Book 1 Page 190 07-22-2020 9:00 a.m. MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JULY 22, 2020 VIA TELECONFERENCE, which is allowable under Executive Order No. 20-69 issued by Governor DeSantis on March 20, 2020 Present: Chair Michael Hartley, Vice Chair Shelia Roberson, City Auditor and Clerk Shayla Griggs, Trustee Charles Joseph, Trustee Scott Snow. Others: Attomey 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 9.00 a.m. 2. PLEDGE OF CIVILITY: Presenter(s): Chair Hartley. City Auditor and Clerk Griggs 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." 3. ROLL CALL: Pension Plan Administrator Martin called a roll call. Chair Michael Hartley, Vice Chair Shelia Roberson, Trustee Charles Joseph, Trustee Scott Snow, Pension Plan Administrator Martin, and Attorney Herrera appeared telephonicaliy. City Auditor and Clerk Griggs and Pension Specialist Gottlieb appeared in person. 4. PUBLIC INPUT: None. 5. APPROVAL OF MINUTES: 5.1. Approval Re: Minutes of the Firefighters' Pension Pian Board of Trustees Regular Meeting of May 27, 2020. Presenter(s): Chair Hartley. Vice Chair Roberson made a motion to adopt the minutes. Trustee Joseph seconded the motion. Motion carried unanimously (4-0). 6. INVESTMENT PERFORMANCE REVIEW: 6.1. Presentation and Discussion Re: HGK Asset Management, Investment Performance as of June 30, 2020. Presenter(s): Michael Pendergast, CFA, CEO, CIO, and Portfolio Manager, Matthew Witschel, Director, National Accounts, HGK. Asset Management, via teleconference. Mr. Witschel came before the Board telephonically and introduced himself and Mr. Pendergast. Chair Hartley advised Mr. Witschel to time-limit their presentation to 10 to 15 minutes. Mr. Witschel gave an overview of HGK's presentation, its investment philosophy and broad strategy, the Plan's second quarter 2020 and 2020 year-to-date positions relative to the Russell 1000 Value Index benchmark, the Plan's portfolio attribution and investment guidelines, as well as HGK's Large Cap Value portfolio characteristics. Mr. Witschel corrected HGK's presentation materials on page 8, Annualized Rate of Return to state 1, 3, and 5-year rates, not 1,3, and 1-year. Mr. Witschel explained that, compared to the benchmark, HGK's price to earnings ratio is lower and return on investment was higher, which demonstrates the portfolio's nature as a true value portfolio, he discussed its sector weightings pointing out that it may be over- or under-weighted by up to 50% compared to the benchmark, and its top 10 holdings, pointing out that it typically holds 45 to 50 stocks at a time. Mr. Pendergast gave an overview ofhis portion of the presentation and discussed the market's performance in 2020 related to the Coronavirus pandemic, noting the rebound in the second quarter has been related to the country's economic emergence from lock-down, as well as Federal stimulus provided to individuals and businesses. He pointed out the persistent concentration of market value in a limited number of companies which he believes is anomalous, and that after reaching a peak, it tends to normalize where capital concentration unwinds, which is beneficial to value managers and active fund managers; he believes the market is due for normalization. He also pointed out this capital concentration distorts earnings, and on an equal weighted basis, returns are significantly lower. He reviewed the history of cyclical versus growth stocks as evidence of that distortion, noting value and growth sectors are approximately 20% and 80% of the market, respectively, which has widened further recently due to the Coronavirus-caused recession. Mr. Pendergast asserted this distortion has stressed economic fundamentals which support the market, and cyclical parts of the economy, such as corporate profits, small business and service sector operations, have been the most severely impacted, while many well capitalized larger growth companies have fared better. He anticipates a market revision and recovery and discussed positioning the portfolio for that eventuality. In part due to federally required stress testing, he believes the banking system is stronger than in prior shock-induced recessions, and the gap in value between stocks and bonds related to equity risk premiums is wide, which suggests the rewards from stocks is greater than bonds. By using the draw-down at the end of the first quarter and beginning of the second, HKG has been able to improve the quality of their portfolio by finding high retums on investments which were selling at discounts. Chair Hartley advised the presentation had reached about 15 minutes and asked if HGK is staying consistent to its discipline as stated on page 18 of its presentation materials; Mr. Pendergast affirmed it is. Chair Hartley thanked Mr. Pendergast and Mr. Witschel for their presentation. 6.2. Presentation and Discussion Re: Oak Ridge Investment, Performance as of March 31, 2020. Book 1 Page 191 07-22-2020 9:00 a.m. Book 1 Page 192 07-22-2020 9:00 a.m. Presenter(s): Brent Troy, M.A., CIMA Vice President, Regional Director, Oak Ridge, via teleconference. Mr. Troy came before the Board telephonically and introduced himself and Rob McVickers, Executive Vice President and Senior Portfolio Manager for Oak Ridge Investments. Chair Hartiey advised Mr. Troy to limit their presentation to 10 to 15 minutes. Mr. Troy introduced Oak Ridge's presentation regarding its Small and Mid-Cap Growth portfolio and stated the firm's goal is to focus on risk-adjusted returns and down-side protection. He discussed it's investment philosophy and strategy, the Plan's portfolio performance fiscal year 2018/2019 and fiscal year to date compared to the Russell 2000 Growth Index and Russell 2500 Growth Index; Mr. Troy reminded the Board that it internally benchmarks to the Russell 2000 Growth Index which has played into the attribution of performance. Mr. Troy stated that while it has not performed as well as the index, it has correspondingly less risk, which is core to their philosophy of a high-quality portfolio. Mr. McVickers discussed the firm's investment philosophy and process which looks for stable businesses with consistent earnings and growth; it avoids companies which are cyclical or inconsistent in nature sO that underperformance is not related to fundamentals. With about 60 stocks, Oak Ridge considers itself a concentrated fund with larger holdings in more established and stable companies, with lesser weightings in smaller and aggressive companies, to aim for 50% over or under sector weighting with little macro exposure. Mr. Vickers noted their presentation materials were as of the end of March 2020 as the June 2020 data was not available at the time of creating the presentation; he stated that valuation would be higher, and both the 5-Year Trailing EPS Growth, which is more germane to Oak Ridge as they look for visibility and consistency, and 1-Year Forward EPS Growth, are negative as of today. He explained that Oak Ridge saw little differentiation between good and bad stocks from the bear market at the beginning of the calendar year and the ensuing bull market in looking at the underlying fundamentals. He has positive expectations for the portfolio as earnings will be difficult to come by, but he does not believe stocks will retum to 10% per year growth rates which will be good for the portfolio due to its organic growth. In response to a question, Mr. Vickers noted its 7.5% cash holding was a timing event, not an asset allocation, and would return to approximately 5%. The Board thanked Mr. McVickers and Mr. Troy for their presentation. 6.3. Presentation and Discussion Re: Graystone Consulting, Performance Summary and Quarterly Performance Report as of June 30, 2020. Presenter(s): Scoft Owens, CFA, CIMA, Associate Vice President Institutional Consultant and Andy Mclivaine, Institutional Consultant, Graystone Consulting via teleconference. Mr. Owens came before the Board telephonically and introduced himself and Mr. Mclivaine. Mr. MclIvaine addressed issues raised at the Board's May 27, 2020 meeting. He noted that at the May 27, 2020 meeting, the Board had approved rebalancing to the ranges specified in the Investment Policy Statement (IPS) based on reports as of March 31, 2020; when Graystone reviewed the portfolio with fund managers as of May 27, 2020, it was no longer out of compliance with the IPS and no rebalancing was required. At the May 27 220 meeting, the Board had inquired as to whether the portfolio was still invested in Swank Cushing. Mr. Mclivaine explained it held that asset until June 16, 2020 to recover some of the value ithad previously lost. At the May 27, 2020 meeting the Board had discussed replacing HGK ifi its performance did noti improve; as discussed in today's meeting, HGKhad outperformed its benchmark and believed it was well positioned going forward. At the May 27, 2020 meeting, the Board discussed Renaissance Large-Cap Growth, and noted Mr. Owens had brought a manager search which he would discuss later in the meeting. Mr. MclIvaine confirmed the Plan was fully divested from master limited partnerships and had invested $4,106,000 in Cohen & Steers as of June 25, 2020. Mr. MclIvaine referred to Morgan Stanley's letter advising UBS Trumbull had been placed on watch due to their internal changes and explained it has a team of approximately 60 analysts who monitor fund managers to ensure their quarterly performance, which is a check and balance system that is in addition to its own internal analysts. Mr. Owens discussed the financial market performance during the first half of 2020 and noted that, while he believes it will be fully recovered in 18-24 months, that reçovery will have periods of instability. He reviewed the equity market's quarterly returns, noting the worst performing class was still up by 14%, international market performance, and fixed income market, pointing out that during the first quarter corporate bonds and government bonds were reversed which shows the volatility in equity and fixed income. He reviewed the total fund portfolio assets broken down by manager, noting ithas 2 large cap growth managers, Renaissance and Sawgrass, with more assets at Sawgrass which had a lower return but is more defensive than Renaissance. He discussed the Plan's overall risk/retum since inception, cash flow and asset allocation. Mr. Owens discussed each fund manager's performance for the quarter and, while they generally performed as anticipated, he explained his concern for the performance of Renaissance Large Cap Growth fund, the replacement of which would be discussed in a subsequent agenda item. Mr. Owens highlighted Richmond Capital Fixed Income's performance and explained that some of the bond ratings in Richmond's holdings were downgraded during the first quarter of 2020. Richmond advised it will remove holdings with ratings less than single A based on individual timings. Regarding Swank Cushing MLPS, Mr. Owens explained the Plan divested approximately 2 weeks prior to the end of the quarter after an approximate 50% recovery. Mr. Owens stated that UBS Trumbull has gone through an internal restructuring into 2 units, the first of which focuses on long-term holdings and property management, the second focuses on property disposition. This required disclosure to its clients which is a subsequent agenda item. Mr. Owens advised any time a fund discloses a process change, Graystone puts that fund on watch to ensure they perform as expected. Mr. Owens attributed the real estate sector's performance to ripple effects of the COVID-19 pandemic, and stated regarding the Investment Policy Checklist, that the 2 items not in compliance have already been addressed by the respective fund managers as well as in his discussion. 7. UNFINISHED BUSINESS: None. 8. NEW BUSINESS: 8.1. Presentation and Discussion Re: Sarasota County, 2019 GASB Statements No. 68 and 71 Engagement. Presenter(s): Nicole Jovanovski, CPA, Director of Finance, Tanya Copeland, Manager of Accounting Services, Finance Department, Kim Radtke, Director, Office of Financial Management, Sarasota County, by teleconference. Kim Radke and Nicole Jovanovski came before the Board telephonically and introduced themselves. Ms. Jovanovski explained that representatives of Sarasota County appear annually before the Board because the County funds the City's firefighter pension benefits. The County is required to report its pension liability and related pension amounts for employee pension benefits in accordance with Governmental Accounting Standards Board (GASB) No. 68 and No. 71. The County asks the Board to, as it has done in prior years, direct the Plan Actuary to provide scheduled collective pension amounts, and the Plan auditor to render an opinion on those schedules. Ms. Jovanovski noted the County has hired new auditors who Book 1 Page 193 07-22-2020 9:00 a.m. Book 1 Page 194 07-22-2020 9:00 a.m. may have questions during their inaugural audit. In discussion, Ms. Radke confirmed that Pension Administration coordinates obtaining an engagement letter from the auditors, and the County pays the associated costs of the engagement. Vice Chair Roberson made a motion to engage the Plan's actuary and auditor to provide Sarasota County the reports necessary to satisfy the GASB 68 and 71 reports. Trustee Joseph seconded the motion. Vice Chair Roberson did not cast a vote. The vote carried 3-0 with 1 abstention. Trustee Joseph made a motion to nominate Vice Chair Shelia Roberson as acting SecretarnylTreasurer, Trustee Snow seconded the motion. The Board approved the motion unanimously (4-0). 8.2 Presentation and Discussion Re: Morgan Stanley Smith Barney, LLC Form ADV Wrap Fee Program Brochure, Graystone Consulting. Presenter(s): Scott Owens, CFA, CIMA, Associate Vice President, Institutional Consultant, Graystone Consulting, by teleconference. City Auditor and Clerk Griggs exited the meeting at 10:22 a.m. Mr. Owens explained the Wrap Fee program does not directly apply to the Plan, but it involves some of Morgan Stanley's institutional clients which are enrolled, as well as some of its retail clients. The Wrap program allows Morgan Stanley managers to trade directly with no commission; however, with institutional and retail businesses, managers are required to trade at best execution, which could result in circumstances which incur trading commissions even though clients were advised none would be charged. City Auditor and Clerk Griggs retumed to the meeting at 10:25 a.m. Attorney Herrera added that, as explained, the Wrap fee settlement it appears to not apply to the Plan as it exists on a different platform, but that on its surface, Morgan Stanley was required to disclose the settlement under SEC rules, and requires no action on behalf of the Board. Mr. Owens confirmed the Plan was not affected by the settlement. 8.3 Presentation and Discussion Re: Morgan Stanley Correspondence dated June 17, 2020, regarding UBS Trumbull Property Fund, Graystone Consulting. Presenter(s): Scott Owens, CFA, CIMA, Associate Vice President, Institutional Consultant, Graystone Consulting, by teleconference. Mr. Owens noted he had discussed this during his performance review, and explained Graystone had put UBS on watch because it had a write-down approximately 12 to 18 months ago based on its own research, and proactively changed its valuation process. Mr. Owens explained that any time a fund changes its process, Graystone would put the fund on watch, and that no action is necessary. 8.4 Presentation and Discussion Re: Large Capitalization Growth Manager Search Summary, Performance as of May 31, 2020, and Other Information as of March 31, 2020, Graystone Consulting. Presenter(s): Scott Owens, CFA, CIMA, Associate Vice President Institutional Consultant and Andy Mclivaine, Institutional Consultant, Graystone Consulting via teleconference. The Board discussed lowering portfolio risk versus increasing income. Mr. Owens stated that the portfolio can, within the current policy statement, mitigate risk by adjusting asset allocations within set ranges, or select managers, either currently contracted or new ones. Mr. Owens also offered an asset allocation study to change the allocation ranges. Attorney Herrera suggested an asset liability study. Mr. Owens referred to the Summary page of the presentation materials and asked the Board to disregard JP Morgan as it has the highest risk as well as highest required minimum investment. He also noted Sawgrass has the lowest risk but is already held by the Plan and would not require a new contract. He highlighted attractive qualities of each of the remaining funds, and noted the fee structure for each fund, which is not available in the presentation materials, as follows: Brown Advisory charges 70 basis points on the first $10 million and 65 basis points on amounts thereafter, which is the highest fees of the search results; ClearBridge Investments charges 50 basis points; Loomis, Sayles & Company charges 57.5 basis points; Polen Capital charges 60 basis points; and Sawgrass Asset Management charges 50 basis points. Mr. Owens discussed various characteristics of each fund and the relative performances to each other and the Russell Growth 1000 benchmark, the 3-year rolling periods return analysis, and risk/return analyses over 3, 5, 7 and 10 years. In response to questions, he noted that Sawgrass's downside capture in some timeframes has exceeded its upside capture. He suggested the Board consider coupling Sawgrass with another manager with a similar downside capture and lower volatility. Mr. Owens discussed the managers' style analysis and suggested, considering the Plan has 2 managers which focus on value, to look at managers who lean towards growth. The Board expressed interest in bringing in Brown, Polen and ClearBridge managers to present to the Board. A discussion ensued regarding the process on hearing from each manager and Renaissance as an existing contracted manager, and then determine which large-cap growth manager to select. The Board agreed to tentatively hold a meeting by web-conference on August 26, 2020 at 9.00 a.m., subject to the fund managers' respective availabilities. Mr. Owens agreed to contact the fund managers and advise they would each have approximately 30 minutes to present. 8.5 Presentation and Discussion Re: Virtual Meeting Policy. Presenter(s): Pedro Herrera, Sugarman & Susskind, PA, by teleconference. Attorney Herrera advised the policy was intended to be as flexible as possible but at the same time necessary to memorialize the Board's authority to meet virtually, and to have a written policy in place for the purpose of transparency. City Auditor and Clerk Griggs advised the policy does not have any conflict with existing City practices. Vice Chair Roberson made a motion to adopt the policy; Trustee Joseph seconded the motion. The motion carried unanimously (4-0) 8.6 Presentation and Discussion Re: SECURE Act, Section 24-31. Presenter(s): Pedro Herrera, Sugarman & Susskind, PA, by teleconference. Chair Hartley advised he was turning the meeting over to Vice Chair Roberson as he had a conflicting commitment but would remain in attendance by phone. Book 1 Page 195 07-22-2020 9:00 a.m. Book 1 Page 196 07-22-2020 9:00 a.m. Attorney Herrera advised the SECURE Act is federal legislation enacted to assist greater savings and investments in retirement accounts and increase the minimum age for required minimum distributions from age 70% to 72. The proposed ordinance would not change the Plan as retirees are eligible at ages 50 and 55, but the ordinance was required to comply with Internal Revenue Code. Attorney Herrera stated the Board would need to approve the proposed ordinance change and forward it to the City Commission to review, as well as ask for an impact statement. City Auditor and Clerk Griggs advised the proposed ordinance change appeared standard and had no issues discussed. Trustee Snow proposed a motion to approve the proposed ordinance change to the City Commission for review. Trustee Joseph seconded the motion. The motion carried unanimously (4-0) 9. ATTORNEY MATTERS: Attorney Herrera reminded the Board Governor's Executive Order 20-150 extended the ability for public agencies to meet without a physical location or in-person quorum requirement through August 1, 2020, but has subsequently issued 20-166, which extends 20-52, the emergency declaration, for 60 days, which would allow the Board to continue to meet virtually until approximately September 5, 2020. Attorney Herrera also reminded the Board that the State of Florida financial disclosure form 1 was due July 1, 2020. 10. OTHER MATTERS: Vice Chair Roberson advised Florida Public Pension Trustee Association is planning a trustee school October 4 -7, 2020 with social distancing but that registration has not opened yet. 11. ADJOURN. Vice Chair Roberson adjourned the meeting at 11:23 a.m. Wu W &hbn Chair Michael Hakloy Vice Chair Shelia Roberson