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HomeMy WebLinkAboutRetirement Board Minutes 5-19-22 Min. No. 2871 i] I 153 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA Minute No. 287 May 19, 2022 The quarterly meeting of the Washington County Retirement Board was held at approximately 3:30 p.m. on Thursday, May 18, 2022, in the public meeting room with the following members being present: Commissioners Diana Irey Vaughan, Larry Maggi and Nick Sherman; Treasurer Tom Flickinger; and Controller April Sloane, via phone. Also present: Deputy Controller Heather Sheatler; Chief Clerk Cindy Griffin; Secretary Paula Jansante; Executive Assistant Marie Trossman; Chief of Staff Michael Namie; and Lee Martin, Ph.D. representing Marquette Associates. Approval of Minutes Mrs. Vaughan entertained a motion to hold Minute No. 286 dated February 17, 2022, in abeyance pending corrections. The motion was moved by Mr. Sherman and seconded by Mr. Maggi that the above - mentioned minutes be approved as written. No discussion followed. Roll call vote taken: Ms. Sloane — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Public Comment None. Treasurer's Report Mr. Flickinger presented the Bank Reconciliations for December 2021. It was moved by Mr. Flickinger and seconded by Mr. Sherman to accept the reconciliations of the above -mentioned statement. Roll call vote taken: Ms. Sloane — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Retirement Allowance Report Bank Balance as of December 1, 2021 $ 102,024.87 Deposits to Checking Account 4,656.2 Transfers In 1,338,021.18 Add: ACH Credit 490,578.00 Other Credits -0- Less: Cancelled Checks (209,104.80) Less: Other Debits -0- Less: ACH Debits (858,480.33) Funds Transfers Out -0- Bank Balance as of December 31, 2021 $ 867,695.12 Transfers to Mutual Fund -0- Less: Outstanding Checks (831,421.97) Less: Retirement Check Run (36,273.15) Reconciled Balance as of December 31, 2021 $___0__ 154 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IMR I IMITEn F16079PPI D Requisitions Ms. Sheatler stated that requisitions for the months of February 2022, March 2022, and April 2022 totaled $3,273,579.54. It was moved by Mrs. Sherman and seconded by Mr. Maggi that the requisitions be approved. No discussion followed. Roll call vote taken: Ms. Sloane — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Distributions February 2022 Check Payee Amount 2308 Estate of Ralph Richard Shawley 170.62 2309 William E Speakman Jr 994.10 2310 NFS/FMTC IRA FBO Jose Alvarado 20,307.76 2311 Capital Bank & Trust IRA for Candice Bentz 17,265.47 2312 Winfield Carson 703.64 2313 James R Harrington III 5,383.57 2314 American General Life as trustee of IRA of Sara J Necciai 33,664.12 2315 Jamie Restanio 36,190.15 2316 Steven Scott 6,235.95 2317 Gaitens Tucceri & Nicholas PC FBO Charlee Rosini 4,484.39 2318 Fidelity as trustee of IRA of Charlee Rosini 1,821.97 2319 Michael Carso 11,807.68 2378* VOID - Gaitens Tucceri & Nicholas PC FBO Charlee Rosini (check date: 11/30/2021) -6,306.36 2320 Washington County Regular Payroll Escrow Account 24,494.96 2321 Washington Co. Cash Disbursement Acct 26,906.04 Transfer PNC Bank 71,792.42 Transfer Washington Co. Retirement Acct 849,714.39 Total February 2022 Distributions 1,105,630.87 11 1 155 1 LJ MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA March 2022 Check Payee Amount 2322 Robert Greg Fresa 63.33 2323 Michael Boyza 242.22 2324 Meloney Dennis 386.48 2325 Richard Griffith 1,263.04 2326 Myra Jakubek 18,8483.19 2327 John W Kibbe 2,601.70 2328 Paul C Rock 99,728.06 2329 Shalee Schnore 2,132.40 2330 Washington County Regular Payroll Escrow Account 24,779.20 2331 Washington Co. Cash Disbursement Acct 58,614.26 Transfer PNC Bank 76,689.31 Transfer Washington Co. Retirment Acct 847,219.05 Total March 2022 Distributions 1,132,567.24 April 2022 Check Payee Amount 2332 Edward Grey 3,225.81 2333 Capital Bank & Trust Co as a trustee of IRA of Joseph J Joscsak IV 9,819.12 2334 UPMC Savings Plans FBO Claset Klos 3,539.16 2335 Ameriprise Trust Co as trustee if IRA Deborah C Webb 78,671.50 2336 Washington County Regular Payroll Escrow Account 23,937.09 2337 Washington Co. Cash Disbursement Acct 6,469.67 Transfer PNC Bank 59,816.21 Transfer Washington Co. Retirment Acct 849,902.87 Total April 2022 Distributions 1,035,381.43 156 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IMR LIMITED E16079991 r) Old Business None. New Business Mrs. Vaughan entertained a motion to approve a request from Robert Lonick to purchase prior service time, dated December 17, 1998 to July 20, 1999 and September 7, 2004 to November 8, 2004, in the amount of $2,848.32. The motion was moved by Mr. Sherman and seconded by Mr. Maggi that the above -mentioned request be approved. No discussion followed. Roll call vote taken: Ms. Sloane — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Portfolio Presentation — Lee Martin, Ph.D. — Marquette Associates Mr. Martin started by pointing out that growth came to a grinding halt in the first quarter. GDP came in below expectations, declining 1.4%, due to lower net exports and a slowdown in private inventory investment. This was attributed to inflation and supply chain issues, leading to higher prices. He also mentioned that expectations for growth stocks would be lower due to concerns over global issues such as Russia and Ukraine relations impacting Europe, as well as China's zero Covid policy leading to supply chain issues impacting inflation around the world. This is concerning because the Federal Government will need to raise rates in order to tackle rising inflation.as inflation rising too quickly can tip the country into recession. Most forward indicators are down significantly, except for the Misery Index. Mr. Martin goes on to note that consumer confidence is low and that the public have pulled back from spending due to inflation. Retailer's earnings have come in well below expectations because they have tried to maintain prices while costs are rising and, thus, their overall net profits are down. This is also the reason for big selloffs in the equity markets as earnings really drive the direction of equity prices. He continued by pointing out how the charts of consumer confidence mimics a market cycle. However, over the last 5 years, our funds have been diversified into many other asset classes and as much a quarter of said funds are not moving with the market. Moving on globally, Mr. Martin reiterated that Europe's confidence has collapsed due to the Russian/Ukraine war. He stated that mainland Europe's dependency on Russian oil and gas has impacted future growth estimates. Furthermore, China's zero covid policy has greatly impacted the global supply chain issues due to closing huge economy's such as Shanghai. This is leading to continuous supply chain issues which has resulted in elevated prices across the world. Mr. Martin noted that developed market, US and international equities, were down approximately 5% while emerging markets were down roughly 7%. Again, he points to China as a causation, due to China being 1/3 of emerging markets and about 8.5% of the broad international market. Switching to bonds, Mr. Martin stated that core bonds are down nearly 6%, leading to the worst quarter for the aggregate index since 1981. He elaborated that, through April, core bonds were down 9.5%. However, our fixed income is benchmarked to the shorter duration intermediate government/credit index which was only down just over 6%. He explained that, as rates go up, the longer duration bonds become more impacted. This is the reason for the 300-basis point difference. 157 MINUTE BOO 1 1 RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA Transitioning to inflation sensitive assets. TIPS were down only 3%, nearly 3% better than core bonds. He states that commodities, such as precious metals and energy, are up. He also, pointed out that every sector is down outside of energy, up 39%, and utilities, up 4%, which are linked in some part to infrastructure. Mr. Flickinger asked if the Build Back Better infrastructure investment has impacted infrastructure returns. Mr. Martin responded no because infrastructure is a long term 30-to-50-year program. Moving on to the portfolio, Mr. Martin stated that Washington County finished the quarter at $205 million. He pointed out that the portfolio was down about $7 million due to both stocks and bonds posting negative returns. This equates to a loss of 3.3%, which is better than policy, and ranking Washington County's defined benefit plan in the top 10% of the US public fund universe. This higher relative performance is due to the portfolio being well diversified across numerous asset classes. The smaller funds that are just in stocks and bonds are down more because of the lack of diversified assets. This is the difference from 2008 when the pension fund investments lacked any diversifying assets. Touching on real assets, the private equity and private credit added last year, are all positive for the quarter. Mr. Flickinger asked Mr. Martin to define private credit. Mr. Martin used the example of bank loans that are not impacted by rising rates as they write new loans at higher rates when interest rates rise. Mr. Martin spoke about gains over the past five years. He pointed out that 4 of the last 5 years has yielded double figures creating a 200-basis point cushion above the assumed rate of return in an environment that has fueled risk on equities: equities and bond prices going up because rates are coming down. Due to the more diversified assets, it produced under the benchmark, however, it was well above the assumed rate of return. The goal would be to reach 6.5% each year with as little volatility as possible. Additionally, the private equity and private credit addendum voted on previously added 2% and 1% respectfully. Moving on, Mr. Martin pointed out the diversifying assets added over the past few