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BOARD OF RETIREMENT
FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION
November 5, 2008
Trustees Present:
Alan Cade, Jr. Michael Cardenas Vicki Crow Nick Cornacchia Ronald S. Frye, Alt. Eulalio Gomez
James E. Hackett Steven Jolly Phil Larson
Trustees Absent:
John Souza
Others Present:
Les Jorgensen, Fresno County Retired Employees’ Association
Ron Madsen, FCERA Member
Robert Skowronski, FCERA Member
Michael Cunningham, FCERA Member
Jeffrey MacLean, Wurts & Associates
Jeffrey Rieger, Reed Smith – via tele-conference
Brian Decker, Colliers Tingey
Beau Plum Lee, Colliers Tingey
Susan Coberly, Senior Deputy Counsel
Roberto L. Peña, Retirement Administrator
Becky Van Wyk, Assistant Retirement Administrator
Elizabeth Avalos, Administrative Secretary
1. Call to Order
Chair Jolly called the meeting to order at 8:37 AM.
2. Pledge of Allegiance
Recited.
3. Public Presentations
None.
Consent Agenda/Opportunity for Public Comment
On behalf on Les Jorgensen, Fresno County Retired Employees’ Association, Chair Jolly pulled Consent Agenda Item 14 for discussion.
Chair Jolly pulled Consent Agenda Item 15 for discussion.
A motion was made by Trustee Hackett, seconded by Trustee Larson, to Approve Consent Agenda Items 4-13. VOTE: Unanimous (Absent – Crow)
*4. Approve the October 15-16, 2008 Retirement Board Retreat Meeting Minutes
RECEIVED AND FILED; APPROVED
*5. Retirements
RECEIVED AND FILED; APPROVED
Carolyn Aldama / Community Health / 10.23Wayne F. Clarke / Community Health, Deferred / 12.48
Susan Davin / Behavioral Health, Deferred / 8.78
Mowry Darron Edwards / Behavioral Health / 11.69
Olga Espinosa / VMC, Deferred / 10.91
Cynthia Gothard / Child Support Services / 14.18
Michael Goyette / Fig Garden Fire District, Deferred / 0.36
Beverly A. Harris / Superior Court / 10.48
Marcia Mcfaddin / E&TA / 20.01
Audrey L. Mozaffari / District Attorney, Deferred / 27.59
Rachel V. Quinto / Community Health / 15.03
Perry Ramos / Child Support Services / 19.70
Esther M. Renteria / Superior Court / 23.76
Charles R. Silva / Community Health, Deferred / 13.30
Samuel Smith / E&TA / 17.86
*6. Deferred Retirements
RECEIVED AND FILED; APPROVED
Bernadette F. Almaguer / Child Support Services / 8.71Karen E. Butler / County Counsel / 9.20
Caine Christensen / Children & Family Services / 10.77
Elizabeth O. Ehigiator / Community Health / 6.59
Marian R. Sanchez / Children & Family Services / 8.47
Susan B. Schotters / Sheriff / 5.57
*7. Disability Retirements
RECEIVED AND FILED; APPROVED
Nelson J. Fowlkes / Probation / 0.57*8. Most recent investment returns, performance summaries and general investment information from investment managers
RECEIVED AND FILED
*9. Public Records Requests and/or Retirement Related Correspondence from Joanne Madril, FCERA Member; Carlos Hernandez, FCERA Member; Teri Rothchild, FCERA Member; Michael Cunningham, FCERA Retiree; Ron Madsen, FCERA Member; Edmund Villaluz, FCERA Member; Vivienne Crawford, SEIU Local 521; Lori Poindexter, FCERA Member; and Deborah Anderson, FCERA Member
RECEIVED AND FILED
*10. Update of Board of Retirement directives to FCERA Administration
RECEIVED AND FILED
*11. Budget Status for the periods ending June 30, 2008 and September 30, 2008
RECEIVED AND FILED
*12. Correspondence from Sulema Peterson, SACRS Administrator, regarding the American Academy of Actuaries request that the Actuarial Standards Board develop standards for consistently measuring the economic value of pension plan assets and liabilities. Correspondence includes White Paper from the National Association of Retirement Administrators on Public Pension and Market Value of Liabilities
RECEIVED AND FILED
*13. Correspondence from Enhanced Investment Technologies LLC (INTECH) regarding the retirement of David E. Hurley, Chief Operating Officer
RECEIVED AND FILED
*14. Approve FCERA Interest Crediting and Excess Earnings Policies with recommended changes by your Board at the September 10, 2008 meeting
Les Jorgensen, Fresno County Retired Employees’ Association, noted that, although the policy was developed with the advice of the actuary and legal counsel, he does not believe that the Board has an actual opinion as to whether the policy is consistent with the Settlement Agreement. Mr. Jorgensen expressed his concern that Step 6 of the policy will reduce, if not eliminate, undistributed earnings to the Retirees.
