MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF OCTOBER 23, 2023 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, 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: None 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): Shayla Griggs, Secretary. Chair Chapdelain 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. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the General Employees' Pension Plan Board Regular Meeting of September 25, 2023. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the Regular Meeting of September 25, 2023; Vice Chair Nicholas seconded the motion. The motion passed unanimously (7-0). 7. APPROVAL OF RETIREMENT REQUEST/S): 7.1. Presentation and Discussion: DROP Retirement Request of Robert Schanley Jr. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised that Mr. Schanley requests to enter the DROP on October 1, 2023, after almost 24.81 years of service at age 65 years of age; he elected the 75% to joint annuitant option. Book 1 Page 402 10-23-2023 10:00 a.m. Book 1 Page 403 10-23-2023 10:00 a.m. Vice Chair Nicholas made a motion to approve Mr. Schanley's request for retirement; Trustee Thornburg seconded the motion. The motion passed unanimously (7-0). 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Geneva Capital Management, Performance Review as of September 30, 2023. Presenter(s): Matthew Pistorio, CFA, Principal, Client Portfolio Manager; George Poorman Head of Distribution; Geneva Capital Management. Matthew Pistorio of Geneva Capital Management ("Geneva") appeared before the Board telephonically and introduced himself. Noting the Plan is invested in the small cap growth fund, Mr. Pistorio provided an overview of his presentation. Secretary Griggs left the meeting at 10:04 a.m. and returned at 10:06 a.m.; she left at 10:07 a.m. and returned at 10:08 a.m. Mr. Pistorio discussed highlights of the pages of the materials titled Who is Geneva Capital Management, noting there have been no changes to the team and that Geneva prefers analysts to be generalists rather than sector specialists. He explained that Geneva invests in companies with great management teams, conservative balance sheets, sustainable growth rates of 15%, and earnings growth greater than 15%; it turns over at approximately 15% of the portfolio each year and holds stocks for 3 to 7 years. It avoids overly cyclical companies, or those with binary event risk such as biotech or energy. Mr. Pistorio briefly reviewed the Performance Update page, which he noted is for the entire strategy, and shows a long-term trend of strong performance; the Account overview shows the Plan's holdings with Geneva. Mr. Pistorio noted the Plan has invested with Geneva for less than a full 12-month period. He provided a calendar year-to-date market summary, noting low quality equities have outperformed, however, within the Russell 2000 Growth Index, low-quality equities with high beta or debl-o-captalization ratios, and non-earning companies have performed poorly during 2023, which has boosted the portfolio's relative performance. Year-to-date through Friday, October 20, 2023, the strategy outperformed its index by 511 basis points and is in the 15th percentile in its peer group. In the current market environment as well as the environment going forward, Mr. Pistorio asserted that high quality equities will outperform. He explained that stock selection has aided the portfolio's performance in the calendar year, and the highest contributing stocks to the portfolio's return have been in the financial, consumer discretionary, and basic materials sectors; the biggest detractors have been in the health care, industrial, and energy sectors. The portfolio holds no energy stocks while approximately 7% of the benchmark is in energy. Secretary Griggs left the meeting at 10:15 a.m. and retured at 10:16 a.m. Turning to the Market cycle performance page of the materials, Mr. Pistorio explained that the chart on the right side of the page shows the portfolio's history of outperforming its benchmark during both bull and bear markets and with lower beta and standard deviation, however it has lagged during speculative markets. On the page titled Investment philosophy, Mr. Pistorio clarified that Geneva defines, "Qualitative assessment, where it spends most ofi its research time, as learning about the companies in which it seeks to invest. He briefly discussed the Idea generation & process page; on Top 10 holdings & industry weightings, Mr. Pistorio advised that the portfolio has not changed significantly from June 30, 2023, to date. The top 3 holdings contributed the most to the portfolio's performance. Many of the portfolio's industrial sector holdings are business service companies with high degrees of recurring revenue, high visibility, and are not overly cyclical; it takes a similar approach to technology. The portfolio's underweight in healthcare is due to the index's concentration in biotech