Loading...
HomeMy WebLinkAboutMinutes_Pension Public Safety_11/09/2004• TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND BOARD OF TRUSTEES MEETING NOVEMBER 9, 2004 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 November 9, 2004. The meeting was called to order at 8.10 a.m. A roll call was taken by Betty Laur, Recording Secretary. Boardmembers in attendance at the meeting were: Chair James Weinand, Vice Chair Geraldine Genco, Boardmember Edward Sabin, and Boardmember Joe Petrick Also in attendance were Dan Gallagher and Attorney Bonni Jensen. Secretary Peter B. Lucia was absent from the meeting. II APPROVAL OF AGENDA MOTION: Boardmember Sabin made a motion to approve the agenda as amended with addition of changes to the budget for 2005 under Any Other Matters; adding an additional payment to be approved of $383.90 for Hanson, Perry & Jensen; and Mr. Bogdahn to include in his presentation the new investment policy guidelines. Vice Chair Genco seconded the motion, which carried by unanimous 4-0 vote. III. APPROVAL OF MINUTES MOTION: Vice Chair Genco made a motion to approve the minutes of the August 10, 2004 meeting as submitted. Boardmember Sabin seconded the motion, which carried by unanimous 4-0 vote. • IV PRESENTATIONS A. NORTHSTAR CAPITAL MANAGEMENT -INVESTMENT MANAGER'S • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 2 REPORT AS OF SEPTEMBER 30, 2004 Peter Van Beuren reviewed the investment portfolio characteristics of the fund and performance, explaining his firm handled risk, and one of the first steps in their process was diversification to reduce risk. Their firm had selected a large cap, quality growth equity product, and looked for wealth creator companies that were unique and leaders in their fields. Mr. Van Beuren assured the board there had been no violations to the present investment guidelines. Mr. Van Beuren explained cash identified by Mr. Gallagher as state funds had been received during September that did not get invested by the end of that month. Overall cash in the account was now 6%. Mr. Van Beuren reviewed section 3 of his report, which highlighted types of companies they thought had growth potential for the future, and showed differences between this portfolio and the S&P 500 benchmark. Companies selected by Northstar were growing at significantly higher rates than the benchmark. P/E was higher but other characteristics made up for that by being able to grow earnings at a faster rate. Steve Mergler of Northstar Capital Management provided a handout updating performance since the end of the last quarter of 9/30, which showed strong YTD performance. Mr. Mergler reviewed Northstar's performance reflected by the portfolio since inception and compared their returns with those of other growth managers. Freemont Fund, a large cap growth fund managed by Northstar which was managed similar to this portfolio, had been the 7t" best performing fund out of 800 in the nation as of the end of October. Mr. Van Beuren reported the portfolio's performance YTD through September was exceedingly better than the S&P. The outlook was cautiously optimistic. Boardmember Sabin noted that performance indicated the fund was tacking close to the 8% actuarial assumption. Mr. Van Beuren responded that in 2001, 2002, and 2003 those figures had been down. Page 3-3 covered the characteristics of companies in the portfolio and gave the portfolio average and S&P Index. The amount of growth relative to the S&P was quite significant, with improvements during the last couple of years. Page 3-4 showed pie charts of areas of diversification. Page 3-5 reported good performance for the year, and reported July had been one of the worst months in many years in the market. In reviewing Section 4, Mr. Van Buren explained that interest rates had been very unpredictable since April. That day the Federal Reserve was meeting and was expected to raise the rate by 1/4%. Northstar would continue to look for quality and high yields. Section 4-2 indicated the economy had slowed, but their belief was the economy was still in an extending mode unless there was a tragic event that took the wind out of the market. Mr. Van Buren reported corporate America was • doing fine; however, lack of job creation affected the market because of the uncertainty. On balance, Northstar was optimistic that the presidential election would not cause a lot of disruption. There was a lot of concern and fear with oil prices at a BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 3 17-year high, and if they continued to go up it would affect the economy and consumers would buy less. Mr. Van Buren predicted a tough year but indicated they were cautiously optimistic. Vice Chair Genco asked what Mr. Van Buren thought of using only government and agencies on fixed income. Mr. Van Buren responded he did not think it was necessary to do that; agencies had been a source of really high quality flexible securities and one got incremental performance by maturity. He indicated he would really have to think about it for an account like this one, and thought the fund should stay in the corporate area to some degree. Vice Chair Genco indicated she did not necessarily feel it should be done but wanted Mr. Van Buren's opinion. B. PRESENTATION