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HomeMy WebLinkAbout1989-05-04 MinutesMINUTES OF A MEETING OF THE FIRE PENSION BOARD A regular meeting of the Fayetteville Fire Pension and Relief Fund Board of Trustees was held on Thursday, May 4, 1989, at 1:30 p.m. in Room 313 of City Hall, 113 W. Mountain Street. PRESENT: Chairman James Pennington, Secretary Suzanne McWethy, Fire Chief Mickey Jackson; Retiree Springston, Firemen Bonaduce, Dill and Reagan; also present were Tim Reuling of RNC, and Curtis Williams and Richard Yada of Merrill Lynch ABSENT: Ex -Officio Treasurer Scott Linebaugh CALL TO ORDER The meeting was called to order by the Chairman. MINUTES It was moved by Jackson and seconded by Dill to dispense with the reading of the minutes. The motion passed unanimously. It was moved by Reagan and seconded by Bonaduce to approve the minutes of the last meeting. The motion passed unanimously. MAY PENSION LIST Reagan asked when Arvil King's last day would be. Chief Jackson said his last day on payroll was May 17. It was decided to put him on the June pension list along with the pro -rated days in May, and that Chief Jackson would get information on his pension to the Secretary. It was moved, seconded and unanimous to approve the pension list. [See memo from Chief Jackson attached to these minutes correcting the effective date of King's retirement.] MATURED INVESTMENT Pennington, noting that Finance staff were in Tulsa today, reported that a $120,000 investment matured on April 27, 1989 and a decision should be made on how to re -invest the funds. Bonaduce, seconded by Reagan, made a motion to put the funds in the Merrill Lynch ready -asset account for sixty days. The motion passed unanimously. Fire Pension Board of Trustees May 4, 1989 Page 2 INVESTMENT POLICY Pennington thanked Merrill Lynch for the comments they sent on the investment policy, but remarked that he did not receive them until this morning. He asked the Board to hold off on that issue until everyone has a chance to go over it and discuss it at next month's meeting. Bonaduce said he had had some time to go over the material and would like to discuss it today. AFFIDAVIT FORMS Chief Jackson said he and Reagan had had an opportunity to review the affidavit forms which Suzanne McWethy had drafted at the Board's request, and found them to be acceptable for the Board to use. It was decided to use the thirty -day time limit for turning in the form, and it was decided that, for those who do not turn it in, after sixty days has passed, their check should be held until the form is received. INVESTMENT POLICY Reagan said he thought that, at the last meeting, the Board went over all the changes, and the only thing that wasn't "in concrete" was the asset allocation. Jackson agreed we were at that point when the last meeting ended. Pennington said probably the only real disagreement was over the asset allocation. Reagan said he had notes indicating the following asset allocation: Equity 25%- 50%, Cash 5%-25%, Other 10%, and 15%-75% Fixed Income. Jackson said, although no action was taken, there was some discussion at the end of the last meeting about how high to set the limit on equities. He noted the original recommendation was 20%-40%. Reagan said he thought 50% should be a maximum limit. In answer to a question from Jackson, Tim Reuling, speaking for RNC, said he thought a maximum of 50% in equities was pretty much the norm and about as aggressive as you would want to be. It was moved by Reagan to adopt the following asset allocation: 25% to 50% Equities, 5% to 25% Cash Equivalents, 0% to 10% Other Investments, 15% to 75% Fixed Income; and that all "Other Investments" be approved by the Board. The motion was seconded by Bonaduce. The motion passed unanimously. I.C. Following discussion, it was moved by Dill and seconded by Reagan to leave the long-term goal as stated (5% above the rate of inflation). The motion passed unanimously. Fire Pension Board of Trustees May 4, 1989 Page 3 Following discussion regarding the last paragraph in this section, it was moved by Reagan and seconded by Bonaduce to change "5 year market cycle" to "3 year time frame." The motion passed unanimously. In reference to the last paragraph of the investment policy under I.C., Yada made the following comment: "The term 'short-term' should be defined as a one-year time frame and an evaluation with the manager as to why his performance was poor, should be accomplished. Short-term performance alone should not be the sole criteria as to whether a manager is terminated. More pertinent criteria would be changes in key personnel and adherence to Investment Policy as stated in the ADV Part II, and the inability to comply with directives of the Board would be examples of reasons for termination." Jackson said he had made a note that the Board ought to change the word "will" to "may" in the following statement: "Non-performance with regard to these requirements will cause the Board to evaluate continuation of the contracts." In answer to a question from Reagan, Williams explained that "ADV Part II" was a statement of investment policies that a money manager has to file with the Securities and Exchange Commission. He said the Board had a copy of RNC's ADV on file. In reference to Yada's comment above, Tim Reuling asked if, relative to RNC, there had been discussion in front of the Board about a change in personnel at RNC, different modus operandi, different investment philosophy, or the organization being run in any manner that was different than "day one" when RNC was first hired. The Board seemed to be in general agreement that there had been no such discussion about RNC. Pennington said he felt comfortable with the change of "will" to "may" as discussed. The Board seemed to be in general agreement that "will" should be changed to "may. II. A. Yada questioned the reference to the Salomon Brothers Broad Grade Index, on page two, noting that on page one reference is made to the Shearson/Lehman Government/Corporate Bond Index. He said he thought one or the other index should be selected to insure performance analysis is uniformly measured, and suggested scratching Salomon Brothers and inserting Shearson/Lehman in its place. Reuling stated he thought it would make sense to be consistent. It was moved by Bonaduce, seconded by Dill, and unanimous to delete Salomon Brothers and insert Shearson/Lehman in its place. III. B. 2 Williams said "call protection" can mean a lot of different things. He said, if they were managing a fixed income portfolio for aggressive growth, they would want call protection, but if they were managing a fixed income protfolio for income and/or liquidity, then call protection would be less