MINUTES
REGULAR JOINT MEETING OF THE
BOARD OF TRUSTEES OF THE POLICE & FIREMEN'S PENSION FUND
& THE BOARD OF TRUSTEES OF THE CITY EMPLOYEES RETIREMENT FUND
August 1, 2012
A REGULAR JOINT MEETING of the Board of Trustees of the Police & Firemen Pension Fund and the Board of Trustees of the City Employees Retirement Fund was held on Monday, August 1, 2012, in the City Hall Auditorium.
Those in attendance included Mayor Ryan J. Bingham, Corporation Counsel Ernestine Yuille Weaver, City Treasurer Arthur Mattiello, members of the Board of Trustees of the City Employees Retirement Fund Gregg Cogswell, Marie Soliani, Elinor Carbone, Nancy Michna, John Schnyer, Gail Sartori and Delisse Locher, and members of the Board of Trustees of the Police & Firemen Pension Fund Angelo LaMonica, Darlene Battle, James Potter, Douglas Benedetto, Police Lt. Michael Emanuel, Police Officer Oscar Segui, and Fire Fighter Edward Delisle.
Anthony Tranghese of Fiduciary Investment Advisors, LLC was also present.
Members Paul Samele, Gerald Zordan, Drake Waldron, Raymond Drew, Angelo Alduini, Christopher Cook, Richard Zaharek and Fire Lt. Michael Soliani were absent.
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Mayor Bingham called the meeting to order at 6:30 p.m.
Presentation: Second Quarter Results
Mr. Tranghese started with a broad review, saying that although there was a strong first quarter in markets abroad and in the US Economy, the second quarter seemed to be a slight step back.
This was driven in part by the European financial crisis, global growth challenges in the US, high unemployment at over 8% and decreasing consumer confidence. He said this translated directly into the market across the board. Mr. Tranghese noted that the S & P 500 index was down 2.75 % in the quarter and the only place where there was positive growth was in publicly traded real estate securities.
This quarter was the opposite of the previous quarter which had a "risk on" environment, meaning riskier asset classes outperformed those that are perceived to be less risky, Mr. Tranghese said. The second quarter was more "risk off" with large cap stocks doing better than their small and mid-cap peers. He said that U.S. Stocks did better than those overseas, while emerging markets, generally the riskiest segment, were down the most in the quarter, at about 8.89%.
Mr. Tranghese noted that the one safe haven is the fixed income portion of the markets. The Barclay's Aggregate Bond Index was up 2.06% in the quarter and the best performing segment was long bonds. Long-dated or long-maturity bonds were up over 7% in the quarter, he said.
The U.S. Dollar and the U.S. Treasury Bond continue to be the safe haven of choice around the world,
despite challenges over the last several years. He said there has been a flight into U.S. Treasury Bonds to the point now where interest rates are incredibly low and dropping still.
Mr. Tranghese said the ten different segments of domestic equity markets such as those in the Russell 3000 Index, which are generally more protective or conservative in nature, did better in the quarter; whereas those that are more cyclical like technology and energy were down quite a bit, around 7%.
There was a flight from foreign currencies into the US Dollar in the quarter causing the dollar to strengthen in comparison to foreign currency, he said, and that detracted from our results as U.S. Dollar-based investors.
Mr. Tranghese said that looking at the treasury yield curve, one can see that the phenomenon of decreasing rates continues.
Mr. Tranghese reviewed the portfolios' status in June. He said the City Employees' plan was valued at $28.8 million at end of quarter and the Police & Firemen's plan was up at $40.9 million dollars at end of quarter. He added that July was a fairly good month in the markets in nearly all segments of portfolio, with both portfolios increasing another 1.3%. The City Employee plan is up $365,000 to 29.2 million and the Police & Firemen's plan is up over $500,000 to 41.4 million.
Mr. Tranghese said FIA considers the portfolio to be very well diversified across a number of different segments in the market, by asset class, and across entities, meaning there isn't a single manager or firm running a very large portion of the total portfolio.
Mr. Tranghese gave the performance figures from the end of June, saying in the quarter the portfolios were down about 2.4%, a little behind their benchmark which was down 1.7%. For the year so far, the portfolios are up over 6 1/2 % - a little ahead of that same blended benchmark, he said.
Mr. Tranghese said the first quarter was so great, it would have been nice if it could have held ground in the second quarter. But with all the volatility that we've experienced over the last few years and expect to continue going forward, having the portfolios up over 6 ½ % is pretty satisfactory, he said.
He continued with more detail on the performance of the underlying managers. The portfolio underperformed this past quarter, but is a little ahead so far this year. He said it underperformed on a one year basis as well, and most of the underperformance was driven from the challenging environment that was created in 2011 for active managers. Mr. Tranghese said that over time we may see that rebound, and we've already seen positive steps this year.
Regarding the fixed income portion, Mr. Tranghese said the largest portion of the fixed income allocation, the Pimco Total Return Fund, had a good quarter at 2.8%. This was better than 95% of their peers in that specific type of investment which includes hundreds of similar funds. The year-to-date number was similarly impressive, he said.
Mr. Tranghese noted that the Templeton Global Bond Fund was down about 1% for the quarter.
This portfolio makes up 5% of the portfolios' total fixed income, so it's not a large allocation. That fund is harmed when rates fall, like they did last quarter, he said. When rates move either sideways or up, this fund should protect a lot better than most and it's a good diversifier in the overall context of the portfolio.
Mr. Tranghese pointed out that the MFS Value Fund was added to the portfolio after the last meeting, during the month of June.
With international equities making up about 15% of the total portfolio, and Europe being incredibly challenged right now across the board, Mr. Tranghese noted that three international equity funds, Dodge & Cox, Artisan and Columbia Acorn, have outperformed and in a couple of cases, by a meaningful margin. He said that is an example of active managers taking advantage of opportunities that are presented to them in a highly volatile environment, especially for managers with processes that make sense and have a stability base.
Mr. Tranghese said there are no recommendations at this time for changes to the portfolios, that all the managers are on maintain status and the allocation is at a comfortable point given the current environment.
Commissioner Battle asked if the Van Eck and Pimco commodities should be held on to. Mr. Tranghese said those two investments were specifically added to the portfolio along with the Van Guard Fund as an inflation protection sleeve and we haven't seen inflation become an issue yet.
ADJOURNMENT
On a motion by Commissioner Benedetto, seconded by Commissioner LaMonica, both Boards of Trustees voted unanimously to adjourn at 6:45 p.m.
ATTEST: Joseph L. Quartiero, CMC
City Clerk
Respectfully Submitted,
Carol L. Anderson, CCTC
Asst. City Clerk
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