MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES MEMBERSHIP MEETING OF MARCH 27, 2023 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, Secretary Shayla Griggs, Trustee Robert Reardon, Trustee Barry Keeler, and Trustee Jan Thornburg. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: Treasurer Kelly Strickland 1. CALL MEETING TO ORDER: Chair Chapdelain called the General Employees' Pension Plan (Plan) Board of Trustees Membership meeting to order at 10:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary Griggs. Chair Chapdelain led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Chair Chapdelain 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 avoid personal attacks. 4. ROLL CALL: Pension Plans Administrator Martin called roll. Treasurer Strickland and Trustee Thornburg were not present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the General Employees' Pension Plan Board of Trustees Regular Meeting of February 24, 2023. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to accept the minutes of the Regular Meeting of February 24, 2023; Vice Chair Nicholas seconded the motion. The motion carried unanimously (5-0). 7. BOARD OF TRUSTEE REPORTS: 7.1. Presentation and Discussion Re: Annual Board Report for 2022. Presenter(s): Secretary Griggs. Secretary/Treasurer Griggs presented the Annual Board Report for 2022. She thanked the Board and Staff for their diligence, focus, and consistency in carrying out their respective responsibilities to the Plan over the last year. She noted the Annual Board Report, including the attendance report, had been presented to the City of Book 1 Page 372 03-27-2023 10:00 a.m. Book 1 Page 373 03-27-2023 10:00 a.m. Sarasota (City) Commission on Monday, March 20, 2023, and accepted; the Annual Board Report is presented to the Board for its information. The Board accepted the Annual Board Report for 2022 by consensus. 7.2. Presentation and Discussion Re: Proposed Annual Budget for Fiscal Year 2023 = 2024. Presenter(s): Secretary Griggs. Secretary/Treasurer Griggs presented the Proposed Annual Budget for Fiscal Year 2023 - 2024; compared to the 2022 - 2023 budget, personnel services increased due to the City's general wage increase in October 2022, and Operating Expenditures are down, for a net increase of 3.72%. Chair Chapdelain asked if sufficient funds were budgeted for Training, Travel & Conferences. Secretary Griggs advised that line item can be increased if needed after the budget is approved. Because trustees had not attended in-person conferences during the COVID-19 pandemic, and as in-person attendance at remote conferences resumed during the 2022-2023 year, the expenses during that fiscal year will be a better indication of an appropriate budgeted amount in coming years. Trustee Thornburg joined the meeting at 10:05 a.m. Trustee Keeler made a motion to adopt the Proposed Annual Budget for Fiscal Year 2023 = 2024; Vice Chair Nicholas seconded the motion. The motion carried unanimously (6-0). 8. APPROVAL OF RETIREMENT REQUEST(S): None. 9. INVESTMENT PERFORMANCE REVIEW: 9.1. Presentation and Discussion Re: ClearBridge Investments, Performance Review as of December 31, 2022. Presenter(s): Jeff Layn, Director, Client Portfolio Manager, ClearBridge Investments; Steve Votto, Director, Institutional Consultants, Franklin Templeton. Jeff Layn of ClearBridge Investments and Steve Votto of Franklin Templeton appeared before the Board and introduced themselves. Mr. Votto noted the challenges the portfolio faced during periods in which the market favored lower quality, higher leveraged companies. He noted that Mr. Layn stated at his last appearance before the Board in May 2022, that as the federal funds rate normalizes, monetary policy becomes more accommodative, and quality stocks drive the market, the portfolio should perform better. Since the May 2022 Board meeting, the portfolio outperformed its index during the latter half of 2022, year-to-date through Friday, March 24, 2023, and over the trailing 1-year. As monetary policy shifts from accommodative to less accommodative, and the market becomes more sensitive to valuations and fundamentals, high quality portfolios such as ClearBridge's will outperform. Mr. Votto provided a firm and strategy overview and advised it has added 2 dedicated analysts to the investment team, as well as an overview of their presentation. Mr. Layne discussed why ClearBridge underperforms in low interest rate environments with beta-driven rallies and investors focus away from fundamentals. He asserted the current market environment and environment for the next several years are the repercussions from low to 0% interest rates, which is not favorable to ClearBridge's strategy. He reviewed the Portfolio Management Team and their process. Secretary Griggs left the meeting at 10:14 a.m. and returned to the meeting at 10:16 a.m. As referenced on the page titled Russell 1000 Growth Index Outpacing Universe, Mr. Layne explained that ClearBridge is increasing its active share, which is the quantified difference between the portfolio and the benchmark, the