Police & Fire Retirement Board

REGULAR MEETING MINUTES OF THE STERLING HEIGHTS POLICE AND FIRE RETIREMENT SYSTEM, ACT 345 AUGUST 21, 2014 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 Lamerato at 3:32 p.m. 2. Board Members present: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk (excused). Also present: Tim Brice, representing Merrill Lynch Private Client Group; Patmon Malcom and Pavel Sokolov, representing Earnest Partners; Tom Michaud, Legal Counsel; and Nancy Duyck, Pension Technician. 3. APPROVAL OF CONSENT AND REGULAR AGENDAS Motion by Wellhausen, supported by Lamerato, to approve the consent agenda as presented. Ayes: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk. The motion carried. Motion by Wellhausen, supported by Lamerato, to approve the regular agenda as presented. Ayes: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk. The motion carried. 4. APPROVAL OF MINUTES No corrections were made to the draft minutes of the regular meeting of July 17, 2014. Motion by Schwarb, supported by Varney, to approve the minutes as presented. Ayes: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk. The motion carried; the minutes of the regular meeting of July 17, 2014 are hereby approved as presented. 5. CITIZEN PARTICIPATION There was no Citizen participation. 6. REPORT FROM LEGAL COUNSEL No formal legal report was presented. Mr. Michaud commented on items of old business as they were considered. CONSENT AGENDA 7. CORRESPONDENCE a. Correspondence from Rodwan to the POA dated July 30, 2014 re: requested supplemental actuary report. b. Other correspondence received from: 1. Merrill Lynch – market value updates 2. P&I Conferences 3. Robbins Geller Rudman & Dowd LLP c. Magazines received: 1. Institutional Investor for July/August 2014 2. Pensions & Investments for July 21 and August 4 and 18, 2014. 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. c. Checking Account Summary Beginning Balance $4,649.85 7/01/14 Additions (1) 1. 7/15 $5,000.00 Subtractions (8) $3,284.79 1. 7/07 Check 1946 122.39 Office Depot – supplies 2. 7/14 Check 1947 500.00 MAPERS reg  3. 7/14 Check 1948 325.00 MAPERS reg 4. 7/21 Check 1949 376.00 Accident Fund – WC premium 5. 7/31 Check 1950 42.83 AT & T phone bill – 7/16/14 6. 7/03 Check 5297 910.14 Contract Payment Nancy Duyck 7. 7/07 Check 5298 78.20 Contract fee – Gurin & Gurin 8. 7/18 Check 5299 910.16 Contract Payment Nancy Duyck Electronic withdrawals (4) $1,319.54 1. 7/07 461.54 IRA contribution 2. 7/09 376.85 IRS Fed. tax w/h 3. 7/21 104.34 Michigan St. tax w/h 4. 7/23 376.81 IRS Fed. tax w/h Ending Balance $ 5,108.42 7/31/14 d. Transmittal of Checks There were no checks transmitted this month. 9. FUNDS MANAGEMENT a. The current value of funds as of July 31, 2014 is detailed below: Clearing account $ 2,708,597.94 Intercontinental $ 9,322,210.89 Winslow $ 24,021,601.92 Janus $ 23,180,350.42 Eagle $ 23,593,818.10 Herndon $ 23,343,977.65 Earnest Partners $ 13,286,507.62 NFJ/Allianz $ 16,888,483.66 AIM/Invesco $ 17,245,501.55 Wamco $ 23,356,541.04 Pimco $ 22,104,024.00 Checking account $ 5,084.30 TOTAL FUNDS $ 199,056,699.09 b. The Board received a copy of the Summary of Employer Contributions to the Police and Fire Retirement System for the 2014 tax year as of 8/14/14. The System has received $1,615,400.00 of the 2014/15 budget of $7,953,970.00, leaving a $6,338,570.00 balance. c. Benefit Register Listing as of August 1, 2014 from Comerica Bank showing 308 retirees/beneficiaries with a payout for August of $1,233,707.34 and a year-to-date of $10,560,699.62. d. The current Merrill Lynch Bond index for July 2014 is 2.15%. 10. BENEFITS & PLAN ADMINISTRATION a. Old Business 1. Abel/Noser Reports for June 2014 Abel/Noser has supplied the June 2014 report. REGULAR AGENDA 8. BILLS AND EXPENDITURES a. Disbursements other than retiree benefit payments (bills) 1. Disbursement to Comerica Bank in the total amount of $1,745.00 for services rendered to the Clearing and Intercontinental accounts for the second quarter 2014. 2. Disbursement to Merrill Lynch in the amount of $3,150.00 for consulting services for the period of July 1, 2014 through December 31, 2014. 3. Disbursement to Rodwan Consulting Company in the total amount of $900.00 for actuarial services rendered for actuarial calculations for the Todd Rotter EDRO benefit, Brian Krueger EDRO benefit, and Rodney Damm EDRO benefit. 4. Disbursement to Merrill Lynch in the amount of $33,200.30 for the Consults fee for the AIM/Invesco account for the third quarter 2014. 5. Disbursement to Merrill Lynch in the amount of $44,437.27 for the Consults fee for the Janus account for the third quarter 2014. 6. Disbursement to Merrill Lynch in the amount of $15,235.10 for the SPA fee for the Eagle account for the third quarter 2014. 7. Disbursement to Eagle Capital Management in the amount of $47,664.30 for investment management fees for the second quarter 2014. Motion by Varney, supported by Wellhausen, to approve the bills as presented. Ayes: Lamerato, Wellhausen, Schwarb, Varney.  Absent: Maleszyk. 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, second quarter 2014 AIM Market Focus report. Also included was an executive summary of the Composite, Allianz, Eagle, Earnest, Herndon, Intercontinental, Invesco, Janus, Pimco, Wamco and Winslow reports. The following manager specific comments were discussed: Pimco a. The total portfolio return in the second quarter was 2.5%, ranking in the 17th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index and the BofAML Broad Market Bond index (2.1%). b. Their total portfolio return was 3.3% since inception (6/30/11). This trailed the Custom (3.5%), and the BofAML Broad Market Bond index (3.7%). c. Cash on hand at second quarter ending was within guidelines. Western Asset Management a. The total portfolio return in the second quarter was 2.8%, ranking in the 12th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index and the BofAML Broad Market Bond index (2.1%). b. Their total portfolio return was 4.9% since inception (6/30/11). This exceeded the Custom (3.4%), and the BofAML Broad Market Bond index (3.7%). c. Cash on hand at second quarter ending was within guidelines. Herndon Investment Counsel a. The total portfolio return in the second quarter was 3.3%, ranking in the 91st percentile of the BofAML Domestic Large Cap Value Equity Sample. It trailed the Custom Index (4.9%) and the Russell 1000 Value Index (5.1%). b. Their total portfolio return was 19.7% since inception (9/30/12). This trailed the Custom (23.4%), and the Russell 1000 Value Index (24.0%). c. Cash on hand at second quarter ending was within guidelines. Eagle Investment Counsel a. The total portfolio return in the second quarter was 3.9%, ranking in the 78th percentile of the BofAML Domestic Large Cap Value Equity Sample. It trailed the Custom Index (5.0%), and the Russell 1000 Value Index (5.1%). b. Their total portfolio return was 24.8% since inception (9/30/12). This exceeded the Custom (23.2%), and the Russell 1000 Value Index (24.0%). c. Cash on hand at second quarter ending was within guidelines. Winslow Investment Counsel a. The total portfolio return in the second quarter was 4.5%, ranking in the 54th percentile of the BofAML Domestic Large Cap Growth Equity Sample. It trailed the Custom Index (5.0%) and the Russell 1000 Growth Index (5.1%). b. Their total portfolio return was 15.1% since inception (3/31/12). This trailed the Custom (16.7%), and the Russell 1000 Growth Index (17.1%). c. Cash on hand at second quarter ending was within guidelines. Janus Investment