and pharmaceuticals, which Geneva does not hold as small cap biotech and pharmaceuticals tend to not be profitable and have binary risk events. When excluding biotech, the portfolio is overweighted in healthcare which has detracted from performance. He discussed how its position in Globus Medical, as well as other holdings which are exposed to biotech, have hurt the portfolio's performance. Mr. Pistorio reviewed the Buys and sells page of the materials, and noted the numbers of stocks bought and sold are typical for the portfolio. He explained that Geneva has been positioning the portfolio in anticipation of a weaker economy and higher interest rates. He reviewed the page titled Portfolio characteristics. Mr. Pistorio concluded his prepared remarks with a market summary, and asserted the portfolio is well positioned for the current environment. Geneva expects interest rates to remain elevated throughout 2024 as consumer spending and employment have remained elevated. The economy has begun to show some indications of slowing down as credit card payment defaults and auto loan defaults are rising, and now that student loan payments are no longer suspended, consumers will have less discretionary income. Geneva predicts Gross Domestic Product growth to be near 1% in 2024, which will create an environment in which the portfolio will outperform. Trustee Reardon asked Mr. Pistorio to discuss how the portfolio's holdings can grow 15%, top line and bottom line, when the economic outlook forecasts higher interest rates and constrained consumer spending. Mr. Pistorio explained that although Geneva tries to find companies with 15% annual growth rates, not all its holdings achieve that rate. He added that many of its holdings, such as Grocery Outlet Holding and Ollies Bargain Outlet, tend to perform better during economic downturns as consumers trade down to lower priced retailers. Similarly, Construction Partners repaves local roads for municipalities and has contracts spanning out several years and are less sensitive to the current economic conditions. Notwithstanding those, Geneva anticipates some of its holdings will be affected by any economic slowdown. Chair Chapdelain thanked Mr. Pistorio for his presentation. 8.2. Presentation and Discussion Re: Graystone Consulting, Quarterly Performance Review as of June 30, 2023. Presenter(s): Scott Owens, CFA, CIMA, Managing Director Wealth Management, Institutional Consulting Director, Corporate Retirement Director, Impact Investing Director, Alternative Investment Director; Theodore J. Loew, Vice President, Institutional Consultant; Graystone Consulting. Scott Owens and Theodore Loew of Graystone Consulting ("Graystone") appeared before the Board and introduced themselves and their presentation. Mr. Owens advised that he had prepared questions for Geneva, however Mr. Pistorio had addressed each of those in his presentation; Mr. Owens reiterated the significance of Geneva's relative performance despite having no position in energy stocks. He explained that the purpose of active management is not to outperform al benchmark but instead to protect assets in declining markets with lower downside capture. Graystone agrees with Geneva's forecast for higher-than-normal interest rates and a volatile market. He noted the number of "zombie companies, or those that bring in no revenue, or were losing money, which had rising stock prices, and asserted those companies had remained viable because of low interest rates. Now that rates have risen and credit is more difficult to obtain, higher quality companies with lower amounts of debt will begin to thrive. He asserted there will be an eventual consequence for these lower quality zombie companies but acknowledged that has been predicted for several quarters and yet not occurred to date. The portfolio returned 11% in fiscal year 2023 which significantly exceeded expectations. Mr. Owens advised that, although Graystone has been cautioning clients for the last decade to remain conservative during record high markets because of the eventual downturn, that warning is especially important now because the conditions which had been fueling the market, such as lower interest rates, high amounts of liquidity flowing into the market, and globalization which brought down the costs of goods, have all effectively ended and analysts expect the market to begin to decline. To Trustee Reardon's question, Mr. Owens agreed that a change in fiscal policy could offset each of those factors which would negatively affect the market. Mr. Owens discussed how consumers are continuing to spend, despite having less discretionary income, which in turn, increases personal debt. Over the short term, this supports inflated pricing; over the longer term, as consumers spend less to pay down their debt, retail sales and corporate revenues will decline. Book 1 Page 404 10-23-2023 10:00 a.m. Book 1 Page 405 10-23-2023 10:00 a.m. Mr. Loew provided a market outlook by first noting that in 2023, there has been a strong, direct correlation between the performances of equities and bonds when they traditionally perform inversely to each other. Recently, the Federal Reserve (Fed) Chair Jerome Powel announced temporary pauses in short-term rate hikes which may help to restore the traditional equity and bond inverse performance relationship, although, if economic data fails to convince the Fed that inflation is under control, they may continue to raise rates. Irrespective of when that inverse performance returns, 10-year treasury notes are currently paying 5% which makes it advantageous for investors to hold, if not increase their fixed income allocations. Consumer spending, the costs of capital, the increasing value of the US Dollar, and increasing delinquency in credit card debt payments are all impacting corporate revenues, and companies are no longer able to pass those increased costs onto consumers. Graystone believes that the current environment is a rally within a bear market. Turning to the Capital Market Returns, Mr. Loew explained how large caps have significantly outpaced small caps, and only 8 stocks made up 50% of the S&P 500 return, suggesting a weaker up-market than prices suggest. While the market is up 22% this year, it was down 20% in 2022. He reviewed the S&P Sector % Returns, and noted that Consumer Staples and Utilities, 2 of the 3 lowest retums, are typically where most value stocks are found; during the sell- off in this quarter, value outpaced growth in the margins, however value stocks were not as protective as they had been previously. International Markets outperformed domestic markets, however the US Dollar outpaced local currencies which provided better returns. Even if domestic interest rates remain high, which would inflate the US Dollar's value, demand for the US Dollar will remain. In Fixed Income, bonds are also down, and acting comparably to equities. Mr. Loew noted that over 10 years annualized, fixed income has earned only 1%. Even so, bonds are currently returning 5%, and therefore, fixed income and cash remain attractive. Mr. Owens discussed the Total Fund - Executive Summary, noting that, despite being a negative quarter, the 1-year retumn of 11.69% is nearly twice the expected rate of investment return of 6.2%. He contextualized the performance by noting that, over the last 2 years, the market has been negative, and therefore it is important to view performance over the longer term. The portfolio has outperformed its benchmark over every period, and it has done sO with less risk. The Asset Allocation Compliance shows the portfolio is within range; he advised that the portfolio is underweighted to Fixed Income because it is overweighted to cash which is earning 5%. When the rate-hike cycle ends, the Board could significantly de-risk the portfolio byi increasing its Fixed Income allocation. Looking granularly at the portfolio, the most overweight positions are within real estate which is illiquid. Mr. Owens expressed confidence in the current allocation for the current environment. To Chair Chapdelain's question regarding whether the 1.3% allocation to cash was sufficient, Mr. Owens advised he would work with Pension Administration to determine the Plan's needs and rebalance within the specified target ranges as needed. Mr. Owens reviewed each of the fund managers. Hudson Edge and Clearbridge both have had difficult periods but are now performing as expected. Polen's performance was hurt by its positions in health care and financials; it has no energy holdings which also detracted from performance. Mr. Owens expressed confidence in Polen and asserted ith has performed well in the long term but has been hurt in the last 2 years. NFJ has outperformed this quarter, noting a downside capture rate of 75%. Templeton has had difficult periods when growth outperformed value and other value managers began drifting into the growth space while Templeton remained steadfastly within value; it now has begun to outperform. Renaissance Investments has also faced headwinds due to its 2% position in 50 stocks, while its benchmark is not similarly constrained; it still ended the year ahead of its benchmark. Segall Bryant Hamill, which is a short-term fixed income fund, has performed very well compared to Invesco; when the interest rate yield curve normalizes and the long-term rates are higher than short term, the Board can decide whether to return the allocation to Invesco or change the mandate to intermediate or core. Regarding real estate, Mr. Owens explained that the Invesco's benchmark and UBS's final performance information for the current quarter was not available at the time the materials were published, but they were down between 1% and 3%, and similar to the rest of the portfolio. Lazard is down on an absolute basis but is outperforming the benchmark. The Compliance Checklist has no issues. Mr. Owens advised