Book 1 Page 445 07-30-2024 10:00 a.m. MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JULY 30, 2024 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, 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 and Secretary Shayla Griggs. 1. CALL MEETING TO ORDER: Chair Chapdelain called the City of Sarasota (City), General Employees' Pension Plan (Plan) Board of Trustees Regular meeting to order at 10:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Pension Plans Administrator Martin. Pension Plans Administrator Martin 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 Secretary Griggs were 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 June 11, 2024. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the. June 11, 2024, Regular Meeting; Vice Chair Nicholas seconded the motion. The motion passed unanimously (5-0). 7. APPROVAL OF RETIREMENT REQUESTIS): None. 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Graystone Consulting, Quarterly Investment Performance Review as of June 30, 2024. 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 of Graystone Consulting appeared before the Borad and introduced himself. Mr. Owens stated that, as confirmed by thel Plan's Attorney, the City Commission adopted a proposed ordinance applicable to the City's Police Officers' Pension Plan (POPP) Board of Trustees which allows that Board greater authority when making investment decisions than it had previously. Attorney Christiansen noted that there are no State statutes which significantly restrict the investment authority of the Plan, however City ordinances are very restrictive. The POPP Board adopted Attorney Christiansen's most liberal investment authority language, which now allows that Board to invest in more asset classes than the Plan is currently afforded. Mr. Owens noted that most of his clients have language comparable to Attorney Christiansen's most liberal language; most of the plans which do not are being updated. He opined that having more investment options could provide for al higher return to improve the portfolio's efficiency, although he cautioned that moving into any new: asset class would include asset allocation studies. Attorney Christiansen clarified that Chapter 185 of Florida Statutes limits the POPP plan from allocating more than 25% of its portfolio to international investments, however the Plan is not subject to Chapter 185 and there are no other state statutes which limit the asset classes in which the Board may invest. Prior to the City Commission adopting the aforementioned ordinance, the POPP and Plan had similarly restrictive provisions regarding available asset classes in which that Board could invest. He suggested that, because the City Commission approved the expansion of the POPP Board's available investment options, it may be similarly amenable to expanding those for the Plan. He cautioned, however, that the Board and POPP must still exercise prudent judgment in making investment decisions and added that the proposed expanded authority does not require the Board to change any of its current investments, allocations, or strategies. If the Board would like to review a proposed ordinance, Attorney Kaufman could bring it to the next Board meeting. To Chair Chapdelain's question, Pension Plans Administrator Martin advised that the City's Firefighters' Pension Plan has not recently made any amendments to its controlling provisions. To Chair Chapdelain's and Trustee Reardon's questions, Mr. Owens explained that, if the Board's investment authority were expanded, Graystone would first present educational materials to the Board regarding the newly available asset classes such as private equity, private credit, individual hedge funds as well as hedge fund of funds. He noted that there are some alternative investments with very low volatility which consistently return 5% to 6% and would be very appropriate for a closed plan to use instead of a portion of the fixed income allocation. The Board would want to make decisions based on each investment's relative risk profile and cashflow needs. He added that the portfolio is generally performing as expected, and that his suggestion is only a proactive measure sO that the Board may act more expediently if it were to decide to invest in an asset class which is currently prohibited. The Board and Attorney Christiansen discussed the process by which the Plan's provisions could be changed. The Board would need to direct the attorney to prepare a proposed ordinance and then present the proposed ordinance to the City Commission. Chair Chapdelain reiterated that the current City Commissioners may be more open to approving changes to the Plan as it has already approved changes to the POPP ordinances. Trustee Thornburg expressed interest in reviewing the proposed ordinance at the Board's September 30, 2024, Regular Meeting, and then having the proposed ordinance presented to the City Commission in October. At Chair Chapdelain's request, Attorney Christiansen explained that a proposed ordinance would be similar to that which was approved for the POPP, however it would not need to include a limitation of a 25% maximum allocation to foreign