FRESNO COUNTY BOARD OF RETIREMENT



BOARD OF RETIREMENT

FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION

“Our mission is to administer the retirement benefits for the members and beneficiaries in a prudent, accurate, timely and cost-effective manner, while administering fund assets in a manner that achieves investment and funding objectives within prudent levels of risk”

March 2, 2016

REGULAR MEETING AGENDA MINUTES

Trustees Present:

Laura P. Basua

Greg Baxter

Dr. Rod Coburn, III

Alan Cade, Jr.

Vicki Crow

Robert Dowell

Eulalio Gomez

Steven Jolly

Mary Rogozinski, Alternate

Trustees Absent:

Vacant Seat

Staff and Service Providers Present:

Donald Kendig, Retirement Administrator

Becky Van Wyk, Assistant Retirement Administrator

Conor Hinds, Supervising Accountant

Elizabeth Avalos, Executive Assistant

Maria Millburg, Retirement Communications Officer

Ken Price, Board Counsel

Craig Armstrong, Board Counsel

Jeffrey Rieger, Reed Smith – via teleconference

Jeffrey MacLean, Verus

Michael Kamell, Verus

Members of the Public that Addressed the Board:

Robert Skowronski, FCERA Member

Jack Hansen, Parametric

Douglas Mill, Parametric

Paul Nerland, Director of Personnel Services

1. Call to Order

Chair Jolly called the meeting to order at 8:31 AM, noting that, in addition to the current vacancy, Trustees Baxter and Crow were absent.

2. Pledge of Allegiance

Recited.

3. Public Comment

Robert Skowronski, FCERA Member, commented on the date used on the agenda letters are the date of the meetings, when they are written earlier and noted that it is not marked as a draft. In addition, Mr. Skowronski commented on the RV Kuhn’s Report, investment performance, and the current rate of return of 7.25% asking why the Board is not investing more in the higher returning items.

4. Consent Agenda

Alternate Trustee Rogozinski pulled Consent Item 4.E. for discussion.

A. Approval of Retirements for February 2016 – RECEIVED AND FILED; APPROVED

B. Public Records Requests and/or Retirement Related Correspondence – RECEIVED AND FILED

C. FCERA Cash Flow Position as of January 2016 – RECEIVED AND FILED

D. Receipt and Filing of Educational Attendance Reports from Trustees Cade and Jolly; Donald Kendig, Retirement Administrator; Elizabeth Avalos, Executive Assistant; and Merelle Sanderson, Office Assistant III – RECEIVED AND FILED

F. Receipt and Filing of Private Assets Update – RECEIVED AND FILED

A motion was made by Trustee Coburn, seconded by Trustee Dowell, to accept/approve Consent Items 4.A. - 4.D. and 4.F. as presented. VOTE: Unanimous (Absent – Baxter, Crow)

E. Approval of Audit Committee’s Recommendation for Professional Audit Services – RECEIVED AND FILED; APPROVED

Alternate Trustee Rogozinski expressed concern in using the same auditor for the past years and asked the Audit Committee Members their opinions on the issue and commented on the benefits of changing auditors after a few years in order to gain a fresh perspective.

Trustee Coburn noted that only two responses to the RFP were received and that Brown Armstrong was the right choice. In addition, Trustee Coburn commented on the advantages of working with an auditor that is familiar with the operations of the Association.

A motion was made by Trustee Dowell, seconded by Trustee Basua, to approve Consent Item 4.E. as presented. VOTE: Unanimous (Absent – Baxter, Crow)

5. Minutes

A. Consideration of the February 17, 2016 Retirement Board Regular Meeting Minutes – APPROVED

A motion was made by Trustee Coburn, seconded by Trustee Gomez, to Approve Item 5.A. as presented. VOTE: Unanimous (Absent – Baxter, Crow)

B. Consideration of the February 17, 2016 Audit Committee Meeting Minutes – APPROPRIATE ACTION

A motion was made by Trustee Coburn, seconded by Trustee Jolly, to approve Item 5.B. as presented. VOTE: Unanimous (Absent – Baxter, Crow)

It was noted that Trustees Coburn and Jolly are members of the Audit Committee.

6. Discussion

A. Quarterly Investment Reports presented by Jeffrey MacLean, Verus

Jeffrey MacLean noted that January 2016 marked the 30th Anniversary for Verus.

Research Report – Jeffrey MacLean and Michael Kamell of Verus gave a brief overview of the current economic environment and its impact on the investment markets. In addition, Mr. Kamell commented on and gave a brief summary on the global and capital markets.

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

Trustees Baxter and Crow joined the Board at 9:05 AM and 9:15 AM respectively.

Investment Performance - Mr. Kamell reviewed the Plan’s various asset classes and the individual managers within the asset classes noting the main drivers of performance and any significant over or under performance over the three and five year periods.

In response to concerns from Chair Jolly regarding the performance of Waddell & Reed, Mr. MacLean noted that an update would be provided to the Board on the next Investment Consent Agenda.

In response to concerns from Trustee Coburn that Kalmar Investments is under recent scrutiny, Mr. MacLean gave a brief update on their performance and the loss of a Vanguard mandate.

The Board engaged in detailed discussions with its Investment Consultants and members of the public regarding the current market environment and overall performance of the fund.

