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HomeMy WebLinkAbout1989-01-26 MinutesMINUTES OF MEETING OF THE FIRE PENSION BOARD A regular meeting of the Fayetteville Fire Pension and Relief Fund Board was held on Thursday, January 26, 1989 at 1:30 p.m. in Room 313 of City Hall at 113 W. Mountain Street, Fayetteville, Arkansas. PRESENT: Scott Linebaugh, Suzanne McWethy, Mickey Jackson, Pete Reagan, Mike Bonaduce, John Dill and Carl Springston; also present were City Accounting Supervisor Zelda Parson, and Curtis Williams and Richard Yada of the Merrill Lynch firm. ABSENT: James Pennington Pension List Linebaugh reported to changes to the pension list for the month of February. It was moved by Reagan, seconded by Jackson, and unanimous, to approve the list. New Business Carl Springston said he attended a meeting of the majority of the retirees, and they asked him to bring their request before the Board for an increase in pension benefits, of $25 per part -paid, and of $50 per full -paid. Springston said the increase was proposed for everyone on the pension list at this time. Linebaugh suggested we hold off on taking action until next month and, in the meantime, the staff could prepare figures and be more prepared to discuss the request at the next meeting. Dill commented that he didn't even want to consider a $25 increase for part -paid retirees. He asked if the staff could determine the benefits which were received by the part -paid retirees when they retired and what they are making now. Reagan said he would like to see a "no pay raise increase" until we can get enough money in the system to include a cost -of -living increase or a designated amount per year from now until the fund runs out. He pointed out it would cost us $750 to have an actuary done for this pay raise request. Linebaugh said the staff would bring figures to the next meeting. Fire Pension Minutes January 26, 1989 Page 2 Merrill Lynch Report Equity Account Copies of RNC's investment review of the Equity Account were distributed (and a copy will be kept on file with these minutes). Curtis Williams said the portfolio yield was 3.7%. He reported the asset mix to be 83% in common stocks and 17% in cash and equivalents. Williams reported that $312,657 had been contributed to the account originally, with $173,311 added, for a total of $485,968.46 in the account. He reported market value as of 1/29/89 to be $513,600.46, for a gain of $27,632. He said the account was up 1/2 of 1% since inception, and did not out perform inflation which he said was up 10.3%. Linebaugh pointed out RNC had underperformed the S&P 500 which was shown to be up 13.8%. Williams said in 1988 the account outperformed the CPI (which was 4.6%) by 13.6%. He added that the account had also outperformed the Dow Jones which was 11.9% and the S&P 500 (12.4%). He said, however, that if you added dividends and interest re -invested, the S&P 500 would probably be more like 16%. Linebaugh asked how big a loss the account took in the market crash of 1987. Williams estimated the portfolio was down 28% to 30%. Linebaugh asked about RNC's performance compared to that of other money managers. Williams said RNC will not compare themselves to other money managers. He said Merrill Lynch does that "quite handily" but doesn't compare RNC to technical, growth or income managers, but compares RNC to "value managers. He said the average value manager with the same investment characteristics as RNC "in our universe" did about 12.5% for 1988. Income Account Williams distributed copies of RNC's investment review of the Income Account. He reported a 7.8% portfolio yield. He said the asset mix was 18% in common stocks, 54.20% in convertibles, 21.20% in bonds, 2.70% in preferreds, and 3.90% in cash and equivalents. Williams reported the account originally started with $1 million, and added $572,720.71, for a total of $1,572,720.71. He reported market value as of 1/21/89 to be $1,969,066.14, for a gain of $396,345.43 since inception. Wlliams said the account was up 33.1% since inception, compared to inflation which was at 10.8%, and slightly underperformed the S&P 500 (36.0%). Fire Pension Minutes January 26, 1989 Page 3 Discussion Linebaugh asked Williams if it would be possible to get a "scattergram" showing the universe of money managers mentioned earlier by Williams. Williams said Merrill Lynch didn't have anything published. He said they could list the various managers and how they did, but they didn't have the capabilities to print a scattergram. Linebaugh said the Police Pension Board is getting scattergrams on the balanced accounts, on the equity accounts, and on the income accounts, comparing other balanced, income and equity managers. He said Pennington has been asking RNC for a scattergram for four or five months now, and finally had a letter sent to RNC requesting one. Williams said he was sure RNC could put a scattergram together. He said he was not saying Merrill Lynch could not provide one, just that they haven't had a request for one. Linebaugh said the Police Pension Board was using Oppenheimer and he distributed a scattergram prepared by Shearson -Lehman showing Oppenheimer compared to RNC. He said this indicated Oppenheimer is earning more rate of return at less risk. Williams commented that Oppenheimer's SCI percentile ranking simply wouldn't be consistent with the scattergram. He said SCI