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2012-05-07 Police Fund Meeting� � OKEECHOBEE POLICE PENSION BOARD MEETING • May 7, 2012 Called to Order: 5:03 PM by Jamie Mullis Present: Bettye Taylor Russ Cale Ray Worley Dennis Davis Absent: Bill Bartlett INVESTMENT REPORTS A. David Kelly of Bowen Hanes reviewed the portfolio summary for April 30, 2012 being at 16.1% average return (9/30/2011 - 4/30/2012), and showing the three year average return at 11.7% (5/18/2009 - 4/30/2012). It has been a good six months. The beginning market value as of 9/3/2011 was $6,611,809.11 with the ending market value on 4/30/2012 being $7,652,000.71. B. Jack Evatt of the Bogdahn Group presented an overview for the quarter ending March 31, 2012 stating the market is healthier, it was a good quarter with nice gains. The Total Fund Market Value • as of 111/2012 was $7,236,274.00 and ended on 3/31/2012 with $7,926,562.00 showing a gain of 1.01% difference for the quarter, and 1.74% for the fiscal year. He then reviewed the Compliance Checklist as follows: Total Fund Compliance: The Total Plan return equalled or exceeded the actuarial earnings assumption rate of 7% over the three year period but was not applicable for the five year period; the return did not equal or exceed the total plan benchmark over the trailing three year period and was not applicable for the five year; the Total Plan return did not rank within the top 40� percentile of its peer group over the trailing three year period and was not applicable for the five year. Equity Compliance: The total domestic equity return did not meet or exceed the benchmark over the trailing three year period, but did over the trailing five year period; the total domestic equity returns did not rank within the top 40� percentile of its peer group over the trailing three and five year periods; the total equity allocation was less than 60% of the total plan assets at cost and less than 70% of the total plan assets at market; the total foreign equity was less than 15% of the total plan assets at market; Fixed Income: Total fixed income returns did not meet or exceed the benchmark over the trailing three and five year periods; the total fixed income returns did not rank within the top 40�" percentile of its group over the trailing three and five year periods; 85% of all fixed income investments have a minimum rating of investment grade or higher; Manager Compliance: There was less than four consecutive quarters of under performance relative to the benchmark. C. The Salem Trust Statements were reviewed reflecting the activity for the months of January - • March, 2012 for the following: Receipt & Disbursement (R & D); Equity and Fixed Income. A letter was distributed for the boards to review and approve action, regarding direction for the • management of the R& D accounts by maintaining a target balance of $100,000.00 for the payment of the Plan+s obligations. Scott Christiansen, of Christiansen & Dehner, P.A., Pension Attornev, informed all boards that a motion to approve the letter was in order. ITEMS/REPORTS FROM BOARD ATTORNEY CHRISTIANSEN He reported that all the ordinances were approved by the City Council at their April 3, 2012 meeting, and were sent to the appropriate persons in Tallahassee. He reminded the Police Board about the salary changes for officers, effective July 1, 2011 which effects the overtime and sick pay. Financial Disclosure Forms 1 must be submitted by July or a fine will be enforced. Nothing was passed by legislation at this time. Chief Davis and Secretary Taylor informed Attorney Christiansen that the City Council at their May 1, 2012 meeting, discussed their frustration and disappointment of not receiving the actuarial reports in a timely fashion. Attorney Christiansen will get Request for Proposals for actuaries for the next scheduled meeting, August 6, 2012, excluding Gabriel, Roeder, Smith & Co. UNFINISHED BUSINESS TO DISCUSS IN OPEN SESSION 1. Mr. Evatt distributed a portfolio for consideration of investor managers for bonds (fixed income), as was directed from the February 13, 2012, meeting. Those included were: Baird Aggregate Bond Fund; Dodge & Cox Income Fund; JP Morgan Core Bond Select Fund and • PIMCO Total Return Fund. a. It was discussed that the emails reference the above mentioned companies was not sent to each of the boards. He advised he would start including all the boards on the mailing list. b. He discussed the moving of money into Mutual Funds so there is more diversity. c. He listed 4 potential candidates but one of them is not recommended on its own. This is Pimco. They are really good bond trades but very active in moving bonds around. All the recommended have been in the bond business along time. d. He feels Mutual Bonds because if something bad happens to one bond we would not be so greatly affected. e. How managers have done for the last ten years is hopefully an indicator on how they will do in the future. f. He felt like Dodge and Cox would be a great company for us. Jack and Morgan would be a good firm also. Pimco would be the most risky of the 4. Feels Dodge and Cox would be a good one to look at C� 2. Mr. Kelly distributed some information, on behalf of Bowen Hanes, showing their • performance to be within the acceptable benchmark. Kelly said it is tough even for the A Managers to consistently be able to produce good numbers. Kelly showed us stats for California Fund. He showed that even with all their expensive (in the millions) managers and they were losing money. Kelly then reviewed Tampa Police Department who has been with them for years. They handle the fund in entirety and the fund is happy with their results. He advised in every area at sometime they have under performed but at the end of 30 years they had a consistent 12 percent return. Jack Evatt responded: • • a. Evatt saitl that we had a lot volatile in our portfolio and could be smoothed by moving our fixed fund. Evatt asked how many portfolios Bowen had that they managed only the fixed income. Mr. Kelly stated one but he feels like they are an all round good money manager. Evatt said the numbers do not hold that out. Evatt said they are fine on the equities but the fixed income is not. Evatt said they pulled numbers since 2009. Evatt said that 90% of the managers beat the bench mark but the Okeechobee was actually 250 basis points under the bench mark. The average manager was at return of 8.11 we are at 4.22. Kelly said they had 0 in the Treasuries and that was not the right play in the long term. Evatt said they had been managing the fixed income for the last 3 years and he feels they are not the place for our fixed income. Evatt said we show too much volatility in this portfolio and we need to smooth it out. Evatt said if the economy slows down again we are back in the bottom again. Evatt said Bowen is basically an Equity shop and they have taken on fixed income as a side note. Kelly said they had done badly because they missed out on the Treasuries. Evatt said right now we are in the 90% percentile and we need to make a change to get into the 40% which is where we should be. Evatt said 3 years is not short time and we are at the place where we don't want to be. Evatt said they are trying to increase the probability that we can increase this fund. Evatt said we are going to take a lot of risk to be where we need to be. Evatt said they have had these discussions every where that David Kelly (Bowen) is managing fixed income. Kelly said in the last 6 months we have moved into the top 13 percentile. 