of a factor. Fire Pension Board of Trustees May 4, 1989 Page 4 Yada read the following phrase out of the investment policy to Reuling, asking for comment from him: "...call protection shall be integrated into the portfolio to stabilize the current income and marketability of the portfolio." Reuling reminded Yada that he had not seen the investment policy, that this was the first time he had seen Merrill Lynch's corrections to the investment policy, and noted that no one had asked RNC for their input. He pointed out that North Little Rock had given their investment policy to RNC for their input and allowed them a couple of weeks to study it. In answer to a question from Williams, Reuling said he didn't have a problem with call protection on the convertibles. Williams said he was not sure how the sentence in that paragraph was supposed to be applied. Jackson asked if Merrill Lynch had a problem with the statement "The quality of fixed income securities shall not be rated less than "A" by Moody's or Standard and Poors." Williams said they had no problem with that at all. Yada said he thought it would be a problem with the current portfolio. In reference to ratings on convertibles, Reuling said RNC could live with "A" but said it was real difficult, when it comes to limiting themselves to that type of rating. He said it would be better for RNC if the Board would give them more latitude and said they could live with a "BBB" a lot easier. Yada said "BBB" was investment grade. Pennington said he would not want to drop below investment grade. Following a discussion initiated by Williams on how Merrill Lynch and RNC viewed the definition of "convertibles, " it was moved by Reagan, seconded by Bonaduce and unanimous to change "A" to "investment grade." In answer to a request from Dill, Reuling said RNC would report to the Board on how they classify a convertible, issue to issue, and will describe its characteristics and whether they think it's more like a stock or a bond. He said he would try to get it to the Board by the May 25 meeting. Williams said he found this paragraph to be ambiguous. Pennington said he preferred that paragraph remain vague. Jackson suggested deleting "high levels of" leaving the phrase to say "...maintain diversification..." It was so moved by Jackson, seconded by Bonaduce, and unanimous. IV. C. 7. i. Jackson noted that Merrill Lynch had suggested adding "year to date" after "monthly basis." It was so moved by Springston, seconded by Reagan and unanimous. IV. C. 9 Reagan read the following: "The investment counsel shall select brokers to handle transactions on a competitive bid basis, at least quarterly. A report of these bids and awards shall be submitted to the Board monthly." Williams Fire Pension Board of Trustees May 4, 1989 Page 5 remarked that this meant reporting on something monthly that is being done quarterly. Jackson asked Reuling for input on this item. Reuling said he thought it was certainly sufficient to monitor on a quarterly basis. It was moved by Bonaduce and seconded by Reagan to strike "monthly" and leave everything else the same. The Board did not vote on this motion, but continued to discuss the matter. Following discussion regarding the use of the term "investment counsel", it was generally agreed the policy should stay with the use of the terms "investment advisor" and "money manager" and in this case "investment counsel" should read "money manager." In answer to a question from Jackson, Reuling said IV. C. 9. means to RNC that they should take bids quarterly, but said he thought quarterly was too frequent. He explained RNC was doing that on an ongoing basis and they know what the commissions are, since they are dealing with brokers all over the country. Jackson asked Reuling if RNC was locked into using Merrill Lynch. Reuling said they weren't and pointed out that the Board was the client and dictates what they think is a reasonable expectation, while RNC just maintains a fiduciary role. Reagan said he didn't want to get into accepting the lowest bid on everything. Reuling suggested the Board might eliminate the phrase "at least quarterly" from Item IV. C. 9. He said he thought reports should be subitted twice a year, but said RNC could send them to the Board in the quarterly report. It was moved by Dill and seconded by Reagan to re -word Item 9 in the following manner: "The money manager shall select brokers to handle transactions on a competitive basis to get the best value for the client." Williams, with Dill expressing no objection, suggested adding "...as determined by the level of service rendered and execution of transaction." Following a request by Jackson for clarification, Williams, with no objection from Dill, changed his suggestion for wording the sentence to the following: "The money manager shall select brokers to handle transactions on a competitive basis, with emphasis on getting consideration of the level of service rendered and performance of execution." The motion passed unanimously. V. B. It was decided that any changes to Section V would be voted on as a package. It was agreed by the Board that "five (5) year market cycle" throughout the policy should be changed to "three-year time frame." V. D. Williams suggested that, if everything else in the policy is going to be quarterly, "semi-annually" should be changed to "quarterly." Pennington Fire Pension Board of Trustees May 4, 1989 Page 6 commented that, if this presents a problem for the Accounting Division, a recommendation can be made to change it again. V. F. Yada said that the statement "The Board of Trustees will meet semi-annually with its investment counsels" conflicts with Item VI, "Review of the fund's overall performance will be scheduled to occur quarterly; and that review will be done in person." Yada suggested Item VI should be changed to "semi-annually." Pennington suggested changing "semi-annually" to "a mminum of semi-annually." The Board was in general agreement with this suggestion. It was moved by Reagan and seconded by Dill to approve all changes agreed upon under item V. The motion passed unanimously. It was moved by Dill and seconded by Reagan to adopt the investment policy as amended. The motion passed unanimously. OTHER BUSINESS The balance of the meeting consisted of a discussion, primarily between Tim Reuling and Merrill Lynch representatives, relative to RNC's performance. (Note: As no action of any kind was taken by the Board, that discussion, because of its length, was not incorporated into the Minutes by the Secretary. However, the tape recording of the discussion will remain in the file of this meeting kept in Suzanne McWethy's office. ) ADJOURNMENT The meeting was adjourned at about 4:00 p.m.