Loading...
HomeMy WebLinkAboutCOMM - Meeting Minutes - 217 - 11-2-2006 - RETIREMENT1513 Llmited Form 825 EO'3102204 r. Burns asked for discussion on the motion. Mr. King stated that when he was ected Treasurer eleven years ago, the County pension fund was at $42 million and with two investment managers. A year later, the County hired Yanni Partners. ithin three years, the Fund had two additional investment managers, and within five , the Fund was fully diversified and covered all facets of asset allocation. Mr. King that because of Yanni Partners, the County now has a retirement fund totaling most $88 million. Although he does not agree with the change, he assured the Board he is prepared and willing to work with the new consultants for the good of the fund. I call vote taken: es. Mr. Namie — Yes; Mr. King — No; Mrs. Irey — Yes; Mr. Maggi — Yes; Mr. Burns — n carried. The meeting was adjourned at approximately 11:15 a.m. THE FOLLOWING MINUTES SUBMITTED FOR APPROVAL: tfL' T���•� 70 2006 ATTEST: 54 Minute No. 217 Washington County Retirement Board Washington, PA November 2, 2006 The quarterly meeting of the Washington County Retirement Board was held at approximately 11:00 a.m. on Thursday, November 2, 2006 in the Public Meeting Room with the following members being present: Commissioners Larry Maggi, J. Bracken ;? Burns, Sr., and Diana L. Irey; Treasurer Francis King; and Controller Michael Namie. Also present: Director of Administration Scott Fergus; Director of Finance Roger Metcalfe; Chief Clerk Mary Helicke;. Secretary Joyce Thornburg; Audit Manager Kathy Demarest; Solicitor Lynn DeHaven; Director of Human Resources Tim McCullough; Observer -Reporter representative Barbara Miller; and interested citizen Harry Sabatasse. Approval of Minutes Mr. Burns entertained a motion to approve Minute No. 214 dated August 17, 2006, Minute No. 215 SP dated August 25, 2006, and Minute No. 216 SP dated October 19, 2006. Motion was moved by Mr. Maggi and seconded by Mrs. Irey that the above mentioned minutes be approved as written. No discussion followed. Those in favor signified by saying aye. Motion carried unanimously. Public Comment None. Treasurer's Report Mr. King stated that from August 2006 through September 2006 the bank balance was reconciled to zero. It was moved by Mr. Namie and seconded by Mrs. Irey that the report be approved. No discussion followed. Those in favor signified by saying aye. Motion carried unanimously. Retirement Allowance Report Bank Balance as of August 1, 2006 Add: Deposits to Checking Account Add: Transfers from Investment Accounts Less: Cancelled Checks Less: Transfers to Investment Account Less: ACH Debits Bank Balance as of August 31, 2006 Less: Investment Transfer $97,312.85 500,752.90 343,575.99 (172,210.61) (500,752.90) ($154,873.09) $113,805.14 (1,041.47) 1 1 1 151 5 Sold By IMR Limited Form 825 E00102204 Less: Outstanding Checks (34,241.47) Less: Retirement Check Run August 31, 2006 ($78,522.20) Reconciled Balance as of August 31, 2006 Bank Balance as of September 1, 2006 $113,805.14 Add: Deposits to Checking Account 521,003.61 Add: Transfers from Investment Accounts 336,390.73 Less: Cancelled Checks (114,811.64) Less: Transfers to Investment Accounts (420,939.40) Less: ACH Debits ($165,407.61) Bank Balance as of September 30, 2006 $270,040.83 Less: Transfers to Investment Account (100,900.76) Less: Outstanding Checks (88,858.10) Less: Retirement Check Run Sept. 30, 2006 80 281.97 Reconciled Balance as of September 30, 2006�0- ' Requisitions Mr. Namie stated that requisitions for the months of August, September, and October 2006 totaled $1,036,780.10. It was moved by Mr. Namie and seconded by Mr. King that the requisitions be approved. No discussion followed. Those in favor signified by saying aye. Motion carried unanimously. Auaust 2006 Distributions Check Payee Amount 2998 Michael A. Lukanski $ 49.2 2999 Melissa McDonald 5,392.1, 3000 Bobbi Jo Novak 2,747.9� 3001 Linda K. Pastor 6,157.01 3002 Kristine L. Roberts 18.0; 3003 Met Life as trustee of IRA of Malvin G. Sander 17,493.0! 