Russel 1000 Growth Index; focusing on securities and weighting, 0% indicates the portfolio is exactly the same as thel benchmark and 100% indicates the portfolio has nothing in common with the benchmark. As interest rates rise, the 1-year percentile ranking increased from 19% as of June 30, 2022, to 27% as of December 31, 2022. On the page titled Performance During Risk-Off Periods, Mr. Layne discussed downside capture, noting that, while it typically performs well in down markets, it did not during 2022 when cash alternatives were more rewarded. On the page titled Large Cap Growth, Mr. Layne explained that ClearBridge focuses its position based on Organic growth, Earnings Reset, and Idiosyncratic drivers; he discussed examples of stocks from each category. He stated that its greatest overweighted position is in health care and the greatest underweight is in Information Technology (IT). He discussed New and Eliminated Positions, Average Annual Total Returns, and Calendar Year Returns. To Chair Chapdelain's questions, Mr. Layne advised that its position in Tesla is currently less than 1% of the portfolio; a comfortable position would not exceed 2% to 2.5% due to Tesla's volatility. On the page titled Performance During Risk-Off Periods, ClearBridge measured periods when the benchmark dropped by more than 8% and compared it to the portfolio's performance. On Portfolio Composition, Mr. Layne explained the underweighted position in IT is because 3 stocks comprised 33% of the benchmark, which represented a significant concentration risk. He explained how higher interest rates shift investors' focus from top line revenue growth to earnings and cash flow, which equated to overly priced technology stocks; this, however, does not suggest ClearBridge would never take greater positions in the IT sector. ClearBridge has an overweighted position in Health Care because valuations are attractive and offer earnings growth. Mr. Votto noted that while ClearBridge is a bottom-up investor, it anticipates a recession at the end of 2023 or early 2024, and that influenced its decision to remain under-weighted in IT. Further, approximately technology companies receive approximately 25% of their revenues from financial institutions; while ClearBridge does not foresee a banking sector crisis, they do expect less spending and investment by that sector, which will adversely impact IT stocks. Further, ClearBridge anticipates lending standards to become more stringent, which will impact the IT sector more than other sectors. To Chair Chapdelain's question, Mr. Layne and Mr. Votto stated that from March 1, 2023, through March 24, 2023, the portfolio has been volatile but up 12.25%. Mr. Layne noted that, while 2022 favored value stocks, growth stocks are outperforming value by 10% year-to-date. He asserted the right growth companies will continue to perform in a slowing economic environment as they outgrow their costs to capital. To Trustee Thornburg's question, Mr. Layne explained ClearBridge sold its position in Home Depot due to its valuation, even though there is a current need for housing; additionally, higher interest rates will create difficulties for developers to secure financing. That notwithstanding, ClearBridge added Sherwin Williams to the portfolio because that stock had suffered due to high input costs when Russia invaded Ukraine. The Board thanked Mr. Layne and Mr. Votto for their presentation. 9.2. Presentation and Discussion Re: INVESCO, Performance Review as of December 31, 2022. Presenter(s): Marvin Flewellen, Head of Client Management, Investments; Dane Hoard, Client Portfolio Manager; INVESCO. Marvin Flewellen and Dane Hoard of INVESCO appeared before the Board telephonically and introduced themselves. Mr. Flewellen provided a brief firm and relationship overview, as well as an economic and market summary. He noted the portfolio is high quality and liquid, and its benchmark is the Bloomberg Intermediate US Aggregate Index. He reviewed the Investment Guidelines stated on the Portfolio Summary and the Market Value reconciliation page of the materials, noting that the rise in short term interest rates from 0% to 5% caused investment values to decline in both the last quarter of 2022 and entire calendar year. Although the portfolio is an intermediate strategy, it is clearly affected by short-term rate changes. The portfolio is diversified, has global reach, and each security is individually analyzed through bottom-up research. Book 1 Page 374 03-27-2023 10:00 a.m. Book 1 Page 375 03-27-2023 10:00 a.m. Turning to the performance update on page 8 of the materials, Mr. Hoard noted he would focus his comments on the entirety of the year. He discussed how the economy and market remained focused on inflation and thel Federal Reserve's (Fed's) attempts to control inflation through a series of historic short-term interest rate hikes which adversely impacted fixed income returns. The portfolio's net performance was better than both the index and the Bloomberg Intermediate Aggregate (A- or better), which is more comparable to the portfolio, although