Book 1 Page 80 10/16/17 8:30. A.M. MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF OCTOBER 16, 2017 Present: Chair Barry Keeler, Vice Chair Ryan Chapdelain, Treasurer Kelly Strickland, Secretary Pamela Nadalini (arrived at 8:37 a.m.), Trustees Bonnie Wagner, Gretchen Schneider and Kari McVaugh Others: Attorney Scott Christiansen, Senior Pension Analyst Anthony Ferrer, Senior Pension Accountant Cynthia Akersloot and Pension Specialist Lois Belle Absent: None 1. CALL MEETING TO ORDER: Chair Keeler called the meeting to order at 8:32 a.m. 2. PLEDGE OF CIVILITY: Chair Keeler read into the record a memorandum from Mayor Willie Charles Shaw, dated February 13, 2015, entitled "City Commission and Advisory Boards Meeting Protocols and Pledge of Civility." 3. ROLL CALL: Chair Keeler requested Pension Plans Administrator Akersloot call roll in Secretary Nadalini's absence; Pension Plans Administrator Akersloot called the roll and a quorum of the Trustees in attendance was noted. 4. PUBLIC INPUT: No one signed up to speak. 5. APPROVAL OF THE MINUTES: 5.1. Approval Re: Minutes of General Employees Pension Plan Board of Trustees Regular Meeting of September 18, 2017 A motion was made by Trustee Schneider and seconded by Trustee McVaugh to approve the minutes of the General Employees' Pension Plan Board of Trustees Regular Meeting of September 18, 2017. Motion carried unanimously (4-0). 6. APPROVAL OF RETIREMENT REQUESTIS): None 7. INVESTMENT PERFORMANCE REVIEW: 7.1. Presentation and Discussion Re: AEW Investment Performance as of June 30, 2017 Presenter(s): Dan Bradley, Director and Senior Portfolio Manager, AEW Core Property Trust Mr. Dan Bradley came before the Board and introduced himself; he provided al brief overview oft the AEW firm; that Mike Burn has been added to the team as a senior portfolio manager on the account. Mr. Bradley stated that the AEW core property trust is in very good shape; that the lower risk, long-term focused strategy with a big emphasis on income is very well suited for today's economy and where AEW is positioned in Real Estate. Secretary Nadalini entered Chambers at 8:37 a.m. Mr. Bradley indicated that AEW core real estate returns have been abnormally high and will start to stabilize, he noted that income will be the key; that AEW is 96% occupied; that the portfolio is derisked; strategy going forward is to underweight office space but increase industrial sector and continue to overweight family. In response to a question from Trustee Wagner asking if any AEW properties were affected by Hurricane Harvey, Mr. Bradley stated that AEW has 6% of real estate in Houston; that two of the five properties were damaged but were well insured and being repaired; that there was no damage to any Florida properties. In response to a question from Secretary Nadalini asking the length of time AEW typically holds property, Mr. Bradley stated that a property is typically held between 3 = 8 years; that AEW currently has a large industrial park in Miami and property in Orlando. There were no questions from the Board and the Board thanked Mr. Bradley for his time. 7.2. Presentation and Discussion Re: Allianz/NFJ Investment Performance as of September 30, 2017 Presenter(s): John Mowrey, Managing Director, Portfolio Manager, Stephen Lyford, Managing Director, Portfolio Manager, and Michele Cameron, Director, Senior Relationship Manager, Allianz/NFJ Mr. John Mowrey, Mr. Stephen Lyford and Ms. Michele Cameron came before the Board. Mr. Lyford discussed the account profile and provided a brief overview of Allianz Global performance; that year to date the General Employees' Pension Fund (the Fund) is 20.94% beating benchmark; that the characteristics of the Fund with Allianz are beating benchmark in earnings per share (EPS) growth rates and price-to-earnings ratios (P/Es) that the fund has a nice balanced mix of stocks. Mr. Mowrey provided an overview of the AllianzGI Small Cap investment strategy; that discipline results in consistency and repeatability. He discussed performance, overview and outlook; that year to date annualized performance is 6.95% beating benchmark; that Small Cap allocation is underweighted in financials and real estate but over weighted in industrials; that Allianz is pleased with current In response to a question from Trustee Wagner asking if dividends are reinvested, Mr. Mowrey stated that dividends come into custodial account and Allianz can either buy more shares or rebalance which they do periodically if stock falls below model weight will bring back to model. In response to a question from Secretary Nadalini asking about portfolio turnover, Mr. Mowrey stated that Allianz exits about a quarter of the portfolio each year based on deteriorating fundamentals or rising valuations. Ms. Cameron closed the presentation by thanking the Board for the long-term relationship and reminded the Board that earlier this year Allianz reduced fees to one flat fee for both portfolios at 55 basis points to Book 1 Page 81 10/16/17 8:30 A.M. Book 1 Page 82 10/16/17 8:30 A.M. thank the Board for their commitment and partnership. 