2016-10-19 fprs board agenda and packet
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PASADENA
FIRE & POLICE
PASADENA FIRE & POLICE RETIREMENT SYSTEM
RETIREMENT BOARD - REGULAR MEETING
Wednesday, October 19, 2016 RETIREMENT SYSTEM City Council Chambers, 100 N. Garfield Ave., #S249
10:15 a.m.
AGENDA
1. Call to Order 2. Public Comment 3. Minutes: September 21 (Regular Meeting)
CLOSED SESSION
A. CONFERENCE WITH REAL PROPERTY NEGOTIATORS (Government Code Section 54956.8) Property Location: 275 E. Cordova Street Agency Negotiator: William Huang, Isabel Safie (Board Counsel) Negotiating Party: Residential Housing Foundation Under Negotiation: Price and terms of payment
CONSENT CALENDAR 4. Approve the monthly retirement allowance roll of $1, 110,857.14 for September
2016. 5. Approve additions/removals of the following members/beneficiaries to/from the
monthly allowance roll: Effective Add/ Pension Pension
Name Date Remove Continuance Amount a. N. Roberts 09/15/16 remove _Yes, 100% $5,329.71
b. S. Roberts 09/16/16 add No $5,329.71
6. Schedule the hearing on the CalPERS Industrial Disability Retirement application for Ronalq Espinoza, Fire Fighter, for the November 16, 2016 regular meeting of the FPRS Board.
CalPERS HEARINGS 7. CalPERS scheduled hearing on the Service Pending Industrial Disability
Retirement application for Gabriel Valadez, Police Officer.
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ACTION ITEMS - The Board may discuss and take action on the following items: 8. Discuss and possibly take action on the following investment reports submitted
by Verus Investments: a. Receive and file, September 2016 Performance Update b. Review and approve, Preliminary 4th Quarter 2016 Rebalance and
Withdrawal c. Receive and file, Liquidity Analysis d. Review and approve, Proposed Revisions to Addendum A to the contract
with Verus Investments (three-year pricing terms)
INFORMATION ITEMS 9. Staff Report
a. September 2016 Budget/Expense Report 10. Counsel Report 11 . Articles/Newsletters/Conferences
COMMENTS FROM BOARD MEMBERS
ADJOURN
POSTING STATEMENT: I HEREBY CERTIFY that this Agenda was posted in its entirety at the City Kiosk and on the City Council Chamber bulletin board, Room S249, on October 13, 2016 at 5:00 p.m., and a copy was sent to the Central Library for posting.
i1l~ Jill Fosselman
Administrator/Secretary to the Board
In compliance with the Americans with Disabilities Act of 1990, listening assistive devices are available from the City Clerk's Office with a 24-hour advance notice. Please call (626) 744-4320 to request use of a listening device.
Any documents distributed to a majority of the Pasadena Fire & Police Retirement Board regarding any item on this agenda will be made available at the office of the Fire & Police Retirement System, located at 100 N. Garfield Avenue, #N204, Pasadena, CA 91101. To make arrangements to view items, during normal business hours, please contact the Retirement office at (626)744-4320.
DISTRIBUTION
Board Members Bartel Associates A. Taylor, Verus I. Safie, City Atty
Police Dept (Admin Srv) Fire Chief Director of Finance City Treasurer
P. Fuleihan S. Lebovitz A. Snitzer
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T. Phillips, CPA D. Barba, AdminSure D. Sullivan, AdminSure R. Lennon, AdminSure
W. Boyer, PIO Library, N IS City Controller
PASADENA FIRE & POLICE RETIREMENT SYSTEM RETIREMENT BOARD - REGULAR MEETING
Wednesday, September 21, 2016 City Council Chambers S249
Pasadena City Hall, 100 N. Garfield Avenue 10:15 a.m.
MINUTES
1 . Call to Order
The regular meeting of the Pasadena Fire & Police Retirement Board was called to order by the Vice Chair, Mr. Peter Boyle, on Wednesday, September 21, 2016 at 10:15 a.m. in the City Council Chambers at City Hall.
Members - Present P. Boyle, Vice Chair J. Brinsley J. Milligan T. Tomek
Staff - Present J. Fosselman, Administrator/Secretary E. Wong, Tech. Assistant I. Safie, City Attorney Representative
Others Present A. Taylor (Verus Investments) J. D'Onofrio (Bartel & Associates)
2. Public Comment
None noted.
Not Present K. Jones, Chair
Not Present
3. Minutes: Approve the minutes for the regular meeting of July 20, 2016 and the cancelled meeting of August 17, 2016.
MOTION by Mr. Milligan, seconded by Mr. Brinsley, to approve the Minutes for the regular meeting of July 20, 2016 and the cancelled meeting of August 17, 2016. (Motion unanimously carried, 4-0)
CONSENT CALENDAR
4. Approve the monthly retirement allowance roll of $1, 113,678.65 for July 2016 and
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$1,114,712.51 for August 2016. 5. Approve additions/removals of the following members/beneficiaries to/from the
man thl II II IV a owance ro : Effective Add/ Pension Pension
Name Date Remove Continuance Amount a. R. Lighter 07/15/16 remove No $4,393.85
b. L. Quinn 08/19/16 remove No $2,821.51 nd 6. Receive and file the 2 Quarter 2016 Asset Manager Performance Reports from the
following asset managers: a. Atlanta Capital Investment Managers b. Capital Group, American Funds EuroPacific Growth Fund c. Dodge & Cox International Stock Fund d. Dodge & Cox Stock Fund e. Invesco Core Real Estate, USA- LP f. PIMCO All Asset Fund g. TCW MetWest Fixed Income Review h. Vanguard Inflation-Protected Securities Fund i. Vanguard Growth Index Fund j. Voya Senior Loan Trust Fund Review
7. Schedule the hearing on the CalPERS Industrial Disability Retirement application for Gabriel Valadez, Police Officer, for the October 19, 2016 regular meeting of the FPRS Board.
