Fresno County Board of Retirement s9

BOARD OF RETIREMENT

FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION

September 4, 2013

Trustees Present:

Marion Austin Laura P. Basua Alan Cade, Jr.

Dr. Rod Coburn, III Vicki Crow Robert Dowell

Eulalio Gomez Steven Jolly

Trustees Absent:

Judith G. Case

Others Present:

Clark Winslow, Winslow Capital

Justin Kelly, Winslow Capital

Jeffrey MacLean, Wurts & Associates

Arthur Wille, County Counsel

Phillip Kapler, Retirement Administrator

Becky Van Wyk, Assistant Retirement Administrator

Elizabeth Avalos, Administrative Secretary

1. Call to Order

Chair Coburn called the meeting to order at 8:34 AM.

2. Pledge of Allegiance

Recited.

3. Acknowledgement of the Accounting Unit for receiving the Certificate of Achievement for Excellence in Financial Reporting for its CAFR for the fiscal year ended June 30, 2012.

Due to the absence of two Accounting Unit staff, the acknowledgement was tabled until the September 18, 2013 Regular meeting.

4. Discussion and appropriate action on appointments to the Retirement Board Standing Committee: Board Consultants Evaluation

Chair Coburn nominated Trustee Robert Dowell as Chair of the Board’s Consultants Committee.

A motion was made by Trustee Crow, seconded by Trustee Basua, to accept the nomination as presented. VOTE: Unanimous (Absent – Austin, Cade, Case, Jolly)

RECEIVED AND FILED; APPROVED

Trustee Cade joined the Board at 8:35 AM.

5. Public Presentations

None.

Consent Agenda/Opportunity for Public Comment

A motion was made by Trustee Dowell, seconded by Trustee Gomez, to approve Consent Items 6 – 14 as presented. VOTE: Unanimous (Absent – Austin, Case, Jolly)

*6. Approve the August 21, 2013 Retirement Board Regular Meeting Minutes

RECEIVED AND FILED; APPROVED

*7. Retirements

RECEIVED AND FILED; APPROVED

Angelina R. Borrego / District Attorney / 15.06
Christine Bourbon / BOS, Deferred / 9.40
Meredith Coleman / Behavioral Health / 14.24
Michael A. Eliyas / Dept of Social Services / 14.25
Micheline Golden / Administrative Office, Deferred / 1.37
Linda Griffis / Behavioral Health / 12.07
Darrell Guss / ITSD, Deferred / 7.13
Rose Marie T. Hernandez / Dept of Social Services / 14.06
Patricia L. Holm / Sheriff / 10.01
Helen E. Linker / Community Health / 18.93
Wolde Mahetem / Dept of Social Services / 19.27
William Musso / Community Health / 31.56
Guadalupe L. Sanz / Probation / 31.21
Mary E. Tryon / CA Superior Court, Deferred / 1.61
Faith Renee Young / Dept of Social Services / 5.18

*8. Disability Retirements

RECEIVED AND FILED; APPROVED

Jason R. Hubbard / Sheriff / 4.73

*9. Public Records Requests and/or Retirement Related Correspondence from Nick Dawson, Proxy Insight Limited; Ron Madsen, FCERA Member

RECEIVED AND FILED

*10. July 2013 Business Expense Account Statements

RECEIVED AND FILED

*11. Most recent investment returns, performance summaries and general investment information from investment managers

RECEIVED AND FILED

*12. FCERA Cash Flow position as of July 2013

RECEIVED AND FILED

*13. Update on KKR Mezzanine Partners Professional turnover

RECEIVED AND FILED

*14. Travel request from Trustee Basua to attend the 23rd Annual Public Retirement Seminar on September 26, 2013 in Sacramento, CA

RECEIVED AND FILED; APPROVED

Trustee Austin joined the Board at 8:39 AM. Trustee Jolly joined the Board at 8:41 AM.

15. Performance and Economic Summary report presented by Clark Winslow, Winslow Capital

Prior to the presentation Jeffrey MacLean, Wurts & Associates, reminded the Board of Wurts’ recommendation to terminate Winslow Capital Management due to changes in leadership and decision making, additions to the research team, and rapid growth of assets under management. Mr. MacLean stressed that Winslow’s past performance relative to the large cap growth peer group is acceptable. However, the recommendation is not based on performance issues.

The Board heard a presentation from Clark Winslow and Justin Kelly of Winslow Capital Management which included a review of the firm’s philosophy, organizational structure, and investment strategy.

Mr. Winslow addressed Wurts’ concerns noting that Winslow’s goal is to achieve consistent outperformance over time for their clients. Mr. Winslow believes the firm has the strongest, most experience team ever to pursue consistent outperformance over time for its clients, following the same investment philosophy of 21 years.

Mr. Kelly commented on the market environment and its impact on the Plan’s investment returns noting that the since inception Winslow has outperformed the benchmark by approximately 170 basis points on a gross of fees basis.

Mr. Kelly addressed various comments and questions from the Board in regard to the Plan’s overall investment performance, portfolio characteristics, risk, and the market environment going forward.

The Board engaged in detailed discussions regarding Winslow’s changes in leadership and their decision making process as well as their rapid growth in assets under management.

