MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JULY 13, 2020. Present: Chair Ryan Chapdelain, Vice Chair Susan Blake, Secretary Shayla Griggs, Treasurer Kelly Strickland, Trustee Kari McVaugh, Trustee Mark Nicholas, and Trustee Robert Reardon. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. 1. CALL MEETING TO ORDER: Vice Chair Susan Blake called the meeting to order at 8:32 a.m. 2. PLEDGE OF CIVILITY: Chair Blake stated for the record, "We may disagree, but we will always be respectful to one another. We will direct all comments to issues, and we will not engage in personal attacks." 3. ROLL CALL: Secretary Griggs conducted the Board roll call. Chair Chapdelain, Vice Chair Blake, Trustee McVaugh, Trustee Nicholas, and Trustee Reardon appeared telephonically. Treasurer Kelly Strickland was not present telephonically at roll call. Secretary Griggs appeared in person. Also appearing elephonically were Attorney Scott Christiansen and Pension Plan Administrator Debra Martin. Pension Specialist Peter Gottlieb appeared in person. 4. PUBLIC INPUT: None 5. APPROVAL OF THE MINUTES: 5.1. Approval Re: Minutes of the General Employees Pension Plan Board of Trustees Regular Meeting of June 15, 2020. Presenter: Vice Chair Blake. Trustee McVaugh made a motion to approve the minutes of the General Employees' Pension Plan Board of Trustees Regular Meeting of June 15, 2020; Trustee Nicholas seconded the motion. Motion passed unanimously (6-0). 6. BOARD NOMINATIONS: 6.1 Appointment Re: Selection of Chair. Presenter(s): Secretary Griggs Vice Chair Blake made a motion to nominate Ryan Chapdelain as Chair; Trustee McVaugh seconded the motion. Motion passed unanimously (6-0). 6.2 Appointment Re: Selection of Vice Chair. Presenter(s): Secretary Griggs. Book 1 Page 207 07-13-2020 8:30 a.m. Book 1 Page 208 07-13-2020 8:30 a.m. Chair Chapdelain made a motion to nominate Susan Blake as Vice Chair; trustee Nicholas seconded the motion. Motion passed unanimously (6-0). 7 BOARD APPOINTMENT: 7.1 Approval Re: Nomination to General Employees' Pension Plan Seat GP3. Presenter(s): Secretary Griggs. Secretary Griggs stated the Board had received only one application for Seat GP3, which was from Trustee Kari McVaugh; as the Board had not received any other applications, Trustee McVaugh will serve another term by acclamation. 8 APPROVAL OF RETIREMENT REQUESTIS): 8.1 Approval Re: DROP Retirement Request of Albert Archambault. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plan Administrator stated that Mr. Archambault requested a normal retirement to enter the DROP as of June 1, 2020; he has 23.83 years of service and selected the pop-up option with 66.67% to a Joint Annuitant. Trustee McVaugh made a motion to approve Mr. Archambault's request; Secretary Griggs seconded the motion. Motion passed unanimously (6-0). 8.2 Approval Re: DROP Retirement Request of Pedro Perez. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plan Administrator stated that Mr. Perez requested a normal retirement to enter the DROP as of June 1, 2020; he has 18.88 years of service and selected the lifetime only option. Trustee McVaugh made a motion to approve Mr. Perez's request; Trustee Nicholas seconded the motion. Motion passed unanimously (6-0). 8.3 Approval Re: DROP Retirement Request of Alexandrea Davis-Shaw. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plan Administrator stated that Ms. Davis-Shaw requested a normal retirement to enter the DROP as of July 1, 2020; she has 30 years of service and selected the option to change joint annuitant with 50% payable to the joint annuitant. Chair Chapdelain made a motion to approve Ms. Davis-Shawn's request; Trustee McVaugh seconded the motion. Motion passed unanimously (6-0). 9 INVESTMENT PERFORMANCE REVIEW: 9.1 Presentation and Discussion Re: AEW Core Property Trust (U.S.), Inc., Performance Review as of March 31, 2020. Presenter(s): Sara Cassidy, Senior Portfolio Manager, Emily Margolis, Investor Relations, AEW Core Property Trust. Emily Margolis appeared telephonically before the Board and introduced herself and Ms. Cassidy. Ms. Margolis noted its last portfolio presenter to the Board, Michael Byme, has stepped away from day-to-day fund management to become AEW's Chief Investment Officer. Ms. Margolis presented an overview of AEW Core Property Trust's (CPT's) materials noting it is income-focused and has outperformed its benchmark, the NCREIF Fund Index - Open End Diversified Core Equity (NFI-ODCE) in income return for 40 quarters. Secretary Griggs left the meeting at 8:47a.m. and returned at 8:51 a.m. Ms. Cassidy discussed CPT's 2019 and 2020 first quarter performance; she expressed confidence in the fund's ability to weather the current