St. Mary's County, MD Sheriff's Office Retirement Planning Board for St. Mary's County, 24 Jun 2021

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From YouTube: 06/24/21 Sheriff's Office Retirement Planning Board of Trustees

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A

A

I'm sure mr saf will make a motion to modify the june 24th meeting agenda.

B

We just have the uh adjourn in the closed session and see number six and number seven need to be.

A

Switched right because because if we adjourned, how could we ever go into closed.

C

So it's six becomes seven, it should right, you need a motion. Yeah mr safford will will take care of it.

A

I think right the appropriate motion. Thank you.

B

Make a motion to change it and then to approve the changed agenda.

A

Oh okay, I was waiting for the intro, I'm sorry, I didn't see that little green piggy bank or whatever thank you.

A

Good afternoon everybody david weiskoff, calling to order the sheriff's office retirement plan.

A

Board for thursday june 24th 2021 time 1 pm here in the chesapeake building in leonardtown maryland.

A

And the first thing I'll do is ask if the board wants to approve the 24 june meeting agenda.

D

I'd like to make a motion to make a change to the this agenda. Switch item number six to.

D

An item number seven so that closed session comes before a journey. Certainly that's correct.

A

Yep is there a second I'll? Second, thank you. Is there a vote all in favor, hi hi eyes have.

A

It motion carries next, is the approval of the april 22nd 2021 meeting minutes.

A

I'll be glad to entertain a motion once everybody has reviewed it.

E

Move to approve.

A

Second, have a first and a second all in favor, say aye aye aye eyes have it motion carries.

A

Next is new business and item a is patrick wing of marquette associates number one. First quarter, 2021.

A

Investment performance report take it away, sir all right well, thank you and good afternoon. Everyone.

F

So we distributed a packet of books there. The cool, really performance report will be the one on top.

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So that will be the first item of our discussion in the agenda today. So once you find that book, if.

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You could do me a quick favor and hop behind the cover page there, where you see st mary's county.

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The logo and sheriff's office retirement fund to the table of contents, so that is before exhibit.

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One right after the cover just a quick minute about what we're going to talk about today, because.

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This is the first time we're preparing and presenting our quarterly performance report at our.

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Last quarterly review, we presented the previous advisors report, so we might spend a little bit.

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More time walking through some of the data and analysis because it'll be new to the board. But.

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If we think about things at a high level here and as I walk through this table of contents,.

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I'll give you a little bit more information about what we're going to be talking about.

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Section one is just an update on marquette our firm. We will rarely, if ever take a look at that.

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Unless there's something relevant for you all to be cognizant of this, where we really start is that.

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Second, section market environment so, like we did in our previous meeting when we ran through the.

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Report look at the economy, capital markets to provide context for how and why the retirement.

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Fund performed the way it did and how why some of the investment managers performed the way they did.

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After we do that we'll get into the portfolio overview, so that will be a look at the fund itself.

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And there's really four main takeaways, we'll look at cash flows, returns asset allocation and then.

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Also characteristics or exposures themselves and in a more detailed level. So we'll start with the.

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Total fund we'll look at the asset classes and then the managers themselves and then the final.

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Section is investment managers we'll rarely if ever look at that? What that is is just an overview.

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Of the holdings, the exposures for the equity managers, the characteristics of the fixed income.

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Managers they're there for more for reference in case. Anyone from the board has a question around.

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Any particular manager, then we'll reference it, but we'll really again, if ever get into that section.

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So with all that said, if you could please hop behind, exhibit 2 so skip exhibit 1 again. The.

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Marquette update and hop behind exhibit 2, where you see market environment there and we'll start.

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With the u.s economy, so this is page six, where you see u.s economy at the top left.

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If you look at the top bullet point on the left there that first sentence it was a very strong.

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Quarter for economic growth in the u.s, you can see up about six and a half percent.

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To illustrate that, if you look at the top right graph on that same page, we're showing the real.

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Economic growth, the bars are the quarterly numbers. The last three stripe bars are estimates through.

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The remainder of 2021 and then the orange line. There is the year-over-year number, but you can.

