MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF MAY 13, 2024 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, Treasurer Kelly Strickiand, Secretary Shayla Griggs, Trustee Robert Reardon, Trustee Barry Keeler, and Trustee Jan Thornburg. Others: Pension Plans Administrator Debra Martin and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL MEETING TO ORDER: Chair Chapdelain called the City of Sarasota (City), General Employees' Pension Plan (Plan) Board of Trustees Regular meeting to order at 2:00 p.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary Griggs. Secretary Griggs 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: Treasurer Strickland joined the meeting at 2:01 p.m. 6.1. Approval Re: Minutes of the General Employees' Pension Plan Board Regular Meeting of April 8, 2024. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the April 8, 2024, Regular Meeting; Secretary Griggs seconded the motion. The motion passed unanimously (7-0). 7. APPROVAL OF RETIREMENT REQUESTIS): 7.1. Presentation and Discussion Re: DROP Retirement Request of Larry Jeannot. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised that Mr. Jeannot requests a normal retirement at age 65 with 20.42 years of service; he selected the 50% to a joint annuitant with the pop-up option. Book 1 Page 430 05-13-2024 2:00 p.m. Book 1 Page 431 05-13-2024 2:00 p.m. The Board, Attorney Christiansen, and Pension Plans Administrator Martin discussed Mr. Jeannot's computation which states the Type of Retirement is Normal and the DROP Retire Date is April 1, 2024. The Board agreed that the computation and monthly benefit payment amount is the same, irrespective of whether Mr. Jeannot receives retirement benefits directly or indirectly through a DROP account.. Trustee Keeler made a motion to approve Mr. Jeannot's request for a DROP retirement; Trustee Thomburg seconded the motion. The motion passed unanimously (7-0). 7.2. Presentation and Discussion Re: Vested Deferred Retirement Request of Javier Vargas. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised that Mr. Vargas separated from service on September 22, 2012, and requests a vested deferred retirement with 21.41 years of service at age 65; he selected the lifetime option. Vice Chair Nicholas made a motion to approve the vested deferred retirement request of Mr. Vargas; Secretary Griggs seconded the motion. The motion passed unanimously (7-0). 7.3. Presentation and Discussion Re: Death Benefit Calculation of Latham Hamlin. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised that Mr. Hamlin, while still employed by the City, died at 63 years, 11 months of age, and 26.37 years of service; the presented computation is the first step in determining the available benefits for Mr. Hamlin's beneficiary (Beneficiary). Under Ordinance 24-106, the Beneficiary may elect to receive either a lump sum payment or a monthly annuity and the amount payable is a function of the presented computation. To Attorney Christiansen's question, Pension Plans Administrator Martin advised that Mr. Hamlin's beneficiary has not yet elected a lump sum or lifetime annuity payment. Attorney Christiansen advised that there was nothing for the Board to approve at this time, other than whether the Beneficiary has a right to a benefit, and asked for the item to be tabled until the Beneficiary makes an election and that computation is also presented. 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Hudson Edge Investment Partners, Investment Performance Review as of March 31, 2024. Presenter(s): Matthew Witschel, Vice President, Director National Accounts, Hudson Edge Investment Partners. Matthew Witschel of Hudson Edge Investment Partners (Hudson) appeared before the Board and introduced himself. Referencing page: 2 of the materials, Mr. Witschel explained that the Plan is invested in Hudson's Large Cap Value fund and is part of the $667 million Domestic Equity portion of its assets under management; approximately 70% of the assets under management are public pension and labor union funds. Hudson, formerly known as HGK, changed its name when it completed the repurchase of founding partner Jeff Harris's ownership interest in the firm; the repurchased shares were distributed amongst the employees, with a disproportionate amount going to the investment team. There have been no other changes at Hudson, and it has a retention strategy to provide for consistent staff over the long term. Mr. Witschel reviewed the Statement of Changes QTD, noting the portfolio is up 8.3% gross while the Russell 1000 benchmark was up 9%. On the Long Term Performance Calendar Year page of the materials, he provided a brief overview of the portfolio's performance. On