Police & Fire Retirement Board

REGULAR MEETING MINUTES OF THE STERLING HEIGHTS POLICE AND FIRE RETIREMENT SYSTEM, ACT 345 NOVEMBER 21, 2013 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 3:30 p.m. 2. Board Members present: Solak, Wellhausen, Nash, Lamerato, Varney (arrived at 3:40 p.m.). Also present: Tim Brice, representing Merrill Lynch Private Client Group; Peter Clerkin and Mark Giura, representing McDonnell Investment Management; Tom Michaud, Legal Counsel; and Nancy Duyck, Pension Technician. 3. APPROVAL OF CONSENT AND REGULAR AGENDAS Motion by Wellhausen, supported by Nash, to approve the consent agenda as presented. Ayes: All. The motion carried. Motion by Solak, supported by Wellhausen, to approve the regular agenda as presented. Ayes: All. The motion carried. 4. APPROVAL OF MINUTES No corrections were made to the draft minutes of the regular meeting of October 17, 2013. Motion by Lamerato, supported by Wellhausen, to approve the minutes as presented. Ayes: All. The motion carried; the minutes of the regular meeting of October 17, 2013 are hereby approved as presented/amended. 5. CITIZEN PARTICIPATION There was no Citizen participation. 6. REPORT FROM LEGAL COUNSEL No formal legal report was presented. Mr. Michaud gave an update on the Comerica Securities Lending litigation. The agreement should be signed in December and check should be coming in January 2014. Mr. Michaud commented on items of old business as they were considered. CONSENT AGENDA 7. CORRESPONDENCE a. Other correspondence received from: 1. Janus performance updates 2. McDonnell performance updates 3. Merrill Lynch – market value updates 4. P&I Conferences 5. Pomerantz Grossman Hufford Dahlstrom & Gross LLP 6. Robbins Geller Rudman & Dowd LLP b. Magazines received: 1. Pensions & Investments for October 28th and November 11, 2013. 2. Institutional Investor for November 2013 3. Plan Sponsor for November 2013 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. CONSENT AGENDA 8. BILLS AND EXPENDITURES – cont. c. Checking Account Summary Beginning Balance $4,981.86 10/01/13 Additions (1) 1. 10/29 $5,000.00 Subtractions (7) $2,741.25 1. 10/25 Check 1921 : 214.60 Minute book printing 2. 10/18 Check 1922 : 207.58 JV – MAPERS travel expenses 3. 10/24 Check 1923 : 383.42 KS – MAPERS travel expenses 4. 10/30 Check 1924 : 39.86 AT & T phone bill – 10/16/13 5. 10/11 Check 5265 : 909.58 Contract Payment Nancy Duyck 6. 10/15 Check 5266 : 76.64 Contract fee – Gurin & Gurin 7. 10/25 Check 5267 : 909.57 Contract Payment Nancy Duyck Electronic withdrawals (5) $1,698.10 1. 10/02 : 377.40 IRS Fed. tax w/h 2. 10/15 : 461.54 IRA contribution 3. 10/17 : 377.40 IRS Fed. tax w/h 4. 10/21 : 104.34 Michigan St. tax w/h 5. 10/30 : 377.42 IRS Fed. tax w/h Ending Balance $ 5,542.51 : 10/31/13 d. Transmittal of Checks There were no checks transmitted this month. 9. FUNDS MANAGEMENT The current value of funds as of October 31, 2013 is detailed below: Clearing account $5,620,568.99 Intercontinental $9,135,893.09 McDonnell $15,741,285.74 Winslow $22,301,343.72 Janus $21,751,423.62 Eagle $21,836,546.30 Herndon $ 21,147,744.12 Earnest Partners $ 12,392,494.98 CONSENT AGENDA 9. FUNDS MANAGEMENT The current value of funds as of October 31, 2013 is detailed below: - cont. NFJ/Allianz $ 16,749,464.72 AIM/Invesco $16,638,199.62 Pimco $15,658,624.40  Wamco $16,315,687.95 Checking account $5,542.51 TOTAL FUNDS $195,294,819.76 The Board received a copy of the Summary of Employer Contributions to the Police and Fire Retirement System for the 2013 tax year as of 11/15/13. The System has received $7,078,300.00 of the 2013/14 budget of $8,095,472.00, leaving a $1,017,172.00 balance. c. Benefit Register Listing as of November 1, 2013 from Comerica Bank showing 300 retirees/beneficiaries with a payout for November of $1,182,623.52 and a year-to-date of $13,520,211.95. d. The current Merrill Lynch Bond index for October 2013 is 2.04%. 10. BENEFITS & PLAN ADMINISTRATION Old Business Abel/Noser Reports for September 2013 Abel/Noser has supplied the September 2013 report. REGULAR AGENDA 8. BILLS AND EXPENDITURES a. Disbursements other than retiree benefit payments (bills) Disbursement to Comerica Bank in the total amount of $2,745.76 for services rendered to the Clearing, Intercontinental, and McDonnell accounts for the quarter ended 9/30/13. Disbursement to McDonnell Investment Management in the amount of $8,261.95 for investment management fees for the quarter ended 9/30/13. Disbursement to Eagle Capital Management in the amount of $41,015.43 for investment management fees for the quarter ended 9/30/13. REGULAR AGENDA 8. BILLS AND EXPENDITURES Disbursements other than retiree benefit payments (bills) - cont. 4. Disbursement to Merrill Lynch in the amount of $13,134.92 for quarterly SPA fee for the Eagle account for the quarter ended 12/31/13. 5. Disbursement to Merrill Lynch in the amount of $30,636.42 for quarterly Consults fee for the AIM/Invesco account for the quarter ended 12/31/13. Disbursement to Merrill Lynch in the amount of $39,801.31 for quarterly Consults fee for the Janus account for the quarter ended 12/31/13. Disbursement to VanOverbeke, Michaud & Timmony, PC in the total amount of $7,320.22 for legal services rendered for the period of 10/1/12 through 6/30/13. Motion by Solak, supported by Wellhausen, to approve the bills as presented. Ayes: All. The motion carried. 9. FUNDS MANAGEMENT e. 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, third quarter 2013 AIM Market Focus report. Also included was an executive summary of the Composite, Allianz, Invesco, Janus, Winslow, Earnest, Intercontinental, Herndon, Eagle, McDonnell, Pimco, and Wamco reports. The following manager specific comments were discussed: McDonnell Investments a. The total portfolio return in the third quarter was 0.4%, ranking in the 80th percentile of the BofAML Domestic Fixed Income Sample. It trailed the Custom Index (0.5%), and the Barclays Capital Aggregate Bond Index (0.6%). McDonnell Investments b. Their total portfolio return was 4.5% since inception (12/31/08). This exceeded the Custom (4.3%), and trailed the Barclays Capital Aggregate Bond Index (4.7%). c. Cash on hand at third quarter ending was within guidelines. Pimco a. The total portfolio return in the third quarter was 1.1%, ranking in the 26th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index (0.4%), and the BofAML Broad Market Bond index (0.6%). b. Their total portfolio return was 2.9% since inception (6/30/11). This equaled the Custom (2.9%), and trailed the BofAML Broad Market Bond index (3.2%). c. Cash on hand at third quarter ending was above guidelines. Western Asset Management a. The total portfolio return in the third quarter was 0.8%, ranking in the 46th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index (0.5%), and the BofAML Broad Market Bond index (0.6%). b. Their total portfolio return was 3.9% since inception (6/30/11). This exceeded the Custom (2.8%), and the BofAML Broad Market Bond index (3.2%). c. Cash on hand at third quarter ending was within guidelines. Herndon Investment Counsel a. The total portfolio return in the third quarter was 5.0%, ranking in the 58th percentile of the BofAML Domestic Large Cap Value Equity Sample. It exceeded the Custom Index (3.8%), and the Russell 1000 Value Index (4.0%). b. Their total portfolio return was 16.5% since inception (9/30/12). This trailed the Custom (21.7%), and the Russell 1000 Value Index (22.3%). c. Cash on hand at third quarter ending was within guidelines. Eagle Investment Counsel a. The total portfolio return in the third quarter was 6.8%, ranking in the 15th percentile of the BofAML Domestic Large Cap Value Equity Sample. It exceeded the Custom Index (3.9%), and the Russell 1000 Value Index (4.0%). b. Their total portfolio return was 26.0% since inception (9/30/12). This exceeded the Custom (21.2%), and the Russell 1000 Value Index (22.3%). c. Cash on hand at third quarter ending was within guidelines. Winslow Investment Counsel a. The total portfolio return in the third quarter was 11.0%, ranking in the 18th percentile of the BofAML Domestic Large Cap Growth Equity Sample. It exceeded the Custom Index (8.0%), and the Russell 1000 Growth Index (8.1%). b. Their total portfolio return was 12.7% since inception (3/31/12). This trailed the Custom (13.5%), and the Russell 1000 Growth Index (13.9%). c. Cash on hand at third quarter ending was within guidelines. Janus Investment Counsel a. The total portfolio return in the third quarter was 9.4%, ranking in the 42nd percentile of the BofAML Domestic Large Cap Growth Equity Sample. It exceeded the Custom Index (7.7%), and the Russell 1000 Growth Index (8.1%). b. Their total portfolio return was 13.3% since inception (12/31/09). This trailed the Custom (13.9%), and the Russell 1000 Growth Index (14.6%). c. Cash on hand at third quarter ending was within guidelines. Earnest Partners a. The total portfolio return in the third quarter was 9.6%, ranking in the 59th percentile of the BofAML Domestic Small Cap Equity Sample. It exceeded the Custom Index (8.7%), and the Russell 2500 Index (9.1%). b. Their total portfolio return was 8.5% since inception (9/30/06). This exceeded the Custom (7.8%), and the Russell 2500 Index (8.0%). c. Cash on hand at third quarter ending was above guidelines. AIM/INVESCO Capital Management The total portfolio return in the third quarter was 10.5%, ranking in the 40th percentile of the BofAML International Equity Sample. It exceeded the Custom Index (8.1%), and the MSCI EAFE Growth Index (8.8%). Their total portfolio return was 7.4% since inception (12/31/10). This exceeded the Custom (5.0%), and the MSCI EAFE Growth Index (3.7%). Cash on hand at third quarter ending was above guidelines. NFJ/Allianz Global Investors a. The total portfolio return in the third quarter was 8.8%, ranking in the 63rd percentile of the BofAML International Equity Sample. It trailed the Custom Index (9.8%), and the MSCI All Country World ex US-net (10.1%). b. Their total portfolio return was 6.2% since inception (12/31/10). This exceeded the Custom (3.8%), and the MSCI All Country World ex US-net (3.8%). c. Cash on hand at third quarter ending was within guidelines. The following table details the Investment Performance Review for the third quarter ending September 30, 2013. Market value of the funds under management as of September 30, 2013 was $190,701,784.00. The total fund return for the third quarter was 5.7%, ranking in the 5th percentile, as summarized below: 6/13 9/12 9/10 9/08 12/03 12/91 to 9/13 to 9/13 to 9/13 to 9/13 to 9/13 to 9/13 Total fund* 5.7/5 12.8/25 9.5/54 6.6/93 6.1/86 7.3/n/a *Ranked against the BofAML Domestic Balanced Sample – Total Total Portfolio Returns - Equity Sample Domestic# 8.9/31 20.6/58 13.4/77 8.5/75 8.1/75 8.5/n/a #Ranked against the BofAML Domestic Equity Sample Total Portfolio Returns - Fixed Income Sample F.I.