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See in those last two fully colored in bars, which is q4 of last year and q1, the acceleration that I.

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Talked about that was really driven by the themes that we've seen over the past couple quarters.

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Continued strength and consumer spending continued strength and business investment.

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Really, on the back of all the fiscal policy support that we've seen come out of washington.

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All the three or the four packages at this point intended to support.

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Consumers to support businesses amid the pandemic until we can get to the other side.

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Into a fully reopened economy, but if you continue to look at that top right chart and the estimates.

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There in those stripe bars, economists are calling for very strong growth to round out the year.

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And if they come to fruition, it's going to be the strongest calendar year for economic growth. Since.

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1984., so about 40 years right now we have an economy. You know it's been supported quite.

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Drastically by policy support the fiscal side, but as that support begins to wane a little bit. The.

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Expectation is that the private sector, consumers and businesses will begin to be able to stand on.

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Their own two feet as the economy continues to fully reopen in the back half of the year.

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Now, amid that the strong economic rebound and that historic support from the fiscal authorities and.

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The federal reserve on the monetary side we've seen some inflation concerns, begin to come up to.

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The surface so we've seen a huge jump in commodity prices. I'm sure you're all well aware of food.

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Prices have gone up, we've all seen. Gas prices go up, so inflationary concerns have risen to the.

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Forefront and are starting to build a little bit because a lot of the input costs that businesses.

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Are sourcing to produce the goods and services for consumers and other businesses.

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Those are rising as well, so we see things like.

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I'm sure you've all heard of lumber prices going through the roof over the past few months.

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Electrical wire for those trying to do home improvements have increased dramatically.

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Because it's copper, based and copper prices have gone through the roof so right now, if we look at.

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That bottom right chart there's a survey put out by the national federation of independent business.

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Asking companies about 100, or maybe even thousands of companies across the u.s, a series of questions.

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And two of them are simply: are you planning to raise prices or planning to lower them.

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And that's showing the difference between the two and, if you look all the way to the right there.

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Those planning to raise prices outnumber those planning to lower them at about a decade high. So.

F

We've seen inflation concerns start to build up, we've seen stronger or bigger inflation prints.

F

Come out, and it seems like the pipeline, if you will, for further inflation, at least through the.

F

Back half of this year would seem likely to come to fruition, based on where things stand with those.

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Rising commodity prices, those rising input prices. So that's a short-term look at inflation and I'll.

F

Talk about the impact that had on on asset class performance shortly, however, we think about the.

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Longer term, if you will look at the top chart on page three, there is an interesting sort of.

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Dynamic unfolding and in that top chart, what we're showing is the market's expectation for inflation.

B

You're page seven: oh I'm sorry page! Seven! Thank you! No! My apologies page seven. So.

F

The markets, what this is showing is the market's expectation for inflation over the next 10 years.

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Less the market's expectation over the next five years, and you can see that gray line.

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Is usually positive, so what that means is the 10-year expectation has been higher than.

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The five years, so, if you think about it as an accounting identity, that means that years six.

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To ten over the next decade or higher than year, zero to five, because the whole ten year is higher.

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Than the next five, but look at the right hand of that chart where it's actually gone negative.

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So that's flipped on its head. So now the market is expecting higher inflation over.

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The next five years than the next ten as a whole, so this short-term burst in inflation.

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That may come to fruition at least right now, the market's expecting that to come back in line.

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With historical averages over the next decade, but that's going to be a key item or theme to.

F

Be cognizant of does that flip back in the other direction? In other words, does 10-year inflation.

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That expectation become higher. Are we looking at an environment of higher sort of structural.

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Inflation than we've seen over the past couple of decades. So if you can skip ahead to page nine.

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We'll shift gears now and talk about markets and start to weave in some context, for the fund itself.

F

So please focus on the chart to the right again on page nine, if you look up and down that graph.

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On the left side, we're showing major asset classes, whether they be equities, fixed income or inflation.

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Sensitive assets like tips, commodities and reits at the bottom. So if we start with.

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Equities up at the top there for u.s international, developed and emerging market equities, the green.

