MINUTES OF THE CITY OF SARASOTA POLICE OFFICERS' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF DECEMBER 20, 2024 Present: Chair Johnathan Todd, Vice Chair Ronnie K. Baty, Secretary/Treasurer Shayla Griggs, Trustee Joseph Jody" Hudgins, and Trustee Tyler Rossnagle. Others: Attorney Stuart Kaufman (telephonic), Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL MEETING TO ORDER: Presenter(s): Chair Todd. Chair Todd called the December 20, 2024, regular meeting of the Police Officers' Pension Plan (Plan) Board of Trustees to order at 8:15 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary/reasurer Griggs. Secretary/Treasurer Griggs led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Todd. Chair Todd stated for the record, "We may disagree, but we will be respectful of one another. We will direct all comments to issues. We will not engage in personal attacks." 4. ROLL CALL: Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin called roll; all trustees were present. 5. PUBLIC INPUT: Officer David Kennedy advised he is appearing to present public testimony for item 9.1. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Police Officers' Pension Plan Board of Trustees Regular Meeting of October 25, 2024. Presenter(s): Chair Todd. Trustee Hudgins made a motion to approve the minutes of the Board's Regular Meeting on October 25, 2024; Vice Chair Baty seconded the motion. The motion passed unanimously (5-0). 7. RETIREMENT REQUESTS: Book 1 Page 432 12-20-2024 8:15 a.m. Book 1 Page 433 12-20-2024 8:15 a.m. 7.1. Presentation and Discussion: The DROP Retirement Request of Johnathan Todd. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised that Captain Todd requests to enter the DROP effective October 1, 2024, with 25.43 years of service at age 52; he has elected the 100% to Joint Annuitant option. Trustee Rossnagle made a motion to approve Captain Todd's request to enter the DROP; Vice Chair Baty seconded the motion. The motion passed 4-0, with Chair Todd abstaining. 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Advent Capital Management, Investment Performance Review for Period Ending September 30, 2024. Presenter(s): David Hulme, Managing Director and Co-Portfolio Manager, Advent Capital Management. David Hulme of Advent Capital Management (Advent) appeared before the Board and introduced himself. Mr. Hulme noted that Advent has managed a convertible bond fund for the Plan for 13 years and reviewed the Advent Seeks To Add Value page of the materials; most of Advent's clients are public pension plans. On the page titled Convertible Market Backdrop, Mr. Hulme explained that global convertible issuance in 2024 exceeded its pre-pandemic levels and increased 34% from 2023. Further, approximately 25% of all new issuance is from investment-grade companies which adds stability to the market; there is also a sizable amount of below-nvesmentgrade, fast-growing, mid-cap companies coming into the convertible market. Mr. Hulme explained that a recent change in accounting rules made convertibles more attractive, and likely facilitated the surge in issuance. The primary incentive for a company to issue convertible bonds is that convertibles typically have lower coupon rates compared to conventional bonds, and therefore they cost less to issue. Mr. Hulme briefly reviewed the Primary Convertible Market page, noting that a significant amount of high yield debt will mature in the coming years, of which Advent believes a sizable amount will be refinanced in the convertible market; this is a positive indicator for issuance in the near future. Mr. Hulme advised mat a number of new companies coming into the convertible market in the utility, technology, and financial technology seçtors. He reviewed the Investment Strategy on the Balanced Strategy pages of the materials and emphasized the stability of Advent's portfolio management team. Mr. Hulme reviewed the Convertible Price Dynamics chart; while Advent tends to invest in securities which fall in the center of the curve and is correspondingly underweighted in stocks on the left and right sides, its benchmark holds securities across the full curve. On the Portfolio Characteristics page, Mr. Hulme noted that the portfolio's current yield of 2.6% is up from 2.1% at the beginning of 2024; Delta, or the equity sensitivity, is up from approximately 45% at the beginning of 2024 and within the portfolio's historic normal range. The portfolio generates income from the yield and participation in the stock upside characterized by the Delta. Mr. Hulme briefly reviewed the Sector Diversification, Top Ten Holdings, and Performance Summary pages. The ICE BofA US Convertible Index represents the entire convertible market while the FTSE US All Cap Focus Convertible Index represents a more balanced part of the market; the portfolio generally performs between these two indices. He reviewed the 2024 YTD Performance Attribution page, noting that the portfolio benefitted from companies in financial technology and cryptocurrencies, and was dragged by electric vehicle and solar companies; Advent remains bullish on both sectors over the longer term due to the increasing needs for energy by the technology industry and residential users. To Trustee Hudgins questions, Mr. Hulme explained that the Contribution (%) is the percentage of the total portfolio year-to-date return of13.52%. He reiterated that even though a