MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES MEMBERSHIP MEETING OF MARCH 26, 2024 Present: Chair Ryan Chapdelain, Treasurer Kelly Strickland, 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: Vice Chair Mark Nicholas. 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. 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. Vice Chair Nicholas was not present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the General Employees' Pension Plan Board Regular Meeting of February 23, 2024. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the Regular Meeting of February 23, 2024; Trustee Reardon seconded the motion. The motion passed unanimously (6-0). 7. BOARD OF TRUSTEE REPORTS: 7.1. Presentation and Discussion Re: Annual Board Report for 2023. Presenter(s): Secretary Griggs. Secretary Griggs presented the Annual Board Report for 2023. Treasurer Strickland made a motion to accept the Annual Board Report for 2023; Trustee Thornburg seconded the motion. Book 1 Page 420 03-26-2024 10:00 a.m. Book 1 Page 421 03-26-2024 10:00 a.m. The motion passed unanimously (6-0). 7.2. Presentation and Discussion Re: Proposed Annual Budget for Fiscal Year 2024 = 2025. Presenter(s): Secretary Griggs. Secretary Griggs presented the Proposed Annual Budget for Fiscal Year (FY) 2024 - 2025. Trustee Keeler made a motion to approve the Proposed Annual Budget for FY: 2024 - 2025; Treasurer Strickland seconded the motion. The motion passed unanimously (6-0). 8. APPROVAL OF RETIREMENT REQUESTIS): None. 9. INVESTMENT PERFORMANCE REVIEW: 9.1. Presentation and Discussion Re: ClearBridge Investments, Performance Review as of December 31, 2023. Presenter(s): Jeff Layn, Director, Client Portfolio Manager, ClearBridge Investments; Steve Votto, Director, Institutional Consultants, Franklin Templeton. Jeff Layn of ClearBridge Investments and Steve Votto of Franklin Templeton appeared before the Board and introduced themselves. Mr. Votto provided overviews of the strategy and portfolio since inception, noting that ClearBridge, through its parent company Legg Mason, was purchased by Franklin Templeton in 2021. In a brief market summary since inception, he explained that ClearBridge's benchmark, the Russell 1000 Growth Index, has been heavily concentrated in recent years due to a momentum-driven market, and accordingly the portfolio's performance lagged. The concentration has begun to relax and ClearBridge outperformed in 2023 on a 1-year trailing basis by approximately 400 basis points; that outperformance has continued in 2024 by approximately 250 basis points year-to-date. Mr. Votto explained the Federal Reserve's (Fed's) indication that it will begin to reduce short-term interest rates is encouraging for this sector. He added that a misconception in the large cap growth space is that the 7 largest stocks, commonly known as the "magnificent 7," are the fastest growing stocks; there are a number of smaller cap companies which are growing significantly faster, suggesting the possibility of an environment in which the remaining stocks in the index can perform. Mr. Layn provided a detailed market summary of 2023, noting that at the beginning of the year, inflation was uncontrolled, and while the Fed attempted to effectuate an economic softlanding, analysts anticipated a recession. The economy continued to perform steadily through the year. Coming off of lows in October 2022, Mr. Layn characterized the market in 2023 as being dominated by large cap growth. That notwithstanding, the market's concentration in the magnificent 7 presents a significant challenge for ClearBridge as an active manager which constructs its portfolios on a bottom-up fundamental basis but has a differentiated view by providing a diversity of growth rates. In that context, ClearBridge will underperform when the market concentrated, and outperform when the market is broad, and a diversity of growth companies participate in driving returns. Referencing the page of the materials titled, "Step 3 Portfolio Construction: Diversification Across the Spectrum of Growth," Mr. Layn discussed portfolio construction. The Cyclical bucket holds up to 25% of the portfolio and has stocks which have depressed eamings, but ClearBridge has identified a catalyst to change within each company. The Select bucket, which has high retum on capital and disruptive stocks, holds up to 40% of the portfolio. The remainder of the portfolio is the Stable bucket, which are growth stocks which ClearBridge may hold for multiple cycles as they are high quality companies with highly visible earnings and are expected to perform consistently. Currently, the Select bucket has 31% of the portfolio, the Cyclical bucket has 11%, and the remaining 58% is in the Stable bucket. He explained that in 2023, the portfolio had nearly 10% returns in stock selection; it gave up returns in allocation, as the portfolio was underweighted to Information Technology (IT). He noted that ClearBridge still has some significant IT holdings; it has held Nvidia since 2018, although it has sold off portions of the holding 71 times in 2023 to maintain an