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Bars are showing the q1 numbers, the darker bars of the one year, so we'll focus on q1.

F

You can see u.s equities up north of six percent during the quarter, so a very strong quarter.

F

uh Investors really pricing in that continued economic recovery and then sympathy with that.

F

A big rebound in corporate earnings, which we did see, q1 earnings, came out in mid april to mid march.

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Or excuse me mid may and they were very strong relative to expectations.

F

You can see international and emerging market equities, they posted gains, but underperformed.

F

The u.s and we believe that was largely related to coveted concerns so outside.

F

The u.s and international developed economies places like the uk just extended their lockdown.

F

For a number of weeks, we think about emerging market economies. Unfortunately places like brazil.

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And india certainly experiencing a rise in coveted cases, so that weighing on sentiment for those.

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Markets causing that underperformance beneath emerging market equities, you see us bonds and that.

F

Was where the real action was during the quarter? So I talked about the inflation concerns before so.

F

As inflation became to the forefront of investor expectations that caused a rise in interest rates,.

F

So when rates go up, bond prices go down and that negative three and a half percent was one of the.

F

Worst, quarterly returns in fixed income in quite some time now, when we see the retirement funds.

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Returns uh shortly, it was a little better than the 3-4, for the first reason was the active managers.

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Outperformed their respective benchmarks, so that provided a little bit of a tailwind.

F

Now, what was a detractor, if you recall, when we met in february, we looked at the fixed.

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Income in aggregate and the key takeaway was that the fixed income had a longer duration.

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Than the benchmark, quite simply meaning that it was more sensitive to interest rate changes.

F

So in the first half of the quarter or really the first two months before we lowered that duration.

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Or lowered that interest rate sensitivity, when rates were moving up, that was more harmful for.

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The fixed income in the portfolio relative to that benchmark, but then we brought that duration or.

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That interest rate sensitivity back in line with the benchmark when those changes were approved.

F

In february and then again in early may, the last thing I'd like to mention on this page. If you look.

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All the way down to the bottom, you see u.s reits there, so that was up 8.3 for the first quarter and.

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There are no reit investments in the portfolio right now, but the reason why it's important.

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Is from a policy perspective, the policy calls for eight percent allocation of reits. So there's.

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A little bit of a mismatch right now between what the policy is calling for versus what is.

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Actually being done more specifically, the real estate, as you all know, at least through the end.

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Of the first quarter was mainly implemented through those private reit managers and also.

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Those closed-end fund real estate managers, so I just want to point that out when we look at.

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The funds returns here just shortly. That was a big impact, because reits were up eight percent.

F

But those managers were up closer to probably about four percent, so that was a detractor.

F

Right so they underperformed the policy index, so that was a little bit of a detractor for the fun.

F

Relative to the benchmark yeah, I asked two questions. Yes, sir um flipping back to page seven.

E

The bottom chart, if those projections pan out, will we be in an inverted yield curve at that point,.

F

The inverted yield curve yeah, so just a quick, um quick backstory, so the bottom chart on page seven.

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Is showing short-term interest rates? Essentially uh what the fed is planning.

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To do with the overnight interest rate that it controls. So if you look past 2020 uh what we're.

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Showing in the blue line, that's what the fed said at least says it's going to do right now,.

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But the market is projecting that the fed will have to raise rates a little sooner than that.

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This data is a little bit dated it was as of the end of march, the fed recently, I believe, last week,.

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Updated their projections and now, interestingly, that divergence has closed a little bit now. The.

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Fed is saying they may hike interest rates one or two times before the end of 2023.

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And given that response, it was a little bit unexpected by the market, so we did see a.

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Flattening in the yield curve where short-term interest rates rose and longer-term rates fell,.

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And at least historically, the difference between short-term rates and longer-term rates are called.

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The yield curve and when it's very positive or upward sloping when those longer data maturities.

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Are yielding more that's generally, indicative of a uh you know, positive economic outlook.

F

When the that yield curve tends to narrow or those longer rates, come down and short rates,.

