HomeMy WebLinkAbout1989-12-18 MinutesMINUTES OF A MEETING OF THE FIRE PENSION BOARD
A special meeting of the Fayetteville Fire Pension and Relief Fund
Board of Trustees was held on Monday, December 18, 1989, at 3:00
p.m. in Room 313 of City Hall.
PRESENT: Fire Chief Mickey Jackson, Secretary Sherry Thomas,
Firemen Pete Reagan, John Dill, and Mike Bonaduce,
Retiree Carl Springston, and Ben Mayes, Accounting
Supervisor.
Also present were Richard Yada and Curtis Williams
of Merrill Lynch and Alex Conaway of Delta Asset
Management, Inc.
ABSENT: Ex -Officio Treasurer Scott Linebaugh
CALL TO ORDER
The meeting was called to order by Chief Jackson.
INVESTMENTS
Jackson stated the purpose of this special meeting was for Alex
Conaway to present his proposal as a money manager to the Pension
Board.
Conaway distributed information on his company, Delta Asset
Management, Inc., to the Board and gave a short presentation
outlining his company's qualifications and their guidelines for
handling investments.
He stated his company achieved high rates of return with less risk.
They evaluate each company thoroughly before investing in their
stock, re-evaluate them on a continual basis, and tend to purchase
stock when it is undervalued. They perform a 10 year proforma of
their income statement, balance sheet, and source and use. Delta
makes estimates of how fast sales will grow in each product line,
what the expenses are to sell and manufacture the product, how much
investment needs to be made over time to keep themselves
competitive, what type of potential line extensions they may have
off of the basic product line. All assets of the company are
written up to current market prices and values. Delta then looks
at these figures on a buy-out basis, i.e, how much debt can the
company take on and remain viable and buy back its stock. The
second way Delta looks at a company in terms of giving it a value
is to take the same projects, create a dividend stream over a 10
year period, and discount those dividends back and determine the
value. Delta takes the higher of the two methods and says that is
the intrinsic value of the company, and Delta wants to buy the
stock at a significant discount to the value. After purchase, if
the stock price moves up to the value or exceeds the value, the
stock is sold. There is an average holding period of 4 years for
the stocks.
Delta does not want any one stock to unduly influence the
portfolio. They like to buy several companies' stocks to diversify
the portfolio. They are looking for an average on all the stocks
rather than looking for stocks that outperform their expectations.
If they do not find stocks they are comfortable with, then they
maintain the investments on a cash basis. They are currently
approximately 30% cash.
Delta Asset started in business about a month ago. Conaway and his
partner owned Commerce Capital that they started in 1984 and have
brought their management philosophy and investment record to Delta
Asset. They currently manage about $25 million and are in the
process of converting about $10-15 million for their former clients
at Commerce Capital. There was approximately $200 million managed
by Commerce Capital outside the trust business.
Commerce Capital was a member of the Merrell Lynch Consults Program
(preferred managers); however, Delta is not on this list. Delta
does not want on the list because they want to work on larger
accounts and not so many small accounts.
Dill asked how Delta Asset would handle the transfer of the pension
account to them from the current manager. Conaway stated the
portfolio would be changed over as quickly as possible to the ones
Delta prefers.
Richard Yada stated Delta has a totally different management
philosophy than RNC. He feels Delta would do a good job with the
pension fund.
Williams stated that Delta is in the broader category of value
managers. They are not a technical or a market timer type manager.
Jackson asked Conaway if Delta had any other fire pension funds.
Conaway stated they did have.
Conaway stated that if a stock is performing badly because of a
change in company management, philosophy, performance, etc., they
will sell the stock. However, they won't simply sell stock if the
price goes down and all other factors stay the same. They will
ride through the decline if the company stays firm. They have no
sell point or discipline.
Ben Mayes asked if the investment policy of the Fire Pension Fund
had been reviewed by Delta. Conaway stated he had not but would
as soon as a decision is made by the Pension Board. Yada stated
Merrell is in the process of locating a manager that would fit into
the philosophy.
Reagan asked how much Williams was recommending investing with
Delta. Williams stated $750,000 to $1 million. This would be in
keeping with the asset mix stated in the investment policy.
Dill asked about the stability of the company. Williams stated
Conaway and his associate were with Commerce Capital before the
company was actually formed. They were in the trust department of
a bank, and the bank formed a spin-off company, Comemrce Capital,
of which they owned 80% and Conaway and his partner owned 20%.
Dill asked about the stability of the company and what would happen
to their investment if Conaway and his partner decided to move on
to another company. Williams stated they felt good about Delta and
feel it will be around for quite a while.
Reagan asked how many other companies had been considered by
Williams for the Fire Pension Fund. Williams stated his second
choice was a company called Roxburry Capital Management. This
company is a value manager, utilizes the Graham and Dodd
principles, and their long term performance numbers are only very
slightly below those of Delta.
Dill asked if the Pension Board decided on the money manager or was
the decision to be made by Williams. Williams stated that was the
discretion of the Board. Williams stated he had presented the
Board with his top recommended companies --Delta and Roxburry, but
if the Board had a problem with them, others could be looked at.
Dill stated he felt the Board did not want to interview all of the
potential managers. He felt the Board had hired Williams to help
with the decision making process of how to invest the Pension Fund.
WAYNE WATTS
Bonaduce asked that the Board be considering how to handle the
Watts retirement situation so that it could be decided upon at the
next regular Board meeting. There was discussion about whether or
not he had to legally buy back into the pension fund the time he
was in the military. Jackson stated he would get with the City
Attorney and find out the answer to this question.
DARRELL JUDY
It was stated that Darrell Judy's retirement request would be
discussed at the next meeting.
ADJOURNMENT
The meeting adjourned at 4:05 p.m.