HomeMy WebLinkAbout1989-05-25 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 25, 1989 at 1:30 p.m. in Room 313 of City
Hall.
PRESENT: Chairman James Pennington, Ex -Officio Treasurer Scott
Linebaugh, Secretary Suzanne McWethy, Fire Chief Mickey
Jackson, and Firemen Pete Reagan, John Dill and Mike Bonaduce.
Also present were representatives from Merrill Lynch - Curtis
Williams and Richard Yada, and a representative from RNC - Tim
Reuling.
ABSENT: Retiree Carl Springston
The meeting was called to order by the Chairman.
Minutes
It was moved by Jackson, seconded by Reagan and unanimous to dispense with the
reading of the minutes. It was moved by Reagan, seconded by Dill and unanimous
to approve the minutes of the last meeting.
Penion List
It was noted that Arvil King had been added to the pension list for the month
of June. It was moved by Bonaduce, seconded by Reagan and unanimous to approve
the pension list for the month of June.
Current Investments
Scott Linebaugh offered some comments in reference to actions taken by the Board
at its last meeting (Linebaugh having been absent from that meeting).
Referring to the $120,000 invested at the last meeting, Linebaugh said, the way
City Attorney McCord reads the law, the Board is not allowed to make investments
into the Merrill Lynch ready asset account. He said the funds must go either
to the broker or be invested "under the old law." He said he realized the
investment had already been made and nothing could be done about it at this time,
but just wanted to make sure the Board understood that this investment did not
meet the law.
Pennington said he recalled the issue was to be discussed again at this meeting
to make a decision, commenting that no rates were available at the last meeting.
Reagan pointed out the $120,000 had matured prior to the date of the meeting.
Jackson said he thought the funds could be gotten out of the ready asset account
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May 25, 1989
Page 2
at any time. Pennington said he thought the Board's intent was to keep the
funds in a "holding account" until they could be re -invested at this meeting.
Bonaduce asked where the funds were kept between the time they matured and the
time the Board voted to place them in the Merrill Lynch account. Linebaugh said
the funds may have been in a money market account which he said may be earning
approximately 6% in interest.
Jackson asked Linebaugh if we had any information on present interest rates.
Linebaugh said he did not bring any information on rates because the minutes
indicated that the funds had been invested for sixty days, and he interpreted
that to mean July 4th before the funds would be available to be re -invested.
The Board agreed that they had voted to invest the funds for sixty days in the
ready asset account but Pennington said he felt the funds could be withdrawn from
the account at any time.
Pete Reagan reminded the Board that, of the series of C.D.s which the Board
purchased to mature once every month, only two are remaining, and he suggested
the $120,000 might be considered for investment in similar C.D.s.
Yada asked Linebaugh what the difference was between a money market account at
the bank and at a brokerage house. Linebaugh said all investments made at the
bank are collateralized. He explained that, under old law, the Board can make
investments at banks or local institutions, but, under the new law, you can turn
funds over to a money manager to invest.
It was moved by Bonaduce and seconded by Dill to purchase six $20,000 C.D.'s to
mature on August 1, September 1, October 1, November 1, December 1 and January
1. The motion passed unanimously.
Investment Policy
Linebaugh, referring to the asset allocation approved at the last meeting, said
he had problems with the 0%-10% allocated to "other investments." He said in
his opinion this was an improper use of the funds.
Under Section IV. C. 9 in the investment policy, Linebaugh said the wording of
the motion made at the last meeting had removed the time frame. Linebaugh said
he thought some time frame should be left in that paragraph. Jackson said he
thought the Board intended to leave the phrase "at least quarterly" in the
paragraph. Jackson also said he thought the Board intended to change "monthly"
to "quarterly" in the following sentence in that paragraph - "A report of these
bids and awards shall be submitted to the Board monthly."
Performance Discussion/1988 Fees
Linebaugh said, although some coversation between Richard Yada, Curtis Williams
and Tim Reuling was not in the minutes, he had listened to the tape recording
of it. He said he was surprised at part of it, commenting that all of a sudden
there seems to be disapproval of RNC on the part of Yada and Williams when there
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May 25, 1989
Page 3
has been no tremendous change he could see in how the portfolio has been
performing.
Linebaugh asked to see a graph of performance in six-month intervals since the
inception of the two funds, compared to the S & P 500 or the Shearson -Lehman Bond
Index. Linebaugh also requested a breakdown for 1988 and 1989 of all fees paid
to RNC and all fees paid to Merrill Lynch.
Yada reported the following fees for 1988:
For Income Account:
RNC fee
Merrill Lynch fee
Merrill Lynch total commissions
For Equity Account:
RNC fee
Merrill Lynch fee
Merrill Lynch total commissions
$19,500.00
125.00
6,256.70
7,180.00
125.00
4,605.23
Reuling asked what Merrill Lynch's average charge per share was. Williams said
they did not know. Williams remarked that, of the commissions, the smallest
portion goes to the brokers and the rest goes to the brokerage house.
