FRESNO COUNTY BOARD OF RETIREMENT



BOARD OF RETIREMENT

FRESNO COUNTY EMPLOYEES’ RETIREMENT ASSOCIATION

August 6, 2008

Trustees Present:

Alan Cade, Jr. Michael Cardenas Vicki Crow

Eulalio Gomez Steven J. Jolly Phil Larson

John Souza

Trustees Absent:

Nick Cornacchia James E. Hackett

Others Present:

Ronald S. Frye, Alternate Trustee

Michael Cunningham, FCERA Retiree

John Kallenberg, FCERA Retiree

Bob Solis, FCERA Retiree

Jeffrey MacLean, Wurts & Associates

Andy Yeung, The Segal Company

Conor Hinds, FCERA Supervising Accountant

Susan Coberly, Senior Deputy County Counsel

Roberto L. Peña, Retirement Administrator

Becky Van Wyk, Assistant Retirement Administrator

Elizabeth Avalos, Administrative Secretary

1. Call to Order

Chair Jolly called the meeting to order at 8:37 AM.

2. Pledge of Allegiance

Recited.

3. Public Presentations

Michael Cunningham, FCERA Retiree, inquired as to whether Administration maintains Trustee attendance records. It was noted that the Trustee Attendance report is produced and agendized annually [January].

Trustee Crow joined the Board at 8:41 AM.

Consent Agenda/Opportunity for Public Comment

On behalf of Bob Solis, FCERA Retiree, Chair Jolly pulled Consent Agenda Item 11 for discussion.

Roberto L. Peña, Retirement Administrator, pulled Consent Agenda Item 14 for discussion.

Trustee Souza pulled Consent Agenda Item 15 for discussion.

A motion was made by Trustee Larson, seconded by Trustee Souza, to Approve Consent Agenda Items 4-10, 12, 13, and 16. VOTE: Unanimous (Absent – Cardenas, Cornacchia, Hackett)

*4. Approve the July 16, 2008 Retirement Board Regular Meeting Minutes

RECEIVED AND FILED; APPROVED

*5. Retirements

RECEIVED AND FILED; APPROVED

|Rita G. Bonilla |Superior Court |12.07 |

|Betsy A. Brandt-Kreutz |Behavioral Health |12.11 |

|William C. Brotsis |Community Health |15.14 |

|Leandro Cano |Sheriff, Deferred |6.86 |

|Mark W. Curtis |Assessor/Recorder |28.29 |

|Denise Fini-Jones |Community Health, Deferred |2.73 |

|Rebecca Garth |Behavioral Health |25.90 |

|Anthony Kay |Valley Medical Center, Deferred |11.11 |

|Joseph M. Leonard |General Services |27.26 |

|Cecelia D. Manriquez |E&TA |28.49 |

|Colleen Mestas |Sheriff |20.04 |

|Genevieve Morales |E&TA |20.08 |

|Dennis H. Morgan |Public Works & Planning |10.23 |

|Judy H. Nottingham |Child Support Services |22.73 |

|Dana W. Ohlberg |Sheriff |21.69 |

|Jessie Outerbridge |E&TA |20.08 |

|Jerry Prieto, Jr. |Agriculture |33.96 |

|Janet C. Smith |General Services, Deferred |10.81 |

|Myron A. Toste |Sheriff |27.91 |

|Mark A. Vaughn |Sheriff |20.00 |

|Maureen E. Walsh |Superior Court |17.24 |

|Randall Woodrum |Sheriff |12.38 |

|Georgia L. York |County Counsel, Deferred |11.41 |

*6. Deferred Retirements

RECEIVED AND FILED; APPROVED

|Leslie S. Feathers |Cooperative Extension |3.62 |

|Sharon A. Flake |Probation |9.04 |

|Jim K. Lail |Sheriff |9.74 |

|Sandra K. Montgomery |Community Health |6.33 |

|Ruperto Reyes |Behavioral Health |12.55 |

|Karla Sarabia |Public Defender |1.49 |

*7. Disability Retirements

RECEIVED AND FILED; APPROVED

|Diana Hull |Superior Court |20.23 |

*8. Request to Purchase General Service as Safety Time

RECEIVED AND FILED; APPROVED

o David C. Stone

o Dana Ohlberg

*9. Most recent investment returns, performance summaries and general investment information from investment managers

