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HomeMy WebLinkAbout2009-04-16 MinutesBoard Members Mayor Jordan Chairman Sondra E. Smith Treasurer Eldon Roberts Secretary/Retired Positior Jerry Friend Retired Position 2 Tim Helder Retired Position 3 Melvin Stanley Retired Position 4 Frank Johnson Retired Position 5 17a*ye evl e ARKANSAS Policemen's Pension and Relief Fund Meeting Minutes April 16, 2009 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April t6, 2009 Page t of 8 A meeting of the Fayetteville Policemen's Pension and Relief Fund was held at 1:30 PM on April 16, 2009 in Room 326 of the City Administration Building Mayor Jordan called the meeting to order. Present: Frank Johnson, Melvin Stanley, Tim Helder, Eldon Roberts, Jerry Friend, Mayor Jordan, Sondra Smith, City Clerk, Kit Williams, City Attorney, Paul Becker, Finance and Internal Services Director, Trish Leach, Accounting, Greg Tabor, Police Chief, Elaine Longer and Tina Lamb, Longer Investments. Approval of the Minutes: Approval of the February 11, 2009 Meeting Minutes Tim Helder moved to approve the February 11, 2009 meeting minutes. Melvin Stanley seconded the motion. Upon roll call the motion passed unanimously. Approval of the Pension List: May, June, and July 2009 Pension Lists Jerry Friend moved to approve the May, June, and July 2009 Pension Lists. Eldon Roberts seconded the motion. Upon roll call the motion passed unanimously. Old Business: Election Letter Sondra Smith: A copy was given to the board. If you have any questions or need anything changed on the letter next year just let me know. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l6, 2009 Page 2 of 8 New Business: Revenues/Expenses Report Sondra Smith: This is a report that Trish has been doing for us which is a really good report. It shows your revenues and expenses from 2004 to current. If you will notice the market value in 2004 was $10.9 million and your market value now is a little over $7 million. Paul Becker: This is through the first quarter. You can see it has sustained $270,000 worth of losses on sales so far this year. The numbers that Elaine went over were through April 13th so that's why they show a little better. Jerry Friend: This is a good report to have because you can see it all on one page. Eldon Roberts: This is a great report. We could always have gone back and asked her what the numbers were but now it's here to see. I assume it's not that big of a problem to keep up now. I think it's great and Trish should be commended for the report. Trish Leach: Eldon needs to get the credit it was his idea he requested it. No one ever asked for it before. Frank Johnson: I don't remember what the original intent was. I was just considering what value is it now in any discussion we have relative to the situation we are in. I can see the value but clearly it screams at projecting that if this is a tread in the first quarter. It's a good report but it's some what ominous. Longer Investments: Longer Investments February 20, 2009 letter regarding the market A copy was given to the board. Longer Investments March 4, 2009 letter regarding Northern Trust A copy was given to the board. Longer Investments March 20, 2009 letter regarding the market A copy was given to the board. Elaine Longer: To give you the positives and negatives we are facing in the market. The positives are the earnings are coming out a little better than expected. We had some good numbers on Best Buy and Bed, Bath & Beyond. We have seen some positive announcements from some of the banking firms like Wells Fargo and today JP Morgan. Goldman Sachs reported earnings this week and successfully raised five billion dollars in private capital which Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l6, 2009 Page 3 of 8 they will use to pay back the TARP money. This is big to have a company that can actually go to the capital markets now and raise capital and pay back TARP. Today JP Morgan announced earnings and they actually said they could pay back TARP and they are waiting on the stress test that the government is performing before they move forward to do that. We want to see these banks getting to the point where they're stand alone again or at least you see some of these major ones able to raise capital from the private sector and get the government out of the bank. We are starting to see that. That is a glimmer of hope out there. Credit spreads have been narrowing. Proctor & Gamble raised their dividend yesterday by 10%. I can't remember the last time I saw a dividend increase. The S&P 500 has actually had dividend cuts of 24% in the first quarter relative to a year ago. There are some green shoots. Some of the more sensitive to the economy indicators are turning like copper prices, the rails have turned and the transportation index. Some of the industries that you look at are real key economic indicators because they are very sensitive to the economic activity they are starting to show positive trends. The VIX which is a measure of fear in the market, the volatility index, last week dropped to the lowest level it has been since the onset of this crisis September 26th. There again that's a positive indicator that confirms the move up that we are seeing in the stock market. The negatives are the growth of government is on the minds of everybody who's managing money from the TARP, the assistance to the banks, to bail out of General Motors, the stimulus and non stimulus plan and the budget that's 3.7 trillion. It's just like