RECEIVED AND FILED

16. Discussion and appropriate action recommendation to terminate Winslow Capital

Jeffrey MacLean, Wurts & Associates, opened the discussion by stating that Wurts’ original basis for recommending Winslow Capital was based on a number of criteria including confidence in the collaborative decision-making of the co-portfolio managers under the engaged oversight of the strategy’s architect, Clark Winslow. With Mr. Winslow stepping down from his role as CIO to focus on business operations and marketing, the departure of Bart Wear, the promotion of Justin Kelly to sole decision maker, and the expansion of the analyst group, the team dynamic responsible for earlier performance is no longer in place.

Mr. MacLean stated that the growth in assets under management, expansion of the investment team, and changing leadership dynamics make Winslow a different firm from three years ago and create uncertainty about the future. As a result, Wurts’ recommends the Board seek a replacement manager.

Noting that the Board is potentially seeking changes to the Plan’s asset allocation, Trustees Jolly and Austin suggested revisiting the Wurts’ recommendation after the Board concludes the Asset Liability Study. The Board agreed.

TABLED

17. Discussion and appropriate action on recommendation to terminate Common Sense Partners

Jeffrey MacLean, Wurts & Associates, opened the discussion by reminding the Board that Common Sense was placed on Watch status in April 2013 due to various organizational changes. As a result, Wurts recommends submitting a notice of full redemption by September 22, 2013 providing FCERA the flexibility to restructure the hedge fund allocation at the conclusion of the Asset Liability Study.

As Common Sense’s full redemptions are only paid out in January, Wurts’ recommends submitting the notice for redemption in September 2013. Otherwise, the next full redemption will be paid out a year later in January 2015. Another year of illiquidity will hamper FCERA’s ability to restructure the hedge fund exposure regardless of the asset allocation decision at the conclusion of the Asset Liability Study. If the need arises, FCERA will have the ability to rescind the redemption request by early January 2014 before Common Sense finalizes the December financials and distributes any proceeds.

Due to the timing of the issue, Trustee Jolly noted his support of the recommendation. However, he suggested further discussion prior to the conclusion of the Asset Liability Study. The Board agreed.

A motion was made by Trustee Jolly, seconded by Trustee Austin, to approve the recommendation as presented. VOTE: Unanimous (Absent – Case)

RECEIVED AND FILED; APPROVED

18. Presentation of the June 30, 2013 Quarterly Research Report presented by Jeffrey MacLean, Wurts & Associates

Jeffrey MacLean, Wurts & Associates, began the presentation with an overview of the current economic environment and its impact on the investment markets noting that the US is not in a recession, but growth is average at best. European growth has been far worse and is currently at its lowest point in over 2 years.

The Board engaged in a general discussion regarding the current market environment as compared to the 2009 market environment and the market assumptions going forward.

NO ACTION TAKEN – RECEIVED AND FILED

19. Presentation of the June 30, 2013 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, 2013 is approximately $3.5 billion. The Board engaged in detailed discussions regarding the current market environment and overall performance of the fund.

RECEIVED AND FILED

20. Presentation of the June 30, 2013 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.

RECEIVED AND FILED

21. Discussion and appropriate action on FCERA Asset Liability Study and recommended Asset Allocation from Wurts’ report dated April 2013

At the request of Trustee Jolly, Jeffrey MacLean, Wurts & Associates, outlined the differences in the assumed Rate of Return used by the actuaries and Wurts noting that each use a different mathematical calculation (geometric vs. arithmetic) to determine the assumed rate of return.

Based on the consensus of the Board, the Chair directed Administration to agendize an educational presentation on the methodologies used to determine the actuarial assumed rate of return compared with the investment consultant’s rate of return. It was noted that both the actuary and investment consultant should be present.

The Board directed Administration to invite the Plan sponsors and employee organizations to participate in continuing Asset Liability Study discussions. Administration agreed.

RECEIVED AND FILED

22. Update on analysis by Segal on the contribution impacts of the change in investment earnings assumption as adopted by the Board at the Regular meeting on August 21, 2013

Phillip Kapler, Retirement Administrator, informed the Board that a review of the analysis prepared by Segal would be presented to the Board at the September 18, 2013 Regular meeting.

NO ACTION – RECEIVED AND FILED

23. Discussion and appropriate action on FCERA staffing, workload management, and office hours of operation

Phillip Kapler, Retirement Administrator, opened discussions with a brief overview of the current office workload issues noting that FCERA currently has five vacancies including two Retirement Coordinators, one Account Clerk and two Office Assistants. These positions are part of the approved budgeted staff complement and need to be filled soon in order to fill the Roster and relieve pressure on current staff in servicing members.

As part of the solution, Administration recommends the addition of another Retirement Coordinator position and modifying the hours of operation for the office. Mr. Kapler requested the Board’s approval for an additional Retirement Coordinator position to be added to the current complement and that efforts to fill that position commence as soon as feasible.

In addition, Mr. Kapler proposed the office be closed for one hour each day from 12:00 to 1:00, and that lunch breaks for all staff, with exceptions arranged as needed, occur for all staff in that window of time. If the Board concurs, adequate notice will be given to the members, other County department and business partners.

A motion was made by Trustee Gomez, seconded by Trustee Crow, to approve the recommendation as presented. VOTE: Unanimous (Absent – Case)