investments, but the Board could request it if it wanted. Trustee Keeler made a motion, as explained by Attorney Christiansen, to direct the Plan's Attorney to draft for thel Board's review at its September 30, 2024, Regular Meeting, a proposed ordinance to change thei investment restrictions to the most liberal language. Trustee Thornburg seconded the motion. The motion passed unanimously (5-0). Book 1 Page 446 07-30-2024 2:00 p.m. 4h Book 1 Page 447 07-30-2024 10:00 a.m. Turning to the Capital Markets Returns in the presentation materials, Mr. Owens noted that mid- and small- caps were negative; the only positive sector was large-cap growth stocks, and that sector was driven by only 5 or 6 stocks. In an environment in which there is significant concentration in large-cap growth stocks as well as in technology stocks, such as exists now, active managers will be unable to outperform as they are prohibited from holding such concentrations. The Sector Returns show that Technology and Communication Servies were up, and 8 sectors were either flat or negative; International stocks performed similarly. Mr. Owens asserted that Fixed Income, on a quarterly basis, should yield at least 1% per quarter; as most indexes were less, they were essentially negative and the values of bonds went down. He noted that cash is still outperforming the rest, with the understanding that the Bloomberg High Yield fund acts more like equities. Graystone anticipates interest rates are stabilizing and will soon decline. Mr. Owens provided a market outlook. Referencing page 8 of the materials, he noted the job market is tightening. On the page titled US Employment Data, the charts show unemployment is rising, the participation ratei is leveling off, and earnings are starting to decline; the market has been very volatile in response to whether or not the economy will suffer a hard or soft landing from the economic downturn caused by the COVID-19 Pandemic. Page 11 shows that revolving consumer debt is now higher than ithas ever previously been and personal savings has continued to decline, although, as Trustee Reardon noted, it does not include home equity. Mr. Owens explained that the market has to absorb over time, the large reductions in personal savings, as those reductions change consumers behaviors, and the market is still feeling its way through those changes. Mr. Owens reviewed the page titled US Equity Performance VS. Earnings Performance, and explained that prices typically go up in anticipation of higher earnings which creates dislocations; when the actual earnings decline, the market will pull back. He noted that one of the major banks is reporting a nearly 90% increase in credit card defaults. These indicate that the safety net created by federal stimulus in response to the COVID- 19 Pandemic is now gone. While the Board positioned the portfolio more defensively in advance of a downturn with an acceleration in 2023, there has been more volatility in 2024. He noted that interest rates in the US are among the highest in the world, as shown on the page titled Real 10-Year Interest Rates. Mr. Owens opined on what could happen in the economy depending on who were to win the presidential election in 2024. He reviewed the page titled Impact of Rate Changes on Fixed Income Prices, noting that the Fed has control only over short-term interest rates and the market determines what longer-term rates will be. Turning to the Total Fund - Executive Summary, Mr. Owens explained that, although the portfolio is underperforming its index, the Fiscal YTD Return is more than twice the expected rate of investment return, and therefore better than needed. As of Friday, July 26, 2024, the managers were outpertorming their benchmarks, however that will not continue if there is a surge in the large-cap growth tech sector. The Asset Allocation Compliance by asset class shows the portfolio is overweight to cash and underweight in Fixed Income because that is the highest portion of the yield curve; when the cash and fixed income allocations are combined, the total equals the fixed income target. Similarly, the combined underweight in Alternatives equals the overweight in Equities. The Asset Allocation Compliance by fund manager shows each is very close to their respective target because of the conflicting information in the market. Before reviewing each fund manager, Mr. Owens reminded the Board that, on the Risk & Return chart, the manager should be above the diagonal line. He noted that both Hudson Edge, Clearbridge, and Polen, despite significant absolute performance, each underperformed their respective benchmark, and therefore produced negative alpha which is undesirable. The large cap managers all underperformed their benchmarks due to the significant concentration in tech stocks. While there was market volatility in the current month, which may aid active managers, the Board may wish to consider shifting a portion of the large cap allocation into a passively managed fund if the concentration trend continues. On the other hand, if the market turns downward, active managers should preserve assets better than passive. To Chair Chapdelain's question, Mr. Owens explained why Polen underperformed its benchmark more than Clearbridge underperformed its benchmark. Clearbridge has approximately 50% of its portfolio in core stocks, 25% in momentum stocks, and 25% in defensive stocks, with over- or under-weights in momentum or defensive, depending on which is in favor at the time; it will outperform when the market is clearly trending, and will underperform when there's capitulation. Polen has 25 stocks and stays very close to its mandate of buying consistent and clear earnings-growing companies; it is comfortable forgoing gains from stocks which do not meet its criteria. Because of this difference, Polen's relative underperformance is greater than Clearbridge's. Mr. Owens reiterated that, since inception, Polen has returned 14.28% per year when the target was approximately 6%, however the cost of risk management may be becoming too expensive. Mr. Owens opined on various parings of low-risk but high-alpha managers with passive managers. He noted the similarities between the current market and that during thei tech bubble in the early 2000s, and cautioned the Board against making hasty changes to the portfolio. The Board expressed interest in continuing the discussion of passive management at. its next meeting when the full Board is present; Trustee Keeler advised he would not be at the September 30, 2024 meeting. Mr. Owens advised that he would provide a market update at the end of the quarter to Pension Administration to provide to the Board. Either Mr. Owens or a representative from Graystone can be at the September 30, 2024 or Octoer 14, 2024 meeting. Returning to the performance review, the remaining managers were appropriately above the risk/return line meaning they produced positive alpha. NFJ was down less than its benchmark. Templeton outperformed its benchmark with less risk. Renaissance has slightly positive alpha as it has slightly more risk than the benchmark, but it is rewarded with a higher beta. He reiterated that only the large cap space has been concerning during the last quarter, however that class produced the most in absolute returns while performing the worst on a relative basis; he noted that relative returns do not produce investment growth or actual income. Segall Bryant Hamill, as a short-term bond fund, has produced the desired effect, however if rates begin to fall, longer-term managers will outperform. AEW is outperforming on a relative basis but underperforming on an absolute basis; it continues to provide a 7% annual return since inception. UBS has performed similarly, but not as well; the Plan has a pending redemption from UBS. Mr. Owens was not able to explain why Lazard underperformed in the quarter due to the complexity of global infrastructure investments; he noted that it does not hold energy companies which may be the cause. There are no compliance issues to address. Mr. Owens reiterated that his only recommendation is to have a future discussion regarding passive or active management in the large cap space to determine if the cost of active management is too expensive. He advised he would contact Pension Administration to coordinate Graystone's possible appearance at the Board's September 30, 2024, or October 14, 2024 meeting, as well as performance update. The Board thanked Mr. Owens for his presentation. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: None. 11. ATTORNEY MATTERS: Attorney Christiansen advised that all trustees have filed their State Ethics Commission financial disclosures. The City Commission adopted the proposed ordinance which allowed members on unpaid leave for more than 30 days to remain in the Plan upon their return to work. Pension Administration forwarded a copy of the ordinance to the State of Florida. Attorney Christiansen advised this is his last meeting before his retirement and thanked the Board for the opportunity to serve. Chair Chapdelain and the Board thanked Attorney Christiansen for his professional, comprehensive, and sound counsel to the Plan and presented a commemorative plaque of appreciation. 12. OTHER MATTERS: Pension Plans Administrator Martin advised that the Plans' Attorney is developing a meeting schedule for CY2025 to propose to the Board. Because the Pian and the POPP use the same attorney, the Attorney's office Book 1 Page 448 07-30-2024 2:00 p.m. Book 1 Page 449 07-30-2024 10:00 a.m. asked if both Boards would consider holding meetings on the same days so that the two plans could share the Attorney's travel costs. A brief discussion ensued. Some trustees advised that Fridays, when the POPP Board meetings have been held, are more difficult to attend, and the City Commission typically holds meetings or workshops on most Mondays. So that a proposed calendar may be presented at the September 30, 2024, meeting, Pension Plans Administrator Martin advised she would confirm ift the POPP Board Chair was amenable to moving their meeting dates from its regular Fridays, and if so, advising the Attorney for their input. 13. ADJOURN. Chair Chapdelain adjourned the General Employees' Pension Plan Board of Trustees meeting at 10:55 a.m. BL y - Chair Ryan Chapdelain Secretary Shayla Griggs