MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF APRIL 26, 2023 Present: Chair Michael Hartley, Vice Chair Charles Joseph, Secretary/Treasurer Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Attorney Robert Sugarman (telephonic), Attorney Madison Levine (telephonic), Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL MEETING TO ORDER: Chair Hartley called the Sarasota Firefighters' Pension Plan (Plan) Board of Trustees Regular meeting to order at 9.00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary/reasurer Griggs. Vice Chair Joseph led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Hartley. Chair Hartley stated for the record, "We may disagree, but we will be respectful to one another. We will direct all comments to issues. We will not engage in personal attacks." * 4. ROLL CALL: Pension Plans Administrator Martin called roll; all trustees were present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Firefighters' Pension Plan Board of Trustees Membership Meeting of March 22, 2023. Presenter(s): Chair Hartley. Vice Chair Joseph made a motion to approve the minutes of the March 22, 2023 Membership meeting; Trustee Snow seconded the motion. The motion passed unanimously (5-0). 7. INVESTMENT PERFORMANCE REVIEW: 7.1. Presentation and Discussion Re: Brown Advisory, Performance Review as of March 31, 2023. Presenter(s): Micah McDonald, Regional Investment Consultant; Tom Simunovic, Investment Specialist; Brown Advisory. Book 1 Page 360 4-26-2023 9:00 a.m. Book 1 Page 361 4-26-2023 9:00 a.m. Tom Simunovic of Brown Advisory (Brown) appeared before the Board and introduced himself. Noting the Plan is invested in Brown's US large cap sustainable growth strategy, Mr. Simunovic provided a market summary of calendar year 2022 and Q1 2023. While investor sentiment generally remained low throughout 2022, reported earnings often came in higher than forecasted which led to brief rallies followed by selloffs during each quarter. The Federal Reserve's (Fed's) short term interest rate hikes and other macroeconomic news created headwinds for quality growth managers such as Brown. The portfolio's positive performance during each updraft was largely attributable to the resilience in earnings by its holdings; however, the portfolio underperformed during downdrafts as a result of investor's sentiment and their preference for more defensive stocks. The portfolio finished the year 130 basis points (gross) behind its benchmark, the Russell 1000 Growth, by which time Brown upgraded the portfolio by adding companies which had traded at substantial discounts. Despite a positive start to Q1 2023 as the market began to favor growth, muted earnings reports and two bank failures triggered conçerns regarding monetary supply and potentially oppressive banking regulations which tempered expectations and performance. The trend of a brief spike followed by a rapid selloff seen in the prior 5 quarters reversed in Q1 2023, which allowed active managers such as Brown to take advantage of the short-term dislocations while longer-term investors put more capital into the companies which they believed were unfairly discounted. Brown will be more active in these types of volatile periods, by trimming and increasing existing positions and adding new positions to the portfolio. Brown finished Q1 2023 ahead of the benchmark, recapturing some of the losses from 2023. Chair Hartley asked Mr. Simunovic to discuss the Portfolio Attributes. Mr. Simunovic explained that the Russell 1000 Growth benchmark is extraordinarily concentrated, as the top 10 stocks represent 45% to 50% of its total weight. The Russell 1000 Growth benchmark is the style version of the Russell 1000. With 512 companies being held in the Russell 1000 Growth, and 10 stocks represent 50% of the holdings, the remaining 502 companies each represent approximately 10 basis points of exposure. The Russell 1000 Growth is a market-cap weighted benchmark and reconstitutes each year in June, based on the market cap of each company. Brown is very underweight in those top 10 companies, the most notable being Apple, which the portfolio does not hold at all; the portfolio's weighted average market cap relative to the benchmark is substantially askew. That stated, the portfolio is not benchmark-constraines, and Brown will invest in any high-quality growth stock which has the qualities it seeks. In addition to not owning Apple, Brown has no positions in Facebook, Netflix, or Tesla, yet it continues to perform well on an absolute and risk-adjusted basis due to the alpha it generates by finding underappreciated stocks. He noted this strategy consistently has a weighted average market cap between $300 and $400 billion, which, by all