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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.