Police & Fire Retirement Board

REGULAR MEETING MINUTES OF THE STERLING HEIGHTS POLICE AND FIRE RETIREMENT SYSTEM, ACT 345 AUGUST 16, 2012 FIRE DEPARTMENT CONFERENCE ROOM 41625 RYAN ROAD STERLING HEIGHTS, MI 48313 1. The regular meeting of the Police and Fire Retirement System was called to order by President Solak at 3:56 p.m. 2. Board Members present: Solak, Wellhausen, Nash, Lamerato, Varney. Also present: Tim Brice, representing Merrill Lynch Private Client Group; Tom Michaud, Legal Counsel; and Nancy Duyck, Pension Technician. 3. APPROVAL OF CONSENT AND REGULAR AGENDAS Motion by Varney, supported by Nash, to approve the consent agenda as presented. Ayes: All. The motion carried. The following item was added to the regular agenda: 10 a 4 Securities Lending - discussion Motion by Wellhausen, supported by Lamerato, to approve the regular agenda as amended. Ayes: All. The motion carried. Regular Meeting Minutes – August 16, 2012 Page Two 4. APPROVAL OF MINUTES No corrections were made to the draft minutes of the regular meeting of July 19, 2012. Motion by Solak, supported by Varney, to approve the minutes as presented. Ayes: All. The motion carried; the minutes of the regular meeting of July 19, 2012 are hereby approved as presented. 5. CITIZEN PARTICIPATION There was no Citizen participation 6. REPORT FROM LEGAL COUNSEL No formal legal report was presented. CONSENT AGENDA 7. CORRESPONDENCE a. Correspondence to Comerica, MD Sass, Horizon and Merrill Lynch dated August 7, 2012 re: termination and transition. b. Other correspondence received from: 1. Form ADV Part 2 from Eagle 2. Merrill Lynch – market value updates 3. Pomerantz Grossman Hufford Dahlstrom & Gross LLP 4. Robbins Geller Rudman & Dowd LLP c. Magazines received: 1. Pensions & Investments for July 23 and August 6, 2012. 2. Institutional Investor for August 2012 3. Plan Sponsor for August 2012 8. BILLS AND EXPENDITURES b. Disbursements to retirees/members other than monthly benefit payments There were no disbursements to retirees/members other than monthly benefit payments this month. Regular Meeting Minutes – August 16, 2012 Page Three CONSENT AGENDA 8. BILLS AND EXPENDITURES – cont. c. Checking Account Summary Beginning Balance $3,986.23 7/01/12 Additions (1) 1. 7/10 $5,000.00 Subtractions (8) $2,773.28 1. 7/19 Check 1882 300.00 MAPERS reg. (3) 2. 7/25 Check 1883 36.34 AT & T phone bill – 7/16/12 3. 7/06 Check 5212 936.79 Contract Payment Nancy Duyck 4. 7/06 Check 5213 76.62 Contract fee – Gurin & Gurin 5. 7/09 Check 5214 50.67 St. of MI UIA 6. 7/18 Check 5215 359.00 Annual Workers Comp. premium 7. 7/20 Check 5216 936.79 Contract Payment Nancy Duyck 8. 7/31 Check 5218 77.07 Contract fee – Gurin & Gurin Electronic withdrawals (4) $1,284.56 1. 7/11 125.10 Michigan St. tax w/h 2. 7/06 461.54 IRA contribution 3. 7/11 348.96 IRS Fed. tax w/h 4. 7/25 348.96 IRS Fed. tax w/h Ending Balance $4,928.39 7/31/12 d. Transmittal of Checks There were no checks transmitted this month. 9. FUNDS MANAGEMENT a. The current value of funds as of July 31, 2012 is detailed below: Clearing account $ 1,941,968.66 Intercontinental $ 8,317,717.06 McDonnell $ 16,033,556.13 Pimco $ 16,238,989.12 Wamco $ 16,224,655.28 MD Sass $ 17,857,269.18 Horizon $ 17,899,892.77 Regular Meeting Minutes – August 16, 2012 Page Four CONSENT AGENDA 9. FUNDS MANAGEMENT a. The current value of funds as of July 31, 2012 is detailed below: – cont. Earnest Partners $ 9,368,389.06 NFJ/Allianz $ 13,700,412.92 AIM/Invesco $ 13,357,861.20 Janus $ 17,918,395.70 Winslow $ 17,050,209.82 Checking account $ 4,928.39 TOTAL FUNDS $ 165,914,245.29 b. The Board received a copy of the Summary of Employer Contributions to the Police and Fire