BY JOE BOGDAHN Mr. Bogdahn reviewed the investment policy and the account reconciliation, reporting • earnings of 8.2%, with the indexes earning 8.9%. Equity performance had improved relative to the index for the most recent one year. The portfolio was rated according to percentile of its peers. Fixed income performance was reviewed, and found to be right on top of the index for the most recent quarter. An intermediate index would be used going forward. In 2001, 2002, and 2003 performance had been below the index, but starting in 2004 the fund was beginning to significantly outperform the index. Mr. Bogdahn explained all the different categorizations used in comparisons. Mr. Bogdahn explained that Northstar had managed the fund the way they had been hired to perform, as a quality growth manager, but in the process of doing that over the past several years, quality growth aspect was not the better performing aspect-value did considerably better than growth. Mr. Bogdahn expressed his opinion that more of a balanced portfolio was needed so that there would not be such swings from worst rating to first. Smoothing technique, or averaging of past returns, could be used to help contributions from the Village stay low, and that same technique should be used for investments. This would make the portfolio have less volatility than the benchmark indexes with the ability to earn more over time both long-term and short- term. Over a 10-year market cycle, Northstar had outperformed the indexes, but looking at the 3-year number, they had underperformed. Vice Chair Genco indicated she had always heard long-term growth was more desirable, to which Mr. Bogdahn responded she was right, and for long-term a fund would probably have all its money in a small value type product. Over time, that would provide the most earnings; however, it was also one of the most volatile categories. This fund was in a unique position, because even though it was a very long-term fund, unfortunately because of the method of funding for this fund, both long and short-term approaches must be managed. From an investment perspective, volatility of the Village contributions BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 4 being very low one year and very high the next must be reduced, and it would still be a couple of years before the 8% actuarial return would really be met. The board needed to manage at a 3-5 year term level, which was difficult because of the funding requirement. The board needed to do the type of investing that was best for the plan. Mr. Bogdahn explained that acore-type manager who could manage within the different investment styles was needed, because the fund did not have enough money to go out and hire separate small-cap, mid-cap, and large cap managers. V. NEW BUSINESS a) CLARIFICATION ON ACTION TAKEN LAST MEETING CONCERNING ACTUARIAL SERVICES AGREEMENT RFP Chair Weinand reported at the last meeting the board had agreed to have an actuarial report done every other year, but then realized they had a contract for an annual study. Chair Weinand wanted to be sure the board agreed to have a study every other year on the odd years, with 2003 being the first odd year. Mr. Palmquist explained that his company had gone ahead with getting information and preparing a report for 2003, then there had been confusion with the board thinking they were supposed to only get reports every other year; however, his company currently had a contract for an annual report. The contract would be changed so that going forward there would be a report only on the odd years. MOTION: Vice Chair Genco made a motion that an actuarial evaluation report be done on the odd years at or around October 1. Boardmember Petrick seconded the motion, which carried by unanimous 4-0 vote. b) ACTUARIAL REPORT DATED OCTOBER 1, 2003 Steve Palmquist provided a review of the October 1, 2003 actuarial report, and noted the 10-year investment return averaged 8.7%, and the 11-year average was also approximately 8.7%. There was a total net experience loss for fiscal 2003 of $108,000, which caused the annual cost of the plan to go up by .7% of payroll. Going forward there would be a permanent increase in the cost of the plan of about 7/10 of 1% of payroll, which was roughly $10,000 annually. Vice Chair • Genco questioned if the Village should make up the loss; Mr. Palmquist responded the Village could certainly make up the loss, but he had never had an employer make up such a large loss immediately, and years in which there were BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 5 gains would even out the loss. Attorney Jensen advised that some employers put extra funds of $5,000 or $10,000 in annually to eat away at those sorts of losses. Chair Weinand asked if Mr. Palmquist knew a way to smooth out the Village's contribution. Mr. Palmquist responded that an asset smoothing method could be used, which was the difference between actual and expected return spread over five years. Discussion ensued, and Mr. Palmquist gave an example of how this could be done. Mr. Bogdahn suggested that a funding floor could be established. Vice Chair Genco commented she preferred the 5-year spread and would submit this to the Village Manager. Mr. Palmquist advised