definitions, makes it a large cap space and advised that, despite the significant influence mega-cap companies have over the benchmark, the portfolio's relative weighted average market cap does not indicate the portfolio has drifted into the mid- or small-cap spaces. To Chair Hartley's question, Mr. Simunovic discussed Facebook, Apple, Netflix, Google, Microsoft, and Amazon (FANGMA) stocks and their influence over the benchmark. Mr. Simunovic advised that, in the June 2022 index reconstitution, Russell reclassified some of the FANGMA stocks, most notably Facebook, from the growth index into the value index, and moved some value stocks into the growth benchmark. While some of the FANGMA stocks have less influence now on the benchmark than they did several years ago, Apple, Microsoft, Google, and Amazon now have even more influence. Even though some investors use FANGMA stocks as a bell-weather for the market, Brown is 43% underweighted to those names as it believes there are better opportunities outside that group. He assured the Board that Brown has been and will remain focused on its mandate of investing in high quality growth stocks, irrespective of the environment. To Vice Chair Joseph's question, Mr. Simunovic apologized that the presentation materials did not include a Plan-specific portfolio summary; it was not included because of when the pertormance information was released, but future presentations will include it. The Board thanked Mr. Simunovic for his presentation. 7.2. Presentation and Discussion Re: Richmond Capital; Performance Review as of March 31, 2023. Presenter(s): Howard Bos, President and Portfolio Manager, Richmond Capital. Howard Bos of Richmond Capital (Richmond) appeared before the Board and introduced himself. Mr. Bos provided a market recap updated from his last appearance before the Board. In efforts to bring inflation under control, the Fed raised short-term interest rates from 0% to 5%. Forecasters currently expect the Fed, at its next meeting, to raise rates by .25% to 5.25% which may cause the economy to tip into recession and necessitate the Fed to ease rates somewhat. He noted how detrimental inflation is to bond investors, as it erodes principal and returns, however, there have been unintended consequences to the Fed's rate hikes, specifically the recent domestic bank failures. He explained that the 2 failed banks held high quality securities and the industry is highly rated, however, as rates skyrocketed, their assets' values plummeted to the point that depositors were unable to access their funds. Repercussions from the 2 failures were felt on both the equity and fixed income markets. Turning to the Organization page of the presentation materials, Mr. Bos noted there have been no significant changes in the firm, although it has expanded ownership amongst its employees, added more analysts to the investment team, and Head of Operations Janice Warren, who had been with Richmond since 1987, retired at the end of 2022. On the Performance Review page, Mr. Bos reiterated the challenge in preserving fixed income asset values as interest rates rise, as evidenced by the negative returns over the 12 months to date and Annualized 3 Years terms. He noted the portfolio outperformed the benchmark over most timeframes and added that a benefit of rising interest rates is that newly added bonds will have higher yields which in turn drive returns, and therefore the portfolio wil, at some point, have more attractive returns. Mr. Bos discussed the Portfolio Review, noting the portfolio generated $25 million in interest over the past 21 years. He explained that the Portfolio Duration, which measures the portfolio's interest rate risk, and Yield to Maturity, are the most important descriptors of the portfolio's characteristics; for perspective, he added that, approximately 1 year ago the portfolio yield was 2.9%, and 2 years ago it was 1.6%. Mr. Bos asserted interest rates were too low for too long, as indicated by the issues experienced in the current environment. To Chair Hartley's question regarding rising interest rates and credit quality, Mr. Bos explained that the percentage of BBB-grade securities within the spectrum of investment-grade securities has continued to increase from 7% when its benchmark began, to 15% to 16% today. In that context, credit quality has eroded as corporate American companies have become more leveraged and willing to accept lower ratings, and investors are willing to invest in those companies. He noted the Plan's portfolio average AA- grade or better and very high quality. He added that other municipal clients allow all investment grade bonds, and do not have a set minimum grade such as the Plan's, although he nor