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HomeMy WebLinkAboutMinutes_Pension Public Safety_01/12/2005• TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND BOARD OF TRUSTEES MEETING JANUARY 12, 2005 I. CALL TO ORDER AND ROLL CALL The Tequesta Public Safety Officers Pension Trust Fund Board of Trustees held a regular meeting at the Emergency Operations Center (EOC) of the Public Safety Facility, 357 Tequesta Drive, Tequesta, Florida, on January 12, 2005. The meeting was called to order at 8.30 a.m. A roll call was taken by Betty Laur, Recording Secretary. Boardmembers in attendance at the meeting were: Chair James Weinand, Secretary Peter Lucia, Boardmember Edward Sabin, and Boardmember Joe Petrick Also in attendance were Dan Gallagher, Attorney Bonni Jensen, and Pension Administrator Gwen Carlisle. Vice • Chair Geraldine Genco was absent from the meeting. II APPROVAL OF AGENDA MOTION: Boardmember Sabin made a motion to approve the agenda as submitted. Boardmember Lucia seconded the motion, which carried by unanimous 4-0 vote. III. CONSIDERATION OF APPROVING AND SIGNING CONTRACT WITH ROCKWOOD CAPITAL ADVISORS, LLC Attorney Jensen reported a contract had been submitted to Rockwood Capital Advisors, LLC, which they had signed. The contract provided that the Board hire them as investment manager and they would be responsible to manage the plan funds. The contract allowed them to provide equity investment services with asub-advisory agreement with Contravisory Research & Management Corporation. There would be no additional fees; everything would be included in the one fee as set forth in exhibit "A". Attorney Jensen reported there were no changes to the contract. The issue that came up on the General Employees' side was whether they would be able to be with the • commingled investmenta new product that Rockwood had created. Rockwood asked for additional documents to be signed, a whole stack of documents, and her opinion and Mr. Bogdahn's opinion was the board had hired Rockwood to invest and they could • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES January 12, 2005 PAGE 2 choose the best option. The recommendation came that they should use the commingled account, and she and Joe felt there should not be any additional documents, and it should be covered under the one investment management agreement. Those issues had been worked out. Essentially, to resolve those issues, in paragraph 5 of the investment policy guidelines it provided that the investment policy would be the overriding document for the investments. The investment manager had complete discretion but had to comply with the board's investment policy. Attorney Jensen read from page 4 at the top which basically said the trustees had provided the investment manager with full investment discretion and understood the manager may, upon advice and recommendation of Bogdahn Consulting, cause an investment in Rockwood Capital Strategic Equity Fund and Rockwood Capital Strategic Bond Fund to facilitate its investment strategy to invest the fund's assets, and the trustees acknowledged receipt of public placement memorandum for those funds. This essentially removed the trustees from having made the decision to go into commingled funds. The board had made the decision to hire Rockwood and to use the Contravisory • product for asset investment. Rockwood had decided to create the commingled fund for purposes of investing those dollars, and so was making the decision to place it, but upon the advice and recommendation of Mr. Bogdahn. The board had not made the decision to use the commingled fund. Chair Weinand asked if Mr. Bogdahn's fee would be more. Attorney Jensen explained no, that the commingled fund was a fund where all dollars were invested the same, but the pension fund's dollars would be invested with other people's dollars, other funds similar to this-for example, the General Employees' Fund would be invested in the same way. These were Rockwood's proprietary funds. Rockwood had just created these proprietary funds. Attorney Jensen confirmed that the accounting documentation received would be separate, just for this plan. The investment guidelines did allow this-they had called it a private placement and there was a restriction against private placement, which Mr. Bogdahn would discuss. Boardmember Lucia asked if there were alternatives to using the proprietary funds for the commingled fund. Attorney Jensen explained that Rockwood could invest the plan's dollars individually-an individually managed equity account and an individually managed bond account, but their cost would be different. Boardmember Lucia asked if that would save any money. Attorney Jensen responded that going into the commingled fund would save dollars because the custody services of A.G. Edwards were included in the management agreement. If the trustees wanted an individually managed account they would have to have a custodial agreement with A. G. Edwards or someone else who could custody the funds for Rockwood and that would have an additional cost of $3,000 • annually. Rockwood had made an agreement with A. G. Edwards to handle the money in their commingled fund. The advantage to the commingled fund was less cost with a similarly managed fund. Boardmember Lucia asked if the board was being penny wise, • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES January 12, 2005 PAGE 3 dollar foolish because a proprietary product was always at a disadvantage to a money manager, and they offered it at less cost to lure you into a proprietary product. Once you were in, you were pretty much locked in. Boardmember Lucia commented that was why he was