8. Receive and file the Death Check Verification conducted by The Berwyn Group.
MOTION by Mr. Milligan, seconded by Mr. Tomek, to approve items 4-8 on the Consent Calendar. (Motion unanimously carried, 4-0)
ACTION ITEMS - The Board may discuss and take action on the following items:
9. Review, discuss and approve the following report as prepared and submitted by System Actuary, Bartel Associates:
System Actuary, Joe D'Onofrio provided the presentation on the June 30, 2016 actuarial valuation and report. Mr. D'Onofrio reviewed the preliminary results, highlighting new reporting required by GASB No. 67 (including the 6.5% discount rate that was used for accounting purposes). Largely due to actuarial savings from the 1 % COLA (rather than the assumption of 3% COLA), System liabilities decreased to $155,824,000, and the AVA Unfunded Actuarial Accrued Liability decreased slightly to $30,345,000. Following, as of June 30, 2016, the AVA funded level of the System was 80.5% (as determined by Agreements No. 16,900 and 20,823 with the City), which is above the required amount of 78.0%. Thus, no contribution will be required of the City by January 1, 2017. Questions were asked regarding at what point in the future the Board should consider changing the assumptions and what the drivers of change may be. Mr. D'Onofrio noted that following CalPERS review of their earnings assessments (anticipated recommendations from CalPERS in 2018), and upon any drastic change to the asset allocation, the Board should reconsider the assumptions used to prepare
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the actuarial valuation. Following discussion, the Board approved the valuation and GASB 67 information reports.
MOTION by Mr. Tomek, seconded by Mr. Brinsley, to approve the June 30, 2016 Actuarial Valuation Report and June 30, 2016 GASB 67 Plan Actuarial Information Report, as prepared by Bartel Associates. (Motion unanimously carried, 4-0)
10. Adoption of Resolution No. 323, setting forth the actuarial assumptions for the fiscal year ending June 30, 2016.
MOTION by Mr. Boyle, seconded by Mr. Brinsley, to adopt Resolution No. 323 setting forth the actuarial assumptions for the fiscal year ending June 30, 2016. (Motion unanimously carried, 4-0)
11. Discuss and possibly take action on the following investment reports submitted by Verus Investments: a. Receive and file, 2nd Quarter 2016 Investment Performance Review
Annie Taylor reviewed the research report. The net change for the quarter (the difference between net cash flow and net investment change) was -$1.042 million (v. -$13.609 million for the fiscal year}, bringing the value of the portfolio to $125,223,935 on June 30, 2016. The fund returned 1.8% net of fees (v. the benchmark of 1.7%) for the quarter, and for the fiscal year, the fund returned 0.4% net of fees (v. the benchmark of 1.8%). The fund's overall underperformance relative to the benchmark for the fiscal year was largely driven by three issues: 1) negative earnings in the International Equity space, 2) underperformance of asset manager Dodge & Cox (in both the International and Domestic Equity spaces), and 3) underperformance of the Fixed Income asset manager MetWest (who earned 4.8% relative to the benchmark of 6.0%). Verus maintains its comfort with asset manager Dodge & Cox. The fund's cumulative performance for the quarter ranked in the 45th percentile, and ranked in the 56th percentile for the fiscal year relative to its peer universe (lnvestorForce Public DB $50mm-$250mm Gross).
MOTION by Mr. Brinsley, seconded by Mr. Milligan, to receive and file the 2nd Quarter 2016 Investment Performance Review, as recommended by Verus Investments. (Motion unanimously carried, 4-0)
b. Receive and file, August 2016 Performance Update
The performance update was reviewed reflecting performance without pooled cash. The total fund return for August was 0.6% net of fees (vs. the index of 0.1 %), bringing the fiscal year-to-date return for two months to 3.0% net of fees (vs. the index of 2.3%). Total market value at the end of August was $127.9 million, including pooled cash with the City.
MOTION by Mr. Milligan, seconded by Mr. Brinsley, to receive and file the August 2016 Performance Update, as recommended by Verus Investments. (Motion unanimously carried, 4-0)
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c. Receive and file, Transaction Summary (pooled cash recommendation)
Ms. Taylor briefly reviewed the transaction report for the July's withdrawal for quarterly pension benefits and administration ($3,000,000 from Invesco and $450,000 from PIMCO, for a total withdrawal for the quarter of $3,450,000).
MOTION by Mr. Brinsley, seconded by Mr. Milligan, to receive and file the Transaction Report, as recommended by Verus Investments. (Motion unanimously carried, 4-0)
d. Receive and file, Investment Manager and Custody Fee Analysis
Ms. Taylor presented the analysis of the actual investment fees paid by the System per asset manager compared to the average fees paid by managers in the same asset class, highlighting fees paid for active management. Overall, the fees paid by the System are generally reasonable and most are lower than the average manager in each respective asset class universe of funds (except Invesco). All asset managers have demonstrated positive outperformance above fees for the past five years, with the exception of Invesco. It was noted that the fees paid by Invesco are slightly higher than the average of its counterparts. Verus remains confident with Invesco, and the importance of this space in the portfolio, as private real estate appears favorable for the next three-five years relative to other inflation protecting asset classes. In addition, the annual estimated custodial fees of $22,500 per year is reasonable and significantly lower than what was previously paid to prior custodian (custody change in December 2015).
