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05-23-1985 Regular Meeting5/23/85 Miami Shores Village PENSION BOARD MEETING May 23, 1985 A meeting of the Miami Shores Village Pension Board was held on Thursday, May 23, 1985 at 8:00 ADM., in Village Hall, with the following in attendance: Mayor Karen Kirby Dr. Robert Butler, Councilman Sam Michels, Citizens' Representative William Walker, Citizens' Representative John Moore, Employees' Representative John Fletcher, Chief of Police Les Forney, Village Manager Absent: None Also Present: Wm Yates, Esq., Acting Village Attorney Gail Macdonald, Finance Director/Plan Administrator Gerald Bott and Karen Cole, Kidder, Peabody & Co. Ed Selee, Edwin Reilly, and Wm. Povey, NCNB National Bank 1. Board Election and Appointment Mr. Forney called the meeting to order at 8:00 a.m. Chief Fletcher nominated Mayor Kirby to chair the Pension Board; the motion was seconded by Sam Michels and carried unanimously. Mr. Forney then suggested the appointment of Ruth Kennelly as secretary, and approval was signified by those present. 2. Mayor Kirby assumed the chair of the meeting. 3. Quarterly Review of the Investment Performance, quarter ending 3/31/85.. Gerald Bott of Kidder, Peabody & Associates presented his firm' -'s fund performance analysis for the quarter ending 3/31/85 (booklet on file). Mr. Bott's review disclosed that NCNB's performance in the equity sector was lower than both indexes against which it was compared; i.e., the Standard & Poor 500, and the Bank Common Stock Index. Total value of the Fund since placement with NCNB in January, 1983, has increased at a rate greater than inflation, but total fund growth has failed to achieve the Board's investment objective of 12%, and has not matched the performance of the balanced index against which it was rated (50% Standard & Poor/ 50% Shearson -Lehman American Express). With relation to the market timing exhibited by NCNB, Mr. Bott disclosed that NCNB's deviations from the prescribed 50-50 mix resulted in earnings which were 2.25% less than the market on a cumulative adjusted basis. Our fund received a 3.9% return for the quarter which placed us in the 5/23/85 - 2 89 percentile and a 14.6% return for the last one-year period, which placed us in the 53rd percentile overall. Overall, our fund under- performed the market by 1.8% which is the equivalent of $60,000 below the investment objective at this time. Since inception the fund has annually done 1.3% worse than expected. Mr. Forney requested that Mr. Reilly justify the fund's performance for the last quarter. Mr. Reilly's response was that the fund was up significantly in January, but the market had declined in February and March. Specifically, he noted the fund's 5% position in IBM stocks which contributed to the decline in February and March. Dr. Butler requested that Mr. Reilly compare the quality ratings of the fund's equity holdings to the quality rating of the funds which had been held two years ago. Mr. Reilly responded that at this time all equity holdings are rated A or better. At this time, Mr. Reilly, the portfolio manager, made his presentation to the Board reviewing the fund's performance for the last quarter (copy on file). Based upon the anticipated economic outlook and NCNB's investment strategy, NCNB recommends a new asset mix as follows: Cash equivalents - 10% Fixed Income - 20% Equities - 50% Real Estate - 20% Dr. Butler requested that Mr. Reilly clarify why the carrying value of the assets was indicated on the Quarterly Asset Valuations. Mr. Reilly responded that the assets were valued in accordance with Federal and State law and constituted a comparison to value of the last statement, not in comparison against actual cost. Dr. Butler requested that NCNB make a cost comparison available as well. 4t Recommendations by Kidder, Peabody Gerald Bott of Kidder, Peabody recommended to the Board that 10% to 20% of the Plan assets be reallocated into NCNB's real estate fund. He distributed the May 13 issue of the PENSION & INVESTMENT AGE publication (copy on file), which indicated rankings of fund managers and reflected NCNB's real estate fund to be among the top 5 best -performing funds. Mr. Bott explained that NCNB real estate fund was a no-load fund with a 1.2% annual management fee which was charged quarterly at the rate of 3% of the Plan assets. In addition, assets may be liquidated quarterly as required. Mayor Kirby requested that the logistics of maintaining the asset mix be explained. Mr. Bott advised that the mechanics of the City's transfer of funds to NCNB would not change. However, upon receipt of the funds, NCNB would immediately allocate 10% of the receipts to the real estate fund with the remainder going into the balanced fund. After the NCNB real estate audio-visual presentation, Mr. Bott reviewed his recommended asset mix which compared as follows with that of the recommendation by NCNB: 5/23/85 -3 Assets Allocation NCNB Kidder, 'Peabody Cash Equivalents 10% 5% Fixed Income 20% 40% Equities 50% 35% Real Estate 20% 20% At this time, Mr. Bott also recommended that the Board allow him to investigate the possibility of acquiring an Equity Manager for the Pension Plan. Based on his recommended asset allocation mix, 35% of the fund assets or approximately 1.3 million dollars, would be placed with an Equity Manager with the remainder of the fund remaining with NCNB to be invested in fixed income and real estate. Mr. Bott offered to submit the names of three to four Equity Managers chosen by his organization as the best performing managers based upon the information available to Kidder, Peabody for Plans with similar investment guidelines and fund sizes. The Board requested that in addition they be allowed to submit names of Equity Managers for review by Kidder, Peabody; specifically, it was requested that Kidder, Peabody include Investment Counsel and United Business Counsel in their review. It was agreed that at a later date the Board would compare the fees of the Equity Managers versus the fees currently being charged by NCNB, as well as reviewing the custodial functions being performed by NCNB. Mayor Kirby suggested that it might be prudent for the Board to reduce the initial allocation to the real estate fund below that which had been recommended (20%), until such time as the fund's performance could be analyzed. After discussion, Chief Fletcher moved that 10% of the pension funds be allocated to the real estate fund. The motion was seconded by Dr. Butler and unanimously carried. A motion was then made by Mr. Walker to allow Mr. Forney and Kidder, Peabody to review the possibilities of obtaining an Equity Manager. Motion was seconded by Dr. Butler, and passed unanimously, 5. Approval of Minutes of February 15, 1985. Chief Fletcher moved that the Minutes of February 15, 1985, be approved as written. Motion was seconded by Mr. Michels and carried. 6. New Business. A) Dr. Butler initiated discussion concerning the last cost -of -living increase which had been granted to current pensioners and requested that the Board consider reviewing the possibility of providing cost -of -living adjustment protection to current and future pensioners. Mr. Forney advised the Board that such an action would require research and recommendation from the Village's actuary at a fee above the base fee normally required. Dr. Butler moved that • • 5/23/85 4 Mr. Forney be authorized to use up to $1,000 to obtain information relating to the possibility of the cost -of - living adjustment. Motion was seconded by Mr.. Walker, Mayor Kirby and Sam Michels opposed. B.) John Moore requested that the Board consider the possibility of instituting a Keogh type program for employees in which employeescould invest in addition to the Village's Pension Plan. The Plan Administrator, Gail Macdonald, informed the Board that the Village already had a deferred compensation plan available for employees through ICMA. The Board requested that this information be made available to the employees again, whereupon Ms. Macdonald responded that notification would appear in the next issue of the Employee Newsletter. Dr. Butler asked whether any type of informative pension pamphlet was available for employee review. Ms. Macdonald responded that several rough drafts of this booklet have been prepared, and a final draft should be forthcoming to the Board no later than October, 1985. Mr. Walker moved for adjournment at approximately 11:15 A.M. Approved: Karen Kirby, May,