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FIRE & POLICE PENSION BOARD PAGE
FEBRUARY 25, 2013
MINUTES OF THE REGULAR MEETING OF THE CHARTERTOWNSHIP OF SHELBY FIRE & POLICE PENSION AND RETIREMENT BOARD HELD ON MONDAY, FEBRUARY 25, 2013 AT FIRE STATION #1, 6345 23 MILE ROAD, SHELBY TOWNSHIP, MICHIGAN.
The meeting was called to order at 5:00 p.m. by Chairman Matt Stachowicz.
Members Present:David Diegel, Michael Flynn, Jerome Moffitt,
Mark Semaan, Matt Stachowicz
Also Present:Brian Brice, Merrill Lynch, The Brice Group
Rebecca Wolfe, Merrill Lynch, The Brice Group
Guest:Lieutenant/Inspector Vandel Rooker
ShelbyTownship Fire Department
APPROVAL OF MINUTES
MOTION by Semaan, supported by Diegel, to approve the minutes of the Regular Meeting of the Charter Township of Shelby Fire and Police Pension and Retirement Board held on Monday, January 21, 2013, as presented, and waive the reading.
Motion carried.
NEW BUSINESS
Lt./Inspector Vandel Rooker of the Shelby Township Fire Department was in attendance. He requested that his pension compensation be re-calculated if the circumstances relating to his workmen’s compensation case are settled in his favor. He asked if the Pension Board is aware of the course of action that would have to be taken.
Discussion followed.
Mr. Semaan advised Mr. Rooker that he will relay this matter to the Pension Board Attorney and ask that something be provided to the Pension Board in writing to be forwarded to Mr. Rooker.
Mr. Moffitt stated the calculation is the responsibility of the Township and not the Pension Board. Mr. Semaan said that is correct; however, we have to make sure that we don’t pay out more than we should. Mr. Moffitt replied that we pay out the amount specified by the Township.
Mr. Semaan asked Mr. Rooker to have his attorney talk to Mr. Craig Lange, the Township’s Labor Attorney, for guidance.
Mr. Stachowicz advised Mr. Rooker to submit his request to Lisa Suida, HR Director, who will forward it to Mr. Lange.
TREASURER’S REPORT
Mrs. Wolfe reviewed the Treasurer’s Report for the month ending January 31, 2013. The beginning market value was $58,852,025. Positive contributions during the month totaled $1,323,125. Interest and dividends were credited in the amount of $90,535. Market appreciation is reflected at $1,541,606. The ending market value for the month of January totaled $61,807,292.
On January 16, 2013 there was a benefit paid. A majority of the January benefit was paid on the last day of December, 2012.
Mrs. Wolfe reviewed the submittal which reflected the market value as of February 22, 2013. Equities are reflected at $39,413,974 which is 63.4% of the portfolio with a target of 65%. Fixed income and cash were at $22,752,084 representing 36.6% with a target of 35%. This gives us a closing market value as of February 22 of $62,166,058.
The portfolio reflects $2,869,350 in cash. The Board feels this is more than required. Mr. Semaan stated that we usually target about $800,000 to make the pension payments for two months. We actually have about $2 million more in cash than is necessary for payments. Mr. Semaan suggested that we rebalance cash at this time since more cash will be coming in with taxes due at the end of February.
MOTION by Semaan, supported by Moffitt, to reinvest the additional $2 million held in cash in the Comerica Account and spread it between the money managers.
Motion carried.
Mr. Semaan said that Alidade is a separate issue. The cash will be spread proportionally between the remaining managers.
Mr. Brice asked for a point of clarification. Should funds be allocated according to the IPS target at the top of the report.
Mr. Semaan clarified his motion. The Pension Board would like to divide the $2 million among the money managers according to the IPS target. Mr. Brice asked how Alidade’s portion should be allocated. Mr. Semaan said this allocation should exclude Alidade.
Mr. Semaan amended his previous motion to provide clarification.
MOTION by Semaan, supported by Flynn, to allocate the $2 million held in cash in the Comerica account to the investment managers according to the IPS target and exclude Alidade Capital from this allocation with their portion of 2 ½% remaining in cash.
Motion carried.
Mr. Brice briefly reviewed the US Performance Monitor as of February 4, 2013. In 2013 on a calendar year basis the markets have gotten off to a pretty good start. In keeping with the January effect, the quality performance spectrum followed suit with low quality stocks handily outperforming high quality stocks. The lowest 50 priced stocks in the S&P 500 were actually up 10%.
Stocks outperformed bonds by the widest margin in 15 months. Energy and Health Care led, while Tech and Telecom lagged. The nifty-fifty underperformed the not-so-nifty 450. The bond market was up a little in price.
Mr. Brice reviewed pertinent sections of the Investment Performance Analysis Report for the quarter ending December 31, 2012.
He referred to the Global Markets Overview briefly highlighting the market index returns for the fourth quarter of 2012 and the year-to-date totals for 2012 for Equity, Fixed Income and Global Equities.
Under Equity Focus, Mr. Brice explained the performance by S&P 500 Sector. For the quarter, Financials were up 5.9%, Industrials 3.7%, Materials 2.7%, and Consumer Discretionary 2.1%. Some of the safer havens along the growth area like technology had pretty big declines. Telecommunications were down -6.0% and Information Technology was down -5.7%. Utilities, Energy and Health Care ended the quarter with a negative or slightly break-even figure. For the year 2012, Financials led all sectors at 28.8%, followed by Consumer Discretionary at 23.9%. Energy, Utilities, and Consumer Staples did not bear quite as well. This definitely affected managers’ portfolios.
Mr. Brice reviewed the section entitled ”International Focus”. He broke down the major components of the developed countries’ benchmark, which include Japan, UK, Germany and France. France and Germany faired much better for the quarter and certainly much better for the year. Once that cloud lifted in terms of some of the headline risk in Europe, the stronger countries definitely started to rebound faster.
Mr. Brice briefly highlighted the Investment Performance Executive Summary as of December 31, 2012. He provided a breakdown by Total Retirement System, Domestic Taxable Fixed Income, Equity – Total Retirement System, Domestic Large Cap Core Equity, Domestic Large Cap Value Equity, Domestic Large Cap Growth Equity, Domestic Small/Mid Cap Core Equity, International Equity, and Real Estate Investment Trusts (REITS), which included ranking, benchmarks, and net of fees.
Mr. Brice spoke on the presentation made by Eaton Vance at a previous meeting. The main culprit for the stock selection which was costing under performance during this particular time period was the positions they held in technology. They owned Apple. The question that arose at that time was why Apple would be in a value manager’s portfolio. It is not in the Russell 1000 value benchmark. As Mr. Brice recalls, their response was on a valuation basis, they felt that it was a value play and therefore it is in their portfolio. They owned 3% at the beginning of the quarter. The market took it down a bit, and it was down 19.8% as a stock in the quarter alone. They have actually exited the position.
Mrs. Wolfe stated they sold part of the position on January 23 at 5.12 and the remaining portion on January 30 at 4.57. Mr. Diegel asked if they experienced a net gain or loss. Mr. Brice said financially speaking, he believes it was a net gain. He will send an e-mail tomorrow providing the dollar amount. Over the course of 2012, Apple stock was up in the neighborhood of 32.71%. Holding it throughout the course of the year added to performance. If they had sold out before the end of the fourth quarter, it would have been better. Mr. Brice said it still raises the question, Apple doesn’t seem to most people to find a home in a value manager’s portfolio. It is out of benchmark.
Questions of the Board were addressed by Mr. Brice and Mrs. Wolfe.
Mr. Brice referred to the packet submitted to the Board. An update for the month of January was prepared for Eaton Vance which reflects 5.7 with a benchmark of 6.5.
Mr. Brice spoke briefly on the performance of Marsico Capital.
He pointed out that $1.6 million was invested in Alidade at the end of the last quarter of 2012 and is reflected in the portfolio.
By formal direction, Eaton Vance has been placed on watch. Mr. Diegel asked if there was a process. Mr. Brice explained the time period. According to standards set forth, originally it was a reasonable period of time not to exceed one to two quarters which was given to Eaton Vance. The difficulty concerning both of these managers is they have provided some improvement for a quarter or two and then it was taken away. It has been inconsistent.
