MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF MAY 24, 2023 Present: Chair Michael Hartley, Vice Chair Charles Joseph, Secretary/Treasurer Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Attorney Robert Sugarman (telephonic), 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 ALLEGIANCE: Presenter(s): Secretary/lreasurer Griggs. Secretary/Treasurer Griggs 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: 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 April 26, 2023. Presenter(s): Chair Hartley. Vice Chair Joseph made a motion to approve the minutes of the April 26, 2023 regular meeting; Trustee Mushrush seconded the motion. The motion passed unanimously (5-0). 7. SELECTION OF BOARD OFFICERS: 7.1. Appointment Re: Selection of Chair. Presenter(s): Chair Hartley. Chair Hartley advised he was comfortable with both performing the duties of Chair or with another trustee assuming the duties. Book 1 Page 366 5-24-2023 9:00 a.m. Book 1 Page 367 5-24-2023 9:00 a.m. Vice Chair Joseph nominated Chair Hartley to continue his position as Chair; Trustee Snow seconded the motion. The motion passed unanimously (5-0). 7.2. Appointment Re: Selection of Vice Chair. Presenter(s): Chair Hartley. Vice Chair Joseph advised he was comfortable with both performing the duties of Vice Chair or with another trustee assuming the duties. Trustee Snow nominated Vice Chair Joseph to continue his position as Vice Chair; Secretary/Treasurer Griggs seconded the motion. The motion passed unanimously (5-0). 7.3. Appointment Re: Selection of Secretaryffreasurer. Presenter(s): Chair Hartley. Chair Hartley noted that the City Auditor and Clerk has traditionally served as the Board's Secretary/ Treasurer; Secretary/Treasurer: Griggs advised she was comfortable performing the duties of the position. Chair Hartley nominated Secretary/Treasurer: Griggs to continue her position as Secretaly/reasurer, Trustee Snow seconded the motion. The motion passed unanimously (5-0). 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Graystone Consulting; Quarterly Performance Review as of March 31, 2023. Presenter(s): Scott Owens, CFA, CIMA, Managing Director - Wealth Management, Institutional Consulting Director, Corporate Retirement Director, Impact Investing Director, Alternative Investment Director; Theodore Lowe, CFA, Institutional Consultant; Graystone Consulting. Scott Owens of Graystone Consulting appeared before the Board and introduced himself. At Chair Hartley's request, Mr. Owens explained that UBS has not made any redemption payments for the last 2 quarters, and the real estate sector is currently performing poorly. The portfolio's defensiveness led to outperformance in 2022, however the managers which performed well during in 2022 are underperforming now; Graystone forecasts market volatility and therefore does not recommend adding risk to the portfolio at this time. He added that, if the market surges instead of declines, the portfolio would see less gains because of its defensive positioning. Mr. Owens provide a market summary. He explained that 5 companies drove recent S&P 500 Index's returns while the remaining 495 companies failed to meet the average return. The market's recent gains were a result of increased prices, and not increased earnings, which will lead to a downward turn as is being experienced now. Because inflation remains at 5%, which is twice the Federal Reserve's (Fed's) target of 2.5%, and the Fed has indicated it will maintain its efforts to cool the economy until inflation reaches its target, Graystone anticipates more volatility. As the Taylor Rule, which compares the actual rate of inflation rate against a calculated, risk-free rate of inflation, indicates the risk-free rate should be 9%, the Fed will either maintain or increase short-term interest rates; the ideal result will be a soft recession with level or slightly negative Gross Domestic Product growth, however, the length of any flat or negative growth period will determine the overall benefit to the economy. Turning to the Capital Market Returns in the presentation materials, Mr. Owens discussed the differences between Russell 1000 Growth and Russell 1000 Value Indices, as well as between the worst and best performing indices. There is further capitulation when viewing the market by sector, considering communications was the worst performing sector in Q4 2022, yet amongst the best performing in Q1 2023. International markets are outperforming; while the underperforming US Dollar hurts performance, international equities' returns are still better than those of domestic equities. In Fixed Income, the Quarter to Date return