questioning it. Boardmember Lucia asked if these two were the only investment choices. Attorney Jensen responded those were the only two commingled products they had. Boardmember Lucia asked if the board agreed on the commingled fund if it would be allocated 60/40, which Attorney Jensen confirmed, advising it would be according to the investment policy guidelines, and that Mr. Bogdahn had recommended the commingled fund . It was a product expected to mimic the returns on their individually managed basis while providing lower cost. Attorney Jensen advised the board did not have to go into the commingled product, and could invest individually. Boardmember Lucia commented the whole purpose of going with Rockwood was because they would actively manage the fund's money, and not to go into a proprietary product and just have two investment choices with a 60/40 split. He thought Rockwood was chosen because of • their investment style, style drift, etc., and to go through all the presentations and meetings and now to find out only two investment choices were being recommended and in commingled funds, which the board had never really been presented with in the beginning. Boardmember Lucia asked, when doing all the presentations and when hiring Mr. Bogdahn, no matter what manager was chosen, wasn't there was an additional custodial fee incurred with his costs, already factored in. Attorney Jensen stated there would be an additional charge if the board went with an individually managed account, and that had been discussed. The savings would be with the custodian fees, which the board was now paying Wachovia. Commingled funds meant other people's money, other pension funds, etc., all fiduciary funds, were invested along with this plan's fund. Boardmember Sabin expressed concern if other larger funds in the commingled fund decided to pull out. Attorney Jensen commented she believed this was a new product created with the Tequesta funds in mind, and they hoped to market it to other funds in Florida. Boardmember Sabin commented because we were a small fund, if larger funds got involved it could influence this in another direction. Another concern was this came up late. Attorney Jensen advised they presented an individually managed portfolio and came up with the commingled fund and her understanding was it was designed to mimic the returns for the individually managed portfolio. Boardmember Lucia expressed concern that the board had no information on A. G. Edwards, what their insurance was, as far as custodian, their fees, and exhibits had been provided. Attorney Jensen explained that the custodian agreement was not between the • Village and A. G. Edwards, it was between Rockwood and A. G. Edwards. Rockwood had contracted with A. G. Edwards to provide the custody services for their fund. There was no additional charge to the board for the custodial services if they went with the • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES January 12, 2005 PAGE 4 commingled fund. If the board wanted an individually managed account, they would need to retain a custodian. They could remain with Wachovia, although their minimum ticket charge was substantial, so they might want to choose another custodian if they were going with an individually managed portfolio. Boardmember Lucia commented wherever the money was, whichever custodian, the board needed to see what their insurance was, and needed to see what A. G. Edwards was protected by, which was on exhibit "F," and that was missing from the materials provided. Attorney Jensen advised she did have that but not with her. Boardmember Lucia commented he was sure there were ticket charges or something that A. G. Edwards was going to charge on a quarterly basis. Attorney Jensen responded it was part of the fund expenses and would be part of the investment returns, a similar process to a mutual fund. Boardmember Lucia commented all this was not exposed to the board when they chose Rockwood and Mr. Bogdahn. Rockwood was chosen as an individually managed account, and it was all changing. Boardmember Lucia stated he did not feel comfortable with this. Boardmember Lucia expressed concern that the board had gone through many meetings and had done due diligence, and now • everything had changed. Mr. Bogdahn arrived at this point in the meeting at 9:00 a.m. Attorney Jensen advised Mr. Bogdahn that the board had concerns about commingled versus an individually managed product and wanted to talk about how custodial fees came out of the commingled account-the benefits of the commingled fund and the returns they can expect, and if the commingled product itself changed in any way the product they were initially offered which was an individually managed product. Mr. Bogdahn stated the investments would be the same. The investment policy originally put together had a change to state they could not purchase initial public offerings, that they must be traded for more than a year, but Rockwood did not do that anyway except for bonds. So from that perspective, there was no change in the investment process. The commingled product offered opportunity for diversification, which was not a big deal for this fund because of the size of their assets, but for the General Employees fund it had been. Really the big difference for this fund was the fact they did not have to pay for a custodian. Chair Weinand commented the presentation Rockwood gave was for an individually managed portfolio. Mr. Bogdahn responded yes, and the board had discussed at that point that an individual custodian would have to be hired. It came down to the custody issue which would be approximately $3,000 a year for the