this Board would make that decision. Vice Chair Genco responded that it would have to be submitted to Finance and to the Manager for benefit requirements. Mr. Palmquist commented he would make a copy of the required arithmetic from one of his other reports to show the smoothing method. The next report would be done as of 10/1/OS and if the Board made a decision to use the smoothing method then from this point • forward it would start from 10/1/03 to 04, and 04 to O5, so that the OS report would have two years smoothing, unless the Board wanted to start with 04. Boardmember Sabin agreed with 5-year smoothing to start from 03, and not just for City funding but using it to measure return over a long period of time and just projecting and avoiding spikes and dips. It was easier to keep long-term focus when there were not large fluctuations. Boardmember Sabin questioned the salary increase assumption. Mr. Palmquist expressed concern that the police salary increases had been a lot more than expected and probably in 2005 that the assumption might be changed, but asked that he be allowed to examine this between now and 10/1/OS and come back with a recommendation for going forward. The salary increases were discussed in relation to the impact to the plan. Mr. Palmquist reviewed the information on page 4 of his report, which showed the effect on the plan of employee and city contributions and state funds. City costs rose significantly from one year to the next. There were cost increases of a little over 1 % of payroll because of changes in benefits, putting in the drop plan, supplemental benefits, change in multiplier, etc. State revenue was enough to cover all that, so the City cost was not affected, which was the purpose of the State revenue. Mr. Palmquist explained that the $120,000 that the City was required to pay was for FY 2004, which was already over, and that the contribution rate was increasing. • Mr. Palmquist advised that the basics of his report were what the City had to pay, what the plan's funded ratio was (comparing the plan's assets to the value of benefits attributable to past service) - a ratio of 114%, which was one of the highest ratios of • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 6 all his clients, and was excellent, especially after three years of negative stock market returns. This also showed the plan was young with no retirees yet. Chair Weinand commented on page 2, which described supplemental benefits, that items 2, 3, 5 and 7 were changed City-wide and asked if state premiums could be used for those, since he understood the Attorney General's opinion was they could not. Mr. Palmquist responded there was nothing that said state revenue could not be used for those items. Attorney Jensen clarified the Attorney General's opinion and the change in the law, and that extra benefits were those benefits received by Police and Firefighters that the General Employees did not receive, and the cost was what was used rather than the actual benefit in order to compare apples to apples. The police, for example, had a 3% multiplier while General had a 2% multiplier; police could retire earlier than General employees; and police had supplemental benefits. If one looked at the cost of all those benefits that police had and General did not, that would be the cost . to use for comparison purposes. Mr. Palmquist stated he had not done that, but believed the cost of all those benefits would be more than was being received in state revenue. Mr. Palmquist explained in detail how the benefits were funded. Attorney Jensen noted on page two it was described in words. Mr. Palmquist explained the state revenue remained fixed but payroll was anticipated to continue to increase, so gradually the City would be paying for a part of the benefits. Including the 2004 revenue, the reserve for firefighters was $22,000 and for police was $50,000, for a total of $72,000 which would show as total reserves as of 9/30/04 between the two groups. The Village could only take credit for $75,000 in state funds, while the actual amount received was $130,000, leaving extra for more supplemental benefits. Vice Mayor Genco commented so long as property values continued to rise and insurance costs increased, the state funds would increase. Discussion ensued regarding the state effort to ensure that the addresses used for telecommunications tax were within the correct municipalities, which would affect the amount of state funds received. Mr. Palmquist advised that places like West Palm Beach that had a lot of surrounding towns would likely see a big decrease because they were now getting revenues that the smaller towns should get. Mr. Gallagher asked how frequently employees would receive benefit statements, to which Mr. Palmquist responded they would do an annual report and benefit statements every other year and in the off year would just provide benefit statements. MOTION: • Vice Chair Genco made a motion to accept Mr. Palmquist's report and future 5- year smoothing starting 10-1-03 and going forward. Boardmember Sabin seconded the motion, which carried by unanimous 4-0 vote. Vice Chair Genco BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE ~ requested the Finance Director be copied on this and asked