RECEIVED AND FILED

*10. Public Records Requests and/or Retirement Related Information Requests from Ron Madsen, FCERA Retiree; Thomas Ford, Sonoma County Retirement Board; Brad Branan, The Fresno Bee; Rey Vallejo, FCERA Member; Doty Fadia, FCERA Member; Doug Hogel, SunGard Astec Analytics; Lupe Alvarado, FCERA Member; Jennie McNulty; Marguerite Malloy, ACREA; and Teal Lynch, Thomas Reuters

RECEIVED AND FILED

*11. Update of Board of Retirement directives to FCERA Administration

Bob Solis, FCERA Retiree, expressed concern as to the incomplete status of assignments noted on the Board Directives Log. Mr. Solis noted that some assignments have been “in process” for more than two years or have no status. Mr. Solis questioned who on the Board was responsible for reviewing and overseeing that the assignments are completed.

Trustee Cardenas joined the Board at 8:42 AM.

Roberto L. Peña, Retirement Administrator, noted the importance of each assignment and stated that Administration makes every effort to complete assignments in a timely manner based on priority.

A motion was made by Chair Jolly, seconded by Trustee Crow, to Receive and File Consent Agenda Item 11. VOTE: Unanimous (Absent – Cornacchia, Hackett)

RECEIVED AND FILED

*12. Quarterly Trustee Travel Report and Anticipated Trustee Travel for the quarter ended June 30, 2008

RECEIVED AND FILED

*13. Correspondence to Bart Bohn, County Administrative Officer, regarding a Joint Meeting with the Board of Supervisors

RECEIVED AND FILED

*14. SACRS Year 2009 Legislative Timelines for submission of proposed legislation to be sponsored by SACRS

Roberto L. Peña, Retirement Administrator, reminded the Board that the SACRS Legislative Committee has adopted a calendar for soliciting legislative proposals from SACRS retirement associations for the year 2009. Mr. Peña noted that, should the Trustees want to submit proposals for inclusion in the SACRS 2009 Legislative Platform, the deadline for requests is August 29, 2008.

Trustee Crow stated that the SACRS Legislative Committee has had recent success in pushing forward SACRS legislation and noted that the Committee is a powerful vehicle in initiating changes to retirement law.

A motion was made by Trustee Crow, seconded by Trustee Souza, to Receive and File Consent Agenda Item 14. VOTE: Unanimous (Absent – Cornacchia, Hackett)

RECEIVED AND FILED

*15. Approve Revised FCERA Retirement Handbook

Trustee Souza noted difficulties in determining the changes made to the proposed handbook and suggested that Administration summarize the major revisions made to the proposed version.

John Kallenberg, FCERA Retiree, raised concerns that the proposed handbook does not reflect current Board policy as it relates to the funding of Settlement Benefits and Retiree Health Benefits.

Bob Solis, FCERA Retiree, inquired as to whether there is a policy in place that determines when the handbook is to be updated. Roberto L. Peña, Retirement Administrator, noted that there is not a policy that dictates when to update the Retirement Handbook. However, revisions are made when there are changes in the retirement law or benefit structure.

Mr. Solis recommended that the Board adopt a policy that would ensure revisions are made timely.

Mr. Peña noted such issues as the Final Compensation lawsuit and the addition of two retirement tiers that caused the delay in publishing the revised handbook.

The Board tabled the item and directed Administration to summarize the revisions and agendize the issue for discussion at the August 20, 2008 Regular Board Meeting.

