MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF OCTOBER 27, 2021 Present: Chair Michael Hartley, Vice Chair Shelia Roberson, Secretary/Treasurer Shayla Griggs, Trustee Charles Joseph, and Trustee Scott Snow. Others: Attorney Robert Sugarman, Attorney Pedro Herrera, 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 9.04 a.m. 2. 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." 3. ROLL CALL: Chair Hartley noted all trustees were present at the meeting. 4. PUBLIC INPUT: None. 5. APPROVAL OF MINUTES: 5.1. Approval Re: Minutes of the Firefighters' Pension Plan Board of Trustees Regular Meeting of September 22, 2021. Presenter(s): Chair Hartley. Trustee Joseph made a motion to adopt the September 22, 2021, meeting minutes; Vice Chair Roberson seconded the motion. The motion carried unanimously (5-0). 6. INVESTMENT PERFORMANCE REVIEW: 6.1. Presentation and Discussion Re: Sawgrass Asset Management Performance Summary as of September 30, 2021. Book 1 Page 258 10-27-2021 9:00 a.m. Book 1 Page 259 10-27-2021 9:00 a.m. Presenter(s): Gregory S. Gosch, Institutional Client Services; Martin E. LaPrade, CFA, Partner, Equity Portfolio Manager; Sawgrass Asset Management. Marty LaPrade and Marc Davis of Sawgrass Asset Management appeared before the Board and introduced themselves. Attorney Pedro Herrera joined the meeting telephonically at 9:07 a.m. Attorney Robert Sugarman joined the meeting elephonically at 9:08 a.m. Mr. LaPrade provided a market overview and reviewed details stated on the Portfolio Summary; on the Portfolio Performance, he noted that while Sawgrass has not kept up with its benchmark, the portfolio's 5- year retumns are unprecedented. Mr. LaPrade explained that much of the market's performance has been due to extraordinarily low interest rates which has driven investors to the stock market, which has driven up prices. He does not anticipate this level of growth to continue. He discussed the 10 Year Peer Rankings and explained that, when adjusted for risk, volatility, capture rates, Sawgrass's returns have ranked in the top 15% to top 2% of other similar growth managers. He reviewed thel Rolling 5 Year Periods through September 30, 2021, Performance: Three Phases of a Market Cycle, Top 5 Russell 1000 Growth Weights noting Facebook, Apple, Google, Microsoft, and Amazon comprise approximately 37% of the market, and in his opinion, is the most concentrated the market has been. He reviewed the "Elite Eight" - 1 Year, which tracks the 5 aforementonedsiocks and Tesla, Nvidia, and Netflix, and Valuations Continue to Be Stretched. He noted that while Sawgrass's returns may not be as impressive as the Elite Eight, it would abide by its strategy. Mr. Davis discussed Margin Debt and explained investors appear to be seeking higher risk and leverage for greater returns. He reviewed the Market Capitalization as a percentage of Nominal GDP and predicted positive going forward, but not at the levels seen over the last 18 months. Mr. Davis discussed the recent spike in inflation and Long-term U.S. Treasury Rates; while he asserted there are no imminent wamings of ar market sell-off, investors must be aware of that potential. Mr. LaPrade discussed the Contribution to Return - Top 10/Bottom 10 Relative-Year, noting the portfolio was most hurt by stocks it did not own. He predicted gains in the 5%-6% per year range for the immediate future, and believes stocks will continue to be reasonable, long-term investments, however they will not produce the 20% returns they have recently. Chair Hartley asked Sawgrass to explain the Market Capitalization Median stated on the Portfolio Characteristics page of their materials. Mr. LaPrade discussed the difference between the Median and Weighted Average Market Cap. Further discussion ensued regarding the relative risks of large caps versus mega caps; Mr. LaPrade could not comment on which is riskier. Mr. Davis noted that smaller cap stocks typically have more volatility, but mega caps have more risk in the current market due to ownership rates and overvaluations. At Chair Hartley's request, Mr. LaPrade explained there have been no firm changes, but they are looking for an additional portfolio manager. The board thanked Mr. LaPrade and Mr. Davis for their presentation. 6.2. Presentation and Discussion Re: Graystone Consulting, Quarterly Performance Summary as of September 30, 2021. Presenter(s): Scott Owens, CFA, CIMA, Associate Vice President, Institutional Consultant; Andy Mclivaine, Institutional Consultant, Graystone Consulting. Mr. Owens appeared before the Board and introduced himself. He noted Mr. Mcllvaine was unable to attend. Mr. Owens gave an overview of his presentation items. He provided a market overview and reiterated Mr. LaPrade's concern for an inflection point in the market; the prolonged growth has been enabled, in part, by federal monetary policy, and as that is decreased, returns will diminish. He discussed Capital Market Returns in the Performance Summary, noting 12 month retums spanning from 24% to 63%. He stated that value outperformed growth over the last 12 months which is notable considering growth had been outpertorming value for the last decade. Regarding the S&P 500 Sector Returns, he