Mr. Palmquist to do a cover memo to her. Mr. Palmquist asked the Board to consider a motion to allow him to review salary increase assumptions versus experience to come up with a recommendation for 2005. Vice Chair Genco asked that Mr. Palmquist do that and have it presented at the next meeting. Mr. Palmquist advised it could be done in the summer, but he would like to have it settled before working on the 10/1/OS report so that it would not be held up. Boardmember Sabin asked what the Board would get when Mr. Palmquist did this study. Mr. Palmquist advised it would provide a recommendation on what he thought should be used going forward based on what he had seen. He would update the percentage increase and instead of one rate applied to everyone he would probably recommend salary increase rates tied to length of service. He would need a copy of the pay plan to see how the steps worked out, etc., so he would need further information. Vice Chair Genco asked that Mr. Palmquist provide that to the board for action at their • next board meeting, to which Mr. Palmquist agreed. The Northstar representatives left the meeting at this point. c) Actuarial Impact Statements Regarding Supplemental Fund Benefits Mr. Palmquist commented on provisions the Board wanted his company to look at, the first of which was changing one of the alternate retirement dates from age 52 with 25 years of services to 25 years of service no matter how old you were. The next two items were changing the multiplier. Mr. Palmquist commented the description was found on page 26 of the actuarial report. In the middle of the page it said, normal retirement benefits and that showed the current multiplier depending on the length of service. Item 2 in the November 4t" letter said change the multiplier to 3% per year-- 16through 21-and that would replace the 2-1/2%. Number 3 said for years after 21 years, change to 3% from 2%. Chair Weinand pointed out that should be after 25 years. Mr. Palmquist commented that the next item was supplemental benefits, and that was on page 26 almost at the bottom of the page-when we had any retirees they would get an additional benefit equal to $5 for each year of service, so if you retired after 20 years you would get an extra $100. The proposal was to raise the $5 to $20; so after 20 years you would get an extra $400, and it was generally recognized that the purpose of this was to help people pay for their health insurance. Mr. Palmquist commented the Board had not really asked for this but he had done some combinations of these just to see what the numbers would look like, and asked if there were any questions. Boardmember Sabin asked if these were base or extra benefits. Mr. BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 8 Palmquist clarified all were extra, coming out of the State extra money. Mr. Palmquist directed attention back three pages to the first page of numbers where at the top it said, Police Officers Annual Required Contribution. Line K was the City contribution, and the numbers were projected for 2005. If the change was made to the 25 and out provision, the annual required contribution would go from $58,493 to $59,730. The next line down was State revenue. The amount for police was $67,000 and the base line was only $25,000, so they had a huge amount of money they could spend. The City contribution stayed at $33,000 if the retirement was changed to 25 and out, for this benefit number one. Skipping back to look at the firefighters' page, they would go from $145,000 to $156,000 to pay for 25 and out, and that would cost about $11,000 and there was enough State revenue to cover that-it would go from $50,000 to $61,000, and the City cost would be unaffected. It turned out for each of the items individually-the 25 and out, or the 3% for 16 to 21 or 3% after 25 years-there was enough State revenue to pay for any one of those. The right-hand column showed some of those combined together. For example, for firefighters, benefits 1, 2, and 4- • the 25 and out provision, the 3% for years 16 to 21, and the $20 supplement-the cost went from $145,000 to $183,000, but there was not enough State revenue to cover all that, and the City or the employees would have to pay for it. If employees decided they wanted to pay for extra benefits, it would be mandatory that all employees pay. The firefighters and police did not have to choose the same combinations. Chair Weinand advised he thought the firefighters would want to increase their contribution 1-1/2% to have the extra later on to pay for their health insurance. Vice Chair Genco commented they might want to let State funds accrue for another couple of years and then there would be enough to fund that for both police and fire, and it would be simpler administratively to do the same for both funds. Vice Chair Genco commented 2% more out of someone's pay might be a hardship, and by waiting it would not have to come out of their paycheck. During ensuing discussion, Mr. Palmquist expressed his opinion police salaries would increase faster than State revenues, so in the future there would probably be a cost to the 25 and out at some future date. Chair Weinand commented the board did not need to make a decision on this today. Mr. Palmquist reviewed