years. Particularly the defensive equity, siting volatility risk premium yielding a good premium when there is volatility in the market. He pointed out the diversified real assets portfolio which hedges inflation. This includes real estate, timber, farmland, and infrastructure. When inflation goes up, these assets tend go up as well, helping to offset some of the down market in traditional equity and bonds. With the recent additions of private equity and private credit, this adds up to a diversifying asset allocation of 23% at the end of March and this will go to 26% this quarter. Touching on the county's total equities of 53.5%, Mr. Martin states this is about the median of a big institutional fund. Similarly, fixed income is a little more conservative because the assumed rate of return is a little more conservative. The other assets classes reflect the previously mentioned median as well. Year rankings over time, show that the quarter is top decile, top quartile, and above median going back. The older time periods were periods which were less in favor. There should be a higher ranking going forward due to the portfolio positioned to perform relatively well during market downturns. Washington County is doing better even just on your traditional investments. However, NASDAQ area is what's being crushed so far this quarter. Moving to fixed income, the portfolio duration is at 4.1years while the aggregate index is 6.8years. The 25% lower duration is why there is a 300-basis point higher return in fixed income for the year. This is relative to core bonds, which most funds use. The current yield of about 3% and is in excess of the index due to the high yield fund. 158 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA Closing with Washington County funds through April. However, due to the length of time it takes for real estate and private to come out, it is not included for April. The U.S. equity was down 4.6% and benchmark was down 5.3%. There was a better outperformance by tilting into value. . TWIN was ahead 270 basis points in April, as they are better at protecting during market selling and that is why they remain in the portfolio. Likewise, because GW&K is more of a growth bent, they lagged the core benchmark for the first quarter to date but are well ahead for the one year. GW&K were 100 basis points up in April. Global equities are at benchmark, however, there is a lag of about 20 basis points for the three-month period yet they about 30 basis points ahead in April. Headwinds were the growth managers like Artisan and the AB Global Core strategy. The major contributing strategies were with Dodge & Cox and the high quality/low volatility manager like MFS. They were only down 2.7% when the broad market was down 5.4%. Non-U.S. Equity Composite was 100 basis points behind for the quarter due to the emerging market allocation. Washington County did change from the passive index to active approach during the quarter but there is not a full quarter return, and it will be included in the next report. Schroder is in line with benchmark and 130 ahead for the year. Defensive equity was in line for the quarter. However, over the past year it has posted 9.5%, above the benchmark of 7.8%, as the volatility premiums are quite high and have been accretive. In the alternative section, real estate is up 29%. Washington County left JP Morgan about a year ago. JP Morgan was struggling due to large office and retail allocations. Alternatively, Washington County hired Clarion and TA Realty to manage the real estate investments. TA only has one retail holding and is up 37.5% for the year. Timber and farmland are yielding a 10% return. Infrastructure is slowly increasing. The county used Cohen & Steers as a public equity version on the short term. They were added in November 2020 and has made 16% relative to 14% for the benchmark, over that period. Those assets have been used to fund the private infrastructure in a timely manner because equities are selling off and the private infrastructure is positive for the quarter. On private equity and private credit, public equities are selling off. However, there is an immediate 1.3% gain from the private equity. The county is invested in open-ended private equity, providing an income from day one. This is fortunate in this environment, due public equities going down. Likewise, private credit was positive 0.6% where fixed income was down 4.5% for the quarter. Lastly, for April alone, U.S. equity was down 7.7%but above the broad market which was down 9.0%. Global equity was ahead by 30 basis points and non-U.S. equities were behind by 30 basis points. There are currently no returns posted as of yet for the alternatives. However, the things that are selling off are not affecting the county's portfolio as negatively as expected. This relative performance is expected in May as well. The meeting was adjourned at 4:04 p.m. THE FOREGOING MINUTES SUBMITTED FOR APPROVAL: C, i. ATTEST: , ,a3