on the Bloomberg US Aggregate vastly exceeds every other timeframe, suggesting an opportunity to secure low-risk, better than typical returns. On the Asset Allocation & Time Weighted Performance, Mr. Owens asserted that the portfolio's relative underperformance was due to its defensive nature, as funds which performed well over the 1-year period did not fare as well in Q1 2023, such as Sawgrass and HGK. Both Lazard and Renaissance in the international sector outperformed relative to their benchmark and even more on an absolute basis. In Fixed Income, Mr. Owens noted the Current Quarter return is significantly higher than the other time periods, suggesting an opportunity to secure lower risk, better-than-typical returns. In real estate, he noted UBS's nearly 10% underperformance to its index, although some negative performance should be expected after significant growth periods. He explained that higher interest rates adversely affect real estate investment, and that capitalization rates, which are used to measure rates of retum-on-investment properties and have an inverse relationship to property values, have gone up significantly in Q1 2023. While the income has remained level, the UBS-TPF fund is illiquid and therefore the Plan is unable to rapidly divest. To Vice Chair Joseph's question, Mr. Owens explained why the real estate sector as a whole is declining. In 2022, as real estate outperformed and equities underperformed, allocations shifted to be overweighted to real estate; this required investors subject to investment policy statements to reduce their real estate exposures which led to a dramatic increase in the number of redemption requests. Real estate values also correlate positively to inflation, and the Fed's aggressive efforts to reduce inflation has also adversely impacted the real estate sector. Mr. Owens stated he was unaware of any real estate managers which do not currently have a redemption queue in effect. Turning to the Total Fund - Risk / Return Analysis, the portfolio appears to be well balanced as the returns match the benchmark but with lower risk. The Cash Flow Analysis shows the history of transactions with each manager. The Asset Allocation Compliance shows the portfolio is near or at its targets giving no reason to recommend any aggressive action at this time. When looking at each asset class, the portfolio is most underweight in private real estate, and income disbursements are currently going into fixed income. To Chair Hartiey's question, Mr. Owens reviewed Richmond Capital's entry on the Cash Flow Analysis and how the Gain / Loss column reflects the bond value but is separate from the income. Mr. Owens reiterated he has no recommendations for changes to the allocations or fund managers. If Graystone's market forecasts come to fruition, he expects the funds which underperformed in Q1 2023 to perform adequately over the remainder of the calendar year. He noted that over the last decade, the S&P 500 index has been driven by 8 stocks. Market analysts expect the remaining 492 stocks to now begin to catch up to those 8 stocks. Book 1 Page 368 5-24-2023 9:00 a.m. Book 1 Page 369 5-24-2023 9:00 a.m. Vice Chair Joseph asked Mr. Owens to discuss why many of the funds in the portfolio have more risk than their respective benchmarks as indicated on each manager's Risk/Return graph. Mr. Owens explained that when the fund is above the diagonal line, the fund is outperforming its benchmark. He discussed the risk profile of each fund manager and how complimentary managers have opposite risk profiles which provides balance to the portfolio. He noted that risk is not an inherently negative quality as long as the fund has less downside capture than upside and has positive returns. He noted it is reasonable for managers to have periods of underperformance following periods of significant outperformance. Further, while none of the individual fund managers fall in the low risk/high return quadrant of the Risk/Return profile, the portfolio as a whole is providing returns comparable to the benchmark but with lower risk. To Trustee Snow's question, Mr. Owens explained that Julie Pierro replaced Ron Lanier at UBS and he has had several conversations with her. Ms. Pierroi is not involved in thei investment decisions, and thei investment team has not changed since UBS last restructured. He explained that UBS had made some fee concessions to the Plan, but that it continues to underperform; there are other real estate investors which have not fared as poorly as UBS. When Graystone presented real estate managers to the Board, UBS had the lowest risk as it had very low debt and