3. Questions to the Advisors: (Synopsis) a. Jamie Mullens asked the cost to the plans to split these two funds. Evatt said it depends on the charges by Bowen& Hanes. David Kelly said that if 40 °/a of his investments changed technical he should raise his rates but he did not think they would. b. Bettye Taylor asked Jack Evatt if since the market was turning around right now did he still think the 2 funds should be split. Evatt advised right now we have the money manager managing the money with the advice of their consultants. Kelly said right now he makes all the decisions for the buying and selling of their portfolio. Evatt said all he would be doing is taking money from one money manager and giving it to another manager if we split the funds. • c. Bettye Taylor asked David Keliy what they had done to fix the probiem with the fixed income side of the portfolio. Keliy said they had reached out to board members because there is a huge physiology difference between a consultants based money manager and what they are doing. He said if you start parcelling out you can find a better manager in every category. But it falls apart in the end. Kelly said we would lose the cohesiveness of the plan if we start pulling parts of the plan away from them. Kelly said he was willing to put his firm and his record against any other plan. d. Evatt said we would be replacing someone who has limited experience in fixed income and we would be replacing them. Evatt said our plan and Tampa's plan is not the same. • e. Ray Worley said he wanted to know why the push all the sutlden when we had a bad three years. Evatt said they had given Bowen 3 years to turn this around and in the fixed income side they had not done so. Evatt said Bowen gets paid where we make money or not. Evatt said he makes no money on advising us to go with a more aggressive fixed income manager. Evatt said we paid him to evaluate our numbers and that is what he has done. Evatt said when we hired Bowen it was not for us to end up in the 100%. Evatt said no one likes to get fired but sometimes when you're not performing that is what happens. f. Jack Evatt was asked who decides the ranges. Christiansen advised that right now Bowen could move the money as long he stayed in the range. Evatt said he felt • like that was too much flexibility for a manager to have. Evatt said they bump up against the ranges and then the market changes and it creates volatility in the plan. g. Bettye Taylor asked with the cash that sits in the cash flow account who decides where it goes inside which plan. Christiansen said normally the account is only rebalanced when the plan gets out of balance. h. Bettye Taylor asked if by splitting the funds it would cause each manager to have limited resources to invest. Evatt advised that by combining the three plans it gives those more to work with. Bettye Taylor asked when the money comes in who makes the decision as to which fund gets money or is just split down the middle. Christiansen said the plan does and we authorize Bogdahn to keep the plans with in range. Christiansen said the only difference is we have a different manager managing the Bond portfolio. Christiansen said right now David Kelly can say we want to go a little heavy in stocks or a light in bonds. But with the split he would not do that. j. One of the General Fund Trustee asked what would be a good time frame to allow for a manager to make it in the bond market before we reacted. David Kelly said the Bonds do not mature the way stocks due they are usually long term. Kelly said he felt 5 years was a good time frame to see what they do and if they had not turned . it around he would bow out. k. Linda Tewksbury (General Fund) asked what Bogdahn plan to accomplish this. • Evatt said they would authorize Bowen to liquidate the Bond portfolio. Evatt said they tell Salem would then buy into which ever Bond market we decided on. Evatt said then we would see their returns in his book that he goes over just like we currently do for Bogdahn. The amount that goes into each plan is outlined in the investment policy. Evatt said the boards determine the ranges. Christiansen said if you have two separate managers what ever cash goes over the $100,000 held will be divided between plans. Bettye Taylor asked David Kelly if they were doing anything to stop the volatility. Kelly said they are professional money market managers. Kelly said they are doing their homework. Kelly said they feel like they are doing pretty good with the over all total. Kelly said they are trying to put together a rock solid portfolio. m. Bettye Taylor asked if Bowen Hanes has a lot of plans that they only handle stocks. Kelly advised they did. Kelly said the boards decisions would not change the way he does business he would just put the blinders on and not worry about the fixed income fund. Discussion was tabled till a special meeting could be set up with all the boards. Regular Meeting adjourned at 6:50 PM � Dennis Davis called the Police Board meeting to order at 6:50 PM. Russ Cale made motion to accept minutes from Feb 6, 2012. Ray Worley seconded it . Motion passed all in favor. Ray Worley made motion to accept expenditures. Russ Cale seconded it. Motion passed all in favor. Ray Worley made motion to motion to authorize Attorney Christiansen to send out for Request for Proposals for New Acturiary for our review. Russ Cale seconded it. Motion passed all in favor. A letter was distributed for the boards to review and approve action, regarding direction for the management of the R& D accounts by maintaining a target balance of $100,000.00 for the payment of the Plan+s obligations. Motion to approve letter by Bettye Taylor seconded by Russ Cale motion passed all in favor. Russ Cale made motion to close meeting. Ray Worley seconded Motion passed all in favor at 7:12 PM. � � �-/��� Bettye Ta'Srlor--Secretary �