MOTION by Mr. Milligan, seconded by Mr. Brinsley, to receive and file the Investment Manager and Custody Fee Analysis, as recommended by Verus Investments. (Motion unanimously carried, 4-0)
e. Receive and file, Voya Investment Management Organization Update Memorandum
Ms. Taylor briefly reviewed the memorandum, noting the change in leadership and the previously identified succession plan. No changes are recommended at this time. Voya remains on watch status to track the transition in leadership, and monitor the firm for additional changes.
MOTION by Mr. Milligan, seconded by Mr. Brinsley, to receive and file the Voya Investment Management Organization Update, as recommended by Verus Investments. (Motion unanimously carried, 4-0)
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INFORMATION ITEMS
12. Staff Report - Ms. Fosselman provided a brief update on unanticipated personnel expenses, the status of work efforts on the financial audit, a minor update on the Concord (briefing to be provided by City staff in October), actuarial RFP timing, and the outcomes of the City's risk assessment and recommendations for the System. a. August 2016 BudgeUExpense Report- noted.
13. Counsel Report - Ms. Safie noted that the IRS determination letter remained in process due to a misunderstanding of a new regulation that was believed to have been relevant to the System. The misunderstanding was corrected, and she anticipates receiving a letter within two-three weeks. In addition, Ms. Safie noted a new statute is being considered by the legislature that may impact the System regarding additional disclosures, and will provide a memorandum to staff on the subject.
14. Articles/Newsletters/Conferences - none noted.
COMMENTS FROM BOARD MEMBERS
None noted.
ADJOURNMENT
MOTION by Mr. Tomek, seconded by Mr. Milligan, to adjourn the meeting at 11 :50 a.m. (Motion unanimously carried, 4-0)
Respectfully submitted,
Jil~~· Peter Boyle Secretary to the Board/Administrator Vice Chair, Retirement Board
Details of this meeting are contained on a DVD recording of the meeting and will be kept in the archives for two years, per Board policy.
DISTRIBUTION: Board Members City Attorney Director of Finance
Fire & Police Retirees Assn. Police Chief Fire Chief
Workers Compensation A. Snitzer S. Lebovitz D. Barba
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PASADENA FIRE AND POLICE RETIREMENT SYSTEM
MONTHLY ALLOWANCE ROLL· TOTALS
MONTH 2014-2015 2015-2016 2016-2017
JULY 1, 156,360.39 1, 133,056.86 1, 113,678.65 AUGUST 1, 139, 148.67 1, 132, 739.08 1,114,712.51
DATE 10/ (~/f b ITEM# ±
Notes
a., b. b., c.
SEPTEMBER 1, 140,585.54 1, 127, 165.89 1, 110,857.14 d. OCTOBER 1, 141,527.41 1,122,125.71 0.00 NOVEMBER 1, 139,378.41 1, 121,651.68 0.00 DECEMBER 1, 137,229.40 1, 120,576.82 0.00 JANUARY 1, 137,229.40 1,120,576.82 0.00 FEBRUARY 1, 137,229.40 1, 120,576.82 0.00 MARCH 1, 130, 773.44 1, 111,905.50 0.00 APRIL 1, 131,857.62 1,115,262.14 0.00 MAY 1, 126,038. 77 1, 111,905.50 0.00 JUNE 1, 122,917.19 1,110,123.41 0.00 FY TOTALS 13,640,275.64 13,447,666.23 3,339,248.30
COL BENEFITS INCLUDED ABOVE 7,177,264.72 7,086,401.87 1,774,928.11
COL·% Of Total 53% 53% 53%
a. 1 % COLA applied to all members and beneficiaries. b. R. Lighter passed away 7/15/16. $4,393.85/month with no continuance. Estate was paid final
payment of $2, 126.06 on August 31, 2016 pension payroll (paper check). c. L. Quinn passed away 8/19/16. $2,821.51/month with no continuance. Estate was paid final
payment of $1,729.31 on August 31, 2016 pension payroll (paper check) .. d. N. Roberts passed away 9/15/16. $5,329.71with100% continuance to spouse. Estate was
paid final payment of $2,664.86 on September 30, 2016 pension payroll (electronic deposit).
Y:\Office Docs\Retiree Payroll\Payroll\[Total Payroll FY 2017.xlsx]FY 2016 Pension Gold Rec 10/11/2016
~f~ CalPERS . · P.O. Box 2796 Sacramento, CA 95812-2796 888 CalPERS {or 888-225-7377) TTY: (877) 249-7442 I Fax: (916) 795-1280 www.calpers.ca.gov
DATE /0/€i-//f:.,__ ITEM# 6
. California Public Employees' Retirement System
February 18, 2016
City of Pasadena P.O. Box 7115 Pasadena, CA 91109-7215
Re: Ron Espinoza Occupation: Firefighter II
Dear Personnel Officer,
CalPERS ID: 2612494682
This notice regards the application for disability retirement for Ron Espinoza.
Our letter dated 12/15/2015 requested your formal resolution providing the determination of disab.ility and industrial causation. In case you have not yet completed action in this matter, we wish to remind you that the determination documentation is due to us no later than 6/15/2016.
Sections 21154 and ?i157 of the California Government Code provides that, In the case of a local safety member, the governing body of the contracting agency employing such member shall determin.e whether the member is incapacitated for the performance of duty. Section 21157 requires.that the determination be made within six months of the request from Cal PERS. If you anticipate that the process will take longer In this case, we,,strongly suggest that you seek a time waiver from the applicant, as also s~ated in Section 21157.
Please advise us of the current status of the determination process. Your prompt reply will be appreciated.
I
We are here to assiSt you. If you have any question~, please visit our website at www.calpers.ca.gov, or you may call us toll free at888 CalPERS (888-225-7377).
~·-
Sincerely,
4-1'// _ Scott Ellirr~ Retirement Program Specialist Disability Retirement Section cc: Ron Espinoza
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I
I: I'
Market Value % ofPortfolio 1 Mo 3 Mo Fiscal
YTD YTD 1 Yr_
Total Fund 126,221,035 100.0 0.6 3.6 3.6 6.5 8.0Policy Index 0.4 2.7 2.7 5.6 8.0Total Domestic Equity 25,146,323 19.9 0.6 6.0 6.0 8.7 14.5
S&P 500 0.0 3.9 3.9 7.8 15.4Vanguard Growth Index Ins 9,993,848 7.9 0.7 5.1 5.1 6.6 13.5
Spliced Vanguard Large Cap GrowthIndex 0.7 5.1 5.1 6.6 13.6
MSCI US Prime Market Growth 0.3 4.6 4.6 4.7 11.8Dodge & Cox Stock 10,087,016 8.0 1.2 8.8 8.8 9.5 14.5
Russell 1000 Value -0.2 3.5 3.5 10.0 16.2Atlanta Capital Management Company 5,065,460 4.0 -0.7 2.3 2.3 10.5 15.5
Russell 2000 1.1 9.0 9.0 11.5 15.5Russell 2500 0.5 6.6 6.6 10.8 14.4
Total International Equity 23,802,867 18.9 0.6 9.1 9.1 5.1 7.1MSCI EAFE 1.2 6.4 6.4 1.7 6.5MSCI ACWI ex USA 1.2 6.9 6.9 5.8 9.3Dodge & Cox Intl Stock 11,416,815 9.0 0.0 10.1 10.1 4.7 5.6
MSCI ACWI ex USA 1.2 6.9 6.9 5.8 9.3American Funds Europacific Growth R6 12,386,052 9.8 1.2 8.2 8.2 5.4 8.5
MSCI ACWI ex USA 1.2 6.9 6.9 5.8 9.3Total Domestic Fixed 55,852,602 44.2 0.2 1.0 1.0 5.5 5.0
Barclays Aggregate -0.1 0.5 0.5 5.8 5.2Metropolitan West Core Plus Fixed Income 43,437,955 34.4 0.1 0.8 0.8 5.2 4.8
Barclays Aggregate -0.1 0.5 0.5 5.8 5.2Voya Senior Loan Fund 7,820,338 6.2 0.7 2.5 2.5 5.9 4.6
S&P/LSTA Leveraged Loan Index 0.9 3.1 3.1 7.7 5.5Vanguard Inflation-Protected Securities Adm 4,594,309 3.6 0.8 1.0 1.0 7.5 6.7
Barclays US TIPS 0.5 1.0 1.0 7.3 6.6
Pasadena Fire & Police Retirement System 1
Pasadena Fire & Police Retirement SystemExecutive Summary - Preliminary (Net of Fees) Period Ending: September 30, 2016
Current % Policy %_
Domestic Equity LargeCap Growth $9,993,848 7.9% $10,097,683 8.0%
Domestic Equity LargeCap Value $10,087,016 8.0% $10,097,683 8.0%
Domestic Equity SmallCap Core $5,065,460 4.0% $5,048,841 4.0%
International Equity $23,802,867 18.9% $25,244,207 20.0%Domestic FixedIncome Core $43,437,955 34.4% $44,177,362 35.0%
Domestic FixedIncome Bank Loans $7,820,338 6.2% $6,311,052 5.0%
Domestic FixedIncome Real Return $4,594,309 3.6% $6,311,052 5.0%
Real Estate $15,216,855 12.1% $12,622,103 10.0%Alternative Investment $6,179,991 4.9% $6,311,052 5.0%Cash and Equivalents $22,397 0.0% $0 0.0%Total $126,221,035 100.0% $126,221,035 100.0%
Policy Index as of 3/1/2016: 8% Russell 1000 Value, 8% Spliced Vanguard Large Growth, 4% Russell 2000, 20% MSCI EAFE, 35% BC Agg, 5% BC US TIPS, 5% S&P/LSTA Leveraged Loan, 10% NCREIF-ODCE, 5% CPI + 5%. Pooled Cash not included in Total Fund calculation. CPI LOCAL (LA) includes Los Angeles-Riverside-Orange County. FY: 6/30. All manager returns shown net of fees. Effective 3/1/2015 Atlanta SMID Cap strategy changed to Atlanta Small Cap Core strategy. First American Treasury Obligation underwent share class change on 2/18/2016. Vanguard Inflation-Protected Securities underwent share class change on 4/27/2016. All data is preliminary.
Market Value % ofPortfolio 1 Mo 3 Mo Fiscal
YTD YTD 1 Yr_
Total Real Estate 15,216,855 12.1 N/A N/A N/A N/A 8.5NCREIF-ODCE N/A N/A N/A N/A 7.8NCREIF Property Index N/A N/A N/A N/A 7.3Invesco Core Real Estate 15,216,855 12.1 N/A N/A N/A N/A 8.5
NCREIF-ODCE N/A N/A N/A N/A 7.8Total Alternatives 6,179,991 4.9 1.1 3.9 3.9 13.7 13.7
CPI + 5% N/A N/A N/A N/A 5.8CPI (UNADJUSTED) N/A N/A N/A N/A 1.1CPI LOCAL (LA) N/A N/A N/A N/A 1.6PIMCO All Asset Ins 6,179,991 4.9 1.1 3.9 3.9 13.7 13.7
CPI + 5% N/A N/A N/A N/A 5.8HFRI Fund of Funds Composite Index N/A N/A N/A N/A 0.6
Cash 22,397 0.0 0.0 0.0 0.0 0.1 0.1Citi 3mth Treasury Bill 0.0 0.1 0.1 0.2 0.2First American Treasury Obligation Z 22,397 0.0 0.0 0.0 0.0 0.1 0.1
Citi 3mth Treasury Bill 0.0 0.1 0.1 0.2 0.2XXXXX
Policy Index as of 3/1/2016: 8% Russell 1000 Value, 8% Spliced Vanguard Large Growth, 4% Russell 2000, 20% MSCI EAFE, 35% BC Agg, 5% BC US TIPS, 5% S&P/LSTA Leveraged Loan, 10% NCREIF-ODCE, 5% CPI + 5%. Pooled Cash not included in Total Fund calculation. CPI LOCAL (LA) includes Los Angeles-Riverside-Orange County. FY: 6/30. All manager returns shown net of fees. Effective 3/1/2015 Atlanta SMID Cap strategy changed to Atlanta Small Cap Core strategy. First American Treasury Obligation underwent share class change on 2/18/2016. Vanguard Inflation-Protected Securities underwent share class change on 4/27/2016. Invesco Core Real Estate market value is preliminary figure as of 9/30/2016. All data is preliminary.
Pasadena Fire & Police Retirement System 2
Pasadena Fire & Police Retirement SystemExecutive Summary - Preliminary (Net of Fees) Period Ending: September 30, 2016
Pasadena Fire & Police Retirement System 3
Pasadena Fire & Police Retirement SystemExecutive Summary with Pooled Cash - Preliminary Period Ending: September 30, 2016
Total MarketValue
% ofPortfolio
DomesticEquity LargeCap Growth
DomesticEquity Large
Cap Value
DomesticEquity Small
Cap Core
InternationalEquity
DomesticFixed Income
Core
DomesticFixed Income
Bank Loans
DomesticFixed Income
Real ReturnReal Estate Alternative
InvestmentCash and
Equivalents_
Total Fund Total Domestic Equity
Vanguard Growth Index Ins $9,993,848 7.8% $9,993,848Dodge & Cox Stock $10,087,016 7.9% $10,087,016Atlanta Capital Management Company $5,065,460 4.0% $5,065,460
Total International Equity Dodge & Cox Intl Stock $11,416,815 9.0% $11,416,815American Funds Europacific Growth R6 $12,386,052 9.7% $12,386,052
Total Domestic Fixed Metropolitan West Core Plus Fixed Income $43,437,955 34.1% $43,437,955Voya Senior Loan Fund $7,820,338 6.1% $7,820,338Vanguard Inflation-Protected Securities Adm $4,594,309 3.6% $4,594,309
Total Real Estate Invesco Core Real Estate $15,216,855 11.9% $15,216,855
Total Alternatives PIMCO All Asset Ins $6,179,991 4.8% $6,179,991
Cash First American Treasury Obligation Z $22,397 0.0% $22,397
Pooled Cash $1,225,000 1.0% $1,225,000Total $127,446,035 100.0% $9,993,848 $10,087,016 $5,065,460 $23,802,867 $43,437,955 $7,820,338 $4,594,309 $15,216,855 $6,179,991 $1,247,397
XXXXX
Asset Class Manager Name Ticker Symbol CUSIP Actual $ Actual % Targets %Above / Under
Target % Target $Re‐Balance Estimate
Re‐Balance Actual New $ New %
Variance to Targets (%)
Domestic EquityLarge Cap Value Dodge & Cox Stock DODGX 256219106 10,108,044$ 8.0% 8.0% 0.0% 9,794,666$ (313,378)$ (900,000) 9,208,044$ 7.5% ‐0.5%Large Cap Growth Vanguard Growth Index VIGIX 922908868 9,912,611$ 7.9% 8.0% ‐0.1% 9,794,666$ (117,945)$ (750,000) 9,162,611$ 7.5% ‐0.5%Small Cap Core Atlanta Capital Management n/a n/a 5,035,247$ 4.0% 4.0% 0.0% 4,897,333$ (137,914)$ (400,000) 4,635,247$ 3.8% ‐0.2%Total Domestic 25,055,901$ 19.9% 20.0% ‐0.1% 24,486,665$ (569,236)$ (2,050,000) 23,005,901$ 18.8% ‐1.2%
International EquityInternational Value Dodge & Cox Int'l Stock DODFX 256206103 11,569,199$ 9.2% 10.0% ‐0.8% 12,243,332$ 674,133$ (50,000) 11,519,199$ 9.4% ‐0.6%International Growth American Funds EuroPacific Growth RERGX 298706821 12,321,217$ 9.8% 10.0% ‐0.2% 12,243,332$ (77,884)$ (800,000) 11,521,217$ 9.4% ‐0.6%Total International 23,890,416$ 19.0% 20.0% ‐1.0% 24,486,665$ 596,249$ (850,000) 23,040,416$ 18.8% ‐1.2%
Total Equity 48,946,317$ 38.9% 40.0% ‐1.1% 48,973,330$ 27,013 (2,900,000) 46,046,317$ 37.6% ‐2.4%
Fixed IncomeCore Fixed MetWest Core Plus n/a n/a 43,118,254$ 34.3% 35.0% ‐0.7% 42,851,664$ (266,591)$ (300,000) 42,818,254$ 35.0% 0.0%Senior Bank Loans Voya Senior Bank Loan CIT n/a n/a 7,828,622$ 6.2% 5.0% 1.2% 6,121,666$ (1,706,956)$ 7,828,622$ 6.4% 1.4%Real Return Vanguard Inflation‐Protected Securities VIPIX 922031745 4,565,478$ 3.6% 5.0% ‐1.4% 6,121,666$ 1,556,189$ 4,565,478$ 3.7% ‐1.3%Total Fixed 55,512,354$ 44.1% 45.0% ‐0.9% 55,094,996$ (417,358)$ (300,000) 55,212,354$ 45.1% 0.1%
Real EstateReal Estate Invesco Core Real Estate n/a n/a 15,216,855$ 12.1% 10.0% 2.1% 12,243,332$ (2,973,523)$ 15,216,855$ 12.4% 2.4%Total Real Estate 15,216,855$ 12.1% 10.0% 2.1% 12,243,332$ (2,973,523)$ 0 15,216,855$ 12.4% 2.4%
Liquid AlternativesLiquid Alternatives PIMCO All Asset PAAIX 722005626 6,185,398$ 4.9% 5.0% ‐0.1% 6,121,666$ (63,732)$ (250,000) 5,935,398$ 4.8% ‐0.2%
Total Alternatives 6,185,398$ 4.9% 5.0% ‐0.1% 6,121,666$ (63,732)$ (250,000) 5,935,398$ 4.8% ‐0.2%
Cash Cash n/a 195998BA6 22,401$ 0.0% 0.0% 0.0% ‐$ (22,401)$ 22,401$ 0.0% 0.0%
Total Assets 125,883,325$ 100% 100% 0% 122,433,325$ (3,450,000)$ (3,450,000)$ 122,433,325$ 100% 0%
Pasadena Fire and Police Retirement PlanOctober 10, 2016
VERUSINVESTMENTS.COM
SEATTLE 206‐622‐3700LOS ANGELES 310‐297‐1777
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Past performance is no guarantee of future results. This document is provided for informational purposes only and is directed to institutional clients and eligible institutional counterparties only and is not intended for retail investors. Nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security or pursue a particular investment vehicle or any trading strategy. This document may include or imply estimates, outlooks, projections and other “forward‐looking statements.” No assurance can be given that future results described or implied by any forward looking information will be achieved. Investing entails risks, including possible loss of principal. Verus Advisory Inc. and Verus Investors, LLC (“Verus”) file a single form ADV under the United States Investment Advisors Act of 1940, as amended.
Table of Contents
2
Plan review 3
Observations 7
Appendix 9
Liquidity overview
PFPRS 4
As of September 30, 2016
Liquidity Assets
Daily (Trade Date + 1) Mutual Funds
Vanguard Large Cap Growth Index fund Dodge & Cox Stock fund Dodge & Cox International Stock fund American Funds EuroPacific Growth fund Vanguard Inflation Protected Securities fund PIMCO All Asset fund First American Treasury Obligations fund
(US Bank cash sweep vehicle)
43.3% of Total Assets Capacity to address immediate cash need
Weekly (Trade Date + 3) Separate Accounts
Atlanta Small Cap strategy MetWest Core Plus Bond strategy
38.4% of Total Assets Capacity to address immediate cash need
Monthly Collective Investment Trusts
Voya Senior Loan fund
6.2% of Total Assets Capacity to address monthly cash needs Requirement of 30 days advance notice, redemption distributed on
the 15th of each month
Quarterly Collective Investment Trusts
Invesco Core Real Estate fund
12.1% of Total Assets Capacity to address long‐term re‐balancing Requirement of 45 days advance notice, redemption distributed 1
day following the end of each quarter
October 19, 2016
INVESTABLE ASSETS
Asset growth
October 19, 2016PFPRS
Average total cash balance over the past five years has been $9.3mm
The System’s pooled cash account represents on average 7.1% of total assets
Used to pay benefit and administrative expenses
Proceeds from a City bond issuance ($46.6mm) deposited into the System’s pooled cash account on March 29, 2012
Invested in the portfolio per Policy over 5 months (dollar cost average)
As of June 30, 2015 (audited financial statement for FY 2016 unavailable)Source: Brown Armstrong audited annual financial statements (2010 ‐ 2014), Macias, Gini & O’Connell audited annual financial statements (2015)Note: Investments includes cash balance in investment account
5
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Millions
Investments Operating Cash Cash to Total
Cash flow activityOperating Cash Flows
— Quarterly employer contributions have averaged $2.5mm
— Quarterly benefit payments & administrative expenses have averaged $3.7mm
— Resulting in an average quarterly operating cash outflow of $1.2mm
Total Cash Flows
— Quarterly interest and dividend payments from investments have averaged $727k
— Taking into account investment income, quarterly cash outflow is $467k
— Unrealized and realized gains (loss) excluded from analysis
October 19, 2016PFPRS
Due to $46.6mm bond proceeds in March 2012, the averagequarterly net outflow (ex income) of $1.2mm over the past 5 years is an underrepresentation of current quarterly cash outflows
As of June 30, 2015 (audited financial statement for FY 2016 unavailable)Source: Brown Armstrong audited annual financial statements (2010 ‐ 2014), Macias, Gini & O’Connell audited annual financial statements (2015)
6
NET OPERATING CASH FLOWS NET CASH FLOWS
‐$40
‐$20
$0
$20
$40
$60
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Millions
Contributions Benefits & Expenses Net Operating CFs
‐$20
$0
$20
$40
$60
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Millions
Contributions Benefits & Expenses Int & Div Net CFs
Observations— The System’s investment portfolio consists predominantly of highly liquid assets
81.7% of investment portfolio assets are highly liquid (redeemable T+1 or T+3)
— On average, the System receives quarterly employer contributions of $2.5mm and distributes quarterly benefit payments and administrative expense of $3.7mm
— On average, the System experiences quarterly cash outflows of $1.2mm (excluding investment income)
Average operating cash balance of $9.3mm represents:
• 2.5 quarters of total expenses (benefit payments/operating fees)
• 7.7 quarters of net operating cash outflows (contributions – total expenses)
— The System’s negative net cash flow necessitates periodic redemptions from the investment portfolio to pooled cash
October 19, 2016PFPRS 8
October 19, 2016PFPRS
As of June 30, 2015 (audited financial statement for FY 2016 unavailable)Source: Brown Armstrong audited annual financial statements (2010 ‐ 2014), Macias, Gini & O’Connell audited annual financial statements (2015)
10
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015Cash FlowsContributions:Employer 4,981,704 8,036,000 46,600,000 ‐ 1,164,000 ‐
Total Contributions 4,981,704 8,036,000 46,600,000 ‐ 1,164,000 ‐
Benefit Payments & Operating Expenses:Administrative Expenses 246,316 241,635 286,778 271,035 295,882 272,961
Investment Expenses 331,763 365,264 242,728 373,953 338,651 563,740
Benefits Paid 14,974,640 14,381,525 14,147,887 14,322,245 14,140,462 13,644,833
Total Benefit Payments & Operating Expenses (15,552,719) (14,988,424) (14,677,393) (14,967,233) (14,774,995) (14,481,534)
Net Operating Cash Flows (10,571,015) (6,952,424) 31,922,607 (14,967,233) (13,610,995) (14,481,534)
Interest and Dividends:Interest 1,517,524 1,504,834 1,556,037 1,812,766 2,211,690 2,059,075
Dividends 774,255 898,571 1,066,961 1,305,036 1,128,886 1,101,967
Other Income ‐ ‐ ‐ ‐ 520,000 ‐
Total Interest and Dividends 2,291,779 2,403,405 2,622,998 3,117,802 3,860,576 3,161,042
Net Cash Flows (8,279,236) (4,549,019) 34,545,605 (11,849,431) (9,750,419) (11,320,492)
AssetsAssets:Cash and cash equivalents 9,281,352 5,234,332 20,038,869 6,531,090 7,918,592 6,469,469
Investments 85,112,541 102,078,425 124,843,499 140,238,405 145,618,881 138,205,928
Interest Receivable 183,072 200,421 256,442 269,374 267,661 193,141
Pending Trade Sales ‐ ‐ ‐ ‐ 790,981 426,624
Total Assets 94,576,965 107,513,178 145,138,810 147,038,869 154,596,115 145,295,162
Total Liabilities 2,660,631 2,578,781 6,002,731 6,866,100 6,391,725 5,326,122
Net Assets 91,916,334 104,934,397 139,136,079 140,172,769 148,204,390 139,969,040
October 19, 2016
Board of Trustees Pasadena Fire & Police Retirement System 100 N. Garfield Avenue, N204 Pasadena, CA 91101 Dear Trustees,
Verus has greatly enjoyed serving the Pasadena Fire & Police Retirement System since we were hired in April 2011. Throughout our relationship, we have been proud to have had the opportunity to work with the Trustees in the development, enhancement, and maintenance of the Plan. We look forward to continuing our relationship with the System for years to come.
Our last contract, dated April 1, 2014, included annual $5,000 increases ($100,000 as of April 1, 2014, $105,000 as of April 1, 2015, and $110,000 as of April 1, 2016). Since April 1, 2014, the assets of the Plan have decreased $19 million, but there have been net withdrawals of more than $34 million over the same time period (as of September 30, 2016). We have assisted the Board in making valuable adjustments to the asset allocation including de‐risking by lowering net equity exposure and increasing and diversifying Fixed Income exposure with the addition of Bank Loans (Voya). We also assisted in selecting a new custodian bank which resulting in significant annual savings to the System. We hope to continue assisting the Board in making adjustments to the plan to increase return potential and/or lower the total risk of the plan when appropriate opportunities arise.
We are therefore proposing to increase the fee to $115,000, effective April 1, 2017, guaranteed for a period of 3 years. We believe it is reasonable compensation for the level of work required and the value we have added to the Plan. On a personal note, I have thoroughly enjoyed working with the Board of Trustees and Staff and look forward to continuing our relationship for many years. I am hopeful that we have been a valuable resource for the Pasadena Fire & Police Retirement System. As long as I am with Verus serving as an Investment Consultant, I will be the primary contact for the System. Should there ever be a need to change, which I honestly do not anticipate, I will ensure the Trustees are comfortable with whoever replaces me.
A
Acct# 1
2 751000
3 668900
4 703200
5 6 7 8 800500/5800
9 802200
10 11 12 13 810100
14 810900
15 811000
16 811300 810800
17 18 813500
19 813900
20 812400
21 812700/2900
22 815600
23 811400
24 811400
25 811400
26 811400
27 811400
28 811400
29 811400
30 811400
31 811400
32 811400
33 34 814800
35 814800
36 814800
37 814800
38 814800
39 40 41 42 860700
43 814400
44 862600
45 861100
46 861200
47 48
Fire and Police Retirement Board !""\/\TC: 111/(Cr II{_ Administration and Operating Expenses - . . . ..........