leverage, and the properties it held were AAA grade. UBS was disproportionately affected during the COVID-19 crisis by its retail holdings which were concentrated in outdoor malls, while other real estate funds had different types of retail spaçes and fared better. The Board had selected UBS to provide protection when the market declined, however it has not performed as anticipated. Mr. Owens suggested the Board could conduct a manager-search to replace UBS with a core manager; if the manager selected was low risk, the Board could add more risk to the portfolio in other areas. On the other hand, if the Board wished to retain its defensive managers, it could put funds into a passive, S&P 500 index. He explained that any allocation should be mindful of the portfolio's intent. To Chair Hartley's question, Mr. Owens stated that, in the context of the Plan's current needs and expenses, the portfolio allocation and style are appropriate, and that he would recommend not adding any risk at this time. In discussing the negative consequence of adding a core manager, Mr. Owens noted the difference between relative and absolute returns, and that Wedge, a value manager, outperformed its index by 200% in Q1 2023 but only returned 2% while Sawgrass, a growth manager, significantly underperformed its index yet returned nearly 7% on an absolute basis; a core manager could shift its balance between value and growth, depending on which style is in favor while growth and value managers must invest consistently with their style rrespective of what style is favored by the market at that time. The Board, Pension Plans Administrator Martin, and Mr. Owens discussed the real estate holdings. Real estate redemptions queues are currently expected to take 2 to 3 years for current requests to be satisfied; UBS has not made any redemption payments for the last 2 quarters. The Board had previously agreed to remain invested with UBS through its loyalty program through January 2024. Real estate income is not being reinvested but using the quarterly payments to fund retirement benefit payments. The entire real estate sector is experiencing a downward trend, and not all real estate investments are illiquid, however the illiquid asset classes tend to be better alternative investments as liquid real estate asset classes often perform comparably to equities. Chair Hartley proposed submitting a redemption request to the UBS-TPF fund. Mr. Owens discussed how the redemption queue works and how quarterly redemption payments would supplement the Plan's existing payment obligations. Trustee Snow asked if it was an appropriate time to submit a redemption request. Mr. Owens stated that, if the fund were liquid, he would advise against requesting a redemption. He discussed how a redemption request for the account balance would be paid out, and on a monthly basis, still not cover even half of the Plan's monthly cash needs. While submitting a redemption request for the full account balance would require reallocating the portfolio, the full amount of the redemption would not be available for 21 to 3 years, based on current estimates. Vice Chair Joseph noted that UBS has been a steady income source for the Plan, and it had previously chosen to remain with UBS when it was plagued by valuation issues. Mr. Owens explained that UBS has underperformed, on both absolute and risk-adjusted bases, and during up and down periods, and failed to protect the portfolio; that notwithstanding, real estate returned more than bonds would have. The Board discussed the timing and amount of a redemption request. Chair Hartley suggested $4 or $5 Million would help replace the employer payments made by Sarasota County which have ceased due to the termination of that provision of the Interlocal Agreement. A redemption from real estate would aid in reducing the balance held in illiquid assets. Chair Hartley made a motion to redeem $4 Million from the UBS-TPF fund; Trustee Snow seconded the motion. A discussion ensued. Vice Chair Joseph expressed conçern for submitting a redemption request if the real estate sector were to rebound. Mr. Owens explained that the Board could cancel any remaining redemption payments at its discretion. Mr. Owens further asserted that, even if the full $4 Million were paid in a lump sum, the portfolio would only be below its alternative investments target and would remain in compliance with the Investment Policy Statement. At Trustee Snow's request, Mr. Owens agreed that a redemption from UBS-TPF fund is reasonable and appropriate considering the Board can change course if the market conditions change. Vice Chair Joseph asked what would happen