INVESTMENT SUBCOMMITTEE OF THE
INVESTMENT SUBCOMMITTEE OF THE
DENA FINANCE COMMITTEE
MINUTES
Christian Brothers Conference
Hecker Center Suite 300
3025 Fourth Street, NE
Washington, DC 20017
With Skype Conference
May 18, 2015
Members Present: Brothers Gerard Frendreis, John Patzwall, Louis DeThomasis and Timothy Froehlich and Mr. William Phillips (chair).
Others Present: Messrs. Al Morrison and Ed Boyer, Asset Strategy Consultants, Investment Advisors to the Retirement and Continuing Care Trust and the DENA Endowment Trust
Agenda:
1. Opening Prayer/Remarks (William Phillips)
2. Approval of the Minutes of February 23, 2015
3. Christian Brothers Retirement and Continuing Care Trust
a. Review of the Investment Report for March 31, 2015
b. Review of the Asset Rebalancing of the Trust
c. Cash Needs of the Trust
4. FSC DENA Endowment Trust
a. Review of the Investment Report for March 31, 2015
b. Review of the Asset Rebalancing of the Trust
c. Cash Needs of the Trust
5. Review of the Investment Policy Statements for the Retirement and Continuing Care Trust and FSC DENA Endowment Trust and review of the TRENDS analysis affecting the two trusts.
6. Next Meetings - all at 9:00 a.m. Eastern time
a. August 17, 2015, an in-person meeting at Christian Brothers Conference with Skype capability
b. November 12, 2015, an in-person meeting at Christian Brothers Conference with Skype capability
c. February 18, 2016, an in-person meeting at Christian Brothers Conference with Skype capability
1. Mr. Phillips opened the meeting with a prayer.
2. Brother Timothy moved to approve the minutes of the meeting of February 23, 2015. This motion was seconded by Brother Gerard, and the motion was passed unanimously.
3. Christian Brothers Retirement and Continuing Care Trust
3a. Mr. Al Morrison from Asset Strategy Consultants led the subcommittee through the various investment returns for the first quarter of 2015. The first quarter results were not as good as previous quarters. In addition, various sectors have done better than others. For example, the S&P 500 returned 1.0 percent for the quarter, while international stocks returned 4.9 percent. There were various shifts between growth stocks and value stocks as well. The quarter was very volatile, and it is expected that market volatility will continue for quite a while. This ultimately will have an effect on the consistency of the total returns earned by the assets. Fixed income assets showed longer duration assets having a better return than shorter return assets. While the expectation for rising interest rates has been almost unanimous, low interest rates have remained for quite a while, and there is an emerging expectation that lower rates will continue.
Mr. Ed Boyer of Assets Strategy Consultants then reviewed the investment performance of the retirement and continuing care trust for the first quarter. The assets of the trust amounted to $92,072,632 on March 31. The rate of return for the quarter was 1.85 percent, while the target had a return of 2.28 percent. For the trailing 12 months, the trust returned 7.33 percent while the target was at 8.43 percent. The three and five year returns were much closer, with a three-year return of 11.67 percent versus the target’s 11.72 percent. The five-year number is 10.16 percent for the fund compared to 10.46 percent for the target. All in all, the returns show that on the longer economic cycle, the trust is earning a good rate of return. Mr. Boyer then reviewed the performance of each of the funds in the trust. He particularly pointed out the international equity sector did very well, with the three holdings in international equities returning 4.94 percent compared to the target of 4.88 percent. The emerging equity sector did not do well in the quarter. The dominant fund, Parametric Emerging Markets, lost 0.64 percent compared to its target of 2.24 percent. The subcommittee discussed changing the funds in this sector. Brother Timothy moved to equalize the asset allocation between Parametric Emerging Markets and Matthews Asian Growth and Income Fund and further to have Asset Strategy Consultants research and suggest a replacement for Parametric Emerging Markets. This motion was seconded by Brother John and unanimously approved. A question was raised whether CBIS was developing an emerging markets fund. Mr. Boyer said he would research that and let us know. Mr. Boyer then discussed the domestic fixed income sector. In reviewing the CUIT funds held by this sector, the subcommittee discussed equalizing the allocation between the CUIT Intermediate Diversified Bond Fund and the CUIT Opportunistic Bond Fund. The intermediate bond fund holds longer duration bonds than the opportunistic bond fund. With interest rates staying low it was felt that the two funds could be equalized. Brother Gerard moved to equalize the holdings in the CUIT Intermediate Diversified Bond Fund and the CUIT Opportunistic Bond Fund. The motion was seconded by Brother John and approved by the subcommittee. Brother Timothy abstained from this vote. The hedge fund sector has also done very well for the quarter and the year. This sector’s quarterly rate of return was 3.36 percent compared to 1.81 percent for its target. For the year, the fund sector has returned 7.32 percent compared to 3.65 percent for the target. One hedge fund that has not done well is the SRI Overseas Partners Fund. In its last meeting the subcommittee asked Asset Strategy Consultants to look for a replacement for this fund. Mr. Boyer presented the Lighthouse SRI Fund as a replacement. He presented various data which showed this proposed fund having much better rates of return. The Lighthouse SRI Fund was started at the request of several large Catholic healthcare systems and several dioceses. After due discussion, it was moved by Brother Gerard and seconded by Brother Timothy to withdraw from the SRI Overseas Partners Fund and reinvest the proceeds in the Lighthouse SRI Fund. This motion was approved unanimously. Mr. Boyer went over the holdings in the private equity and real estate funds held by the trust. The trust began investing in these illiquid alternative investments in 2006, and has made investments in these types of assets almost every year. Each of these investments has a life cycle of 10 to 15 years, and the trust is seeing the result of the increasing distributions made from these funds with the maturing of the assets held in the funds.