No formal action has been taken on Marsico as of this date.
Mr. Brice said he can prepare and have the Board look at other alternatives for Large Cap Value and Large Cap Growth.
Mr. Moffitt stated that Marsico should be sent a watch letter.
MOTION by Semaan, supported by Diegel, to send Marsico a Watch Letter and have Mr. Brice bring in some comparables for Marsico and Eaton Vance to be reviewed at the next meeting.
Motion carried.
Mr. Brice addressed conversation regarding fixed income allocation as noted in the previous minutes. There was a request to review the allocation strategy. He provided a page from the Investment Policy Statement that provides information in terms of the target. By policy, fixed income is targeted at 35%. The minimums and maximums within the policy would be 30% to 40%. The fixed income allocation at this point according to the February 22 handout is 32%. This falls within the minimum/maximum amounts. Based upon an earlier motion, we will be giving additional funding to them.
Mr. Brice provided his input regarding the allocation of fixed income and where we may find better opportunity. He can provide the Pension Board with potential mixes to consider. Mr. Flynn questioned if that number should be lower than 30%. Fixed income may not be where the return is going but if we go elsewhere we may be increasing our risk.
Discussion followed among the members.
MOTION by Flynn, supported by Semaan, to request that Merrill Lynch perform an asset allocation study for the Pension Board.
Motion carried.
Mr. Brice enumerated the asset classifications to be included in this study: Large Cap Growth and Value, Small Cap Growth and Value, International, Emerging Markets Equity, Taxable Fixed Income – short, intermediate and long-term, High Yield Bonds, International Fixed and Cash, Hedge Funds, Private Equity and Real Assets.
The members asked that Hedge Funds, Private Equity and Real Assets be excluded from the list.
Mr. Brice advised that the asset classes could be included or excluded at a later time. Mr. Semaan asked that Hedge Funds be included in the list.
Mr. Brice said the question that will be asked is what assumptions are you using for every asset class for both return and volatility. All of the mixes will be put together. With the range of different mixes, how will it affect the risk performance. What is the expected return and what is the risk and how can they be compared.
This is all mixed into the best outcomes in the financial markets, the average and the worse. They will be rated by expected return and risk profile and they will be interfaced with the percentage we should have.
Mr. Brice said everyone is faced with the same challenges. The Pension Board is not alone.
MOTION by Semaan, supported by Flynn, to accept the Financial Reports, as presented.
Motion carried.
OLD BUSINESS
Review Pension Board’s Investment Policy and Procedures Manual
Mr. Semaan stated that this item may have to be postponed until next month. Act No. 347,Public Acts of 2012 (Enrolled Senate Bill 797) was approved by the Governor on December 5, 2012 and filed with the Secretary of State on December 5, 2012. This is an act to authorize the investment of assets of public employee retirement systems. The effective date is the 91st day after final adjournment of the 2012 Regular Session, which is April 1. There are some items in this law which we will be mandated to do. He is going to have Mr. Thumm review the bill together with our policy and have him provide us with a list of the items that we have to change.
MOTION by Semaan, supported by Diegel, to send a copy of Senate Bill No. 797 to Mr. Thumm for review and have him let us know what we have to do to put this into effect.
Motion carried.
Mr. Brice advised that there are many procedural aspects that have to be considered to comply with Act 347 (Enrolled Senate Bill No. 797).
Signature Page for Comerica Bank - Everyday Business
Signature Card for Comerica Bank – Checking Account
Mr. Semaan had the signature page and signature card from Comerica Bank signed by members of the Pension Board to be forwarded to the Bank along with a copy of the members’ driver licenses.
APPROVAL OF BILLS
$728.00-Comerica Bank – Institutional Trust
Quarterly Fee – October 1, 2012 through December 31, 2012
MOTION by Moffitt, supported by Stachowicz, to pay the bill.
Motion carried.
It was agreed that the next meeting of the Fire & Police Pension Board will be held on Monday, March 18, 2013. This meeting will be followed by a Special Meeting, at which time the RFP’s for Investment Manager will be discussed.
MOTION by Flynn, supported by Diegel, to adjourn.
Motion carried.
The meeting adjourned at 6:30 p.m.
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Mark Semaan, Secretary
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