BOARD OF RETIREMENT FRESNO COUNTY EMPLOYEES RETIREMENT ASSOCIATION

Transcription

1 BOARD OF RETIREMENT FRESNO COUNTY EMPLOYEES RETIREMENT ASSOCIATION Our mission is to administer the retirement benefits for the members and beneficiaries in a prudent, accurate, timely and cost-effective manner, while administering fund assets in a manner that achieves investment and funding objectives within prudent levels of risk Trustees Present: Marion Austin Laura P. Basua Judith Case McNairy Dr. Rod Coburn, III Vicki Crow Robert Dowell Eulalio Gomez Steven Jolly Others Present: September 3, 2014 REGULAR MEETING AGENDA MINUTES Robert Skowronski, FCERA Member Ron Madsen, FCERA Member Graham Schmidt, Cheiron Inc. Anne Harper, Cheiron Inc. Marilyn M. Oliver, Bartel Associates Mary Beth Redding, Bartel Associates Kevin Traenkle, Colony Capital Rommel Marseille, Colony Capital Jeffrey MacLean, Wurts & Associates Dean Stuckenschmidt, County Counsel Becky Van Wyk, Interim Retirement Administrator Elizabeth Avalos, Administrative Services Assistant 1. Call to Order Chair Coburn called the meeting to order at 8:35 AM. 2. Pledge of Allegiance Recited. 3. Public Presentations Robert Skowronski addressed the Board regarding the Fund s Unfunded Actuarial Accrued Liability (UAAL). Trustee Jolly joined the Board at 8:38 AM.

2 Consent Agenda/Opportunity for Public Comment Robert Skowronski pulled Consent Item 7 for comment. 2 A motion was made by Trustee Crow, seconded by Trustee Basua, to approve Consent Items 4-6 and 8-11 as presented. VOTE: Unanimous *4. Retirements ; APPROVED Name Department Yrs of Svs Norma Bolanos-Banuelos Sheriff, Deferred Robert J. Carmany Assessor/Recorder Audrey Carter Department of Social Services Joseph P. Elerick Sheriff, Deferred Daniel R. Fitzpatrick Administrative Office, Deferred 5.92 Candace L. Fleming Local Agency Formation Comm George Goudima Department of Social Services Renetta Helms FMAAA 8.74 Karen J. Maj Library George F. Morales Internal Services Albert Moreno Jr. Public Works and Planning Lorraine Olszowy Behavioral Health, Deferred 5.71 Douglas F. Owen Public Works and Planning Diann G. Phelps Internal Services Jamileh Pott California Superior Court Juanita Ramirez Department of Social Services Victoria E. Ravdin Community Health, Deferred Pati A. Soto Department of Social Services Rosario Taylor Department of Social Services Richard C. Valenzuela Department of Social Services Rita C. Vickers Department of Social Services *5. Disability Retirements ; APPROVED Name Department Yrs of Svs Jose P. Franco Library Sandra B. Lynch Department of Social Services *6. Request to Rescind Deferred Retirement ; APPROVED Name Department Yrs of Svs Gustavo Armenta Public Works & Planning 32.46