3004 Patricia T. Zahand 155.51 3005 PA SCDU Arthur Couts 75.01 3006 Washington County Cash Disbursement Account 77,365.4; Transfer PNC Bank 13,054.9, Transfer Washington County Retirement Account 221,067.6 Total August 2006 Distributions 343 575.9! September 2006 Distributions Check Payee Amoue 3007 Estate of Edythe B. Cusher 297.7; 3008 Estate of Margaret DeMedio 24.7! 115 6 3009 Estate of Lauretta H. Rice 192.02 3010 Estate of Mesdeo Rubis 13.0 3011 Stacy L. Cushey 2,917.49 3012 Fidelity Investments as trustee of IRA of Brenda L. 1,179.25 3013 Davis Brian A. Derby 610.5 3014 Slovenian Savings and Loan Association as trustee of 19,457.95 IRA of William C. Dragan (Beneficiary of Marilyn B. Dragan). 3015 Amy Lynn Duller 3,935.43 3016 Amanda Jointer 136.45 3017 Ann S. Kelley 17,365.�2 3018 Ameriprise Trust Company as trustee of IRA of Bradley J. Miller 730.1,3 3019 Northwest Savings Bank as trustee of IRA of Johnathan C. Miller 1,182.08 3020 Danita J. McKnight 476.07 3021 John D. Meyers 2,186.$6 3022 Karen Joanne Morris 6,366.� 8 3023 Thomas C. Panian 19,619. 1 3024 Mary A. Shell n 1,286.d2 3025 Carey Vallor 1,176.04 3026 Dianne Simonelli (Beneficiary of Betty Simonelli) 715.� 5 3027 Dean Simonelli (Beneficiary of Betty Simonelli) 715A5 3028 George Simonelli (Beneficiary of Betty Simonelli) 715.�6 3029 Gino Simonelli (Beneficiary of Betty Simonelli) 715.$15 3030 Vaughn Simonelli (Beneficiary of Betty Simonelli) 715.E 3031 William Simonelli (Beneficiary of Betty Simonelli) 715.6 3032 Washington Federal Savings Bank for benefit of Kristina Alderson 163.48 3033 Washington Federal Savings Bank for benefit of James Moore 38.45 3034 Washington Federal Savings Bank for benefit of Emilio Rodriquez 79.�1 3035 Washington Federal Savings Bank for benefit of Belinda Dudjak 446.0,2 3036 Washington Federal Savings Bank for benefit of Sharon Zimmerman 12. 1 3037 Washington Federal Savings Bank for benefit of Georgia Ginsburg 90411 3038 Washington Federal Savings Bank for benefit of Michael Zibrida 4.7 3039 Washington Federal Savings Bank for benefit of David Smithers 808.65 157 Sold By IMR 3040 Washington Federa! Savings Bank for benefit of Wendy Sue Kelley 842 3041 Washington Federal Savings Bank for benefit of Michelle Geho 86.8, 3042 Washington Federal Savings Bank for benefit of William Matsko 1,364.71 3043 PA SCDU Arthur Couts 75.01 3044 Washington County Cash Disbursement Account 4,904.0; Transfer PNC Bank 23,682.61 Transfer Washington County Retirement Account 221,099.4' Total September 2006 Distributions 336,390.7; October 2006 Distributions Check Payee Amount 3045 Robert Bookshar $ 30.32 3046 Donald Burt 8,101.02 3047 National City Bank as trustee of IRA of Sarah H. 3,198.40 Dailey 3048 Charles J. Dziak 12,649.32 3049 Michael Dzurko 1,328.83 3050 Gerald Jenko 19.61 3051 Matthew Kurowksy 980.88 3052 Denise M. McMasters 625.03 3053 Mary Jo Stewart 3,407.92 30F4 Renee .Walr Sisley 2,843.20 3055 PA SCDU Arthur Couts 75.00 3057 Washington County Cash Disbursement Account 86,404.43 Transfer PNC Bank 16,908.64 Transfer Washington County Retirement Account 220,240.78 Total October 2006 Distributions $ 356,813.38 Old Business None. New Business Mr. Burns noted the rollowing for the record: Patricia iv?a>:on -agreement to purchase service credit dated 08/01/1994 to 09/01/11.)95 in the amount cf $1,325.61. George Radvansku agreement to purchase service credit dated 09/19/1997 to 101/25/1998 in the amount of $197.58. 158 Presentations Ark Asset Management — Bob Norton Mr. Norton began by stating that there have been no changes in Ark's investment team, but there will be one addition by the end of the year. Because they feel that they need to improve in the health care area of the portfolio, they are hiring a new analyst to help make this area more competitive At the end of the 3rd quarter, the County's portfolio as invested with Ark consisted of 95% in equities and 5% in cash equivalents. The value of the County's assets at inception in 2003 was $11 million. Since then, $2.6 million has been added in net contributions, and the total value at the end of the 3rd quarter of 2006 was $17.2 million. For the first 9 months of 2006, Ark had underperformed the market by about 40 