Guideline Compliance - Mr. Kamell noted that there were no reportable breaches by any of the managers.

The Board engaged in discussions regarding the compliance notices from the individual managers and the Compliance Monitoring services offered by Northern Trust.

Guideline Compliance Report Procedure Update – Mr. MacLean noted that, due to recent changes with respect to portfolio holdings reporting at Northern Trust and a detailed review of Verus’ compliance procedures, Verus will begin relying on each manager to claim attestation to their account guidelines. This change has no impact on commingled funds, for which Verus already rely on manager attestation. The change is predicated on the following:

• A change in how Northern Trust’s software systems operate and “communicate with each other; this change now limits Verus’ ability to efficiently aggregate the necessary information to independently verify certain portfolio characteristics Verus was previously able to

• Verus’ point‐in‐time, quarterly analysis does not evaluate daily transactions, and may not capture guideline violations not occurring any time other than quarter‐end

• Increased use of nuanced separate account guidelines which cannot always be independently verified given available data

Mr. MacLean explained that Investment managers are in the best position to capture daily holdings/transactional data, and Verus’ operational diligence process will continue to evaluate their compliance processes. In all other respects Verus will continue to monitor managers for compliance and promptly alert the Board as appropriate.

Staff mentioned that it heard from WAMCO and the Board asked Staff to provide such notices to the Board. Staff agreed and indicated that it will provide the WAMCO notices at the next meeting.

The Board heard from Robert Skowronski, FCERA Member, in the change in procedure.

B. Receipt and Filing of Overlay Program Presentation – RECEIVED AND FILED

Jeffrey MacLean, Verus, reminded the Board that it implemented an Overlay program in 2006 and in 2009 question whether to expand the program or shut it down. The program was shut down in 2009.

At the February Board meeting, Verus proposed the Board hear an educational presentation from a third party overlay provider to help advance the discussion regarding the purpose, benefits, risks, and mechanics associated with an overlay program. Given the Board’s approval, Verus coordinated an educational presentation form Parametric, a well-regarded firm in the Overlay space.

Overlay Program, presented by Jack Hansen and Douglas Miller, Parametric

The Board heard an educational presentation on Overlay Service program from Jack Hansen and Douglas Miller of Parametric which included an overview of their Policy Implementation Overlay Service (PIOS®), Overlay transition process, risk controls, cost benefits, portfolio monitoring technology, and the overall benefits of an Overlay program.

The Board engaged in detailed discussions with its investment consultants and members of the public regarding the advantages and disadvantages to an Overlay program. The Board directed Verus to request proposals from Parametric and Russell for its consideration.

The Board moved to Closed Session at this time.

7. Closed Session

A. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION: Significant exposure to litigation pursuant to subdivision (d) of Government Code section 54956.9 (one case)

Report from Closed Session:

There was no reportable action.

1. Discussion

C. Consideration of Retirement Administrator Salary Adjustment presented by Eulalio Gomez, Personnel Committee Chair

Eulalio Gomez, Personnel Committee Chair, gave a brief update on his recent meeting with Paul Nerland, Director of Personnel Services, noting that various options were discussed regarding the salary of the Retirement Administrator.

Chair Jolly reminded the Board that the Board of Supervisors had denied their decision/request for an increase in the Retirement Administrator’s salary.

Paul Nerland, Director of Personnel Services, stated that the meeting with Trustee Gomez was positive and suggested that the he continue to work with the Personnel Committee on solutions that are agreeable to both the Board of Retirement and the Board of Supervisors.

Chair Jolly recommended forming a two member Ad Hoc Committee to work with the County in a collaborative effort to explore options for each the Boards considerations.

A motion was made by Trustee Crow, seconded by Trustee Basua, to approve the recommendation to form an Ad Hoc Committee to work the Personnel Department to recommend solutions related to the salary of the Retirement Administrator. VOTE: Unanimous

Chair Jolly appointed Trustees Coburn and Gomez to the Ad Hoc Committee.

8. Closed Session

A. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION: Significant exposure to litigation pursuant to subdivision (d) of Government Code section 54956.9 (one case)

9. Oral Reports:

A. Report out of Closed Session

7.A. No reportable action.

B. FCERA Administration

1. Donald Kendig, Retirement Administrator presented the Actuarial Report to the Board of Supervisors on March 1 who adopted the report and the new rates for the 2016-17 Fiscal Year. He also informed them of the Experience Study scheduled for March 16, 2016 and encouraged their attendance at the meeting and expressed in interest in a Joint meeting during the 2017-18 Actuarial presentation.

2. Mr. Kendig asked the Trustees if they were experiencing any difficulties with the new i-Pads. No difficulties were mentioned.

3. Mr. Kendig informed the listening audience that the Interest Crediting Policy will be discussed at the March 16, 2016 Regular meeting.

C. Board Counsel

Counsel had nothing to report.

D. Committee Reports

There were not committee reports.

E. Board Members

Trustee Gomez noted that a FCERA member gave Kim Jantz praises for her member service and a job well done. Mr. Kendig noted that Patricia Montoya, Machelle Smiley, and Kelly Prinz had also received recent praise.

There being no further business, the meeting adjourned at 12:12 AM.

Donald C. Kendig, CPA

Secretary to the Board

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