both were negative for the timeframes. Mr. Hoard asserted the portfolio's high-quality holdings enabled its performance, as the index's more risky, lower grade investments were significant detractors. Through the end of February 2023, the portfolio has been neutral at .27% positive versus the index's .23%; preliminary returns for March 1, 2023, through March 24, 2023, are approximately 2.7% positive. The page titled Pension fund performance (Annual) shows how aberrant 2022 was in the last 2 decades, as well as how much of an impact low interest rates and rapidly rising interest rates had on both the fixed income market and the portfolio. On the page titled Characteristics, Mr. Hoard discussed portfolio positioning; as the portfolio's duration is slightly less than the index, the portfolio is slightly more defensive, which may be appropriate considering the market volatility in Q4 2022 and Q1 2023 and the Fed's hawkish agenda regarding inflation. The portfolio has a slightly higher yield to maturity than the benchmark as INVESCO's research team finds opportunistic positions within the corporate credit sector. On Sector distributions, Mr. Hoard noted an overweight in Treasuries, which is a reasonable parking space while it identifies opportunities in corporate credit. The portfolio is slightly under-weighted in Corporates due to volatility in the last 2 quarters; within Corporates, the portfolio is overweighted in Financial Institutions as that has been an attractive space within the mandate. In the Securitized sector, INVESCO has an overweight in Commercial Mortgage-Backed Securities (CMBS) as those add yield to the portfolio while protecting from prepayment-oriented risks found in the residential MBS market. Ont the page titled Quality distribution, Mr. Hoard explained that not having Baa and lower grade credit helped the portfolio by removing exposure to riskier sectors of the market; single A rated securities allow more yield to be added to the portfolio. The Aaa bucket is a combination of treasuries and structured security allocations. On the Duration distribution page, Mr. Hoard noted that the greatest spread was in the under 1 year line; greater timeframes show less deviations from the index. Mr. Hoard provided a market overview. On the Executive Summary page of the materials, he explained that the Fedi is intentionally trying to slow economic growth by manufacturing a mild recession in which demand destruction is a key theme in lowering inflation. While inflation has slowed somewhat, it has not reached the Fed's target, and thus the Fed will continue its efforts, albeit at a possibly slower rate as inflation eases. He noted the turmoil in the banking sector in March 2023 will ease some pressure on the Fed; banks will tighten their lending and investment standards, which will have a similar effect as the Fed's interest rate increases. Economic indicators such as the Consumer Price Index will be important as they may indicate the severity of future Fed actions. INVESCO anticipates continued volatility going forward as the market prices in expectations of economic indicators. diosyncratic events, such as the Silicon Valley Bank failure, will also complicate portfolio management. Mr. Hoard expanded upon the topics listed on the page titled Investment process: current portfolio themes. To Trustee Thornburg's question, Mr. Hoard explained that, broadly speaking, China has been amongst the slowest economies to reopen in the wake of COVID-19, its pace has had global repercussions in supply chains has provided upward pressure on inflation. That notwithstanding, economic policy towards China has continued to soften and reactions have generally been positive. The Board thanked Mr. Flewellen and Mr. Hoard for their presentation. 10. UNFINISHED BUSINESS: None. 11. NEW BUSINESS: None. 12. ATTORNEY MATTERS: 12.1. Presentation and Discussion Re: Summary Plan Description, April 1, 2023. Presenter(s): Scott Christiansen, Christiansen & Dehner, P.A. Attorney Christiansen presented the updated Summary Plan Description. He noted changes were displayed sO that the Board could see what had been changed, and that page 1, paragraph 1 the word "joint" should be "join," and it will be corrected prior to publication. The most notable changes were to the Board members and actuarial valuation information. Trustee Keeler made a motion to accept the Summary Plan Description as edited, with the correction as stated on page 1; Vice Chair Nicholas seconded the motion. The motion carried unanimously (6-0). 