market conditions due to the portfolio composition, asset quality, and credit quality of its tenants. She discussed which sectors were most and least impacted by the COVID-19 pandemic and ensuing economic conditions. Ms. Cassidy explained that CPT performs asset valuations at the end of the first quarter each year, which coincided with the market and economic downturn, and as such, it has revised many of its assumptions in March 2020, which caused an approximate 8% decline in valuation in Q1 2020 compared to the prior quarter. Income return continued to outperform the benchmark in Q1 2020, but overall CPT underperformed for the quarter. Ms. Cassidy expects many funds failed to consider the effects of COVID-19 had in the first quarter in their valuation assumptions and predicted a flat Q2 2020 index performance. She anticipates for the second quarter of 2020 an approximate 1% income growth return and negative 1% appreciation for a total gross return of 0%. Ms. Cassidy discussed CPT's cash position and cash flows, noting that as of July 1, 2020, it had called $75 million into its entrance queue, and it will be paying approximately 15% of the outstanding redemption requests in the first and second quarters of 2020, for a total of $75 million. She discussed CPTS debt profile and strategy. Ms. Cassidy explained CPTS portfolio diversifications by region and property types, noting its low risk holdings, and it does not have exposures to hotels, student- or senior-housing. Ms. Cassidy discussed CPTS portfolio strategy and positioning. Treasurer Strickland joined the meeting at 8:56 a.m. as indicated to Pension Plan Administrator Martin. Ms. Cassidy discussed portfolio strategy and positioning noting AEW's 2019 sector goals and execution. She asserted CPT is well situated to take advantage of longer-term trends in the market despite the current conditions. Secretary Griggs left the meeting at 8:57 a.m. and returned at 8:58 a.m. Ms. Cassidy discussed non-core positioning, which comprises approximately 9% of holdings, and she anticipates it will be reduced to 5% by 2021. Ms. Cassidy discussed operational performance, including occupancy, weighted- average lease terms, and rollover exposure by square foot. She reviewed leasing highlights and noted activity has been muted but accounted for in property valuations. Ms. Cassidy discussed rent collection, pointing out that the majority of retail tenants have requested and received relief, mostly in the form of PPP or small business loans, though it is anticipated that all will survive the current downtum and as such, CPT is working with those tenants to preserve their value to the fund. Scott Owens of Graystone Consulting came before the board and introduced himself. In discussion with Mr. Owens, Ms. Cassidy explained that while CPT is about 25% leveraged, the ODCE benchmark is approximately 22% leveraged. While she could not forecast the real estate investment market related to COVID-19, she asserted government programs have benefitted both individuals and corporate entities, and those incentives would continue to play a significant role in future performance. Ms. Cassidy further explained the decline in valuation while income remained consistent has been driven, primarily, by the short-term impact to cash flow. It has not affected capital markets at this point, although that remains a small portion of their funds. Ms. Cassidy also stated that CPT holds approximately 18% in retail while the ODCE held approximately 16% as of March 31, 2020. Ms. Cassidy and Mr. Owens agreed that, based on current information, an investor would require approximately 61 to 8 quarters to completely work through a redemption strategy, although that could change from quarter to quarter. Trustee Reardon asked if there had been any discussions about suspending redemptions. Ms. Cassidy stated redemptions have been paused during the first quarter due to uncertainty, but CPT will pay them as of July 1, 2020, and that she expects to continue to pay them subject to market conditions and events. Book 1 Page 209 07-13-2020 8:30 a.m. Book 1 Page 210 07-13-2020 8:30 a.m. The Board thanked Ms. Cassidy and Ms. Margolis for their presentation. 