HomeMy WebLinkAboutMinutes Fire Pension 070813PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND
MINUTES OF MEETING HELD
July 8, 2013
A meeting of the Board of Trustees was called to order at 9:04 AM at Council Chambers,
Palm Beach Gardens, Florida. Those persons present were:
TRUSTEES OTHERS
Mark Joyce, Vice Chair Audrey Ross, Administrator
Tom Murphy, Secretary Pedro Herrera, Attorney
Ed Morejon Doug Lozen, Actuary
Martin Cohen Troy Brown, Investment Consultant
Ralph Segall, Investment Manager
Michael Stanley, Investment Manager
Jim Wenzler, Investment Manager
Fraz Farzam, Investment Manager
PUBLIC COMMENTS
N/A
MINUTES
The Board reviewed the minutes of the regular meeting held on May 1, 2013.
A motion was made by Ed Morejon to approve the minutes of the May 1, 2013
regular meeting as amended. The motion was seconded by Tom Murphy and
carried 4-0.
INVESTMENT MANAGER INTERVIEWS:
Mr. Brown briefly summarized the purposes of today’s investment manager interviews.
He explained that the board moved out of ICC Capital and now they are looking to
replace a manager. Mr. Brown’s recommendation is to move 5% ($5.5M) from the Dana
Advisors portfolio to a new all cap manager.
Segall Bryant & Hamill – All Cap Core (Ralph Segall)
Mr. Segall introduced himself and stated that he is one of the founders of the firm. The
firm was established in 1994 and they have 2 locations, Chicago and St. Louis. Segall is
2/3 employee owned and the rest is owned by a private equity firm. They currently have
$10B in assets under management as of June 30, 2013. Their philosophy is to have
consistent results and with consistent asset growth. Mr. Segall reviewed the investment
team that is dedicated to the all cap core product as well as their client list. He noted that
they do have a lot of Florida defined benefit plans similar to this one. This product offers
a lot of downside protection. Mr. Segall explained their investment philosophy and
stated that they focus on return on capital and growth measures. They do bottom up
research and have a long term investment perspective. This portfolio holds about 40-60
securities and they keep about a 5% cash position. Their turnover rate is around 40% and
they are diversified across all sectors and industries with no more than 200% in one
sector (and no more than 5% in any one security). Mr. Segall reviewed their sell
discipline and explained the reasons why they would sell off a company. For example if
a companies investment thesis is no longer in tact, or if the company fails to deliver the
expected return on investments, than they will sell a company out of their portfolio. Mr.
Segall reviewed their investment experience over different market cycles and explained
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that they have always protected on the downside during all time periods. In conclusion,
Segall strives to give their clients superior returns over the long term as they do not hit
homeruns. The Trustee asked questions and wanted to confirm that Segall only invests in
domestic companies. Mr. Segall responded that they do only invest directly with
domestic investors, although they do own some ADR’s that are global. For Segall to be
able to go out and purchase international companies directly, they do not think they are
competent enough to do so because that is not their specialty. Mr. Segall noted that the
fee for this fund is 60 basis points and all assets will be held at the Plans Custodian. Mr.
Brown noted that this manager has a smaller position in cash than the other 2 mangers the
board is about to interview.
Fiduciary Management Inc (FMI) – All Cap Equity (Michael Stanley)
Ms. Stanley introduced himself and noted that FMI was founded in 1980 and they are
based out of Milwaukee. FMI is 100% employee owned with $17.7B in assets. Mr.
Stanley did comment that FMI does have 2 other accounts that are closed to new
investors due to reaching capacity. He noted that they will also be having a soft close on
the all cap equity product that he is here to explain today. Mr. Stanley introduced the
investment team and noted that they are all partners of the firm and they invest their
personal portfolio along side their clients. He reviewed their clients list and pointed out
that they have quit a few Florida clients. Mr. Stanley reviewed the firm’s investment
philosophy and reported that they look at a 3-5 year investment horizon, not short term.
They have about a 15-25% turnover rate per year, which is about 1 new company per
month, which lowers their trading fees and transaction costs. He explained that they like
to purchase companies when they have a “cloud over their head” or some controversy
with the business because they tend to be cheaper. Mr. Stanley reviewed what they look
for in a company when they are making a purchase, such as return on invested capital.
Also the company has to have an attractive valuation. FMI does not invest in any airline
companies and they are not big investors in banks either. He reviewed FMI’s
performance and for the 1 year as of March 31, 2013 they are up 15.21% versus the index
at 14.56%, and since inception they are also ahead of the index at 8.12% versus 4.01%.
They limit 6% in any one security and they purchase across all sectors. Mr. Stanley
briefly reviewed their sell discipline and commented that they will sell a company if the
stock prices reaches target of if management’s actions require them to sell. FMI holds
about 9% in cash and their fee for this product is 75 basis points. Mr. Brown asked if
FMI was able to come down on their fee at all. Mr. Stanley responded that unfortunately
they are not able to come down on the fee of 75 basis points. The Trustees asked Mr.
Stanley to explain why FMI holds so much in cash. Mr. Stanley responded that they
strive to be fully invested at all times and that this is actually their highest holding in cash
that they have ever had. They rather hold onto the cash if there is nothing to invest in
because they only invest in companies that have good valuations, and that is hard to find
right now.
Broadview Advisors, LLC – All Cap Strategy (Jim Wenzler & Fraz Farzam)
Mr. Wenzler introduced himself and Mr. Farzam who in one of the investment team
portfolio managers. Mr. Wenzler reviewed the background of Broadview and stated that
they are 100% employee owned and have been managing this portfolio since 2001. They
have $850M is assets and their fee for this products is 75 basis points. Broadview has a
total of 9 employees and therefore they consider themselves more of a boutique.
Broadview does all there own bottom up fundamental analysis and research. Mr.
Wenzler noted that their investment philosophy is to buy great businesses at bargain
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prices. He reviewed the 5 pillar analysis they go through when selecting a company.
All companies must have strong business traits, defendable market niche, attractive
growth potential, capable management, and it must be a discount to private market value.
Mr. Farzam explained that they will sell a company if any one of the pillars is violated.
Also their max position in any one sector is 5%. Mr. Farzam noted that they are very
patient investors and gave an example of one company in the portfolio where patients
paid off. This fund protects clients on the downside and captures most of the upside. He
stated that relative to their competition Broadview will have a larger position in cash
because they are patient investors and do not purchase until the price is right. There are
about 100 stocks in this portfolio with about a 40% turnover rate. Mr. Farzam noted that
all the companies in the portfolio are domestic, although they do hold a couple of ADR’s.
He briefly reviewed the performance and commented that their wins are greater than their
losses and they do well during the down markets. Since inception they have
outperformed the market and also their peers. Mr. Brown asked if they were able to
come down on their fee of 75 basis points. Mr. Wenzler stated that he would have to
discuss that with his firm and get back to the board.
Board Discussion:
The Trustees had a very lengthy discussion on the different manager presentations. They
noted the FMI had the least correlation with the Dana portfolio, and Mr. Brown
commented that he has Broadview paired with a Dana portfolio in another pension fund
as well. Although he stated that he thinks the board may have a little concern with
Broadview because of their cash position and the volatility of the fund. Segall has the
lowest fee, but Broadview was able to come down on their fee from 90 basis points to 75
basis points. The Trustees noted that performance wise, FMI has the most downside
protection, but Broadview outperforms the most during the up markets and Segall is
somewhere right in the middle.
A motion was made by Ed Morejon to hire Fiduciary Management Inc. (FMI) and
to allocate $5.5M from the Dana large cap portfolio to the new manager FMI by
using the transition manager ConvergEx. The Board also directed the Plans
Attorney to send their standard investment manager agreement to FMI for
execution. The motion was seconded by Tom Murphy and carried 4-0.
INVESTMENT MONITOR REPORT: THE BOGDAHN GROUP (TROY
BROWN)
Mr. Brown briefly reviewed the funds preliminary performance as of June 30, 2013 and
noted that they added another 1.1% for the quarter, which now puts them at 9.5% for the
fiscal year to date. He commented that these numbers are preliminary because they do
not include the real estate returns, in which he will not get until the last week in July.
Lastly Mr. Brown explained that his second recommendation is to take $225K from the
Garcia Hamilton account and add it to the receipt and disbursement account for expenses
and benefit payments and to also be back inline with the policy.
A motion was made by Tom Murphy to transfer $225K from the Garcia Hamilton
account to the receipt and disbursements account per the recommendation of the
Investment Consultant to be back inline with the policy. The motion was seconded
by Martin Cohen and carried 4-0.
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ATTORNEY REPORT: SUGERMAN & SUSSKIND (PEDRO HERRERA)
Mr. Herrera updated the board in the recent legislative bills that have been signed. He
explained that the most impactful bill that passed was Senate Bill 534, which will require
new reporting requirements for local government pension plans effective July 1, 2013.
Mr. Herrera commented that the Division of Retirement office will be issuing regulations
regarding this new law, and than the board can discuss this with their Actuary because
there are additional reporting requirements which mean additional fees. The September
30, 2015 actuarial valuation report will be the first report that these changes will have to
be in effect.
Mr. Herrera had a lengthy discussion on the members leaving their DROP and share
monies in the plan after they separate service. The Trustees discussed how long members
are allowed to leave the money in the plan and how many times they can take
distributions from their accounts. Currently the ordinance states that members are only
allowed to take distributions from their accounts once, in a lump sum payment form. The
Trustees continued to have a very lengthy conversation on the rules and regulations
surrounding the DROP and share accounts. The Trustees directed the Plans Attorney and
the Administrator to gather information to put together a draft policy on the rules and
regulations regarding the investment and distributions of the DROP and share accounts.
Ms. Ross stated that she will send Mr. Herrera some samples of other DROP and share
policies from other pension plans.
A motion was made by Ed Morejon to direct the Plans Attorney to draft a policy
regarding the rules and regulations surrounding the investing and the distributions
from the DROP and share accounts. The motion was seconded by Martin Cohen
and carried 4-0.
The Trustees also discussed the self directed DROP account option that they are trying to
establish under the plan. There are a handful of investment companies that deal with self
directed DROP accounts for defined benefit plans (Vanguard, Mass Mutual, TC Craft,
ICMA and Hartford). The board asked the Plans Investment Consultant to send out an
RFP to the companies listed above to see if they are interested in establishing a self
directed DROP accounts for the plan. Mr. Brown noted that he will not have the RFP
results back by the August meeting, but rather the September meeting.
A motion was made by Ed Morejon to direct the Plans Investment Consutlatn to
send out an RFP to Vanguard, Mass Mutual, TC Craft, ICMA and Hartford on
behalf of the board regarding self directed DROP accounts. The motion was
seconded by Martin Cohen and carried 4-0.
ADMINISTRATIVE REPORT: RESOURCE CENTERS (AUDREY ROSS)
DISBURSEMENTS
The Board reviewed the disbursements presented for approval by the Administrator.
A motion was made by Tom Murphy to approve the disbursements that were
presented by the Administrator. The motion was seconded by Martin Cohen and
carried 4-0.
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BENEFIT APPROVALS
The Board reviewed the application to enter the DROP for Gregory Timmer, the
applications to exit the DROP for Peter Bergel, Scott Fetterman, and the applications for
distribution from DROP and Share account for Scott Fetterman.
A motion was made by Ed Morejon to approve the application to enter the DROP
for Gregory Timmer, the applications to exit the DROP for Peter Bergel, Scott
Fetterman, and the applications for distribution from DROP and Share account for
Scott Fetterman. The motion was seconded by Tom Murphy and carried 4-0.
Ms. Ross noted that their last scheduled special meeting with the Actuary was canceled
last minute due to a lack of a quorum. Therefore the board needs to reschedule that
meeting at this time. The Trustees discussed meeting dates but due to scheduling
conflicts, they asked Ms. Ross to ask the Actuary to attend their next regular scheduled
meeting on August 7. Ms. Ross concurred. Mr. Brown commented that Garcia Hamilton
was scheduled to present at the August meeting but he will push that presentation back to
September.
The board tabled the review the draft summary plan description until next meeting.
OLD BUSINESS
Ms. Ross passed out the revised letter from American Realty which reflects their 2012
dispositions. This letter was requested by the board at the last meeting.
NEW BUSINESS
Mr. Murphy wanted to reconfirm that members are still allowed to buyback time if they
wanted too. The Trustees confirmed that the buyback benefit is still allowed under the
plan, but due to the 75% benefit cap that is in place, buying back time may not benefit a
member depending on their personal situation.
There being no further business, the meeting adjourned at 1:41 PM.
Respectfully submitted,
Tom Murphy, Secretary