TABLED

*16. Approve determination of compensation earnable for the County of Fresno pay items/earn codes for Commercial Inspector Certification - CIA, CIB, CIC, and CID

RECEIVED AND FILED; APPROVED

17. Discussion and appropriate action on FCERA Asset Liability Study presented by Jeffrey MacLean, Wurts & Associates, and Andy Yeung, The Segal Company

Roberto L. Peña, Retirement Administrator, opened discussions by noting the importance of the Asset Liability Study and encouraged the Board Members’ active participation in the discussion.

Jeffrey MacLean, Wurts & Associates, presented the Asset Liability Study including a brief overview of the current asset allocation and noted that the current allocation is projected to have an investment return of 8.21% as compared to an actuarial assumed return of 8.00%. Mr. MacLean noted that all proposed investment “mixes”, including the current mix, project a full funded status by 2014 based on excess earnings staying in the plan.

Andy Yeung, The Segal Company, explained that because the Board can potentially use excess earnings to fund benefits, the timeline for reaching a full funded status could be extended. A brief discussion ensued.

Mr. MacLean stated that implementing Opportunistic Fixed Income, Hedge Funds, and Real Asset allocations would meaningfully improve the efficiency of the existing portfolio and would also improve the expected funded status and minimize projected contributions while improving the metrics on a worst case basis. Implementing this portfolio would increase the expected return by 34 basis points from the current allocation and involves a 6.0% allocation to Opportunistic Fixed Income, a 9.0% allocation to Hedge Funds, and a 11.0% allocation to Real Assets.

General discussions ensued regarding the Plan’s current asset allocation, manager structure, historical funded status, investment experience, smoothing process, and the assumed rate of return. The Board requested that Administration provide an annual report detailing the actual capital returns versus the actuarial assumed rate of return. Mr. Yeung stated that this information could be provided in the valuation but only to the extent Segal had the data [3 years]. Mr. Peña noted that prior data is available and could be used to develop a stand alone report.

Trustee Cardenas departed at 10:42 AM.

Mr. MacLean reviewed the 5 proposed investment mixes and noted that all mixes are more efficient than the current asset allocation mix and are projected to satisfy the 8.0% actuarial rate of return. Discussions ensued regarding the expected return and standard deviation of each mix.

Discussions ensued regarding the Plan’s projected funded ratios over the next 10 years. It was noted that the projections are based on assumptions and these projections assume that the excess earnings will stay in the Plan.

Mr. MacLean reviewed the best and worst case scenarios of each proposed investment mix. It was noted that the worst case scenario of each mix is better than the current mix worst case scenario. Discussions ensued.

Trustee Cardenas rejoined that Board at 11:08 AM.

Mr. MacLean recommended that the Board adopt portfolio mix 4 based on the following:

o Increases the rate of return by 34 basis points from the current mix while slightly increasing the expected standard deviation by 24 basis points.

o Meaningfully more efficient than the current mix with a sharpe ratio of 0.397 versus 0.375.

Current Mix

|Large Cap US Equity |28% |

|Small Mid/Cap US Equity |10% |

|International Large Equity |15% |

|International Small Equity |0% |

|Emerging Markets |4% |

|US core Plus Fixed Income |30% |

|Opportunistic Fixed Income |0% |

|Global Fixed Income |3% |

|Liquid Alt./Hedge Funds |0% |

|Private Equity/Venture Capital |6% |

|Real Assets |4% |

| | |

|Expected Return |8.21% |

|Standard Deviation |11.23% |

|Sharpe Ratio |0.375 |

o Expected present value of total contributions in 2017 is $38.3 million lower than the current mix while the worst case is also lower than the current mix by $21.4 million.

o Meaningfully improves the projected 2017 full funded ratio with a superior worst case ratio.

