10
BOARD OF RETIREMENT
FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION
June 4, 2008
Trustees Present:
Alan Cade, Jr. Michael Cardenas
Eulalio Gomez Steven J. Jolly
Phil Larson John Souza
Trustees Absent:
Nick Cornacchia Vicki Crow James Hackett
Others Present:
Ronald S. Frye, Alternate Trustee
Jeffrey MacLean, Wurts & Associates
Thomas Dickson, Templeton Investment
Peter A. Nori, Templeton Investment
Ron Madsen, FCERA Retiree
Les Jorgensen, FCERA Retiree
Robert Landen, Deputy County Counsel
Roberto L. Peña, Retirement Administrator
Becky Van Wyk, Assistant Retirement Administrator
Elizabeth Avalos, Administrative Secretary
1. Call to Order
Chair Jolly called the meeting order at 8:42 AM.
2. Pledge of Allegiance
Recited.
3. Public Presentations
None.
Consent Agenda/Opportunity for Public Comment
On behalf of Ron Madsen, FCERA Retiree, Chair Jolly pulled Consent Agenda Item 4 for discussion.
A motion was made by Trustee Larson, seconded by Trustee Souza, to Approve Consent Agenda Items 5-24. VOTE: Unanimous (Absent – Cornacchia, Crow, Hackett)
*4. Approve the May 7, 2008 Retirement Board Regular Meeting Minutes
Ron Madsen, FCERA Retiree, requested that his request for FCERA Counsel to interpret Government Code Section 31592.2 be noted in the minutes.
The Board directed Administration to include Mr. Madsen’s request in the May 7, 2008 Minutes and to agendize the revised minutes for approval at the upcoming June 18, 2008 Regular Board Meeting.
TABLED
*5. Retirements
RECEIVED AND FILED; APPROVED
Analisa Almaguer / E&TA / 30.79Dorothy J. Campbell / Community Health / 16.27
Carolyn R. Cherry / FMAAA, Deferred / 7.04
David Collins / E&TA / 29.89
Elaine J. Duffy / Superior Court, Deferred / 15.92
Michael S. Edwards / Sheriff / 25.89
Jeffrey Graham / Sheriff / 19.74
Albert A. Lomeli / Agriculture / 11.56
Dennis A. Marshall / County Counsel / 36.15
Lester Miller / E&TA / 34.58
Gary L. Odam / Public Works & Planning / 26.50
Susanne K. Ruby / District Attorney / 17.71
Carol Wilson / ITSD, Deferred / 5.47
*6. Deferred Retirements
RECEIVED AND FILED; APPROVED
Brett P. McAndrews / Sheriff / 16.21*7. Disability Retirements
RECEIVED AND FILED; APPROVED
John Mackie / Sheriff / 4.33*8. Request to Purchase General Service as Safety Time
RECEIVED AND FILED; APPROVED
o John Robert Lopez
o Emmitt Watkins
*9. Summary of monthly statistics from the Retirement Association Office on buybacks, retirement benefit estimates, public service, age adjustments, final compensation calculations, and disability retirement applications for April 2008
RECEIVE AND FILE
*10. Most recent investment returns, performance summaries and general investment information from investment managers
RECEIVED AND FILED
*11. Public Records Requests and/or Retirement Related Information Requests from Doug Hogel, Cooperative Research Services, and Ron Madsen, FCERA Retiree
RECEIVED AND FILED
*12. Update of Board of Retirement directives to FCERA Administration
RECEIVED AND FILED
*13. Annual Report of the Fresno County Employees’ Retirement Association for the year ended June 30, 2007
RECEIVED AND FILED
*14. Report from Chair Steve Jolly on attendance at the Pensions & Investment 130/30 Conference
RECEIVED AND FILED
*15. Report from Roberto L. Peña, Retirement Administrator, on attendance at the SACRS Spring Conference 2008
RECEIVED AND FILED
*16. Unaudited Financial Statements for the Fresno Station Business Center for the period ended March 31, 2008
RECEIVED AND FILED
*17. Correspondence from Angela S. Hill, Assistant Vice President State Street Securities Finance, regarding two Securities Lending cash collateral reinvestment pool positions transferred from Credit Suisse Securities Lending program during the custodial services conversion to State Street
RECEIVED AND FILED
*18. Approve July 28-29, 2008 Hearing Date for the Service Connected Application – Nelson Fowlkes
RECEIVED AND FILED; APPROVED
*19. Approve final Strategic Plan document prepared by Tom Iannucci, Cortex Applied Research
RECEIVED AND FILED; APPROVED
*20. Approve recommendation by Wurts & Associates to place Artisan Partners on Watch/Probationary status
RECEIVED AND FILED; APPROVED
*21. Ratify Administration’s decision to Consent to Amendment Extending the Term of the Fund and Reduction of Management Fee for Trust Company of the West Shared Opportunity Fund III, L.P.
