MINUTES OF THE CITY OF SARASOTA POLICE OFFICERS' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JUNE 23, 2023 Present: Chair Demetri Konstantopoulos, Vice Chair Johnathan Todd, and Trustee Ronnie K. Baty. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: Secretary/Treasurer: Shayla Griggs, Trustee Joseph "Jody" Hudgins. 1. CALL MEETING TO ORDER: Presenter(s): Chair Konstantopoulos. Chair Konstantopoulos called the 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/lreasurer Griggs. Chair Konstantopoulos led the Board and those in attendance in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Konstantopoulos. Chair Konstantopoulos 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: Pension Plans Administrator Martin. Pension Plans Administrator Martin called roll. Secretary/Treasurer Griggs and Trustee Hudgins were not present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Police Officers' Pension Plan Board of Trustees Regular Meeting of May 26, 2023. Presenter(s): Chair Konstantopoulos. Trustee Baty made a motion to approve the minutes of the Regular Meeting of May 26, 2023; Vice Chair Todd seconded the motion. The motion passed unanimously (3-0). 7. NOMINATION OF BOARD OFFICERS: Book 1 Page 352 06-23-2023 8:15 a.m. Book 1 Page 353 06-23-2023 8:15 a.m. 7.1. Appointment Re: Selection of Chair. Presenter(s): Chair Konstantopoulos. Trustee Baty nominated Demetri Konstantopoulos to serve as Chair; Vice Chair Todd seconded the nomination. The Board unanimously elected Demetri Konstantopoulos as Chair (3-0). 7.2. Appointment Re: Selection of Vice Chair. Presenter(s): Chair Konstantopoulos. Trustee Baty nominated Johnathan Todd to serve as Vice Chair; Chair Konstantopoulos seconded the nomination. The Board unanimously elected Johnathan Todd as Vice Chair (3-0). 7.3. Appointment Re: Selection of SecretarylTreasurer. Presenter(s): Chair Konstantopoulos. Chair Konstantopoulos noted that the City Auditor and Clerk traditionally serves as the Board's Secretaly/lreasurer. Trustee Baty nominated Shayla Griggs to serve as Secretary/Treasurer, Vice Chair Todd seconded the nomination. The Board unanimously elected Shayla Griggs to serve as Secretary/Treasurer: (3-0). 8. RETIREMENT REQUESTS: None. 9. INVESTMENT PERFORMANCE REVIEW: 9.1. Presentation and Discussion Re: SEI Trust/Cohen & Steers, Investment Performance Summary for Period Ending March 31, 2023. Presenter(s): Evan Serton, SVP, Senior Portfolio Specialist; Brian Casey, Vice President; SEI Trust/Cohen & Steers. Brian Casey and Evan Serton appeared before the Board and introduced themselves. Mr. Casey provided a brief overview of infrastructure investments, noting they typically behave defensively and provide returns approximately half of those of equities. Infrastructure companies have sizable barriers to entry which reduces competition, but also may face significant government regulations. In 2022, infrastructure had a -4% return while global equities returned -16%. Mr. Serton explained that Cohen & Steers invests in publicly traded companies which own and operate infrastructure assets, and more specifically, in 4 types of companies: utilities, transportation, communications, and mid-stream energy. Cohen & Steers will not invest in construction or engineering companies as these lack predictable and regular earnings and cash flows which cause more volatility in those companies' stocks. Mr. Serton discussed the page of the materials titled Cohen & Steers Collective Investment Trust Global Infrastructure Fund and reiterated that infrastructure's defensiveness led to less negative returns than in the broader equity markets. On the page titled Global Listed Infrastructure Performance Attribution, Mr. Serton reviewed some of the top contributors and top detractors from the portfolio. On the page titled Elevated inflation likely to persist, Mr. Serton explained that Cohen & Steers believes inflation will remain high for an extended period of time, despite the efforts by the Federal Reserve (Fed), and in this type of environment, infrastructure stocks tend to outperform their long-term average. Further, environments in which the realized rate of inflation exceeds the market's expectation are favorable to infrastructure's outperformance and more adverse to equities' performance. On the Portfolio Weights page of the materials, Mr. Serton discussed Sub-sector positioning. Cohen & Steers has been adding to its Electric utility holdings to further reduce that under-weighted allocation; while this subsector has underperformed over the last 6 months, Cohen & Steers believes stock prices are depressed. Cohen & Steers has intentionally overweighted positions in Freight Rails and Gas Distribution as those subsectors will be respectively critical for supply chain development and the decarbonization process. Cohen & Steers has been cautious regarding cell Tower companies, as its primary clients, wireless carriers, have been reluctant to renew leases lately. Larry Cole of Burgess Chambers and Associates (BCA) appeared before the Board and introduced himself. Mr. Cole asked Cohen & Steers to comment on currency hedging and how it relates to its relative underperformance. Mr. Serton explained that, while some international funds such as Lazard Asset Management (Lazard) hedge assets back to the US Dollar, Cohen & Steers does not. Cohen & Steers' goal is to reflect its views on currencies through respective positions and weightings which, over a longer period of time, is neither more nor less costly than a hedging strategy. Mr. Casey added that many pension funds invest with both Cohen & Steers and Lazard because they complement each other due to their differing strategies and investment philosophies. The Board thanked Mr. Casey and Mr. Serton for their presentation. 9.2. Presentation and Discussion Re: Lazard Asset Management, Investment Performance Summary for Period Ending March 31, 2023. Presenter(s): Ben Young, Vice President, Institutional Client Group, Lazard Asset Management. Ben Young of Lazard appeared before the Board and introduced himself. Mr. Young discussed the page of the presentation materials titled Lazard Global Listed Infrastructure (USD Hedge), noting no changes in its investment team. Lazard's investment criteria include monopolistic industries with high barriers to entry, stable cash flows and rates of return which may be facilitated by government regulations, and the ability to pass on rising costs to customers without diminishing demand. Lazard seeks to provide greater returns than fixed income, but less than those of equities. He noted the firm's conservative approach, that Lazard's style is between value and deep value, and it uses a passive currency hedge to reduce volatility; he estimated that, since inception, the currency hedge has reduced volatility by approximately 30%. Mr. Youngreviewed the Portfolio By Country And Sector; the portfolio is currently overweighted to European companies because comparable US investments appear to be overvalued and Lazard has found more reasonable values in Europe. He reviewed the Performance Summary. Regarding the Stock Contribution, Mr. Young noted that 4 of the top 5 contributors over the One Year period are European toll road companies which fit Lazard's investment criteria because customer volume tends to remain consistent, and those companies can easily pass on inflationary costs to customers without diminishing consumer demand for services. He added that Atlantia was purchased by the private equity firm Blackstone at a price significantly above Lazard's estimation which aided the portfolio's performance; he noted that private equity firms have a significant amount of liquid assets to invest, and it is not uncommon for companies in Lazard's portfolio to be bought by private equity firms. Mr. Young discussed the top detractors from performance, noting that US railroad holdings were among the worst performing sectors, however a selloff which led to that underperformance was excessive and created good opportunities; Lazard has increased its allocation in that sector from 6% to approximately 20%. While the currency hedge typically accounts for approximately 1% of Lazard's performance each year, in the last 12-month period, the hedge accounted for nearly 4% of portfolio performance. To Mr. Cole's questions, Mr. Young clarified that many of the European utility companies in the portfolio Book 1 Page 354 06-23-2023 8:15 a.m. Book 1 Page 355 06-23-2023 8:15 a.m. are monopolistic, which is similar to domestic utilities, however European utilities frequently have codified guaranteed rates of return sO that, if a utility company's costs increase beyond projections, the company may automatically increase prices without obtaining governmental approval first; domestic utility companies frequently must negotiate with state regulators before raising rates. While he did not have the exact current portfolio dividend yield, Mr. Young asserted that the Board can expect a 3% to 5% dividend over the long term; Mr. Cole reminded the Board that it had anticipated a slightly higher dividend when it decided to invest in Lazard. Mr. Young noted that Lazard's analysts anticipate inflation and interest rates will remain elevated for an extended period of time, which will allow infrastructure investments to remain more attractive than global equities. Toll roads, airports, and European utilities will be favorable sectors. To Mr. Cole's question, Mr. Young noted the strategy does not invest in emerging markets, and therefore it does not have any Chinese holdings, or in direct energy commodities, both of which make Lazard a good compliment to Cohen & Steers. The Board thanked Mr. Young for his presentation. 