1.5 billion and at the same time the night before Intel had spoken at a conference and had given a more optimistic outlook for this quarter than what they had released just a few weeks ago, that orders are firming and they think the bottom in the IT cycle took place in March. So as a matter of fact Intel opened higher yesterday. It will be appealed and so the market response yesterday was really sort of to dismiss it. I was watching that on the open too because the number is so large but there's a lot in the press about the fact that this is really not likely to stand up, at least not at the $1.5 billion. Kit Williams: I guess Microsoft has been hit but not as hard. Elaine Longer: Not as hard. It's interesting Microsoft issued about $4 billion in debt this past week that they will use to retire outstanding stocks. That was another big corporate maneuver that wouldn't have happened two months ago but the market is that much more receptive to being able to buy corporate debt. Pete Reagan: Elaine you mentioned earlier before the meeting started, is this a bad time for the meetings to start for you? What time would be better for you? I don't want to take you out of your office. Elaine Longer: The 11:00 a.m. is always a stretch. 10:00 a.m. is like a mad dash. The first couple of hours of trading are the most critical time. Sondra Smith: I think Kim told me anytime after 3:00 p.m. is best. Elaine Longer: That's ideal but I don't know if that works for you. We don't schedule any client meetings after 3:00 p.m. Sondra Smith: We will just have to see if this room is available but we can do that if you all choose to move the meeting time. Pete Reagan: I think the easier we can make it on investment advisor's the better off we are. Sondra Smith: I agree. Pete Reagan: Can we check on that? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 11 of 12 Mayor Jordan: That's kind of up to you all. Sondra Smith: What time are you looking at 3:00 p.m.? Pete Reagan: 3:00 or 3:30 p.m. you say Elaine. Elaine Longer: 3:00 p.m. works well for us. 1:00 p.m. which is when the Policemen meet that's not hard to do. It's just the morning usually by 1:00 p.m. everything is declared and we know that the columns add up but in the middle of this typically you're buying before you're selling and so the balls are up in the air as we speak. It's much better to do it in the afternoon. Pete Reagan: 3:00 p.m. is fine with me. Sondra Smith: What I will do if it's alright with the board I will check at 3:00 p.m. and I will check at 1:00 p.m. and see if the room is available. Do you still want to have it on the last Thursday of the month? Mayor Jordan: Tuesday's wouldn't be a good day for me. Kit Williams: Thursday's would be much more open. Sondra Smith: I thought you said you couldn't be here the last Thursday of May or June. Pete Reagan: Right. Kit Williams: There is Municipal League on a Thursday in June so that would not be good. Sondra, the Mayor and I will be going to Municipal League. Mayor Jordan: I will just be getting back from DC and I don't want to do two of those. Kit Williams: I know that I and Sondra will be at Municipal League so that particular Thursday will not work. Pete Reagan: With that being said I think we are through with our investment advisors so they can go back to the office. Thank you Elaine for coming and we appreciate all you do. Elaine Longer: Thank you. We appreciate you. Pete Reagan: We will let you know what we come up with on dates. Kit Williams: This is not a dead cat bounce? We actually found a body? Elaine Longer: Since you asked, here's what we have to keep in mind there are a number of things to consider as far as that's concerned. We have moved quickly off this low. If you go back to Japan when Japan went down in 1989 from the high point to the low point they fell 63%. Then past that point they bounced about 50% before coming back down and testing that low. If Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes May 14, 2009 Page 12 of 12 you look at where we have come from we hit a low in the first part of October we bounced off of it. It took us until November to come back and violate that low and that was a climatic low at that point and time. It was the same day that Geithner was announced to be Treasury Secretary which also happened to be option expiration day on Friday in November and that was not by coincidence. That sparked a rally in the last two hours of trading. That low held until we violated it in February of this year which gave us that cascade of another 15% down to that new low of 6,500 so we have not revisited that low. It's not unusual for a market to establish a climatic low have a dramatic run off of it and then take time to go back and test and back fill. I expect that we can get to 10,000. That's not a guarantee but just from the technical studies that we run I wouldn't be surprised to see this rally get us to 9,000 to 10,000 which would be the fall highs and then we will be in purgatory for awhile. I tell clients it won't be hell but its going to feel like it. At that point and time we intend to be taking some of these positions off that we put on where we are fully invested at this point and I am quite comfortable being that way but probably by the next time you see me I won't be so fully invested. Meeting Adjourned at 10:50 AM