HomeMy WebLinkAbout2010-02-25 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/Retired
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
February 25, 2010
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
February 25, 2010
Page 1 of 7
A meeting of the Fayetteville Firemen's Pension and Relief Fund Board of Trustees was held at
00 PM on February 25, 2010 in Room 326 of the City Administration Building.
Mayor Jordan called the meeting to order.
Present: Mayor Jordan, Marion Doss, Gene Warford, Ronnie Wood, Sondra Smith, City
Attorney Kit Williams, Paul Becker Finance Director, Elaine Longer, Kim Cooper, Longer
Investments, Trish Leach, Audience and Press.
Absent: Pete Reagan.
Approval of the Minutes:
December 31, 2009 Meeting Minutes
Marion Doss moved to approve the December 31, 2009 Firemen's Pension and Relief Fund
Board of Trustees meeting minutes. Gene Warford seconded the motion. Upon roll call
the motion passed 5-0. Pete Reagan was absent.
Pension List Changes
Arthur Caselman Deceased
Sondra Smith: Mr. Caselman deceased in February so the March Pension List will be different
than the February List. We go ahead and pay for the full month when they decease during the
month.
Marion Doss: The widow will get the benefit.
Sondra Smith: Yes, it will revert to the widow. All you will see changing is the name but the
dollar amount will remain the same.
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Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
February 25, 2010
Page 2 of 7
Approval of the Pension List:
February and March 2010 Pension List
Gene Warford moved to approve the February and March, 2010 Pension List. Ronnie
Wood seconded the motion. Upon roll call the motion passed 5-0. Pete Reagan was absent.
Old Business:
Osborn, Carreiro & Associates, Inc. Actuarial Study Invoice
Sondra Smith: The invoice for $2,900 is for the work he performed. We talked about that at
the last meeting and everyone thought he was going to bill us $2,200. Evidentially he and Pete
talked and we reconsidered the amount. Since it wasn't on the agenda I didn't catch it. I went
back through all the minutes and found where the amount was re -approved for up to $3,000.
Marion Doss: I guess we better pay it then.
Mayor Jordan: That is what the minutes reflected.
Sondra Smith: I wanted to let you all know.
Marion Doss: I appreciate you researching that and telling us why it went up $700.
Kit Williams: Since the minutes said up to $3,000 then you don't need another motion.
Sondra Smith: I've received a check from Accounting but I'm holding it until I talked to you.
I've talked to Jody and he knows what's going on. He wants you all to be happy. We talked
about $2,200 for three scenarios and he did four and then he came here. That was for everything.
New Business:
NCPERS 2010 Annual Conference
Sondra Smith: We usually send Pete to this conference and I received the brochure so I wanted
to make everybody aware it's coming up. If we want to send someone we would have to move
to pay for those expenses. If you choose not to send someone that's fine, I just wanted make you
aware that the conference is coming up.
Marion Doss: I don't think we sent anyone last year due to the cost and we didn't want to cause
any additional expense to the pension fund.
Sondra Smith: Right.
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Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
February 25, 2010
Page 3 of 7
Gene Warford: Where is it at this year?
Sondra Smith: Las Vegas, It's always in a nice place.
Kit Williams: I think you were wise last year.
Ronnie Wood: I don't think we are in any position to send somebody to a conference.
Marion Doss: It's not the time to do that I don't think.
Local Pension Fund Report to the Council
Sondra Smith: A copy of the report is in your agenda that the Mayor has to give by State
Statute every year in January. I wanted you to have a copy of it and see what was reported to the
Council.
Revenue Expense Report — December 31, 2009
Sondra Smith: A copy of the report that Trish does for the pension plan is in your agenda. It
shows the history of your investments, expenditures, revenues, and your balance through
December 31, 2009.
Longer Investments:
Longer Investment — Investment Report
A copy of the report was given to the Board
Elaine Longer: The first page shows the updated portfolio through February 23rd. The common
equities are 45% of total portfolio.
Page two the International is 7.4%. Your International is running between 15% and 20% of total
equity exposure. Your combined total equity is 52%. We need approval to be over 50%.
Gene Warford made a motion to approve the equity overage. Marion Doss seconded the
motion. Upon roll call the motion passed 5-0. Pete Reagan was absent.
Elaine Longer: We've had a volatile start to the year. We hit a new high on this run up from
last March's low in January which was about $10,725. From there we fell off to about $9,825.
We've had a pretty steep 9% correction and then we've bounced back up to about $10,400, today
we touched $10,200. We're waffling around in no mans land waiting to see some more of the
first quarter earnings, the GDP numbers, and what the government is going to do about health
care. There are a lot of variables on the table. We're eclipsing the one year anniversary of the
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Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
February 25, 2010
Page 4 of 7
low which was March 9th of last year. At the high point that we reached in January we were
about 67% off the low of a year ago. We have defined a trading range with that $10,725 being
the high end now we are going to sort of trade in between the $9,800 and the $10,725 for awhile.
