MINUTES OF THE REGULAR MEETING OF THE POLICE OFFICERS' PENSION BOARD, APRIL 22, 2011 Present: Chair Ron Baty, Secretary/Treasurer Pamela Nadalini, Trustee Tim Van Schultz Absent: Vice-Chair Jody Hudgins and Trustee Kevin Stiff Others Present: Attorney Lee Dehner, Mr. Frank Wan of Burgess Chambers & Associates, Mr. Bruce Geller of Dalton, Greiner, Hartman, Maher & Co., Mr. Steve Loncar of Ceredex Value Advisors, Mr. David McElroy of RidgeWorth Investments, Mr. Thomas Duncan and Ms. Leigh Anne Yoo of Frontier Capital Management Co., Pension Analyst Gail Loeffler, and Staff Member Diane Torres CALL TO ORDER Chair Baty called the meeting to order at 8:19 a.m. APPROVAL OF THE REGULAR MEETING MINUTES OF MARCH 25, 2011 On a motion of Trustee Van Schultz and a second of SecretaryTreasurer Nadalini, it was moved to approve the minutes of the regular meeting of March 25, 2011. Motion carried unanimously. APPROVAL RE: DROP RETIREMENT REQUESTS FOR JEFF MCCROSKEY AND THOMAS KEUSCH Ms. Loeffler stated that Jeff McCroskey has applied for DROP beginning May 1, 2011. Officer McCroskey is 46 years of age with 25 years of service and has selected the Normal Retirement option. Ms. Loeffler stated that Thomas Keusch has applied for DROP beginning June 1, 2011. Officer Keusch is 50 years of age with 16.77 years of service and has selected the 100% Lifetime option for Joint Annuitant. On a motion of Trustee Van Schultz and a second of Secretary/Treasurer Nadalini, it was moved to approve the DROP retirement requests of Jeff McCroskey and Thomas Keusch. Motion carried unanimously. INTERVIEW FOR SMALL CAP VALUE MANAGER - DALTON, GREINER, HARTMAN & CO., CEREDEX VALUE ADVISORS, FRONTIER CAPITAL MANAGEMENT Dalton, Greiner, Hartman & Co. Mr. Geller stated that Dalton Greiner was founded in 1982, currently manages $1.6 billion in assets, and only invests in domestic equity with a value-based approach. He continued that two- thirds of its employees are shareholders in Dalton Greiner, a subsidiary of Boston Private Financial, and has 15 investments professionals with 10 being sector specialists. April 22, 2011 1 He stated that V2000 Small Cap Value stock portfolio has 60 to 80 names. He continued that Dalton Greiner has an upside capture of 103% when the market is increasing and a downside capture of 84% when the market is decreasing. Secretary/Treasurer Nadalini questioned the fee schedule. Mr. Geller stated that the City's account would be 100 basis points but a performance fee can be negotiated at a lower starting point if desired. Secretaly/Treasurer Nadalini questioned the equity dividend strategy. Mr. Geller stated that dividends are a component of value stocks. He continued that the dividend yield is not a specific metric but rather an outtake of buying companies with strong free cash-flow to have the flexibility to use the free cash in the best interests of the shareholders. Attorney Dehner questioned the willingness to accept fiduciary responsibility, the favorability of the proposed fee compared to fees offered to other similarly situated plans, the execution of trade on a best execution basis, the willingness to reimburse any sustained loss and lost opportunity costs if the firm invests outside the policy and to agree to governance by State law if a dispute arises. Mr. Geller stated yes. Attorney Dehner questioned the number of meetings the firm is willing to attend per year. Mr. Geller stated that the firm will attend meetings at the request of the Board. Mr. Wan questioned the relationship with Boston Private Financial. Mr. Geller stated that Boston Private Financial is majority owner of the firm but has no involvement in the daily operations. Ceredex Value Advisors Mr. Loncar stated that Ceredex has 20 years of investment experience, approximately $5.6 billion in assets under management (AUM) as of December 31, 2010, with approximately $1.7 billion in small cap value, and 12 investment professionals with 3 being portfolio managers and 7 being analysts. He continued that Ceredex selects 80 to 100 companies from approximately 1,300 dividend paying companies to build a portfolio. Secretary/Treasurer Nadalini questioned the fee schedule. Mr. McElroy stated that normally the minimum account size is $10 million with a fee of 1%. He continued that the City's account is a little less than $10 million and the firm will waive the minimum size requirement and give the plan a 20% discount. Attorney Dehner questioned the favorability of the proposed fee compared to fees offered to other similarly situated plans, the execution of trades on a best execution basis, and the willingness to accept fiduciary responsibility, reimburse any sustained loss and lost opportunity costs if the firm invests outside of policy, agree to governance by State law if a dispute arises, and attend meetings upon request. Mr. Loncar and Mr. McElroy stated yes. Mr. Wan questioned the change in ability to manage the City's fund on a separate account basis as a