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HomeMy WebLinkAbout1989-07-27 MinutesMINUTES OF A FIRE PENSION BOARD MEETING A meeting of the Fire Pension and Relief Fund Board of Trustees was held on Thursday, July 27, 1989 at 1:30 p.m. in Room 313 of City Hall. PRESENT: Chairman James Pennington, Secretary Suzanne McWethy, Fire Chief Mickey Jackson, and Mike Bonaduce. Also present was Curtis Williams of Merrill Lynch. ABSENT: John Dill, Scott Linebaugh, Pete Reagan and Carl Springston The meeting was called to order by the Chairman. MINUTES It was moved by Jackson, seconded by Bonaduce and unanimous to approve the minutes of the last meeting. PENSION LIST It was moved by Jackson, seconded by Bonaduce and unanimous to approve the pension list for the month of August. ACTIVE SECURITIES A list of active securities was distributed for the Board's information, and is attached to these minutes. MERRILL LYNCH CONTRACT A proposed Investment Advisory Agreement between the Fund and the Merrill Lynch Pension Service Group was distributed by Curtis Williams and is attached to these minutes. Williams said the draft was open to any addendums or amendments. Williams briefly summarized the provisions of the agreement. Jackson asked if the manager will send the Fund a bill once a year, or whether we would pay Merrill Lynch. Williams said it was Merrill Lynch's intent to keep the fee below 1% every year. He said they would hire the managers, and would pay each manager the fee which they are able to negotiate. He said Merrill Lynch would do the brokerage on a trade -by -trade basis. He said commissions on trades would probably go down as the year progresses. Fire Pension Board Minutes July 27, 1989 2 Jackson asked if the yearly fee would be paid to Merrill Lynch once a year. Williams said the fee would go out "piecemeal." He said managers may bill at different times of the year. Jackson asked if the managers would bill Merrill Lynch or the Fund. Williams said the managers would bill the Fund. He said the only money Merrill Lynch would make would be brokerage fees. Jackson asked if the statement in the Agreement "...Merrill Lynch and Advisor may...receive fees and/or commissions from investments..." would cause the fee to go over 1%. Williams said everything we pay - custodial fees, commissions, management fees, performance monitoring fees - everything we pay out of our Fund will come to less than 1%. He said Merrill Lynch sometimes may receive a fee for something that doesn't come out of our Fund. Williams said, as they report on a month-to-month basis, they will keep a running total. Bonaduce stated he would like to approve the Agreement today, but said he wished more members were present today. It was agreed by everyone present to postpone action on the Agreement until all members have had a chance to review it. MERRILL LYNCH REPORT INCOME ACCOUNT Williams reported on the Income Account Portfolio Evaluation (attached to these minutes). Williams said a copy of the investment policy should be sent to RNC, noting he thought they made a purchase of Alaska Air convertible bonds. He said he didn't believe those bonds had been rated, but they have a companion issue (another convertible bond of the same company, of the same type) which Williams said did not conform to our investment policy. He said we need to let them be aware of our investment policy. He said there were also a number of issues in the portfolio which don't coincide with our investment policy. Attached to the portfolio evaluation was information which Williams said was RNC's comparative data. He said the figures show what our account has done against their comparative indexes for three periods of time. Williams reported the Income Account to be up 5.97% in the account since the beginning of the quarter. He said the comparative index was up 7.84%, so RNC was underperforming. He said from the beginning of the year, the account was up 11.06%, and the comparative index was up 14.5%. He said, since inception, the account was up 43.87%, and the comparative index was up 55.7%. Williams said RNC's comparative index was not. one Merrill Lynch would use to analyze the portfolio against. He said we were paying RNC a rather high management fee to continuously underperform on any time frame you want to take. Fire Pension Board Minutes July 27, 1989 3 Williams said Merrill Lynch is going to ask the Board at the next meeting to make a determination on the convertible bonds - are they equities or are they bonds? Williams said Merrill Lynch is going to advise strongly that the Board adopt the policy that convertibles be counted as equities. He said, if that is done, Merrill Lynch will take everything out of the portfolio that does not comply with the investment policy, and weight it with the convertibles counted as equities. Williams said RNC argues that convertibles should be bonds, because they have a coupon rate and a date of maturity. He