If we break below $9,800 then we're looking at more like a 10% to 20% correction of that run
up. We have taken some profits in the portfolio. We have some cash reserves. We are hovering
down at that 50% level where as at one point we were at about 56% to 57%.
The total portfolio income yield on page three shows the income is at 3.4% income yield which
is the equivalent to a 10 year treasury yield but that includes your 52% growth component.
We've continued to emphasis stocks that have a high dividend income. For the most part your
portfolio is structured with the multi national corporations that are of higher quality, higher
dividend income, are better positioned to capitalize on international growth. We trimmed the
sails a little but we are still invested on the growth side.
Page four the realized gains year to date are about $42,000. Income year to date is about
$25,000.
Page five is a break down of the fixed income portfolio. This has been a year where the interest
income on the long term bonds is still fairly low with the 10 year treasury yielding about a
3.65%. Your weighted average yield to maturity is about 4.6%. The weighted average maturity
is 7.3 years. That means compared to a 10 year that yields 3.60% you're in an average maturity
of seven years yielding a 4.60%. You still have a higher than market interest rate with a more
conservative maturity structure. We don't have much call risk in there because we have rolled
into longer term maturities as we have the opportunity this past year.
At this point in terms of your maturity structure only 3.1 % of the portfolio matures within the
next year, where as within three years 18.8% matures. Most of what would have been coming up
to mature at this point in time has already been reinvested.
Page six includes the performance from where we started managing the portfolio in 2002. Our
January meeting was canceled because of snow so we didn't have a chance to review last year,
but in 2009 your equity return was 29.1 %. That compares to an S&P cash return of 23.5%, S&P
with compounded dividends of 26%. You've out performed the stock market substantially last
year. In your equity mutual funds, that would be your International holdings, you were up
approximately 24%, bonds were 3.5%, and Real Estate Investment Trusts returned 17.1%. We
didn't hold them for the whole year, we had a good buy point and within less than two weeks we
had made the 17% so we decided to leave the party. They haven't gone much higher since we
sold them.
Your total return last year was 16.3% which really almost fully compensated for the year before
which was down 20%. We had a good make up year last year and that's why we're a little bit
more conservatively structured at this point in time. We want to protect the gains we made last
year and protect our flexibility in this volatility that we see coming into the first quarter.
Looking down to this year basically your stocks are unchanged with the market down 1.8%.
We've been able to hold pretty steady in this down draft so far this year. The equity funds,
which is International, are down 4.5%, the EAFE Index, which is the measure of the
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Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
February 25, 2010
Page 5 of 7
International Stocks, is down about 5.5%, and bonds 1.3%. The total with everything mixed in is
flat so far this year.
The final summary your equity return inception to date is 3.7% which out performs the S&P.
Your International is about a 2% and this includes the big down draft year in 2008. Bonds have
averaged 4.3%, and Real Estate Investment Trusts have compounded at 30.3%. Your compound
annual return is back to a 4% average annual return inception to date. That compares to if you
look at just a blended 50150 return between the S&P and the Lehman Government Bond Index
that would be a 3.6% compound annual verses your 4%.
We haven't managed your account as long as we have the Police but they have come back now
to a compound annual 6%. I don't know your history back to 1989 or so, I can only speak to this
period of time at least it's returned back to a 4% compound annual coming off that year that was
so negative in 2008.
Page seven shows the contributions from August of 2002 have been near a million. Distributions
have been approximately eight million.
Page eight is the asset reconciliation that we go through in each meeting that shows the
beginning portfolio amount, the contributions that have come in, the net distributions, and the
components of investment return. Investment return is back to 2.7 million investment return
over that time period but that has not offset the distribution rate of 8 million.
We included at the bottom the fact that we are still awaiting clarification of the 7% actuary
assumption that was changed at the start of this year. There has not been an explanation given
that we can understand as far as how they are coming to that conclusion. When you look at the
fact that half of the portfolio is fixed income investments and the reinvestment rate in a 10 year
maturities is 3.5%. If you assume then that even you could get 4% on half the portfolio using
some of the things that we use to be able to maintain in an above market income yield, then you
would still have to assume that the rest of the portfolio is going to achieve 12% to 12.5% on the
equity side. That's outside the realistic expectations of anyone that I know. We are using 7% to
9% in our portfolio plans that we run for retirees and for foundations. If you look at a blended
return it doesn't get you anywhere near that 7% because you're really hampered by what is
available in the fixed income market at this point in time. Unless you stretch for higher yield by
sacrificing credit quality or taking on more maturity structure risk which I wouldn't recommend.
