General Employees Retirement Board

OFFICIAL MINUTES OF SPECIAL MEETING OF THE STERLING HEIGHTS GENERAL EMPLOYEES' RETIREMENT SYSTEM Wednesday, May 23, 2018 ____________________________________________ _________________________________ Location: Room #201 40555 Utica Road, Sterling Heights, MI 48313 (586) 446-2333 Chairperson Weiler called the meeting to order at 12:03 p.m. BOARD MEMBERS PRESENT: Richard Weiler, Chairperson Jennifer Varney, Secretary Paul Henig, Trustee Todd Marsh, Trustee BOARD MEMBERS ABSENT: Mary Jaganjac, Treasurer (excused absent) ALSO PRESENT: Walt Hessell, Pension Administrator; Ryan Clark, Treasury Services Coordinator; Brian Brice, Institutional Consulting Director, Morgan Stanley Graystone Consulting – The Brice Group APPROVAL OF AGENDA: Motion by Marsh, support by Henig to approve the agenda as presented. Ayes: All. Motion carried unanimously. CORRESPONDENCE: Motion by Varney, support by Marsh, to receive and file correspondence: Reports for the quarter ending March 31, 2018 as follows: 1. Investment Performance Analysis: Morgan Stanley Graystone Consulting – The Brice 2. Group 3. Asset Allocation Review: Morgan Stanley Graystone Consulting – The Brice Group 4. Janus Henderson Investors Ayes: All. Motion carried unanimously. PORTFOLIO PERFORMANCE REVIEW BY BRIAN BRICE, MORGAN STANLEY GRAYSTONE CONSULTING: Brice distributed the “On the Markets” commentary which recaps Morgan Stanley’s view of the current market and near term outlook. Current valuations are impacted by the tax reform bill, which is seen as a temporary adrenaline shot to the market that will be baked-in overtime and valuations will normalize. The bill heavily impacts small and midcap organizations more so than large cap given that large organizations already receive lower tax rates with the internal resources to navigate the tax landscape. With interest rates approaching 3% and commodities rising, the core value stocks are under pressure, but as long as market will bear their price increases they will not be pinched. MLPs have been volatile recently due to new FERC regulations impacting the industry’s cost models. Current holdings have been largely unaffected by the new regulation and those that are will just price-in the regulatory changes. So, despite the recent volatility the firm sees this as a solid area to stay in for the time being given the upward trend of oil prices. The firm sees international and emerging markets as more appealing than domestic equities currently given the strong P/E ratios domestically. Lower gains are expected out of large cap growth given the strong gains they have seen, whereas large cap value and international may start to see gains. The total retirement system was -1.1% for the March 31, 2018 quarter against the policy index of -1.7%. Fixed income was down and equity portfolios were mixed. Brice noted the idea of bringing in some covered-short position managers and interest protected securities managers to educate the board on opportunities to take advantage of the new market conditions. 1 PORTFOLIO PERFORMANCE REVIEW BY BRIAN BRICE, MORGAN STANLEY GRAYSTONE CONSULTING (CONT’D): Brice then reviewed the performance of the portfolio and individual managers relative to the market and their index group as follows: Average Annual Return (%) / Rank* Manager/Fund/Market Market Value Current Since 1 Year 3 Years 5 Years 10 Years Hire date Segment ($) Quarter Inception TOTAL RETIREMENT SYSTEM $109,073,825 -1.1 / 94 9.3 / 70 5.6 / 76 7.7 / 56 6.0 / 87 9.1 / - DOMESTIC TAXABLE FIXED INCOME Western $13,520,360 -1.1 / 24 3.1 / 11 2.8 / 13 2.8 / 13 4/1/2015 Boyd Waterson $13,118,823 -1.6 / 89 2.2 / 35 1.3 / 83 1.3 / 83 4/1/2015 REITs Principal $2,460,639 -4.9 / 00 2.3 / 00 3.5 / 00 3.5 / 00 4/1/2015 DOMESTIC LARGE CAP CORE EQUITY London Co. $5,583,093 -2.8 / 95 6.5 / 97 6.6 / 93 6.6 / 93 4/1/2015 iShares Core S&P 500 ETF $4,557,728 -0.9 / 00 13.8 / 00 10.6 / 00 10.6 / 00 4/1/2015 DOMESTIC LARGE CAP GROWTH EQUITY ClearBridge $0 4/1/2018 Janus $3,540,305 5.6 / 09 23.4 / 32 13.6 / 21 17.0 / 15 14.2 / 50 1/1/2010 iShares Russell 1000 Growth $2,838,127 1.3 / 79 20.8 / 59 20.8 / 59 4/1/2017 DOMESTIC LARGE CAP VALUE Confluence $3,888,212 -0.9 / 19 7.5 / 85 10.9 / 91 4/1/2016 MFS $3,896,170 -2.6 / 70 10.3 / 53 10.0 / 23 13.0 / 27 13.4 / 28 1/1/2010 iShares Russell 1000 Value $3,160,590 -2.9 / 64 6.6 / 80 6.6 / 80 4/1/2017 DOMESTIC SMALL/MID CAP EQUITY Earnest Partners $15,666,582 0.3 / 45 18.8 / 27 10.7 / 20 14.0 / 24 12.0 / 17 10.7 / 27 7/1/2006 Edge** - 7/1/2018 INTERNATIONAL EQUITY Cambiar $12,213,710 -0.6 / 60 16.1 / 72 9.3 / 93 10/1/2015 Invesco $6,903,468 -1.7 / 82 10.3 / 94 3.0 / 98 3.4 / 95 10/1/2014 Harding Loevner $6,957,031 0.5 / 39 3.8 / 64 10/1/2017 EMERGING MARKETS Harding Loevner HLEMX $2,241,776 3.6 / 16 9.4 / 35 10/1/2017 Lazard $1,151,395 2.9 / 22 11.0 / 17 10/1/2017 ALTERNATIVE INVESTMENTS Cushing MLP $5,011,384 -12.0 / 92 -19.0 / 89 -12.9 / 83 1/1/2017 *Peer group ranking within style specific sample **Edge funding in transfer CONFERENCE CALL WITH JANUS HENDERSON (Domestic Large Capitalization Growth Equity): Janus Henderson Investors portfolio outperformed the benchmark for the quarter with a 5.6% return versus 1.4%. For the year, the portfolio earned 23.4% against the benchmark of 21.3%. Stock selection and allocations to the tech industry in payments processing and consumer interface sectors contributed most to the outperformance while pharmaceuticals, a material innovation and Citigroup holdings were the laggards within the portfolio. Stock selection is driven by market dynamics in where companies have or are developing wide moats and barriers of entry as well as disruptive innovations. The Board expressed its’ gratitude for the presentation and the firm’s efforts on behalf of the system. TRUSTEE COMMENTS: None ADJOURN: Motion by Henig, supported by Marsh, to adjourn the meeting at 2:04 p.m. Ayes: All. Motion carried unanimously. __________________________________ Jennifer Varney, Secretary 2