RECEIVED AND FILED; APPROVED
*22. Ratify Administration’s decision to Approve Western Asset Management’s request to waive the application of the guidelines to permit the account to participate in the exchange offer from Residential Capital, LLC
RECEIVED AND FILED; APPROVED
*23. Ratify Administration’s decision to Approve Amendment to the Oechsle International Advisors Investment Management Agreement
RECEIVED AND FILED; APPROVED
*24. Ratify Administration’s decision to Approve Blackstone Capital Partners request for Amendment for Follow-On Investment in Kosmos Energy, LLC
RECEIVED AND FILED; APPROVED
25. Performance and Economic Summary Report presented by Peter A. Nori, Executive Vice President, and Thomas J. Dickson, Senior Vice President, Franklin Templeton International
Jeffrey MacLean, Wurts & Associates, opened discussions by stating that Franklin Templeton International (Templeton) is a developed large cap value international manager with approximately $231 million of FCERA’s assets under management which represents about 40% of the total international portfolio and 8% of the total fund portfolio.
Mr. MacLean noted that Templeton was hired on August 1, 1994 and was placed on probation August 2006 for a number of reasons such as placing in the bottom quartile compared with other developed international managers and underperforming over the 1, 3, and 5 year periods. It was noted that Templeton has outperformed the benchmark over the 7 year and inception date periods.
It was noted that, after being placed on probation, Templeton began to outperform the benchmark on a regular basis until a few months ago. Mr. MacLean recommends that Templeton continue with the probationary status for the next several quarters at which time a recommendation will be made to either continue or terminate the services.
Thomas Dickson, Senior Vice President - Templeton, gave a brief overview of the firm’s characteristics and noted recent organizational structure changes.
Peter Nori, Executive Vice President – Templeton, reviewed the two year performance returns and noted that the portfolio outperformed the benchmark during this time. Mr. Nori gave a brief overview of the portfolio composition and reviewed the sector and geographic allocations.
Trustee Cade joined the Board at 9:14 AM.
Discussions, questions, and comments ensued regarding the price of oil and the decline in the U.S. dollar and the effects they have on the investment strategy and returns.
In response to a question from Mr. MacLean regarding the underperformance in 3, 5, and 7 year periods, Mr. Nori stated that the underperformance in the 5 and 7 year periods is directly impacted by the changes in the portfolio due to the IRRC screens put in place in 2003-2004. It was noted that the current 5 year period should improve now that the IRRC screens restrictions have been lifted. Chair Jolly requested that Templeton prepare a developed and international composite versus the benchmark on a rolling 5 year period since inception.
RECEIVED AND FILED
26. Presentation of the March 31, 2008 Investment Performance Review presented by Jeffrey MacLean, Wurts & Associates
Jeffrey MacLean, Wurts & Associates, began the presentation by reviewing the US economic environment and noted that according to preliminary estimates the real gross domestic product (GDP) increased at a 0.6% annualized rate during the first quarter. The positive growth was mostly attributed to higher exports and a build-up of business inventories. Without these two components, GDP would have fallen by 0.4% during the quarter.
Mr. MacLean noted that speculation about a US recession increased as continued concerns about the US consumer’s resiliency amid the housing crisis and layoffs in the banking and housing industries captivated the headlines. It was noted that consumer spending is responsible for approximately two-thirds of US GDP.
Mr. MacLean stated that value stocks made a recovery during the first quarter, outperforming growth stocks. This was a reversal from 2007 when growth outperformed values by 12%. Large and small caps performed roughly in line during the quarter with the Russell 1000 outperforming the Russell 2000 by only 40 basis points.
Mr. MacLean briefly reviewed the U.S. Fixed Income, International, and Alternative markets.
Discussions ensued regarding market timing. It was noted that from January 1985 through March 2008 there have been 5,783 trading days. If an investor had remained invested in the S&P 500 during the entire time period, their return would have been 9.44% annualized. If an investor attempted to time the market and happened to miss the 40 best trading days, their return would have fallen by 726 basis points to 2.7%. The market’s returns are highly dependent on a small number of trading days. Therefore, missing out on a small portion of the total trading days results in lower returns.