Mr. MacLean gave a brief overview of the implementation process as follows:

o Employ two Small Cap International managers with a 3.0% allocation to each manager.

o Establish a Real Asset allocation to hedge against higher inflation.

o Reduce U.S. Core Plus Fixed Income manager structure by one manager.

o Employ Opportunistic Fixed Income Strategy with two managers (3.0% allocation each).

o Establish a 9.0% Hedge Fund allocation by expanding Blackstone from $15 million to $80 million and employ two additional Hedge Fund managers with approximately $80 million each.

o Continue Private Equity vintage year and strategy diversification by expanding the allocation by 1.0% to 7.0% of the total Plan.

Mr. MacLean briefly reviewed various asset classes such as Real Assets, Infrastructure, Commodities, Opportunistic Fixed Income, and Hedge Funds. General discussions ensued.

In response to a concern expressed by Mr. Peña regarding the 9% allocation to a diversified hedge fund of funds, Mr. MacLean stated that he believes that the allocation is realistic based on surveys of public funds. Mr. MacLean expressed his lack of confidence in the R.V. Kuhn’s data because it reflects only 3 out of 90 funds having hedge fund allocations of 9% or more with the majority of funds in the 3%-5% range. Mr. MacLean stated that the R.V. Kuhn’s data is geared more towards rates of return rather than asset strategy and that the data does not correctly reflect FCERA’s allocation between the various alternatives. Mr. MacLean noted that the surveys conducted by JPMorgan and Greenwich reflect more accurate data with 60% of funds increasing their hedge fund allocation from 7.4% to 8.9% on average. These surveys delve into the “meat” of the investment.

Trustee Larson departed at 11:53 AM.

A motion was made by Trustee Crow, seconded by Trustee Souza, to Adopt portfolio mix 4 as recommended by Wurts & Associates. VOTE: Unanimous (Absent – Cornacchia, Hackett, Larson)

Mix 4

|Large Cap US Equity |23.7% |

|Small Mid/Cap US Equity |8.0% |

|International Large Equity |12.2% |

|International Small Equity |6.5% |

|Emerging Markets |2.0% |

|US core Plus Fixed Income |13.8% |

|Opportunistic Fixed Income |5.9% |

|Global Fixed Income |1.1% |

|Liquid Alt./Hedge Funds |8.7% |

|Private Equity/Venture Capital |7.1% |

|Real Assets |11.0% |

| | |

|Expected Return |8.55% |

|Standard Deviation |11.47% |

|Sharpe Ratio |0.397 |

Discussions ensued regarding the potential impact that the newly adopted asset allocation may have on the current 8% Actuarial Assumed Rate of Return. It was noted that there is no immediate impact to the Actuarial Assumed Rate of Return.

Mr. MacLean noted that the numbers will be rounded to provide the “official” target allocation.

RECEIVED AND FILED; APPROVED

Roberto L. Peña, Retirement Administrator, pulled Closed Session Agenda Items 18.A.1 and 18.B. as there was nothing to discuss.

18. Closed Session:

A. Conference with Legal Counsel – Actual Litigation - pursuant to G.C. §54956.9(a)

1. Fresno County Employees’ Retirement Association v. Public Pension Professionals

B. Conference with Real Property Negotiators – pursuant to G.C. §54956.8

Property: 1713 Tulare Street, Fresno, CA 93721

Agency Negotiators: Brian Decker of Colliers Tingey

Negotiating Party: Any potential qualified buyer

Under Negotiation: Price and terms of sale

C. Consideration of purchase or sale of particular, specific pension fund investment, pursuant to G. C. §54956.81

19. Report from Closed Session

18.A.1. Pulled.

18.B. Pulled.

18.C. Nothing to Report.

20. Report from FCERA Administration

Roberto L. Peña, Retirement Administrator, reported on the following items:

1. Mr. Peña met with the Fresno County Grand Jury on July 30, 2008.

21. Report from County Counsel

Susan Coberly, Senior Deputy County Counsel, had nothing to report.

22. Board Member Announcements or Reports

There were no Board Member announcements or reports.

There being no further business, the meeting adjourned at 12:21 PM.

Roberto L. Peña

Secretary to the Board

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