Counsel a. The total portfolio return in the second quarter was 2.6%, ranking in the 93rd percentile of the BofAML Domestic Large Cap Growth Equity Sample. It trailed the Custom Index (5.0%), and the Russell 1000 Growth Index (5.1%). b. Their total portfolio return was 13.8% since inception (12/31/09). This trailed the Custom (15.4%), and the Russell 1000 Growth Index (16.1%). c. Cash on hand at second quarter ending was within guidelines. Earnest Partners a. The total portfolio return in the second quarter was 5.0%, ranking in the 7th percentile of the BofAML Domestic Small Cap Equity Sample. It exceeded the Custom Index (3.4%), and the Russell 2500 Index (3.6%). b. Their total portfolio return was 10.1% since inception (9/30/06). This exceeded the Custom (8.9%), and the Russell 2500 Index (9.2%). 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 5.8%, ranking in the 25th percentile of the BofAML International Equity Sample. It exceeded the Custom Index (4.1%) and the MSCI AC World ex US Growth Index net (4.4%). b. Their total portfolio return was 9.7% since inception (12/31/10). This exceeded the Custom (6.4%), and the MSCI AC World ex US Growth Index net (5.6%). 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 4.7%, ranking in the 45th percentile of the BofAML International Equity Sample. It trailed the Custom Index (4.8%) and the MSCI All Country World ex US-net (5.0%). b. Their total portfolio return was 7.6% since inception (12/31/10). This exceeded the Custom (5.8%), and the MSCI All Country World ex US-net (6.0%). c. Cash on hand at second quarter ending was within guidelines. The following table details the Investment Performance Review for the second quarter ending June 30, 2014. Market value of the funds under management as of June 30, 2014 was $205,068,160.00. The total fund return for the second quarter was 5.0%, ranking in the 1st percentile, as summarized below: 3/14 6/13 6/11 6/09 6/04 12/91 to 6/14 to 6/14 to 6/14 to 6/14 to 6/14 to 6/14 Total fund* 5.0/1 19.6/2 10.0/43 11.7/56 6.2/90 7.6/n/a *Ranked against the BofAML Domestic Balanced Sample – Total Total Portfolio Returns - Equity Sample Domestic# 4.3/48 25.5/37 13.1/37 15.7/56 7.6/75 8.9/n/a #Ranked against the BofAML Domestic Equity Sample Total Portfolio Returns - Fixed Income Sample F.I.# 2.7/14 5.2/39 4.2/38 5.3/48 2.9/99 5.4/n/a #Ranked against the BofAML Domestic Fixed Income Sample 3/14 6/13 6/11 6/09 6/04 to 6/14 to 6/14 to 3/14 to 6/14 to 6/14 Real Estate 29.5 38.2 10.0 8.6 15.3 The following manager specific return information is detailed separately from the other long- term data: 3/14 6/13 6/11 Pimco to 6/14 to 6/14 to 6/14 Total Fund* 2.5/17 4.5/55 3.3/71 *Ranked against the BofAML Domestic Fixed Income Sample - Total  3/14 6/13 6/11 Wamco to 6/14 to 6/14 to 6/14 Total Fund* 2.8/12 6.7/19 4.9/24 *Ranked against the BofAML Domestic Fixed Income Sample – Total 3/14 6/13 9/12 Herndon to 6/14 to 6/14 to 6/14 Total Fund* 3.3/91 23.5/60 19.7/91 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 3/14 6/13 9/12 Eagle to 6/14 to 6/14 to 6/14 Total Fund* 3.9/78 24.8/44 24.8/40 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 3/14 6/13 3/12 Winslow to 6/14 to 6/14 to 3/14 Total Fund* 4.5/54 27.2/50 15.1/75 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample - Total 3/14 6/13 6/11 12/09 Janus to 6/14 to 6/14 to 6/14 to 6/14 Total Fund* 2.6/93 22.8/87 15.2/53 13.8/80 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample – Total 3/14 6/13 6/11 6/09 9/06 Earnest to 6/14 to 6/14 to 6/14 to 6/14 to 6/14 Total Fund* 5.0/7 30.8/8 17.0/30 22.2/32 10.1/42 *Ranked against the BofAML Domestic Small Cap Equity Sample – Total 3/14 6/13 6/11 12/10 Invesco to 6/14 to 6/14 to 6/14 to 6/14 Total Fund* 5.8/25 25.6/33 9.4/34 9.7/32 *Ranked against the BofAML