convertible bond's price may go below par, an investor which has diligently analyzed a company's creditworthiness will be rewarded with a higher yield at maturity, making convertibles a more conservative exposure to the equity market. Advent bought Boeing at thel bond's issuance in October 2024, and iti is currently up approximately 22%1 to date; despite recent issues, Advent has confidence in Boeing because its order book is at 7 years and growing, the French company Airbus is Boeing's only competitor, and Boeing issued convertible bonds to preserve its investment- grade credit rating. Larry Cole of Burgess, Chambers, and Associates (BCA) appeared before the Board and added that Boeing's new Chief Executive Officer is receiving strong reviews which may indicate the company is finding its way past its recent difficulties, and the company continues to receive substantial orders; Mr. Hulme asserted this continued customer confidence bodes well for investors who hold Boeing. On the Composite Risk/Return Characteristics and the Balanced Strategy: Participate in the Upside, Protect on the Downside pages, Mr. Hulme noted that the Plan has been invested in the strategy for approximately 13 years; the Since Inception data is based on the strategy's inception in 1995. He noted the strategy's up- and down-side capture rates. Mr. Hulme discussed Advent's outlook and reviewed section V. Convertible Market Outlook of the materials. Advent believes that valuations and eamings growth are better in small- and mid- (SMID) cap growth than inf large caps, and that SMID-caps should outperform large caps over the next several years. In analyzing the history of the equity market's performance, when the Federal Reserve (Fed) cuts short-term interest rates which were above 5%, which appears to be the current environment, SMID-caps as indicated by the Russell 2500 index tend to outperform large-caps. He briefly reviewed the Convertible Market Outlook page of the materials. Mr. Cole advised that BCA has had several conversations with Advent about an appropriate benchmark, considering the ICE BofA US Convertible Index is exceptionally broad as it includes managers with significantly different strategies. Mr. Cole advised that in a future meeting, he will present an amendment to the Investment Policy Statement (IPS) which assigns a more competitive benchmark to Advent. He asserted convertibles will remain an attractive investment as long as interest rates remain above their historic norms, and SMID-cap companies tend to benefit from deregulatory and low tax policies, as well as tariffs. He is enthused by Advent's long-term return and has confidence in the asset class but does not recommend any changes to Advent's allocation. The Board had no questions for Advent and thanked Mr. Hulme for his presentation. 8.2. Presentation and Discussion Re: Alispring Global, Investment Performance Review for Period Ending September 30, 2024. Presenter(s): Bobby Chen, CFA, Senior Portfolio Specialist Allspring Growth Equity; Dann Smith, Senior Director, Institutional Client Group; Allspring Global. Bobby Chen and Dann Smith of Allspring Global (Allspring) appeared before the Board and introduced themselves. Mr. Smith reviewed page 3 of the materials, noting Allspring recently celebrated the 3rd anniversary of its separation from Wells Fargo. As it continues to define itself after the separation, Mr. Smith assured the Board there have been no changes to the investment strategy or philosophy, and there have been changes only at the fringes of the organization. Mr. Chen noted that the last several years have been challenging for Allspring, which is a large-cap growth manager, and all active managers, because the market has been highly concentrated a select group of mega- cap technology stocks. While these leading companies offer widely used and needed products and services, Allspring has been rewarded in 2024 by its focus on stock selection to drive returns; currently, the portfolio is up approximately 37% on an absolute basis. He asserted that the market has refocused this year on fundamentals, andi iti is experiencing relief from the conclusion of the presidential election as well as anticipation of a softer regulatory environment. He noted the assigned benchmark is the Russell 1000 Growth Index, which includes both mega-cap stocks and the mid-cap index. He echoed Mr. Hulme's comments regarding the current attractiveness of earnings growth in SMID-cap stocks after several years of outperformance by large- caps. Allspring anticipates a broadening of the market from its previous concentration. Turning to the Portfolio attribution page, Mr. Chen explained that the portfolio benefitted the most from stock selection, and that relative performance was not driven by any individual sector. He added that the relative Book 1 Page 434 12-20-2024 8:15 a.m. i Book 1 Page 435 12-20-2024 8:15 a.m. weighting of the stocks which either benefitted or detracted from the portfolio were not heavily influenced by the mega-cap stocks which have been driving the overall market. On the Portfolio positioning page, he noted that the portfolio is relatively underweighted to the driving mega-cap stocks, although they are performing at historic levels. While much of the market is rallying around those companies which have perceived benefits from artificial intelligence (AI), Mr. Chen expects the coming years to see