this heavy wet blanket of government that seems to be hanging over everything. That's not a political statement it's an economic statement. How much is government going to expand at the risk of suffocating the private sector or at least impeding the economic performance on the up swing. That's a big consideration. We still have a lot to cover in terms of the General Motors bail out. The banks stress test announcement won't be until May 4th that is going to be big. The public private partnership that they have announced to take the toxic assets off the banks balance sheets that's still in the works and the big question is whether or not the buyers and the sellers will align at the same price. Will the banks be willing to sell the toxic assets and write them down to the price at which buyers on the private sector are willing to pay? That's still out there to be determined and we don't have those answers yet. There's a lot of legislative stuff that's in the works in congress that would be real detrimental to the economy continuing on this path to recovery in particular Cap & Trade Legislation which would take $680 billion out of the private sector into the government sector and would affect a lot of manufacturing jobs. What's interesting is the moderate Democrats in the Senate are really pushing back from Obama on this particular policy initiative so there's potential for that not to come through and that would be a sigh of relief in the market. The Card Check Legislation which is the Employee Free Choice Act which would have done away with private elections or secret elections for unions that is not going to get passed. They may rework it and come back and do away with the lack of a secret ballot but still there are parts of that legislation that would be bad for business and so the markets are still watching that but there was a sigh of relief collectively when Specter said he wouldn't vote for that legislation. We have a lot going on the public policy side. It used to be that you were focused so much on the private sector and the economy and GDP and inflation numbers and government was just kind of over here. Now all the focus is on government and the details are over here on the economy because truly the public sector policy and regulation is taking everybody's attention at this point. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l6, 2009 Page 4 of 8 The out look is still murky but I'm starting to see some economists come with projections of a positive GDP growth by the 4th Quarter 2009. When we were at the March lows in the stock market everyone was pushing positive GDP growth after 2010 possibly not until the 2nd half. Now you are starting to see them come into the 4th quarter 2009. The interesting thing is the stock market always moves six to nine months in advance of the economy. When the market hit bottom and started to move higher people where saying why. It's because the stock market is not discounting what news we are seeing on March 6th it's out there December 6th to March of 2010. The market has moved ahead of what the economy is showing in terms of improvement but now we are starting to get verification that the economic numbers are starting to move up to justify what the stock market is doing. That why you see the market showing some signs of strength here that we haven't seen for about nine or twelve months. Mayor Jordan: What questions do you have? Gene Warford: This TARP money that you talked about that the banks are going to pay back. I probably listen to the wrong media sometimes but there has been talk that the government would stifle them from returning that TARP money. Have you heard that also? Elaine Longer: There have been a couple smaller banks that wanted to return the TARP money and they were told no that they couldn't. That got on the news channel and the Treasury Department has denied that. Now the press is pushing to see whether or not they will be able to pay back TARP. Goldman Sachs is a big Bellwether company and they come right out and said we are paying back TARP. That day someone asked Barney Frank whether or not they were going to allow Goldman Sachs to pay back TARP because there was somebody in the Treasury Department who said we need to wait for the stress test. Barney Frank said that money comes back into the treasury if they can pay it back it can come back. You wouldn't see the stronger ones pay back TARP so quickly because then that kind of labels the remaining ones at the weak sisters and it can kind of shift the allocation of capital but that's what this whole thing is all about. At this point the stress test is going to be interesting because the treasury has said that they will make the results public. That's going to brand certain banks probably like Citigroup as weak relative to another bank like a JP Morgan as strong. The question is how much of a shifting of assets will take place among the deposits and credit rating agencies. The stress test will be the next indicator of how much differentiation the market will start to make between the weak and the strong. Elaine Longer: The first page is the portfolio appraisal. We had gone into the March decline underweight stocks. I think when I was here in January we were at the lower end like 35% to 40%. As the market got hit very hard we started to go back into positions that we had sold higher and so we are fully invested at this point. In fact we need to have authorization to be at this level. The equity is 50% and the international is 7.4%. We are over the 50% but within the plus or minus 10 percent that's allowed in the policy but it has to be approved at the meeting. Tim Helder moved to approve the equity overage. Eldon Roberts seconded the motion. Upon roll call the motion passed 6-0. Jerry Friend was absent during the vote. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 16, 2009 Page 5 of 8 Elaine Longer: When the market comes up just like when the market goes down as key technical levels of support give way you have seen where we trim and it's very disciplined and very systemic and that's what protects capital in the down slopping market. Conversely as the market bottoms and we start to get indicators that it's taking out levels of resistance and showing strength we move quickly, the way that we do that and you have seen us do that before is we purchase Standard and Poor's depository receipts 9% or almost 10% of the equity value is in what we call SPIDERS. That allows us to be very sensitive as the market moves up we can start pulling back from our positions in these funds but they're like markers that you put down. This gives me exposure to the stock market I'm indexing this part from cash to the S&P 500. I can come back out in stages and move that 10% back as I feel the need to as we get up to higher levels. Although we are fully invested we have our finger on the pulse so to speak so we can lighten up as we get up to the next level of resistance is between 9,000 which was the January high and 9,800 which was the October high and you will see us start coming back out of some of these positions. We can do that in this way without disturbing the industry and sector weighting in the portfolio that we hold with the individual stock positions. As far as the fixed income holdings that you have, we have an investment grade bond fund that yields 5.8%. We still own a McDonald's bond that is 6.1 %. The treasury still yields 5.1 % on cost basis and the government agencies are at 5.3%. Our cash is down to 0.9%. The market value has recovered back up to $7.385 million. The income yield on the portfolio which is what comes in terms of dividends and interest besides what the portfolio does in terms of growth is 3.4% and that's actually higher than what the 30 year treasury yield is. The income on the portfolio over all has remained very strong even with declining interest rates in the treasury market. Page five shows summary of realized gains and income year to date. Page six shows the income yield on the bond portfolio is 5.3% and that's with an average maturity of 4.8 years. A comparable treasury yield in a five year maturity at this point and time is about 1.75%. You have almost 400 basis points higher than that but you still don't have your maturities out there to 10 or 30 years. At this point it's a delicate balancing act because you want income but you don't want to stretch too far in terms of maturity to get it. The reason being is because bonds have price risks as interest rates increase. You see all this liquidity going into the market and the Fed and government is putting in trillions and we are just flooding the system with liquidity. Once we get past the fact that liquidity first flows to asset inflation then it flows to economic then we will be facing price inflation at that point you are not going to see the 10 year treasury yielding 2.8%. If that yield goes up to 3.8% the price of that bond drops by 8%. That's the relationship between raising interest rates and price risk in bonds. What we are trying to do is stay as conservative as possible on the maturity side but still keep the investment income as high as we can. Then we will have fun when the interest rates go up. The lower chart shows that 43% of your bond holdings have a maturity within the next three years. We don't have to wait for bonds to mature to reinvest. If we see interest rates going higher we can be opportunistic and sell anything that's in that short maturity spectrum to roll into higher yields. That's what we are holding off for. Page seven shows the top investment holdings by percentage weight. Nothing is over 5% of equity exposure. We left Wal-Mart back before the election between $60 and $61 a share Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l6, 2009 Page 6 of 8 because I was concerned about the 60 vote Senate which would have meant the Card Check Legislation would go straight through. Wal-Mart is probably one of the most venerable targets if that happens. With the cessation of those worries we were able to go back into Wal-Mart at about $49 to $50 and they have had really good numbers. Page eight shows where we are overweight and underweight. Nothing much has changed here. We are overweight capital goods and technology and underweight consumer, energy, and financials. Page nine is the contributions and distributions. The distributions year to date have been $433,000. The contributions have just been recovery of litigation. Page 10 is the performance summary. 