MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF OCTOBER 22, 2021 Present: Vice Chair Mark Nicholas, Secretary Shayla Griggs, Trustee Kari McVaugh, and Trustee Robert Reardon. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: Chair Ryan Chapdelain, Treasurer Kelly Strickland. 1. CALL MEETING TO ORDER: Vice Chair Nicholas called the General Employees Pension Plan (Plan) Board of Trustees regular meeting to order at 10:30 a.m. 2. PLEDGE OF CIVILITY: Vice Chair Nicholas 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: Pension Plans Administrator Debra Martin called roll, noting Chair Chapdelain and Treasurer Strickland were absent and would request excused absences at the December 10, 2021, meeting. Vice Chair Nicholas requested an excused absence from the September 24, 2021, meeting. By consensus the Board approved. Pension Plans Administrator Martin asked if the Board would consider starting the December 10, 2021, meeting at 11:00 a.m. instead of 10.30 a.m. By consensus the Board approved. 4. PUBLIC INPUT: None. 5. APPROVAL OF MINUTES: 5.1. Approval Re: Minutes of the General Employees' Pension Plan Board of Trustees Regular Meeting of September 24, 2021. Presenter(s): Vice Chair Nicholas. Trustee McVaugh made a motion to approve the minutes of the Regular meeting of September 24, 2021; Trustee Reardon seconded the motion. The motion carried unanimously (4-0). 6. APPROVAL OF RETIREMENT REQUESTIS): None. 7. INVESTMENT PERFORMANCE REVIEW: Book 1 Page 277 10-22-2021 10:30 a.m. Book 1 Page 278 10-22-2021 10:30 a.m. 7.1. Presentation and Discussion Re: Allianz Global Investors, U.S., Performance Review as of September 30, 2021. Presenter(s): Moritz Dufner, Portfolio Manager; Aiden Redmond, Head of North American Institutional; Michael Moran, Institutional Client Team; Sam Lee, Product Specialist, Allianz Global Investors, U.S. Michael Moran, Sam Lee, Mortiz Dufner, and Aiden Redmond of Allianz Global investors appeared before the Board and introduced themselves. Mr. Moran and Mr. Dufner appeared in person; Mr. Redmond and Mr. Lee appeared telephonically. Mr. Moran thanked the Board for the Plan's business and trust. He stated that the Plan's portfolio for the fiscal year ending September 30, 2021, was up 36% versus the benchmark which was up 33% for the same period. He noted the asset allocation study on the meeting agenda and offered Allianz's assistance to accommodate any decision made by the Board. Mr. Moran discussed Allianz as one of the world's largest financial organizations; Allianz Global Investors has $750 billion in assets under management with approximately 75% being from institutional investors. He discussed Allianz's partnership with Virtus Investment Partners which was effective in February 2021. The merger had two components: in the first, Virtus assumed responsibility for administering and distributing Allianz's retail products in the United States, and this has no impact on the Plan. The second part of the merger, which does affect the Plan, lifted NFJ, its small cap value strategy, from Allianz to be an affiliate partner of Virtus. Going forward, Allianz will only cover small cap growth investments. Mr. Moritz noted the Plan's 30-year history with Allianz and thanked the Board for its continued trust. He reviewed Allianz's recent decision to combine its small- and mid-cap teams, which aligns with industry standards; he briefly discussed the Small Cap Growth Portfolio Management staff. Despite the personnel changes over the years, Allianz's investment process has remained relatively consistent; using fundamental, bottom-up stock picking, it seeks to invest in small- and mid-cap companies which anticipate sustainable growth. Mr. Moritz reviewed Allianz's strategy as explained on pages 9 through 13 of their presentation materials; he cited Allianz's decision to sell off Cerence, a voice recognition company, as an example of a determination when a stock reaches an unsustainable price and is therefore liquidated from the portfolio. Trustee Reardon asked what happened to Cerence's stock price after Allianz sold; Mr. Duffner noted the stock went down by 15%, however Allianz is open to investing in it again should it meet its investment criteria. Mr. Moritz discussed Allianz's Grassroots Research team and cited America's Best, an optical retail outfit operated by National Vision, as an example of how retail research can produce different findings than sell-side analysts, which is indicative of Allianz's dedication to its due diligence process. He discussed Allianz's investment process, its buy and sell decisions being based on risk-adjusted profiles, and Risk Management process. He discussed the Account Profile and Performance Review, noting the first quarter of the 2020/2021 fiscal year was the strongest on record and since that time-period, small caps have out-performed large caps by 15%. He discussed some of the stocks in the portfolio's Top 10 Holdings, the Attribution by Economic Sector, and Sector Portfolio Allocation. Mr. Moritz provided a market outlook. Scott Owens of Graystone Consulting appeared before the Board and introduced