International Equity Sample - Total 3/14 6/13 6/11 12/10 Allianz to 6/14 to 6/14 to 6/14 to 6/14 Total Fund* 4.7/45 19.1/73 7.5/58 7.6/60 *Ranked against the BofAML International Equity Sample – Total 2. Earnest Partners – discussion Patmon Malcolm of Earnest Partners was in attendance to discuss their performance with the Board. They had forwarded a detailed report regarding funds under their management. He reviewed the report and also responded to individual Board member’s questions. Market value of the funds under management as of June 30, 2014 was $14,166,379. The total fund return for the second quarter 2014 was 5.0%, ranking in the 7th percentile, as summarized below: 3/14 6/13 6/11 6/09 9/06 Earnest to 6/14 to 6/14 to 6/14 to 6/14 to 6/14 Total Fund* 5.0/7 30.8/8 17.0/30 22.2/32 10.1/42 *Ranked against the BofAML Domestic Small Cap Equity Sample – Total The Board discussed the performance of Janus. They discussed with Mr. Brice bringing three large cap core money managers for presentations at the September 18, 2014 regular meeting. f. 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. A RFI has been approved for consultant services and will be sent out in the near future. 4. Rodwan Consulting Company The services of the Board’s actuary were reviewed. Their service continues to be satisfactory. 5. 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. 6. Pension Technician The services of the Board’s Pension Technician were reviewed. Her service continues to be satisfactory. Motion by Varney, supported by Schwarb, to do an RFP for actuarial services. Ayes: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk. The motion carried. Legal Counsel will supply a draft RFP for next month’s review by the Board. 10. BENEFITS & PLAN ADMINISTRATION a. Old Business 2. Daniel Dye - DROP retirement termination information - discussion Battalion Chief Daniel Dye of the Fire Department terminated his DROP retirement as of July 22, 2014. All required paperwork is on file in the Pension Office. Motion by Wellhausen, supported by Schwarb, to approve the disbursements for the regular pension and annuity withdrawal and process the retirement certificate as submitted. Ayes: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk. The motion carried. 3. Abel Noser Account – discussion Mary Davidson of Abel/Noser stopped in at the Pension Office to introduce herself as the new representative for our account. She also stated that the $12,266.27 amount that shows up on the monthly statement should probably be refunded to the Board since almost all of our managers are on a ML platform. Motion by Wellhausen, supported by Lamerato, to request a refund of the amount, and close the account. Ayes: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk. The motion carried. 4. Account transfer for September 2014 benefit payments – discussion As of August 18, 2014, the Clearing Account had a balance of $914,861.31. An additional $450,000.00 is needed for the September 1, 2014 pension benefit payments and bills from the Clearing Account. Merrill Lynch had forwarded an e-mail that the additional amount needed should be taken from the Winslow account, based on the asset allocation targets. Motion by Wellhausen, supported by Schwarb, to approve the transfer of the appropriate amount of funds from the Winslow account, based on the asset allocation targets, to provide for pension benefit payments and other disbursements on September 1, 2014. Ayes: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk. The motion carried. 11. TRUSTEE COMMENTS None. 12. ADJOURNMENT Motion by Lamerato, supported by Wellhausen, to adjourn at 5:26 p.m. Ayes: Lamerato, Wellhausen, Schwarb, Varney. Absent: Maleszyk. The motion carried; the meeting is hereby adjourned. Mark Wellhausen Secretary