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HomeMy WebLinkAbout2014-01-23 MinutesFiremen's Pension and Relief Fund Board of Trustees Meeting Minutcs January 23, 2014 Page 1 of 8 Lioneld Jordan Chairman Pete Reagan Position 2 Retired Sondra E. Smith Secretary Dennis Mullens Position 3 Retired Roy Cate Position 1 Retired TayeVie Ron Wood Position 4 Retired S Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 23, 2014 A meeting of the Fayetteville Firemen's Pension and Relief Fund Board of Trustees was held at 3:00 PM on January 23, 2014 in Room 326 of the City Administration Building. Pete Reagan called the meeting to order. Present: Roy Cate, Pete Reagan, Dennis Mullens, Sondra Smith, City Clerk, Kit Williams, City Attorney, Trish Leach, Accounting Office, Paul Becker, Finance Officer, Dee McCoy, City Clerk's Office, Blake Pennington, Assistant City Attorney, Glenn Atkins and Kerry Bradley of Garrison Financial. Absent: Mayor Jordan and Ron Wood Garrison Financial: Yearly and 4th quarter reports: A copy was given to the board. Kerry Bradley, Garrison Financial: Happy New Year. It was a good one indeed for the markets in 2013. We included a year-end report for everyone there. We are close to policy we are a little underweight fixed income and a little overweight equities. That has a lot to do with the good fortunes in the equity market this past year. For now we are very comfortable. We are just a little overweight. The market has been kind of flat since the end of the year but we are very comfortable being a little overweight in equity right now given the interest rate moves that Glenn can go over here in a few minutes. We are up to about $295,000 in cash as of the end of the year. We have drawn that down to $55,000 a few weeks ago for the January payment and another $84,000 will come out in February. We've got hopefully three or four months of cash available for withdrawals. Equity market was very strong, the stocks in the portfolio did very well. The stocks were up about 25% that lagged the S&P 500, which is what we benchmark against mainly due to the fact that the stocks in the portfolio are very large cap in nature, very solid blue chip companies, and those underperform some of the smaller cap names this year. International markets were a little bit weaker and we do have some international exposure. We think that's a good idea for diversification sake even though it pulled the portfolio down from the Standard & Poor's 500 Index. Paul Becker: So your equities were up 25-45% compared to the S&P? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 23, 2014 Page 2 of 8 Kerry Bradley: Yes 25-45%. The S&P was 32-39%. Some of the smaller companies and a lot of the non -dividend very growth -orientated the best performers this year. So, our portfolio is a little more bent towards income, blue chip, large value stocks. We are very happy with 25% and wish we could get it every year. Don't necessarily expect it in 2014. The market has basically been going straight up for about 18 months now. Today, we are having a little bit of a pull back. I certainly wouldn't be surprised to see a little bit of some profit taking or a pullback in the market. Valuations are still very reasonable. Given where interest rates are and where they are heading, given the Feds intention to let off the gas a little bit with some of their stimulus, interest rates should be creeping up hopefully over the remainder of the year and the next few years. I think being a little overweight equity and a little underweight fixed income to policy, I'm very comfortable with that; if you guys are okay with it. We are still within the variance of the policy. I'm very comfortable with how it preformed. If we can get 6 to 8% out of equities this year, I will be very happy. I think we've got to see some earnings come though. We had some valuation expansion this year because the market was so strong. Earnings were good but they weren't quite as strong as the up 32%. Again, you're going to get valuation expansion in those kind of years. The economy is still slow and repairing itself from the 2008 to 2009 disaster. We've got some slow growth for another couple of years. I'm very comfortable with the valuations of what we own in the portfolio. Paul Becker: You're still holding 65% in equities? Kerry Bradley: 65% in equities. Our variance is 10%, our policy is 60% so we can go up to 70%. If it gets much higher than where it is at now then we will be paring that back. Paul Becker: So you don't need approval until you're over 10%. Kerry Bradley: Yes. As far as we're concerned I think we're good. Paul Becker: I should remember. Pete Reagan: We used to have a 5%. Kerry Bradley: Really, if we got much past the 60% level we'd be pulling it back anyway just because we don't like to be so far out of policy, given where the markets are. Paul Becker: Going forward these were equities that are being held before they were restricted. Kerry Bradley: Most of them were, yes. We're restricted to the mutual funds now, so we do have some international exposure and some small cap exposure. Those small cap mutual funds we did have were up 32 to 38%. They performed very well. Glenn Atkins, Garrison Financial: As Kerry eluded to earlier, 2013 was not kind to the bond market. The yield on the ten year Treasury bond basically for the last year thru today. As you can see we hit a low in May and it was basically straight up for the rest of the year. We touched on this when we were here in October. Since that time, it has gone from about 2.5% on the ten year, peaked at 3% and has since come down to about 2.8% yield on the ten year. As far as fixed income Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 23, 2014 Page 3 of 8 in your portfolio, it under preformed the market considerably. That's not inconsistent with what we had seen across our entire portfolio range, not just for the City. The reason being, government agency securities and treasuries last year really under performed. In terms of how we are structured trying to generate as much income as we can in the two bonds that we hold and also in the funds that we hold, I would be hard pressed to pick a better