appropriate portfolio positioning, and it will continue to trim that position in 2024. Mr. Layn explained that, while ClearBridge believes the magnificent 7 and similar performing stocks are respectable investments and it holds some in the portfolio, itv will not hold them at market weights as that contradicts ClearBridge's strategy. He noted that, even though some of the magnificent 7 are facing significant domestic and international challenges, holding zero position in them would be rresponsible. It does not own Alphabet, it is overweight in Amazon, Meta, and Netflix due to those companies' anticipated earings, and revenue growth. Mr. Layn discussed ClearBridge's outlook. Inflation remains a dominant theme in the economy, and therefore it believes the Fed will cautiously reduce short-term interest rates only twice during 2024 and preserve a "higher for longer" environment. As such, companies with strong fundamentals and earnings growth should be favored by the market and ClearBridge has positioned their portfolio accordingly. To Trustee Reardon's question, Mr. Layn discussed Apple. While Apple has been good stewards of capital and preserved its market share, innovation has lagged since the death of founder Steve Jobs. ClearBridge believes Apple will begin to integrate artificial intelligence (AI) into its devices, however, how that is implemented, which is the fundamental question, remains to be seen. Apple has an immense cash reserve which gives them significant flexibility in integrating Al into its products and platforms, however the company does not appear to have the appetite to move forward. As such, ClearBridge is underweight in that stock. Mr. Layn discussed New and Eliminated Positions. He clarified that it had previously held Target but sold it when itl had a credit card issue; ClearBridge bought it back in 2023 after the stock price was depressed due to eamings and political issues, and it has rewarded the portfolio. It also holds Union Pacific as a change in management is resetting its expectations and the visibility of earnings is, in ClearBridge's view, incredible. Trustee Reardon asked Mr. Layn to discuss ClearBridge's overweight in software companies like VMS and Point Solutions, in the context of Al's threat to Software as a Service (Saas) products. Mr. Layn explained that Al is still in its relative infancy; he provided an anecdote about his personal use of Microsoft Copilot Studio, which is a Saas product, to make his workflow and company meetings more efficient. ClearBridge believes Al will be additive rather than detractive, as long as Saas continues to evolve. To Chair Chapdelain's question, Mr. Layn explained that exceptionally low interest rates were detrimental to the economy and investing, but currently, interest rates are very close to historic norms; ClearBridge believes they will remain in the high 3% range through 2024 and into the foreseeable future. Low interest rates will only encourage spending, which will drive prices even higher. He noted that even if the Fed were to take no new action on rates, the environment remains very restrictive, which appears to be working to rein in inflation. He therefore does not anticipate the Fed will make any dramatic changes regarding interest rates. The Board thanked Mr. Layn and Mr. Votto for their presentation. 9.2. Presentation and Discussion Re: Lazard Asset Management, Performance Review as of December 31, 2023. Presenter(s): Ben Young, Vice President, Lazard Asset Management. Ben Young of Lazard Asset Management appeared before the Board and introduced himself and gave an overview of his presentation. Mr. Young reviewed the page of the materials titled, Lazard Global Listed Infrastructure. (USD Hedge), noting the portfolio aims to provide returns greater than fixed income with less risk than equities. Lazard is a value investor, which can be seen in its country and sector weightings. This strategy maintains a constant passive hedge to the US Dollar to remove the volatility caused by local currencies; Lazard also has an unhedged fund which has considerably more volatility. Book 1 Page 422 03-26-2024 10:00 a.m. Book 1 Page 423 03-26-2024 10:00 a.m. To Trustee Reardon's question, Mr. Young explained that it tracks inflation using the Consumer Price Index (CPI), although its materials also compare performance to the MSCI World Core Infrastructure (MSCI), and Morgan Stanley uses a Brookfield index. Mr. Young reviewed Lazard's definition of "Preferred Infrastructure," as shown on the page of the materials titled Not All Infrastructure Is Created Equal. n He noted, to Trustee Reardon's question, that by investing only in OECD countries, the strategy only invests in developed countries. Turning to the Portfolio By Country and Sector page, Mr. Young explained that the portfolio's weighting in the United States is approximately half that of its benchmark because the benchmark is heavily weighted in domestic utilities; Lazard's utility allocation is primarily in Europe and the United Kingdom where utility companies have lower valuations and more automatic rate adjustments than