9.3. Presentation and Discussion Re: Burgess Chambers & Associates, Quarterly Investment Performance Review for Period Ending March 31, 2023. Presenter(s): Larry M. Cole, Executive Vice President, Burgess Chambers & Associates. Mr. Cole acknowledged the presentation materials are slightly outdated due to the timing of his presentation, and he would keep his comments relatively brief. He explained that the market outlook is taken from his letter previously sent to the Board regarding the regional banking crisis in March 2023. The portfolio does not have a significant exposure to regional banks, and the 3 which failed in the spring of 2023 were a result of circumstances unique to each bank. He explained why Silicon Valley Bank (SVB), Signature Bank of New York, and Credit Suisse each failed and noted that because Plan assets are held in trust, the Plan's assets are more protected. Mr. Cole explained that 80% of SVB's depositors had balances greater than the Federal Deposit Insurance Corporation's (FDIC's) $250,000 insurance cap; this enabled a lesser number of depositors to force the bank into receivership when they attempted to withdraw full account balances. Conversely, the banks used by the Plan have larger percentages of customers with balances below the FDIC's limit, and therefore it would take a greater number of depositors attempting to withdraw to threaten those banks' respective solvencies. The Plan has some risk exposure to longer maturity treasury bills held by regional banks, although those assets are more diversified. While the Plan does not have a significant direct exposure risk to more bank failures, there is indirect exposure through the market's reaction. Turning to the Quarterly Market Summary, Mr. Cole noted the market has generally rebounded in Q1 2023 from the declines seen in 2022 in both the equity and fixed income markets, although 2022 will continue to drag the performance measured over longer periods. While short-term interest rates have gone up, intermediate- and long-term rates have declined moderately, further inverting the yield curve; periods of inverted yield curves are typically followed by recessions. BCA anticipates a recession in the near future, although the strength of the labor market suggests an economic "soft landing" may be more likely than previously expected. BCA also anticipates the Fed to continue raising short-term interest rates to control inflation, however reaching the Fed's inflation target of 2% to 2.5% will be progressively more difficult than reducing it from its high point. Mr. Cole noted there are no compliance issues. On the Actual VS. Target Asset Allocation, he explained that, despite submitting a redemption request for $5 million from real estate, which is not reflected as the funds have not been received to date and moving $3 million from Newton US Dynamic Large Cap Value to fixed income, the portfolio was overweight in stocks as of the end of Q1 2023 due to market performance. Currently, the portfolio is similarly over-weight. Mr. Cole suggested the Board request an additional $5 million be redeemed from real estate, noting the Board can rescind the request if the asset class rebounds. On the Asset Allocation & Performance - Gross, Mr. Cole noted the portfolio value, as of close of market on June 21, 2023, was $291.602 million; fiscal year-to-date, he estimates the portfolio's return is close to 13%. During Q1 2023, the large cap growth area has been difficult for active managers due to concentrations within the benchmark; the benchmark's performance has been driven by a select number of stocks with substantial weightings, and active managers are not willing to take on the concentration risk by matching the benchmark's weightings. Mr. Cole is most concerned about the large cap growth allocation in the portfolio, and, despite his reservations regarding index funds which have the concentration risks as benchmarks, he may recommend at a later date the Board reduce the allocations in Granite Large Cap Growth and Allspring Large Cap Growth