result of the decrease of assignment. Mr. Loncar stated that the ability to manage the fund is not changed. April 22, 2011 2 Mr. Wan questioned the approximately $1.7 billion in AUM which is near the limit at which other managers would close. Mr. Loncar stated that the City would still be able to invest with Ceredex if the small cap value product was closed as the City would still be a client within the small cap value. Frontier Capital Management Ms. Yoo stated that Frontier was founded 30 years ago to manage U.S. equity, is known for expertise in small and mid cap value, and manages $11 billion in assets. She continued that public plans represent approximately 30% of its business. Mr. Duncan stated that the investment team is comprised of 9 analysts and 6 portfolio managers. He continued that Frontier normally holds 80 companies in its portfolio with a typical weighting of 1.25%. Secretary/Treasurer Nadalini questioned the capitalization range and product capacity. Mr. Duncan stated that Frontier looks to purchase companies within the market capitalization range of the Russell 2000 Value index. He continued that Frontier can manage a product capacity of up to $2 billion in assets and would like to close the product at $1 billion. Secretary/Treasurer Nadalini questioned the fee schedule. Ms. Yoo stated that the standard fee for this project is 1% of assets under management. Attorney Dehner questioned whether the standard fee is negotiable, the favorability of the proposed fee compared to fees offered to other similarly situated plans, the execution of trades on a best execution basis, and the willingness to accept fiduciary responsibility, to reimburse any sustained loss and lost opportunity costs if the firm invests outside of policy, to agree to governance by State law if a dispute arises, and to attend meetings upon request. Ms. Yoo stated yes. Mr. Wan questioned the change in ability to manage the City's fund as a result of the decrease of assignment. Ms. Yoo stated that the ability to manage the fund is not changed. DISCUSSION: SMALL CAP VALUE MANAGER Mr. Wan stated that all of the firms are equally qualified to manage the money and are very comparable and summarized as follows: Mr. Wan stated that his main concern with Dalton Greiner is their management structure; that the firm is owned by Boston Financial Company and there are three entities that make up this firm. The second concern is their propriety valuation models; that the proprietary model is not as transparent, but the firm is very risk aware and has developed a good risk management tool. The Ceredex firm is part of SunTrust, has $47 billion in assets, is a very experienced firm and a consistent performer in the small cap space. Ceredex has a larger number of names in its portfolio than the other two and the thesis of the top holdings of the company makes a lot of sense. The firm navigates outside the box with a global perspective, and looks to find value there for small cap investments. The term "value" describes the firm very well. April 22, 2011 3 Frontier has been a very good management firm with an experienced portfolio manager. The firm restricts investments to small cap growth, but is finding opportunities in the value sector, which is a new strategy for the company, and has the smallest product size. This company has a major performance record and one of the most consistent. Being based in Boston brings them access to fidelities where mutual ideas can be shared. Frontier recently began a marketing program and has been a hidden jewel in this field. Chair Baty questioned whether changing small cap value manager is beneficial. Mr. Wan stated that Buckhead Capital Management has underperformed the last four consecutive quarters. He continued that now is the time to move forward with the search of a new small cap value manager. On a motion of Secretaryrreasurer Nadalini and a second of Trustee Van Schultz, it was moved to approve Frontier Capital Management Co. as the small cap value manager. Motion carried unanimously. Attorney Dehner requested Mr. Wan provide the fees offered to other entities by Frontier Capital Management Co. Secretary/Treasurer Nadalini questioned the termination of Buckhead Capital Management. Attorney Dehner stated that no action should be taken until the contract with Frontier Capital Management Co. is in place. OTHER MATTERS: Legislative Update Attorney Dehner stated that SB 1128 is now friendlier to pension plans. He stated that the provision which allows the use of State money for benefit improvements may be eliminated. He continued that a provision to use State money to reduce the unfunded actuarial liability in the plan is favored. He continued that the Legislative session adjourns May 6, 2011. Next Meeting The next regular meeting will be at 8:15 a.m. on Friday, May 27, 2011, in the City Commission Chambers. ADJOURN The meeting was adjourned at 10:27 a.m. Chair Baty Secretary/Treasurer Nadalini April 22, 2011 4