MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF SEPTEMBER 25, 2023 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, Treasurer Kelly Strickland, Secretary Shayla Griggs, Trustee Robert Reardon, and Trustee Jan Thornburg. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: Trustee Barry Keeler 1. CALL MEETING TO ORDER: Chair Chapdelain called the General Employees' Pension Plan (Plan) Board of Trustees Regular meeting to order at 10:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Shayla Griggs, Secretary. Secretary Griggs 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. Trustee Keeler was not present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the General Employees Pension Plan Board Regular Meeting of July 31, 2023. Presenter(s): Chair Chapdelain. Vice Chair Nicholas made a motion to approve the minutes of the Regular Meeting of July 31, 2023; Secretary Griggs seconded the motion. The motion passed unanimously (6-0). 7. APPROVAL OF RETIREMENT REQUESTIS): 7.1. Presentation and Discussion: Early Retirement Request of Michele Keeler. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised that Ms. Keeler requested early retirement after 17.05 years of service at 63 years of age; she elected the Lifetime option. Book 1 Page 396 09-25-2023 10:00 a.m. Book 1 Page 397 09-25-2023 10:00 a.m. Treasurer Strickland made a motion to approve Ms. Keeler's request for retirement; Secretary Griggs seconded the motion. The motion passed unanimously (6-0). 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Graystone Consulting, Quarterly Performance Review as of June 30, 2023. Presenter(s): Scott Owens, CFA, CIMA, Managing Director - Wealth Management, Institutional Consulting Director, Corporate Retirement Director, Impact Investing Director, Alternative Investment Director; Theodore J. Loew, Vice President, Institutional Consultant; Graystone Consulting. Scott Owens and Theodore Loew of Graystone Consulting (Graystone) appeared before the Board and introduced themselves and their presentation. Mr. Loew provided a market review, noting the dramatic reduction in inflation from its high, which may bring down interest rates and, in turn, cause stock prices to rally; while the first half of calendar year 2023 reflected that optimism, the third quarter was not as positive. He reviewed the Capital Market Returns in the presentation materials, noting that the first half of 2023 recovered much of the losses experienced in 2022. The market was led in 2021 by the FANGS stocks, the market leaders in 2023 have been, "the magnificent 8," referring to Alphabet (formerly Google), Amazon, Apple, Meta (formerly Facebook), Microsoft, Netflix, Nvidia, and Tesla. He noted that the Technology, Consumer Discretionary, and Communication Services sectors which lead in Q2 2023, had been the worst performing sectors in 2022. Further, each sector has a smallleadership, and therefore any expansion is not broad-based. Growth stocks significantly outperformed value stocks in the quarter, year- to-date (YTD), and last rolling 12 months; the portfolio is approximately evenly balanced between growth and value which hurt the overall performance. Graystone anticipates volatility in the market considering a looming federal government shutdown as well as the 2024 election cycle; during those periods, Graystone expects value to outperform. Mr. Loew reviewed the international markets, noting the significant negative performance of China, which has taken to lowering its interest rates to fuel its economy. To Trustee Reardon's question, Mr. Loew and Mr. Owens discussed how some companies take advantage of Ireland's favorable corporate policies. While some companies are located in Ireland only by their corporate filings, other companies have brick-and-mortar operations in Ireland. Mr. Loew discussed the domestic and international Fixed Income returns. While the current rate of inflation is approximately 4% and may be rising, the Federal Reserve's (Fed's) goal is 2%; even though thel Fed left interest rates unchanged at its most recent meeting, it will likely raise rates at its next meeting in November 2023. Graystone anticipates the Fed to keep rates higher for longer to ensure inflation remains under control. High interest rates will stifle economic growth as corporate loans will be more expensive, which will then bring continued volatility to the fixed income market. Fixed income managers have reduced the portfolio's duration, which will reduce volatility, as well as take advantage of higher interest rates. Mr. Owens provided an analysis of the economy and the Fed's efforts to control inflation. He explained how the re-opening of the US economy after COVID-19 and the recovery from rampant inflation influences the Fed's deliberations. Even though the prices for services were high during COVID-19 and were expected to decline upon economic reopening, they continue to rise; further, the manufacturing index indicates that sector is contracting while service index indicates that sector is expanding. Wage inflation has led to employee dissatisfaction, which may lead to companies to either charge more for their services and products, which leads to greater inflation, or allow profit margins to be reduced. In this context, the Fed is very concerned with both employment and unemployment rates, as well as wage inflation and how each of those impact economic growth. Mr. Owens discussed the market's fluctuating favoritism between growth and value equities; this has led to Graystone's recommendation to keep investments close to their respective targets, and he will recommend increasing the portfolio's cash position. Mr. Owens discussed the Fiscal YTD return, adding that the portfolio achieved a return comparable to its index with less risk. On the Asset Allocation Compliance, he noted the portfolio is very close to its targets and reiterated that he will