noted several sectors had negative returns which is comparable to the market approximately 2 years ago, but not the last 18 months which may be indicative of a potential turn in the market. He reviewed international markets, noting their decline is significantly due to issues in China, which has forecasted modest growth rates and could be another indication of a slowdown. He discussed the Asset Allocation & Time Weighted Performances, Risk/Return Analysis-Since Inception noting that on a risk-adjusted basis, the portfolio is outperforming the benchmark by 18 basis points, Cash Flow Analysis, and Asset Allocation Compliance noting he had no recommendations for any of the managers. Mr. Owens reviewed each of the fund managers' Executive Summaries. Trustee Joseph asked if the Board should be concerned regarding Lazard International Value considering its downside capture is significantly greater than its upside capture. Mr. Owens stated that Lazard has performed well over the long term and have retained the same management and decision-makers, but it has struggled in recent years. He noted that within this space, defensive managers have not performed as well as momentum managers who have taken more risk with concentrated positions which may not be appropriate for the Plan. Mr. Owens stated Graystone is monitoring Lazard and why there is a difference in performance. Mr. Owens discussed why the current market has been difficult for active managers. Mr. Owens resumed his discussion of the fund managers' Executive Summaries and concluded with the Investment Policy Checklist, noting no concems or recommendations. He asserted the portfolio is generally balanced with complimentary managers and strategies, adding that it continues to monitor some managers' performance, although they may have strategies which are currently out of favor. Mr. Owens presented an Analysis of Underbilled Consulting Fees, stating the fee structure was related to a change in 2018, and this under-billing was detected by an internal self-audit within the firm. Graystone's billing department failed to include the CPI adjustments, which resulted in an underpayment of $4,947.39. 8. NEW BUSINESS: 8.2. Presentation and Discussion: Fee Program Presenter(s): Scott Owens, CFA, CIMA, Associate Vice President, Graystone Consulting. Mr. Owens discussed the Current Fee Analysis and explained each fee, including hard dollar fees, consulting fees, trading fees, custody fees, as well as Equity, Fixed Income and Alternative Investment managers' fees, are processed individually which results in an approximate $1.147 million annual cost to the Plan. Morgan Stanley has created a new Unified Management Account (UMA) platform which connects the fund managers, custodian, and Graystone/Morgan Stanley. In that process, it combines the assets of every investor with each fund manager for the purpose of determining management fees. Additionally, managers trade through Morgan Stanley's trading desk with no fees while still being bound by best execution rules. This means Book 1 Page 260 10-27-2021 9:00 a.m. Book 1 Page 261 10-27-2021 9:00 a.m. commissions generally will be reduced, although not necessarily eliminated. This would not preclude investment with a fund which is not on the UMA, however those investments would be subject to different cost structures. Graystone prepared an estimate of the cost using its current portfolio, as well as with only fund managers which are on the UMA platform for the Board's review. He explained that Salem Trust does not have the technology to join the UMA platform, sO if the Board decided to enroll in this platform, the Plan would need to change custodians. He also explained that all fund managers which participate in the UMA platform are covered under a single contract, sO that if the Board were to select a new manager which also subscribed to the UMA platform, a new contract would not be needed. He stated Graystone had no preference for whether the Plan subscribed to the UMA platform or maintained its current fee structure but wanted to make it aware of the program. Chair Hartley asked Mr. Owens to explain the negative aspects to the UMA platform. Mr. Owens stated that the biggest change would be that it would need to change custodial banks. Attorney Sugarman asked if each fund manager signs on as a fiduciary to the Plan and agrees to the Investment Policy Statement. Mr. Owens stated that in the UMA, Morgan Stanley takes over and manages the process with the consultant's agreement on the back, and each individual manager does not sign when participating in the UMA platform as they would in the individual program regarding hard dollar fees. Attorney Sugarman explained to the Board that that under the UMA platform, in case of an issue, the Plan would seek relief against Morgan Stanley and not the individual fund managers. Under the current arrangement, if there are issues with a manager, the Plan can terminate its contract with the manager; if there is a legal issue, a plan could sue the fund manager, although Attomey Sugarman noted that has not happened to date with any of his clients. In that context, the Board could weigh the savings incurred by the UMA platform against the