himself. Mr. Owens noted small caps had outperformed large caps over the last year but lagged every other asset class during the last quarter; he asked Allianz to discuss why this happened and what it expects to happen. Mr. Moritz stated that growth expectations, as indicated by the declining Gross Domestic Product (GDP), had been overinflated, and in times of declining GDP or weak growth predictions, large cap stocks typically tend to outperform as they often have an international presence which can compensate for lagging domestic performance. Also, the S&P 500 is dominated by Facebook, Apple, Amazon, Nvidia, and Google; when investors are concerned about a market decline, they will gravitate towards those dominating stocks. For 2022, Allianz expects 3.5% to 4.5% GPD growth, and therefore it expects small-cap stocks to perform better than in 2021. At Trustee Reardon's request, Mr. Moritz noted that as tech stocks have sold off over the last few weeks, small cap stocks have improved somewhat. Vice Chair Nicholas thanked Allianz for its presentation. 7.2. Presentation and Discussion Re: NFJ., Performance Review as of September 30, 2021. Presenter(s): John R. Mowrey, CFA, Executive Managing Director, Chief Investment Officer, Senior Portfolio Manager/Analyst; Krysta M. Hill, Director, Product Specialist; NFJ. John Mowrey and Krysta Hill appeared before the Board and introduced themselves. Mr. Mowrey appeared in person and Ms. Hill appeared telephonically. Mr. Mowrey began by discussing NFJ's ownership history and current partnership with Virtus, noting Virtus allows NFJ, as with each of Virtus' other boutique investment partners, to retain their own Chief Investment Officers. NFJ has retained all its staff and clients through the transition from Allianz to Virtus. He reviewed the total assets under management and mentioned it has a mid-cap strategy which is on Morgan Stanley's recommended list, and its SMA was recently approved at Morgan Stanley; Mr. Mowrey manages the mid-cap strategy with Paul Magnuson, who both also manage NFJ's small cap strategy. Mr. Mowrey noted there have been no changes in the small cap strategy investment team but have added 2 new analysts and elaborated on seeking team members who have skill sets which will be required for the next generation of investment data analysis. He reviewed NFJ's investment process and portfolio characteristics. In reviewing the portfolio's performance, he discussed the challenges faced in the last year. He compared the risk- on rally in late 2020, which was caused by the development of a COVID-19 vaccine, federal fiscal stimulus, and al loose monetary policy, to similar rallies in 1999 at the end of the tech bubble, and junk rallies in 2003 and 2009; in each of these periods of dramatic upswings in the market, the portfolio struggled. However, after the 2003 rally and portfolio underperformance, he noted the portfolio outperformed during 7 of the 8 subsequent years, and therefore he believes the market is entering a cycle which will favor value. Mr. Mowrey discussed Sector Exposures, noting preferences for the financial sector, specifically insurance, as well as the utilities sector, because he believes valuations will be a catalyst for their return to favor. He noted the two biggest detractors from performance were stocks which NFJ did not own as they are lower quality and not the types which NFJ would hold: GameStop and AMC. He reviewed the slide titled Low Quality Rally which highlights the outperformance of low-quality companies which is an inherent headwind for this strategy. He reviewed Extreme Spreads in Low Quality VS High Quality and explained he is bullish on the strategy and quality, and asserts the portfolio is positioned accordingly. He discussed 3 possible market scenarios. In the first, inflation is transitory, and the bond market has anticipated this by keeping rates low, in which case he argued quality stocks will perform well. In the second, the market is in the middle or late stage of a cycle which started in 2008 and to which COVID-19 was an exogenous shock; he cited wage inflation as indicative of being in the later part of a cycle. If this is the case, he argued the portfolio is positioned to take advantage of the circumstances. In the third scenario, inflation is not transitory, and equity and bonds will be hit hard; if this is the case, high quality is a safe investment. In each of the 3 scenarios, Mr. Mowrey explained quality stocks should outperform. Trustee Reardon asked how the nearly 30% influx of money into the market would affect each of NFJ's scenarios. Mr. Mowrey opined the money has beeni invested into beta and risk. The market has become speculative, however becauset fundamentals rarely support that type of market, they tend to be short lived. Trustee Reardon asked what event would trigger the end of this type of market. Mr. Mowrey stated that inflated valuations can cause this type of market, and earnings statements typically bring an inflection point for those lower quality companies. Mr. Owens and Mr. Mowrey opined on the direction the market will take. Mr. Owens noted the