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Move up a little bit, then at least history would suggest that could be somewhat of a red flag.

F

So at least as things stand right now, it's still very very positive, but it has narrowed since we.

F

Ran the data here so that's a key item to keep cognizant off as we move forward. Because, again, if.

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It inverted, then it would be a yellow flag, because that's exactly what we saw before the pandemic.

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Nobody predicted the pandemic, but you know it was in line with what history would suggest.

F

An inverted yield curve tends to be indicative of pending economic weakness and poor market returns.

E

And my second question: on page nine: yes, sir, the bars pertaining to reits so not all reads on the.

E

Same things, yes, all right, but given what we see in the decimation of shopping malls, strip malls.

E

Housing with evictions, and things like that.

E

Yes, we don't have anything in that space now. Is that maybe a good thing unless we're looking for a.

E

Wreath that is tailored specifically to something else: cell towers, hospitals I mean whatever so.

F

To answer that question you know with within the rates and we'll get into this when we look at the.

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Research uh shortly, we actually show a breakdown of the sector allocations and a lot of those other.

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Sectors like cell towers, billboards, broadband are included in what's called specialty, reits.

F

So there are decent exposures to those areas through the re-managers under consideration, but on.

E

A broad basis would this be a good point to have extra exposure. Whatever is embedded down in there.

E

To shopping malls well, not necessarily shopping malls per se, and when we look at the data we'll.

F

See the retail allocations they're minimal relative to the other portfolio. But if you.

F

Look at the the quarterly return it obviously outperformed, but over the one year it's almost.

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30 percentage points behind the benchmark, so it's always important to think about the exposures, but.

F

Also, what's in the price right, in other words, that these things have been hit so hard pre-pandemic.

F

And then have underperformed so drastically most pandemic, then they are still cheaper.

F

Than say the broad u.s equity market so you're, seeing it maybe as a value play yeah. That's a.

F

Good characteristic characterization, thank you, you're welcome, so we skip ahead to page 10, just.

F

Want to make a couple of quick comments around equities and fixed income before we shift gears.

F

So, on the top of page 10, you see the rolling one-year return for the broad market, u.s equity.

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Index and that last 62.2 at the top right there, that's the one-year return off the pandemic low.

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Which has been nothing short of historic, to say the least, the best return since the early 80s.

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But importantly, it's really been a tale of two halves. If you think back to q2 and q3 last year,.

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The market leaders were still kind of those growth type stocks.

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Say things that would do better in a work from home type of environment like a zoom or a.

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A peloton things of that nature, where the economic outlook was still a little bit muddied, but in q4.

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And q1, as we'll see, there was a big shift in market leadership, namely value stocks began to.

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Outperform growth stocks quite dramatically, in fact, in q1 value, was ahead of growth by about 10.

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Percentage points given the economic opening and the rise in rates so recall when we met in january.

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We did a big exercise really digging deep into the u.s and non-us equity exposures.

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And there were these massive growth tilts, so in our recommendations and the board approval those.

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Tilts or bets towards growth were mitigated and more balance was brought into the equity part of.

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The portfolio so that was implemented more in february so prior to implementing that it was.

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A little bit of a headwind since value led, but once we got more balance, it proved more.

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Helpful in the back half of q1, so with that said, we skip ahead to page 12 quickly and.

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If you look at the top right just to illustrate some of the comments I made around fixed income.

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That top right chart is showing the yield curve, so the yield for various treasury maturities that you.

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Can see in the horizontal axis where it shows the zero, the shortest maturities to the left? And then.

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Increasing maturities, as you work from left to right, the dotted line is where things stood at.

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The end of the year and the blue line at the end of march so again a big jump in rates and.

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Intermediate longer term maturities, which really drove that negative return from fixed income.

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But even still you look at that blue line, that's still very low relative to historical standards, so.

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Like we talked about before low yields, low returns moving forward, so the outlooks improved slightly.

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Still given what happened in the first quarter, but over the intermediate and longer term, with yields.

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At these levels, fixed income is still going to be. You know fairly challenged relative to history.

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So with that said, let me pause for a quick second before we get into.