Ron Madsen, FCERA Member, raised concerns that Section VI, Step 1.A. of the policy does not reflect the order or specific amounts that the Unfunded Actuarial Accrued Liabilities (UAAL) will be reduced in the Sections 6, 8, and 9 benefits from the Settlement Agreement.
Roberto L. Peña, Retirement Administrator, stated that the concept of the policy is to reduce the UAAL proportionally to zero for each of the Sections 6, 8, and 9. The policy is designed to allow the Board some discretion as to the details of each step and reflects that the Board must obtain, from FCERA’s actuary, an analysis of the impact on such actions on future annual costs, on FCERA’s contribution rates, UAAL and Funding Ratio, and the advice of legal counsel prior to implementing the processes noted in Section VI Step 1.
A motion was made by Trustee Cornacchia, seconded by Trustee Gomez, to Approve the FCERA Interest Crediting and Excess Earnings Policy as presented. VOTE: Unanimous (Absent – Crow)
RECEIVED AND FILED; APPROVED
*15. Approve Certification of Eulalio Gomez as Duly Nominated and Unopposed for Election as Safety Member Representative. Approve request to place certification on the Board of Supervisors’ December 2, 2008 Agenda
Chair Jolly congratulated Trustee Gomez.
Roberto L. Peña, Retirement Administrator, noted that, because the Board of Supervisors (BOS) has canceled its December 2, 2008 meeting, the certification will be placed on the BOS’s December 9, 2008 agenda.
A motion was made by Trustee Jolly, seconded by Trustee Cade, to Approve Consent Agenda Item 15 as presented. VOTE: Unanimous (Absent – Crow)
RECEIVED AND FILED; APPROVED
16. Discussion and appropriate action on potential termination of Artisan Partners - Small Cap Growth Equity mandate
Chair Jolly noted the recommendation by Wurts & Associates to terminate Artisan and transfer the assets in kind to Kalmar and inquired as to the reason for the transfer of assets as opposed to using a transitional manager.
Jeffrey MacLean, Wurts & Associates, stated that because the mandate is similar to the Kalmar strategy, it is more cost effective to trade in kind than to use a transitional manager.
Discussions ensued regarding Kalmar’s fee structure and a potential fee reduction due to the transfer of assets from Artisan Partners.
A motion was made by Chair Jolly, seconded by Trustee Hackett, to proceed with the termination of Artisan Partners and to give Wurts the flexibility to negotiate a performance based fee arrangement with Kalmar. VOTE: Unanimous (Absent – Crow)
RECEIVED AND FILED; APPROVED
17. Discussion and appropriate action on Western Asset Management Company’s (WAMCO) portfolio’s exposure to Icelandic Banks and the WAMCO account in general
Jeffrey MacLean, Wurts & Associates, opened discussions by giving a brief update on WAMCO’s exposure of approximately $2.7 million with three Icelandic banks. Mr. MacLean noted that the government of Iceland converted the banks to government control as a of the current global financial market crisis, the investments have an unrealized loss of approximately $2.6 million.
Mr. MacLean stated that, due to WAMCO’s poor performance and at the request of Roberto L. Peña, Retirement Administrator, he is currently in discussions with WAMCO to implement a retroactive performance based fee schedule which will reduce the base fee to 15 basis points. General discussions ensued.
A motion was made by Chair Jolly, seconded by Trustee Larson, to continue discussions with WAMCO to arrange a more favorable fee structure. VOTE: Unanimous (Absent – Crow)
RECEIVED AND FILED; APPROVED
Due to the closely related subject matter, Agenda Items 18 and 19 were heard concurrently.
18. Informational presentation on Hedge Fund of Funds investment environment presented by Jeffrey MacLean, Wurts & Associates
Jeffrey MacLean, Wurts & Associates (Wurts), began the presentation by noting that the media has been raising concerns about hedge funds in the difficult investing environment. Headlines have addressed significant losses by certain funds, fund closures, massive redemptions, and illiquidity, among other worries. Mr. MacLean stated that, as discussed at the Board Retreat, Wurts maintains the belief that hedge funds have a place within an overall diversified portfolio.
Mr. MacLean gave a brief overview of the results of a survey conducted by Wurts which includes financials exposure, risk and liquidity, and redemption risk profiles of the three firms (Blackstone Partners, EnTrust Diversified, and UBP ARV) that took part in a hedge fund of funds roundtable discussion during the Board Retreat.
The survey focused on the type of investors that are invested or would be invested alongside FCERA in these funds and flagged any non-US or retail assets as they may represent “hot money” that may redeem assets quickly and irrationally leaving remaining investors with an impaired fund. In addition, the survey evaluated redemption requests to date and gathered data on certain stresses on underlying hedge funds.
