MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JULY 19, 2022 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, Treasurer Kelly Strickland, 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: None. 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): Chair Chapdelain. 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 not engage in personal attacks. n 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 General Employees' Pension Plan Board of Trustees Regular Meeting of June 10, 2022. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the Regular Meeting of June 10, 2022; Vice Chair Nicholas seconded the motion. The motion carried unanimously (7-0). 6.2. Approval Re: Minutes of the General Employees' Pension Plan Board of Trustees Special Meeting of June 10, 2022. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the Special Meeting of June 10, 2022; Trustee Thornburg seconded the motion. Book 1 Page 330 07-19-2022 10:00 a.m. Book 1 Page 331 07-19-2022 10:30 a.m. The motion carried unanimously (7-0). 6.3. Approval Re: Minutes of the General Employees Pension Plan Board of Trustees Special Meeting of June 23, 2022. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the Special Meeting of June 23, 2022; Trustee Thornburg seconded the motion. The motion carried unanimously (7-0). 7. NOMINATION OF BOARD OFFICERS: 7.1. Appointment Re: Selection of Chair. Presenter(s): Secretary Griggs. Trustee Keeler made a motion to nominate Ryan Chapdelain as Chair; Trustee Thornburg seconded the motion. The motion carried unanimously (7-0). 7.2. Appointment Re: Selection of Vice Chair. Presenter(s): Secretary Griggs. Treasurer Strickland made a motion to nominate Mark Nicholas as Vice Chair; Trustee Thornburg seconded the motion. The motion carried unanimously (7-0). 8. APPROVAL OF RETIREMENT REQUEST/S): 8.1. Presentation and Discussion: Vested Deferred Retirement Request of Mary Karow. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin stated that Ms. Karow earned 19.6 years of service before separating from employment in August 2006; she requests the lifetime option effective April 1, 2022 at age 65. Vice Chair Nicholas made a motion to accept Ms. Karow's request for vested deferred retirement; Trustee Keeler seconded the motion. The motion carried unanimously (7-0). 8.2. Presentation and Discussion: Early Retirement Request of Douglas Keil. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin stated that Mr. Keil served 22.74 years and requests the lifetime option effective June 24, 2022 at age 60. Trustee Thomburg made a motion to accept Mr. Keil's request for early retirement; Vice Chair Nicholas seconded the motion. The motion carried unanimously (7-0). 8.3. Presentation and Discussion: Disability Retirement Request of Susan Blake. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin noted that the Board had approved Ms. Blake's request for disability benefits at its June 10, 2022 special meeting; Ms. Blake has 14.9 years of service and elects the 66 2/3 to joint annuitant option. Trustee Keeler made a motion to accept Ms. Blake's request to effectuate disability benefits; Vice Chair Nicholas seconded the motion. The motion carried unanimously (7-0). 8.4. Presentation and Discussion: Normal Retirement Request of Charlene Price. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin stated that Ms. Price entered the Plan as an employee of the City of Sarasota's Police Department; when the City merged emergency operations with Sarasota County, Ms. Price elected to remain in the Plan instead oft transitioning to the County's retirement option. Ms. Price has 30.34 years of service and requests the lump sum option at age 52. Pension Plans Administrator Martin advised that Pete Strong of Gabriel, Roeder, and Smith, the Plan's actuary, reviewed and confirmed Pension Administration's calculation of Ms. Price's benefits. Trustee Keeler made a motion to accept the request for normal retirement from Charlene Price; Vice Chair Nicholas seconded the motion. The motion carried unanimously (7-0). 9. INVESTMENT PERFORMANCE REVIEW: 9.1. Presentation and Discussion Re: Graystone Quarterly Performance Review as of June 30, 2022. Presenter(s): Scott Owens CFA, CIMA, Associate Vice President, Institutional Consultant; Andrew MclIvaine, Institutional Consultant; Graystone Consulting. Scott Owens and Andrew MclIvaine of Graystone Consulting appeared before the Board and introduced themselves. Mr. Owens introduced Graystone's presentation and explained that although the S&P 500 return since inception in 1926 has averaged approximately 10.5% per year, the annual return of any single year has been between 8% and 12% only 6 times in 96 observations. The Board may anticipate significant disparities in returns from year to year, and as such, it should continue to reduce volatility through allocation of assets. Mr. MclIvaine provided a market summary, noting that during Q1 and Q2 of 2022, the S&P 500's performance was the worst since 1962, and the bond market, as indicated by the Barclay's Capital Aggregate bond index, performed the worst since 1970. He read a quote from Lisa Shallet, Chief Investment Officer of Morgan Stanley, published July 11, 2022, which asserted capital market returns for the last 13 years have been disproportionately impacted by the Federal Reserve's (Fed's) efforts to normalize growth and inflation by