Firefighters' Pension Board

Edwardsville Firefighters Pension Board 410 North Main Street Edwardsville, Illinois 62025 618-692-7541 618-692-7567 Fax Regular Pension Board Meeting – October 27, 2015 Attendance Board members present: James Whiteford, James Anderson, Cole Schrage, Rich Hampton, and Dennis McCracken Guest: Jeremy Paschall, Craig Larsen Meeting Called to Order Whiteford called the meeting to order at 0916. Approval of Minutes Anderson made a motion to accept the minutes from the July 28, 2015 regular meeting, the August 24, 2015 special meeting, and the September 23, 2015 special meeting. Hampton provided the second. Whiteford called for a vote. All members voted “aye”. The motion passed. Public Comment None Communications and Bills Paschall presented an invoice from C.J. Schlosser for the fund’s portion of the annual audit to the amount of $1200. Anderson made a motion to pay the invoice. Hampton provided the second. Whiteford called for a vote. All members voted “aye”. The motion passed. Anderson made a motion to reimburse attendees of the 2015 AFFI pension seminar for their expenses; Whiteford $415.51, Anderson $311.36, Schrage $311.36. Schrage offered the second. Whiteford called for a vote. All members voted “aye”. The motion passed. Treasurer’s report Hampton presented the L&A report. Tax levy process begins tonight with the City's finance committee. The board presented the tax levy recommendation prior to the deadline of November 1, 2015. Hampton states this is the first step in the process. Schrage made a motion to approve the Treasurer report. Anderson provided the second. Whiteford called for a vote. All members voted “aye”. The motion passed. Old business Whiteford presented that the board's response to the IDOI has been delivered to the IDOI. We are awaiting further response. New Business Treasurer authority resolution - The IDOI is requiring the treasurer to sign all checks however as L&A writes the checks, that is logistically impractical. The IDOI is now aware that this requirement is an issue but has no recommendation. A resolution was drafted to allow the treasurer to designate a signer (Lauterbach & Amen). Whiteford made a motion to accept the resolution. McCracken provided the second. Whiteford called for a roll call vote. The results are: Whiteford – aye; Schrage – aye; McCracken – aye; Anderson – aye; Hampton – aye. The motion passed. The 2016 meeting dates were set as follows: January 26, April 26, July 26, and October 25. Anderson presented that from the AFFI seminar indications from the IDOI acting director that they are favorable to consolidating the downstate pension funds. Anderson suggests keeping our awareness that this issue is still in the minds of the state. Larsen states that the idea of consolidation is to reduce operational costs, however a study showed that while the smaller funds may benefit the larger funds may be harmed. Fund Investment Report and Actions No action recommended Larsen presented that it is no surprise that the first quarter was down. The fund balance currently is $11,587,652, a change in value from the previous quarter of -$477,662. However these numbers are from Sept 30, 2015 and the fund has gained in October about $400,000. The cash holdings are drawing down, as it should between tax collections. Depending on the market, the fund may need to raise cash in April of 2016. PNC has had their duration less than the benchmark to protect against a rise in interest rates. The interest rates did not rise, so PNC is strongly trailing the benchmark. In the long term, 5 years, PNC has done well. They acknowledge that the duration is pretty low but they are in the processing of increasing their duration to come closer to the benchmark since The Fed has still not raised rates. The question becomes has PNC waited for so long for rates to rise and been behind so far, that now are they going to move in the other direction and be wrong again? Any manager who used duration as a tool has been wrong. The other managers have done well but they were larger funds and could use other tools. Larsen says this issue was not enough to put PNC on notice, but Larsen is keeping a watch on things. The importance of diversification is demonstrated in how for the past year most of the funds are down, but real estate was up. Therefore you never know what area of the market will help rather than hurt. Also Larsen reminded the board that small and value stocks beat growth and large over time despite occasional inversions. The fund's long time horizon it well suited to take advantage of this premium. This is the strategy behind the fund's portfolio. The board also needs to make sure they weather the lows and that the fund is positioned to do this with diversification and keeping a long term vision. The stock mark has had a recovery but small recovery is still slow keeping our returns depressed. The Chinese market issue - China devalued its currency so that they can grow their economy through exports because their products are cheaper. There are signs that China's growth is actually slower than what they are reporting. The Fed about the same time was talking about when they were going to raise rates. They keep pushing this action back, giving mixed signals, which causes the market to be week. So The Fed is watching the markets near term and the market is watching The Fed and this causes uncertainty on both accounts. Larsen says The Fed should be looking long term and not reacting to monthly market indicators but long term indicators. It is clear that The Fed has just as much trouble predicting the market future as any one else. The lower employment participation rate and lower inflation are reasons to lower rates, but The Fed has been saying they are going to raise rates. This causes the volatility in the market. Larsen predicts The Fed will continue to not raise rates. The market gives the probability of a rate raise 24%. Economists give the probability of 60%. Larsen trusts the market over economists any day. Assuming they rates the over night lending rate .25%, and that longer-term rates do not move. This will have minimal impact in bonds. The stock market reaction is completely unknown. However The Fed has made wrong predictions about inflation for over a year thus diminishing their credibility adding more volatility. Adjournment Schrage made a motion to adjourn. McCracken provided the second. Whiteford called for a vote. All members voted “aye”. The motion passed. The meeting ended at 1053. _________________________________________ Respectfully submitted by Jeremy Paschall Assistant to the Secretary