9.2 Presentation and Discussion Re: UBS Realty Investing Performance Review as of March 31, 2020. Presenter(s): Ron Lanier, Managing Director, UBS Realty Investing. Mr. Lanier appeared before the Board telephonically and introduced himself. Mr. Lanier gave a brief overview of his presentation and the Plan's investment performance with UBS's Trumbull Property Fund (TPF) since inception, noting that the TPF reports on a quarterly basis, the most recent of which ended March 31, 2020, and that the Plan's portfolio outperformed thel Barclays Capital US Aggregate Bond Index, but underperformed the ODCE. Mr. Lanier reviewed fund highlights, its property type and geographic region allocations compared to the ODCE, peak-to-peak cycle total returns compared to the ODCE noting the most current cycle underperformance due to the retail sector, performance compared to the Barclays Capital Aggregate Bond Index, and performance compared to the ODCE separating income versus appreciation. Mr. Lanier discussed the TPF's retail portfolio composition noting that shopping malls, which comprised 39% of the retail portion, have been most severely impacted; he compared TPF's property type allocations between the second quarter of 2018 and first quarter of 2020, and discussed aspects of TPF's debt holdings. Mr. Lanier explained it had opened a redemption pool to accommodate investors' reactions to write downs; the pool grew to $8.6 billion, and in the first quarter of 2020 this has reduced to $8.4 billion, noting investors have the option to use a loyalty program instead of redemption. Mr. Lanier explained TPF's redemption system allows the fund to operate and invest by using 50% of the available cash flow to pay off ther redemption pool and the remainder fori fund activities. Mr. Lanier discussed TPFS actions in response to the COVID-19 pandemic and noted the general short- and long- term uncertainty amongst buyers, sellers, and lenders, which has caused delays and pauses in many sale transactions, and then reduces fund liquidity. He further explained that he expects liquidity to return when normal activity resumes. Mr. Lanier discussed TPF's leasing and rent collection activity. He stated the fund had traditionally enjoyed highrates of rent collections, typicallyi in the high 90% range, however that level has not been maintained during the pandemic. He noted rent collections as a percentage of invoiced rents as of June 29, 2020, which were not available at the time the presentation materials were issued, were as follows: Multifamily: 94%, Industrial: 91%, Office: 88%, and Retail: 49%. Mr. Lanier stated that the TPF is working individually with tenants who have requested rent relief. Mr. Lanier explained that, to improve fund performance and liquidity, TPF has internally restructured the fund effective July 1, 2020 into 2 sub-funds: the larger is the Diversified Core Portfolio, and the smaller is the Non- Strategic Assets. The restructure is intended to allow for tax efficiency, increased sales volume and therefore liquidity, and to maintain compliance with Real Estate Investment Trust safe-harbor rules. Mr. Lanier discussed the division of assets between the two sub-funds and predicts normal liquidity would return in 2021. During the conversion to this process, TPF has created a loyalty program, which the Plan has enrolled in, that provides discounted rates in exchange for commitments to investments in the fund. Mr. Lanier noted the TPF's fees are amongst the lowest compared to those charged by funds in the ODCE, and that the Plan's total assets under management, for the purpose of enrollment in the loyalty program, are grouped with other City of Sarasota Plans, meaning while the Plan has approximately $8 million under management, the Plan receives the benefit of point and scale as though $37 million were invested, which brings the fee down from 0.84% to 0.65%. In discussion, Mr. Lanier explained the redemption queue would take approximately 4 years to return 100% of an investment under current circumstances; prior to the COVID-19 pandemic, normal rebalancing redemptions of 5% to 15% of total balances would take between 1 and 4 quarters. He further explained that as economic circumstances improve, requests for redemptions tend to be cancelled, which would change the timeframe by which the redemption pool would be processed. Mr. Lanier also clarified to Attorney Scott Christiansen that the Plan is still invested in the Trumbull Property Fund, and that new investment documentation is not required because it is an internal restructuring, nor is it a splitting of the larger fund. Further, the change is not a change in overall strategy, but a differentiation of assets between those it wishes to hold for longer periods of time and those it intends to sell in shorter, 2-1 to 3-year timeframes. Trustee Reardon asked if any of TPF's tenants have filed for bankruptcy. Mr. Lanier explained it has some, but they represent approximately 1% to 2% of its holdings; those tenants include Forever 21, and JC Penney. The Board thanked Mr. Lanier for his presentation. 