difference between negative and positive earners in the small-cap space over the last 18 months was 2:1. He asserted that, considering the volume offederal stimulus money in the market and that the typical investor is not looking for long- term commitment buts short-term returns, when the market turns down, it will happen quiçkly and will be significant. Those companies with strong fundamentals will suffer the least. Mr. Mowrey noted that in 2020, low quality outperformed high quality by 28%, 58%1 in 2009, 45% in 2003, and 23% in 1999, noting these are the 4 timeframes when NFJ underperformed, and subsequently outperformed. Mr. Mowrey and Mr. Owens discussed the rationale for why high-quality investors like NFJ would not invest in low quality stocks even when a low-quality rally is expected, and why low-quality is not an ideal investment vehicle for pension plans. Book 1 Page 279 10-22-2021 10:30 a.m. Book 1 Page 280 10-22-2021 10:30 a.m. Vice Chair Nicholas thanked NFJ for its presentation. 9. NEW BUSINESS: 9.1. Presentation and Discussion Re: Asset Allocation Study: Mid-Capitalization Fund. Presenter(s): Andy Mclivaine CFA, CIMA; Scott Owens, CFA, CIMA, CFA, CIMA; Graystone Consultants. Andy MclIvaine joined Mr. Owens before the Board and introduced himself. Mr. Owens advised the asset allocation study showed reallocating assets from small- to mid-cap would make little to no change in the portfolio's overall performance based on current and forward-looking indicators. He now recommends no changes to the portfolio. Periodic asset allocation studies are beneficial even if no actions are taken. Trustee Reardon asked if asset allocations are run at specific intervals; Mr. Owens stated they are run based on the market conditions at the time and forward information like risk premiums, risk free rate, and inflation rates. 7. INVESTMENT PERFORMANCE REVIEW: 7.3 Presentation and Discussion Re: Graystone Consultants, Quarterly Performance Review as of September 30, 2021. Presenter(s): Andy Mclivaine CFA, CIMA; Scott Owens, CFA, CIMA, CFA, CIMA; Graystone Consultants. Mr. MclIvaine noted that Allianz's and NJF's presentations were excellent overviews of the current market, and that Graystone continues to monitor supply chain and inventory issues, whether inflation is transitory or not, GDP expectations, valuations, and high versus low quality stocks. He noted an approximate 5% pull-back in the S&P 500, however more than 90% of the companies in the S&P had pull-backs greater 10% this year. He commented on how politics has caused volatility ini the stock market, especially concerning the federal debt limit. Tuming to the Capital Market Returns of the Quarterly Summary, Mr. Mclivaine pointed out that despite a normalized appearance, retums have been at 10% or greater for more than 6 conseçutive quarters. Mr. Owens added that Chair Chapdelain had requested combining thel Performance Summary and Performance Report, and therefore future materials will include a single booklet with both information. Mr. MclIvaine reviewed the Capital Market Returns and pointed out that value is outperforming growth; Graystone believes value will continue to outperform growth in the future. He noted that 4 of the 11 sectors of the S&P having negative returns is not anomalous, however they have been positive for the last 6 months. He reviewed the Developing and Emerging Markets as' well as Fixed Income. Mr. Owens provided a fund-level review of the portfolio, starting with the Total Fund - Executive Summary, noting that the performance over the last 18 months may be an extremely rare event. On the Risk/Retum Analysis, he explained that the reason the portfolio is not capturing more of the market increases is due to its fixed income holdings, however the downside capture is only 91% while the upside capture is 98%; as the upside capture is greater than the downside, the portfolio will provide a higher retum with less volatility in a normal market. He discussed the Asset Allocation Compliance, noting an overweight in equities and underweight in fixed income, and on-target with alternatives. He reviewed each of the fund managers' executive summaries. Mr. Owens stated the fund managers are well balanced and complementary to each other within each allocation and across the broader portfolio to minimize risk and maintain returns as well as upside and downside captures. He had no concerns or recommendations at this time. The Board thanked Mr. Owens and Mr. MclIvaine for their presentation. 8. UNFINISHED BUSINESS: Pension Plans Administrator Martin noted Pension Administration received 2 nomination forms for Seat 1, and therefore there will be an election by active members and retirees which will be tallied at the December 10, 2021, meeting. 10. ATTORNEY MATTERS: Attorney Scott Christiansen noted the Plan must send a fiscal year end report to the City Commission. 11. OTHER MATTERS: None. 12. ADJOURN. Vice Chair Nicholas adjourned the General Employees' Pension Plan Board of Trustees regular meeting at 12:10 p.m. h4 my A - Chair Ryan Chapdelain Secretary Shayla Griggs/ Book 1 Page 281 10-22-2021 10:30 a.m.