Police and Fire Retirement Board

Item 4. December 13, 2022 CENTER LINE POLICE & FIRE RETIREMENT COMMISSION MINUTES REGULAR MEETING November 14, 2022 Page 1 of 7 The regular meeting of the Center Line Police and Fire Retirement Commission was called to order at 2:37 p.m. by Chairperson Stys. Members Present: Richard Stys, Gregory Suma and Jorge Bermudez. Members Absent: Bernadette Helkowski and Gregory Pearl. Also, Present: Tim Brice from Morgan Stanley. AGENDA ITEM 2A. – Approval of the Agenda: A. Motion by Trustee Suma to approve the agenda was supported by Trustee Bermudez. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Helkowski and Pearl. AGENDA ITEM 3 – Public Comment Seeing there was no one in the audience this item was closed. AGENDA ITEM 4 – Approval of the minutes A. Approval of the Regular Meeting minutes held on September 22, 2022. Motion by Trustee Suma to approve the September 22, 2022 minutes supported by Trustee Bermudez. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Helkowski and Pearl. AGENDA ITEM 5 – Remembrances: A. None. AGENDA ITEM 6 – Presentations: A. Timothy Brice, Morgan Stanley Graystone Group discussion on:  Item 4. December 13, 2022 CENTER LINE POLICE & FIRE RETIREMENT COMMISSION MINUTES REGULAR MEETING November 14, 2022 Page 2 of 7 i. On the Markets for November 2022 – Selective Navigation, Not the Chase. ii. Education on Hedge Funds. iii. Money manager performances 3rd Qtr. 2022. iv. Market value as of November 9, 2022 was $ 11,682,754.65 while the agenda had $ 12,573,595.21 the Board recognized the error and received and filed the correct number. Mr. Brice spoke to the On the Markets handout. In June 2022 all the markets hit their lows. About that time, the markets thought the FED was done with increasing rates, the ten-year T-Bond yield went lower and there was a rally in the markets to mid-August. Then the FED went aggressive to tamp down inflation increasing the FED Funds rate by 75 basis points three times and the markets went to lows again. In October there was a rally as the S & P 500 rebounded with an 8.00% gain. It is anticipated the FED will raise rates in December by 50 basis points and another 25 basis points in January 2023. The ten-year treasury note is down to a 3.82% yield off of a high of 4.20%. Quoted from the handout “To be clear, the bear market is most likely not over, and investors hoping to see through to the next bull market seem woefully early, as there are far too many unknowns. Consider first that we have not seen the peak in official inflation data. As Mike Wilson notes, there is evidence from survey data, commodities and inventory rebuild that price pressures are falling, but a data-driven Fed is going to be setting policy without confirmation from trends in wages, rents and services inflation, which have been key drivers lately. Slower rate hikes should not be conflated with an end to tightening or a catalytic loosening of financial conditions. Second, monetary policy operates with a big lag. Although new order indexes point to slowing, third quarter GDP was still solid, at a 2.6% annualized rate. The implication is that the impact of an economic slowdown on earnings—when both volumes and pricing power wane—has not yet been absorbed or reflected in forward estimates. While a 2023 recession is not our base case, many indicators suggest it is inevitable, and even our cautious view could be too optimistic. Finally, valuations, as measured by the equity risk premium, are not yet providing bargain discounts at the index level.” Mr. Brice said he manages short-term monies for some of his clients and he is getting 3.75% on three-month certificates of deposits. He has not seen rates that high in years. Mr. Brice said Western, our fixed income manager, has started to come around lately. If rates go lower it would benefit them and then we will take a look at cutting our exposure  Item 4. December 13, 2022 CENTER LINE POLICE & FIRE RETIREMENT COMMISSION MINUTES REGULAR MEETING November 14, 2022 Page 3 of 7 with them. Trustee Suma said Stephanie was supposed to supply the commission monthly returns on Western, Clearbridge and Harding Loevner. We received September’s but not October’s. Mr. Brice said he will have those forwarded. The United States dollar has hit new highs. As the dollar lowers, international and emerging markets will look attractive. The price to earning for emerging markets is around 8, the p/e for Europe is around 10, and the p/e for the S & P 500 is about 17. Those areas are cheaper now but Morgan Stanley is not moving in there yet. Mr. Brice said the last three months Harding Loevner has outperformed their benchmark. Mr. Brice talked on performances. Global equities are down over 25.00%, US equites down 24.00%, international equities down 26.20%, and emerging markets down 27.00% year to date. Bloomberg US aggregate fixed income was down 14.60%, The Bloomberg Universal Govt. Inflation-linked was down 17.30% and emerging markets fixed income index was down 18.60%. REITS are down 28.00%, Private real estate is up 8.70% and commodities are up 13.60%. For the third quarter of 2022 the discretionary stocks sector was up 4.40%, energy was up 2.20%, financials were down 3.10%, technology was down 6.20%, materials were down 7.10%, real estate was down 11.00% and communication services were down 12.70%. Mr. Brice said it is the first time since 1931 that the bond and stock markets have both been down for three consecutive months. For the third quarter of 2022 our portfolio was down 5.57% and our policy benchmark was down 5.78%. Year to date the portfolio is down 24.60% while our policy benchmark was down 21.41%. For the last five years, the bond index is down .27% while Boyd is up .26% and Western is down 1.05%. Through Friday, November 11, 2022 our portfolio is up 11.00% quarter-to-date. In the second quarter of 2022, 80.00% of company’s earnings were better than expected and in the third quarter 70% of company’s earnings beat their estimates.  