3 3 *7. Educational Reading Materials Robert Skowronksi, FCERA Member, commented on Items Items 7.C. through 7.I. of the Educational Reading Materials. a. August 22, 2014 The Fresno Bee article Action of CalPERS board is just nuts (submitted by Trustee Steven Jolly) b. August 22, 2014 The Fresno Bee article Gov. Brown must fight Back and reverse pension defeat ~ Reforms of 2012 are narrowed by CalPERS board decision (submitted by Trustee Steven Jolly) c. August 23, 2014 Money.CNN article Hedge funds get bigger as returns get smaller (submitted by Robert Skowronski, FCERA Member) d. August 23, 2014 Illinois Review article Pension funds expected rates of return: Biggest lie in global finance (submitted by Robert Skowronski, FCERA Member) e. August 23, 2014 Governing.com article Pension Puffery (submitted by Robert Skowronski, FCERA Member) f. August 23, 2014 Pension Fact Sheet article GASB S NEW PENSIN STANDARDS: SETTING THE RECORD STRAIGHT (submitted by Robert Skowronski, FCERA Member) g. August 26, 2014 Fresno County Board of Supervisors Briefing Report Pension Obligation Bonds (submitted by Robert Skowronski, FCERA Member) h. August 26, 2014 Fresno County Board of Supervisors Task Force Findings Retirement Review (submitted by Robert Skowronski, FCERA Member) i. August 2014 PIMCO perspective Share and Share Alike A motion was made by Trustee Crow, seconded by Trustee Jolly, to approve Consent Item 7 as presented. Comments and questions followed. A motion was made by Trustee Gomez, seconded by Crow, to call for the question to the motion noted above. VOTE: Unanimous The motion was restated as follows: A motion was made by Trustee Crow, seconded by Trustee Jolly, to approve Consent Item 7 as presented. VOTE: Unanimous *8. Update on Board of Retirement Project Tracking *9. Correspondence from Harvey Leiderman, Reed Smith, regarding Contra Costa County Employees Retirement Association and SB 673 *10. FCERA Cash Flow position as of July 2014

4 *11. Most recent investment returns, performance summaries and general investment information from investment managers *12. Update on Waddell and Reed Large Cap Growth organizational changes 13. Discussion and appropriate action on selection of an Actuarial Audit firm 4 Becky Van Wyk, Interim Retirement Administrator, opened discussions by reminding the Board of its decision to hear presentations from each of the firms with the intent to hire one firm to conduct an audit of the annual valuation and experience study as required by Board policy. The Board heard presentations from and engaged in discussion with representatives from Cheiron Inc. and Bartel Associates on the selection of an actuarial audit firm. Each reviewed their various methodologies, approaches, and quality controls used to ensure that the requested services are completed accurately and timely and within the scope of the RFP. Discussions ensued. A motion was made by Trustee Gomez, seconded by Trustee Basua, to begin contract negotiations with Cheiron Inc. VOTE: Unanimous ; APPROVED 14. Performance and Economic Summary report presented by Kevin Traenkle, and Rommel A. Marseille - Colony Capital The Board heard from and engaged in discussion with representatives from Colony Capital which included a review of the firm s philosophy, organizational structure, and investment strategy. The representatives addressed various comments and questions from the Board in regard to the Plan s overall investment performance and market environment going forward. Further, the representatives reviewed the existing CDCF I investment as well as the proposed investment in CDCF III. A motion was made by Trustee Crow, seconded by Trustee Gomez, to approve the CDCF III mandate as recommended and to report to the Board any issues that may arise during the negotiating process. VOTE: Unanimous (Absent Case McNairy, Dowell) 15. Presentation of the June 30, 2014 Quarterly Research Report presented by Jeffrey MacLean, Wurts & Associates Jeffrey MacLean, Wurts & Associates, gave an overview of the current economic environment and its impact on the investment markets. In addition, Mr. MacLean commented on and gave a brief summary on the global economic and capital markets.

