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HomeMy WebLinkAbout1989-06-28 MinutesMINUTE OF A MEETING OF THE FIRE PENSION BOARD A regular meeting of the Fayetteville Fire Pension and Relief Fund Board was held on Wednesday, June 28, 1989 in Room 313 of City Hall. PRESENT: Chairman James Pennington, Ex -Officio Treasurer Scott Linebaugh, Secretary Suzanne McWethy, Fire Chief Jackson, Firemen Mike Bonaduce, John Dill and Pete Reagan, and Retiree Carl Springston. The meeting was called to order by the Chairman at 10:30 a.m. It was moved by Reagan, seconded by Dill and unanimous to approve the minutes of the last meeting. It was moved by Dill, seconded by Reagan and unanimous to approve the July pension list. It was noted there were no changes to the list from the previous month. It was noted that McWethy would make a correction to the investment policy and re -distribute it to the members. The Board discussed the presentations by investment firms which were heard on Monday and Tuesday, June 26 and 27. Reagan commented that "it all boiled down to fees." Dill said he thought that all the firms were offering "just about the same stuff." Linebaugh said, of every money manager mentioned at the presentations, only one performed worse than our money manager (during the period December, 1985 to December, 1988) on the equity side. He said if you took an average of all the money managers mentioned, you ended up with about an almost 44% increase over the time period, and we had a 33% increase. He said, except for one other money manager, there was roughly a 10% difference between all the money managers presented and our money manager, except for one other money manager. Linebaugh said, on the fixed income side, from June of 1986 to June of 1988, every money manager beat the return realized by our money manager. He said that turned out to be an average of some 12% compared to the 1/2% we achieved, according to RNC reports. He said he thought these differences were significant. He said he found no evidence in the 1988 minutes that Merrill Lynch came before the Board at a meeting stating RNC was doing a bad job. He said he thought that was significant. Reagan said "they did come in here after the crash and said this was the reason they decided not to get back in the market." Reagan said that was everybody's bad year but, after that, everybody started to go back up, and RNC stayed down. Dill said "we had quite a few personal discussions with Curtis and Richard." Fire Pension Board Minutes June 28, 1989 Page 2 because of the turnover they have had." Dill said RNC had lost a lot of their top people and changed their investment policy. Linebaugh remarked Merrill Lynch didn't say anything in the Board meetings until 1989 and, in his opinion, they should have done so in 1988. In answer to a question from Jackson, referring to the Shearson Lehman presentation by Mike Kirkland, some Board members said they believed the 1.3% fee quoted was a wrap fee. Jackson said he ranked the presentations according to what impressed him, in the order in which he thought the firms would do the best job. He said he thought Elaine Longer had made the best presentation. He said he was impressed by what Pru Bache said about the Board considering her as a money manager. He said he thought Shearson Lehman Hutton presented the best -sounding deal, and he ranked Merrill Lynch second, with Dean Witter third, Prudential Bache fourth, and A. G. Edwards fifth. He said he was really impressed with the process Mike Kirkland went through to narrow potential money managers down to one for the equities, and one for fixed income. Dill said he liked Hutton's process but thought every firm would do that process. He said he thought Kirkland "jumped the gun" and that he already had a money manager picked out for the Board. Linebaugh, referring to comments by Curtis Williams that he could get any money manager the Board wanted, said some money managers only deal in large portfolios and have certain deals with different firms. Bonaduce said he was really impressed with the monitoring service that was presented by Pru Bache. Linebaugh said he was real impressed by Elaine Longer. He said she reviewed the Police Pension Fund's investments, and he wondered if the Board might want her to do something similar for the Fire Pension Fund. Reagan said he trusted Merrill Lynch but not enough to give them $5 million of the Fund. He said it has been suggested the Board inquire as to what Longer would charge to monitor Merrill Lynch for a year, without Merrill Lynch's knowledge. Springston spoke in favor of having any monitoring service. Linebaugh suggested Longer might monitor the performance of RNC and Merrill Lynch over the years 1987 and 1988. Jackson said "we started hearing the bad news from Merrill Lynch about RNC when we