3b. The trust assets are all within their targeted ranges and no asset rebalancing was needed. However, the subcommittee had asked Asset Strategy Consultants to review the asset allocation of the trust. Mr. Boyer presented a study showing the current allocation versus various other potential allocations. Each potential allocation included all of the same categories but with differing percentages. Each of these asset allocation models resulted in a different five-year geometric mean return. This return is a pro forma estimated return based on prior performance. When the current asset allocation was determined in 2011 this particular mix had a return of 7.77 percent. Currently, this asset allocation model returns 7.32 percent. Brother Timothy said that the TRENDS evaluation of the retirement trust used an investment return of 6.5 percent. Consequently, if the trust returned something better than 6.5 percent, it is all to the good. After much discussion, the subcommittee determined to retain the existing asset allocation as any goals that had been discussed could be done within the bands of that asset allocation. The subcommittee asked Asset Strategy Consultants to update and amend the existing Investment Policy Statement. The final draft should be completed by June 30, 2015.
3c. Brother Timothy said that the trust currently had $2,500,000 in cash, and this amount would meet the cash needs of the trust until the end of the fiscal year.
FSC DENA Endowment Trust
4a. Mr. Boyer reviewed the assets held in the FSC DENA Endowment Trust for the quarter ended March 31, 2015. The asset value of the endowment as of that date was $29,105,629. The rate of return for the endowment for the quarter was 2.49 percent with a target performance of 3.11 percent. The one year performance numbers were 6.12 percent for the endowment versus 7.48 percent for the target funds. Since its inception, the endowment has returned 11.30 percent versus 10. 97 percent for the target funds. The Endowment Trust investments are very similar to those of the Retirement and Continuing Care Trust, using the same investment managers. These rates of return were once again acceptable. Brother Gerard moved to sell the SRI Overseas Partners Fund and to reinvest the proceeds in the Lighthouse SRI Fund. His motion was seconded by Brother Timothy and approved unanimously. The review of the emerging markets sector shows the endowment also with a holding in Parametric Emerging Markets and Matthews Asian Fund. Brother Timothy moved to equalize the allocation between Parametric Emerging Markets and Matthews Asian Fund and to request Asset Strategy Consultants to suggest a replacement for the Parametric Fund. This motion was seconded by Brother Louis and approved unanimously. The endowment trust holdings of domestic fixed income also have an unequal holding between the CUIT Intermediate Diversified Bond Fund and the CUIT Opportunistic Bond Fund. Brother Gerard moved to equalize the allocation between these two funds. This motion was seconded by Brother Louis and approved. Brother Timothy abstained from the vote. The review of the endowment trust illiquid alternative investments showed an opportunity to increase the holdings in the Ironsides III investment. After discussion, Brother Gerard moved to invest $250,000 in the Ironsides III investment. This motion was seconded by Brother Louis and unanimously approved.
4b. The assets of the DENA Endowment Trust were all within the parameters of the asset allocation of the trust. However, the subcommittee had asked Asset Strategy Consultants to review the asset allocation of the trust. Mr. Boyer presented a study showing the current allocation versus various other potential allocations. The existing asset allocation shows an allocation of 29 percent to domestic fixed income. The subcommittee discussed using that high a number. After discussion, it was suggested that a possible asset allocation using 30 percent large-cap, 15 percent small and mid-cap, and 20 percent domestic fixed income along with the existing allocations of the other sectors. Asset Strategy Consultants will prepare a new asset allocation model using these percentages. They will also update the Investment Policy Statement for the FSC DENA Endowment Trust.
4c. Brother Timothy reported that there was sufficient cash in the endowment trust to meet the needs of the trust for the balance of the fiscal year.
5. Brother Timothy had distributed to the subcommittee a report on the TRENDS review of the retirement trust and endowment trust prior to the meeting. As noted earlier in these minutes, the review of the retirement trust was very positive; showing that the retirement trust was adequately funded for the coming years. The report on the retirement fund shows the trust actually growing for the next six years, assuming that the assets earned 6.5 percent a year. The TRENDS report also shows positive returns for the endowment trust.
6. Next Meetings - all at 9:00 a.m. Eastern time
a. August 17, 2015, an in-person meeting at Christian Brothers Conference with Skype capability
b. November 12, 2015, an in-person meeting at Christian Brothers Conference with Skype capability
c. February 18, 2016, an in-person meeting at Christian Brothers Conference with Skype capability
d. May 17, 2016, an in-person meeting at Christian Brothers Conference with Skype capability
Respectfully submitted,
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William H. Phillips
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