Retirement System for the 2012 tax year as of 7/26/12. The System has received $769,700.00 of the 2012/13 budget of $8,815,031.00, leaving a $8,045,331.00 balance. c. A Securities Loan Statement Recap sheet as of 6/30/12 is enclosed showing the amounts received each month in the Securities Loan Program. Our earnings for the 2011/12 fiscal year through 6/30/12 are $1,343.75. d. Benefit Register Listing as of August 1, 2012 from Comerica Bank showing 292 retirees/beneficiaries with a payout for August of $1,155,977.86 and a year-to-date of $10,184,985.92. e. The current Merrill Lynch Bond index for July 2012 is 1.61%. 10. BENEFITS & PLAN ADMINISTRATION a. Old Business 1. Abel/Noser Reports for June 2012 Abel/Noser has supplied the June 2012 report. 2. Paul Reno – Application for DROP retirement Police Officer Paul Reno has submitted an application for DROP retirement effective September 5, 2012. All required paperwork is on file in the Pension Office. Regular Meeting Minutes – August 16, 2012 Page Five REGULAR AGENDA 8. BILLS AND EXPENDITURES a. Disbursements other than retiree benefit payments (bills) 1. Disbursement to Merrill Lynch Private Client Group in the amount of $9,050.00 for consulting services for the period of 7/1/12 through 12/31/12. 2. Disbursement to Horizon in the amount of $9,191.72 for final investment management fees for the period of 7/1/12 through 8/6/12. 3. Disbursement to James Nash in the amount of $1,400.00 for a travel advance for expenses for the 2012 Fall MAPERS Conference on Mackinac Island, MI on September 9-11, 2012. Motion by Varney, supported by Wellhausen, to approve the bills as presented. Ayes: All. The motion carried. 9. FUNDS MANAGEMENT f. Quarterly Performance Report 1. Merrill Lynch Tim Brice reviewed the summary report of manager performance. Enclosed in this report was the Board’s summary of investment policies and objectives, second quarter 2012 AIM Market Focus report. Also included was an executive summary of the Composite, Allianz, Invesco, Janus, Earnest, Intercontinental, McDonnell, Pimco, and Wamco reports. The following manager specific comments were discussed: McDonnell Investments a. The total portfolio return in the second quarter was 2.2%, ranking in the 29th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index (2.0%), and the Barclays Capital Aggregate Bond Index (2.1%). Regular Meeting Minutes – August 16, 2012 Page Six REGULAR AGENDA 9. FUNDS MANAGEMENT f. Quarterly Performance Report 1. Merrill Lynch – cont. McDonnell Investments b. Their total portfolio return was 6.5% since inception (12/31/08). This exceeded the Custom (6.1%), and equaled the Barclays Capital Aggregate Bond Index (6.5%). c. Cash on hand at second quarter ending was within guidelines. Pimco a. The total portfolio return in the second quarter was 2.5%, ranking in the 16th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index (2.0%), and the BofAML Broad Market Bond index (2.2%). b. Their total portfolio return was 6.4% since inception (6/30/11). This trailed the Custom (7.1%), and the BofAML Broad Market Bond index (7.6%). c. Cash on hand at second quarter ending was above guidelines. Western Asset Management a. The total portfolio return in the second quarter was 2.2%, ranking in the 29th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index (2.1%), and equaled the BofAML Broad Market Bond index (2.2%). b. Their total portfolio return was 6.9% since inception (6/30/11). This exceeded the Custom (6.6%), and trailed the BofAML Broad Market Bond index (7.6%). c. Cash on hand at second quarter ending was within guidelines. Winslow Investment Counsel a. The total portfolio return in the second quarter was -7.4%, ranking in the 85th percentile of the BofAML Domestic Large Cap Growth Equity Sample. It trailed the Custom Index (-4.0%), and the Russell 1000 Growth Index (-4.0%). b. Their total portfolio return was -7.4% since inception (3/31/12). This trailed the Custom (-4.0%), and the Russell 1000 Growth Index (-4.0%). c. Cash on hand at second quarter ending was within guidelines. Regular Meeting Minutes – August 16, 2012 Page Seven REGULAR AGENDA 9. FUNDS MANAGEMENT f. Quarterly Performance Report 1. Merrill Lynch – cont. Janus Investment Counsel a. The total portfolio return in the second quarter was -2.6%, ranking in the 10th percentile of the BofAML Domestic Large Cap Growth Equity Sample. It exceeded the Custom Index (-3.9%), and the Russell 1000 Growth Index (-4.0%). b. Their total portfolio return was 9.9% since inception (12/31/09). This trailed the Custom (11.3%), and the Russell 1000 Growth Index (11.7%). c. Cash on hand at second quarter ending was within guidelines. Earnest Partners a. The total portfolio return in the second quarter was -4.1%, ranking in the 36th percentile of the BofAML Domestic Small Cap Equity Sample. It equaled the Custom Index (-4.1%), and trailed the Russell 2000 Index (-3.5%). b. Their total portfolio return was 5.0% since inception (9/30/06). This exceeded the Custom (3.9%), and the Russell 2000 Index (3.1%). c. Cash on hand at second quarter ending was within guidelines. AIM/INVESCO Capital Management a. The total portfolio return in the second quarter was -5.2%, ranking in the 22nd percentile of the BofAML International Equity Sample. It exceeded the Custom Index (-6.6%), and the MSCI EAFE Growth Index (-7.1%). b. Their total portfolio return was -1.8% since inception (12/31/10). This exceeded the Custom (- 5.2%), and the MSCI EAFE Growth Index (-5.5%). c. Cash on hand at second quarter ending was above guidelines. NFJ/Allianz Global Investors a. The total portfolio return in the second quarter was -6.0%, ranking in the 36th percentile of the BofAML International Equity Sample. It exceeded the Custom Index (-7.5%), and the MSCI All Country World ex US-net (-7.6%). b. Their total portfolio return was -2.9% since inception (12/31/10). This exceeded the Custom (- 7.5%), and the MSCI All Country World ex US-net (-7.7%). c. Cash on hand at second quarter ending was within guidelines. Regular Meeting Minutes – August 16, 2012 Page Eight REGULAR AGENDA 9. FUNDS MANAGEMENT f. Quarterly Performance Report 1. Merrill Lynch - cont. The following table details the Investment Performance Review for the quarter ending June 30, 2012. Market value of the funds under management as of June 30, 2012 was $163,282,691. The total fund return for the second quarter was -2.9%, ranking in the 82nd percentile, as summarized below: 3/12 6/11 6/09 6/07 3/02 to 6/12 to 6/12 to 6/12 to 6/12 to 6/12 Total fund* -2.9/82 -0.5/79 9.2/70 0.8/93 4.7/94 *Ranked against the BofAML Domestic Balanced Sample - Total Total Portfolio Returns - Equity Sample Domestic# -5.2/63 -3.3/68 11.4/82 -0.9/63 5.0/73 #Ranked against the BofAML Domestic Equity Sample - Common Stock Total Portfolio Returns - Fixed Income Sample F.I.