Retirement Board

MINUTES OF REGULAR RETIREMENT BOARD MEETING Thursday, May 18, 2017 City Hall Dogwood Conference Room 6:00 p.m. 1. Call to Order: The meeting was called to order by Chair Connie Rydberg at 6:07 p.m. 2. Roll Call: Present: Connie Rydberg, Richard Campbell, Charles Collier, Marshall Jarrett, Larry Little and Ryan Davis Staff Present: Cindy Mester, Kiran Bawa, Melissa Ryman and Meaghan DeCelle Also Present: Howard Pohl and Mary Nye, AndCo Consulting 3. Introduction and Welcome of CFO, Kiran Bawa and Cindy Mester as HR Director 4. Review and approval: November 17, 2016 draft minutes. Richard Campbell moved and Marshall Jarrett seconded to approve the minutes of November 17, 2016. The motion passed 6-0 (Jason Widstrom absent) Notes from Informal Gathering on February 16, 2017 were also reviewed and verified to be accurate. 5. Receipt of Petitions: None 6. First Quarter, 2017 Investment Performance for the Falls Church’s Basic and Police Pension Plans and OPEB—Howard Pohl and Mary Nye of AndCo Consulting. Howard reported on another quarter of positive market performance. The actively managed funds outperformed passive index funds. Returns for the 1st quarter were positive across equity and fixed income indices and growth stocks performed especially well. Dollar was weakening this quarter which resulted in good returns in international investments. Legislative changes will affect future performance. There has been an upward projection since 2008 with about a 10% drop once each year. It would not be unlikely to see a correction to this quarter’s upswing as there has been in years past. Bonds have shown very low return. Bloomberg Barclays US Aggregate returned only 0.8% for the quarter and 0.4% over the 1 year period. CFC funds have more in equities than bonds, which is positive. Mary Nye presented the market values for the funds. In the first quarter of 2017, Basic Total Fund showed good growth, going from $92.1 million to $96.3 million. For the last 12 months growth has been very good with return on investment over $10.6 million.  Investment Policy Compliance report showed that the Basic plan is within range in all broad asset classes. Total fund performance showed that the Basic plan is very competitive in the long-term, ranking 3rd among all other comparable plans for the 1st quarter. Marshall Jarrett asked for clarification on when the policy outperforms the total fund. Mary explained that the total fund performance shows lower when indices perform better than active managers. When market goes down, it is to be expected for active managers to perform better. Domestic equity managers as a whole have done well. SKBA was ranked 93—they are a defensive manager that ends up showing less growth in positive markets. The current environment has caused SKBA to have some struggles as they tend to buy and hold. In International equity, all three fund managers performed well. Templeton has outperformed the index significantly, ranking 25 in the 1st quarter. Fixed income is performing in line with index. In Real Estate, UBS has underperformed as their model is not to take on risk. In the Police Plan Market Values, Mary drew attention to Northern Intermediate Fixed Income fund being slightly out of range. AndCo recommended moving about $300K from SKBA and MFS Growth to get Northern into policy range. Ryan Davis moved to transfer $150K from SKBA and $150K form MFS Growth into Northern Intermediate Fixed Income, as recommended by AndCo Consulting. Marshall Jarrett seconded the motion. The motion passed 6-0 (Jason Widstrom absent) OPEB showed no flows and ROI was about $585,000 in the first quarter. Over the last 12 months, OPEB had about $1 million in positive flows and a return of $2.4 million. OPEB funds are within range and close to policy targets. Large Cap Index is slightly over policy but still within range. Total positive return for the quarter was 5.05%. Timing of investments marginally affected the return on the index investments, but they are very close to appropriate benchmarks. 7. Consideration of real estate securities diversification—Howard Pohl and Mary Nye of AndCo Mary delved into a long-standing topic on the agenda, the low performance of UBS as a core real estate manager. UBS has historically taken very low risk in real estate investments and, as a result, their returns have ranked in the bottom decile for the last 7 years. Mary and AndCo present two main options: replacing UBS with another core real estate manager with better performance or, find a complimentary non-core manager to diversify the Plans’ real estate stake. For the first option, Mary compared the characteristics and performances of four real estate funds that could potentially replace UBS: American Core Realty Fund, ASB Allegiance Fund, Barings Core Property Fund and Clarion Lion Properties Fund. After deliberation and input from Howard and Mary, the Board agreed that Clarion would be a sound choice to replace  UBS. Key factors for this were AndCo’s reports of Clarion’s servicing and that Clarion had adequate property variety. The Board then discussed the option of changing target investments and asset allocation in the Real Estate investment policy to follow a new strategy of real estate investment: the Board could increase the target percentage of real estate investment in order to diversify between Core and Core-plus real estate managers. Mary then reviewed potential candidates for an allocation to an open-end, non-core real estate strategy: American Strategic Value Fund, Principal Enhanced Property Fund, UBS Trumbull Property Growth and Income Fund. After the comparison, Principal showed to be the most attractive based on their number of investments, diversification of property types, property ages and their locations near major metropolitan markets. After discussion of the options, the Board agreed that a strategy to diversify the real estate stake between core and non-core was most advantageous and research was done on the administrative process of adjusting the investment policy accordingly. Ryan Davis moved and Marshall Jarrett seconded to direct the Plan Administrator to terminate the Plan’s investments with UBS Core Real Estate funds. The motion passed 6-0 (Jason Widstrom absent). Ryan Davis moved and Charles Collier seconded to direct the Plan Administrator to change the target allocation in Real Estate to 8% with 5-12% allowable range by adjusting the Plan’s domestic equity range. The motion passed 6-0 (Jason Widstrom absent). Ryan Davis moved and Marshall Jarrett seconded to direct the Plan Administrator to invest 5% with Clarion Lion and 3% with Principal. The motion passed 6-0 (Jason Widstrom absent). 8. Presentation: Explore expanding investment portfolio—Board Member, Marshall Jarrett Citing articles from the New York Times and Wall Street Journal, Marshall suggested the Board consider adding more index funds to the Plan’s portfolio. Most notably, Vanguard index fund has shown huge returns in the last few years by charging very low fees. These studies suggest that active managers charge much more but promise fewer losses when the markets turn down. However, now that more data is available directly to investors, there could be lower risk during down turns. Additional conversation of the topic will be added to the August agenda. AndCo will research and share insights at that meeting. 9. Plan Administrator’s Report: Consideration of investments consolidation of funds held at the custodian, US Bank.—Melissa Ryman Melissa requested AndCo to forward information on trusteeships in the Midwest. Mary Nye will continue the conversation and research with CFC during the quarter before next Retirement Board meeting.  For next meeting: briefing on proposed plan administration clarifications—Cindy Mester 10. Other Business not on the agenda: a. Larry Little mentioned that Fairfax County is looking at different options including a Hybrid plan and adjustment to the current DROP Plan. There have been plenty of rumors but little action. Legislators have not been decisive on the topic. Larry will keep the Board apprised of any developments that may affect the City of Falls Church plans. 11. Adjournment: Richard Campbell moves to adjourn, Ryan Davis seconded to adjourn the meeting at 8:25 pm. The motion passed 6-0 THE CITY OF FALLS CHURCH IS COMMITTED TO THE LETTER AND SPIRIT OF THE AMERICANS WITH DISABILITIES ACT. TO REQUEST A REASONABLE ACCOMMODATION FOR ANY TYPE OF DISABILITY, CALL 703-248-5129, TTY711.