individually managed • fund. Custody had to be included in a commingled fund because no one else could custody their commingled fund other than themselves. Because of that, they included the custody fees. Ms. Carlisle asked with A. G. Edwards being custodian if they could see • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES January 12, 2005 PAGE 5 red flags that Rockwood could not see because they were managing their own fund~iid the custodian oversee what Rockwood was doing. Mr. Bogdahn responded A. G. Edwards or any custodian did not oversee the fund-they just held the assets. The custodian did not have any asset management involvement. However, most custodians did have an overlay since the custodian was normally the one that would notify the board and the investment manager if there were a lawsuit regarding an investment. Also the independent custodian priced the investments. Boardmember Lucia asked what insurance A. G. Edwards had. Mr. Bogdahn responded he did not know of any trust or brokerage company that did not have insurance well above the required minimums, but he did not know the parameters of that. Attorney Jensen advised she had requested that the custodian agreement be faxed to her. Chair Weinand asked if Mr. Bogdahn was saying by commingling, the fee would be reduced by $3,000 plus the investment management fee would be a little less. Mr. Bogdahn clarified the • custodial fee was included in the investment management, which was also just a little less than an individually managed account--a very minor difference from the cost of an individually managed account. The Village would get a volume discount because the commingled fund was a large fund. Chair Weinand asked for clarification, if the agreement was between Rockwood and A. G. Edwards, not the Village and A. G. Edwards. Attorney Jensen responded that was correct--Rockwood had sole responsibility for any issues in the fund. They were responsible to the board. If there was a problem between Rockwood and A. G. Edwards, that was between them and the board should not be involved. Boardmember Sabin commented the fund's insurance had $5 million coverage. Chair Weinand expressed concern, commenting when the fund was with Prudential, there would be monies taken out of the account without first having approval of this board, which was wrong. Attorney Jensen advised nobody--Rockwood nor A. G. Edwards--had any right to send dollars anyplace, Rockwood could only invest the dollars. Boardmember Lucia asked what would happen if something happened to A. G. Edwards, to which Attorney Jensen responded the board would look to Rockwood. Boardmember Lucia expressed his opinion that as custodian, A. G. Edwards would be responsible for the assets of the Tequesta pension, which was why he asked about their protection, even though they had an agreement with Rockwood. Mr. Bogdahn explained A. G. Edwards had a custodial relationship with Rockwood and the Rockwood account had the same protection we would have individually. Mr. Bogdahn referred to the August 12, 2004 memo which outlined the fees; it talked • about a $3,000 minimum fee based on the amount of transactions this fund would have based on the assets. This $3,000 fee was the basic difference between having an individually managed or a commingled portfolio. If this board felt $3,000 would be BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES January 12, 2005 PAGE 6 worth extra peace of mind and more protection with an individually managed portfolio, no one could fault them for that. Mr. Bogdahn explained in the case of the commingled fund, the Village would own shares just like a mutual fund and it was handled the same way. Boardmember Sabin asked if there was a prospectus on the proprietary fund. Mr. Bogdahn explained these were new funds just rolled out November 1. Boardmember Sabin noted this board had spent a lot of time defining their investment criteria, which these funds would have to follow. If there were several other funds involved in the commingled product and they each wanted their investment criteria to be slightly different from Tequesta's, how could this fund function consistently across the board with commingled investment policies. Mr. Bogdahn advised the fund did not respond to individuals. Each board needed to decide if this fund was appropriate for them. Everyone involved would have to have similar investment guidelines as • Tequesta. This product worked with Tequesta's investment policy and it would be monitored to be sure they continued to comply with our investment policy. If we wanted to change to be more restrictive in our investment policy we could withdraw. Mr. Lucia commented at that point Tequesta would have to transfer the assets out of A. G. Edwards, find a new custodian, and go through everything again. Mr. Gallagher asked if Tequesta would receive more attention in an individually managed account. Mr. Bogdahn responded the same amount of attention should be received either way on the investment side, no matter the size of the account. When they were trimming, there might be a slight advantage in the commingled fund, but basically there should be no difference. Attorney Jensen noted Rockwood had agreed to the standard individually managed agreement except for the custodial relationship, and a semiannual instead of quarterly appearance at meetings. The board would receive monthly investment reports, quarterly reviews, and semiannually someone would attend the meeting. Mr. Bogdahn provided the board with a quarterly report of their investment returns. Boardmember Sabin noted one point was that the relationship with the custodian would now just