more monetization of Al. He compared the current tech stocks to those of the "dot com" bubble in the late 1990s; while the dot com bubble ended because of declining investments from venture capitalists, the current market is different because the investments in Al are being made are by the most profitable companies. Because of those investments, Allspring will continue to hold the mega-cap tech stocks, as well as look for new opportunities as performance drivers broaden. Referencing the page titled Index concentration remains highly elevated, Mr. Chen asserted that risk and diversification, which haven't added to performance in recent years, remain critical to long-term success. Tol Mr. Cole's questions, Mr. Chen reviewed the top 3 positions in the portfolio and their respective weightings; relative to the benchmark, NVIDIA and Microsoft are underweighted and Meta is ovarweighted. Mr. Cole advised the Board that these 3 stocks are among the mega-cap tech stocks which are driving the market and comprise approximately 34% of the benchmark; an active manager would need at between 11% to 13% allocations in each of these 3 stocks to keep up with the benchmark, but most active nanagers are typically unwilling or unable to hold such concentrations. Mr. Chen noted the Ten largest company weights in the portfolio and benchmark on the Portfolio positioning page; while Allspring likes these companies, it continues to moderate their relative weightings and look for other growth opportunities. To Trustee Hudgins' question regarding news story about a Salesforce executive, Mr. Chen asserted that the stock's performance was related to revenues being higher than expected. Mr. Cole subsequently noted that Salesforce's Chief Executive Officer left the firm to join Meta, and it has hired approximately 2,000 new employees. Mr. Chen added that Salesforce founder Marc Benioff remains with the firm. To Trustee Rossnagle's question, Mr. Chen stated that although some of the incoming president's stated economic policies may impact the economy, stock market, individual stocks in the portfolio, and opportunities for investments, the strategy will not change. In conclusion, Mr. Smith pointed out that since the Plan's initial investment, the Plan has taken distributions of more than 100% of its initial investment; he thanked the Board for its confidence. Trustee Hudgins noted this equates to an approximate 12% to 13% per year return. The Board thanked Mr. Chen and Mr. Smith for their presentation. 8.3. Presentation and Discussion Re: Burgess, Chambers, and Associates, Quarterly Performance Review for Period Ending September 30, 2024. Presenter(s): Larry Cole, Executive Vice President, Burgess, Chambers, and: Associates. Mr. Cole advised that, despite some volatility, the portfolio's current value is approximately the same as it was on September 30, 2024, if not slightly less due to a decline in bonds. On the Market Summary page of the materials, Mr. Cole advised that performance for the year has been strong. The S&P's modest gain of 5.9% does not reveal the dramatic rotation away from growth and towards value, as well as the market's broadening away from the magnificent 7 stocks. Mr. Cole noted that while the magnificent 7's leadership has been attributed to their respective perceived benefits from Al, in Q3 2024, the market began to recognize. Al's benefit to the remaining 493 stocks in the S&P 500; in Q4 2024, the market has reconcentrated in some of the magnificent 7 and growth stocks again. From a valuation perspective, stocks outside the leading mega-cap tech stocks are far more attractive; further, the new presidential administration has espoused pro-growth, deregulation, and low tax policies which tend to bode well for stocks. While the market was encouraged by the conclusion of the presidential election, it reacted negatively to Fed Chair Powell's recent comments indicating the Fed will issue no additional cuts to short-term interest rates. While China's economic stimulus earlier in the quarter may have some eventual impact on the US economy, the Fed was ultimately moved to cut short-term rates by 50 basis points in September 2024 due to the labor market softening more than anticipated; while the market had already priced in the September 2024 rate cut, intermediate- and long-term interest rates are coming back up. Mr. Cole expects long-term interest rates to continue to rise, possibly as high as 5%. The yield curve, which shows short-, intermediate-, and long-term rates, has been exceptionally flat over the last few weeks. Mr. Cole discussed the Fed's motivations for cutting interest rates in November 2024 and December 2024, noting cuts are contraindicated by the strong Gross Domestic Product; oppositely, the Fed may have been trying to compensate for previously raising interest rates too much. He does not anticipate new cuts for the next several quarters. Mr. Cole noted the market's rotation to favoring SMID-cap stocks, represented by the Russell 2000 index; he asserted SMID-cap companies will perform better in a deregulated and low-tax environment, and tend to either react less negatively or even benefit from tariffs on imported goods. All of the market indices were up for Q3 2024, although the top performing sector for the quarter was utilities; he explained that utilities were boosted significantly because of the substantial energy needs of Al- related