MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF NOVEMBER 29, 2023 Present: Chair Michael Hartley, Vice Chair Charles Joseph, Secretary/reasurer Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Attorney Pedro Herrera, Attorney Shauna Morris, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None 1. CALL MEETING TO ORDER: Presenter(s): Chair Hartley. Chair Hartley called the Sarasota Firefighters' Pension Plan (Plan) Board of Trustees Regular meeting to order at 9.00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary/reasurer Griggs. Vice Chair Joseph led the Board and meeting attendees in the Pledge of Allegiance. 3. 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.' 4. ROLL CALL: Presenter(s): Debra Martin, Pension Plans Administrator. 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 Firefighters' Pension Plan Board of Trustees Regular Meeting of October 25, 2023. Presenter(s): Chair Hartley Vice Chair Joseph made a motion to approve the minutes of the October 25, 2023, regular meeting; Trustee Mushrush seconded the motion. The motion passed unanimously (5-0). 7. INVESTMENT PERFORMANCE REVIEW: 7.1. Presentation and Discussion Re: Graystone Consulting; Quarterly Performance Review as of September 30, 2023. Book 1 Page 390 11-29-2023 9:00 a.m. Book 1 Page 391 11-29-2023 9:00 a.m. 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. Mr. Owens introduced Graystone's presentation and shared an anecdote suggesting its superior relative performance in 2022 during which the market declined, thus demonstrating the effectiveness of defensive positioning. He reminded the Board that a defensive position will generate less returns in up markets and preserve more assets in down markets relative to more aggressive positions. Attorney Morris joined the meeting at 9:08 a.m. Mr. Loew provided a market overview, noting it has changed dramatically in the past 12 months. The market has largely adjusted to the Federal Reserve's (Fed's) frequent short-term interest rate hikes which appear to be effectively reducing inflation, albeit more slowly in the most current quarters; analysts assert there is a 25% chance the Fed will continue to raise rates in December 2023. A balanced portfolio will have a risk- appropriate mix of equities and fixed income, as those classes have traditionally performed inversely to each other; however, in the current environment, equities and fixed income funds have risen and fallen simultaneously. This has benefited cash, to which the portfolio is currently overweight. The Fed's goal in maintaining higher interest rates for a longer timeframe is to slow economic growth sO that, when inflation is within the Fed's target of 2% to 2.5% and the Fed begins to lower rates, rampant inflation will not return. Turning to the presentation materials, Mr. Loew reviewed the Capital Market Returns, noting that the US Equity market has been driven by 7 mega-cap tech-affiliated stocks, while small- and mid-cap stocks have trailed; the market has also favored companies which investors believe will benefit from artificial intelligence. The 7 mega-cap companies, commonly referred to as, "the magnificent 7," comprise over 45% of the Russel 1000 Growth Index. A defensive investment strategy will include more high-quality value stocks, and the fund managers who have leaned towards being defensive and away from the magnificent 7 have underperformed. Mr. Loew asserted that higher interest rates will eventually have a negative impact on those companies which highly leveraged assets and borrowed cash to fund their growth and the market will return to favoring those higher quality value equities found in defensively positioned portfolios. In international markets, Mr. Loew explained that the US Dollar has been improving against foreign currencies over the last 3 quarters, which has hurt international investments; in Q4 2022, foreign equities had nearly twice the returns than those of domestics. While developed markets slightly outperformed over the last 12 months, emerging markets did not fare as well. In China, analysts had anticipated a resurgence of demand when that economy reopened after shutting down for the COVID-19 pandemic, however that demand never came; China is reducing interest rates to encourage spending and growth. Mr. Loew asserted lower interest rates in the US will benefit international stocks as foreign economies keep rates higher to slow growth. Graystone may recommend increasing the portfolio allocation to international equities in the future. Fixed Income markets have been significantly volatile. The Bloomberg US Aggregate 10 Years annualized return is only .01% more than that of the 90-Day T-Bills, which is cash; this is entirely due to rising short- term interest rates. Further, the Bloomberg US Aggregate Quarter to Date return is the same as the S&P 500's; traditionally, declining equity markets have been met with rising fixed income returns, however that has not been seen in the current environment. Fixed income and equities have had positive returns in the last quarter and Graystone anticipates that to continue in the next quarter; the Board could consider further de-risking the portfolio by moving more assets to cash which will earn nearly as much as the expected rate of investment return. When the Fed begins to lower short-term rates, which Graystone expects in the next 12 to 18 months, it would be an opportune time to increase the duration of fixed rate investments. To Chair Hartley's questions, Mr. Loew discussed that theUS Treasury had a record amount of debt to issue in Q3 2023; fixed income analysts and investors had prepared for an influx which caused T-Bill rates to spike. The Treasury Department then issued less debt than expected, and the issuances were at the shorter end of the yield curve. Investors' reactions brought rates down from 5% to 4.3%. Mr. Owens opined that this degree of rate fluctuation is enormous, considering how much effort the US government exerts to not surprise the market. Further, fixed income investment prices are adversely impacted not by higher or lower