Retiree Health Care Investment

Minutes Retiree Health Care Investment Meeting May 9, 2025, 9:00 a.m. City Hall, Room 122 203 S. Troy Street Royal Oak, Michigan 48067 Present: Lee Collick – Chairperson Bret Nelson – Vice Chairperson Amanda Herzog - Trustee Monica Hunt – Trustee – arrived at 9:19 a.m. Kymberly Coy – Finance Director Lisa Genord – Financial Analyst / Pension Technician Tom Michaud – VanOverbeke, Michaud, & Timmony, P.C. Brian Green – Mariner Consulting Zachary Meckl – PD Detective – Incoming Trustee Absent: Joseph Gacioch – City Manager _____________________________________________________________________ 1. Call to Order The meeting was called to order at 9:01 a.m. 2. Public Comment None 3. Approval of Agenda Moved by: Lee Collick Seconded by: Bret Nelson Motion Adopted 4. Approval of Minutes Moved by: Lee Collick Seconded by: Bret Nelson Motion Adopted 5. Investments 1 Investment performance review presented by Brian Green of Mariner Consulting. Market value/allocation of assets as of March 31, 2025, is $162,567,222 3-month performance – total portfolio outperformed the benchmark: 0.36% vs. - 0.91% index. Fiscal year-to-date performance – total portfolio outperformed the benchmark: 4.99% vs. 4.20% index. Year-to date performance – total portfolio outperformed the benchmark: 0.36% vs. -0.91% index. 1-year performance – total portfolio outperformed the benchmark: 6.38% vs. 5.12% index. 3-year performance – total portfolio outperformed the benchmark: 5.34% vs. 4.46% index. 5-year performance – total portfolio outperformed the benchmark: 11.61% vs. 11.11% index. Inception – total portfolio underperformed the benchmark: 7.19% vs. 7.27% index. Brian reiterated that the city’s decision to bond in 2017 to fund the retiree health care trust liability and has been a positive financial contribution to the city. Brian reported that the first quarter of 2025 was a push (neither good nor bad) and this is largely due to the U.S. uncertainty on tariffs. Brian reported that in the first quarter of 2025, U.S markets were negative, however all other markets (international equity, fixed income, real estate) were positive. Brian stated that the two takeaways to highlight relative to the city’s portfolio performance in 1Q 2025 are that diversification is effective and a protection mechanism and that the decline that we are seeing in the U.S. equity markets is more of an isolated event and not a global problem, in that the U.S. market does not know how to process and understand the ongoing uncertainty surrounding tariffs. Brian reported that despite the fact that just over 40% of the city’s portfolio is invested in U.S. equity, the overall retiree health care trust performance was up 0.36% for the first quarter of 2025, which compares very favorably to the policy index of -0.91%. Brian reminded the board that at the February 7, 2025 meeting, the board approved Brian / Mariner’s revised asset allocation targets, which included a 10% reduction in domestic equity, and moving that 10% into U.S fixed income. Brian confirmed that this was the right decision and that it saved the city’s portfolio 1% from a performance standpoint. Brian stated that other than domestic equity, all other asset classes had positive returns in 1Q 2025, with total real estate realizing the first positive return in the last nine straight quarters at 0.99%. Brian reported that the city’s real estate investments include apartment buildings, industrial warehouses, office space and retail strip malls, while mostly avoiding single-family residential housing. Brian also reported that the city’s portfolio performed well overall in 1Q 2025 and that it outperformed 93% of peers around the country in the last four years. 2  Request that Board receive and file all investment reports. Moved by: Lee Collick Seconded by: Bret Nelson Motion Adopted 6. Legal None 7. Other Lee Collick, chairperson welcomed Zachary Meckl, newly elected police / fire representative and board trustee. Zach will be replacing Bret Nelson, whose term expires May 31, 2025. Monica Hunt, Trustee, arrived at 9:19 a.m. Annual advisor and consultant review – board discussion. Lee Collick stated that he is happy with the services from Brian Green at Mariner Consulting. Lee questioned whether it is an advantage or disadvantage to having two different investment advisors between the two retirement boards as opposed to one advisor for both boards. Bret Nelson, vice chairperson, stated that he feels it is an advantage to having two different advisors. Bret asked Tom Michaud, legal counsel, if other retirement systems typically have one or two investment advisors. Tom stated that every system and municipality is different, however, it is very common to have the same investment consultant for both boards because of the economies of scale. Tom stated that conducting a periodic review of the investment consultants could involve completing a Request for Information (RFI) to understand what other investment consultants are being paid in other communities and then the board would assess our consultant versus others, however, it would not be an “apples to apples” comparison, nor would it be to compare the existing retiree health care investment consultant (Mariner) to the retirement board investment consultant (SEI). Amanda Herzog, board trustee, asked what the thought process was for having two separate investment advisors. Tom stated that the health care trust did not exist at first, so when it was created the board did a full search for an advisor at that time. Tom stated that there are two different types of retirement board structures: Full discretionary where the investment advisor does all of the day to day investment fund management and then periodically reports back to the board with performance and investment updates (current RO board structure); Trustees (prior structure at board inception) choose the fund managers, where and when to investment funds and every investment decision is made by the retirement board. Tom stated that when the board created the retiree health care trust, they moved to the current full discretionary structure choosing two different investment advisors to allow for comparison. Lee stated that at a minimum, he feels that a cost comparison / fee structure evaluation should be conducted for both boards. Bret Nelson stated that 3  out of due diligence, he feels the board should review the fee structure for both consultants to ensure the fees are competitive relative to the services provided. Lee Collick moved that Kymberly Coy, Finance Director, obtain and compile the following information from each investment advisor (Mariner Consulting & SEI) to be discussed at the next meeting: current management cost / fee structure; and an estimated fee structure to consolidate & manage both the retiree health care fund and the retirement (pension) fund. Moved by: Lee Collick Seconded by: Bret Nelson Motion Adopted 8. Adjournment The next quarterly meeting is scheduled for 9:30am, immediately following the retirement board meeting, on Friday, August 1, 2025 in conference room #122 at the City Hall Building at 203 South Troy Street. The meeting was adjourned at 9:25 a.m. Moved by: Lee Collick Seconded by: Bret Nelson Motion Adopted 4