said when securities are taken out which do not conform to the policy, he thought we would find out the account probably did less well than it has done to this point, because some of the growth of the account has come from securities which won't be in the portfolio in the future. Williams said Merrill Lynch's recommendation is to let this portfolio stand until that analysis can be done. Williams said RNC will have to manage the fund at a much lower rate. He said he didn't think he would have any problem negotiating a fee. He said the problem will be finding someone who can manage the portfolio and do a better job. Chairman Pennington gave material to Suzanne McWethy which he had received from RNC, so that copies could be distributed to the Board. EQUITY ACCOUNT Williams distributed a portfolio evaluation for the Equity Account (attached to these minutes). Using RNC's index, Williams said we were up 5.5% since the beginning of the quarter, with the market being up 7.84%. He said, since the beginning of the year, we were up 7.92%, with the market up 24.5%. He said the account, since inception, is up 8.47%, the index being up 30.29%. He said we were substantially underperforming the market on all fronts. He said their recommendation was to immediately interview equity managers, and said they had started that screening process already. Williams said "for over a year now we have been expressing our concern to the Board about the performance and, in our opinion, it has gone as far as it needs to go." He said Merrill Lynch would have some definite recommendations at the next meeting. Bonaduce asked Williams if he thought it might be wise to do away with this account. Williams said one recommendation will be to instruct RNC to make no further purchases in either account. He said the letters Merrill Lynch have drafted in the past remind them of their fiduciary responsibility to monitor the account, and make discretionary sales when it is advisable, and leave the money in the money market fund, because there's no sense generating commissions just to move the portfolio. Williams said Merrill Lynch is going to advise terminating that account as quickly as we can, consistent with finding a manager that fits in with the policy. Bonaduce asked if Williams felt we were putting ourselves in jeopardy by waiting another month before doing anything. Williams said, as far as the Equity Account is concerned, in Merrill Lynch's opinion RNC would become caretakers of the Fire Pension Board Minutes July 27, 1989 4 account until Merrill Lynch can formulate an asset mix which would dictate a manager, and then do a manager search. He said, "as far as we're concerned, RNC should be terminated on the equity side." Williams said Merrill Lynch would recommend one manager who manages pure equities and another manager over a balanced portfolio between stocks and bonds. Bonaduce said he feared, if purchases were frozen, that RNC might not pay any attention to the account. Williams said Merrill Lynch would remind RNC of their fiduciary responsibility and said, since Merrill Lynch handles the transactions, if they find them selling a security for some other Fund and not for Fayetteville's Fund, they will contact them to find out what's going on. Bonaduce moved to instruct RNC to freeze any purchases and send them a letter to that effect. Williams said he would draft a letter and FAX it to the City tomorrow. Williams said, regarding the Alaska Air transaction, Merrill Lynch did not have the authority to tell RNC not to make that transaction, but it does not coincide with the investment policy as they saw it two months ago. Jackson seconded the motion. The motion passed unanimously. Williams said he received a call from Marc Francoeur of The Springdale News, who is writing an article on M -L Lee, and who was asking for information on that. He said he furnished him a copy of the Little Rock City Attorney's opinion. Suzanne McWethy said Francoeur had interviewed Scott Linebaugh and had looked through some records in her office. Pennington said the City of Fort Smith has been having some concerns. Williams said Fort Smith has changed managers, and said Merrill Lynch anticipated they might be instructed to sell their M -L Lee investment, and called the transfer facility and was told that, as of two weeks ago, the average bid price was $1,036 per unit. He said the last annualized distribution was 12.88%. He said they haven't been instructed by Fort Smith to sell M -L Lee at this point. Jackson asked at what point you could sell the investment for what it is worth. Williams said "you never will be able to." He said that investment was presented as a long-term illiquid investment. ATTORNEY GENERAL'S OPINION A copy of an Attorney General's opinion regarding investments, which had been provided by Scott Linebaugh, was distributed to the Board, and is attached to the minutes. ADJOURNMENT The meeting was adjourned at 2:30 p.m.