2009 through April 13 your stocks are down 2.1%, the S&P is down about 5% and the DOW is down about 8.2%. The NASDAQ has actually delivered a positive return year to date and I think the fact that we have been overweight technology has really helped our performance to out perform to the other major indices as this market has come out of that March 6a' low. Small caps are still having a pretty bad year down 6.3% and then the foreign stocks measured by the EAFA Index are down 8.3%. Your foreign return is down 4.8%. A lot of your foreign participation has been because we were overweight in some of the emerging markets like China, India, and Brazil as we came out of this. We have started to peel back China and add to Europe which is trailing the emerging markets but we are still keeping China at a 5% exposure in the international. Fixed income hasn't done much this year minus .3% so the total portfolio is now down 1.7%. I went back to see what the low point was on March 6th and at that point the total was down 12.6% year to date. It has come back a lot and stocks have actually rallied 25% off that low we hit March 6d. Looking at your inception to date asset reconciliation you can see the contributions, beginning value, all deposits and transfers of securities. Withdrawals have been $6.5 million net against total investment return of $5 million. Even with last years 40% drop in stocks, 19% over all your annualized return which had been 7.2% has now dropped to 5.3%. All we need is another good year and we will be back to 6%. I feel that things have stabilized and I don't think that we will violate those lows in March unless there is some huge unknown out there at this point in time. In March at that low we were talking depression, we were talking bank nationalization, failure of the financial system. The GE Preferred that we hold went down 50%. It is a triple A -rated debt security that we bought that yielded 6.38% when we bought it, and lost 50% of its value. That has now recovered back up to around to $21 from a low of $12 or $13. At this point and time with the credit spreads improving and with what the government has come through including what the Fed's said that they would do with the monitory system I think you pretty much have taken that depression, bank nationalization, failure at the system off of the table. Unless we have something out there that hasn't emerged at this point I think that it should hold but there's no doubt that we can do some backing and filling and retesting. This first run can easily get us to 9,000 to 10,000 in that area but you think about that is 50% rally off of that 6,500 low. Once we exhaust this momentum spike that we are in right now we will have some Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l6, 2009 Page 7 of 8 backing and filling and digestion of that gain but I don't expect the 6,500 to go unless there's something out there. At this point it looks like we have a solid bottom end. Longer Investments 1" Ouarter 2009 report A copy was given to the board. Informational: Eldon Roberts: I talked to Sondra on the phone just a couple days ago and I didn't see anything in the report so I assume she didn't have it ready but the Fire Department meet the other day and I was concerned about their so called scenarios are that they might be going to ask the actuary the people in Little Rock to figure out some answers to. Sondra Smith: Kit and I discussed that this morning. I thought it was a little bit confusing the way they asked the questions. One of them was whatever level they reduced the pensioners to for there not to be a cost to the City if they choose to send it to LOPFI they would also keep the widows at the current level. The other one is whatever level they would reduce the pensioners to they would reduce the widows to 75%. The other one was whatever they would reduce the pensioners to they would reduce the widows to the minimum 50%. Then there was also a scenario to not reduce current widows that are drawing but only to reduce future widows which we don't know if that's legally possible because you are treating the same class of people two different ways. Whatever they reduce the current pensioners to that the current widows are drawing would remain at that rate but any future widows would be reduced I believe to 50%. As soon as we get that letter completed I will be happy to send you all a copy of it if you all would like to see it. I don't mind doing that at all. We want to make sure we have it right before we sent it down because it's an expense to the Fire Pension and we want to make sure we have it right. Eldon Roberts: You said Kit was looking at the possibility that some of those scenarios would be treating widows differently. Has he come up with anything? Sondra Smith: I don't think he has a chance to come up with anything yet. I know he has been really busy working on some cases. He did not feel like the board could treat the same class of people differently. Which widows would be the same class of people but he was going to have to research that and see. Mayor Jordan: I really kind of question that too because you have the present widows at 100% and then the future widows you would drop to 50% or 75%. I don't know how you can differentiate. Jerry Friend: Looks like between the time they decided to do that and locked it in some Firemen might die. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l6, 2009 Page 8 of 8 Eldon Roberts: If the firefighter or police officer themselves has to have their benefit reduced then in turn the future widows is reduced too. Because they are not going to reduce my benefit to 70% and when I die and up my wife's back up to 90%. Either way or future widows has the possibility or having their benefit cut. Mayor Jordan: Yes, because lets say if you dropped it to say 75% of what you are making right now your wife will draw 75%. Sondra Smith: All the scenarios had the ending sentence with no additional cost to the City to consolidate with LOPFI. Meeting Adjourned at 2:15 PM