that he has no portfolio recommendations: at this time and asserted the portfolio is positioned near or at its allocation targets, which is appropriate for the current environment. As the Plan requires cash, the portfolio can be rebalanced to targets as needed. Secretary Griggs asked why UBS's Current Quarter performance figures on the Asset Allocation and Time Weighted Performance page of the materials are 0. Mr. Owens explained that real estate data is typically not available until approximately 45 days after the end of the quarter, and this meeting occurred prior to that. Graystone will send an updated page when the data is available. Secretary Griggs explained that the Plan's actuary relies on the quarterly and year end reports, and asked if the Total Fund number is accurate. Mr. Owens advised it is not a final number, but that it will still likely be negative, but by the time the actuary reviews the fiscal year end performance data, it will be accurate. Pension Plans Administrator Martin advised that performance data is also submitted as part of the Management Discussion and Analysis in the Plan's financial statements; Mr. Owens assured the Board that he will send a revised report when the full data is available, which will be approximately November 15, 2023. To Trustee Reardon's question, Mr. Owens discussed contrarian investing, and how that has changed from buying stocks in depressed asset classes in expectation that they will rebound to now finding stocks which will weather the current storms. In that context, there is little consensus amongst analysts regarding the direction in which the market or submarkets will take. Mr. Loew added that, in 2022, analysts all predicted a recession would occur in the near future, yet that has yet to happen; currently, there is no clear or prevailing opinion. Mr. Owens concluded by noting how many investors incorrectly positioned their respective portfolios in early 2023 in anticipation that interest rates would go down, and they suffered accordingly. At the same time, the magnificent 7 stocks which outperformed in 2022 are now driving performance down in 2023. These all indicate more volatility ahead. The Board thanked Mr. Owens and Mr. Loew for their presentation. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: None. 11. ATTORNEY MATTERS: 11.1. Presentation and Discussion Re: Addendum to Custodial Services Agreement with Salem Trust Company. Presenter(s): Scott Christiansen, Christiansen & Dehner, P.A. Attorney Christiansen presented the assignment of custodial services with Salem Trust. He explained that the Plan had initially contracted with Salem Trust in 2000; Salem Trust was later taken over by TMI and, at that time, the Board had only approved the change in ownership but did not change its agreement. Now that Salem Trust has been acquired by Argent, Attorney Christiansen has updated the service agreement to reflect the Plan has contracted with Argent doing business as Salem Trust, as well as some other items such as e-Verify and cyber-liability insurance. Treasurer Strickland made a motion to approve the Addendum to Custodial Services Agreement with Salem Trust Company; Trustee Thornburg seconded the motion. The motion passed unanimously (7-0). Attorney Christiansen advised that HGK has changed its name to Hudson Edge Investment Partners, and he has updated the contract. Pension Plans Administrator Martin advised that the amended contract has already been signed. Book 1 Page 406 10-23-2023 10:00 a.m. Book 1 Page 407 10-23-2023 10:00 a.m. Attorney Christiansen advised that, upon Graystone's issuance of a final report, Pension Administration must send Pension Letter 2 to the City Commission which lists the Plan's assets as of the end of the fiscal year, which does not require Board approval. Attorney Christiansen advised that he participated in a virtual meeting with other pension attorneys to discuss the State of Florida's guidance regarding how public pension plans will comply with House Bill 3 by filing a comprehensive report affirming they make investment decisions based only on pecuniary factors. The attorneys agreed that pension plans could each submit to the State a single page letter attached to their respective Investment Policies. The attorneys submitted a proposed letter to Keith Brinkman, Bureau Chief, Local Retirement Systems for the State, and is awaiting a response. 12. OTHER MATTERS: Pension Plans Administrator Martin advised that the December 8, 2023, meeting has no scheduled presenters, and asked if the Board would still like to hold the meeting. By consensus, the Board agreed to cancel the December 8, 2023, meeting. To Chair Chapdelain's question, Pension Plans Administrator Martin advised that the Plan's actuary will present the actuarial valuation at the Board's January 26, 2024 meeting. 13. ADJOURN. Chair Chapdelain adjourned the meeting at 11:23 a.m. Vm A S6 Chair Ryan Chapdelain Sécretary Shayla Griggs