fund compared to the ones that we have. Our bias going forward is for rates to go up over the next two to five years. We are well positioned for that in the funds that we have. Being slightly overweight in equity, given that outlook, is probably not a bad thing. Kerry Bradley: It gets very hard to manage a bond portfolio and the interest rate fluctuations in the confines of mutual funds. It's a little more difficult when you're restricted to mutual funds versus us buying a six month short paper to help insulate us from those rising rates. Glenn Atkins: The flip side of that is it's important in this portfolio to maximize the income. You're going to have a little bit more volatility than you would if we were in individual securities. The funds that we purchased since we took over the management of the portfolio, we tried to pick funds that manage their funds like we manage our own bonds; a lot of exposure to intermediate term corporate bonds, for example. With an upward bias in rates, I think we are positioned as well as we can be. Being slightly overweight in equities is probably not a bad thing. You really did have a good year last year. Paul Becker: Do you know what you're average maturity of your bonds are? Kerry Bradley: In this portfolio, correct? Paul Becker: Yes. Glenn Atkins: It's probably going to be in the range of, on average, six years. Paul Becker: So you're about six year, so you're fairly short? Glenn Atkins: We're fairly short, but we're long to the index. The index is, I believe, around a 3.8 year maturity. That obviously hurt the performance too. The yield curve is so steep, in other words, rates in five years, if you go out just a little bit longer you get a whole bunch more income. It's a tradeoff between being too long and too short. We think we've got a good balance of that right now. Again, it wasn't a kind year for the bond market. Kerry Bradley: On the mutual funds, those managers can change that fairly quickly. You guys might be familiar with the total return fund. Bill Gross, he's the godfather of the bond market, he does a very good job and he did not have a good year. That total return fund did not perform all that well but he has a very good long term track record. I think he's still a really smart guy even though he didn't have a really good year. Glenn Atkins: We own most all these funds for our other accounts too. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 23, 2014 Page 4 of 8 On the second page, I took the market value, right off the live market value this morning of $4.4 million and then in the middle of the page you'll see the withdrawals for calendar 2013 have been right around $601,000 Kerry Bradley: I think that's a little less than last year. I don't know if there's any pattern of what to expect this year. I think it was higher last year. Glenn Atkins: I think last quarter we used $673,000.00 for the trailing twelve months. A few quarters ago, we decided to use the trailing twelve months. We are modeling to an 8% expected long term return on stocks and 3% on bonds. On the next page is a table of numbers very similar to what we went through in October. Given the market value increase and slightly less withdrawals over the calendar 2013, the portfolio could perhaps last a year or three longer than we modeled it in October. Certainly if the market keeps going up 25% a year, things will be better but it's not likely to do that. This is a little bit better than it was in October. The expected life of the portfolio is relatively short. We would love to take questions or hear comments or feedback, ideas positive or negative, in between. Anything that's on your mind we would be happy to try to address. Pete Reagan: What do you think interest rates are going to be towards the end of the year? Glenn Atkins: If I knew that for sure I would position the portfolio exactly right. The economy seems to be doing better. The Fed has announced that they are going to take $10 billion off the taper per month. I honestly don't know. I would not be surprised if the ten year were maybe 3.3% to 3.5%, but, it also might be 2.50%. What we've seen over the last probably five years or more is incredible volatility like you see in this. You get just get whipsawed month to month, day to day, and quarter to quarter. This kind of pattern, this kind of volatility is not unique to 2013. It's been all over the map. The consensus was, back in the spring before rates went up, that perhaps that the Federal Reserve was influencing the market to the tune of about one full percent, or 100 basis points. We obviously had that move from a 1.60 to a 3. That's almost a doubling of rates in seven months. I think I mentioned when we were here last time that that move that happened in June was the fastest rising rates since 1963 or 1964 in that compressed of a time frame. I think certainly beyond one year our bias is clearly for rates to be up. The trick to that is when we talked earlier about the maturity thing, you could pull it all back in two or three year investments but you don't earn any income. If the whole curve moves, especially if it moves more on a short end, then you lose out if you were not longer. We are trying to balance that and balance as much income as we can in funds that manage money very similar to the way we do in individual bonds, but not be so out on the end of the diving board that we just get totally shellacked if rates do move dramatically. Kerry Bradley: Best case scenario, the economy continues to pick up and the Fed continues to taper. Best case scenario, I think we can see a 5% ten year in four or five years. Glenn Atkins: That would be a good thing. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 23, 2014 Page 5 of 8 Kerry Bradley: That's a good thing. I think typically when the Fed starts moving rates you always kind of hold your breath and hope it doesn't throw us into a recession. Certainly they have indicated they are not going to move interest rates. Now the market is going to move interest rates as they stop their bond purchase program, they have not indicated they are going to move that Fed fund rate off the 25 basis points or anything like that anytime soon. Glenn Atkins: The market will probably lead them in that in a wag the dog kind of thing. To elaborate on why we think that would be positive, it would indicate that the economy is doing better because there is a greater demand for money and rates rise. Money market funds would be paying something other than zero. The bond funds and bonds as they mature in the portfolio would then turn around and be reinvested in a higher rate of return. A more positive economy would translate into a better stock market performance. I don't think they are going to get 25% a year but those things combined, if rates do that, it hurts a little bit in the bond portfolio but I think we are well positioned for it. Then, it's got a whole lot of good things behind it that if it did happen should also be happening to the good side. Pete Reagan: Do we have any propane stocks? I think propane doubled yesterday. Glenn Atkins: I heard on the news where people were stealing wood from each other. Pete Reagan: They're actually is a propane shortage. Any other questions? Thank you very much. Glenn Atkins: Thank you for having us. We appreciate your business and your confidence in us, and don't wait a whole quarter if you need us. Pete Reagan: I hope you come back with a good report again next time. Approval of the Minutes: Approval of the October 31, 2013 meeting minutes Roy Cate moved to approve the October 31, 2013 meeting minutes. Dennis Mullens seconded the motion. Upon roll call the motion passed 4-0. Ron Wood and Mayor Jordan were absent. Pension List Changes: None Approval of the Pension List: Roy Cate moved to approve the February, March and April 2014 pension lists. Dennis Mullens seconded the motion. Upon roll call the motion passed 4-0. Ron Wood and Mayor Jordan were absent. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 23, 2014 Page 6 of 8 Unfished Business: Actuary report breakdown of 2012 contribution from the city. Sondra Smith: The actuary report that we get you all had a question because it said contributions from the City of Fayetteville on it. There's no contributions from the City of Fayetteville, so Trish found out what that number is made up of. Kit Williams: Is that the millage? Sondra Smith: So that form that you see in your packet says property taxes was $465,198.12, delinquent property taxes was $46,763.10, and state insurance turn back was $229,129.75 which made up that $741,000 contribution for the City of Fayetteville which is actually revenue and funds coming into the fund. Trish Leach: That's just how Arkansas ire and Police Pension Review Board (PRB) classifies it. That's why the actuary called it that, but it's definitely these numbers. Pete Reagan: I'm sure that's the reason they call it that, it's set up for that in their system and this is a closed system so nobody else is in it. We wondered what made up the $741,000. Thank you for finding that for us Trish. I didn't realize we got that much money from delinquent taxes. Sondra Smith: That's quite a bit of money isn't it? Kit Williams: That's 10%. Sondra Smith: Is that the 10% or is it the actual delinquent taxes that come in after the due date? Kit Williams: That's what it is, it's 10% of the taxes that are coming in late. New Business: Revenue & expense report: 4th Quarter — December 31, 2013 report Sondra Smith: That's the report that accounting does. Trish makes sure that we get that. I think Toni Lilley actually does it in accounting. It shows you your market value and your book value over the past few years. It shows you what your fund was from 2005 and what your fund is currently, as of 12/31/2013. Kit Williams: The good news between 2012 and 2013 is the market value almost stayed the same. That's the truer value, book value is what you paid for it and market value is what it's supposedly worth right now if you sold it. Pension Review Board Letter -Estimated 2014 Premium Tax Allocation Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 23, 2014 Page 7 of 8 Sondra Smith: That is what they are estimating what they think the fund will receive in turn back funds. Because the fund is poor shape we are getting that estimated additional allocation, which they are estimating that for 2014 to be $60,063. Pete Reagan: That's an estimate only and that won't be payable to August? Sondra Smith: July or August. Trish Leach: Just depends on when they get it together. Sondra Smith: We get it to you as soon as Trish gets it. Trish does all the work on that. 2013 Local Pension Fund Report to the Council Sondra Smith: By State Statue, the Mayor at the first meeting in January of every year has to give a report in open session to the Council on the old pension plans and how they are doing. This is the report that was presented at the City Council meeting on the fire and police pension funds. I always try to give you a copy of it so you'll know what's been said and what took place at the Council meeting. Pete Reagan: It's on YouTube too. I watched it live. Sondra Smith: It's also on the city website. If you're interested in watching that meeting, it's at the very first of the meeting. If you're interested in any comments that might have been made you can go to accessfayetteville.org and go to City Meetings/Online Videos and click on that meeting date. Kit Williams: That's the first meeting of the year. Sondra Smith: First meeting in January of every year. Roy Cate: That's the only time? Sondra Smith: That's the only time he has to give that report. Pete Reagan: He has to give the State of the City Address once a year. Kit Williams: He does that in the next meeting. Sondra Smith: State of the City is done the second meeting of January. Paul Becker: Statue requires this is done first meeting. Sondra Smith: I think they changed the state law on the State of the City and I think it has to be done within the first 90 days. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 23, 2014 Page 8 of 8 Pete Reagan: In case they don't have a budget? Sondra Smith: Yes. Informational: 2014 meeting schedule: A copy of the schedule was provided to the board. Roy Cate moved to adjourn the meeting. Seconded by Dennis Mullens. Meeting Adjourned. Adjourn Time: 3:25 pm