The survey revealed that overall Blackstone Partners looks to be well positioned as both the firm and fund have high net inflow of funds. When evaluating the two potential managers, UBP and EnTrust, UBP looks to be more at-risk than EnTrust. UBP has a net outflow of assets as well as one fund currently in liquidation. Although EnTrust is a smaller manager, the fund has less flagged assets [categories that may have higher risk of redemption] as a percentage of assets under management. EnTrust also has a higher percentage of investors with liquidity quarterly or longer which means there is a less likelihood of “hot money” leaving the fund. Significant and positive inflows year-to-date for Blackstone and EnTrust are a benefit as both managers will not be focused on finding liquidity to meet client redemptions in the final months of 2008, but instead will be able to focus on managing assets and finding opportunities for investment returns.
However, as a result of the current volatility in the markets which has been significantly influenced by the deleveraging of hedge funds and their liquidation requirements, Mr. MacLean recommended funding the hedge fund allocation to Blackstone Partners after the FCERA Hedge Fund of Fund due diligence is completed. This will provide for further education to the
Board on this issue and will give some time for the industry to settle following these troubled financial markets. General discussions ensued.
Trustee Crow joined the Board at 9:20 AM.
Robert Skowronski, FCERA Retiree, expressed his concern regarding the Board’s decision to venture into hedge funds due to the high risk factor. Mr. MacLean noted that the return profile for hedge funds has redeeming qualities when properly diversified.
RECEIVED AND FILED
19. Discussion and appropriate action on Blackstone Partners Hedge Fund of Funds investment allocation
Please see Item 18 for discussion.
A motion was made by Chair Jolly, seconded by Trustee Gomez, to Approve the recommendation to delay additional funding to Blackstone until later in the due diligence process. VOTE: Unanimous
RECEIVED AND FILED; APPROVED
20. Discussion and appropriate action Manager Recommendation for Treasury Inflation-Protected Securities (TIPS) Index Fund Option
Jeffrey MacLean, Wurts & Associates, opened the discussion by noting that Treasury Inflation Protected Securities are a safe investment in that they are issued by the US Treasury with the full faith and credit of the United States Government.
As the result of a search conducted by Wurts, three TIPS candidates were selected for the Board’s consideration, Barclays Global Investors, State Street Global Advisors (SSgA), and The Vanguard Group.
Mr. MacLean noted that the three strategies offer low-cost access to performance similar to that of the index. Of the three options, Wurts recommends utilizing the SSgA US TIPS Index Strategy. Not only is it the lowest cost option, it also as displayed the lowest tracking error versus the benchmark over the most recent five-year period. Additionally, because FCERA has an ongoing relationship with State Street’s indexing group, Wurts may be able to negotiate a bundled management fee agreement based upon the combined assets of both funds.
General discussions ensued regarding TIPS as it relates to inflation and the tracking error of the three candidates. It was noted that SSgA has the lowest tracking error of the three candidates.
At the request of Roberto L. Peña, Retirement Administrator, Mr. MacLean explained the search processes and procedures that lead to the three candidates.
A motion was made by Chair Jolly, seconded by Trustee Cade, to Approve Agenda Item 20 as recommended and begin contract negotiations with SSgA and to direct Administration to invite SSgA to present/review the current strategies and custodian relationship. VOTE: Unanimous
RECEIVED AND FILED; APPROVED
21. Discussion and appropriate action on Wurts & Associates Investment Consultant Contract
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board that on September 17, 2008 Administration was directed to negotiate a contract with Wurts & Associates (Wurts) for General Investment Consulting services.
Mr. Peña noted that during negotiations in was determined that Wurts originally proposed full reimbursement of travel and lodging fees in the Request for Proposal response while the Board requested an all inclusive fee proposal. It was noted that the current version of the agreement contains a “middle of the road” approach suggested by Wurts in that they bear the costs associated with travel and lodging for their attendance at the Regular Board meetings while FCERA will pay for their travel and lodging expenses for any travel required in addition to the Regular Board meetings, such as due diligence visits.
Jeffrey MacLean, Wurts & Associates, stated that any travel and lodging expenses in addition to the Regular Board meetings will be billed at cost to FCERA.
A motion was made by Trustee Cardenas, seconded by Trustee Crow, to Approve the Investment Consultant Contract with Wurts & Associates as presented. VOTE: Unanimous
RECEIVED AND FILED; APPROVED
Trustee Larson departed at 11:00 AM.
22. Discussion and appropriate action on whether FCERA has been calculating Non-Service Connected Disability retirement allowances according to the appropriate formulas, whether FCERA's calculation method should change and whether FCERA's policy regarding overpayment of retirement benefits should be applied with respect to payments to retirees that were based on the formulas FCERA has been using since 2001