the Attribution Analysis Trailing 1-Year page, Mr. Witschel explained how classic value sectors, such as Real Estate, Energy, and Utilities, benefitted the portfolio's performance; Dollar General in Consumer Staples, Key Corporation in Financials, and Warner Brothers in Communications, detracted from performance. Also, the index was rebalanced in 2023 and added Facebook as a value stock; the portfolio's performance dragged because it does not hold Facebook. Trustee Reardon and Mr. Witschel discussed how Simon Property Group's present-day value of cash flow reached 50%. Mr. Witschel explained that Hudson willl buy some stocks because the market has depressed those prices instead of focusing on fundamentals. Mr. Witschel discussed the Portfolio Characteristics, noting the portfolio is bullish on Utilities due an anticipated benefit from artificial intelligence (AI). On the Top Ten Holdings page, Mr. Witschel explained that, even though individual financial stocks dominate the top 10 holdings, the portfolio is generally underweighted to that sector. He explained that the portfolio is generally weighted equally between holdings. Referencing page 16 in the Portfolio Commentary section, Mr. Witschel discussed Hudson's outlook. Hudson believes that leadership by the magnificent 7" stocks is unsustainable, Al will have a broad, global impact and those companies which learn to take advantage of Al will outperform. Additionally, inflation will stubbornly remain above the Federal Reserve's (Fed's): 2% to 2.5% target and will necessitate more interest rate cuts by the end of calendar year 2024. Page 20 characterizes the portfolio's holdings; the Operation Quality section shows the holdings are high quality, profitable companies with lower debt, and the Valuation section shows the portfolio is underweighted to more expensive companies relative to their respective future prospects. Mr. Witschel reiterated the portfolio's low correlation to the index at approximately .5 over the last 3 and 5 years, making it a good complement in a balanced portfolio. To Trustee Reardon's question, Mr. Witschel stated that performance through the prior day's close of business, the portfolio was up 5.5% to 6% on an absolute basis and slightly trailing the index. The Board thanked Mr. Witschel for his presentation. 8.2. Presentation and Discussion Re: Polen Capital, Investment Performance Review as of March 31, 2024. Presenter(s): Roland Cole, Research Analyst; John Gunther, Senior Relationship Manager; Polen Capital. John Gunther and Roland Cole of Polan Capital (Polen) appeared before the Board and presented themselves and their presentation. Mr. Cole provided a summary of Polen's Capital Investment Process page of the materials, noting the average holding time is 6 years, and that the portfolio typically holds 20 to 25 stocks at a time, Regarding the page of the materials titled Investing Across the Growth Spectrum, Mr. Cole discussed the portfolio's balance between Safety stocks, which are companies that have less cyclical and more consistent growth rates, and Growth stocks, which are more volatile but are expected to return more than 20% each year. Trustee Reardon asked why Microsoft is considered a safety stock relative to Alphabet and Amazon. Mr. Cole noted that while the spectrum is dynamic, Polen is unsure how sustainable Azure, Microsoft's cloud computing platform, will be, although it has been a catalyst and an accelerant. He noted that this position characterizes a significant portion of investing in Al companies. Mr. Gunther explained that because Microsoft has become sO integrated in daily life compared to 20 years ago that the company's revenues are now more stable and the stock, accordingly, has both Safety and Growth qualities. Mr. Cole explained that Polen expects the companies in the middle of the Safety/Growth spectrum to have annual earnings growth near 15%. While individual companies will respectively have more or less earnings growth, Polen's goal is for the portfolio to generate 15% earnings per share (EPS) on aggregate because over time, the returns mirror earnings growth as shown on the Account Performance page of the materials. Mr. Cole advised that the portfolio's earnings growth in 2023 was close to 25%, which is considerably higher than the Book 1 Page 432 05-13-2024 2:00 p.m. Book 1 Page 433 05-13-2024 2:00 p.m. 10-year annualized rate of 15%; the index's 10-year annualized earnings growth is 9%. He explained that the index benefitted from multiple expansion, while the portfolio has experienced multiple compression. Further, 100% of the portfolio's returns are a result of fundamental earnings while 50% of the index's returns are from stock price