General Employees Retirement Board

OFFICIAL MINUTES OF REGULAR MEETING OF THE STERLING HEIGHTS GENERAL EMPLOYEE’S RETIREMENT SYSTEM Thursday, June 19, 2014 ___________________________________________________________________ __ _ __ _ Location: Room #201 40555 Utica Road, Sterling Heights, MI 48313 (586) 446-2331 Acting Chairperson Baker called the meeting to order at 1:32 p.m. BOARD MEMBERS PRESENT: Brian Baker, Acting Chairperson Jennifer Varney, Acting Secretary / Treasurer Paul Henig, Trustee Todd Marsh, Trustee BOARD MEMBERS ABSENT: Richard Weiler, Chairperson (Excused) ALSO PRESENT: Walt Hessell, Pension Administrator; Thomas Michaud, VanOverbeke Michaud & Timmony, P.C., Timothy Brice, Senior Vice-President, The Brice Group, Merrill Lynch APPROVAL OF AGENDA: Motion by Marsh, supported by Henig, to approve agenda as presented. Ayes: All. Motion carried unanimously. APPROVAL OF MINUTES: Motion by Marsh, supported by Henig, to approve the minutes of the regular meeting held May 15, 2014 and the special meeting of May 21, 2014. Ayes: All. Motion carried unanimously. INTERNATIONAL EQUITY MANAGER STUDY FROM THE BRICE GROUP Brice opened his comments with a brief review of the portfolio asset allocation as of June 18th and also “The RIC in pictures – June 2014” market research report. Consistent with the Firm’s ongoing theme, equities continue to have a favorable outlook as compared to fixed income. Brice then distributed the International Equity Candidates analysis and reviewed the 10 year trailing performance of the eight candidates through March 31, 2014. The report revealed that Thornburg Investment, one of the two current international money managers, consistently garnered the lowest Sharpe Ratio of all candidates in the study. Equally disappointing was the measured Alpha returns which also significantly lagged the other managers. Based upon these findings and due to Thornburg’s poor overall rankings (77th percentile) over the past three years, Brice recommended replacing the firm. Brice then referenced the correlation matrix which matched up NFJ Allianz, the remaining international equity manager, to the other candidates. A cross- match to Invesco International Growth produced a correlation of 0.9771 and was found to be suitable by the Board. A lower correlation is desirable as it signifies the pairing of two managers within an asset class so that they complement each other’s style. Discussion ensued and it was noted that Invesco Aim has been successfully managing an international equity portfolio for the City’s Police and Fire Retirement System. Concerns over transitioning assets so close to the fiscal audit year end were deliberated and it was decided to transition managers on July 1st, 2014 or shortly thereafter. Motion by Varney, supported by Baker, to authorize The Brice Group to terminate Thornburg Investment and to hire Invesco International Growth – AIM effective July 1, 2014 or shortly thereafter, to manage approximately 50% of the overall international equity portfolio. Ayes: All. Motion carried unanimously. Motion by Varney, supported by Baker, to receive and file the International Equity Manager Study from The Brice Group. Ayes: All. Motion carried unanimously Brice then commented that he had made progress with regard to changes to the fixed income portfolio managers and that Loomis Sayles appeared to have a qualifying fixed income product. He stated that he would continue with more updates as they became available. COMMUNICATION FROM CITIZENS: None REPORT FROM LEGAL COUNSEL –Actuarial Funding Policy: Tom Michaud reviewed the actuarial funding policy draft with the Board. Upcoming changes to accounting and reporting standards by the Government Accounting Standards Board (GASB) for public pension plans require that a formal actuarial funding policy be adopted by the Board. Discussion ensued and Michaud recommended that the draft be forwarded on to the systems actuary GRS for