services. In Fixed Income, rates came down which caused bond values to go up and the portfolio benefitted; in this year, that benefit was substantial. BCA identified no Investment Policy Compliance issues. On the Investment Performance Net page, to Trustee Hudgins' questions, Mr. Cole advised that the final Gain/Loss for Fiscal Year 2024 is $57,367,759 which is net of investment fees, however the actuary deducts some additional amounts; additionally, the expected rate of investment return is 6.5%. Noting that the 5-year total fund investment return is 8.8%, Trustee Hudgins pointed out that the portfolio is increasing its funded ratio and decreasing the required employer contribution to fund the Plan's benefit obligations. He estimated that the funded ratio, on an actuarial basis, should be above 90%, and may be close to, if not greater than 100% on a market value basis. Trustee Hudgins subsequently noted the Florida Retirement Systems' funded rate is 80.7% Mr. Cole reviewed the Actual VS. Target Asset Allocation and recommended no changes. If rates continue to rise sufficiently to obtain a 6.5% bond, he may recommend adding to the fixed income allocation. He reviewed the Asset Allocation page, noting the portfolio is well diversified. Mr. Cole echoed Mr. Cheng's comments differentiating the dot com bubble and ensuing crash from the current market; the market is currently being driven by companies which have earnings that support their respective performances while the dot com bubble was driven by venture capital investments in companies which had yet to generate income. Mr. Cole reviewed the Asset Allocation & Performance = Gross page; he explained that the Plan's relatively low ranking in the 3-year time period is attributable to Allspring's imdeperomance.fowever he has no concerns because Allspring would have needed to undertake unreasonable risks to match the pace of its benchmark, and the rankings and returns over the 4- and 5-year timeframes remain solid. He reiterated that International Equities, Global Infrastructure, Convertibles, and Fixed Income all had strong 1-year returns, but all underperformed Domestic Equities and therefore dragged the portfolio's performance down. He pointed out that Global Infrastructure, Convertibles, and Fixed Income, which are defensive and intended to protect in down markets or provide stable income, all had very strong years. The exception to strong performance was real estate; the Plan still has approximately $7.7 million in the redemption queue ofits initial $10 million redemption request, however by the time JP Morgan can generate sufficient funds to satisfy the redemption queue, the real estate market may have rebounded sufficiently to justify additional investments into that asset class, as was the case in 2008 and 2009. The Fiscal Year Rates of Retumn shows that, on average, the portfolio generates more return than the expected rate of investment return. The Total Fund page shows the 5 Years Rolling Percentile Ranking, which shows that over the last 5 years, the Plan was in the top 25th percentile on a rolling 5-year basis in all but 1 quarter. Mr. Cole added that Newton has been the best performing manager over the last year; historically, they have a low down-capture rate and a high up-capture rate. He cautioned the Board that the portfolio is generally defensive, and therefore if the mega-cap tech stocks continue to dominate the market, the Board should expect al lower relative return; that expectation notwithstanding, the current concentration is typically unsustainable. Mr. Cole has no recommendations to change any managers or allocations. The Board had no questions for Mr. Cole and thanked him for his presentation. 9. UNFINISHED BUSINESS: 9.1. Presentation and Discussion: Disability Benefit Options for DROP Participants. Book 1 Page 436 12-20-2024 8:15 a.m. 4a, Book 1 Page 437 12-20-2024 8:15 a.m. Presenter(s): Stuart Kaufman, Klausner, Kaufman, Jensen & Levinson. Attorney Kaufman appeared before the Board telephonically and reminded the Board that, at a previous meeting, it received public input regarding expanding eligibility for in-line of duty (LOD) disability benefits to DROP participants; the Board had tabled the discussion until more information could be presented. Attorney Kaufman advised that none of his clients allow, nor was he aware of any plans in Florida which allow, DROP participants to be eligible for LOD disability benefits, and added that, , nothing in Florida law prohibits such eligibility. He noted that changes to the Plan which expand benefits should be proposed through collective bargaining and would need to be actuarially analyzed to determine the potential cost, if any, to the Plan. To Chair Todd's and Secretary/Treasurer: Griggs' questions, Attorney Kaufman confirmed that any expansion of benefits or new benefits which would incur additional costs to the Plan should., be, proposed by the International Union of Police Association, Local #6045, AFL-CIO (Union); the proposed change must be made by an ordinance which, with an impact statement, would need to be reviewed and approved by the City Commission with 2 readings. The current Union contract expires at the end of Fiscal Year2025, and the current contract negotiations have stalled. DROP participant Officer David Kennedy appeared before the Board and introduced himself and provided materials for the Board to review. Officer