other benefit combinations, and it was clarified that if the numbers on line K were subtracted from the first amount, that would be the dollar amount for each combination. Chair Weinand thanked Mr. Palmquist for coming, and commented this was an employee decision and they would be informed to see if they wanted to do anything.. • d) DISCUSSION REGARDING PUBLIC SAFETY OFFICERS' PENSION FUND ADMINISTRATOR BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 9 Chair Weinand commented he had thought this was settled and that someone from Finance was going to be the Administrator. At sometime in the past the Board had discussed going to an outside administrator, but had not done so because of the cost, and it had been done in-house. Vice Chair Genco commented she thought Dan Gallagher was the administrator; Mr. Gallagher advised the Village Manager did not want him to do it, and he was present today as a guest. Vice Chair Genco commented the Manager needed to discuss it with the Board because they needed to know what was going on. Chair Weinand reported the Assistant Village Manager had indicated Patrice in Finance would be the Administrator, but it was reported she did not want to do it. Mr. Gallagher commented this must be resolved. Vice Chair Genco telephoned the Village Manager during a 5-minute break and then reported this matter would be tabled and the Village Manager was going to look at staff and appoint someone. • e) REPORT REGARDING LIABILITY INSURANCE PREMIUM Mr. Gallagher reported Jeff Newell had asked him to look at having two separate liability policies-one for Public Safety and one for General Employees, and he had found no one who really wanted to insure the small General fund. Mr. Gallagher had provided a report showing separate policies would cost the Public Safety pension fund $2,639 and the General Employees' fund $2,087a total of $4,726. This would be $1 million coverage for each plan with a $5,000 deductible. A combined plan had been purchased for the past couple of years and the cost this year would be $3,947, which based on the pro-ration according to the value of each plan would mean a cost of $3,315 for Public Safety and $632 for General and would be $2 million in coverage with a $5,000 deductible. Mr. Gallagher explained the policy had expired and based on the meeting date of today, he had gone ahead and placed a binder on the $2 million combined policy, based on the past vote of the board to have $2 million in coverage. Discussion ensued regarding the necessary amount of coverage. Mr. Gallagher had learned many cities had coverage for 25% of the value of the fund. It was explained by Mr. Bogdahn there was no need for coverage of the total value, if there was an issue the board would have had to have been negligent for a total loss of the plan, with no help in that negligence from the investment manager, consultant, or attorney. First it would go to the investment manager, then the consultant, then the attorney, before it would get to the board, and that was why the lower amount was okay. Attorney Jensen • explained it was very unusual to be insured for the whole amount of the fund. Chair Weinand commented if the board wanted to change their policy of having $2 million in coverage, he and Dan needed to know that before next year when the S BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE io policy expired again. Mr. Bogdahn noted that by going with the combined coverage the boards were getting more coverage for less money. Attorney Jensen clarified this was fiduciary liability coverage, and if someone absconded with the money then a fidelity bond would be needed. The municipality did have a fidelity bond, which should cover this fund. Discussion ensued regarding this fund paying more fee than General, but it was more coverage. There were no further questions regarding the insurance. Mr. Gallagher advised he would provide Attorney Jensen with a copy of the policy. VI. STANDING REPORTS a) Approval of new applicants for participation in Pension Plan for Quarter ending September 30, 2004 -None. • b) Approval of Beneficiary Changes for Quarter ending September 30, 2004: MOTION: Vice Chair Genco made a motion to approve the beneficiary changes as requested by Raymond P. Giblin III and Jennifer McLain. Boardmember Sabin seconded the motion, which carried by unanimous 4-0 vote. c) Request for withdrawal of contributions for Quarter ending September 30, 2004 -None. d) Ratification of withdrawals made since last meeting -None. VII. FINANCIAL REPORTS a) Statement of Accounts July -September 2004 and b) Cash Flow Report for quarter ended September 30, 2004 Chair Weinand reported he spoke with Patrice in Finance and the accounts had been extremely hard to balance. Mr. Bogdahn noted his company could provide any reports desired. Mr. Gallagher reported there had • been errors - a contribution was deposited to the wrong pension fund in one case. In another case they did not record interest of $162.12. There had also been a stock split near the end of the month and costs had to be BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 11 adjusted on that. Some of the errors might be attributed to Wachovia's consolidation with Prudential. He had met with Wachovia regarding