10 UNFINISHED BUSINESS: None. 11 NEW BUSINESS: 11.1 Presentation and Discussion Re: Morgan Stanley Correspondence dated June 17, 2020, regarding UBS Trumbull Property Fund, Graystone Consulting. Presenter(s): Scott Owens, CFA, CIMA, Associate Vice President, Institutional Consultant, Graystone Consulting. Mr. Owens explained that Mr. Lanier from UBS had discussed the correspondence in this item. Mr. Owens explained that Graystone Consulting has put the TPF on watch, as it would with any fund which makes comparable changes, to ensure the actions taken have a positive impact on the fund. Mr. Owens noted the Plan has a second real estate fund, AEW, and that TPF has a low rate of leverage meaning it has is lower risk and higher equity; he recommended the Plan "stay the course" with TPF. 11.2 Presentation and Discussion Re: Morgan Stanley Correspondence dated June 12, 2020, regarding Morgan Stanley Settlement with the United States Securities Exchange Commission, Graystone Consulting. Presenter(s): Scott Owens, CFA, CIMA, Associate Vice President, Institutional Consultant, Graystone Consulting. 11.3 Presentation and Discussion Re: Global Listed Infrastructure, Lazard Asset Management. Presenter(s): Frank Sposato, Director, Steven Keeler, Senior Vice President, Lazard Asset Management. Mr. Keeler and Mr. Sposato appeared before the Board telephonically and introduced themselves. Mr. Sposato gave a brief introduction to their presentation, organizational overview and history, Lazard's definition of infrastructure, its investment strategy and philosophy, and the assets under management. Mr. Keeler discussed the portfolio management team, noting its stability with the firm, their global presence, their preferred infrastructure requirements, and provided examples of investments which do not meet those requirements. He noted preferred infrastructure tends to have healthy dividend yields compared to both the favored Global Listed Infrastructure Index and MSCI World Index. Mr. Keeler gave an overview of Lazard's investment process and their portfolio construction by country and sector, and their performance relative to benchmarks noting how some sectors of infrastructure are more effected by pandemics such as COVID-19 than others, which shapes their investment strategy. Mr. Sposato discussed the holding's upside and downside capture, noting it looks for stability more than outperformance, other than in the current economic circumstances, which were not a slow-down, but a shut-down. He believes the portfolio is well positioned for recovery, and Lazard has taken advantage of some stocks with depressed values when their operations and revenues were not impacted by the pandemic. On discussion, Mr. Sposato explained Lazard is not biased towards or against domestic versus foreign investments, and it determines investment decisions based on individual characteristics. He stated that currently, domestic investments are expensive, but if values become more attractive, he stated they would consider it. The Board thanked Mr. Sposato and Mr. Keeler for their presentation. Book 1 Page 211 07-13-2020 8:30 a.m. Book 1 Page 212 07-13-2020 8:30 a.m. 11.4 Presentation and Discussion Re: Global Listed Infrastructure, Cohen & Steers, Inc. Presenter(s): Brian Casey, Vice President, Institutional Public Funds, Ben Morton, Executive Vice President, Head of Global Listed Infrastructure, Cohen & Steers, Inc. Mr. Casey and Mr. Morton appeared before the board telephonically and introduced themselves. Mr. Casey gave an overview of the firm as a global investment manager, and noted that as of June 30, 2020, the total assets under management is approximately $66 billion. He noted the holdings of Global Listed Infrastructure and Master Limited Partnerships (MLPs) of $6.2 billion gives the firm flexibility to navigate in and out of infrastructure markets to find companies which will perform. Mr. Casey stated Cohen & Steers has an internal team which is dedicated to public institutions, including the City of Sarasota Firefighters' and Police Officers' Pension Plans. Mr. Morton discussed Cohen & Steers' investment strategy, noting it focuses solely on infrastructure investment, and its staff all has had previous careers in the sector. Mr. Morton explained its competitive advantages to similar firms as well as the characteristics they seek in investments. Mr. Morton explained the reasons he believes global listed infrastructure is a worthy investment, noting approximately 50% of its assets are invested in the United States, Cohen & Steer's investment team, its investment process and portfolio construction, secular themes, and their sector-by-sector outlook. In discussing their sector weights, Mr. Morton noted its cash holdings are not an asset allocation but a residual from the investment process and discussed their