yields, but when the yields change. Mr. Owens discussed how the declining prices for manufactured goods and rising costs for services through the COVID-19 pandemic and ensuing inflation, as well as the unprecedented nature of the Fed's rate hikes throughout the last 18 months, have clouded analysts' forecasts which has led to greater uncertainty in the markets. Graystone suspects the Fed will hold interest rates steady until mid-2024 and then have approximately 10 rate decreases over the following 18 months, although the amount by which rates are decreased is uncertain. Chair Hartley stated that this uncertainty has made fixed income investment decisions difficult. Mr. Owens explained that the Fed's goal is for cash returns and the rate of inflation to match and remain between 2% and 2.5%; this may be achievable by the end of 2025. Ifrates begin to go down, Graystone may recommend investors increase fixed income duration, however it does not recommend changes at this point. Mr. Owens noted that the investors who increased duration when the Fed began its dramatic rate increases have suffered losses, and therefore he recommends making less speculative investment decisions in favor of responding to quantifiable performance measures. To Chair Hartley's questions, Mr. Owens explained how both interest rate changes and property appraisals have impacted real estate fund managers' redemption queues, including that of UBS. There has been a shortage of real estate buyers which has caused property values to drop considerably; the transactions occurring now are distressed sales. This creates notj just al lower sales comparison property for appraisals, but it also discourages property owners from selling. Additionally, if buyers suspect interest rates will soon come down significantly, they will be more likely to delay purchasing to reduce financing costs. Mr. Owens provided an anecdote in which a property owner who is looking to sell has increased the property's revenue by 30% through increased rents, indicating a highly desirable property, yet is still unable to find a buyer. Mr. Loew concluded his remarks by asserting that Graystone believes the markets will be volatile in the short term. While rebounds from the bottom are typically driven by broad participation, Graystone does not believe the market cycle has reached the bottom yet and there will be good companies in which to invest. Mr. Owens reviewed the Asset Allocation & Time Weighted Performance page of the materials. The portfolio generally performed close to the index and earned more than the expected rate of investment return for the fiscal year. The S&P 500 index return over a 2-year period is currently negative, and it has not yet recovered the losses when it declined from its peak. The portfolio is performing as expected, which is slightly less than the index yet still achieving its target. Most of the fund managers outperformed their respective indexes, with the exceptions of Oak Ridge, Lazard, Renaissance, Richmond, and Cohen & Steers. He noted that UBS outperformed over every timeframe except fiscal Year to Date and 1-Year, and that over the long-term, real estate has contributed more to the portfolio than fixed income. Cohen & Steers has consistently underperformed, other than over the 3-Year timeframe; nevertheless, it is still a smart investment from an allocation perspective. The Total Fund - Risk / Return Analysis shows the portfolio has provided nearly the same return as the benchmark with approximately 10% less risk. He explained each of the columns on the Cash Flow Analysis. Mr. Owens reviewed the Asset Allocation Compliance pages and noted that, when there is uncertainty in the markets, maintaining allocations as close to their respective targets as possible, as the portfolio currently is, remains the safest strategy. Mr. Owens had no recommendations or concerns regarding any of the fund managers. He concluded his remarks by reiterating the Board maintain the portfolio's current positioning and slight overweight to cash. To Chair Hartley's questions, Mr. Owens discussed UBS's redemption queue. Approximately 2 years ago when the Plan submitted a redemption request, UBS advised that redemptions would be satisfied in 12 quarters; 8 of those 12 quarters have transpired yet nothing has been paid out. He asserted that, because real estate in general is a depressed asset class, more investors may see this as an opportunity to invest. In receiving new investment monies, UBS must balance its own operations costs against investors' needs for payouts. While not making redemption payments will anger investors, if UBS were forced to sell properties, the sales would be distressed and below market value, which would similarly anger investors. Pension Plans Administrator Martin noted that, in October 2023, the Plan received approximately $174,000 Book 1 Page 392 11-29-2023 9:00 a.m. Book 1 Page 393 11-29-2023 9:00 a.m. of the requested $4 million redemption, which was the first redemption payment. The Board had no further questions for Graystone and thanked them for the presentation. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: To Chair Hartley's questions, Pension Plans Administrator Martin and Attorney Herrera explained that the Plan received a Chapter 175 supplemental distribution in October 2023 that was recorded as an asset with an offsetting liability to be distributed in 2024. Pension Administration, the Plan's external auditor, attorney, and actuary each approved how the supplemental distribution was recorded. Attorney Herrera explained that, historically, the Plan has received an annual distribution of premium tax monies under Chapter 175 from the State of Florida, and oftentimes receives a supplemental distribution; there was a minimal supplemental distribution in 2022, and no supplemental distribution in 2021. The supplemental distribution in 2023 was a significant amount, issued in a check dated October 2, 2023, and received by Pension Administration after the end of Fiscal Year 2023. Trustee Snow explained that the significant amount of the supplemental check would impact the Plan's actuarial funding status, and he agreed with how the amount was recorded. Pension Plans Administrator Martin explained that City Ordinances require any tax premium monies received by the end of a given fiscal year to be distributed to participants by the end of that calendar year, however because this supplemental distribution was received after the end of Fiscal Year 2023, it will be distributed in calendar year 2024. 10. ATTORNEY MATTERS: Attorney Herrera introduced Attorney Shauna Morris. Attorney Morris discussed her professional experience in the pension field as a municipal attorney, as both inside and outside counsel. She has taught at the FPPTA trustee schools and looks forward to attending its events again. The Board, Attorney Herrera, and Attorney Morris discussed Pasco County changing work schedules for active firefighters. 10.1. Presentation and Discussion Re: Updated Special Report Regarding Chapter 2023-28, Laws of Florida (HB3). Presenter(s): Pedro Herrera, Sugarman, Susskind, Braswell & Herrera. Attorney Morris discussed Florida House Bill 3 (HB3) which requires Florida Local Pension Boards, and other public entities, to only consider pecuniary factors when making investment decisions. Because the Board does not consider non-pecuniary factors in investment decisions, no changes to practices are required other than compliance reporting. The State required the chair or pension administrator for each plan to file the first report by November 3, 2023. As Pension Plans Administrator Martin timely submitted the first report, Attorney Morris recommends thel Board make a motion to designate, both retroactively and going forward, the Pension Plans Administrator as the person to submit compliance reports for HB3 on behalf of the Plan. Vice Chair Joseph made a motion as recommended by Attorney Morris; Trustee Snow seconded the motion. The motion passed unanimously (5-0). Pension Plans Administrator Martin noted that she was unable to designate in the reporting portal a second person who could file the compliance report in her absence. Attorneys Herrera and Morris advised that other municipal pension plan clients were able to make this designation and that there have been several technical issues with the portal roll-out. Pension Plans Administrator Martin advised she would reattempt the designation. Attorney Herrera recommended the Board amend the motion to designate either Pension Plans Administrator Martin or her designee to submit HB3 compliance reporting. The Board approved by consensus. Attorney Morris asked the Board to approve the format of the HB3 compliance reporting form as shown in the presentation materials, subject to review by the Plan's attorney. Attorney Herrera clarified that the State of Florida provided very little guidance regarding the format of the form, however this document appears to satisfy the requirements of the law and is designed to include the Investment Policy Statement (IPS). Vice Chair Joseph made a motion to approve the Biennial Report of Decision-Making in Voting and Adherence to Fiduciary Standards format for the reporting required by HB3, subject to review by the Plan's attorney; Secretary/Treasurer Griggs seconded the motion. The motion passed unanimously (5-0). Attorney Herrera reviewed trustees' ethical obligations regarding gifts. Trustees should reject a gift of any value which is perceived to influence a trustee's decision-making. Gifts under $25 may be accepted with no reporting requirements. Gifts between $25 and $100 may be accepted; there is a reporting requirement for the person or entity who gives the gift. Gifts over $100 must be rejected. In 2023 and unless the Board objects, Sugarman and Susskind will continue to make a charitable donation on the Board's behalf to Florida local food banks. At Pension Plans Administrator Martin's request, Attorney Herrera explained that the presentation materials include a sample memo from the Board to each investment manager which oversees individually managed accounts. The memo reiterates that each investment manager must agree to the terms of the Plan's IPS, and adhere to the IPS's terms when voting by proxy on behalf of the Plan. Mr. Owens re-appeared before the Board and advised that Graystone will send the memo to each fund manager applicable but reiterated that the requirements for HB3 only apply to proxy voting and do not apply fund managers investment decisions. Attorney Herrera confirmed there is no reporting requirement for Pension Administration in addition to the biennial report discussed previously. 11. OTHER MATTERS: 11.1. Presentation and Discussion Re: Administrative Budget Analysis as of September 30, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Budget Analysis as of September 30, 2023. Although Salaries exceeded the budgeted amount due to the City of Sarasota issuing a sizable salary increase after the Board approved the FY 2023 Administrative Budget, the actual amounts expended for other items were less than their respective budgeted amounts sO that the Total Expenses for the entire budget was 98.6% of the approved amount. To Vice Chair Joseph's questions, Pension Plans Administrator Martin and Secretary/Treasurer Griggs Book 1 Page 394 11-29-2023 9:00 a.m. Book 1 Page 395 11-29-2023 9:00 a.m. advised that the Board has approved the FY 2024 budget, and that the City of Sarasota also issued an additional wage increase. 11.2. Presentation and Discussion Re: Check Register for July 1, 2023, through September 30, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Check Register for July 1, 2023, through September 30, 2023. To Chair Hartley's questions, Pension Plans Administrator Martin clarified that the $1,004 payment to Travelers Insurance is for crime; the $22,848 payment to Travelers Insurance is fiduciary liability. Secretary/Treasurer Griggs reminded the Trustees to advise Pension Administration if they would like to attend the FPPTA winter school in January 2024. 12. ADJOURN. Chair Hartley adjourned the meeting at 10:10 a.m. 5k - - Chair Michaél Hartley7 SeuéanvTglsyesioye Griggs