Police Retirement Board

City of Columbia, Missouri Meeting Minutes Police Retirement Board Friday, February 12, 2016 Conference Call: Joint Investment Committee 1-888-975-0210, 9:00 AM Passcode 18389436 # I. CALL TO ORDER Present: 1- Benjamin Frede Absent: 4- Ken Burton, Matthew Pitzer, Candy Cornman and Allan Bell II. SPECIAL ITEMS Presentation by Marc Shegoski, UBS Mr. Shegoski reviewed the market outlook for domestic and global markets. He began by discussing current global market fears including a European banking problem, immigration and oil prices in China. He said the big question was whether or not the United States was going into a recession. He said there was a 20-30% chance that the United States would go into a recession, but he said UBS still thinks consumers are doing okay because housing mortgages are increasing, credit is still available and jobs are available in the construction, fast food and automotive industries. Mr. Blattel added that the unemployment rate in Columbia was 2.8%. Mr. Shegoski said UBS’ GDP estimate was cut the week before from 2.8% to 1.5% for what he called a recession in growth. Mr. Blattel added that the City was looking from a budget perspective at flat revenue growth in the current fiscal year and was adjusting expenditures to anticipate the same amount of general fund revenue in FY16 as the City did in FY15, or about a 3% withholding. He continued saying as a result there wouldn’t be any layoffs or terminations, but that the City would delay hiring and capital expenditures. Mr. Shegoski said what concerned UBS the most at that time were the credit markets, specifically the banking industry and the bond markets. He said a concern was the high yield spreads that had widened out due to increasing energy prices. Mr. Shegoski added that another concern was the yield curve flattening out from 2 years to 10 years and subsequently if borrowing money in the long-term ends up being cheaper than the timeframe of 2 to 10 years. He said a third concern was the credit default swap, or the ability of a person to bet against fixed income by buying an option on it. He continued by saying that the problem with credit default swaps is there is no limit on how many options there can be. Any institution that has over 75-100 options means the credit market thinks that institution has problems. Mr. Sears said to put than in perspective, in 2011 in Europe during the Greek financial crisis, credit default swaps had 400-600 options. Mr. Shegoski said with the previous changes that were made to the portfolio, the portfolio was currently at 55% stocks, 40% bonds and 5% in cash. Mr. Sears said UBS’ prediction of the possibility of a recession had increased from 15% at the start of the year to now 20% to 30%. If that ended up being the case, Mr. Sears City of Columbia, Missouri Page 1 Printed on 8/9/2016 Police Retirement Board Meeting Minutes February 12, 2016 said it would be a good time to hold a normal, or neutral, allocation of equities. He continued saying the portfolio had been overweight in equities, and now we had taken more of a neutral stance. Mr. Sears added that UBS thinks that once everything stabilizes again, stocks will be the place to be to invest the money. Therefore, Mr. Sears said UBS recommended not getting more defensive with the portfolio, but that the current neutral position was appropriate. Mr. Frede asked if the 5% cash position that the portfolio currently had would remain in cash. Mr. Sears said that was excluding the small-cap, with 2.5% in New South and the remaining 2.5% with the equity mangers as a natural cash holding. Mr. Shegoski clarified that it is being managed, and is not just in cash. Mr. Frede asked a clarification question that over the coming days and weeks New South would draw down their cash, and any equity mangers that would maintain cash will show up in the cash line item on the report. Mr. Sears confirmed that would be correct. Mr. Shegoski talked about what would happen to money markets if there was a negative interest rate. He said all of the money markets that UBS uses meet the new criteria for not breaking the dollar. However, the question was whether or not the money markets would charge if there was a negative interest rate. Mr. Shegoski said he didn’t think there will be a negative interest rate, but he was looking at the implications if something like that did indeed happen. Mr. Frede asked where in the portfolio that would be a concern, and Mr. Shegoski said it would be if we were switching managers and the money was sitting in the money market for a few days during that transition. Mr. Frede then asked if the $2.5 million that New South would eventually draw is currently sitting in a money market earning close to nothing, and Mr. Shegoski concurred. Mr. Shegoski said they are watching it closely because they want to be ahead of it if it happens. III. ADJOURNMENT There being no further business, the meeting was adjourned at 9:20 a.m. Members of the public may attend any open meeting. For requests for accommodations related to disability, please call 573-874-7214. In order to assist staff in making the appropriate arrangements for your accommodation, please make your request as far in advance of the posted meeting date as possible. City of Columbia, Missouri Page 2 Printed on 8/9/2016