basis points. Since inception in 2003, Ark is lagging the market by approximately 1 %. Mr. Norton told the Board that large cap growth stocks, which they manage for the County, typically do better in a slow growth, low inflation type of environment which has not been the environment since the late 1990s. He does believe, however, that with the change occurring in the market environment, Ark will do much better in the coming year. In the last quarter, the large cap portion of the market has done well. What helped Ark's performance in the last quarter was Electronic Arts (up 30%), Kohl's (up 10%), and other technology stocks being held. Among the underperformers for the quarter were USAir and St. Jude's. Mr. Norton stated that they feel that USAir will rebound in the 4t" quarter, as will St. Jude's due to the problems that Boston Scientific is having with their drug coded stent. When asked by Mr. Burns, Mr. Norton clarified that he was not referring to St. Jude's Hospital, but the company that manufactures medical devices such as the stent. Mr. Shone asked Mr. Norton why he felt that their performance will improve in the coming year. Mr. Norton responded that they feel that the companies that they are holding in the technology sector are poised to do much better and also that the economy is changing towards slow growth and low inflation. He said that they feel that their stock selection in the companies chosen may have been a little early, but not wrong. C. S. McKee — Gene Natali, Jr. The value of the County's investment with C.S. McKee increased from $44 million to $46 million over the quarter. On the value equity side, C.S. McKee underperformed 2.5 versus the benchmark of 6.22 for the quarter and underperformed year-to-date 6.8 versus the benchmark of 13.1. Mr. Natali told that Board that this underperformance was due mostly because of the stocks that they do not own. The top two performers for the quarter, both of which they do not own, were General Motors and Merck. Both were up over 70% year-to-date. C.S. McKee does not feel comfortable putting money into either. GM, because of their unfunded health liability and a pension fund that is fully funded on borrowed money, and Merck because of C.S. McKee's prediction that they will have a $25 - $30 million settlement liability due to Vioxx. Exxon, another stock not owned, was up 10%. Of the stocks that they do own, Intel and Dell d 1 159 Sold By [MR Limited Form 825 E00'02204 have not been performing well, but are just now starting to come up. The fixed income segment is doing very well and has a strong performance. Mr. Shone asked Mr. Natali to tell the Board about the core product that C.S. McKee offers. Mr. Natali said that with the value product that the County has, they are restricted to relative value names. 'With the core product, it essentially opens up the whale universe with ar investment mix of growth and value. Historically, core equity products outperform value equity products. Mr. Shone told the Board that they may want to consider having an index fund on the value side. The County could have C.S. McKee as a core manager and Ark as a growth manager. The County could trim back what they have with Ark so that there is less overlap. Mr. Shone said that, traditionally, his firm likes more value than growth in a portfolio, but the market seems to be headed toward an environment more favorable to growth. Mr. Shone also requested that Mr. Natali address the convexity issue. Mr. Natali told the Board that with C.S. McKee's fixed income process, they look at price sensitivity and security selection. G.S. McKee has a negative convexity. Mr. Burns asked if he could explain the term convexity. Mr. Natali responded that convexity is the rate of change in duration. Duration is a measure of price sensitivity, that is, if interest rates rise, how much the bond price is going to fall. Convexity measures this percentage. Mr. Shone illustrated this by using C.S. McKee as an example. C.S. McKee's duration is 4.01, which is less than the benchmark of 4.6. Looking at this, one would expect that they would have underperformed the benchmark. In actuality, they tied the benchmark. To a degree, this is due to the type of bonds that they buy. Most of their bonds have negative convexity. As interest rates go up, the duration of bonds lengthen out. It is possible to really get hit when rates go up, even more so if those bonds have negative convexity. However, C.S. McKee has a good track record — they have not been hit because of rising interest rates. Fhe Boston Company — Kristen Gaspar Ms. Gaspar began by informing the Board that they are recommending to the nutual fund board to soft close the international core strategy that the County is nvested in. This would mean that no new investors would be allowed to invest in this Strategy but existing clients could still add to their allocation. At the two year mark that he County has invested in the fund, we are up 26.4% vs. the benchmark of 22.4%. For he year-to-date, we are at 17.1 %1 vs. the benchmark at 14.5%. At inception, the )glance of the County's investment was $3.3 million and now totals $5.3 million as of he end of the 3"-' quarter. Mr. Shone asked Ms. Gaspar to clarify their investment strategy. She responded that they are a core manager, but tilted to the value side. Mr. Burns inquired as to why they report by country when in fact The Boston ompany invests by individual stock selection and sectors within a country. Ms. Gaspar 'esponded that as an international manager; their report is designed to shoe country affect and that it is traditional fcr an international manager to report by country. 160 Hay Group — David Reichert Mr. Reichert addressed the liability side of the retirement fund. The annual required contribution for 2006 was $1.8 million, which was less than anticipated due to the County's investment performance. The annual required contribution for 2007 is estimated at $1.65 million. Mr. Reichert explained that there are 2 factors when calculating the annual required contribution in a salary related plan: plan population and salaries. Between 2005 and 2006, the County's plan population remained basically unchanged at just more than 1,509 lives. Total salaries decreased by 0.8% and the average salary increased 0.8%. When the Hay Group originally calculated the County's annual required contribution for 2006, they assumed that salaries would increase by 3.75%. Since the increase was not as high, the liability is much lower. The annual required contribution is determined using a 5 year average. The 5 years used in 2007's calculation should include the last "bad" investment year in determining the County annual required contribution. Mr. Reichert also reminded the Board that Act 96 requires the Board to review a cost of living adjustment every three years. The Hay Group will send out a cost analysis as required. Mr. Namie said that it should be noted for the record that even though the County has not approved a cost of living increase since 1998, retirees are also compensated with health care benefits. Mr. Reichert stated that most corporate plans do not include a cost of living adjustment. Mr. Reichert also informed the Board that the Hay Group is in the process of completing the filing required under Act 293, which is due March 31, 2007. Act 293 is designed to give the State a snapshot of the County's retirement plan. At this time, Mr. Burns called for a short recess. Peirce Park — Michael Shone Mr. Burns welcomed Mr. Shone and congratulated Peirce Park on being chosen as the County's new investment consultant. Mr. Shone began with a brief overview of the current market environment. Large cap equities were up 5.7 for the quarter whereas small cap equities were up only 0.4, suggesting that the market is moving away from small cap. International equities have been very strong. Mr. Shone stated that his firm would like to see Washington County's portfolio tilted more towards value, specifically large cap value. Mr. Shone began his manager overview stating that while C.S. McKee has struggled this year, at the three and five year benchmarks, they are in the top 151n percentile of managers. Peirce Park will recommend that C.S. McKee become the County's core manager. Ark