08/18/1997 (2)
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PENSION
(TRUSTEES)
Board of Trustees of the Employees'
Pension Fund
Minutes
Date
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'ACTION AGENDA .
Board of Trustees of the Employees' Pension Fund
August 18, 1997
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1. ' Call to order 1. 9:01 a.m.,
2. Approval of Minutes: 8/4/97 2. Approved as submitted.
3. Diversification of Money Managers 3. Presentation given.
4. Other, Business: ) 4. None.
5. Adjournment: 5. 9:45 a.m.
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TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING
CITY OF CLEARWATER
August 1 a, 1997
Rita Garvey
J. B. Johnson
Robert Clark
Ed Hooper
Karen Seal
Michael J. Roberto
Pamela K. Akin
Cynthia E. Goudeau
Patricia O. Sullivan
Chair
Trustee
Trustee
Trustee
Trustee
City Manager
City Attorney
City Clerk
Board Reporter
The Chair called the meeting to order at 9:01 a.m. at City Hall.
To provide continuity for research, items are in agenda order although not necessarily
discussed in that order.
ITEM '#2 ~ Approval of Minutes
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Trustee Clark moved to approve the minutes of the August 4, 1997, meeting, as
recorded and submitted in written summation by the City Clerk to each Trustee. The
motion was dUly seconded and carried unanimously.
ITEM #3 ~ Diversification of Monev ManaQers:
Cash and Investments Manager Steve Moskun reviewed the diversification of
Pension Plan investments. Investments are restricted: 1) up to 50% equity on a cost basis;
2) corporate bonds with minimum AA credit rating; 3) security traded on recognized
national stock exchange; and 4) no more than 3 % of plan assets invested in anyone
company. The City's consultants are: 1) John Willoughby, Eickhoff, Pierper & Willoughby,
Inc. - investment advisor and 2) Bill Badger, Callan Associates - performance measure and
guidance. As of June 30, 1997, the Pension Plan's equity money managers were: 1) Ark
Asset Management Co., Inc. - hired October 1996, manage $30.1-million for Plan, invest in
large capitalization and growth stocks, manage $26.6-billion total; 2) Aeltus Investment
Management - hired June 1982, manage $54.3-million for Plan, invest in large
capitalization and growth stocks, manage $14.3~billion total; 3) Denver Investment
Advisors - hired June 1982, manage $57.6~million for Plan, invest in middle capitalization
companies, manage $10.4-bi11ion total; and 4) Hanson Investment Management - hired
November 1990, manage $58.6-million for Plan, invest in "Growth at A Reasonable Price"
and large capitalization companies, manage $1.3-billion total. As of June 30, 1997, fixed
income managers for the Pension Plan were: 1) Shields/Alliance - hired October 1991,
manage $68.1-million for Plan, fixed income core manager, manage $5.5-billion total and 2)
Eickhoff, Pierper & Willoughby, Inc. - hired June 1991, manage $56.3-million for Plan,
insurance investment contracts and U.S. Treasuries, manage $30Q-million total. The
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fund's performance was: 1} 11.1 9% last quarter; 2) 17.51 % - last year; 3) 17.37 % - last 3
years; and 4) 13.57% - last 5 years.
Mr. Moskun reported staff is searching for another Core Fixed Income Manager. He
reviewed committee recommended changes to restrictions: 1) increase equity investments
to 65% from 50%; 2) increase international investments up to 10%; and 3) increase the
minimum credit rating of fixed income investments to "Investment Grade" from "AA."
In response to a question, Mr. Moskun said another core income manager will allow
more diversification and allow the investment committee to compare the performance of
existing core income. The investment committee meets quarterly and is made up of staff
and consultants. Comparison data should be available within 1 or 2 years. In response to
a question, he said the Plan had received all of its principal and some of its earned interest
from a Canadian insurance company after it had filed bankruptcy. The annual cost of a
new core income manager is estimated at $1 2,500.
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Concern was expressed the Plan's investments constitute 1/6 of the holdings of
Eickhoff, Pierper & Willoughby, Inc. Mr. Moskun said the investment committee is
comfortable with that manager. John Willoughby reported his company did not recommend
the Plan's investment in insurance contracts. The City had hired his company as an
outside advisor due to his firm's expertise. His company worked with the City to develop
criteria and monitoring procedures regarding insurance contract investments. He said with
his firm's assistance, the Plan significantly reduced its level of investments in fixed income
and increased equity investments. His company reduced its percentage of Plan
investments by recommending against further investment in insurance contracts due to
increased equity exposure and volatility in that market. The Plan's investment in insurance
contracts has been reduced to several million dollars.
Mr. Willoughby said his firm never manages equities for the Plan but acts as
advisors on equity matters. The investment committee recommends maintaining some
bond investments in liquid treasuries. His firm manages a portfolio of $330-million. The
City is the company's largest account. Based on 30 years' experience, the company, for a
fee, provides the City with its best, objective advice regarding equities. His company's
account will be drawn down further when a new core fixed income manager is hired. His
firm charges the Plan 7 basi5 points, a fee based on the low activity rate of previous
insurance contract investments. The firm's consulting fee is an additional $7,500.
Concern was expressed equity investments earning high interest currently are
shifted to low earning fixed income investments when the level of equity investments
exceeds 50% of the Plan's investments. In response to a question, Finance Director
Margie Simmons reported the Pension Plan must respond to applicable changes made to
State law. All other changes require a vote by referendum. In response to a question,
Deputy City Manager Kathy Rice said benefits are bargainable but the Plan's investment
strategy is not. Ms. Simmons stated the stock market could reverse its upward trend. She
recommended limiting the percentage of equity investments. Mr. Willoughby agreed
limiting equity investments to 65% of the Plan's portfolio is reasonable. In response to a
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question, he said the Plan no longer invests in insurance contracts. Investments in foreign
firms are limited to those listed on the New York stock exchange.
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It was questioned when firms with consistently poor fund performances are fired.
Mr. Moskun indicated investment restrictions impact the performances of some funds. Bill
Badger, of Callan Associates, said while the Plan's equity managers who are limited to
investing in middle capitalization companies compare favorably with similar firms, their
performance appears poor when compared with all equity managers. He agreed with the
recommendation to hire another core fixed income manager. He felt limiting investment to
credit ratings of "AA" is too restrictive.
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A detailed record of Plan expenses for investment managers and advisors was
requested.
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Concern was expressed the return on investment is only in the medium range. Mr.
Badger referred to page 13 and 14 of the June 30, 1997, Callan Associates Investment
Measurement Review and said the Plan's investments are doing very well when compared
with other public funds. He said the fund is run prudently. It was noted the Review uses
complex methods to compare the Plan's funds with other investments. Mr. Willoughby
noted the importance of considering 3 to 5 year fiscal cycles when comparing funds.
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ITEM #4 - Other Business - None.
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ITEM #5 - Adjournment:
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The meeting adjourned at 9:45 a.m.
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ATTEST: ~[ lL.Qoo._
, City Clerk
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