appreciation. Mr. Gunther reminded the Board that Polen's long-term goals of annual earnings growth and returns of approximately 14% to 15% have not changed since the portfolio's inception in 2012. Referencing the Focus Growth EPS Growth VS. Return page of the materials, Mr. Cole explained that the portfolio's EPS exceeded its return in late 2021 and into 2022 when the portfolio experienced meaningful multiple compression due to the interest rate hike cycle and COVID-19 pandemic dynamics; the page titled Russell 1000 Growth EPS Growth VS. Return, shows that the index's return exceeded its EPS during the same timeframe because of price appreciation while EPS lagged. He explained that a significant component in the delta, or the sensitivity of a stock price and the change in price of the underlying asset, was related to Al stocks in the index which were not in the portfolio, such as Nvidia. The benchmark outperformed the portfolio by several hundred basis points in 2023 and 2024 because the benchmark included Nvidia and portfolio did not. Nvidia was up 80% in Q1 2024 alone and is indicative of investors' sentiment towards Al. While the portfolio has had exposure to. Al in the past, the current wave of Al is generative, and Nvidia is the sole producer of hardware and infrastructure which can support generative Al. The portfolio's exposure is through Microsoft's Azure, a cloud-computing platform, and CoPilot, which is Microsoft's virtual assistant and is available as a subscription service. In this context, Nvidia' s and Microsoft's investments in Al have had produced observable results in their stock prices; many other companies have expected to benefit from the monetization of Al and may have elevated valuations, however many are unprepared to incorporate generative Al into their business processes, and their stock prices have accordingly not rallied. Trustee Reardon noted that people may invest directly in open Al with vehicles such as Azure Credits which in tum go back to Microsoft. Mr. Cole explained that many tech companies are developing their own respective Al hardware which will provide more competition to Nvidia. Polen asserts that, as an industry, a finite amount of hardware will be needed to support Al, and therefore the next wave of technology stocks to surge will be those which offer Al applications, such as Amazon, Microsoft, and Google, which the portfolio now holds, and gives Polen confidence in the portfolio's positioning. While a second year of greater-than 20% EPS growth is unlikely, Mr. Cole advised that 15% is a more reasonable expectation. Polen has confidence in the portfolio's valuation and positioning to weather any adverse scenario. To Trustee Reardon's question, Mr. Gunther advised that through the prior day's close of business, the unaudited gross return was approximately 6.5% year-to-date, and it is slightly trailing the benchmark largely due to stocks in the index but not in the portfolio. To Chair Chapdelain's question, Mr. Cole stated that Amazon has Polen's highest convection weighting and leads the next highest weighting by several points. Polen believes Amazon is at the nexus of the most powerful secular tailwinds for three reasons. First, Amazon is a pioneer in e-commerce which, as an industry, has significant growth relative to in-person retail outlets. Second, Amazon's cloud computing service, AWS, offers a significant number of vital services to companies which transition their work from on-premises to being cloud- based. The final reason for Polen's conviction is because of how well digital advertising integrates into Amazon's retail platform compared to traditional advertising. Mr. Gunther provided a brief history of Polen's largest portfolio weightings and explained that Amazon is the rare combination of great growth potential, strong fundamentals, and has an attractive valuation. Trustee Reardon asked if Polen factors the regulatory environment into their decision-making process regarding big tech platforms, such as if a merger or acquisition was blocked by regulation and forced a company to return excess cash to shareholders. Mr. Gunther asserted that regulations, from an investor's standpoint, are a sizable consideration in their processes; Mr. Cole agreed, noting he was unaware of capital being deployed back to shareholders. The Board thanked Mr. Gunther and Mr. Cole for their presentation. 