domestic utility companies. The MSCI's approximate 60% weighting in the United States is mostly in utility companies; Lazard's United States allocation is 4 railroads and 3 utility companies, although it is slowly finding more opportunities for domestic utility investment. Its aversion to domestic utilities notwithstanding, the underweight contributed to the portfolio's outperformance in 2023. Mr. Young clarified that, although the portfolio currently only holds 29 stocks and may appear concentrated, those 29 companies hold more than 400 underlying assets. To Chair Chapdelain's question, Mr. Young advised that the MSCI's stocks hold close to 600 assets. On the Performance Summary page of the materials, Mr. Young discussed the portfolio's strong performance over most time frames on both an absolute and relative basis. He noted that over the long term, the US Dollar hedge tends to neither add nor detract from performance, although it has been additive over the last 5 years. Over the 1-year timeframe, the unhedged portfolio returned approximately 2.5% more than thel hedged portfolio. Mr. Young discussed some of the stocks which added and detracted the most as stated on the Stock Contribution = Top Contributors and Detractors page. Ferrovial and VINCI, which operate airports and toll roads, are in sectors which have rebounded significantly as the world emerged from the COVID-19 pandemic. Ferrovial recently sold its stake in Heathrow Airport which aided performance. He noted that infrastructure investors are holding significant amounts of cash which is bringing about a greater number of mergers and acquisitions. One of the biggest detractors is Pennon Group, which operates water utilities in the United Kingdom. One of the Pennon Groups larger holdings, Thames Water, has experienced mismanagement, ownership and leadership changes, debt loading, and other financial uncertainties; despite those difficulties, Lazard has confidence in the leverage that the companies in the portfolio own, and added to that sector in Q4 2023. Mr. Young mentioned PPL and American Electric Power, both domestic utility companies, which also detracted; Lazard will take advantage of any sell offs or drawdowns to add to their weighting. Lazard believes inflation will remain persistent for a greater period than the Fed would like, and therefore interest rates will remain higher for longer; this is favorable for the portfolio because one of Lazard's investment criteria is to be able to pass on inflationary costs to customers without jeopardizing demand. Additionally, considering 2024 is an election year as well as the current global political uncertainty, infrastructure provides more defensive protection and will therefore remain attractive compared to other asset classes. To Chair Chapdelain's question regarding Aena's significant contribution to performance, Mr. Young explained that Aena owns airports in Spain, and Lazard had anticipated air travelers would return to pre-COVID-19 levels by the end of 2023, however that return occurred earlier resulting in exceptionally strong earnings. He explained how the public's return to traveling is also benefitting Ferrovial, which owns toll roads in North America, and was just approved to increase toll rates on a Canadian road after a 4-year rate freeze. Trustee Thomburg asked when do customers modify their behaviors in response to increased toll rates. Mr. Young explained that, typically, toll rate increases are tied directly to increases in the Gross Domestic Product inflation measurements, however in Ferrovial's circumstance, the increase was intended to recover some of the losses incurred during the COVID-19 pandemic, and the increase may only be allowed for 2 or 3 years. While there is an equilibrium point between toll rates and usage, travelers who use toll roads tend to be willing to absorb increases instead of finding alternate routes. The Board thanked Mr. Young for his presentation. 10. UNFINISHED BUSINESS: None. 11. NEW BUSINESS: None. 12. ATTORNEY MATTERS: To Attorney Christiansen's question, Pension Plans Administrator Martin confirmed she notified the State of Florida regarding the Board's acceptance of the actuarial valuation and declaration of an expected rate of investment return. Attorney Christiansen explained that newly passed legislation adds positions which are exempt from public disclosure, including city attorneys, assistant city attorneys, and some military veterans. Military veterans which are exempt are those who had Top Secret clearance or were in Special Operations; the legislation states that it was intended to protect individuals who are at higher risk of targeting by terrorists. Veterans seeking exemption must specifically request it, provide sufficient evidence they meet the criteria for non-disclosure, as well as document their request for non-disclosure by other sources as well. The State legislature made no changes to the laws applicable to local public pension plans. To Chair Chapdelain's question, Attorney Christiansen advised he did not believe the Cost-of-Living Allowance paid by Florida Retirement System (FRS) was changed, although neither the State nor FRS has issued their annual summary of changes to that system. 