probability of need for legal recourse against a fund manager. Secretary/Treasurer Griggs noted that Florida Statutes require a board to hire an independent consultant to evaluate and recommend money managers. She asked if the Board's participation in the UMA platform could compromise Graystone's independence. Attorney Sugarman stated the Plan's contract with Graystone would protect the Plan and require Graystone's independence; he asked Mr. Owens if the Plan's participation in the UMA platform would, in any way, change their recommendations on hiring, retaining, or firing managers. Mr. Owens stated it would not; Attorey Sugarman stated that the requirements of the statute would be satisfied. Secretary Griggs asked if participation in the UMA platform would place Plan assets directly with Graystone Consulting or another Morgan Stanley entity. Attorney Sugarman stated that his understanding of the program is that assets would be placed with a separate custodian which participates in the UMA platform. Secretary/Treasurer Griggs noted that Florida Statutes require services to be provided on a flat fee basis and asked if the UMA platform is compliant. Mr. Owens explained they would charge an asset-based fee; he believed the statute states that a flat rate may be charged at a minimum, which it already does, but it is not required to do sO. Attorey Sugarman elaborated that the statute is intended to prevent undisclosed compensation as, in the past, some investment managers worked for payments of soft dollars. Secretary/Treasurer Griggs asked why Mr. Owens did not present this fee program to the City of Sarasota's General Employees' Pension Plan Board Meeting on October 22, 2021, as they are both similar in assets under management and both are closed plans. Mr. Owens stated he had mentioned this platform to the General Pension Board previously, and he would be willing to offer the program to both plans, and if both were to participate, Morgan Stanley would aggregate their assets under management for a further reduced fee. Vice Chair Roberson asked how many pension plans are managed by Graystone. Mr. Owens stated that Graystone's Tampa, FL office manages about 50 or 60 pension plans, and approximately half participate in the UMA platform. Chair Hartley asked why DRZ and HGK are not on the UMA platform. Mr. Owens stated that eachi investment fund must decide for itself whether to participate. He noted that participation may require managers to change their investment requirements, such as accepting lower fees or lower initial investment amounts, and that may be sufficient reasons for some funds to not participate. He added that while the UMA platform reduces costs, if there is a manager with exceptional performance that is not on the UMA, he would present that manager to the Board, and that after Morgan Stanley's research and processes, they would likely find an equivalent with a lower fee and that's what they would present to the Board. As a fiduciary for the Plan, his goal is to provide the highest risk-adjusted returns net of fees and transaction costs. Chair Hartley asked Attorney Sugarman to explain why fund managers would participate in the UMA if their managers' fees would decrease. Attorney Sugarman stated that a fund manager would not participate in the UMA platform if they didn't also agree to accept the reduced compensation, and therefore by participating, they realize a benefit, although there could also be some economies of scale. Mr. Owens explained that because each fund manager's clients are aggregated under the UMA, they can request a single trade through Morgan Stanley, which shifts some of the fund manager's workload to Morgan Stanley. If the fund manager did not participate in the UMA, they would need to make trades for each client individually. Attorey Sugarman clarified that, from the fund manager's perspective, they have a single client instead of the numbers of individual plans which are invested in that fund, and Morgan Stanley then performs the sub- accounting and allocating amongst the clients; Mr. Owens agreed with this description. Further, Attorney Sugarman noted Morgan Stanley would handle disclosures and reporting. Vice Chair Roberson, Mr. Owens, and Attorney Sugarman discussed the flat fee requirement. Attorney Sugarman clarified that the statute was passed to prevent undisclosed fees. Investment managers must be paid only by the Plan for the work they perform; payment should not be from the fund managers or brokers. Prior to this law, investment consultants were also receiving payments from fund managers for sub- accounting as well as from brokers for directing trades through investment consultants. As such, Graystone would need to disclose if it or Morgan Stanley receives any other compensation or benefit from participants on this platform in addition to the fee paid by the Plan. At Chair Hartley's request, Mr. Owens explained that the UMA Overlay Fee is to receive payment for the additional services Morgan Stanley performs in the UMA platform. Secretary/Treasurer Griggs asked, considering Graystone just advised of a 3-year long billing error, what would give confidence in the accuracy of the fees. Mr. Owens explained that the