9. UNFINISHED BUSINESS: 9.1. Presentation and Discussion Re: Consent to Assignment of Legal Services Agreement. Presenter(s): Scott Christiansen, Attorney, Christiansen & Dehner P.A. Attorney Christiansen explained that he had already discussed his proposed Consent to Assignment at a previous meeting, and that Stuart Kaufman, of Klausner, Kaufman, Jensen & Levinson (Klausner), is in attendance to respond to any questions the Board may have. Attorney Christiansen advised that he has presented the current Consent to Assignment to 16 of his clients to date, including the City's Police Officers' Pension Plan (POPP), and all have approved the assignment of services to Klausner. Attorney Kaufman appeared before the Board and introduced himself; he advised that Debbie McCord, Attorney Christiansen's assistant, has been hired by Klausner on a full-time basis and will work remotely from the Sarasota area. Klausner had previously taken on some of Christiansen & Dehner's clients after the passing of Attorney Lee Dehner. Attorney Kaufman provided a brief overview and history of the firm and the services they offer. He advised he would attend Board meetings personally, and an associate attorney will also be assigned to provide support as appropriate. Klausner had also practiced labor law but moved to practicing solely pension law to avoid any potential conflict of interest amongst clients. Klausner practices nationwide, and Attorney Kaufman has represented several large pension plans in Florida including those for the Orlando Police Department, the City of Clearwater which includes police officers, firefighters, and general employees, and the Tampa Fire Department. Klausner is a full-service firm and covers all aspects of pension and benefit administration including litigation; Partner Robert Klausner, assisted by Attorney Kaufman, represented the Kentucky Retirement System before the U.S. Supreme Court in 2008 and prevailed in a 5-4 decision. The firm also handles administrative hearings, disability requests, and forfeitures. The firm has 8 attorneys and is considering adding an additional experienced attorney to ensure the firm is properly staffed for its clients. Attorney Kaufman has worked with all of the Plan's other vendors including the Plan's auditor, actuary, investment consultant, and many of its fund managers; he assured the Board that the depth of experience amongst the attorneys at Klausner is assurance that at least one attorney in the firm has had direct experience with any issue which may come before the Board. Secretary Griggs asked if transitioning attorneys fell under the City's Procurement requirements and ift the Board was required to undergo al Request for Proposal (RFP). Attorney Christiansen advised that it does not, and that he has transitioned over 100 clients without an RFP. As a Plan fiduciary, Attorney Christiansen has already performed the due diligence that would have come from an RFP. To Trustee Thornburg's question, Attorney Kaufman and Attorney Christiansen explained that the transition process would involve the Board executing the Assignment of Legal Services Agreement and Klausner would be: the Plan's attorney effective August 1, 2024; Klausner has agreed to forgo any fee increases for at least 3 years. Attorney Christiansen noted that all of his contracts, including the Board's contract with Christiansen & Dehner which would be assigned to Klausner, allow the Board to terminate a contract without cause at any time. That notwithstanding, Attorney Christiansen expressed the highest respect for Klauser and Attorney Kaufman. Chair Chapdelain advised that many of the trustees, including himself, have heard Klausner present at the FPPTA events and are very informative. Attorney Kaufman noted that Attorneys Bonni Jensen and Adam Levinson both present at FPPTA events, and that Attorney Levinson received the highest score on the Florida Bar in the year he took it. Attorney Kaufman noted that Klausner's attorneys are licensed to practice law in many states across the country and has litigated on behalf of the US Virgin Islands Pension Fund and the American Samoa Pension Fund. To Chair Chapdelain's questions, Attorney Kaufman advised that more than 30 of his clients also use actuary Pete Strong of Gabriel, Roeder, and Smith, and at least 6 use investment consultant Scott Owens of Graystone Consulting. Considering the City's POPP Board already approved transitioning to Klausner, the Plan and POPP could share Klausner's travel costs by holding meetings on the same days, however Klausner would not require méetings to on the same days, and Klausner is available in 2024 for the approved schedule as prepared. Book 1 Page 434 05-13-2024 2:00 p.m. Book 1 Page 435 05-13-2024 2:00 p.m. To Trustee Thornburg's question, Attorney Kaufman advised that the associate attorney who will assist him will likely be Attorney Lindsay Garber. Secretary Griggs made a motion, as stated by Attorney Christiansen, to approve assigning Christiansen & Dehner's contract to Klausner effective August 1, 2024; Trustee Keeler seconded the motion. The motion passed nanimously (7-0). The Board and Attorney Christiansen each acknowledged the lengthy partnership; Attorney Christiansen reiterated his confidence in transitioning to Klausner's representation and reminded the Board that he will remain Of Counsel with Klausner after the transition. 