Asset Management did better for the quarter, but their one and three year numbers are not good. Mr. Namie asked what Mr. Shone recommended regarding Ark-'s performance. Mr. Shone responded that they will recommend that Ark be given a smaller percentage of the County's portfolio. Mr. Namie asked how long Mr. Shone felt 1 1 161 that Ark should be given. Mr. Shone said that they will monitor Ark's performance. If Ark underperforms due to poor stock selection, that would be worse than if they made the "right" picks but other sectors did better. However, if they are consistently in the wrong sectors, then that is not good either. If they continue to underperform, then Peirce Park would look at the magnitude of the underperformance as well as what is causing it to determine what action should be taken. Ark Asset Management will be placed on the watch list. Evergreen is up 14% for the quarter and has been doing really well. They have outperformed their benchmark as well as most of the other value funds. Evergreen has been doing so well that Peirce Park will recommend moving some of Emerald's money to Evergreen, not only because of the outperformance, but also because they would like to see the County have more small cap value than small cap growth. Emerald's performance has fallen off this past quarter after a strong start at the beginning of the year. At seven years, Emerald looks fantastic. However, their three and five year numbers are under benchmark and also under their peer group. They would be on Mr. Shone's watch list also. Emerald does have a mid cap growth product that might be a better consideration for Washington County. Historically, small cap growth has been the worst performers at the five and 10 year marks — they are very volatile. Their mid cap product, so far, has outperformed the benchmark, although it does not have much of a track record. On the fixed income side, C.S. McKee has shown a stellar performance. Mr. Shone stated that he does tend to have concerns with the bonds that C.S. McKee likes and that he would like to reign them in a bit, but.their performance so far has been great. BlackRock's performance has not been great but nor has it been poor — it has just been okay. Their expense ratio is higher than C.S. McKee's, 0.4% vs. 0.25%. It is not overly high, but Mr. Shone said that he will speak with BiackRock to see if he can get the fees down a little. On the international side, the County has the kind of manager that you want. Peirce Park will strongly recommend increasing the County's international equity allocation to 10%-12%. Right now, Washington County's allocation of 6% is the lowest of all Peirce Park's clients. At some point. this portfolio will get large enough that it may need to be split into two managers. However, right now the County has a manager that is core and tilts to value, which is ideal. international managers are never in the top quartile, but they should not be in the bottom quartile either. They should be in the second quartile, which is where The Boston, Company is. Mr. Shone said that he felt that Washington County made a good selection and doesn't see a need for any changes. Mr. Namie aked Mr. Shone that since The Boston Company is at a soft close,, would he recommend that we just increase the County's allocation to them. Mr. Shone said that he would be comfortable with that. For the next meeting, Peirce Park will draft a new investment policy statement, provide the Board with a new asset mix analysis, make recommendations on manager 162 structure, and provide a cost analysis. Mr. King asked Mr. Shone if his firm would provide this information to them prior to the next meeting so that the Board members could study them. Mr. Shone replied that they will send the entire package of recommended changes a few weeks in advance. Mr. Burns suggested that the next meeting not be scheduled after a Commissioner's Meeting, but at a time when both the Board and Mr. Shone can devote to going over the recommendations without feeling rushed. The meeting was adjourned at approximately 12:27 p.m. THE FOLLOWING MINUTES SUBMITTED FOR APPROVAL: ATTEST: