INVESTMENT SUBCOMMITTEE OF THE

DENA FINANCE COMMITTEE

MINUTES

Christian Brothers Conference

Hecker Center Suite 300

3025 Fourth Street, NE

Washington, DC 20017

With Skype Conference

February 23, 2015

Members Present:Brothers Gerard Frendreis, John Patzwall, Louis DeThomasis and Timothy Froehlich and Mr. William Phillips(chair).

Others Present:Mr. Paul Ainslie, Christian Brothers Investment Services

Mr. Ed Boyer, Asset Strategy Consultants, Investment Advisors to the Retirement and Continuing Care Trust and the DENA Endowment Trust

Agenda:

  1. Opening Prayer/Remarks (William Phillips)
  2. Approval of the Minutes of November 17, 2014
  3. St John Baptist de La Salle Fund – Paul Ainslie, CBIS
  4. Christian Brothers Retirement and Continuing Care Trust
  5. Review of the Investment Report for December 31, 2014
  6. Review of the Asset Rebalancing of the Trust
  7. Cash Needs of the Trust
  8. FSC DENA Endowment Trust
  9. Review of the Investment Report for December 31, 2014
  10. Review of the Asset Rebalancing of the Trust
  11. Cash Needs of the Trust
  12. Next Meetings - all at 9:00 a.m. Eastern time
  13. May 18, 2015, an in-person meeting at Christian Brothers Conference with Skype capability
  14. August 17, 2015, an in-person meeting at Christian Brothers Conference with Skype capability
  15. Date for November, 2015
  16. Date for February, 2016
  1. Mr. Phillips opened the meeting with a prayer.
  1. Brother Timothy moved to approve the minutes of the meeting of November 17, 2014. This motion was seconded by Brother John,and the motion was passed unanimously.

St. John Baptist de La Salle Fund

  1. Mr. Paul Ainslie of Christian Brothers Investment Services distributed a report on the performance of the fund for the calendar year 2014. He reviewed the guidelines and investment objectives of the fund. The fund is a legacy LI-NE District fund and is now used to support the District’s ongoing work and needs. The general investment objectives of the fund are for preservation of capital and production of income. Distributions from the fund are governed by a spending policy which makes available funds equivalent to 5 percent of the rolling three-year average of income and capital gains as of each August 31. The investment of the fund is to be well diversified and the performance of the assets is to be judged over a full market cycle, which can be 3 to 5 years. All of the investments are managed by Christian Brothers Investment Services, and as such, are invested using Catholic Responsible Investing. The target allocation of the fund is 60 percent equities and 40 percent fixed income. Mr. Ainslie reviewed the assets and their performance. As of December 31, 2014, the asset value of the fund was $12,426,590.75. For 2014, the fund returned 6.19 percent compared to a benchmark of 10.62 percent. The underperformance can be attributed to information technology and energy stocks for 2014. None of the fund managers are on a watch list. A discussion ensued among the subcommittee members on the asset allocation targets. The subcommittee members had a consensus that the fixed income percentage was too high. Brother Gerard thought that, in light of the spending policy that focuses on total return, the asset allocation should reflect a higher allocation to equities. After further discussion, Brother Gerard moved to recommend to the St. John Baptist de La Salle board that the asset allocation be changed to 70 percent equity and 30 percent fixed income. This was seconded by Brother Timothy and approved unanimously. The subcommittee thanked Mr. Ainslie for his report.