Pension Plans Administrator Martin knew if the Plan was restricted by state law, ordinance, or the Board's investment policy. He explained that lower grade bonds tend to have higher yields, which make them more attractive. Mr. Bos discussed the page titled Treasury Yield Curve: Inverted and Lower. Historically, when rates have been inverted, the economy has typically fallen into recession and the market is currently expressing concern about that possibility, especially as Fed Chairman Jerome Powell had indicated a willingness to push the economy into recession to control inflation. The portfolio currently has a neutral duration, meaning it has the same interest rate as the index, and is approximately equally weighted across the yield curve, as Richmond is not confident the current yield curve will normalize. Book 1 Page 362 4-26-2023 9:00 a.m. Book 1 Page 363 4-26-2023 9:00 a.m. On the page titled Corporate Bond Allocation (Duration Contribution), Mr. Bos explained that Richmond is an active investor and will change its allocations; as Richmond finds more value it buys more credit and when there's less value, usually meaning less spread to Treasury, Richmond reduces. He reviewed the Top Ten Holdings, noting that the top 6 are US Treasury Bonds and 2 are mortgage-Dacked securities. On the chart titled Quality Distribution, Mr. Bos advised the portfolio has 94 total credits and is well diversified. He noted that, as long as 1 of the 3 main rating agencies gives a security an A rating, the portfolio may hold it, which is why the portfolio has some BAA credit. Examples of BAA holdings include Aegon Corp, Duke Carolinas which is an electrical utility, Raytheon, Phillips 66, and Schlumberger which is an oilfield company. Mr. Bos concluded his remarks by noting that some oft the portfolio's holdings have yields of 6% and the Fed Funds Rate has not been at 5% since 2006. For these reasons, he is bullish over the long-term and anticipates very attractive returns. To Trustee Snow's question, Mr. Bos stated that, in the short term, Richmond is unsure if rates will go up or down, however the fixed income market has processed the available economic and Federal Reserve data, and the yield curve is then based on that information. The market has already taken into account the inverted yield curve, meaning the 10 Year Treasury is less than 3.5%. In that context, Richmond is confident where its duration is, and it has no plans to extend or shorten it. Instead, it would prefer to buy corporate credits to capture attractive yields. Trustee Snow and Mr. Bos discussed the history of the Plan's investments with Richmond, noting the Board recently lowered its allocation to equities and increased fixed income, and invested an additional $5 million with Richmond. The Board thanked Mr. Bos for his presentation and history of service to the Plan. 7.3. Presentation and Discussion Re: Sawgrass Asset Management; Performance Review as of March 31, 2023. Presenter(s): Martin LaPrade, CFA, Equity Portfolio Manager; Marc Davis, CFA, Equity Portfolio Manager; Sawgrass Asset Management. Martin LaPrade and Marc Davis of Sawgrass Asset Management (Sawgrass) appeared before the Board and introduced themselves. After noting Anthony Brooks rejoined the Large Cap Growth team and noting there have been no other changes to the firm, Mr. LaPrade provided a brief market overview. He explained that 2022 was the first down market since 2009; because the Fed had been suppressing interest rates over that period, investors turned to equities, meaning stock prices weren't driven by earnings, but by investors' willingness to pay higher prices and price-to-earnings multiples grew accordingly. This period ended when inflation grew rapidly, and the Fed raised interest rates from 0% to 5% in attempts to regain control. He explained that Sawgrass's strategy is defensive, and it aims to preserve assets and gains when the market declines. While its benchmark, the Russell Growth 1000, was down 29% in 2022, the portfolio was down only 17%. Mr. LaPrade discussed the Portfolio Summary; he noted that the Plan had initially invested $20 million and taken out $35 million. He reviewed the Portfolio Performance page and discussed the portfolio's relative performance against the benchmark over each of the noted timeframes. He noted the abnormality of the returns over 3- and 5-year timeframes as the average annual return in the stock market is near 10%; he cautioned against expecting comparably high returns in the future. Mr. LaPrade discussed why earnings forecasts and reports have painted an uncertain picture of the market; combined with the existing inflation, it will be difficult for companies to earn the profit margins they had