# 0.8/45 -1.8/83 3.2/53 2.7/98 2.5/99 5.4/n/a #Ranked against the BofAML Domestic Fixed Income Sample 6/13 9/12 9/10 9/08 6/04 to 9/13 to 9/13 to 9/13 to 9/13 to 9/13 Real Estate -3.8 11.0 4.0 2.3 13.5 The following manager specific return information is detailed separately from the other long-term data: 6/13 9/12 6/11 Pimco to 9/13 to 9/13 to 9/13 Total Fund* 1.1/26 -1.8/79 2.9/71 *Ranked against the BofAML Domestic Fixed Income Sample - Total 3/13 3/12 6/11 Wamco to 6/13 to 6/13 to 6/13 Total Fund* 0.8/46 -0.9/56 3.9/34 *Ranked against the BofAML Domestic Fixed Income Sample – Total 6/13 9/12 Herndon to 9/13 to 9/13 Total Fund* 5.0/58 16.5/95 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 6/13 9/12 Eagle to 9/13 to 9/13 Total Fund* 6.8/15 26.0/29 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 6/13 9/12 3/12 Winslow to 9/13 to 9/13 to 9/13 Total Fund* 11.0/18 21.6/30 12.7/64 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample - Total 6/13 9/12 9/10 12/09 Janus to 9/13 to 9/13 to 9/13 to 9/13 Total Fund* 9.4/42 17.1/81 15.1/66 13.3/65 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample – Total 6/13 9/12 9/10 9/08 9/06 Earnest to 9/13 to 9/13 to 9/13 to 9/13 to 9/13 Total Fund* 9.6/59 25.2/89 16.9/77 12.3/64 8.5/54 *Ranked against the BofAML Domestic Small Cap Equity Sample – Total 6/13 9/12 12/10 Invesco to 9/13 to 9/13 to 9/13 Total Fund* 10.5/40 17.6/66 7.4/47 *Ranked against the BofAML International Equity Sample - Total 6/13 9/12 12/10 Allianz to 9/13 to 9/13 to 9/13 Total Fund* 8.8/63 14.5/76 6.2/64 *Ranked against the BofAML International Equity Sample – Total 2. McDonnell Investment Management quarterly performance – discussion Peter Clerkin and Mark Giura of McDonnell Investment Management were in attendance to discuss with the Board their performance. They had forwarded a detailed report regarding funds under their management. They reviewed the report and also responded to individual Board member’s questions. Market value of the funds under management as of September 30, 2013 was $15,593,330.00 The total fund return for the third quarter was 0.4%, ranking in the 80th percentile, as summarized below: 6/13 9/12 9/10 12/08 McDonnell to 9/13 to 9/13 to 9/13 to 9/13 Total Fund* 0.4/80 -2.6/92 2.8/69 4.5/70 *Ranked against the BofAML Domestic Fixed Income Sample - Total Mr. Brice gave a recap of the performance of McDonnell. After a lengthy discussion, the following motion was considered: Motion by Varney, supported by Wellhausen, to terminate McDonnell and split the funds 50%- 50% to each of the remaining fixed income managers. Ayes: All. Motion carried. The Board will be doing an asset allocation study in January. Janus will also be invited to attend the meeting to review their performance. 10. BENEFITS & PLAN ADMINISTRATION Old Business 2. Christopher Limback – partial DROP distribution – discussion Christopher Limback of the Police Department terminated his DROP retirement as of October 24, 2007. He is requesting a partial DROP distribution from his DROP account. Motion by Solak, supported by Wellhausen, to approve the partial DROP distribution as presented. Ayes: All. The motion carried. 3. Kevin Conlan – partial DROP distribution – discussion Kevin Conlan of the Fire Department terminated his DROP retirement as of September 7, 2011. He is requesting a partial DROP distribution from his DROP account. Motion by Wellhausen, supported by Solak, to approve the partial DROP distribution as presented. Ayes: All. The motion carried. 4. Consultant RFI - discussion The Board discussed the Consultant RFIs that were received in September. After a lengthy discussion, the following motion was considered: Old Business 4. Consultant RFI – discussion – cont. Motion by Varney, supported by Solak, to retain the present consultant and keep the RFIs on file. Ayes: All. The motion carried. 11. Trustee Comments Ms. Varney mentioned doing an actuarial review. 12. ADJOURNMENT Motion by Nash, supported by Wellhausen, to adjourn at 5:55 p.m. Ayes: All. The motion carried; the meeting is hereby adjourned. Mark Wellhausen Secretary