Book 1 Page 254 12-10-2021 8:15 a.m. MINUTES OF THE CITY OF SARASOTA POLICE OFFICERS' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING DECEMBER 10, 2021 Present: Chair Demetri Konstantopoulos, Secretary/Treasurer: Shayla Griggs, Trustee Ronnie K. Baty, and Trustee Joseph Jody" Hudgins. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: Vice Chair Johnathan Todd. 1. CALL MEETING TO ORDER: Presenter(s): Chair Konstantopoulos. Chair Konstantopoulos called the regular meeting of the Police Officers' Pension Plan (Plan) Board of Trustees to order at 8:15 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretany/reasurer Griggs. Secretary/reasurer Griggs led the Board in stating the Pledge of Allegiance. She noted that the City Commission requested all advisory boards begin each meeting by stating the Pledge. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Konstantopoulos. Chair Konstantopoulos stated for the record, "We may disagree, but we will be respectful of one another. We will direct all comments to issues. We will not engage in personal attacks." n 4. ROLL CALL: Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin called roll; Vice Chair Todd was absent. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Police Officers' Pension Plan Board of Trustees Regular Meeting of October 22, 2021. Presenter(s): Chair Konstantopoulos. Trustee Baty made a motion to accept the minutes of the October 22, 2021, meeting; Trustee Hudgins seconded the motion. The motion carried unanimously (4-0). 7. BOARD ELECTIONS: 7.1. Presentation and Discussion Re: Nomination to Police Officers' Pension Plan Board of Trustees PP Seat 1. Presenter(s): Secretary/reasurer Griggs. Pension Plans Administrator Martin advised that Pension Administration received only nomination form, which was from Johnathan Todd. Attorney Christiansen stated that no election was required nor further action by the Board to accept Mr. Todd's nomination to the Board. 8. RETIREMENT REQUEST(S): 8.1. Approval Re: DROP Retirement Request of Michael P. Jackson. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin stated that Mr. Jackson is 47 years old, and requests to enter the DROP effective October 1, 2021 after 25 years of service. He selected the lifetime only benefit. Trustee Baty made a motion to accept Mr. Jackson's application to enter the DROP; Trustee Hudgins seconded the motion. The motion carried unanimously (4-0). 8.2. Approval Re: DROP Retirement Request of Christopher Childers. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin stated that Mr. Childers requests a regular retirement, and not to enter thel DROP, at the age of 49 with 25 years of service time; he requests a lifetime only benefit with no survivor option. Pension Plans Administrator Martin stated that Mr. Childers waived his right to a joint annuitant and survivor options on his retirement application; Pension Administration spoke with Mr. Childers and verified his intent to waive his rights to that option. Trustee Hudgins made a motion to accept Mr. Childers' request for retirement benefits; Trustee Baty seconded the motion. The motion carried unanimously (4-0). 9. INVESTMENT PERFORMANCE REVIEW: 9.1. Presentation and Discussion Re: Advent Capital Management, Investment Performance Summary for Period Ending October 31, 2021. Presenter(s): David Hulme, Managing Director, Portfolio Management, Advent Capital Management. David Hulme of Advent Capital appeared before the Board telephonically and introduced himself. Mr. Hulme gave a firm overview and update since Advent's last appearance. He also provided an update on the Convertible Market, noting the rate of issuance in 2020 is nearly triple that amount since 2012, and Book 1 Page 255 12-10-2021 8:15 a.m. Book 1 Page 256 12-10-2021 8:15 a.m. ith has continued at a similar pace in 2021; he stated that an additional $3 billion in convertibles was issued on December 11, 2021, and discussed the types of companies which are coming to the market. He discussed how convertibles' Sharpe Ratio is higher than fixed income and equities, indicating convertibles will produce greater returns with less risk. He explained how convertibles have historically performed well during periods of rising interest rates and inflationary periods. Mr. Hulme discussed Advent's investment strategy, noting it seeks convertibles with asymmetrical profiles which capture more upside than downside. He reviewed the Portfolio Characteristics, Sector Diversification, and Top Ten Holdings. While discussing the Performance Summary, he noted Advent trails its benchmark due to the impact of more equity-sensitive convertibles. He reviewed the 1 Year Performance Attribution, Composite Risk/Return Characteristics, Balanced Strategy: Participate in the Upside, Protect in the Downside, and the Convertible Market Outlook. Larry Cole of Burgess Chambers & Associates appeared before the Board telephonically and introduced himself. Mr. Cole clarified that Advent's underperformance. relative to its benchmark is not concerning because Advent does noti invest in equity-sensitive stocks due to its strategy, however the benchmark does. Because Advent has remained consistent with its discipline, it has performed as intended. He explained the Plan is invested in convertibles as an alternative to fixed income in low-interest rate environments, and Advent's upsideldownside capture were better than expected. Chair Konstantopoulos thanked Mr. Hulme for his presentation and Advent's service to the Plan. 9.2. Presentation and Discussion Re: Garcia Hamilton & Associates, Investment Performance Summary for Period Ending September 30, 2021, Presenter(s): Janna Hamilton, Partner; Jeffrey Detwiler, Partner, Portfolio Manager; Garcia Hamilton & Associates. Jeffrey Detwiler and Jana Hamilton of Garcia Hamilton appeared before the Board and introduced themselves. Ms. Hamilton thanked the Board for the opportunity to serve and introduced their presentation. Mr. Detwiler gave an economic overview of the last year, noting rising interest rates, and stated that its biggest challenge has been a massive rally in low-quality stocks because Garcia Hamilton is a high-quality manager. He reviewed the 3Q 2021 Performance, Calendar Year Rates of Return, Money Supply Long Term Growth, Historical Fiscal Stimulus, Inflationary Pressures Everywhere, Small Business Raising Prices, Number of Unemployed Per Job Opening, Labor Shortages Forcing Employers to Pay Up, The Great Resignation, Massive Outperformance by Low Quality Over the Past Year, Option Adjusted Spread Ranges, and Risk Tools. He noted Garcia Hamilton has, over the last year, rotated the portfolio a modest underweight in corporates in anticipation of the Fed removing liquidity from the market which will stop distorting the bond market, and cause lower quality stocks and bonds to underperform. Mr. Cole noted that the portfolio's bond managers have all underperformed relative to other asset classes due to the recent outperformance of low-quality stocks, however the portfolio has sufficient risk in other sectors. While there are minor concerns due Garcia Hamilton trailing its benchmark recently, it has still performed well over the 4- and 5-year timeframe. Chair Konstantopoulos thanked Mr. Detwiler and Ms. Hamilton for their presentation and service. 9.3. Presentation and Discussion Re: Burgess Chambers & Associates, Quarterly Performance Review for Period Ending September 30, 2021. Presenter(s): Larry Cole, Executive Vice President, Burgess Chambers & Associates. Mr. Cole reviewed the Quarterly Market Summary noting the relatively flat performance was due to declines in September, the Investment Policy Compliance Review noting no compliance issues, and Investment Performance Net, Actual VS. Target Allocation. He asserted the market is performing well due to the amount of available cash due to Fed actions and government stimulus programs and continued lowi interest rates. He noted that, despite the current concerns about inflation, interest rates are still at historically low levels. He reviewed the Asset Allocation and reviewed changes since September 30, 2021, Asset Allocation & Performance - Gross pointing out a 1- year return of 23.7%, which ranks the Plan in the top 15th percentile of approximately 600 public pension funds, ranging in size from multi-billion dollar to $5 million. He had no concerns regarding any of the current fund managers. He reviewed the Asset Allocation & Performance Net, Fiscal Year Rates of Return, and the Total Fund. Mr. Cole stated he may bring information on additional real estate managers to the next meeting for discussion. While the portfolio currently has real estate exposure, he stated he would look for managers which are not as burdened with legacy retail or office space holdings. 