and moving the proceeds into an index fund. He reviewed each asset class and each fund's respective returns over the listed timeframes. Regarding Convertibles, Mr. Cole reminded the Board that convertible bonds are those which can be converted into common stocks. Some convertible bonds perform like traditional bonds because the underlying stock trades far below the conversion price; other convertible bonds behave like stocks because the underlying stock trades far above the conversion price. While convertible bonds which perform like stocks may seem advantageous, it is risky from a defensive perspective. Advent Convertible Securities (Advent) and SSI Convertible Securities (SSI) have strategies which attempt to balance those two types of convertibles, and ideally should provide both downside protection and some upside capture. BCA is working to identify a reasonable benchmark fund. Mr. Cole asserts both SSI and Advent have performed as intended with solid returns, and that their relative performance issues are due to a lack of a reasonable benchmark. Real estate also remains a challenging asset class due to rising short term interest rates at a time when loans are maturing and will require refinancing; further, rising rates have also put a damper on the transaction market, which then delays issuing redemptions. The portfolio's real estate funds have occupancy rates in the 70-80% range when it should be above 90%; some real estate funds not in the portfolio have occupancy rates below 50%. Mr. Cole noted that real estate is a challenging asset class due to its illiquidity, and therefore the Board has limited its real estate allocation to 10% of the portfolio. Bonds had better than average returns in Q1 2023, which has continued year-to-date. Mr. Cole reviewed the Fiscal Year Rates of Return and Total Fund pages of the materials, noting that, although the portfolio is performing well, large cap growth and real estate remain challenging asset classes. At Mr. Cole's suggestion, Trustee Baty made a motion to request a redemption of an additional $5 million from JP Morgan; Vice Chair Todd seconded the motion. The motion passed unanimously (3-0). The Board thanked Mr. Cole for his presentation. 10. UNFINISHED BUSINESS: None. 11. NEW BUSINESS: None. 12. ATTORNEY MATTERS: Attorney Christiansen reminded the Board that Florida House Bill 3, which becomes effective July 1, 2023, restricts public pension boards and other government agencies from considering non-pecuniary factors when making investment decisions; the Plan will be required to file a report with the State as well. The Board should prepare to update its investment policy statement (IPS) and investment manager contracts. Mr. Cole noted the popularity of investing in companies which take positions regarding Environmental, Social, and/or Governance (ESG) issues, and that he advises fund managers to be aware of boards' fiduciary responsibility to seek the best risk-adjusted return without consideration for non-pecuniary factors such as ESG. Mr. Cole anticipates having draft of language to add to the IPS and investment manager contracts when he appears before the Board at its September 22, 2023 regular meeting. Attorney Christiansen advised that the Plan is required to update the Summary Plan Description every 2 years, which will be in September 2023, and requested authorization from the Board to do sO. Trustee Baty made a motion to authorize Attorney Christiansen to update the Summary Plan Description Book 1 Page 356 06-23-2023 8:15 a.m. Book 1 Page 357 06-23-2023 8:15 a.m. as required by Plan provisions; Vice Chair Todd seconded the motion. The motion passed unanimously (3-0). Attorney Christiansen noted that, at its May 26, 2023, regular meeting, the Board authorized him to draft and submit to the City Auditor and Clerk a proposed ordinance clarifying the connection between Share Plan distributions and pension benefits. The proposed ordinance has been submitted to the City Auditor and Clerk to be presented to the City Commission. Pension Plans Administrator Martin noted that the item is tentatively scheduled to be presented to the City Commission in August 2023. 13. OTHER MATTERS: Pension Plans Administrator Martin advised that Pension Administration had timely submitted the 2022 State report to the Division of Retirement (DOR); the DOR identified 2 minor issues which Pension Administration corrected immediately, and now awaits the DOR's acceptance. ADJOURN. Chair Konstantopoulos adjourned the meeting at 9:14 a.m. Sh A Chair Demetronstantiopoulos Secretap/Treasurer Shayla Griggs