repressing short term interest rates to incentivize risk taking inl long-term assets. Lower interest rates have negatively impacted the bond market which has, for the last several years, returned 1.5% to 2% while savings accounts were retuming 4% to 5%; investors seeking more returns have been forced into riskier equities. Mr. MclIvaine suggested that, in the context of the significant retums in 2021, a prolonged down-market could be anticipated. The most significant Book 1 Page 332 07-19-2022 10:00 a.m. Book 1 Page 333 07-19-2022 10:30 a.m. issue in the economy has been inflation, which is at a 41-year high at 9.1%. The cumulative effect of liquidity being removed from the market in response to a 100-year event and the Fed raising interest rates has been a normalization of conditions, albeit exacerbated by the war in Ukraine. Mr. Mclivaine noted that eamings season started last week. In making forecasts, analysts note that companies are contending with higher gas prices which increases product delivery costs. Further compounded by inflation, revenues may be up however earnings are down which should drive stock prices down. Also, analysts are attempting to forecast whether the economy will enter a recession. There are 3 competing theories: 1) the economy is in a recession now, 2) the economy will enter a recession in 2022 or 2023, or 3) the economy will experience a period of stagflation, with higher interest rates and slower economic growth. Morgan Stanley predicts more volatility before seeing more positive returns. Value will continue to outperform growth because of rising interest rates. In fixed income, values may fall somewhat, however the majority of the impact of increased interest rates has already been absorbed due to the Fed's transparency. Attorney Christiansen, Trustee Reardon, Mr. Owens, and Mr. MclIvaine discussed the definition of "recession." Traditionally, a recession is defined as two consecutive quarters of negative growth in the Gross Domestic Product. Because of the apparent abundance ofj jobs and wage growth, which haven't typically been experienced in previous periods of recession, some economists suggest the current environment is a shallow recession. Mr. Owens noted that companies which previously had numerous job postings may now only have a few, and tech companies are even cutting jobs. He differentiated the establishment jobs report, which surveys companies, and the household jobs report, which surveys people's individual employment status and accounts for gig labor. Mr. Owens noted the household jobs report has shown declines for the last 3 months, suggesting a contraction in job availability; this has, historically, been a precursor to inflections in the market. Regarding inflation, Mr. Owens noted that rising interest rates will cause homebuilders to construct fewer new homes, which, in tur, will drive up the values of existing housing and rental properties. Mr. Owens asserted that the Fed's efforts to bring down inflation by raising interest rates will require a multitude of other economic components to also stabilize to be effective. He noted that 10 of the last 13 times the Fed increased interest rates were in responses to recessions, and the Fed has never tried to reduce inflation by more than 4%. Considering the amount of uncertainty in the market, the Board is right to focus on risk mitigation; Mr. Owens noted that some of the more defensive funds in the portfolio, like HGK, have outperformed on a relative basis. He discussed the relative strength of the US Dollar compared to other currencies. While globalization had been popular in previous economic cycles, there is a now de-globalization effort to minimize the global impact of negative events. He discussed how external causes, such as the weather on the coffee industry, or the war in Ukraine on the energy market, have adversely affected the economy; although these events are entirely coincidental, they have compounded the challenges the market faces. He explained that only raising interest rates has brought inflation down, whereas every other event in the economy has increased it. Mr. MclIvaine noted that 14 states have begun issuing stimulus checks, and the federal student loan forgiveness program have both added to inflationary pressures. Mr. Mcllvaine discussed the Capital Market Returns, pointing out negative returns for the quarter to date, year to date, and past 12 months. Value has outperformed growth in small, mid, and large cap; he noted that the Russell 2000 Value Index, which is small cap, has outperformed the Growth Index in all timeframes through 7 years. He reviewed the S&P 500 Sector % Returns, Developed Markets Equity % Returns and Emerging Markets Equity % Retums, noting that although China underperformed significantly in the last quarter, it has a positive return in the Q2 2022.Mr. Mcllvaine reviewed the Fixed Income % Returns. Mr. Owens reviewed the Total Fund - Executive Summary, noting the portfolio outperformed the Policy Index by 1.86 basis points. The negative 0.10 basis point difference over 7 years is not concerning as some of the portfolio's more defensive funds have less risk than the index. He noted that, since inception, the portfolio is producing higher returns with less risk; he reviewed the Historic Asset Growth. Mr. Owens discussed the Total Fund - Risk/Return: Since Inception, explaining that while