Item 4. December 13, 2022 CENTER LINE POLICE & FIRE RETIREMENT COMMISSION MINUTES REGULAR MEETING November 14, 2022 Page 4 of 7 Although our managers underperformed in the first quarter of 2022, they are at least hitting their benchmarks in the third quarter. The mid-term elections have just ended. Mr. Brice said since 1946 there have been eighteen mid-term elections and, in that time, the markets have been down 17.50% leading up to the elections and six months after the elections the markets have been up 14.50% and after twelve months the markets have been up nearly 30.00%. Mr. Brice said all asset classes our within our minimum and maximum ranges. Large- cap stocks are getting near the top of the range. Mr. Sobota said in three months from now no further city contributions would be made to the Trust. Trustee Suma said Mr. Brice was supposed to have an example of how we were going to do drawdowns. He forgot to do that and will have it at the December 2022 meeting. Mr. Brice presented a hedge fund educational document. Some types of hedge funds are absolute return, equity hedge and equity return. In equity return assets we had a presentation of a long/short strategy which have a monthly and quarterly liquidity option. The strategy aims to get all the return of the markets with only 40.00% to 50.00% of the risk. An absolute Return hedges attempts to provide a consistent return regardless of market conditions. This would be a replacement to fixed income managers. An equity hedge strategy provides uncorrelated exposure to traditional risk-asset market. An Equity returns strategy seeks superior returns with greater dispersion and higher volatility. The last two would be funded from equities and the first one would be funded from fixed income assets. A fund of funds is where you have multiple managers investing the portfolio assets. There are hedge fund of funds and private equity fund of funds. So, you have a diversification of managers but some times there may be multiple layers of fees. Mr. Brice said he likes fund of funds strategies but always at a lower fee structure. Mr. Brice said he does not like a single manager hedge fund as it may be riskier. Hedge funds include a broad spectrum of investment strategies like macro funds, relative value funds, equity market neutral funds, event driven funds, distressed credit funds and equity long/short equity hedge funds. Of those strategies, Mr. Brice likes the long/short approach. Mr. Brice covered hedged strategies correlation and performance over a twenty-five-year time period through March 2021. It is on page 13/29 of the handout.  Item 4. December 13, 2022 CENTER LINE POLICE & FIRE RETIREMENT COMMISSION MINUTES REGULAR MEETING November 14, 2022 Page 5 of 7 AGENDA ITEM 7 - For Your Information: A. Monthly performance review of Western fixed income manager and Harding Loevner International equity/ADR as of September 30, 2022. Mr. Brice said that Western has told them as interest rates go lower, they should begin to make significant returns. So, we need to hold them accountable. Trustee Stys said maybe going forward to label this item as review of monthly performance for said managers. A motion by Trustee Suma to receive and file was seconded by Trustee Bermudez. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Pearl, Helkowski. AGENDA ITEM 8 – Old Business: A. None. AGENDA ITEM 9 – New Business: A. Election for Gregory Pearl’s trustee seat expiring December 31, 2022. Trustee Bermudez said he would reach out to Trustee Pearl to see if he will seek nomination again. Trustee Suma asked Chairperson Stys and Trustee Bermudez if they would like to sit on the Election committee and both said yes. They will be joining Deputy Clerk Janice Pockrandt to oversee the election. Trustee Suma said he would post a notice seeking candidates in the first week of December. AGENDA ITEM 10 – Retirements: A. None. AGENDA ITEM 11 – Annuity Withdrawals: A. None. AGENDA ITEM 12 – Approval of Pension Figures: A. None.  Item 4. December 13, 2022 CENTER LINE POLICE & FIRE RETIREMENT COMMISSION MINUTES REGULAR MEETING November 14, 2022 Page 6 of 7 AGENDA ITEM 13 – Vouchers: A. September 23, 2022 pensions paid: Pay Report 477 ~ $ 126,716.67. A motion by Trustee Suma to pay the September 23, 2022 pensions was seconded by Trustee Bermudez. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Pearl, Helkowski. B. October 25, 2022 pensions paid: Pay Report 480 ~ $ 126,716.67. A motion by Trustee Suma to pay the October 25, 2022 pensions was seconded by Trustee Bermudez. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Pearl, Helkowski. C. Third Quarter 2022 Money manager fees ~ July 2022 - $ 2,649.27, August 2022 - $ 2,509.79 September 2022 - $ 2,221.20, Total: $ 7,380.26. A motion by Trustee Suma to pay the third quarter money manager fees was seconded by Trustee Bermudez. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Pearl, Helkowski. D. Graystone Consulting fees 3rd Quarter 2022 Invoice # 10062022280, dated: October 7, 2022 ~ $ 14,050.01. A motion by Trustee Suma to pay the Graystone Consulting fees 3rd Quarter 2022 Invoice # 10062022280 was seconded by Trustee Bermudez. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Pearl, Helkowski.  Item 4. December 13, 2022 CENTER LINE POLICE & FIRE RETIREMENT COMMISSION MINUTES REGULAR MEETING November 14, 2022 Page 7 of 7 E. MAPERS 2023 Annual Dues: $ 200.00. Chairperson Stys said his email address needs to be corrected. A motion by Trustee Suma to pay the MAPERS 2023 Annual Dues: $ 200.00 was seconded by Trustee Bermudez. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Pearl, Helkowski. 14. Commission Members Comments: There were no comments from the Trustees. AGENDA ITEM 15 – Adjournment: As there was no further business to discuss, a motion by Trustee Suma and supported by Trustee Bermudez that the meeting be adjourned at 3:47 p.m. AYES: 3 NAYS: None Motion carried 3 - 0. ABSENT: Pearl, Helkowski.