10. NEW BUSINESS: None. 11. ATTORNEY MATTERS: To Attorney Christiansen's question, Pension Plans Administrator Martin advised that Pension Administration received self-nomination forms from both Vice Chair Nicholas and Trustee Keeler for their respective seats on the Board, and those were the only nomination forms received. Attorney Christiansen advised no further action is required and both Vice Chair Nicholas and Trustee Keeler have been re-elected to their respective seats effective July 1, 2024. Attorney Christiansen advised the Board that it must, at its June 11, 2024, meeting, elect Board Officers for the 12 months following July 1, 2024. Attorney Christiansen reminded the Board that Trustees must file financial disclosures before July 1, 2024, through the Florida Commission on Ethics' (Commission's) electronic filing portal. To Chair Chapdelain's question, Secretary Griggs advised she would circulate a link to the filing portal, and that Trustees may have already received an e-mail from the Commission regarding the process. Trustees must register themselves with the Commission; while the City Auditor and Clerk's office would assist Trustees, iti is unable to register Trustees on their behalf. Attorney Christiansen advised that Pension Administration had asked about a member's right to participate in the Plan after a period of unpaid leave of more than 30 days. Pension Plans Administrator Martin advised she did not have any additional details of the circumstances which prompted the question. Attorney Christiansen stated that the Plan currently states that if a member is on unpaid leave for more than 30 days, the person is no longer a member of the Plan and no longer an employee of the City. Further, because the Plan is closed, if hypothetically, a person was on unpaid leave for 60 days due to an illness and then returned to work, the person would not be eligible to rejoin the Plan, and instead would have to join the Florida Retirement System. While the POPP has the same language regarding unpaid leave, the POPP is an open plan and therefore separated employees who are rehired rejoin that system. Attorney Christiansen suggested that the Plan's provision was likely in effect when the Plan was open, and the consequence had not been contemplated when the Plan transitioned to being closed. He brings this to the Board's attention now in the event the Board would like to eliminate or amend the 30-day limitation to be less restrictive. While he has not observed a similar provision with many of his other clients, this issue is specific to closed plans. Tot the Board's questions, Attorney Christiansen noted that the provision only allows for the removal of members from the Plan and seems to have been an unintended consequence. Removing or amending the provision will require a change to City Ordinances which must be approved by the City Commission; in light of the Board's meeting schedule and Attorney Christiansen's retirement, Attorney Kaufman advised that he would be available to present any proposed ordinance to the City Commission after Attorney Christiansen's retirement. By consensus, the Board directed Attorney Christiansen to draft a proposed ordinance to remove the provision requiring members who are on unpaid leave for more than 30 days be removed from the Plan. Attorney Christiansen noted that the Plan's Operating Rules have not been updated since 2019, and some updates have occurred since then, including Trustees filing financial disclosures through an electronic portal, restrictions from investment decisions being made on diversity, equity, and inclusion factors, as well as changes in confidentiality rules. By consensus, the Board directed Attorney Christiansen to update the Plan's s Operating Rules. 12. OTHER MATTERS: 12.1. Presentation and Discussion Re: Asset Allocation as of April 15, 2024. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation as of April 15, 2024. Chair Chapdelain advised he may have a scheduling conflict with the Board's June 11, 2024, meeting, but would be; available to participate telephonically; he will coordinate that through Pension Administration. 13. ADJOURN. Chair Chapdelain adjourned the General Employees' Pension Plan Board of Trustees Regular meeting at 3:16 p.m. Chair Ryan Chapdelain Secretary Shayla Griggs Book 1 Page 436 05-13-2024 2:00 p.m.