Christian Brothers Retirement and Continuing Care Trust

4a. Mr. Boyer of Assets Strategy Consultants reviewed with the subcommittee the marketresults for the fourth quarter of 2014. The total market value of the Retirement and Continuing Care Trust as of December 31, 2014 was $94,634,229. For the fourth quarter, the fund earned 2.64 percent compared with a target performance of 2.65 percent. For the year, the fund returned 6.72 percent compared with a benchmark of 7.8 percent. For three years, fund has returned 14.46 percent compared with a benchmark of 14.12 percent. The three-year return places the trust in the first percentile of all its peers. Mr. Boyer then reviewed the performance of all of the funds. All the sectors had done well compared to their peers with the exception of the international funds. As a sector, international equities did not do well for the quarter or year. The Thornburg International Growth Fund is on a watch list for performance reasons. A number of the funds did quite well for 2014, particularly the Gabelli and Apex funds which are in the small to mid-cap sector. Mr. Boyer then reviewed the illiquid alternative investments of the trust. With the exception of the HLM Fund, these funds are doing well, particularly the private equity funds. The real estate funds were also doing well, with the ValStone IV Fund expected it to be paid out entirely during 2015. Mr. Boyer said that the private equity sector could afford an increase of up to $400,000 in committed funds due to the distributions that have been paid out. After some discussion, Brother Timothy moved to increase the commitment to the Ironsides III Fund by $400,000. This motion was seconded by Brother Gerard and was passed unanimously. The subcommittee also discussed the SRI Overseas Partners Fund, a hedge fund that has had disappointing results. Asset Strategy Consultants will review the liquidity of this fund and will make a recommendation to the subcommittee on a potential liquidation and provide an alternative to this investment.

4b.The trust did not need any asset rebalancing as of the end of December.

4c. Brother Timothy reviewed the cash needs of the continuing care trust for the coming quarter. The anticipated cash needs for the next three months, April through June, 2015, are $1,500,000. In addition, an emergency grant of $300,000, approved by the trustees, was made to De La Salle Hall (nursing home in Lincroft, NJ) last week. This grant was necessary to help with a significant operating deficit due to a period of prolonged low census and higher than anticipated expenses. It is anticipated that additional funding will have to be provided so that a reserve fund is adequately established. Discussions will be held with the auditors of De La Salle Hall to determine the amount of the funding required. Brother Timothy said there was a possibility of some estate bequests that could be used to help make up some of this shortfall. Brother John reported that it would appear that the National Religious Retirement Office will report that the trust is adequately funded for 2014. Brother John will be submitting our data soon; the analysis is expected in May. The subcommittee discussed the various cash needs of the trust, and Brother Gerard moved that $2 million be liquidated in equal amounts from the CUIT Core Equity Fund and the CUIT Value Equity Fund. Brother John seconded this motion which was approved unanimously.

FSC DENA Endowment Trust

5a.Mr. Boyer reviewed the assets held in the FSC DENA Endowment Trust for the quarter ended December 31 2014. The asset value of the endowment as of that date was $28,738,851. The rate of return for the endowment for the quarter was 1.58 percent with a target performance of 1.76 percent. The year to date performance numbers were 4.57 percent for the endowment versus 5.90 percent for the target funds. Since its inception the endowment has returned 11. 37 percent versus 10.79 percent for the target funds. The Endowment Trust investments are very similar to those of the Retirement and Continuing Care Trust, using the same investment managers. These rates of return were once again acceptable. Asset Strategy Consultants will also review the SRI Overseas Partners Fund holding see if it could be liquidated and replaced with a different investment.

5b. A review of the asset allocation targets of the trust showed that all of the asset classes are within their ranges, and that no rebalancing needed to occur.

5c. The subcommittee then looked at the cash needs of the endowment trust. Brother Timothy reported that the construction at Ocean Rest would require $300,000 in cash until the end of April. The total contract calls for an expenditure of $2.35 million, and the construction cost will be advanced on a $3.5 million line of credit. The anticipated completion date for the construction is January 1, 2016. In addition, the endowment would distribute to the District by August 31 an amount of $1,566,650 to support operations. The subcommittee discussed which assets could be used to fund these distributions. Brother Timothy moved that $300,000 be raised from the CUIT Core Equity Index Fund. This motion was seconded by Brother Gerard and passed unanimously.

  1. Next Meetings - all at 9:00 a.m. Eastern time
  1. May 18, 2015, an in-person meeting at Christian Brothers Conference with Skype capability
  2. August 17, 2015,an in-person meeting at Christian Brothers Conference with Skype capability
  3. November 12, 2015,an in-person meeting at Christian Brothers Conference with Skype capability
  4. February 18, 2016,an in-person meeting at Christian Brothers Conference with Skype capability

Respectfully submitted,

William H. Phillips

Page 1 of 3