In the minutes that we read regarding the August meeting, when Jody Carreiro was talking about
this, he said that you should discuss a more conservative structure of 70% bonds and 30% stocks
to avoid risk of ruin. If you look at a higher allocation to the bond market, which is no where
near your 7% return, it would actually significantly increase your risk of ruin for you to make
that kind of asset allocation shift. I don't understand where they are getting their numbers or
their assumptions behind their rate of return. That's why I bring it up in every meeting because
it is part of your investment policy and the policy that we follow for investing funds at the
original 6% that we discussed when we took the portfolio on as investment manager. I still feel
comfortable with that assumption going forward but I'm not willing to change the policy to a 7%
without some explanation of how they are arriving at that. Does that make sense?
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Board of Trustees Meeting Minutes
February 25, 2010
Page 6 of 7
Paul Becker: This has been discussed with the Pension Review Board at their last meeting.
The Longer View
A copy of the report was given to the Board.
Elaine Longer: The Longer View is a year end newsletter. I don't think I have ever struggled
more with a year end news letter than I did with this one. There are so many variables that we
are dealing with as we look into the crystal ball for 2010. On the plus side you have very few
alternatives to equity investing, in that the five year treasury yield is 2.5% fully taxable. We can
get a 2.5% dividend income yield on the Dow Jones Industrial Average that is tax preferred for
taxable accounts.
The returns on assets outside of equities are really not very attractive and they don't pose much
of a competition for investor funds at this point in time. Also the earnings have continued to
come through and surprise on a positive basis. In particular the S&P 500 and the Dow
companies that are able to compete internationally, have continued to be able to deliver
productivity improvements by reducing costs and have delivered very good earnings. The
earnings have actually keep up with the progression of the stock market price to the point that we
ended the year at about 15.5% times expected earnings for 2010, which is not out of line with
historical evaluations.
The valuation on the stock market even though we have had a pretty dramatic run off of the low,
that we achieved in March, has not reached over valuation and there aren't very many attractive
alternatives. That being said you have to still include the risks that are out there which are
systemic risks and those are on page three. Basically we are seeing one of them play out on the
front pages of the newspaper. We talked about that sovereign debt problems could worsen. At
the time that I wrote this it was mostly Dubi's default on their debt that was on the front pages of
the newspapers, but behind the scenes you had this drama being played out among the PIIGS
which is short for Portugal, Ireland, Italy, Greece, and Spain. They are sort of the weak sisters in
the Euro economic grouping and at this point in time you can see that they are dealing with
sovereign debt problems that don't just threaten Greece's ability to issue debt or Portugal or
coming up next Spain, but it does actually threaten the Euro and what it means for the future of
the Euro. The Euro had not been stress tested until this economic crisis. So what you are
looking at is this place out is sovereign countries that have to be able to issue debt that have no
control over their monetary future, because the monetary is controlled by the European Central
Bank, but they have to control their fiscal future. Where as in America, we came together on the
TARP weekend and you had the legislative branch of the government, the executive branch of
the government, and the Federal Reserve all hands on deck to take care of this problem. We
were able to come together with an emergency resolution that really saved the banking system.
Europe is unable to do that with as much swiftness as what we were able to bring to the situation.
As a result their GDP growth is slower but now you're starting to see the other affect that they
can't address, the domestic sovereign debt issues in such a coordinated manner as we were able
to do. This will play out some more, it is something to be watched and it is something the
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Board of Trustees Meeting Minutes
February 25, 2010
Page 7 of 7
markets are very sensitive to. Greece was supposed to issue a 10 year government note auction
this week, they postponed it. This will continue to be something that hovers over the market.
Today we have testimonies on Capital Hill from Bemanke as it pertains to the financial situation.
We've got bank re -regulation on the books. That's still being debated in Congress. We have the
Health Care Summit as we speak. We still have a lot on the plate that is coming from
Washington and it does require watching what Congress is doing and what these major policy
initiatives are doing as it pertains to managing money. The political risk that we talk about in the
newsletter is not behind us but it has been somewhat assuaged by the fact that there seems be
more balance coming into post the Massachusetts election. Somehow these parties have to get to
by partisan agreement on something. We are going down the road towards that hopefully.
Longer 2009 0
Ouarter Report
A copy of the report was given to the Board.
Informational:
NCPERS Membership
Sondra Smith: At the meeting in December you approved to pay the membership dues of $150,
the check has been mailed for the membership dues.
2010 Meeting Schedule
A copy of the meeting schedule was given to the Board.
Additional Information:
Sondra Smith: Do you have anything else for the agenda or anything for the next agenda you
can think of?
We will be working on the elections next month. We send out the nomination letters first.
Marion I believe you and Pete are up this time.
Marion Doss: That is what I was thinking too.
Sondra Smith: We will start working on that in March.
Meeting Adjourned at 3:25 PM
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