12.2. Presentation and Discussion Re: Discussion of Trustee Virtual Attendance. Presenter(s): Scott Christiansen, Christiansen & Dehner, P.A. Attorney Christiansen explained that the Florida Attorney General Advisory Legal Opinion number AGO 2003- 41 regarding trustees participating virtually in public meetings is the most recent to address this topic. While his other public board clients have specific languagei in their respective operating rules regarding virtual attendance, the Plan's operating rules do not. AGO 2003-41 requires a public board have a quorum physically present at the meeting; after a quorum is established, trustees who wished to attend virtually and vote in board actions must have "extraordinary circumstances" which prevent their physical presence at the meeting. Circumstances such as being on vacation or having an anniversary would not be considered extraordinary, however, a trustee who was recovering from an automobile accident and confined to bed but was otherwise capable of participating in a meeting would have extraordinary circumstances, in Attorney Christiansen's opinion. It is up to each board to determine if circumstances are extraordinary. He clarified that, during the COVID-19 pandemic, the Governor of Florida suspended, by proclamation, the in-person quorum requirement for public board meetings, however that proclamation has since been rescinded and the existing law is in effect. To Chair Chapdelain's and Trustee Thornburg's questions, Attorney Christiansen stated that the in-person requirements apply to any public board, including school boards, county boards, and advisory boards, whether members are elected or appointed. Further, AGO 2003-41 includes the extraordinary circumstances standard. Attorney Christiansen noted that, if the Board would like to add a paragraph to its Operating Rules to codify a virtual attendance policy, it would require a motion and a vote. Secretary Griggs asserted the Attorney General's opinion from 2003 is outdated, and that as recently as a month ago, the City Commission conducted a meeting in which Commissioners appeared virtually and voted, yet the Commission did not determine extraordinary circumstances existed. Additionally, a Commissioner advised they will not be physically present at an April 2023 Commission Meeting because they will be attending an out-of-town conference, and they will appear at the Commission Meeting telephonically; the Commission did not inquire further or decide if extraordinary circumstances exist. Secretary Griggs expressed support for allowing trustees to appear virtually and vote in Board actions provided the Board has satisfied the in-person quorum requirement. The Board and Attorney Christiansen discussed the merits of requiring trustees to appear in-person versus allowing virtual attendance when the in-person quorum requirement has been satisfied. While the intent of having public meetings is to allow the public to view and hear how each board member votes, video appearances would allow those; that notwithstanding, the law as written does not accommodate virtual appearances. Even though AGO 2003-41 states that illness is considered an extraordinary circumstance, it also affords discretion to boards to determine what constitutes extraordinary circumstances. Further, there may be health privacy concerns if a board member is required to disclose a health condition before a board could determine extraordinary circumstances. It is within the Board's authority to allow virtual appearances after satisfying the in-person quorum requirement, although Attorney Christiansen asserted that was not within the spirit of the law. Book 1 Page 376 03-27-2023 10:00 a.m. Book 1 Page 377 03-27-2023 10:00 a.m. Trustee Thornburg asked to table the discussion to a later date SO that more information could be presented to the Board. She noted that the purpose of in-person appearances at public meetings was to prevent the possibility of board members voting under duress, which can still occur in virtual appearances. If the Board were to adopt a virtual appearance policy, and a trustee appeared virtually at a meeting after the in-person quorum was satisfied, she suggested the Board could require affirmative motions to pass with a super-majority which could mitigate concerns of votes being made under duress. Attorney Christiansen advised the Board he will discuss the matter with the City's Attorney and report back to the Board. Attorney Christiansen noted that there is pending legislation which would add City Attorneys to the list of officials and positions whose personal information would be exempt from public disclosure. 13. OTHER MATTERS: 13.1. Presentation and Discussion Re: Asset Allocation as of March 20, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation as of March 20, 2023, for the Board's information. There were no transfers required for this month's payroll because the City made a catch-up payment for a deficient contribution from FY 2022. Pension Plans Administrator Martin advised the Board that Trustee Thornburg's term expires June 30, 2023. Active employees who have participated in the Plan for at least 5 years are eligible to nominate themselves for the seat, and Trustee Thornburg is eligible to serve additional terms. If an election is required because multiple nominations are received, all active participants are eligible to vote. Pension Administration will send nomination forms to all eligible employees in May 2023 to allow time for an election if one is required. 14. ADJOURN. Chair Chapdelain adjourned the meeting at 11:13 a.m. Gal Chair RyahChapdelain Secretary Shayla Griggs