the errors. Vice Chair Genco noted the Board might change custodians. Mr. Bogdahn commented Wachovia's minimum ticket was too expensive. c) State Disbursement of Premium Tax Funds This item had already been discussed. VIII. PAYMENTS TO BE REVIEWED AND APPROVED MOTION: Boardmember Sabin made a motion to approve the following payments: Business Services Connection $212.40; Hanson, Perry & Jensen, PA. $1,479.39 • and $383.90; Gabriel, Roeder, Smith $6,279.00; Bogdahn Consulting LLC $2,000.00; and Acordia $3,315.00. Vice Chair Genco seconded the motion, which carried by unanimous 4-0 vote. IX. UNFINISHED BUSINESS a) Consideration of Acceptance of New Investment Guidelines Prepared by Mr. Bogdahn Mr. Bogdahn commented on the items the board had wanted to change. On equities, it had stated new securities purchases shall have a value line rating of safety of 1, 2 or 3 or equivalent rating by another agency, except that 10% of the fund's assets did not need to meet the requirements. Mr. Bogdahn's proposed guidelines had 20% instead of 10% because if there were an investment manager who had an opportunity to invest in smaller capitalization stocks, most of those would not have a safety rating since value line only covered larger companies. This still forced ablue-chip type portfolio, but afforded the manager the opportunity to have small and mid-cap stocks. It could be 10%, but that would limit the manager's stock selection. Boardmember Sabin expressed his opinion that the board's concern had been there could be investments ranked lower than 3, but now he understood that it could be lower or have no ranking, and why would the board want to encourage a manager to invest in stocks ranked 4 or lower. Mr. Bogdahn responded the board would not be encouraging them to do • that but would be giving them the leeway to do that for a small portion of the portfolio, and would want to do that, giving an example that in 2003 the value line 1, 2, and 3 trailed the S&P substantially, and it was only the managers who had the • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 12 ability to go to either non-rated securities or drop into the small ormid-cap arena who did well. Mr. Bogdahn explained that there was another safeguard in the policy to guard against aloes-quality portfolio, that violitility should not exceed a certain percentage over the index. Vice Chair Genco commented the essence of the board's previous discussion on this had been that they did not want unrated securities or securities with a ranking for safety of 4 or lower to be 10%, however, they allowed a workout section of up to 20% so that if something that was on the list dropped down to a value line ranking of 4 it would be allowed to work out along with the other 10% but not to exceed 20% of the portfolio. Mr. Bogdahn indicated he had not seen that, and reported Dana Investments in 2003 had outperformed the benchmark by being able to go to lower or unranked securities and still had ahigh-quality portfolio. Vice Chair Genco commented this would also allow more IPO's in the pension plan, which the board did not want. Mr. Bogdahn pointed out everything had been an initial public offering at some point and his suggestion on that was any equity security • that was purchased must have been traded on a maj or exchange for at least one year. He did not recommend this be done on bonds and new issue bonds were okay in his opinion. Vice Chair Genco recalled that had been discussed at the August 10 meeting. Attorney Jensen advised the board had discussed adding an item that would prohibit the investment manager from investing in initial public offerings and new bond issues. Vice Chair Genco recalled the board had agreed original issue government bonds were okay. Mr. Bogdahn asked about original issue corporate bonds, and Vice Chair Genco indicated she agreed with corporate bonds but was still uncomfortable with 20% of equities being initially purchased and she did not believe unrated stocks belonged in a pension plan. Chair Weinand commented he did not want to take a lot of risk. Vice Chair Genco described the research she did in this area, and that formerly the investment policy had rating criteria on bonds but not on equities except to say they had to be traded on a major exchange, and now it was saying had to be traded on a major exchange or be rated by Value Line or someone like Standard and Poor's with a ranking of 1, 2, or 3. Mr. Bogdahn confirmed the 20% could mean a higher return, and the last sentence in the investment policy was that if there was anything in the policy that the investment manager felt was too restrictive he just needed to let the board know and it would be discussed. Mr. Bogdahn stated he would put into the policy, that at least 90% of the equities must be rated by a major rating service in the top three quality grades. Whoever was chosen as investment manager would get a copy of the policy and if they felt it was too restrictive for them it would come back to the board for further discussion. Mr. • Bogdahn confirmed that the other changes were to have maximum investment in corporate bonds any single corporation of 5% of the fund, which did not limit government bonds; prohibit that for equities by saying they must be traded