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The results from the fund itself to see if there are any other questions or comments.

F

Okay, so if you could, please hop behind exhibit three.

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We will get into the fun results itself, starting with page 18.. So before we get into the data.

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We always like to you know, hit the high level observations. You know what were the key things.

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Driving things throughout the quarter and then looking ahead, you know what else are we going to.

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Talk about so you see the observations at the top. The market value for the fund was a shade.

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Under 123 million had a portfolio gained, so an investment gain of about 4.2 million dollars.

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And then the fund returned 3.6 percent, neta fees versus the policy index of 3-4.

F

Now, if you see that sub-bullet point below here, this is incredibly important. So for those.

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Private equity, private credit and private real estate investments. Those are reported on a lag.

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So the data that we have for those investments are through december at this point, so in other.

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Words they're carried at zero in q1, so what that means, as we begin to get those statements which.

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We've already gotten some and we'll continue to get them later on that you can expect, since about.

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11 of the fund is allocated to those areas if we just assume maybe a two to three percent return.

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Then that three six number should be, you know closer to four, when all said and done.

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And I'll talk a little bit later on about an exhibit that will show that not just shows what's.

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Happening currently, but then we'll show you the revised numbers, because given it's such a large.

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Part of the portfolio it's important to see you know not just carrying it at zero. Every quarter.

F

But what actually happened? Do you think we'll have all of those reports in by the end of this quarter.

F

uh For when we do the next report in august- yes, sir, okay.

F

So below that the below the next, uh the two main bullets, where you see the attribution numbers, what.

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Attribution is is essentially explaining the difference between how the fund did.

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And the benchmark, so positive means what helped so a few things there number one equity, overweight.

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So, like we showed previously, the fundus had a decent overweight to equities, largely sourced.

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From an underweight to alternatives, and as I showed equities, you know did the best so.

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Having more money in an asset class that does the best is helpful from a relative perspective,.

F

The other two items I talked about, the outperformance by the active managers.

F

And then the hedge fund managers also had a strong quarter as well. So that was a helpful.

F

On the negative side, I talked about the fixed income structure, sort of the headwinds from rising.

F

Rates before we were able to make some changes and then the real estate structure as well so.

F

The benchmark was up eight percent, the manager's kind of around four percent. So if you're four.

F

Percentage points behind with a target of eight, then that you know quite simply, is a headwind of.

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About you know, 0.3 percentage points or 30 basis points and then looking ahead again, these are the.

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Items we'll talk we'll tackle later on in our discussion. So if you look at 19 again, we show.

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Things at a very high level and then we'll break it down as we work through the rest of this book.

F

So we can start up top here in the summary of cash flows. You can see the fund began the year at 117.6.

F

Million dollars there's a million dollars of the cash inflow, and then you see that net investment.

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Change of 4.2 million dollars, so the fund grew by about 5.2 million dollars in the first quarter.

F

For the fiscal year started about 99.1 million about 175 in cash inflow and then a 22 million.

F

Dollar investment gain, so the fund grew by just under 24 million dollars in the current.

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Fiscal year- and we have an updated number, we'll show you shortly. The fund has grown by another.

F

Six million dollars just so far here in q2 for the returns in the middle of the page. I want to.

F

Skip that for a second, we have a more detailed page, so I was going to spend a couple minutes.

F

Talking about that in just a minute, but if you look at the bottom asset allocation, you know.

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Really, what we're showing here all the way to the left are the respective asset classes.

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Included in the policy the current, those are the allocations at the end of q1 and then you can see.

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The policy numbers there so two two things: if you look at the policy and work your way down towards.

F

The bottom third up from the bottom or that blue line, you see four percent of commodities. So that's.

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In the policy right now, but there are no commodity investments. So that's why it looks a little.

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Different, whereas you know it's a dash for commodities, but there is a target in place.

F

Right now and then to the right, you can see the differences. So what that's? What that means.

F

If you just look at the top at u.s equities, where there's about a six and a half percent overweight,.

F

From a dollar perspective, that would mean the fund is about eight million dollars, overweight, equities,.

