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07-30-1997 ... '-" ...." Edgewater Firefighters' Pension Fund Regular Meeting Wednesday, July 30, 1997 6:32 p.m. Call to Order: The Regular Meeting of the Firefighters Pension Board was called to order July 30, 1997 by Secretary Richards at 6:32 p.m. in the Fire Administration Office. Members present were: Bill Vola, Fred Munoz, Gary Butt, and Secretary Patricia Richards. Jill Landreville was absent. Also present were Mr. Steve Burkhalter and Mr. Charlie Mulfinger from Smith Barney, and Lisa R. Miller, Recording Secretary. Minutes: The Minutes from the May 7, 1997 Regular Meeting were submitted for approval. Mr. Vola moved to approve the minutes as submitted. Mr. Munoz seconded. Motion CARRIED 4 to o. Secretary Richards welcomed Gary Butt as the new member to the Board. Investment Report: Mr. Mulfinger went over the quarterly investment report. He stated it was the best quarter so far. There was discussion regarding how well ICC Capital Management did in relationship to other investment managers. He noted the portfolio value as of July 29,1997 was $387,115. He noted that the fund underperformed again on the large cap value side and added that a lot of it was due to the trading that had taken place as a result of the change in the investment ratio so there were a lot of commissions that were paid. Mr. Mulfinger stated on the fixed income side the fund did better. Mr. Mulfinger stated he had a possible solution to the problem of the fund underperforming and that was to replace the managers and do a search for a new one. He added that he had done a search and provided the Board with the information and the fees associated with it. Mr. Mulfinger went over the investment report in some detail as there was a new Board member. Mr. Munoz stated there was a security that looked like it might be a foreign investment. Mr. Mulfinger stated that it did indeed look like one and that he would have to check it out. He added if the investment company had violated Chapter 175 by investing in a foreign security the Board would keep the earnings if it did well, but if it lost money the investment company would have to eat the loss. Mr. Munoz asked if they could get information on disk to meet GASB requirements. Mr. Mulfinger stated since this program was menu driven he could provide the City with whatever reports they needed to meet their needs. He added he would send Mr. Munoz a set of reports and he could tell him which ones would best suit his needs. Mr. Mulfinger stated the commission fees at such a volume of trading would offset the fees from Smith Barney, and this year it would come to about $5,000 which was high for a fund of this size. He noted this was another reason why he did the search for a new manager. It was noted there was a question of a fee that was charged to the fund where the investor purchased a bond in an account where they did not have enough money to pay for it, but they did have the money in another account, so they moved a bond into the other account to pay for it. So the bond was charged interest, but the other one was earning interest to offset that amount. It was questioned if there was a loss or gain. Mr. Mulfinger stated there would have been a difference of three of four dollars. He stated since it wasn't a large amount and that he was going to recommend firing them at this time he did not want to make it an issue. There was discussion regarding investment practices by the investment company. Mr. Mulfinger went over the fees paid by the Board so far this year. The commission fees this year are over $5,000 and they should normally be $3,000. He added that normal fees to cover commission fees, custodial, and basis points should normally be $6,000 to maintain an account of this size, not including actuarial fees and attorney fees. Mr. Mulfinger stated Mr. Burkhalter asked him to see if there was something else that would work better for the Board. Mr. Mulfinger stated what they do for other larger accounts is charge a 1% flat fee per year that includes no commissions, manager fee included, and custodial fee included. Mr. Mulfinger stated on an account this size 1% would be $4,000 to cover all costs and in comparison to the way we have been going its much cheaper, better money managers, and overall the performance has been better and the fees are lower. Mr. Mulfinger stated there is no commission cost when you buy or sell so there is no reason for the manager to be doing something to the Board's disfavor for charges and would allow for multiple managers and no fee from the managers, only the flat 1 % from Smith Barney. He added Smith Barney maintains their independence as the Board's consultant from the managers. Mr. Mulfinger stated he did a search for money managers in three areas: Large Cap Value Manager, Large Cap Growth, Fixed Income. The money managers under Large Cap Value to be considered were: Oppenheimer Capital and Lord, Abbett & Company. The money managers under Large Cap Growth were: Sirach Capital and Voyageur Asset Management. The Fixed Income managers were: Madison and U.S. Trust of CA. He added the agreement would have to be approved by the Board Attorney and signed by all Board members. 1 '" ..., ...." Firefighter Pension Fund Regular Meeting 07/30/97 Page 2 Mr. Munoz moved to dismiss ICC Capital Management due to the lack of performance effective when the time the contract is signed with Smith Barney when the new managers can manage the fund. Mr. Vola seconded. Motion CARRIED 4 to o. Mr. Vola moved accept the recommendation from Smith Barney to hire three different managers under the consulting group manager search to enhance performance with a 1% total cost except for attorney fees and actuarial fees. Mr. Munoz seconded. Motion CARRIED 4 to o. Mr. Vola moved to hire Oppenheimer Capital as the large cap value manager. Mr. Munoz seconded. Motion CARRIED 4 to O. Mr. Vola moved to hire Voyageur Asset Management as the large cap growth manager. Mr. Butt seconded. Motion CARRIED 4 to o. Mr. Munoz moved to hire Madison as the fixed income manager. Mr. Butt seconded. Motion CARRIED 4 to O. There was discussion regarding the distribution of funds between the three accounts. Mr. Vola moved to allocate total assets in a 1/3, 1/3, 1/3 split as follows: $133,000 in large cap growth, $133,000 in large cap value, and $133,000 in fixed income. Mr. Munoz seconded. Motion CARRIED 4 to o. There was discussion regarding the procedures to follow to set up the account. There was discussion regarding procedures for hiring and firing of the money managers. It was noted if Smith Barney made a recommendation to fire a manager and the Board did not take that advice, Smith Barney would require a letter stating the Board chose not to follow their advice to take the risk away from them as they are fiduciarily responsible. The Board noted they would send a letter to Mr. Sugarman to authorize him to review the agreement for the Board's signature. Mr. Mulfinger requested a letter from the Board stating who could sign for authorizations of payments. It was noted that all five board members could sign, but it required any two for disbursement. Old Business: There was discussion regarding the State monies. Mr. Munoz stated he spoke with Patricia Shoemaker and there were some outstanding Chapter 112 issues that needed to be addressed with Mr. Charles Slavin before the State monies would be released. He added Mr. Slavin stated Chapter 175 didn't address all the things that could threaten the tax exempt status of the retirement plan. There was discussion regarding how to comply. It was noted there was nothing from the State in writing to tell the Board what still needed to be complied with. Mr. Vola moved to sent a letter to Charles Slavin to request an explanation regarding the State monies that are being withheld and what it would take for the Board to be in compliance. Mr. Munoz seconded. Motion CARRIED 4 to O. There was discussion regarding the changes that were to be made to the wording of Ordinance 97-0-4. It was noted the City Attorney had informed the recording secretary that there would be no changes in the Ordinance as the middle part, which is actually the legal part, was correct even though the description in the top part was wrong. It was noted for future reference that anything that was to go before council for the Board should come to the Board first in draft form for their approval. New Business: The next item to come before the Board was the bill from ICC Capital Management. Mr. Munoz moved to pay the bill in the amount of $452.41. Mr. Vola seconded. Motion CARRIED 4 to o. There being no more business to come before the Board at this time, Mr. Vola moved to adjourn. Mr. Butt seconded. Meeting adjourned at 8:25 p.m. Minutes respectfully submitted. Lisa R. Miller Recording Secretary. 2