performance and risk statistics. Mr. Casey reviewed its calendar year performance since 2004, noting it outperformed its benchmark 86% of the time. He also discussed the fee schedule, and recommended the Plan consider the Collective Investment Trust, which has holdings from 40 Florida pension plans, and offers daily liquidity, annual audits, and includes all trading and custodial fees, with better reporting than a mutual fund. On discussion, Mr. Casey explained it is approximately 50 basis points underweight in midstream energy compared to benchmark; it had been 200-300 basis points underweight during the COVID-19 related downturn which ultimately benefitted the fund, though it was a modest allocation exposure. The Board thanked Mr. Morton and Mr. Casey for their presentation. 11.5 Presentation and Discussion Re: Infrastructure Fund Search Summary, Graystone Consulting. Presenter(s): Scott Owens, CFA, CIMA, Associate Vice President, Institutional Consultant, Graystone Consulting. Mr. Owens discussed events and factors leading to the Plan's decision to invest in infrastructure, why infrastructure investment is of value to the Plan, and differences between Lazard and Cohen & Steers relative to the benchmark, DJ Brookfield Infrastructure Comp, noting Cohen & Steers also manages within Collective Investment Trust (CIT) whereas Lazard is a mutual fund. On discussion, Mr. Owens reviewed Cohen & Steers' and Lazard's fees, and explained the two funds have significant amounts of overlap, and that investment in both funds would not provide a significant benefit to the Plan. Mr. Owens also noted the Cohen & Steers' Total Fund Assets listed in Graystone's materials may reflect the amount managed within the CIT, although it also manages a mutual fund. Attorney Christiansen explained he has reviewed Collective Investment Trust and that Cohen & Steers' would be a worthwhile investment should the Board decide to use it. Mr. Owens discussed Lazard's and Cohen & Steers' downside capture history, pointing out that negative values indicate positive performance. He explained that Lazard seeks more stable, low volatility, low risk, income generating investments, whereas Cohen & Steers seeks more growth and appreciation opportunities. Treasurer Strickland asked if item 11.2 had been skipped; Mr. Owens stated he would address it in his final comments and Vice Chair Blake stated the meeting would return to the item. In discussion, Mr. Owens and Attorney Christiansen agreed Lazard would not have much flexibility regarding their fee structure because it was a mutual fund, but that it was relatively low for the asset class. He further noted the funds divested from MLPS would be approved to re-invest on approximately July 15, 2020 due to the 31 day wait period. Chair Chapdelain asked the trustees for their thoughts on the question. Trustee McVaugh expressed support for Cohen & Steers and asked for clarification of the turnover percentage on Graystone' s Infrastructure Fund Search Summary. Mr. Owens explained it quantified how frequently a fund buys and sells stocks in a year, sO that a lower turnover percentage indicated a buy-and-hold strategy, and a larger percentage indicated a capital appreciation strategy. Vice Chair Blake expressed preference for Lazard as it appears to offer more protection than Cohen & Steers, and having less MLPS than Cohen & Steers, from which the Plan had just divested. Chair Chapdelain agreed. Chair Chapdelain made a motion to rebalance and invest 5% of the portfolio into Lazard List Infrastructure; Trustee Nichols seconded the motion. Motion carried unanimously (7-0). Attorney Christensen clarified the Board signed the Investment Policy Statement on June 15, 2020. 12 ATTORNEY MATTERS: Attorney Christensen reported all trustees had filed their financial disclosure forms. He reminded Pension Plan Administrator Martin to send a letter stating the Plan's declared rate of return if one had not been sent already. Attorney Christensen asked Mr. Owens if he had obtained all fund managers' acknowledgements of the changes to the Investment Policy Statement; Pension Plan Administrator Martin advised she has had communication with Graystone, and they were working to obtain fund managers' acknowledgement. Attorney Christiansen explained that upon acknowledgement by the portfolio managers, the Investment Policy Statement must be sent to the City, the Plan's actuary, and the State of Florida, as outlined in his letter number 3. 13 OTHER MATTERS: None. 14 ADJOURN. Vice Chair Blake adjourned the General Employees' Pension Plan Board of Trustees Regular Meeting at 11:08 a.m. J SLA Cnp Chair RyarChapdetain Séeretary/Shayla Grigge D Book 1 Page 213 07-13-2020 8:30 a.m.