5 5 The Board engaged in a general discussion regarding the current market environment and the market assumptions going forward. NO ACTION TAKEN 16. Presentation of the June 30, 2014 Quarterly Investment Performance Review presented by Jeffrey MacLean, Wurts & Associates Jeffrey MacLean, Wurts & Associates, reviewed the Plan s various asset classes and the individual managers within the asset classes noting any significant over or under performance over the three and five year periods. Mr. MacLean noted that the Plan s market value as of June 30, 2014 is approximately $4.0 billion. The Board engaged in detailed discussions regarding the current market environment and overall performance of the fund. NO ACTION TAKEN 17. Presentation of the June 30, 2014 Quarterly Guideline Compliance Report presented by Jeffrey MacLean, Wurts & Associates Jeffrey MacLean, Wurts & Associates, stated that there were no material breaches of any consequence by any of the managers audited by Wurts. NO ACTION TAKEN 18. Discussion and appropriate action on Fixed Income Implementation update and recommendation Jeffrey MacLean, Wurts & Associates (Wurts), opened discussions by reminding the Board that at the August 6, 2014 Regular meeting, it approved the implementation of several new investment guidelines noting that Wurts has worked in coordination with Administration to begin implementing the approved changes. Mr. MacLean provided brief updates on the implementation for the Fixed Income mandates, as well as recommending the investment vehicle and terms for the global sovereign mandate as follows: Investment Grade & High Yield Credit Mandates During the month of September, Western Asset (IG Credit) and Loomis Sayles (HY) will begin transitioning their core plus portfolios towards their new mandates. The inception of the new accounts for purposes of incentive fee calculations will be October 1, WAMCO will receive an additional contribution, likely in-kind, from Loomis Sayles, to bring the balance up to the 5% approved target. Loomis Sayles will also generate the necessary cash to bring the portfolio down to the 5% target to fund bank loans. Bank Loans The 5% investment in the Eaton Vance commingled fund will take place on October 1, 2014, using cash from the Loomis Sayles and BlackRock core plus portfolios.

6 6 Global Sovereign Bonds At the August 6, 2014 Regular meeting, the Board approved moving forward with Brandywine with a 7% allocation to global sovereign bonds. In discussions with Brandywine, they have very little flexibility to negotiate fees given they have most favored nations clauses with several larger institutions; this MFN resulted in a weighted average fee for FCERA of 36 basis points. On FCERA s behalf, Wurts negotiated an incentive fee structure, which would circumvent these MFN clauses. Under these terms, Brandywine earns a minimum/base fee of 10 basis points, earns their 36 basis point normal fee if they outperform the benchmark by the required excess return of 1.8% net of the base fee, and earns a maximum fee of 63 basis points if they outperform the index by 3.6% net of the base fee. This structure is identical to FCERA s other incentive fee arrangements. A caveat to the incentive fee structure is FCERA would need to utilize a separate account rather than investing in the commingled fund. The benefit of this is that FCERA has greater flexibility to tailor guidelines as needed. Another distinction is potential custody costs. Under a commingled fund, Brandywine has historically absorbed custody costs as part of their normal fee. Brandywine has communicated they expect to cease this practice and as such, investors would cover custody and other administrative costs up to the 8 basis point cap specified in the contracts. FCERA avoids this fee under a separate account, and since FCERA has a fixed pricing agreement with Northern Trust, there would be no immediate impact. However, it is possible that in the future FCERA may experience slightly higher custody costs as a result of a separate account. Nearly all of the markets that Brandywine would trade in are already set up on FCERA s behalf, so the incremental administrative burden is expected to be minimal. Given the alignment of interests, greater flexibility, and potentially meaningful savings in investment management fees should Brandywine not meet the required excess return, Wurts recommended proceeding with a separate account for this mandate. At the request of Trustee Jolly, Mr. MacLean reviewed the details of Brandywine s performance fees. A motion was made by Trustee Jolly, seconded by Trustee Austin, to accept the recommendation as presented. VOTE: Unanimous RECEIVE AND FILE; APPROPRIATE ACTION 19. Discussion and appropriate action on recommendation to liquidate TCW Shop IV Jeffrey MacLean, Wurts & Associates (Wurts), opened discussions by stating that as of June 30, 2014, FCERA s private equity portfolio included 16 different limited partnership investments constituting a combined $197.6 million in assets, 4.9% of Plan Assets. The general partner for TCW Shop IV has facilitated an exit opportunity for limited partners of the fund: 94.8% of the current net asset value. Wurts recommends accepting the terms of the agreement. Mr. MacLean noted that FCERA committed $15 million to TCW Shop IV in Over the life of the investment, the partnership has called $22.6 million (a portion of called capital was recalled within the investment period) and distributed $23.1 million. FCERA s remaining interest in the net assets of the fund was $4.99 million as of June 30, Subsequent to quarterend, the fund distributed approximately $780,000. This has resulted in a since-inception net of fee IRR of 6.5% as of June 30, 2014.