10. UNFINISHED BUSINESS: 11. NEW BUSINESS: 11.1. Presentation and Discussion Re: Assumed Rate of Investment Return. Presenter(s): Pete Strong, Consultant and Senior. Actuary, Gabriel Roeder Smith. Mr. Strong of Gabriel Roeder Smith appeared before the Board telephonicaly and introduced himself. Mr. Strong noted the remarkable investment returns over the last year and the Plan's returns are better than most comparable plans. On a market value basis, Mr. Strong estimates the Plan will be fully funded even if the Board were to reduce the investment return assumption for the 2021 Plan valuation. Noting the current assumption rate is 6.75%, he stated that the last time the Plan was fully funded, the assumption rate was over 8%. Based on the current economic environment and circumstances, the 10-year outlook has come down from 6% to the 5% to 5.5% range for a portfolio such as the Plan's. The 20- to 30-year outlook is still in the 6% to 6.25% range but maintains a 5% to 5.5% return over the next 10 years. On an actuarial value basis, the Plan will not be fully funded because the actuarial value basis only recognizes 20% of the current year's returns, but ity will still be closer to fully funded. Mr. Strong recommends reducing the assumed rate ofinvestment return with a goal of reaching 6.25%. He noted investment consultants and actuaries are recommending the Florida Retirement System (FRS) target 6.25% as well; the FRS has not released its valuation however it reduced its assumed rate of return from 7% to 6.8% this year, and future reductions are expected. Mr. Strong recommends the Board reduce the Plan's assumed rate of investment return 10 to 20 basis points with the long-term goal of 6.25%. Trustee Hudgins explained that the lower the assumed rate of investment is, the more conservative the Board can be to satisfy its actuarial obligations. For planning and contractual purposes, this would aid in more accurately forecasting future employer contributions which could otherwise unnecessarily increase over 10 to 20 years. Mr. Strong concurred and noted that the decade from 2000 to 2010 was a difficult timeframe because the Plan had an assumed rate of return of 8.5% yet realized only a 3% to 4% actual investment return. To prevent a spike in employer contributions and dip in funded ratio, the Plan could now reduce its return assumption, which should keep the Plan fundamentally sound. At Chair Konstantopoulos request, Mr. Strong clarified that if the Board wished to have a lower rate of return applied to the 2021 valuation, it would need to approve a reduction in today's meeting as GRS is scheduled to present that valuation at the January 2021 meeting. Chair Konstantopoulos asked what the ramifications would be for reducing the assumed rate of investment return. Trustee Hudgins stated there are none, nowever the Plan would reduce its risk of having a lower funding ratio. Attorney Christiansen stated there would be no immediate risk to changing the employer's Book 1 Page 257 12-10-2021 8:15 a.m. Book 1 Page 258 12-10-2021 8:15 a.m. required contribution rate, however, if the actual investment return were substantially greater than the expected rate of return, the difference could be used to lower the required contribution amounts. Trustee Baty noted that lowering the assumed rate of return does not require a change to the investment strategy. Mr. Cole stated that Mr. Strong's recommendation, considering the minimal impact to the Plan's cost, as well as the timing of the recommendation, are both advantageous. He discussed his concerns with capital market forecasts and noted that when investment returns are strong, actuaries recommend reducing the investment return, however when investment returns are poor, such as from 2000 to 2010 when the earnings neared 0%, actuaries also recommended reducing the expected rate of return. Those notwithstanding, Mr. Cole expressed support for Mr. Strong's proposal, especially considering Trustee Hudgins' remarks. Mr. Cole explained that if the Board lowers its expected return rate, it could change its investment strategy to be more conservative; the Plan's currently strategy as it is would increase the probability the actual return rate would meet or exceed the assumed rate; he stated he would recommend the later. Mr. Strong explained that if the Plan reaches 100% funding, even with a lower assumed rate of return, there would be an opportunity to preserve that funding ratio with more conservative investments, however he would not wish to delve into investment advice. Trustee Hudgins proposed reducing the assumed rate of investment return from 6.75% to 6.5%, effective with the October 1, 2021 valuation; Trustee Baty seconded the motion. The motion carried unanimously (4-0). Mr. Strong thanked the Board for its time and stated he intends to appear at the January 2021 meeting in person. 11.2. Presentation and Discussion Re: Investment Policy Statement Addendum for Granite Investment Partners, LLC. Presenter(s): Larry Cole, Burgess Chambers & Associates. Mr. Cole stated this addendum is similar to most IPS addenda, with the exception of page 1, item 3, which limits investments in any single issuer, H to the greater of 5% or the benchmark weighting (Russell 1000 Growth Index) plus 3% (at market value)." While this may seem riskier, he noted Granite is only managing a portion of the portfolio and this would allow the manager to take more risks with a single stock; he reminded the Board that managers are still limited from holding more than 5% of the total portfolio in any single issuer. Trustee Hudgins made a motion to approve the Statement of Investment Policy Addendum for Granite Investment Partners, LLC (Large Cap Growth); Trustee Baty seconded the motion. The motion carried unanimously (4-0). 