to the allocation if the entire balance of the UBS-TPF fund were paid out. Mr. Owens advised that, if the Board decided to liquidate the entire balance of the UBS-TPF fund, because a 5% minimum allocation is required, the Board could choose to invest assets in another real estate fund. He discussed Boyd Watterson Asset Management, LLC, which is a real estate fund comprised mostly of government-owned properties which have significant barriers to relocation due to specific construction requirements because of their tenants. Because those tenants are unable to easily relocate, turnover remains low which results in consistent appraised values, and a steady income stream. Mr. Owens clarified that while Boyd Watterson could be considered an infrastructure investment, infrastructure as an asset class is defined more broadly. Discussion of the motion concluded. The motion passed unanimously (5-0). Mr. Owens advised he would confirm if the UBS-TPI fund had a similar redemption queue. To Chair Hartley's question, Mr. Owens advised that the redemption from the UBS-TPF fund would not be expedited if the funds were reinvested into the UBS-TPI fund. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: None. 11. ATTORNEY MATTERS: Book 1 Page 370 5-24-2023 9:00 a.m. Book 1 Page 371 5-24-2023 9:00 a.m. Attorney Robert Sugarman appeared before the Board telephonically. Attorney Sugarman advised that Sugarman and Susskind reviewed the Morgan Stanley Qualified Investor form and drafted a letter to retirees regarding benefits provided by the Secure Act 2.0 regarding health insurance premiums. House Bill 3, which requires the Board to only consider pecuniary factors when making investment decisions, has been enacted. This law will only have a minimal impact on the Plan because the Plan has never considered Environmental, Social, or Governmental (ESG) factors in making investment decisions. Any new contract entered into as of. July 1, 2023, or amendment to an existing contract signed as of July 1, 2023 will obligate investment managers to include specific disclaimer language in correspondence to companies in which they are considering making an investment. If correspondence includes discussion of ESG factors, the correspondence must also include a disclaimer stating, "The views expressed in this letter are those of the sender, and not of the people of the State of Florida.' If the disclaimer is omitted, the Plan may terminate its relationship with the investment manager immediately. The Plan will also need to submit a report to the State of Florida by December 15 of every other year starting in 2023; Sugarman Susskind anticipates the Department of Management Services, which regulates public pension plans, to issue rules and a form prior to that date. The City of Sarasota may have other obligations under the Secure Act 2.0 which are separate from pensions. Attorney Sugarman reminded the Board to submit Form 1 and retain proof of filing by July 1, 2023; the State can assess fines of up to $150 per day for late filing, with a maximum of $2,500. He advised there can be reporting delays by local elections supervisors which could incorrectly indicate a trustee had not timely filed their Form 1; proof of filing would effectively dispute any associated fine. In 2024, Form 1 may be filed electronically. 12. OTHER MATTERS: 12.1. Presentation and Discussion Re: Administrative Budget Analysis for the Period January 1, 2023 through March 31, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Budget Analysis; she noted the items at 0% or 100% expended are related to the timing of the payment. To Trustee Mushrush's question, Pension Plans Administrator Martin advised she will likely request a budget adjustment for Salaries in the future. 12.2. Presentation and Discussion Re: Check Register for the Period January 1, 2023 through March 31, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Check Register. Payment to the City of Sarasota was a refund of an excess payment made by the City. Payments to the General Employees' Pension Plan were reimbursements for shared supplies and accounting software. Payment to the Police Officers' Pension Plan was reimbursement for Ms. Martin to attend the FPPTA conference. Payments to trustees are reimbursements of travel expenses. Vice Chair Joseph noted that UBS is holding a conference in Cambridge, MA at the same time as the FPPTA winter school and would forward an e-mail to Pension Administration to distribute to the Board. 13. ADJOURN. Chair Hartley adjourned the meeting at 10:34 a.m. sa - mL Chair Michael Hartley Secretary7reasurer Shayla/Griggs Book 1 Page 372 5-24-2023 9:00 a.m.