F

At the end of the quarter, and as you work your way up and down the page there, obviously that would.

F

Sum to zero because you have over and underweights yes, sir. I have a question because maybe I didn't.

A

Understand something back when we were talking on page nine, you had pointed out the u.s reits.

A

And said that we had none in a portfolio and that the policy called for eight percent.

A

Right so, but what reits and real estate two different things so from a policy level calls.

F

For reits, but with what's in the portfolio, is what's open-ended real estate and closed-end real.

F

Estate, so we're just calling it real estate for this because that's what's in the portfolio but.

F

Then you can see the eight percent target within the policy. The benchmark is defined as reits.

G

Okay, and so we have zero reads, but we have 7.9 of real estate. Yes, sir,.

A

Okay, that's correct, okay, and that was those private investments. Yes, that's correct. You.

F

Know many of which have been liquidated that we're still here at the end of the quarter.

F

That's why we're seeing them here because we're as of march but they've since been liquidated.

F

And I'll speak more to that when we look at the fees shortly, so are we looking to take the.

A

Asset allocation- that's currently 7.9 and put that all into reits at some point in time.

A

To get away from the closed and open well, that will really be an output of our asset allocation.

F

Discussion that we'll have late later, I'm just trying to understand my head around it. So thanks.

B

And david just one other point: this is reflected as of march 31 and some of those.

B

Have been sold right right right so that that percentage isn't necessarily accurate.

E

Correct, but at this, but at the same time aren't we on the hook for another, what nine million or.

E

More goals yet to be called, so that's where the sorry to jump around yeah. No, you guys are.

F

You're scooping me uh now so the the private reits have been to ms pratton's uh point have been.

F

Mostly liquidated to that point so of the seven nine they do make up the vast majority of that.

F

So we've got you, you know it's a lot less. I got it's a lot less now, but your point, mr walters, the.

F

Closed end ones, which are much lower allocation, are also included there and those are ones that.

F

We can't do anything about right now, all right, thank you. So if we can skip that, why don't we.

F

Skip ahead to page 21 quickly again, here we start to break down things on a more detailed level, so.

F

I showed the cash flow number on a previous page. It was about one million dollars inflow.

F

And aggregate- and there is admittedly a lot going on in this page- it will not look as detailed as.

F

This going forward and the reason behind that is because of all the changes that were made in the.

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First quarter the equity changes, the fixed income changes and also changing investment vehicles.

F

The board recalls moving away from etfs more to mutual funds, to simplify the.

F

Trading process from an operational perspective, so there's a lot going on on this page. If you look.

F

On the next page on 22, to illustrate the comment I made about how the private market investments work.

F

If you look at the third row, where you see morgan stanley, private equity access fund.

F

And then maybe 12 lines before that, what you'll see is those beginning market values.

F

Are the 1231 statements? There are cash flows because they're reflective of the calls and.

F

Distributions that happen during the quarter, but then a zero net investment change, because we don't.

F

Have the 331 numbers, so the ending values are adjusted for the calls and distributions, because.

F

Obviously they came from and went into cash, so we don't want to be double counting things.

F

So those market values are adjusted for cash flows, but not the capital balances. As of 331.

F

We skip 23 and 24, just a more granular detail. Breakdown of the asset allocation not just across.

F

Asset class but individual manager, but in the interest of of time here, I'd like to focus.

F

On page 25 for a second, I mentioned a minute ago, taking a deeper dive into the returns and.

F

As a quick background, we use a third-party platform called investment metrics to generate.

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These reports, we use it maybe 50 other consultants. So there's trillions and trillions of dollars of.

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Institutional assets on the platform giving us an opportunity to really slice and dice the data on.

F

An anonymized basis, so there's a lot on this page as far as the chart and the table. If I.

F

Can draw your attention to the bottom three rows here, the first. You see the number of portfolios.

F

And just to give you a sense of how robust the the sample size is here, as you work your way from left.

F

To right, there's, I you know between 450 and 600 portfolios in this universe. So it's a very robust.

F

Universe where you can draw a conclusion- and I didn't mention- but these are just public funds.