12.1. Presentation and Discussion Re: Consent to Assignment of Legal Services Agreement. Presenter(s): Scott Christiansen, Attorney, Christiansen & Dehner P.A. Attorney Christiansen advised that he intends to retire effective August 1, 2024, and he has made efforts to ensure his clients have avenues to continue receiving legal services. After identifying new firms which will provide quality services, he forwarded to those firms lists ofhis clients' and their meeting schedules, and those firms then assigned attorneys based on availability. Stuart Kaufman, a senior partner at Klausner, Kaufman, Jensen & Levison (KKJL), is recommended to represent the Plan as well as the City of Sarasota, Police Officers' Pension Plan (POPP); his biography is included in the materials. Attorney Christiansen expressed confidence in KKJL and Attorney Kaufman, asserting the firm is amongst the best in the state, and he recommends them to the Plan. Debbie McCord, who has worked for Christiansen & Dehner for 20 years and has a command of pension law equal to that of an attorney, will transition to full-time, remote employment with KKJL and remain in the Sarasota area. Attorney Christiansen will also become Of Counsel with KKJL, and will remain available for questions and projects, and he will be covered under KKJL's professional liability insurance. Attorney Christiansen recommends the Board invite Attorney Kaufman to its May 13, 2024, meeting for discussion, although the Board is not obligated to accept his recommendation. He advised that, of the nearly 100 clients he has transitioned, all but 2 have accepted his recommendations for counsel. To Chair Chapdelain's question, Attorney Christiansen explained that, although attorney availability played a role in determining which attorney would be recommended to which client, he also urges firms to assign senior partners to his largest clients; associates appear to have been assigned to smaller clients. To Trustee Thornburg's question, Attorney Christiansen asserted that KKJL's intent is for Mr. Kaufman to attend meetings in person, although the Board may consider some allowance for occasional virtual appearance as the firm is in Miami. The Board may consider, if both the Plan and the POPP select KKJL and Attorney Kaufman, scheduling future meetings on the same date to share travel costs. Secretary Griggs noted that most of the POPP trustees do not work in City Hall, which presents an additional challenge in scheduling those meetings. Book 1 Page 424 03-26-2024 10:00 a.m. Book 1 Page 425 03-26-2024 10:00 a.m. Attorney Christiansen affirmed he will attend the July 30, 2024, Board meeting and advised that, if the Board would like to retain KKJL, the Board would need to consent to assignment of legal services. A Consent to Assignment of Legal Services from Christiansen & Dehner to KKJL is in the presentation materials. All of Attorney Christiansen's contracts include a provision to allow the Plan to terminate the contract at any time. 13. OTHER MATTERS: 13.1. Presentation and Discussion Re: Administrative Budget Analysis as of December 31, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Administrative Budget Analysis as of December 31, 2023. 13.2. Presentation and Discussion Re: Check Register for October 1, 2023, through December 31, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Check Register for October 1, 2023, through December 31, 2023. The payments made to trustees were for travel reimbursement; the payment to Empower was a roll-over of DROP funds. To Chair Chapdelain' 's question regarding Item 13.1. and the FY 2025 Budget, Pension Plans Administrator Martin explained that the amount budgeted for actuarial services in FY 2023 was insufficient, and approximately 10% more was requested for FY 2024. 13.3. Presentation and Discussion Re: Asset Allocation as of March 13, 2024. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation as of March 13, 2024, for the Board's information. Pension Plans Administrator Martin advised that seats 1 and 4 on the Board expire on June 30, 2024. Seat 4, currently held by Vice Chair Nicholas, must be filled by a member; self-nomination forms were distributed to eligible employees by e-mail. Seat 1, currently held by Trustee Keeler, may be held by either a member or retiree; self-nomination forms were sent to eligible participants by US Mail. Nomination forms and personal statements for both seats must be received by Pension Administration by noon on April 22, 2024, to allow for adequate time for elections, should multiple nominations be received. To Chair Chapdelain's question, Pension Plans Administrator Martin confirmed that if an election is required for either seat, election ballots will be distributed by US Mail. 14. ADJOURN. Chair Chapdelain noted that the April 8, 2024, meeting will begin at 2:00 p.m., and adjourned the General Employees' Pension Plan Board of Trustees Membership meeting at 11:02 a.m. - ShLE Chair Ryanchapdelain Secretary Shaylà Griggs