# 2.4/23 7.9/27 7.3/58 2.1/98 3.6/94 #Ranked against the BofAML Domestic Fixed Income Sample - Fixed Income Real Estate -2.5 -5.1 2.5 1.5 N/A The following manager specific return information is detailed separately from the other long-term data: 3/12 6/11 6/09 12/08 McDonnell to 6/12 to 6/12 to 6/12 to 6/12 Total Fund* 2.2/29 7.9/26 7.2/53 6.5/63 *Ranked against the BofAML Domestic Fixed Income Sample - Total 3/12 6/11 Pimco to 6/12 to 6/12 Total Fund* 2.5/16 6.4/50 *Ranked against the BofAML Domestic Fixed Income Sample - Total 3/12 6/11 Wamco to 6/12 to 6/12 Total Fund* 2.2/29 6.9/45 *Ranked against the BofAML Domestic Fixed Income Sample - Total REGULAR AGENDA 9. FUNDS MANAGEMENT f. Quarterly Performance Report 1. Merrill Lynch - cont. 3/12 Winslow to 6/12 Total Fund* -7.4/85 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample - Total 3/12 6/11 12/09 Janus to 6/12 to 6/12 to 6/12 Total Fund* -2.6/10 8.2/8 9.9/50 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample - Total 3/12 6/11 6/09 6/07 9/06 Earnest to 6/12 to 6/12 to 6/12 to 6/12 to 6/12 Total Fund* -4.1/36 0.5/25 19.6/37 3.1/30 5.0/45 *Ranked against the BofAML Domestic Small Cap Equity Sample – Total 3/12 6/11 12/10 Invesco to 6/12 to 6/12 to 6/12 Total Fund* -5.2/22 -7.7/20 -1.8/19 *Ranked against the BofAML International Equity Sample - Total 3/12 6/11 12/10 Allianz to 6/12 to 6/12 to 6/12 Total Fund* -6.0/36 -8.0/21 -2.9/27 *Ranked against the BofAML International Equity Sample – Total The following item was taken out-of-order of the published agenda 10. BENEFITS & PLAN ADMINISTRATION a. Old Business 4. Securities Lending – discussion The Board discussed the letter from Comerica Bank dated August 9, 2012 regarding the termination of MD Sass as it related to the Securities Lending Program. Comerica was not able to attend this meeting, but will be requested to attend the September 20, 2012 regular meeting to further discuss this issue. Regular Meeting Minutes – August 16, 2012 Page Ten The Board returned to the published agenda. REGULAR AGENDA 9. FUNDS MANAGEMENT g. Review of Service Providers 1. Comerica The services of the Board’s custodian were reviewed. Their service continues to be satisfactory. 2. VanOverbeke, Michaud & Timmony The Board noted that its Legal Counsel, Thomas Michaud, continues to provide excellent service at reasonable fees. 3. The Brice Group The services of the Board’s performance consultant were reviewed. Their service continues to be satisfactory. 4. Rodwan Consulting Company The services of the Board’s actuary were reviewed. Their service continues to be satisfactory. 5. Abel/Noser The services of the Board’s directed broker were reviewed. Their service continues to be satisfactory. 6. Gurin & Gurin Gurin & Gurin provides payroll service for the Pension Technician, with associated tax withholding, payments to the IRA provider, etc. related to payroll. Their service continues to be satisfactory. 7. Pension Technician The services of the Board’s Pension Technician were reviewed. Her service continues to be satisfactory. Regular Meeting Minutes – August 16, 2012 Page Eleven REGULAR AGENDA 10. BENEFITS & PLAN ADMINISTRATION a. Old Business 3. Account transfer for September 2012 benefit payments – discussion As of August 13, 2012, the Clearing Account had a balance of $786,427.73. An additional $390,000.00 is needed for the September 1, 2012 pension benefit payments and bills from the Clearing Account. Merrill Lynch has forwarded an e-mail that the additional amount needed should be taken from the Eagle Capital account, based on the asset allocation targets. Motion by Solak, supported by Wellhausen, to approve the transfer of the appropriate amount of funds from the Eagle Capital account, based on the asset allocation targets, to provide for pension benefit payments and other disbursements on September 1, 2012. Ayes: All. The motion carried. 11. Trustee Comments: Wellhausen spoke about the Freedom of Information charges that the Board has never received. Jennifer Varney will check with the City Clerk. 12. ADJOURNMENT Motion by Nash, supported by Wellhausen, to adjourn at 5:33 p.m. Ayes: All. The motion carried; the meeting is hereby adjourned. Mark Wellhausen Secretary