was a rating service, although he added that Merrill Lynch didn't think that highly of SCI's universe. He said people like RNC pay SCI to publish their figures, and the SCI just accepts whatever figures the managers give them, and then publishes it. Linebaugh asked Williams at what point would Merrill Lynch advise the Board that RNC is not doing well enough. Williams said Merrill Lynch was not happy with RNC's Equity performance. He said when the Board hired RNC they were in the top 1%ile of equity managers in the country, over a 15 -year period, and they have dropped to 3rd. He said in 1987 they dropped to about the 40th dile. He said there was nothing wrong with RNC's stock -picking ability. He said Merrill Lynch was not prepared at this point to say there is a fundamental problem. He said when the Board loses confidence in RNC, they are bound to make a change, but pointed out that it was very expensive to change managers. John Dill asked if, since the market correction, RNC had performed well. Williams said they had not, by Merrill Lynch's standards. He said, since the crash, the fund has not deferred its costs and out -performed the S&P by some measurable amount. Reagan asked how long Williams thought the Board should wait before considering a change in money manager. Williams said he wouldn't specify a time. He said over the first two to three quarters of this year Merrill Lynch is going to be watching RNC's performance. He said at some point in time RNC is going to have to provide the services the Board is paying them to provide - which is to outperform the averages in the equity account. In answer to a question from Jackson, Williams said turning a portfolio over to a new manager can be expensive because most managers will want to completely change the portfolio. He said if the Board decides to change, Merrill Lynch can bring Fire Pension Minutes January 26, 1989 Page 4 the Board managers who will either accept the portfolio almost intact, or managers who will agree to manage for a set fee. Linebaugh said the Police Pension Board found a manager with a fixed fee of less than 1% which covers brokerage fees, money management fees, and asset monitoring all together. Williams said it was true that RNC's fees ran towards "the high middle." Following further discussion of the scattergram, Williams said Merrill Lynch would either get it by the next meeting or will have an explanation as to why they don't have it. Investment Policy Linebaugh said he thought the Board should not take any action on the investment policy because of Pennington's absence. He suggested the Board discuss the policy, however. The Board discussed the policy which is attached and made a part of these minutes. The Board discussed IV. C. 2, and whether investment counsel should have to be registered with both the Arkansas Securities Department and/or the Securities and Exchange Commission (SEC). Chief Jackson said he thought the investment counsel should be required to be registered, as a minimum, with the Securities and Exchange Commission, and commented that the "and/or" wording makes it possible for counsel to have a choice between the ASD and the SEC, which he didn't think was a good idea. The Board discussed IV. C. 3, with Linebaugh explaining that, according to Cathyrn Hinshaw, the Board is required by law to bid out contracts once a year. It was pointed out that, in the wording of the policy, it does not state this has to be done once a year. Linebaugh said, whether or not it is a legal requirement, he thought it lent credibility to the process. Dill asked if this policy would be followed only if the Board was changing investment counsel. Linebaugh said there was nothing in the policy that said the bidding had to be done once a year. The Board discussed IV C. 9, with Linebaugh saying he had been told that the law requires that investment counsel shall select brokers to handle transactions on a competitive bid basis. He said, although the policy specifies this be done quarterly, the law only requires it to be done at least once a year. Some members of the Board felt that the quarterly requirement was too much. Dill suggested quarterly be changed to yearly, but said that, if it is not required by law, he would like to strike paragraph 9. Linebaugh said having that wording in the policy forces the investment counsel to explain to you, in the event they haven't taken the lowest bid, why they have made that decision. Reagan asked if research could be done as to whether this is legally required, and if something in writing could be obtained from Hinshaw documenting the law. Fire Pension Minutes January 26, 1989 Page 5 In discussion of V. B., it was decided to change the phrase "A five (5) year market cycle" to "A five (5) year period and a ten (10) year period". Under V. C., it was decided to change the word "cycle" to the word "period." Under VI., it was decided to change the phrase "and that review will be done in person" to "The money manager is required to report at least twice a year in person." Other Business Pete Reagan requested he receive an extra copy of the minutes for each of the substations, which have requested them. It was decided Suzanne McWethy should give five extra copies of the minutes to the Fire Chief. Reagan also requested a copy of our local investments for every meeting. Adjournment The meeting was adjourned at about 3:25 p.m.