at least 12 i BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE ~3 months, and no restriction on new bond issues. MOTION: Vice Chair Genco moved approval of the new investment policy guidelines with the changes as just stated by Mr. Bogdahn. Boardmember Sabin seconded the motion, which carried by unanimous 4-0 vote. Vice Chair Genco requested that Mr. Bogdahn provide a corrected investment guidelines policy for the next meeting. b) Discussion and Consideration of Selection of Investment Manager (Postponed from last meeting) Mr. Bogdahn provided a handout and commented he understood the situation to be • that the board had interviewed ICC, Northstar, Dana, and Rockwood/Contravisory, and it seemed to come down to Dana and Rockwood, and there had been a question of what it would look like with a combination of the two of them. His handout provided numbers over the past five years for Northstar, Dana, and Rockwood individually as well as a 50/50 combination of Dana and Rockwood, as of 9/30, using the S&P as a benchmark. The beta and other guidelines were reviewed. Mr. Bogdahn indicated the goal was to capture more of the upside and preserve any type of downside capture ratio possible. Dana and Rockwood and the combination all did better in 1999 and 2003 than the indexes and also in the down markets, while Northstar had not captured the down markets in those years. 5-year and 10-year up and down capture ratios were reviewed. Mr. Bogdahn clarified the figures were based on equity investments. Northstar had outperformed the benchmark but the other companies had performed better because they were able to capture both upside and downside. Attorney Jensen asked if there would be increased cost by having two managers-Dana and Rockwood. Mr. Bogdahn responded with Dana there would be a $3000 custody fee; Rockwood had put together their custody product so there would not be an additional charge for a custodian, if their commingled fund was used, which would save $3,000, and Mr. Bogdahn's fee would increase to $2,500 with two managers. During discussion of the betas, Mr. Bogdahn agreed Rockwood alone had less violitility over the 3-year period than Dana, but more over the 5 and 10-year periods. Mr. Bogdahn reviewed alpha numbers, and impact of returns. Mr. Bogdahn advised there would be increased cost with two managers but that would be • offset by the difference in management fees. Vice Chair Genco expressed her opinion that overall Rockwood appeared to be superior, and had better numbers. Mr. Bogdahn agreed, and commented Rockwood's violitility over the long term was a • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE i4 little bit more but not significantly over the index. The real difference was Dana had a sector neutral approach, and Rockwood was using a bell curve and being more opportunistic as they were coming into those and using their own system for that. Since this board last met, Rockwood had been hired by the North Bay Firefighters, the Midway Firefighters, and a portion of the Venice Firefighters pension boards. Rockwood's process had been put together since 1972, and they had actually been managing money based on that process since the 90's. The Contravisory process was a research-based process; Mr. Noonan worked for Fidelity, and in 19721eft Fidelity and started his own firm using the same process, and Fidelity became one of his clients. Contravisory was a research arm, Rockwood was a fixed income manager, and they also had a marketing arm--which Contravisory didn't, so by their alliance Rockwood now had a balanced product with equity, fixed income, and marketing for the whole thing. Vice Chair Genco commented they did very well in 2001 during a very volatile market, which swayed her quite a bit. Mr. Bogdahn reviewed their • performance during 2002 to 2004, and explained how they were opportunistic through the process. They had a portfolio of about 40 stocks and they only buy and sell securities once a month. Attorney Jensen pointed out the fees would be different than shown because they now had a commingled product, and fees would be higher on the top end but they would work out to be about the same. Mr. Bogdahn recommended the commingled fund so there would be no $3,000 custody fee. During discussion of fees, Attorney Jensen noted Rockwood went to 70/40 for the General Employees' Fund fee. MOTION: Vice Chair Genco made a motion to go with Rockwood. Boardmember Sabin seconded the motion, which carried by unanimous 4-0 vote. Vice Chair Genco and Boardmember Sabin announced they needed to leave to attend other meetings.. X. ANY OTHER MATTERS a) Disposition of Class Action Suit Attorney Jensen reported a class action suit came to Northstar but this fund did not hold those stocks. • b) Discussion of changes to the budget which were added to the agenda were delayed because of insufficient time. • BOARD OF TRUSTEES TEQUESTA PUBLIC SAFETY OFFICERS PENSION TRUST FUND MEETING MINUTES November 9, 2004 PAGE 15 XI. COMMUNICATIONS FROM CITIZENS There were no communications from citizens. XII. ADJOURNMENT Upon motion by Vice Chair Genco, seconded by Boardmember Sabin, and unanimously carried, the meeting was adjourned at 11:35 a.m. Respectfully submitted, U Betty Laur Recording Secretary •