started hearing the rumors that they were splitting the blanket." Pennington said that rumor has been across the State and he heard it two or three months ago. Linebaugh said what mattered was not what was said behind the scenes but what was said in Board meetings. Fire Pension Board Minutes June 28, 1989 Page 3 Jackson said he gave Merrill Lynch pretty good marks for their presentation and said he got the impression they were willing to "back up to ground zero and start over." Bonaduce said he would like to stick with Merrill Lynch, simply because of the monitoring service which we didn't have in the past. He said, if it weren't for the monitoring service, he would lean toward Pru Bache, commenting that he was really impressed with them. Dill said Merrill Lynch was just about the top firm in the country and had the best research facilities. He said they had been in the business longer than anybody else nationwide, and probably had more money than anyone else we have considered. Dill said Merrill Lynch had not been hired to come to the Board and tell them whether or not RNC was doing a bad job. Linebaugh said the minutes indicated that Board members considered Merrill Lynch as their investment advisor. Dill said he wasn't worried about the minutes, commenting that they were not always accurate. Pennington pointed out minutes were accepted as the legal record in a court of law. Linebaugh suggested the Board should consider the question of whether a 10% difference in performance is reasonable, or whether a 12% difference in the fixed income is reasonable. Dill said "we beat what we were doing" in CDs. Dill said he wasn't going to defend RNC because he didn't think they had done a very good job. He said we didn't know how accurate Linebaugh's information was. Linebaugh said his point was the bad job RNC was doing started three years ago and was never mentioned by Merrill Lynch until 1989. Dill said he didn't think the Board was paying Merrill Lynch to monitor RNC. Jackson said he thought in the initial contract with Merrill Lynch they were to tell us whether the money manager was doing so poorly that he needed to be fired. Pennington said his comfort level was not very good with Merrill Lynch, particularly because of the individuals representing the firm. He said questions would be asked of whomever is selected, because everyone's comfort level will not be the same. He said he thought Elaine Longer made the best presentation but didn't want to select her because of the smallness of her firm. Jackson said he felt good when we initially selected Merrill Lynch and they selected RNC, but said his feeling is now we probably ought to change. Dill said his comfort level with Merrill Lynch has always been really good. He said they probably didn't do as good a job as they could have. He said he thought there had been too much animosity in the Board meetings for Merrill Lynch to say anything they might want to say. Pennington said what has concerned him has been that, to this date, he is not really sure what Merrill Lynch's role is. He said, for whichever firm is hired, he thought their role should be clarified. Fire Pension Board Minutes June 28, 1989 Page 4 In answer to a question from Jackson about whether the Police Pension Board was satisfied with Mike Kirkland (of Shearson Lehman) as advisor, Linebaugh said he hadn't heard any dissatisfaction, but suggested the firm may not have been employed long enough. He said they selected Oppenheimer as their equity money manager, and are now in the process of selecting a fixed income manager. It was noted the following fees had been proposed by the firms: Firm Shearson Lehman Prudential Bache Merrill Lynch Dean Witter Elaine Longer A. G. Edwards Percentage 1.25 - 1.3 1.5 1 or less .75 - 1 1.25 Equity/.5 Fixed Income + Brokerage Fee 1.43 total wrap or 1 Equity/.5 - 7/8 Fixed Income, plus $35-40,000 Monitoring Service It was generally agreed that Elaine Longer was to be considered as a money manager, and was therefore excluded from consideration as an investment advisor. At Pennington's suggestion, each Board member assigned a number of points to each firm, on a scale of 1 to 5 (1 being top choice, 5 being bottom choice). After this was done by secret ballot, points were totalled, with the following results, as tabulated by Fire Chief Jackson: Top Choice Firm Total Points Received Merrill Lynch Shearson Lehman Dean Witter Prudential Bache A. G. Edwards 14 16 19 23 33 Pennington stated Merrill Lynch should be contacted. He suggested Merrill Lynch send us a proposed contract for the Board's consideration. It was clarified that the next regular meeting would take place on July 27, 1989. Reagan asked that the minutes reflect the report on the investment portfolio from Merrill Lynch (attached). The meeting was adjourned at 11:36 a.m.