previously, and the market could decline. He expects the market to ebb and flow through the rest of the year, which is not uncommon in the wake of a strong year, which bodes well for the portfolio considering Sawgrass's defensiveness. He expects the market to rise moderately over the next 3 to 5 years. Mr. Davis discussed the page titled Has Concentration Peaked in Large Growth and noted how conçentrated the index is currently; although the largest 5 companies rebounded in Q1 2023, Sawgrass anticipates a broadening of leadership over the coming years. On the page titled Contribution to Return - Top 10/Bottom 10 Relative - Year, Mr. Davis explained how the portfolio benefitted over various timeframes from not owning Tesla and NVIDIA, which do not fit Sawgrass' investment profile, as well as how each impacted the index; however, many of the stocks which performed poorly in 2022 outperformed during Q1 2023, which was a detriment to the portfolio over the short term. Mr. Davis concluded his remarks by discussing the Security Changes - Quarter page. Sawgrass made most of its sell decisions based on either profit-taking or relative underperformance. Many of the additions to the portfolio had not been as attractive in previous market cycles but became SO in 2022 due to the weaker market and stronger valuations; still, Sawgrass is taking small positions in these with the intent to incrementally build if the conditions remain favorable. To Vice Chair Joseph's question, Mr. Davis and Mr. LaPrade compared Walt Disney's political issues to its overall financial health. While Disney has appeared in news headlines recently, it amounts to, at this point, more noise than actual risk. Although the company is firmly entrenched in Florida, the theme park is only a third of its business model, and its media operations appear to be driving earnings, which ultimately drives its stock price. However, Sawgrass will continue to monitor Disney's political tension to ensure there is no economic impact, although that appears to be only a remote possibility at this time. To Trustee Snow's question, Mr. LaPrade stated that Sawgrass's cash balance is currently 1.5%, and usually ranges between 1% and 4%. The Board thanked Sawgrass for their presentation. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: None. 10. ATTORNEY MATTERS: Attorneys Robert Sugarman and Madison Levine appeared before the Board elepnonically and introduced themselves. Attorney Sugarman advised he is completing a letter to participants regarding the Secure Act 2.0 and potential tax implications it may have regarding health insurance premiums. If affected participants have already filed their 2022 taxes, they may file an amended return. The Florida Legislature passed a bill restricting public institutions, including municipal pension boards, from making investment decisions on non-pecuniary factors. Sugarman Susskind is preparing a full report. To Vice Chair Joseph's question, Attorney Sugarman clarified that non-pecuniary factors cannot be deciding factors, however the companies in which a public board invests may still support non-pecuniary interests. 11. OTHER MATTERS: Book 1 Page 364 4-26-2023 9:00 a.m. Book 1 Page 365 4-26-2023 9:00 a.m. 11.1. Presentation and Discussion Re: Asset Allocation as of April 11, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation as of April 11, 2023, for the Board's information; she noted that the allocation refers to April 30, 2023, in error. Pension Plans Administrator Martin advised the State report was accepted without issue. Pension Plans Administrator Martin advised the FPPTA summer conference will be held in June. The summer conference does not offer any educational opportunities to trustees who have not yet been certified to date, however the conference will count towards certificated trustees' annual requirement of 10 Continuing Education Units (CEUS). Pension Plans Administrator Martin clarified that, if a trustee was certified in January 2023, the trustee must still earn 10 CEUS in 2023; if a trustee was certified prior to 2023 and attended the January 2023 FPPTA winter school, the trustee has satisfied the annual CEU requirement for 2023. Pension Plans Administrator Martin clarified Attorney Sugarman's comments, and explained that, at the March 22, 2023, Membership Meeting, retiree Ernie Cave asked the Board to consider notifying retirees of the potential tax implications of the Secure Act 2.0; Sugarman Susskind is drafting a letter on their letterhead for Pension Administration to distribute to retirees which summarizes the impact to retirees. 12. ADJOURN. Chair Hartley adjourned the meeting at 10:16 a.m. - 4 Chair Michael Hartley Secrelarylreasurer ShaylaGriggs )