7.3. Presentation and Discussion Re: Graystone Investment Performance as of September 30, 2017 Presenter(s): Charlie Mulfinger, Managing Director, and Scott Owens, Institutional Consultant, Graystone Consulting Mr. Charlie Mulfinger, Managing Director, and Mr. Scott Owens, Institutional Consultant, Graystone Consulting, came before the Board. Mr. Mulfinger stated that the Fund had about a 13.41% return net of fees for the year; that Scott would discuss the economy and the market; that he would speak about managers. Mr. Owens briefly discussed the economic environment, and stated that the markets are still synchronized; that this quarter continues to be a carbon copy of prior quarters; that the only negatives were the recent natural disasters; that GDP was down this quarter to 2.5%; that both the domestic and international markets are in synchronization and inflation remains low. Mr. Mulfinger stated that as of September 30, 2017, the market value of the Plan's assets is $152,493,771 with a total gain, net of fees, of $5,489,696 for the quarter; that the Plan's investment allocation is within the Plan's ranges on asset class and that there is no need to rebalance, he briefly discussed the performance of each of the Plan's Investment Managers; that there will eventually be a downturn. In response to a question from Vice Chair Chapdelain asking as the market begins to downturn what is the recommendation ini terms of asset allocation, Mr. Mulfinger stated that it is very difficult to predict what may happen and when and will need to keep a close eye on the market to begin to show signs of change; that there is no recommendation to reduce international exposure. Mr. Mulfinger and Mr. Owen remain at dais for the next agenda item. 8. UNFINISHED BUSINESS None 9. NEW BUSINESS: 9.1. Presentation and Discussion Re: Assumed Rate of Return Presenter(s): Charlie Mulfinger, Managing Director, Graystone Consulting and Pete Strong, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company (via teleconference) Pension Specialist Belle teleconferenced Pete Strong, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company, in to the Board meeting. Mr. Mulfinger provided an overview of the asset allocation analysis prepared by Graystone that the normalization of interest rates will factor into the difference between the 7-year expected return versus the 20-year expect return; that this is a tool to share for this discussion. Mr. Strong stated that in his opinion 9.1% is high and his research shows the 20-year is more in the 7% range. Mr. Mulfinger stated that Graystone is not recommending or suggesting the Board raise the return assumption but rather be more defensive; that the recommendation is to remain at 7% with no change. Discussion ensued around strategy of asset allocation in the current market environment. Mr. Strong recommended the Board begin to slowly reduce the Expected Rate of return over the next several years from 7% to 6% and suggested a 10-basis point reduction to 6.9%. Secretary Nadalini stated that given the solid performance this year with a gain of 13.41% it is difficult to approve a reduction in the expected rate of return from 7% to 6.9% and prior approving a reduction in the expected rate of return she would like to understand the impact this will have to the City of Sarasota and the Plan's participants and requested a sensitivity analysis. Mr. Strong stated that by bringing the investment assumption down now by 10-basis points would be cost neutral this year at worst, at best there would still be a reduction in cost given the positive investment experience incurred this year. A motion was made by Vice Chair Chapdelain, and seconded by Trustee Schneider, to reduce the Assumed Rate of Return effective October 1, 2017 from 7.0% to 6.9%. Secretary Nadalini requested a sensitivity analysis study to show the impact of lowering the assumed rate of return over time. Motion passed (6-1), with Secretary Nadalini voting no. Mr. Strong requested a change to the January 2018 meeting date to coincide with the Police Officers' Pension Plan Board of Trustee meeting in January. 9.2. Presentation and Discussion Re: Proposed Audited Financial Engagement Letter fori the Fiscal Year Ended September 30, 2017 Presenter(s): Alison Wester, CPA, Partner, Mauldin & Jenkins, LLC Alison Wester, CPA, Partner, Mauldin & Jenkins, came before the Board. Ms. Wester presented the proposed audit engagement letter; that there are no changes to this year's engagement letter; that preliminary planning is underway with Pension Plans Administrator Akersloot and Staff; that the fee is $9,500 and includes attendance at meetings as needed. A motion was made by Secretary Nadalini, and seconded by Vice Chair Chapdelain to accept the proposed audit engagement letter for fiscal year ended September 30, 2017. Motion carried unanimously (7-0). 10. ATTORNEY MATTERS: Attorney Christiansen stated that there were a couple of items; that he wanted to welcome Cynthia Akersloot as the new Pension Plans Administrator and that she should be his office's point of contract. Attorney Christiansen stated that his office reviewed the 2018 proposed meeting dates; Secretary Nadalini requested the Board review and advise if any scheduling issues. Discussion ensued on the status of the revised Operating Rules and Procedures document. Attorney Christiansen advised that he has a meeting scheduled with Assistant City Attorney Warren on October 23, 2017 and Secretary Nadalini stated that she will discuss internally have provide a staff member to be in attendance. Book 1 Page 83 10/16/17 8:30 A.M. Book 1 Page 84 10/16/17 8:30 A.M. 11, OTHER MATTERS: Discussion ensued around the status of request to identify seat requirements and what is needed to accomplish this; that any changes would have to be done by Ordinance and the City Commission would need to determine if recommended change to the Ordinance was feasible. 12. ADJOURN. Chair Keeler adjourned the General Employees Pension Plan Board of Trustees Regular Meeting at 10:43 a.m. o AN BAeer Niceipe C.PPT Chair Barry Keeler Secretary Pamela Nadalini