12. ATTORNEY MATTERS: 12.1. Presentation and Discussion Re: Proposed Ordinance Amendment Regarding Disability Benefits. Presenter(s): Scott Christiansen, Christiansen & Dehner. Attorney Christiansen stated this proposed ordinance was discussed at the last meeting and it amends the disability section of the Plan in 2 ways. In the first, the ordinance would allow the Plan to periodically require a disabilitant retiree's doctor to affirm the disabilitant continues to satisfy the Plan's medical requirements for disability benefits; this requirement is consistent with every other plan he advises but has been missing from this plan. In the second, the proposed ordinance would terminate the Plan requirement to inquire whether a disabilitant is able to return to work as Police Officer after the disabilitant reaches age 55. He explained that if a disabilitant were to recover from their condition, their disability benefit can be terminated ift they are able to return to work as a Police Officer; this amendment terminates that requirement when the disabilitant reaches age 55. Secretary/Treasurer: Griggs noted that the mayor is not Hagen Brody, but Erik Arroyo. She also noted that, if the Board approves the proposed amendment, the amendment would Inot likely go before the City Commission until the second week of January, 2022. Attorney Christiansen stated that would be satisfactory. Trustee Baty made a motion to approve the proposed ordinance and recommend it to the City Commission for adoption; Trustee Hudgins seconded the motion. The motion carried unanimously (4-0). Attorney Christiansen advised he would make the correction to the mayor and forward it to Secretary/Treasurer Griggs to be placed on an upcoming City Commission meeting agenda. 12.2. Presentation and Discussion Re: Litigation Report ITMO Conagra Brands, Inc. Presenter(s): Scott Christiansen, Christiansen & Dehner. Attorney Christiansen stated that this statement advises the Plan is waiting for the judge to issue an opinion on the plaintiff's appeal of the decision to dismiss the case. Attorney Christiansen stated House Bill 53 and Senate Bill 774 has been pre-filed which proposes to add COVID-19 as a presumptive condition for an in-line of duty disability benefit. The bill is going through committees prior to the legislative session. Attorney Christiansen stated there is an upcoming request for disability benefits from Bobbiesue Patrick. Attorney Christiansen has sent the interrogatories to the applicant and has not received them back. 13. OTHER MATTERS: 13.1. Presentation and Discussion Re: Administrative Expense Budget Report, July 1, 2021, Through September 30, 2021. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin explained this is the final Administrative Expense Budget Analysis for fiscal year 2021. Trustee Hudgins asked if any trustee training is available virtually. Pension Plans Administrator Martin advised the FPPTA has previously offered virtual training, however a virtual option has not been offered to date regarding the trustee school in January 2022. Chair Konstantopoulos stated he and Vice Chair Todd require continuing education units (CEUS); Secretary/Treasurer: Griggs also stated she requires CEUS. Attorney Christiansen noted this final expense budget analysis is a legislative requirement for the final and actual amounts. Trustee Hudgins made a motion to approve the Administrative Expense Budget Analysis as of September Book 1 Page 259 12-10-2021 8:15 a.m. Book 1 Page 260 12-10-2021 8:15 a.m. 30, 2021; Trustee Baty seconded the motion. The motion carried unanimously (4-0). 13.2. Presentation and Discussion Re: Check Register July 1, 2021, Through September 30, 2021. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin stated this is presented as payments are now made by ACH. The Board had no questions. 13.3. Presentation and Discussion Re: Investment Allocation as of November 30, 2021. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised this is a new document for the Board's information; it is in the same format as the cash analysis performed by Pension Administration each month before retiree payroll is issued. This will be presented quarterly with the Administrative Expense Budget Analysis and Check Register. 14. ADJORN. Chair Konstantopoulos adjourned the meeting at 9:22 a.m. cEla - Chair Demetri Konstantopoulos Secretary/fyeasurer Shayla Griggs