Kennedy advised that the materials include examples of other pension plans which allow DROP participants to apply for LOD disability benefits. He clarified that he has sufficiently recovered from his injuries to be able to return to full duty by the end of January 2025, and therefore he was presenting this information to the Board on behalf of those participants who are now deciding whether or not to enter the DROP. He explained that the plans which offer disability eligibility to DROP participants allow arlinjured participant to return their accumulated DROP funds and accrued interest to that system, and the participant is able to apply for LOD disability. He reminded the Board of police officers' obligation to put their lives in jeopardy to protect the public; he asserted that while active members who suffer total and permanent disability as the result of an LOD injury have the assurance of disability benefits to replace the employment income they otherwise would have earned had they not been injured. DROP participants do not have that assurance, and therefore they must also consider their financial futures while prioritizing public safety over their own with nothing in exchange for that risk. He asserted there are other Police Officers who are deciding whether or not to enter the DROP and are concerned because of the lack of access to LOD disability benefits. To Chair Todd's question, Officer Kennedy explained that the presented plans allow a DROP participant who was injured in the line of duty to return their DROP funds and accrued interest to the plan and apply for LOD disability benefits; if approved, the member would receive a disability benefit, and if denied, the member could then apply for retirement benefits. Trustee Hudgins explained that a Police Officer who is deciding whether or not to enter the DROP must include the risk of injury in their decision-making process because expanding eligibility to LOD disability benefits to include DROP participants is an enhancement to the benefits provided to participants but offers no benefit the Plan or the City. Trustee Hudgins suggested there may be an insurance policy a Police Officer may purchase which would provide additional financial protection in the event of a job-threatening injury. To Trustee Hudgins' question, Officer Kennedy confirmed that members who are considering entering the DROP are counseled and advised that DROP participants are not eligible to apply for disability benefits. The Board and Attorney Kaufman discussed the process by which additional information about the potential cost of expanding access to LOD disability benefits to include DROP participants could be obtained sO that the Board may make an informed decision regarding the viability of a proposal. Before the Plan incurred any costs for actuarial services, the Board and Attorney Kaufman agreed that the Union must first express interest through collective bargaining in expanding benefits; if the Union and/or City expressed interest, the Plan may then incur the cost associated with providing information as requested. Trustee Hudgins made a motion to direct the Plan Attorney to discuss with the Union if it had interest in requesting eligibility for LOD disability for DROP participants and delineate the process to determine the actuarial cost of that expansion; Chair Todd seconded the motion. a- The motion passed unanimously (5-0). Vice Chair Baty and Officer Kennedy discussed the financial advantages of disability benefits compared to retirement benefits. Disabilitants receive a higher annual Cost of Living Adjustment (COLA) percentage, irrespective of their age or when they earned the service upon which their benefits are based. Retirement benefit recipients are paid a lower COLA percentage, which is based on when the service in the benefit formula was earned and the retiree's age. The Board thanked Officer Kennedy for his presentation. 10. NEW BUSINESS: 11. ATTORNEY MATTERS: 11.1.Presentation and Discussion: New Withholding Requirements. Presenter(s): Stuart Kaufman, Klausner, Kaufman, Jensen & Levinson (Telephonic). Attorney Kaufman advised the Board that the Internal Revenue Service passed a regulation which will prohibit retirees who reside outside the United States from electing no taxes be withheld from their pension benefits; the regulation becomes effective January 1, 2026. Pension Plans Administrator Martin advised that, currently, no pensioners reside outside the United States. To Trustee Hudgins' question, Attorney Kaufman and Pension Plans Administrator Martin confirmed that the contract with Klausner, Kaufman, Jensen & Levinson has been revised and executed. 12. OTHER MATTERS: 12.1.Presentation and Discussion Re: Administrative Budget Analysis for July 1, 2024, through September 30, 2024. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Administrative Budget Analysis for July 1, 2024, through September 30, 2024, as amended at the Board's October 25, 2024, regular meeting; the Board had no questions. 12.2.Presentation and Discussion Re: Check Register for July 1, 2024, through September 30, 2024. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the check register for July 1, 2024, through September 30, 2024. The Board had no questions. 10. ADJOURN. Chair Todd adjourned the meeting at 9:43 a.m. Aeu A Chair Johnathan Todd Secretan/Treasurer Shayla Griggs Book 1 Page 438 12-20-2024 8:15 a.m.