7 7 TCW Shop IV was a 2002 vintage year fund; the terms of the original partnership agreement were an 8 year life, with 2 one year extensions at the option of the general partner. In December of 2013, the LPs approved an 11th year. Crescent Capital spun out of TCW in 2011, and has since served as the general partner of the fund. Crescent engaged with UBS to help solicit bids for the secondary assets from 15 distinct bidders. Roughly two weeks ago Crescent received a formal bid from Goldman Sachs for 94.8% of net asset value (i.e. 95% of the current market value of the portfolio). This deal is being offered to all limited partners of TCW Shop IV. Goldman is essentially offering to buy out the LPs, and Crescent would continue to manage the fund and seek exit opportunities for the two remaining investments on Goldman s behalf. Should FCERA decide not to accept the offer, then Crescent would continue to manage the fund and FCERA would continue to pay management fees. By accepting the deal, Crescent estimates that FCERA would realize a net IRR very close to the current 6.5%. While there is uncertainty surrounding the success of the remaining two investments, Crescent estimates a best-case liquidation of the underlying investments could result in an IRR in the mid 7% range. Mr. MacLean noted that the offer from Goldman appears consistent with the current secondary market pricing environment. Furthermore, Crescent anticipates receiving a Fairness Opinion from a third party investment bank. In light of this, coupled with the uncertainty surrounding future exit opportunities and the immaterial size of the remaining investment (0.135% of plan assets), he recommended accepting the offer. A motion was made by Trustee Jolly, seconded by Trustee Austin, to accept the offer as presented with the caveat that, should the Fairness Opinion be out of line, the issue is to be agendized for further consideration. VOTE: Unanimous ; APPROVED 20. Discussion and appropriate action on Government Claims Act claim filed with FCERA by FCERA s former Retirement Administrator, Phillip Kapler A motion was made by Trustee Crow, seconded by Trustee Gomez, to accept and receive the claim as presented. VOTE: Unanimous ; APPROVED 21. Discussion and appropriate action Improving Operational Efficiencies in the Retirement Benefits Unit presented by Becky Van Wyk, Interim Retirement Administrator Becky Van Wyk, Interim Retirement Administrator, pulled Item 21 noting that Administration was not prepared to discuss the item at this time and would agendize the issue for discussion at a later meeting. NO ACTION TAKEN

8 8 22. Closed Session: A. Discussion and appropriate action on Government Claims Act claim filed with FCERA by FCERA s former Retirement Administrator, Phillip Kapler. G.C (d)(2) and (e)(3) RECEIVE AND FILE; APPROPRIATE ACTION B. Personnel G.C Public Employment Title: Retirement Administrator C. Disability Retirement Applications Personnel Exception pursuant to G.C : Applicant - Tony Logan Trustee Jolly departed at 12:00 PM. 23. Report from Closed Session 22.A. Decision - To reject the claim submitted by former Retirement Administrator, Phillip Kapler. M Gomez. S Jolly. VOTE: Unanimous 22.B. Nothing to report. 22.C. Logan Decision To rescind its prior direction to Administration to seek a specialist for an additional medical evaluation and to proceed with the requested hearing. M Crow. S Austin. VOTE: Unanimous (Absent Jolly) 24. Report from FCERA Administration Becky Van Wyk, Interim Retirement Administrator, reported on the following: 1. The ballots for the General Member Special Election will be mailed September 4, The notices for the General and Safety Elections will be posted September 11, Administration will be hiring Extra-Help staff to assist with the implementation of the new Pension Administration System. 25. Report from County Counsel Nothing to report. 26. Board/Committee Member Announcements or Reports Nothing to report. There being no further business, the meeting adjourned at 12:10 PM. Becky Van Wyk Interim Retirement Administrator/Secretary to the Board