Mr. MacLean stated that the total fund lost 6% for the quarter, mostly due to the fixed income allocation, which lost 10 basis points in the quarter, underperforming 2.3% of the portfolio. The fixed income allocation is approximately 28% of the overall portfolio. It was noted that, at this time, the Plan remains well funded on a returns perspective and ranks in the 16th percentile.
Mr. MacLean reviewed the asset allocation by Manager noting the results of any significant underperformance or outperformance.
Mr. MacLean raised concerns regarding organizational changes at Trust Company of the West as they relate to the alternative investments. Mr. MacLean will continue to monitor this situation and report to the Board if necessary.
Discussions, questions, and comments followed regarding the performance and ranking percentiles used in describing a firm’s status among their peers.
RECEIVED AND FILED
27. Presentation of the March 31, 2008 Guideline Compliance Report presented by Jeffrey MacLean, Wurts & Associates
Jeffrey MacLean, Wurts & Associates, stated that all managers are in compliance and nothing to report.
RECEIVED AND FILED
28. Discussion and appropriate action on the 2008-2009 FCERA budget presented by Roberto L. Peña, Retirement Administrator
Roberto L. Peña, Retirement Administrator, opened discussions by reminding the Board that the proposed budget, which includes the usual Salaries & Benefits and Services & Supplies sections, is Administration’s attempt to estimate the resources required to meet FCERA’s obligations given the Board’s goals and objectives for the pension plan. It was noted that 2008-09 Proposed Budget had not been presented to the Budget Committee as in years past due to scheduling conflicts.
Mr. Peña noted that the Board received an updated version of the proposed budget which excludes $2.4 million toward the replacement of the Pensions Administration System. It was noted that Government Code Section 31580.3 allows retirement systems to exceed the 18 basis points maximum administrative budget in any year the administrative expenses include expenditures for software, hardware, and computer technology consulting services in support of that software or hardware.
Mr. Peña stated that after further review of the proposed budget and code section 31580.3, which sunsets January 1, 2013, Administration will delay including the funds needed for software replacement for a couple of years.
Mr. Peña noted that the budget includes a 20% increase for the Retirement Coordinator salaries for three quarters of the budget year which is consistent with the increase approved by the Board of Retirement for 2007-08. However, it was noted that the County may recommend a lower amount and/or percentage in which case there would be salary savings. County Personnel is working on the salary review and expects to be able to finalize their recommendation soon.
The 2008-09 budget request also includes the elimination of an Accountant position that has remained vacant for sometime. Based on the analysis of our work flow and our desire to improve customer service as it relates to the purchase of service credit, we have determined that eliminating this position and expanding the Benefits Unit is a more prudent approach.
Mr. Peña stated that this budget includes two additional positions in the Benefits Unit, a Supervising Account Clerk and a Retirement Coordinator Supervisor. These two positions are both at the supervisory level and will take on some of the review and training duties currently performed by the Benefits Manager and Assistant Retirement Administrator which will significantly decrease the turn around time once the new staff is trained in the processes. I have provided job descriptions for these two new positions for your reference. These positions are funded at 50% in the 2008-09 requested budget to allow the positions to be filled upon approval by the Board and the County.
Mr. Peña stated that, with the Board’s approval, FCERA will be pursuing a reclassification of the Systems and Procedures Analyst (SPA) series to the Information Technology (IT) series. At the time the SPA position was created at FCERA, the County limited IT positions to the County’s Information Technology Services Department. However, in recent years, this series has migrated into many County Departments. Just as a reminder, the essential functions of a SPA include the evaluation and documentation of procedures to improve efficiency. FCERA’s SPA is the IT professional for the agency. This individual provides technical support and guidance and works directly with IT professionals, including programmers, and provides recommendations to FCERA on hardware and software issues. These assignments are within the scope of the IT series. It was noted that the budget for 2008-09 does not include any appropriations for this reclassification as Administration will pursue implementation of this reclassification for the 2009-10 budget year.
Mr. Peña reviewed the budget goals for the 2008-09 fiscal year as follows:
· Establish a framework for implementation of business projects that resulted from the Strategic Plan initiative
· Retain and develop talent through career tacks and merit recognition
· Decrease the current backlog of prior public service and prior county service purchase requests
· Keep up with new challenges created by the dynamic retirement environment
Mr. Peña stated that the proposed budget of $4,199,333 is $680,466 more than the 2007-08 fiscal year projected budget.
Mr. Peña summarized a comparison of the Salaries & Benefits proposed 2008-09 budget to the projected Salaries & Benefits expenditures for the 2007-08 budget and noted an increase of $346,652 or 19.2%.
Mr. Peña noted the differences as follows:
· Regular Wages increase of $236,419
· Benefits increase of $143,221