the portfolio has an upside captures rate of 98.57%, its downside capture is 92.05%, which means the portfolio has performed defensively as intended. He reviewed the Asset Allocation, noting underweight positions in equities and fixed income but an overweight in alternatives. Regarding the Asset Allocation Compliance, he further clarified that within equities, the portfolio is overweight in value underweight in growth, and underweight in internationals; Mr. Owens asserted that international equities will likely become more attractive in the near future. He noted that the real estate funds have done exceptionally well, and he will propose rebalancing the portfolio to move assets from real estate into fixed income to be more defensive of those gains. Mr. Owens reviewed each of the fund managers. He noted HGK's relative outperformance over the last year, which is consistent for a defensive manager, and underperforance by ClearBridge and Polen which are growth managers. He asserted Polen's underperformance was due to the index's position in energy, to which Polen has no exposure. He discussed NFJ's low volatility, positive alpha with approximately 90% up-capture, but 76% down- capture. Secretary Griggs left the meeting at 10:41 am. To counterbalance NFJ, the portfolio added Allianz which is more volatile, and it has generally performed well since inception, but underperformed recently. Franklin Templeton, which has not performed as well in positive markets, has protected significantly over the last year. Mr. Owens noted growing concerns regarding Renaissance and as iti is typically a defensive manager, yet it has failed to provide positive relative returns over any timeframe. Mr. Owens recommended revisiting their performance at Graystone's next quarterly performance review and if Renaissance does not outperform, conducting a fund manager search. Invesco is performing as expected. Turning to real estate, Mr. Owens discussed AEW. Trustee Reardon asked if real estate is performing well due to cash flows generated by the properties held or from investors seeking safer asset classes. Mr. Owens stated that the real estate sector's performance is due to lower capitalization rates and higher rents. The cash flows have remained relatively stable. Trustee Reardon asked how commercial real estate could be performing well when news reports state that commercial occupancy rates are 60% lower than pre-pandemic rates. Mr. Owens noted that most commercial real estate leases are long term and while spaces may not be occupied byi in-office workers, tenants must continue to pay rent. Further, fewer workers are utilizing more space than pre-pandemic due to social distancing. Additionally, while employers are encouraging workers to return to offices, labor shortages have enabled employees to demand working remotely; this dynamic may not exist in 5 years when employers would be better able to require employees to work in the office. Mr. MclIvaine noted the consistent demand for office space and as well as the differences between the types of real estate properties. Secretary Griggs rejoined the meeting at 10:48 am. Mr. Owens and Mr. Mclivaine discussed the difficulties in converting one type of real estate to another; conversions are more difficult with high-rise office buildings which have numerous tenants and varying lease terms. Mr. Owens continued his discussion of AEW's and UBS's performance and noted they have similar volatility as bonds without the correlation, which makes them ideal for the portfolio. He reviewed Lazard Global Infrastructure, and noted it has significantly outperformed its index, and it is highly liquid. Returning to his recommendation to rebalance the real estate holdings, Mr. Owens expressed some urgency as AEW, and UBS are relatively illiquid assets which will take time to satisfy the redemption requests. Trustee Reardon asked if any of the fund managers have gate provisions, which restricts how assets are liquidated from investments to prevent a run on a fund. Mr. Owens replied that both managers have these type of protocols in place. Treasurer Strickland left the meeting at 10:51 am. Mr. Owens provided an anecdote regarding UBS and a change in its valuation which caused an influx of redemptions; payment gating caused significant delays in satisfying redemption requests, which were taking up to 12 quarters to satisfy. He explained that the Board held its investments at UBS and were ultimately rewarded as it has provided steady and level income; he noted that changes in appraised values are only meaningful at the time assets are bought and sold. Mr. Owens noted there are no Compliance Checklist issues. Treasurer Strickland returned at 10:54 am. Returning to the Asset Allocation, Mr. Owens advised the Board he recommended submitting redemption requests Book 1 Page 334 07-19-2022 10:00 a.m. Book 1 Page 335 07-19-2022 10:30 a.m. to UBS and AEW to liquidate sufficient assets to return their allocations to their respective target weights, and invest the proceeds, as they are received, in fixed income to bring its allocation to its target of 20%. At Mr. Owens' request, Attomey Christiansen stated the Board must vote on this recommendation. To Chair Chapdelain's question regarding the timing of the redemption request, Mr. Owens noted that it would likely take 3 to 4 quarters for UBS and AEW to pay out the redemptions, and therefore it was more important to begin the process now. He noted that if real estate continues on its current upward trend, the Board could discontinue the redemption. Payments would be made quarterly until the redemption is satisfied or cancelled, and the amount of time needed to satisfy a redemption would depend on how many other investors submit redemption requests, as well as other investment activity. He also noted that proceeds from real estate redemptions could be re-invested or utilized according to the Plan's needs at the times of receipt. Vice Chair Nicholas noted that there is only one fixed income manager, and it is targeted to hold 20% of the portfolio. Mr. Owens stated that as the allocation in fixed income grows, the Board may consider adding a shorter- duration fixed income manager to supplement the longer-term core fixed income manager. Invesco is an intermediate fund and can underweight or overweight duration. Chair Chapdelain asked about Invesco's performance; Mr. Owens stated that it is difficult to be marketably different from the fixed income index. Garcia Hamilton is a fixed income manager which has consistently performed well, however, he noted that .5 alpha is a remarkable difference in that space. Mr. Owens cautioned the Board that fixed income investments are used to mitigate risk and are not as effective at generating returns as equities such as small cap funds. He offered to bring a fixed income manager search for the purpose of adding to the portfolio, and not to replace Invesco. Attomey Christiansen pointed out that adding assets into fixed income as interest rates are rising will generate greater revenue from the fixed income assets; as lower-rate bonds mature, they would be replaced with higher rate bonds. Mr. MclIvaine and Mr. Owens agreed. Chair Chapdelain asked Mr. Owens to include fee structures in the manager search. Treasurer Strickland asked Mr. Owens to clarify his recommendation. He requested the Board consider authorizing the redemption of sufficient assets from AEW to reduce its relative account balance to its target weight of 5% of the Plan's portfolio and authorizing the redemption of sufficient assets from UBS to reduce its relative account balance to its target weight of 5% of the Plan's portfolio and re-allocate the redeemed proceeds into fixed income. Pension Plans Administrator Martin noted that only preliminary statements were available from AEW and UBS as of this moring and asked if the Board should wait until final statements were issued. Mr. Owens advised that because the redemptions will take several quarters to complete, and the relative dollar amounts in each fund will change daily, he recommended reducing the balances in AEW and UBS based on percentages, and not dollar amounts. Treasurer Strickland made a motion to approve Mr. Owens' recommendation as stated; Trustee Keeler seconded the motion. The motion carried unanimously (7-0). 10. UNFINISHED BUSINESS: None. 11. NEW BUSINESS: 11.1. Presentation and Discussion Re: Graystone Consultants, Small Cap Growth Fund Manager Search. Presenter(s): Scott Owens CFA, CIMA, Associate Vice President, Institutional Consultant; Andrew MclIvaine, Institutional Consultant; Graystone Consulting. Mr. Owens noted that this search wasn't due to Allianz's poor performance, but that the Board wished to review other small cap growth managers which are not experiencing the issues which led to Allianz's transition to Voya. Mr. Owens reviewed the Search Summary and noted that each of the managers presented have different strengths. He noted that Conservative Growth typically means high quality and low Price to Earnings ratio (P/E), and Traditional Growth indicates higher P/E and more volatility. He stated that DF Dent looks for high quality companies with eamings growth; iti is typically overweight in industrials and underweight in health care. DF Dent does not have the same weightings or holdings as its benchmark. Fiera has a P/E more consistent with the Russell 2000 Growth Index but is a comparable in size to DF Dent and Allianz. Fiera is a top-down investor, meaning it seeks quality companies within specific sectors, while a bottom-up investor will focus more on profitability and eamings and less on sectors. Fiera has dramatically reduced its size over the last several years, which Mr. Owens suggestedi is a concern worth exploring ift the Board considers engaging with them. To Trustee Reardon's question as to why Fiera has reduced its size, Mr. Owens stated that they had sold off sizable portions of assets, and that small- and mid-cap haven't performed as well as large-cap funds. Their reduction does not appear to be related to any one specific event or issue, and they have performed well relative to their benchmark. Geneva is a bottom- up investor which includes consideration to sector analysis. They look for strong companies with low debt and high or increasing earnings; it has al high P/E relative to the benchmark. Polen has a concentrated portfolio with only 26 holdings and is the smallest fund manager presented. Westfield has a similar P/E. Mr. Owens reviewed each fund managers' Standard Deviation, which measures the relative risk, and noted the Board's interest in de-risking the portfolio. Turning to the Trailing Periods Return Analysis which shows the average annualized returns, Mr. Owens noted that on average, over all timeframes, Allianz, Geneva, and Westfield have had higher returns than the benchmark. On the Calendar Year Return Analysis, which shows the annual returns, Mr. Owens noted that Allianz has the least consistent returns, DF Dent is relatively new, and Geneva and Westfield have more consistently outperformed the benchmark; he noted Westfield has the least risk. The 5-Year Rolling Period Returns and 5-Year Rolling Periods Alphas shows the consistencies of returns; Mr. Owens noted Geneva has always had positive alpha which means it has consistently outperformed its benchmark on a risk- adjusted basis, and has had either a higher return or lower risk. Westfield had 3 periods of negative alpha in 2013, 2014, and 2018. The Style Analysis shows how true to their stated strategy each manager is, and, as small-cap growth managers, how often do they have holdings which are value stocks, or mid- or large-caps. Chair Chapdelain asked Mr. Owens to discuss the Risk/Return Analysis - 10 Years, and specifically focus on the down-capture rates. Mr. Owens also pointed to the Risk/Return Analyses for 3-, 5-, and 7-years and noted that they show that the managers presented generally performed consistently with each other, and there is no clear out- or under-performing fund. He noted that Allianz has the greatest up capture as well as highest down capture rates; DF Dent and Geneva have the lowest volatility with the least down-capture. Over the longest timeframe, DF Dent and Geneva have the largest alphas, although DF Dent has slightly more risk than Geneva. Chair Chapdelain asked if Mr. Owens was concerned that Geneva does not allow foreign stocks. Mr. Owens stated he was not and would be more concerned ifi it aimed toi invest in companies which generated their revenues in the United States but were domiciled abroad. Turning to Morgan Stanley's Focus List Report for Geneva, Chair Chapdelain asked Mr. Owens to discuss the Areas of Concer, which states that thet firm could lose a substantial amount of assets due to potential concentration risk. Mr. Owens explained that investors with asset concentrations in any specific space which has negative performance will similarly be negatively impacted. However, those concentrations could also perform well, which would bring better returns. In this context, decisions will be more impactful. Chair Chapdelain asked if Mr. Owens knew what percentage of the portfolio is held by Geneva employees; Mr. Owens did not and added that some funds require their employees to invest their retirement accounts in their respective funds. Vice Chair Nicholas noted that the information presented lists Allianz as a fund manager and asked if that represents Voya; Mr. Owens confirmed it does. Book 1 Page 336 07-19-2022 10:00 a.m. Book 1 Page 337 07-19-2022 10:30 a.m. Trustee Thornburg asked if any of the other fund managers have had legal issues. Mr. Owens stated they have not to the extent Allianz had. While the Plan has securities monitoring in place and Morgan Stanley has its own security monitoring services, securities litigation is ever-present. He stated that Morgan Stanley's research analysts also filters out those fund managers which have had significant issues, and if issues are substantial enough, the fund will go out of business. Chair Chapdelain noted that the next regular meeting will be September 26, 2022 and Lazard is scheduled to present; Vice Chair Nicholas noted that Voya is scheduled to present at the October 19, 2022 meeting. Mr. Owens confirmed he could attend the September 26, 2022 meeting. The Board discussed asking Allianz/Voya to present at the September 26, 2022 meeting, and Lazard to present at the October 19, 2022 meeting, as well as inviting DF Dent and Geneva to present at the September 26, 2022 meeting. Trustee Thornburg asked Mr. Owens to discuss Westfield; he explained that he has no significant concerns with any of the fund managers presented, and Westfield is a consistent manager. That notwithstanding, if he were to recommend an additional fund manager to consider, he would recommend Polen or Fiera as the Plan already has assets with 2 defensive managers. Mr. MclIvaine noted that Westfield's fees are higher than the others. Trustee Keeler made a motion to invite Allianz/Voya, Geneva, and DF Dent to present at the September 26, 2022 meeting, as well as ask Lazard to present at the October 19, 2022 meeting. Attorney Christiansen suggested advising Allianz/Voya to be prepared to further discuss their transition from Allianz to Voya as the Board is considering supplementing its small cap growth manager, or even replacing Allianz/Voya. Mr. Owens advised he would relay the request to Allianz/Voya. Trustee Thornburg seconded the motion. The motion carried unanimously (7-0). The Board thanked Mr. Owens and Mr. MclIvaine for their presentation. 12. ATTORNEY MATTERS: Attorney Christiansen asked if Trustee Reardon was re-appointed by the City Commission; Secretary Griggs confirmed the City Commission had reappointed him for an additional 3-year term. Attorney Christiansen noted that all trustees have submitted their Form 1 financial disclosures for 2022; he noted that Trustees Keeler and Thornburg had previously submitted Form 1s when they, joined the Board earlier in 2022. 13. OTHER MATTERS: None. 14. ADJOURN. Chair Chapdelain adjourned the meeting at 11:35 a.m. Sae 1 Châir RyChapdelain Secretan/Shayla Griggs/