Reuling said that RNC's fee right now should be at a flat 1% rate.
consulting Services Group, Inc.
Mickey Jackson said some Board members had visited with Consulting Services Group
recently and he asked for an opinion regarding the firm from Yada, Williams and
Reuling, and asked how utilizing that firm would affect them. Jackson said CSG
recommends hiring their firm as advisor, retaining a broker, and retaining a
money manager. Jackson said their charge would be from $15-18,000 per year and
they claim they can save the fund more money than that.
Williams said the Board's total expenses were around $35,000 last year and if
CSG's fees will be $18,000, they will have to have a manager who will work cheap.
He said often you get what you pay for. He said the Little Rock Police
Department hired CSG and they are now doing exactly what Merrill Lynch was doing
but are getting paid a little more. He said if you asked any member of that
Board if CSG showed them anything they hadn't seen previously, the answer would
be "no." Williams said Merrill Lynch does the same thing CSG does. Linebaugh
asked if Little Rock changed the investments they had with Merrill Lynch and
Prudential Bache. Williams said they switched all their investments. He said
RNC was retained by CSG as money manager for a brief period and then CSG brought
in their own managers. He said CSG was a good company. Reuling said CSG had
a brokerage arm as well and commented that it was an obvious conflict of
interest.
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May 25, 1989
Page 4
Linebaugh asked who was advising the Little Rock Fire Department. Williams said
they retained SCI Associates, a national consulting firm. Reuling said RNC
worked for Little Rock Fire Pension Board for less than three years, went through
the stock market crash, and SCI recommended RNC be fired. He said SCI in 1988
charged $42,500 in "soft dollars" to Little Rock Fire Department.
Jackson said, when the CSG representative spoke, he avoided the kind of approach
referred to by Williams and Reuling (cleaning house), but emphasized as strengths
the fact that, if we hired CSG, they would be a non -connected advisor.
Williams said CSG is very strong in the southeast area, but said they continually
recommend one particular broker who he said had a rather poor investment track
record. Jackson said the presentation made by CSG was for the Board to retain
them as advisor only. Yada said Merrill Lynch can do the same thing.
Convertibles
Reuling distributed a report which was requested at the last meeting, showing
a list of convertibles in the portfolio and their characteristics (attached to
these minutes).
Merrill Lynch discussed the issue of whether convertibles are classified as
stocks or bonds, and requested clarification from the the Board. Dill asked
where convertibles were placed when the Board discussed its asset allocation.
Bonaduce said they were presently in the Income Account. Reuling said 45% of
LOPFI's balanced account is stocks, while 14% is convertibles. He about 50% of
our Income Account is in convertibles. Williams said Merrill Lynch wasn't
recommending a change in the asset allocation, but was just requesting
clarification of the classification. Dill said he thought the Board could make
that decision later.
Reuling asked for feedback from the Board regarding RNC's performance on the
Equity Account. He asked if the Board felt like it was going to give RNC more
time, conceivably through the end of the year.
Presentations To Be Scheduled
Dill said the Board was discussing putting its entire Fund under total management
and bringing in firms to give presentations. Reagan explained there was
$1,650,000 presently not under management, but in investments such as treasury
bills. Reuling suggested the Board consider putting some of those assets into
the balanced income account. He said the income account this year was just short
of 10% with a very low risk factor and had an overall yield of about 7.5% He
said the income account this year was up about 9.8%. He said the equity account
was up about 9% since the first of the year.
It was moved by Dill and seconded by Reagan to proceed to hear presentations from
firms. The motion passed unanimously.
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May 25, 1989
Page 5
Pennington suggested Board members submit names of firms to Suzanne McWethy to
be consolidated into a list.
It was agreed by the Board that the following firms would be invited to give
presentations: Shearson -Lehman, Prudential-Bache, Merrill Lynch, Dean Witter,
A. G. Edwards and Elaine Longer.
It was decided to change the next regular meeting from June 29 to June 27, since
Pennington would be unable to attend on the 29th. It was decided three
presentations would be heard on Monday, June 26, and three on Tuesday, June 27th.
It was decided to meet from 1:30 to 3:30 p.m. on Monday, and from 1:30 p.m. to
4:00 p.m. on Tuesday (the regular meeting to be held on Tuesday).
It was decided the firms should be sent copies of the investment policy.
Portfolio Evaluations
Yada distributed copies of the portfolio evaluation, reporting that the Equity
Account was presently worth $548,723, and the Income Account was presently worth
$2,107,833. Included was a special income account report and a report on the
current value of the ML/Lee investment. (These reports are attached to the
Minutes.)
Adjournment
The meeting adjourned at about 3:05 p.m.