FY 2017 I I CIVI +I' I"""
Comparison of Actual to Budget For the Month and Year Ended September 30, 2016
B c D E F G H Actual Budget Variance Actual Budget Variance
For For For Year To Year To Year To Descriptions Month Month Month Date Date Date
System Revenue:
Concord Asset Income 0 0 0 0 0 0 Miscellaneous Cash/Income 0 0 0 2,366 0 2,366 Citv Cash Contributions 0 0 0 0 0 0 Total System Revenues 0 0 0 2,366 0 2,366
Expenses: Personnel Costs 14,019 16,483 2,465 44,666 49,450 4,784 Retiree Pavroll 1,110,857 1, 100,000 (10,857 3,339,248 3,300,000 (39,248) Subtotal Pers./Retiree Payroll 1,124,876 1,116,483 (8,393) 3,383,914 3,349,450 (34,464)
Services & Supplies: Materials and Supplies 259 121 (138) 619 363 (256) Small Equipment Purchases 0 0 0 0 0 0 Outside Printing & Duplication 349 0 (349) 349 0 (349) Equip. Lease Payments 160 175 15 467 525 58
Computer Related Supplies - Software 0 0 0 0 0 0 Reference Materials - Subscriptions 0 0 0 0 0 0 Water 33 29 (4 107 88 (20) Dues and Memberships 0 250 250 0 250 250 Conferences/Meetings - Board/Staff 0 500 500 0 1,500 1,500 Insurance 0 0 0 18,441 18,441 0 Contract Services:
Misc Services 4,49q 0 (4,495) 4,495 5,000 505 Actuarial Services 10,900 6,000 (4,900) 13, 100 15,000 1,900 Asset Manaqers 0 0 0 0 0 0 Auditinq Services 11,630 6,500 (5, 130) 19,923 28,000 8,078 PensionGold Svs 0 0 0 0 0 0 Custodial Bank Svs 0 0 0 0 0 0 Investment Consultant Svs 0 0 0 0 0 0 Outside Legal Counsel 0 833 833 0 2,500 2,500 Berwvn Group 0 0 0 300 300 0
Subtotal Contract Services 27,025 13,333 (13,692) 37,818 50,800 12,982 Investment Expenses
Misc/Other Fees 0 0 0 0 0 0 Custodial Bank Svs 1,876 2,000 124 5,641 6,000 359 Investment Consultant Svs 9,167 9,167 (0) 27,500 27,500 (0)
Subtotal Investment Expenses 11,043 11, 167 124 33,141 33,500 359 Subtotal Services & Supplies 38,869 25,575 (13,294) 90,941 105,466 14,525
Internal Service Charges: Printing 0 17 17 0 33 33 Postaqe 300 204 (96) 462 613 151
Mail Services 0 8 8 0 25 25
. IS-APPlic. Devel. & Suooort 0 17 17 0 50 50
IS-PC Network Suooort 0 21 21 0 63 63
Subtotal Int. Service Charges 300 267 (33) 462 783 321
Page 1of2
10/12/2016 8:02 AM FPRS Adopted Budget FY 2017 linked
September
A
Acct# 49 50 850400
51 850600
52 53 54 55 860100/2000/3400
56 860400
57 860500
58 862200
59 863600
60 864300
61 62
63 64
65
66
67 68
Fire and Police Retirement Board Administration and Operating Expenses
FY 2017 Comparison of Actual to Budget
For the Month and Year Ended September 30, 2016
B c D E F G H Actual Budget Variance Actual Budget Variance
For For For Year To Year To Year To Descriptions Month Month Month Date Date Date
Equipment: Equipment/Furniture 0 0 0 0 0 0 Computer Equipment 0 0 0 65 0 (65' Subtotal Equipment 0 0 0 65 0 (65)
City Service Charges: Struct Maint/Prev Maint/Sec 439 439 0 1,318 1,317 (1) Utilities/Insurance 180 180 0 540 540 0 Housekeeping 140 140 0 423 421 (2) Telephones 10 13 3 18 38 19 DolT Desktop Replacement Prag 24 24 (0) 68 71 3 FY 2013 Cost Allocation Prag 0 0 0 0 0 0 Subtotal City Serv Charges 793 796 2 2,367 2,387 19
Subtotal FPRS Admin Expenses 53,981 43,121 (10,860) 138,502 158,086 19,584
Total FPRS Operating Expenses 1,164,838 1,143,121 (21,717) 3,477,750 3,458,086 (19,665)
City Legal Expenses (I. Safie) 0 1,738
Balance of FPRS Funds Actual for Actual for
US Bank - Beg. Of Month $125,339,152 Investment Expenses Month YTD
Receipts 0 Atlanta Cap Qtly (USB) 0 0
Investment Income 459,648 MetWest Qtly (USB) 0 0
Disbursements 0 Invesco (USB) 0 0
Fees & Expenses 0 Voya (USB) 2,952 8,694
Net Chg in Unrealized Gain/Loss 0 Class Action Fees (USB) 0 99
Realized Gain/Loss 0 Misc/Other 0 0
US Bank - End Of Month 125,798,799 US Bank 1,876 5,641
Equity in Pooled Cash (100100) 1,227,675 Verus Investments 9,167 27,500
Concord Investment 0 Total Investment Exp $ 13,994 $ 41,934
Total FPRS Funds on Deposit $127,026,474
Page 2 of 2
10/12/2016 8:02 AM FPRS Adopted Budget FY 2017 linked
September
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