recommend moving more fixed income assets to Cash. He explained that, although the allocation looks very different today than as of June 30, 2023, as reflected in the materials, he will recommend reducing any allocations which are above their respective targets and moving the proceeds to cash. Mr. Owens reviewed each of the fund managers. He is not concerned with HGK because it is performing predictably for the environment. He expressed concern for Clearbridge's significant outperformance relative to its index on a fiscal YTD basis as it will likely have to concede some of its gains. While Polen underperformed relative to its index, Polen will only hold high quality stocks and will avoid those with extraordinarily high price- to-earnings multiples which are more typical of the magnificent 8 stocks. NFJ continues to perform well and is one of the portfolio's largest contributors to performance. Geneva had done very well until the current quarter, but it has not been in the portfolio long enough to fully evaluate over a longer timeframe. Both Franklin Templeton, as a deep value manager, and Renaissance as an international growth manager, continue to perform as expected; Mr. Owens discussed why the portfolio is not correlated but complimentary, sO that measured gains are consistently earned across the market cycle. While Segall Bryant, which is a short-term fixed income fund, is down on an absolute basis, it outperformed relative to Invesco, which is also a fixed income fund. Mr. Owens discussed the inverted interest rate yield curve and explained that, as long as interest rates are going up or staying level, the portfolio will want to take shorter duration bonds. Graystone will recommend lengthening duration when there is compelling evidence in the market and economy. Regarding the real estate holdings, Mr. Owens advised that no redemption payments are anticipated during the current quarter. He advised the Board to think of real estate investments like bonds because, even though the current interest rates change the value of the investments, the investment income remains consistent. He explained how rising capitalization rates lower the values of properties, which, in turn, lowers the value of real estate investments. Lazard continues to perform as expected and includes a steady revenue stream. There are no conceming items on the Compliance Checklist. Mr. Owens reiterated that he recommends reducing allocations which exceed their respective targets and holding the proceeds in cash to maintain a .75% to 1% cash position. To Chair Chapdelain's questions regarding the recommendation, Mr. Owens stated that proceeds should fill the cash allocation to its recommended target, and any additional proceeds should be placed in fixed income. He estimated that the fixed income allocation will increase to 18%. Mr. Loew added that the real estate redemptions were made in August of 2022 for $2.5 million. Mr. Owens explained that Graystone monitors the redemption requests quarterly. To Vice Chair Nicholas's questions regarding the state of the real estate sector, Mr. Owens explained how UBS restructured itself in response to being overweight in traditional malls when that subsector declined. Currently, the corporate office space subsector is challenging as companies gradually return to in-person working and re- evaluate their office space needs. He opined that, by the time the real estate redemptions are paid, the real estate sector may have recovered sufficiently to not warrant an allocation reduction. To Chair Chapdelain's question, Mr. Owens discussed the process by which a real estate redemption works, noting there is no penalty for cancelling a request. To Trustee Reardon's question, Mr. Owens stated that typically, the markets tend to improve during election years, however the current environment is atypical considering the Feds efforts to slow economic growth. To Secretary Griggs' question, Mr. Loew clarified Graystone's recommendation regarding rebalancing the portfolio, noting that the Board needs to decide how many quarters of cash reserves it wants to have, and move the remaining proceeds moved into fixed income. Mr. Owens recommended the portfolio hold sufficient cash to satisfy the Plan's needs for 2 quarters; he added that as of now, cash is earning 5% which is the same as fixed income; if interest rates go up, fixed income returns will decline. Book 1 Page 398 09-25-2023 10:00 a.m. Book 1 Page 399 09-25-2023 10:00 a.m. Mr. Owens reiterated that his recommendation is to rebalance the portfoliol by reducing over-targeted allocations to their respective targets, holding sufficient proceeds in cash to pay the Plan's next 2 quarters of expenses as determined by Pension Administration, and placing any remaining amounts into fixed income. Treasurer Strickland made a motion as recommended by Mr. Owens; Secretary Griggs seconded the motion. The motion passed unanimously (6-0). Chair Chapdelain asked Mr. Owens for an estimate of the portfolio's current performance. Mr. Owens stated that it will likely be down for the quarter ending September 30, 2023, and near 14% for the fiscal year. To Chair Chapdelain's question, Mr. Owens advised he anticipates having sufficient time before the October 23, 2023 meeting to compile year end performance numbers to issue presentation materials with the exception of real estate. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: 10.1. Presentation and Discussion Re: Graystone Consulting, Proposed Amendment to the Investment Policy Statement. Presenter(s): Scott Owens, CFA, CIMA, Managing Director Wealth Management, Institutional Consulting Director, Corporate Retirement Director, Impact Investing Director, Alternative Investment Director; Theodore J. Loew, Vice President, Institutional Consultant; Graystone Consulting. Mr. Owens reviewed the proposed amendment to the Investment Policy Statement. Attorney Christiansen reiterated that the amendment is in response to his memo presented to the Board addressing the recently passed House Bill 3; he added that the proposed amendment appropriately addresses the requirements in House Bill 3. Mr. Owens clarified that thel Board has always made investment decisions based only on pecuniary factors, and that the proposed amendment codifies the Board's practice. He noted some outdated information has been made current, such as incorrect titles. Treasurer Strickland made a motion to adopt the proposed amendment to the Investment Policy Statement as presented; Trustee Thornburg seconded the motion. The motion passed unanimously (6-0). Pension Administration advised that it has a clean copy for the Chair to sign. Attorney Christiansen advised that Pension Administration will be required to report information to the State by December 25, 2023, however the State has not clarified what needs to be reported. Mr. Owens opined that Local Retirement Systems indicated that a comprehensive report is required but did not clarify what that entails. He noted that, soon after House Bill 3 was enacted, the Florida Retirement System hired an Environmental, Social, and Governance (ESG) manager because that fund had very good return characteristics, indicating the law is not anti-ESG, but that public entity investors cannot select an investment option because of ESG factors. 10.2. Presentation and Discussion Re: Proposal to Provide Audit Services for Fiscal Year Ending September 30, 2023. Presenter(s): Alison Wester, Mauldin & Jenkins. Alison Wester of Mauldin & Jenkins appeared before the Board and introduced herself. Ms. Wester presented the Audit Engagement Letter and addendum. There are minor changes since the prior audit; the most notable is on page 3, which provides information about third-party services Mauldin & Jenkins may use during the audit process. Because some investments cannot be valued using the NASDAQ or available stock exchanges, Mauldin & Jenkins uses third-party services, such as Harvest, which provide valuations to test information supplied by the custodial bank; the Plan's identity is not revealed to the third party. She outlined the audit timeframe and noted its fee has increased, mostly due to the market rates and increases to hard costs. Ms. Wester explained that all services will be performed domestically, in Manatee and Sarasota Counties by Mauldin & Jenkins employees. She anticipates being able to present the audit at the Board's February 2024 meeting sO that the City may meet its reporting obligations. Pension Plans Administrator Martin confirmed that she reviewed the engagement letter and agrees to the terms. Treasurer Strickland made a motion to approve the proposed audit engagement letter as presented by Mauldin & Jenkins; Secretary Griggs seconded the motion. The motion passed unanimously (6-0). 11. ATTORNEY MATTERS: Attorney Christiansen reported that all the trustees have filed their 2022 financial disclosures. Attorney Christiansen reported that Argent Capital has acquired the parent company of Salem Trust, the Plan's custodial bank. While the operations at Salem Trust will not change, he will amend the Plan's contract for the Board's approval to reflect Argent Capital doing business as Salem Trust; he noted that Salem Trust's contract has not been updated since 2013, and there will be other clerical updates as well. The City Commission approved the ordinance proposed by the Board addressing the Secure Act 2.0; Pension Plans Administrator Martin advised that Pension Administration sent a copy of the ordinance to the State of Florida. 12. OTHER MATTERS: 12.1. Presentation and Discussion Re: Proposed 2024 Calendar Year Meeting Dates. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the proposed 2024 Calendar. She noted that the September 24, 2024 meeting conflicts with the FPPTA school, and the proposed Board meeting date is tentatively moved to Monday, September 30, 2024. Secretary Griggs noted that the City Commission has been holding ad hoc workshops in City Chambers on Mondays between Commission Meetings. If a City Commission event conflicts with a Board meeting, the Board meeting would need to be relocated to an alternate room and any trustees who serve the City Commission may be unable to attend the Board meeting. Vice Chair Nicholas made a motion to approve the Proposed 2024 Calendar Year Meeting Dates with the September 24, 2024 meeting being changed to September 30, 2024; Secretary Griggs seconded the motion. The motion passed unanimously (6-0). 12.2. Presentation and Discussion Re: Administrative Budget Expense Report, As of June 30, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented Administrative Budget Expense Report As of June 30, 2023. The Board had no questions regarding any line items. 12.3. Presentation and Discussion Re: Check Register, April 1, 2023 to June 30, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Book 1 Page 400 09-25-2023 10:00 a.m. Book 1 Page 401 09-25-2023 10:00 a.m. Pension Plans Administrator Martin presented the Check Register as of June 30, 2023 for the Board's information. She advised that the payments made to trustees have clarifications noting what the payments were for. Payments to individual Plan members are rollovers of DROP funds. The Board had no questions regarding any line items. Attorney Christiansen added that the fund manager HGK has changed its name to Hudson Edge Investment Partners, Inc. He clarified that the contract with Hudson Edge, formerly HGK, has not been updated since 2013, and not the contract with Salem Trust. He requested the Board to direct him to update that contract for the name change and other items such as E-Verify and public records requests. By consensus, the Board approved. 13. ADJOURN. Chair Chapdelain adjourned the meeting at 10:55 a.m. ShE Chair Ryan-Chapdelain Secretary Shayla Griggs