fees are transparent because they are concise and auditable. Attorney Sugarman advised the Board could reasonably choose either option as the difference in fees will not be significant considering the size of the portfolio. He noted Mr. Owens explained there are advantages and disadvantages to the UMA platform, and that if the Board has concerns, iti is not obligated to always find the lowest possible cost, particularly if the Board perceives benefits do not exceed the cost. Chair Hartley recommended tabling the item until could do more research and speak with some of the other managers. He had reservations about using a platform which disfavored investments with HGK and DRZ. Book 1 Page 262 10-27-2021 9:00 a.m. Book 1 Page 263 10-27-2021 9:00 a.m. Trustee Joseph stated that he would be concemed about leaving Salem Trust, considering its history with the Plan. He also stated he has concerns regarding picking new managers by focusing not on the manager's process and performance, but on minor differences in fees and the fund managers' willingness to participate in the Morgan Stanley platform. Mr. Owens confirmed that Morgan Stanley is not involved in fund managers' trading decisions, and Morgan Stanley only executes the trades at the direction of fund managers. Trustee Joseph also agreed he would like to table the discussion and speak to some of the fund managers like Sawgrass. Mr. LaPrade reappeared before the Board and explained Sawgrass's rationale for joining the UMA platform. He stated that this program gives access to a greater potential client-base, including retail clients, which saves considerable marketing expenses and allows them to accept lower fees. He stated that Sawgrass's investment decision process remains internal, and that it has specific processes for trading through Morgan Stanley. He noted that some trades are not fully executed at the same price; they may vary by a penny or two, but that likely averages out over time. He stated that the UMA platform shifts the responsibility for researching investment policy statement criteria from Sawgrass to Morgan Stanley. Chair Hartiey thanked Mr. LaPrade for appearing again before the Board. Attorney Sugarman noted that the Board has received a considerable amount of information about the process and that the Board has noted its concerns; he agreed with the Chair's recommendation to table the item until more research and information could be obtained. The Chair thanked Mr. Owens for his presentation. 7. UNFINISHED BUSINESS: None. 8. ATTORNEY MATTERS: Attorney Sugarman stated his office had resolved the issues it had with the engagement letter for Mauldin & Jenkins for the 2021 Plan Audit and sent it to the Board for execution. He explained he added a provision to require all work to be performed within the offices of Mauldin & Jenkins and not outsourced, as some auditing firms are using overseas contractors; he stated Mauldin & Jenkins readily agreed to his amendment. 8. NEW BUSINESS: 8.1. Presentation and Discussion Re: Consulting Fees. Presenter(s): Debra Martin, Pension Plans Administrator. Chair Harley stated he would like to continue the discussion regarding Graystone's billing error; because the Board agreed to a specific fee, he believed the Plan should pay the agreed-upon amount. By consensus the Board agreed to reimburse Graystone in the amount it underbilled. Mr. Owens asked if Graystone should add their analysis to their next hard dollar billing. Pension Plans Administrator Martin noted Pension Administration had just received the correct invoice amount for services as of September 30, 2021, but that Graystone could submit it that way to its next invoice. 10. OTHER MATTERS: Secretary/Treasurer: Griggs stated that the January 26, 2022, Board meeting conflicts with FPPTA training which will be from January 23, 2022, through January 26, 2022, in Orlando; several trustees noted they wished to attend the FPPTA training. GRS and Graystone are scheduled to present at January 2022 Board meeting. A brief discussion ensued. Pension Plans Administrator Martin noted that delaying the meeting would also delay presentation oft the actuary's report which Mauldin & Jenkins need to complete their audit. Chair Hartley stated he preferred the meeting be rescheduled to Thursday, January 27, 2022. Mr. Owens stated he would be available on both Thursday, January 27, 2022, and Friday, January 28, 2022. Pension Plans Administrator Martin stated she would advise the Board by e-mail to announce the final date of the rescheduled meeting when she confirmed when GRS could attend. Pension Plans Administrator Martin stated that the 2022 FPPTA membership fees and recertification fees have been paid. Pension Plans Administrator Martin stated that Pension Administration has received 1 nomination form for Seat 1, which is not from the incumbent. If the incumbent submits a nomination form, an election would be held, Pension Administration will distribute ballots to all eligible retirees, and filed ballots would be opened at the December 1, 2021, meeting. 11. ADJOURN. Chair Hartley adjourned the meeting at 10:53 a.m. SAk Ann Chair Michael Hartléy Secrelary/l/easurer Shayla/Ghiggs Book 1 Page 264 10-27-2021 9:00 a.m.