review and comment. Motion by Marsh, supported by Henig, to receive and file the actuarial funding policy draft prepared by VanOverbeke Michaud & Timmony, P.C. and to forward the draft document to GRS, the system actuary, requesting review and comment. Ayes: All. Motion carried unanimously. Michaud also commented on items as they appeared on the agenda. CONSENT AGENDA: Motion by Varney, supported by Marsh, to receive and file consent items I A through I C -13. Ayes: All. Motion carried unanimously. I. RECEIVE AND FILE: A. Benefit register listing for June 1, 2014 from Comerica Bank showing 349 active retirees with a payout for May 2014 of $842,652.63 and a year-to-date payout of $5,098,563.36. B. Cash and Asset Statements as of May 31, 2014 from Comerica Bank and Merrill Lynch showing a total market value of $117,875,472.30 comprised as follows: Desired Actual Bank/Money Market Allocation Percentage Manager Value 0% 0.77% Comerica Bank $909,642.34 21.33% 15.39% PIMCO 18,135,689.71 10.67% 7.58% McDonnell 8,930,164.83 15% 15.33% Earnest Partners 18,067,086.05 8% 9.03% Herndon Capital 10,642,433.20 8% 9.51% MFS 11,213,387.73 5.33% 7.16% Victory 8,443,756.84 5.33% 7.12% Winslow 8,391,443.70 5.33% 6.99% Janus Capital 8,238,198.16 8.5% 7.54% Thornburg 8,889,379.31 8.5% 9.24% Allianz - NFJ 10,894,468.61 Cohen & Steers – 4% 4.34% 5,119,821.82 REIT C. Correspondence 1. Victory Capital Management Inc. Investment Adviser Brochure Form ADV Part 2A dated March 31, 2014. 2. Caterpillar Litigation Report dated March 31, 2014. 3. Prudential Litigation Report dated March 31, 2014. 4. Vestas Wind Systems Litigation Report dated March 31, 2014. 5. Securities Litigation Settlement Report dated April 25, 2014.  6. Portfolio Monitoring Report dated April 25, 2014. 7. Authorization email sent to Merrill Lynch dated May 15, 2014 for the payment of money manager fees. 8. Letter and email correspondence with Merrill Lynch dated May 15, 2014 regarding the transfer of funds for the payment of benefits. 9. Wire notification received from Merrill Lynch dated May 20, 2014 regarding the payment of money manager fees. 10. Wire transfer notifications received from Merrill Lynch dated May 22, 2014 confirming the transfer of funds for the payment of benefits. 11. Email correspondence dated May 29, 2014 sent to City Clerk providing courtesy copy of 2014 / 2015 GERS meeting schedule. 12. Email correspondence dated June 6, 2014 sent to City Clerk’s Office regarding FOIA response to Preqin. 13. “Pension & Investments” magazines dated May 12 & 26 and June 9, 2014. REGULAR AGENDA: II. OLD BUSINESS: A. Retirement Information for Vaux Adams, Sewer Division Supervisor, Department of Public Works Motion by Henig, supported by Marsh, to approve the service retirement for Vaux Adams, Sewer Division Supervisor, Department of Public Works effective May 24, 2014 with service credit of 24 years with the monthly pension amount of $5,089.17 under option A without annuity withdrawal based upon a monthly final average compensation of $9,855.70. Ayes: All. Motion carried unanimously. III. NEW BUSINESS A. Change in Retiree Status – William Kutz (Deceased) Motion by Varney, supported by Henig, to approve termination of option B benefits for retiree, William Kutz, due to his death on May 22, 2014 and the death of his spouse on September 3, 2010. Ayes: All. Motion carried unanimously. B. Application for Service Retirement for Teri Golpe, Technical Secretary, Police Department Motion by Varney, supported by Marsh, to receive and file the application for service retirement for Teri Golpe, Technical Secretary, Police Department. Ayes: All. Motion carried unanimously. C. Pension Administration Comments - None D. Trustee Comments - None ADJOURN: Motion by Marsh, supported by Baker, to adjourn the meeting at 2:28 p.m. Ayes: All. Motion carried unanimously. Respectfully Submitted, ___________________________________ Jennifer Varney, Acting Secretary / Treasurer