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10-12-2009 - Joint Special General Employees' and Police Pension Boards of Trustees Minutes - Joint Special Meeting October 12, 2009 Page 1 of3 CITY OF EDGEW ATER GENERAL EMPLOYEES' & POLICE OFFICERS' PENSION BOARDS OF TRUSTEES SPECIAL MEETING MINUTES Monday, October 12,2009 CALL TO ORDER! ROLL CALLIDETERMINA TION OF A QUORUM The Edgewater General Employees' and Police Officers' Pension Boards held a special meeting on Monday, October 12,2009 in the City Hall Council Chamber at the City of Edgewater, Florida. Members Present (General): Bobby Laramore Tyna Hilton Tim Sopko Brenda Dewees Jonathan McKinney Gigi Bennington John Brackin Dan Blazi Ferd Heeb Gary Conroy Lawrence Leaf None Mike Welker, The Bogdahn Group Sheila Hutcheson Members Absent (General): Members Present (police): Members Absent (police): Performance Consultant: Plan Administrator: The special meeting of the General Employees' and Police Officers' Boards of Trustees was called to order at 9:33 a.m. by Vice-Chairman Dewees and Chairman Blazi. Both Boards had a quorum. NEW BUSINESS Presentation: Mike Welker, The Bogdahn Group · Investment Managers Mr. Welker reviewed investment philosophies/styles and recommended core managers. He stated that diversification means having all sectors covered to optimize returns and minimize risks. Based on Bogdahn's studies, they recommend giving the managers the latitude to make decisions based on their daily evaluations of the market, rather than having the Board review it only on a quarterly basis. Thus, they recommend using opportunistic managers and Mr. Welker had seven managers that would be good for the Edgewater Plans' fund size (the Police and General Plans' assets total $18 million). Mr. Welker continued with emphasis on smaller boutique managers, and recommended interviewing about four managers. The Boards can then decide on different managers for each fund if desired. He stated that the report he distributed shows eight years of returns because all seven of the firms have an eight- year history. He noted that it is also important to look at the one-year performance number, pointing out that Rockwood was the worst for one year, but had good performance for the overall eight-year period. This was based on Rockwood's process for ranking stocks for investment. Mr. Welker then discussed the performance of the various firms for different historical periods, noting the importance of two factors: performance and process. He reported that ICC MultiCap is the most opportunistic of the seven managers shown and is very familiar with the Florida market, but has the most volatility. Since ICC also has low cost, it was recommended that the Boards interview the firm. He then advised General Employees' and Police Pension Boards of Trustees Minutes - Joint Special Meeting October 12, 2009 Page 2 of3 that it is important to blend managers together. Bowen Hanes has been hired by the Edgewater Fire Pension Plan and is a good firm with a different process, called thematic. They have outperformed the Russell 3000 for the last eight years and are more a top/down manager. Next, he discussed Dana Investments, which is a fundamental manager, and is sector neutral. Dana adds value through stock selection and has the least volatility. Manning & Napier (M&N) is one of the few investment firms that could be hired and could be a sole manager; M&N is the firm with the largest amount of assets compared to the others being considered ($1 Obillion under management). They have the most analysts and their bonuses are tied to the performance of their recommended stocks. Westend, a large cap and fundamental manager, is a firm that would complement another manager. Mr. Welker then reviewed various analyses of the managers in the report to assist the Boards in making their rankings of firms to interview. Following this overview, Mr. Welker asked the Boards for their input as to what their views are. Police Board Chairman Blazi asked about bond managers and Mr. Welker said this would be discussed with these managers and others. Police Members Conroy and Leaf stated that they want a blend of managers, while Member Heeb adopts the philosophy that he likes winners and would then invest with them. The General Board concurred with these observations. Next, several Trustees ranked the firms, as follows: Member Conroy: Manning & Napier, ICC MultiCap, Rockwood, Westend Member Heeb: asked Mr. Welker to provide his top four firms Member Sopko: Bowen Hanes, ICC Multicap, Manning & Napier, Westend Members Dewees and Laramore: Dana, ICC Multicap, Westend, Manning & Napier Member Hilton: ICC MultiCap, Westend, Rockwood, Bowen Hanes It was noted that ICC Multicap, Westend, and Manning & Napier are in everyone's top group, and Mr. Welker said that he would add Bowen Hanes to those three firms. He also pointed out that Dana would be a good complement to ICC Multicap, for a blend. Chairman Blazi mentioned costs and Mr. Welker said that with Bowen Hanes, there would be a discount because the firm also handles the Fire Board's investments. The Boards then decided to interview five firms: Dana, ICC Multicap, Westend, Bowen Hanes, and Manning & Napier. Each firm would be asked to make a IS-minute presentation, which was tentatively scheduled for Wednesday, December 2,2009 at 9:30 a.m. in the Council Chamber. . Draft Investment Policy Statement (IPS) Mr. Welker distributed a draft Investment Policy Statement (IPS) for each Board and discussed differences and similarities of both the Police and General IPS's. He advised that, after the investment managers are selected, there will be a specific addendum for each manager. His report continued by stating that the Investment Guidelines in the document are the direction to managers regarding the fact that they have to follow statutes. Attorney Dehner will be asked to draft: language in the ordinance (upon separation of the Plans from Principal) that will spell out the Boards' ability to make other investment decisions for effective fund management. There was discussion on various topics in the IPS documents, including the following: . convertible bonds/convertible stocks; . derivatives prohibition (this will be in the addendum for each manager); . review of prohibited investments; . pooled funds (this relates to fiduciary responsibility and the prospectus will outline what can and cannot be done; that prospectus will be adopted as an addendum); . trading parameters (will be included in the ordinance language); General Employees' and Police Pension Boards of Trustees Minutes - Joint Special Meeting October 12,2009 Page 3 of3 . limitations; and . restrictions based on Florida statutes (the Police Plan's IPS has provIsIons regarding "scrutinized companies," as these investments are prohibited and must be divested by September I, 20 I 0). The Boards made the following motions on the IPS's: Police Member Heeb made a motion to approve the IPS for execution by the Chairman as discussed; Member Leaf seconded the motion, which passed unanimously on a roll call vote. General Member Sopko made a motion to approve the IPS for execution by the Chairman as discussed; Member Laramore seconded the motion, which passed unanimously. STAFF REPORTS, DISCUSSION, AND ACTIONffRUSTEES' REPORTS, DISCUSSION, AND ACTION/REQUESTS FROM THE PUBLICIEMPLOYEES PRESENT There was discussion by the Plan Administrator and Mr. Welker regarding the qualification/VCP process underway with the IRS. They reported that they, along with Personnel Director Donna Looney, would be calling Attorney Dehner in this regard after today's meeting. Police Member Heeb requested that they ask Mr. Dehner if the qualificationNCP process would have to be concluded before termination from Principal. If it does have to be concluded, both Boards want the Attorney involved to facilitate/expedite this process with Principal. The Police Board discussed the vacancy in the appointed member slot and asked the Administrator to check with the City Clerk to see if any applications are on file. Police Member Heeb recommended the book "The Colossal Failure of Common Sense" (about the market failure) to the Boards. ADJOURNMENT - The meeting was adjourned at 12:00 p.m. for both Boards. ~ Sheila Hutcheson Plan Administrator -' Board Respectfully Submitted: