MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF APRIL 24, 2023 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, 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: Treasurer Kelly Strickland. 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): Secretary Griggs. 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 avoid personal attacks." 4. ROLL CALL: Pension Plans Administrator Martin called roll. Treasurer Strickland was not present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the General Employees' Pension Plan Board of Trustees Membership Meeting of March 27, 2023. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to accept the minutes of the Membership Meeting of March 27, 2023; Vice Chair Nicholas seconded the motion. The motion carried unanimously (6-0). 7. APPROVAL OF RETIREMENT REQUEST/S): None. 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Franklin Templeton, Investment Performance Review as of February 28, 2023. Book 1 Page 372 04-24-2023 10:00 a.m. Book 1 Page 373 04-24-2023 10:00 a.m. Presenter(s): Andrew Burkly, Institutional Portfolio Manager, Templeton Global Equity Group Franklin Templeton. Andrew Burkly of Franklin Templeton (Franklin) appeared before the Board and introduced himself. Noting Franklin is an international value equity fund, Mr. Burkly provided a market summary. Despite negative performance over the preceding 18 months, the market began to rebound in October 2022 with positive trends in Q4 2022 and Q1 2023, and international stocks outperforming domestics. Referencing the Historical performance page of the materials, Mr. Burkly stated that as of March 31, 2023, the portfolio was up approximately 10.5% calendar year-to-date, and up approximately 3.5% over the 1-year period which is 800 basis points above the index. He reviewed the top contributors to performance and explained how Energy, Information Technology, Industrial, and Telecom holdings within the Communication Services sector all aided the portfolio's outperformance. Mr. Burkly reviewed the Sector allocation, noting Franklin has taken a large position in Lloyd's Bank which has a 25% market share in the United Kingdom. In discussing the Geographic allocation, Mr. Burkly explained that although the portfolio appears to be more heavily invested in Europe, when considering where each company receives its respective revenues, the portfolio is fairly balanced; for example, although Shell Oil is based in the United Kingdom, it earns approximately a third of its revenues in each of Europe, North America, and Asia. He noted that international based companies may have less expensive valuations than their American counterparts even when their underlining revenue exposures are comparable. Mr. Burkly explained why Franklin expects international equities to outperform. From 2010 through 2020, domestic equities outpaced internationals primarily due to the domestic interest rate environment which drew cash into the market and economy. As domestic interest rates rise and the economy adjusts, domestic equities will be unable to sustain the dominance it had previously. Franklin also expects higher inflationary pressures and the decline in the strength of the US Dollar to also benefit international equities more than domestics. To Trustee Reardon's question, Mr. Burkly discussed Sumitomo Mitsui Financial Group; Franklin owns the banking arm of that company, while the investment firm Berkshire Hathaway has a position in its trading house division. Mr. Burkley explained how Franklin had, in the late 1980s, held no Japanese companies when global indices allocations were more than 50% Japanese firms; this rewarded Franklin as Japan continued to languish. In the last year, Franklin has built up its Japanese position as that economy shifts from experiencing deflation to inflation, Prime Minister Shinzo Abe's economic policy re-prioritizes shareholders' interests, and Japanese companies place more emphasis on investor relations than they had previously. Trustee Reardon asked Mr. Burkly to discuss the impact a hypothetical geopolitical event would have on Franklin's holding in Taiwan Semiconductor Manufacturing Co (TSMC). Mr. Burkly explained that TSMC is the global leader in semiconductor manufacturing with an approximate 90% market share; Intel, based in the US, and Samsung, based in Korea, which are TSMC's primary competitors, do not threaten their market share. TSMC is rapidly expanding its operations from Taiwan to the US and Europe, which would mitigate the impact of a geopolitical event, however the expansion plants are not expected to be operational for at least 2 to 3 years. Those notwithstanding, if China were to assert control over Taiwan, there is a low probability TSMC would cease operations, and, even if it did, the allocation is only 2% to 3% of the portfolio, although equity markets as a whole, as well as the portfolio, would be significantly impacted in that scenario. When weighed together, Franklin believes the potential rewards outweigh the risks. To Chair Chapdelain's question, Mr. Burkley stated that in Q1 2023 year-to-date, the portfolio was up approximately 10.6% and the benchmark was up approximately 7%. The Board thanked Mr. Burkly for his presentation. 8.2. Presentation and Discussion Re: Renaissance Investment Management, Investment Performance Review as of March 31, 2023. Presenter(s): Joe Bruening, Senior Partner, Portfolio Manager, Renaissance Investment Management. Joe Bruning of Renaissance Investment Management (Renaissance) appeared before the Board telephonically and introduced himself. Mr. Bruning gave an overview of his presentation and noted that Michael Streitmarter has been promoted from Research Analyst to Co-Portfolio Manager of the International strategy and Research Analyst Andrew Temming left the firm; there have been no other changes to the investment team, process, or strategy. Turning to the Trailing Performance Summary, Mr. Bruning pointed out the portfolio is outperforming the benchmark in Q1 2023, 1-year, 3-year, and since inception timeframes, and better than domestic equities. He noted Renaissance has struggled when the market favors high growth as it is a Growth at A Reasonable Price (GARP) manager, in which its investment model focuses on both growth and valuation components. The current market environment appears to be favoring both growth and value, and the portfolio has performed accordingly. Mr. Bruning discussed thel Portfolio Sector Attribution and explained that although it has an underweighted position in Financials as a whole, it has more exposure to banks in emerging markets which are more stable than domestic banks, which has benefitted the portfolio. It also has an overweighted position in Information Technology with concentrations in semiconductor manufacturing; it holds several smaller chip manufacturers and TSMC, as well as companies which make the machinery required to produce semiconductor chips, such as Tokyo Electron and NXP. While personal computer and smartphone manufacturers' markets have become saturated and there is less opportunity for growth, the automotive industry's need for semiconductors has grown considerably in recent years with the developments of advanced safety features and electronic vehicles. Mr. Bruning reviewed the Portfolio Country Attribution. The portfolio benefitted from energy stocks in Canada, as well as a construction supply company in Switzerland which is expected to outperform as economies begin to perform again and countries take on more infrastructure projects. He noted its exposure to emerging markets, as noted on the bottom of that page, sets Renaissance apart from its peers. There is more growth in emerging markets which fits their GARP model, and it typically holds 25-35% in those regions. Turning to the page titled Sharp Rise in Central Bank Rates Could Have Unintended Consequences, Mr. Bruning discussed how interest rate increases led to thei failure of some smaller US banks, but not in other countries, likely because all European banks, irrespective of their sizes, are required to mark assets and liabilities to market while smaller US banks are not subject to this requirement. The portfolio holds UBS, which recently acquired Credit Suisse at a significant discount and increased UBS's market share. Mr. Bruning discussed how, since 2018, the percentage of Chinese exports into the US has trended downward while Asia ex-China exports have increased, indicating China is reallocating its exports to other countries; China's continued economic reopening post-COVID bodes well for the portfolio's exposure to Asia/Pacific holdings. Renaissance does not foresee any additional issues in China related to the COVID pandemic, and it therefore anticipates an excess amount of demand in that economy, similar to what the US economy experienced during its post-COVID reopening. On the page titled Economic Growth Bouncing Back, Mr. Bruning explained that the Composite Purchasing Managers Index (PMI) is a survey of sentiment amongst companies in each stated country; he noted that earnings tend to follow the PMI trend, and earnings tend to drive the stock market prices. Based on information from FactSet, the S&P 500 expects to grow its earnings by 1% to 1.5% this year; the MSCI All Country World Index ex US, the portfolio's benchmark, expects to grow earnings by 3%; the EAFE markets, which include Europe, the far east, and Canada, are expected to grow earnings by 6% in 2023. These all indicate international stock prices will rise more than domestic prices. The page titled International Equities Continue to Offer Value shows the US' relative valuation to both itself and other countries, going back 40 years, is more expensive; less expensive countries tend to have greater outperformance because investors are not paying high premiums for them. Mr. Bruning concluded his remarks by noting that, historically, the last 3 times international equity markets declined by more than 10%, they rebounded by more than 10% in the subsequent year, which appears to be holding true in 2023 as well. He asserted the portfolio is well diversified for risk, however, despite uncertainties with issues such as the war in Ukraine, his outlook remains positive. The Board thanked Mr. Bruning for his report. 9. UNFINISHED BUSINESS: None. Book 1 Page 374 04-24-2023 10:00 a.m. Book 1 Page 375 04-24-2023 10:00 a.m. 10. NEW BUSINESS: None. 11. ATTORNEY MATTERS: To Attorney Christiansen's question, Pension Plans Administrator Martin confirmed the approved Summary Plan Description was distributed to active members. Attorney Christiansen discussed changes to the Plan necessitated by the Secure 2.0 Act. While the changes are not anticipated to have a financial impact on the Plan, the Plan must adopt these changes to remain qualified under the Internal Revenue Service Code. The Plan changes will ultimately need to be approved by the City Commission. The Board agreed on consensus to direct Attorney Christiansen to draft an ordinance to make the appropriate changes to the Plan. House Bill 3, which has not been signed by the Governor of Florida to date, would require institutions such as the Florida Retirement System, state investment bodies, and municipal pension funds to only consider pecuniary factors when making investment decisions; those affected bodies would be barred from considering Environmental, Social, and Governance (ESG) issues. Attorney Christiansen stated that he has always recommended public pension boards only consider pecuniary factors because boards have a fiduciary responsibility to obtain the best risk-adjusted return, and not to take positions on other matters. HB 3 would only codify what the Board already does; there would be additional reporting required by Pension Administration. Attorney Christiansen is in the process of renegotiating a side agreement with AEW, one of the Plan's real estate holdings; the side agreement contends with issues specific to municipal pension plans but not to private investors. Because the Plan's contract includes a "most favored nations" provision which requires AEWto offer to the Plan any provision it offers to any other investor, Attorney Christiansen selected new provisions not in the existing side agreement and is awaiting its return from AEW. Pension Plans Administrator Martin advised she has not received the executed side agreement from AEW to date. 11.1. Presentation and Discussion Re: Continued Discussion of Trustee Virtual Attendance Presenter(s): Scott Christiansen, Christiansen & Dehner, P.A. Attorney Christiansen advised he had discussed the subject of virtual attendance with City of Sarasota Attorney Robert Fournier, but they could not identify any provisions of which Attorney Christiansen was previously unaware. Attorney Christiansen prepared for the Board's consideration a change to the Operating Rules which adds the same virtual attendance language he recommends to all his clients. He found additional attorneys' opinions on the matter have a variety of positions, ranging from restrictive to permissive. While the Florida Attorney General issued an opinion letter which recommends trustees be allowed to participate virtually only when "extraordinary circumstances" exist, there are no laws which require "extraordinary circumstances, nor any laws which prohibit virtual participation after an in-person quorum has been met. He asserted the spirit of the law suggests trustees should not be able to participate virtually in meetings for mere convenience, but he could not identify additional controlling provisions which would guide the Board's decisions on the matter. A discussion between the Board and Attorney Christiansen ensued. They agreed that an in-person quorum must be established before any trustee could participate remotely, that each board must use its own good judgment to determine, on a case-by-case basis, when "extraordinary circumstances' exist, and noted the City Commission receives an annual attendance report which could denote when and which trustee(s) participated virtually sO that a separate body could determine if abuses occurred. While Attorney Christiansen's proposed Operating Rules change stated that a trustee could only appear virtually if the meeting agenda stated as such, the Board requested that requirement be removed to allow for unanticipated events. The virtual attendance policy should be able to accommodate both scheduled and unscheduled events. The Board encourages trustees to promptly notify the Board of any expected need for virtual participation if possible. Trustee Keeler made a motion to adopt the proposed change to the Operating Rules as amended; Trustee Thornburg seconded the motion. The motion carried unanimously (6-0). 12. OTHER MATTERS: 12.1. Presentation and Discussion Re: Asset Allocation as of April 13, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation as of April 13, 2023; Pension Administration requested no transfers to fund this month' 's payroll obligations as there were sufficient funds remaining from a catch-up payment made by the City for delinquent contributions from fiscal year 2022. Pension Plans Administrator Martin noted the FPPTA summer conference will be in June; if any trustee wishes to attend, they should contact Pension Administration. Chair Chapdelain advised that Scott Owens of Graystone Consulting is scheduled to appear at the May 8, 2023 Board meeting and would need to appear telephonically. 13. ADJOURN. Chair Chapdelain adjourned the meeting at 10:54 a.m. Chair Ryan'Shapdelain Secretary Shayla Griggs Book 1 Page 376 04-24-2023 10:00 a.m.