be with the investment manager, as opposed to the custodian having a relationship with this board, which Attorney Jensen verified. Boardmember Sabin commented it came down to the fund's protection on the assets if someone went wrong. Attorney Jensen advised the plan would have the $5 million in coverage that • was in the agreement with Rockwood. The custodial agreement was between Rockwood and A. G. Edwards, and if something went wrong, the board would seek breach under the Rockwood agreement. That would be the same as if the board • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES January 12, 2005 PAGE ~ chose an individually managed portfolio. The difference was then the board would have a separate agreement with a custodian and in that case if something went wrong the board would go to the custodian. Attorney Jensen indicated she had seen the agreement between Rockwood and A. G. Edwards. Chair Weinand commented it came down to saving $3,000, but the board would have lost the direct relationship with the custodian and the ability to make changes in the investment policy. Mr. Bogdahn clarified the savings would be $3,750. Attorney Jensen noted the trustees seemed to need more information and asked if they wanted a presentation on proprietary funds or to search for a custodian and go individually managed. Mr. Bogdahn commented if the board engaged Rockwood for an individually managed account, that was easy to do, and the board could get more information later for the commingled fund. Transitioning into the commingled fund would be easy. Chair Weinand indicated he was more comfortable with an individually managed account, and felt not enough information had been provided regarding the commingled product. Boardmember Sabin stated he agreed, that he might be comfortable with the proprietary fund concept down the road, but it appeared the Village was the initial investment and if it did not go, he would feel better being with an individually managed account. Boardmember Sabin indicated he would still like some disclosure, investment objectives, and commented the board would want overall reports also to assess what the proprietary fund was doing. Mr. Gallagher asked if there was a prospectus, to which Mr. Bogdahn responded that was the thick stack of documents they had sent. Attorney Jensen commented the documentation sent for the General Employees' fund was 2 inches thick. Mr. Bogdahn clarified for Boardmember Lucia that the A. G. Edwards branch in St. Louis was the A. G. Edwards Trust Company. Boardmember Sabin commented he welcomed the intent of trying to save fees, but he would like more documentation in order to be comfortable, and in the meantime wished to go with the original game plan. Mr. Bogdahn advised if the trustees felt comfortable in the future and felt the savings would be worth it they could make that decision later. Mr. Bogdahn advised that Rockwood could take them as a separate account because of the size of the fund. Boardmember Lucia and Boardmember Petrick stated they agreed with an • individually managed account. Mr. Bogdahn suggested options for custodian: A. G. Edwards Trust and Salem Trust. • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES January 12, 2005 PAGE 8 A. G. Edwards Trust would be less expensive than Salem Trust because they had a minimum, but Salem Trust was local. Attorney Jensen advised the investment manager agreement would have to be changed to provide a separate custodian agreement, so section 5 and section 8 would be deleted. Attorney Jensen advised the assets were still with Northstar and there was a 30-day notification period. Boardmember Lucia proposed to get more choices than Salem Trust and A. G. Edwards. Mr. Bogdahn suggested other options and indicated he could get individual quotes. Attorney Jensen asked for an RFP abbreviated process. Mr. Bogdahn advised the quotes could be gotten quickly. Chair Weinand requested Mr. Bogdahn bring back to the board options for custodial agreements. Mr. Bogdahn noted Rockwood only bought securities the first of every month so it would be March before they would be able to invest. Attorney Jensen advised she would not give notice to Northstar until the Rockwood contract had been signed. Timing was discussed by Mr. Bogdahn-if on the 22°d everything was in place Northstar could be notified the fund was preparing to transfer assets on the 25'" and the assets could be to the custodian the first week in March. Attorney Jensen stated she would bring her standard contract and a name could be inserted at the meeting. She had contracts for Fiduciary Trust and Salem. The board confirmed they wanted Andy from Rockwood at the February 8 meeting. MOTION: Boardmember Sabin made a motion to change the investment agreement to address an individually managed portfolio. Boardmember Lucia seconded the motion, which carried by unanimous 4-0 vote. MOTION: Boardmember Lucia made a motion to do due diligence on custodial arrangements and fees, and evaluate different companies that would offer the pension fund custodial arrangements. Boardmember Petrick seconded the motion, which carried by unanimous 4-0 vote. Custodial options were requested to be presented at the next meeting. V. REVIEW INVESTMENT POLICY STATEMENT Chair Weinand commented there was no need to review the investment policy statement • since it would not change. VI. ADJOURNMENT • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES January 12, 2005 PAGE 9 Upon motion by Boardmember Sabin, seconded by Boardmember Petrick, and unanimously carried, the meeting was adjourned at 9:47 a.m. Respectfully submitted, ~~~~ ~~ Betty Laur Recording Secretary • •