Active Sheriff William Hilton, President

NONVERBATIM MINUTES OF THE MEETING OF THE BOARD OF TRUSTEES, SHERIFFS’ PENSION & RELIEF FUND, HELD AT THE LOUISIANA SHERIFFS’ PENSION FUND IN BATON ROUGE, LOUISIANA AT 9:30 A.M.WEDNESDAY,FEBRUARY 24, 2016.

Active Sheriff William Hilton, President

Active Sheriff Jay Russell

Active Sheriff Mike Waguespack
Retired Sheriff Hal Turner

Retired Sheriff Wayne McElveen

Retired Sheriff Ken Goss

Active Deputy Calvin McFerrin

Active Deputy Debbie McBeth

Active Deputy Sharon Cutrera
Retired Deputy Joey Alcede

Retired Deputy Don Rittenberry

Retired Deputy Ronnie Morse

Executive Director Osey McGee, Jr.

President Sheriff William Hilton called the meeting to order. Retired Sheriff Hal Turneroffered the invocation and Don Rittenberry led the pledge to the American flag. Roll was called and those in attendance represented a quorum. The Director noted that Vice President Sheriff Willy Martin and Sheriff Jeff Wiley were not in attendance due to the severe weather and tornados that hit their parishes the day before.Sheriff Hilton asked the audience members to introduce themselves. Others in attendance included Senator Barrow Peacock, Chairman of the Senate Retirement Committee; Senate Retirement Committee Attorney Margaret Corley; Sheriff Lee Harrell, Richland Parish; Sheriff Jerry Philley, West Carroll Parish;Robert Klauser, Attorney, Klausner, Kaufmann, Jensen & Levinson; Gary Curran, Actuary, Curran & Co.; Jason Windham, Shobe Financial; as well as several parish representatives. Pension Fund staff members in attendance included Assistant Director Keith Duplechain, Lacey Weimer, Chris DeWitt, and Katie Thiebaud.

Financial and Market Reports

Executive Director Osey McGee, Jr., along with Investment Analyst Chris DeWitt,and Bill Madden of Russell (through conference call), presented a review of performance and economic information from the beginning of the fiscal year, to date:

Performance Highlights

Fiscal Year 2016 – First Half

There was a huge sell-off in August which led to a negative first half.

◦There were concerns over Chinese economic growth with an unexpected de-valuing of the Yuan.

◦There was a steep decline in Chinese markets

A rebound in October led to a positive Fourth Quarter of 2015, but not enough to erase the losses from the previous quarter.

◦Fourth Quarter return equaled 3.3% Net Of Fees.

◦There was an upbeat message from Fed.

◦Chinese markets were stabilizing.

The Fund continued to see U.S. economic improvement throughout the first half of the Fiscal Year.

◦There were better than expected corporate earnings.

◦There was declining unemployment.

This led to the Fed announcing a rate hike in December.

Estimated return for:

◦First Half equaled (2.2)% Net Of Fees

◦Estimated Market Value Assets at 12/31/15 equaled $2.800 billion

Fiscal Year 2016 – January

A poor start to 2016 was led by the worst 10-day January start in market history

◦The Dow & S&P were in correction territory

Dow down 5.39% in January

S&P down 4.96%

EAFE down 7.23%

The market focused on the uncertainty in China & the declining price of oil

◦CHINA

Sell-off in Chinese markets

Devaluing of the Yuan

Economic growth concerns

◦OIL

Reached 12 year lows

The U.S. economy continued to grow

There was an excellent job report

A positive start to corporate earnings season

Housing continued to recover

Estimated return for:

January equaled (3.8)% Net Of Fees

Fiscal Year To Date equaled (5.9)% Net Of Fees

Estimated Market Value Assets at 1/31/16 equaled $2.706 billion

Fiscal Year 2016 – February

Major indexes recovered from further selling at the beginning of February.

◦Optimism on potential OPEC production cut

US economic data was mixed in February.

◦Jobs report was belowexpectations.

Higher labor force participation

Wage growth

◦There was a decline in manufacturing.

◦Earnings continued to beat expectations but, stronger dollar & declining global growth led to:

Declining earnings

Negative forward guidance

◦Retail sales were higher than expected.

Central banks still showed willingness to stimulate economy.

Estimated return as of Feb 17 :

February equaled 0.0% Net Of Fees

Fiscal Year To Date equaled (5.9)% Net Of Fees

Estimated Market Value Assets at 2/17/16 equaled $2.702 billion

Market Outlook

Fiscal Year 2015-2016

Reasons for Optimism:

U.S. economy continued to improve

Growth continued to be sluggish

Accommodative policies were provided from central banks

Fed cautious with further rate increases

Causes for Concern

Will economic data continue to support current valuations?

Fed rate hike’s effect on the market

Uncertainty in Emerging Markets

• Led by China, 2nd largest economy
• Impact on Developed Economies

Geopolitical conflicts

• Effects of declining oil prices

*Forecasts information were predictions from various sources and cannot be relied upon with any certainty

The Director then reviewed and discussed the Fund’s current asset allocations.

Investment Committee

Investment Committee Chairman Don Rittenberry reported the following to the Board:

The Committee met twice since the last Board meeting. The first meeting was conducted on November 18, 2015. The meeting began with a performance review, market conditions update, and a review of the Fund’s asset allocation.

The purpose of the meeting was to interview Global Manager candidates furnished by Russell, and select two managers to hire as approved by the Board at the last meeting. Committee members were provided with Russell’s research of each of the managers included in the search. The managers selected for interviews were as follows: fundamental managers Wellington and Alliance Bernstein, and quantitative managers AQR and Numeric. The Director and Dr. Bill Madden discussed the differences in fundamental managers and quantitative managers and the diversification they offer.

Next on the agenda, the Committee interviewed each of the managers with presenters giving an overview of their firm, investment process, portfolio construction and performance. Russell recommended hiring one fundamental manager and one quantitative manager, allocating a total of $90 million to Global equity.

Rittenberry continued to report on the next meeting the Investment Committee held on January 27, 2016. He reported to the Board that the meeting began with a conference call with Erik Ristuben, Russell’s Chief Investment Strategist. Ristuben presented a global market update and discussed the current distressed markets along with the economic outlook for the near term and longer term future. The Committee also heard a detailed performance report and asset allocation analysis.

One of the purposes of the meeting was to discuss an additional Value Add real estate manager. The Committee and the Board had previously approved hiring managers J.P. Morgan and Blackstone. The J.P. Morgan strategy had been implemented and is on a queue call to Fund the strategy. The Director and legal counsel could not reach an acceptable contractual agreement with Blackstone.

Russell conducted a new search with options to consider as a replacement for Blackstone. Two new candidates were selected and presented to review to the Committee by Russell. The managers selected for consideration by the Committee were Morgan Stanley Prime Plus Property Fund and Carlyle Property Investors.

The next item of business of the January Investment Committee meeting was a presentation by Lee Kayser of Russell on the Fund’s current Russell Commodities product. Kaysar provided explanations for commodities difficulties, but also stated that Russell still saw commodities as an important part of multi-asset portfolios and they remained committed to the asset class. Kayser was positive on the outlook of commodities for a number of reasons, including Russell’s view that the oil market would begin to find balance around midyear 2016 and provide improved performance. He recommended that the Fund stay committed to commodities and that the Committee revisit the asset class in a year.

The Committee also asked Russell to review two current managers, Systematic and Blackrock, due to current under performance. Rittenberry explained that Systematic was a long term manager with the Fund, which at times had been a top performer. Scott Grimm presented Russell’s research on the managers and explanations fortheir recent underperformance.

The final agenda item for the meeting was a discussion by Dr. Bill Madden on recommendations and priorities for the Fund for the current year. Bill stated that the Fund’s portfolio was very well diversified and recommended that the Board not consider any new asset classes in 2016, focusing instead on monitoring and reviewing the current portfolio and rebalancing regularly as market conditions permit.

That concluded the Investment Committee’s report. Ronnie Morse then presented the following recommendations to the Board:

After completion of the manager’s presentations and the Committee’s analysis of the information furnished by Russell for each manager, the Committee voted to hire:

• Wellington Management as the Fundamental manager, with an allocation of $45 million, and the recommendation included authorizing the Director, in consultation with legal counsel, to enter into contracts at the earliest date.
• The Committee also voted to hire AQR Capital Management with an allocation of $45 million, but with the stipulation that the Fund continued to monitor market conditions with a goal of implementing AQR within 60 to 90 days, depending on further developments in market conditions. The motion also included authorizing the director, in consultation with legal counsel, to enter into contracts at the appropriate time as set by the Committee.

As the funding source for these allocations, Russell recommended a pro rata reduction from all U.S. Equity Mangers, except the Mellon Capital Index Funds. The Committee voted to sell $45 million in U.S. Equity to fund Wellington by the end of the year 2015, and leave the remaining $45 million in U.S. Equity until the Fund was ready to fund the allocation to AQR.

Morse noted that Wellington’s allocation had been implemented and the Committee was continuing to monitor conditions before funding AQR.

Morse then moved on to report the recommendations of the second meeting of the Committee. They were as follows:

In consideration of a replacement for Blackstone Value Add Strategy, the Committee reviewed the information on the managers provided by Russell and conducted a conference call with Tamara Larsen of Russell’s Research Team. The Committee voted to bring in Morgan Stanley for a finalist review, which was to be conducted at the next meeting of the Committee.

After hearing Russell’s report on current manager Systematic’s more recent performance issues, the Committee decided to bring the manager in to the next meeting of the Committee for a discussion and then a decision would be made on whether or not to replace them. The Committee also asked Russell to furnish a list of candidates to consider for their replacement so the Fund could move quickly if necessary. Russell provided detailed information on 3 new candidates that will also be considered at the next meeting of the Committee, where the Committee will then select finalists. Morse asked the Board’s approval for the Committee to make a decision as to whether or not to terminate and replace Systematic at the next meeting, and to select a replacement from the candidates Russell had furnished if necessary. The motion would include the usual authority for the Director to enter into contracts in consultation with legal counsel.

Russell’s review of Blackrock, an Opportunistic Credit Manager’s underperformance, reported that, in their analysis, Blackrock had been de-risked to an extent, and in Russell’s view could lead to a solid performance in 2016. Morse stated that Blackrock was a very large manager with a solid reputation, and that the Committee would continue to monitor their performance and in 6 months make a decision on the Fund’s future with this manager.

That concluded the Investment Committee’s recommendations to the Board. Don Rittenberry made a motion to adopt the Committee’s recommendations. Sheriff Mike Waguespack seconded, and the motion carried.[1]

Executive Committee

Next on the agenda, Executive Committee Chairman Ronnie Morse gave the Executive Committee’s report to the Board. He stated that the Committee met with Bill Stamm, partner of Duplantier, Hrappmann, Hogan & Maher on January 20th, 2016 to review the results of the Fund’s annual audit for the period ending June 30th, 2015. The audit was completed timely, and reflected the auditor’s opinion that the audit was a clean, unqualified audit report, which is the best opinion available. There were no findings, deficiencies or instances of non-compliance to report in the audit. The auditors were complementary of the growth in assets and progress of the Fund over the years. They were also complementary of the cooperation and courtesy they received from the Pension Staff. The auditors gave no recommendations for improvement, and the Committee was of the opinion that the Fund could not have achieved a better audit report.

After hearing Morse’s report on the Fund’s annual audit, Sheriff Mike Waguespack made a motion to accept the audit report. Retired Sheriff Hal Turner seconded, and the motion passed unanimously.[2]

Morse continued with the Executive Committee’s report to the Board. He stated that on the same day, the Committee also met with the Fund’s actuary, G.S. Curran and Co. In the Committee’s opinion, the report reflected substantial progress in recent years and the valuation reflected a decrease in the required employer contribution rate again this year. Though the report reflected a positive year, the Fund did not meet requirements to grant a cost of living increase.

Morse stated that as of the last Fiscal Year, the Fund collected an employer contribution rate of 2% above the required rate. If the required rate set for the current year proved to meet the Plan’s funding requirements, it would allow the Board to replenish the reserves in the Funding Deposit Account (FDA). Morse explained that when funds are sufficient in the FDA, it allows the Board to pre-fund a cost of living increase for retired members. The reserves in the FDA may also be used to reduce the employer contribution rate in less favorable times when required contribution rates are increasing, as the Fund has done in the past. Morse informed the Board members that they would see a more detailed presentation on the subject later in the meeting.

The Director gave a detailed presentation on the highlights of the Fund’s actuarial valuation report for the Fiscal Year 2015 with Gary Curran, the Pension Fund’s actuary.

Curran recommended to the Board revisions in the Fund’s option factors based on the actuary’s most recent experience study, which is performed every 5 years. Curran explained that the interest rates would stay the same, but mortality tables changed. The Director added that the Pension Staff recommended that the Board approve the changes.

Retired Sheriff Hal Turner made a motion to accept the actuary’s proposed changes in option factors. Don Rittenberry seconded the motion, and it passed unanimously.[3]

Employer Contribution Rate

The Director led a discussion on the employer contribution rate. The Fund’s 2015 valuation report established a required rate of 9.5%, a reduction from last year’s required rate of 11.75%. McGee said that the Fund collects an employer contribution rate at 13.75% currently, above the required rate, to gather reserves in the Funding Deposit Account, to assist the Fund in less favorable and volatile market conditions, as McGee and Ronnie Morse explained earlier in the meeting.

The Director recommended reducing the employer contribution rate by .5%, to 13.25% to help sheriffs’ budgets, while still allowing the Fund to continue to replenish the Funding Deposit Account.

Sheriff Mike Waguespack moved to reduce the employer contribution rate to 13.25%. Sheriff Jay Russell seconded and the motion passed.[4]

Valuation Interest Rate

The Board previously agreed to begin reducing the Valuation Interest Rate from 8% each year until the Fund reached 7.5%. The Director explained that the Fund was at a Valuation Interest Rate of 7.6%, and asked the Board to consider continuing to reduce the Valuation Interest Rate by 5 to 10 basis points a year, until the Fund is at 7.25%. He further explained the benefit of a lower Valuation Interest Rate is having less actuarial loss in difficult years and greater actuarial gains in good years. Actuary Gary Curran added that he felt this measure would be prudent, and would take pressure off of the Fund to take risks in investments.

Don Rittenberry made a motion to continue reducing the valuation interest rate 5 to 10 basis points every year until the Fund reaches 7.25%, and at that time the Board will reevaluate. Calvin McFerrin seconded, and the motion carried.[5]

Legislative/BenefitsCommittee

Legislative Committee Chairman Hal Turner gave the Committee’s report to the Board. He reported that the Committee met in November to consider legislation needs for the Fund. As discussed at the last Board meeting, the Committee’s recommendation was that the Fund would sponsor only legislation that was absolutely necessary, and without a measurable cost.