F

Okay, so no other institution that wouldn't be relevant for you all to to consider these numbers.

F

Now, if you focus on the bottom, two rows, where you see the circle and the triangle work, your way from.

F

Left to right, those first set of numbers, those are the q1 numbers I mentioned. So you see the 3.

F

6 versus the 3 4., the parentheses, are the pure rank so that the median would obviously be 50.

F

Lower numbers are better here and higher numbers are below the median, so you can see for q1 the.

F

Fund ranked in pretty much the top third of all public defined benefit funds in the universe.

F

Again, I would expect that number to be closer to maybe three, eight, three nine. Once we get.

F

The uh private markets investments so maybe top quartile before all said and done.

F

But what I would like to draw your attention to is, you know more of the longer term numbers when.

F

You say: look at the seven to ten year really for two reasons: uh number one you can. You can see the.

F

Rankings there but number two: this speaks to the fact of how important asset allocation is right.

F

Because the returns themselves are pretty much more or less in line with the asset allocation.

F

So asset allocation is one of the biggest or, if not the biggest driver of performance over.

F

The long term and that's you know really the reason we spend a lot of time in march. A lot.

F

Of time in april and we'll spend some more time today trying to develop that long-term roadmap.

F

Or outlook and developing the strategic allocation when we update the investment policy statement.

F

So I think that illustrates that that nicely, as the returns are more or less in line with that.

F

But the asset allocation itself, obviously uh of utmost importance.

F

Of determining where the fund will eventually get to where the fund will eventually be.

F

In the immediate in the intermediate and longer term and questions around those numbers before.

F

We continue on just a few other key pages to hit before shifting shifting gears here. It's maybe.

E

A little too philosophical for this meeting today, but could it be that we have the wrong.

E

Allocation numbers in our policy statement.

F

So I it would be hard for me to speak to I'm sorry. Let me.

F

Back up when you say wrong, mr walters, what do you? What do you mean by wrong.

E

Well, how we're doing compared to the rest of the world right, so I think what you would take away.

F

And some of the information we showed earlier on was that the policy was quite different.

F

Relative to a lot of the other peer funds out there and you can see in the numbers that you.

F

Know it didn't necessarily work as well as some of the some of the other peer funds out there. So.

F

When we think about you know whether it was right or wrong, I you know, I can't necessarily answer.

F

That but what I can say, given what we've done over the past couple months and given our conversation.

F

Here, in a few minutes, we'll be looking to get this on a better track. If you will thank you.

F

Okay, so page 26 just shows the same data, but on a fiscal year basis. So in each individual fiscal.

F

Year, you can look at the ranks, I'm not going to run through that or page 27 in the interest.

F

Of time what I'd like to do is move to page 28 and talk a lot a little bit about the individual.

F

Managers themselves, given all the changes so at the top there anytime, you see a darker bar.

F

That's going to be a composite, so you can see that's the total fun up top those first five.

F

Time periods are ones we already showed. If you look all the way to the right there, that data was.

F

Provided by the previous advisors, so you can see the long-term returns and the long-term rank there.

F

When we look below under total equity, that's the weighted average of all your.

F

Equity managers, so all your u.s managers, your non-u.s managers, your emerging market managers,.

F

You could see the equity composite for the quarter was about a half a percentage point above the.

F

Benchmark that was largely driven by non-us and emerging markets within the us. We were slightly.

F

Behind again because in those first six weeks we had that huge growth tilt, so that was a headwind.

F

For the composite relative to that policy index, but that was mitigated again in mid-february.

F

To try and bring things more in balance and ended up proving helpful in the back half of the quarter.

F

Now a lot of these managers within us equities you'll see a lot of dashes because of all the.

F

Changes that we've made okay, so we don't have historical returns, because they're new managers.

F

Within the fund, but if you look and look all the way to the right, there you'll see the.

F

Various inception dates with most being february because those were the changes that were made.

F

And then the one in august american century that was a previous fund- that's been around for.

F

Call it, you know eight six, seven months or so uh during the quarter they were a little bit behind.

F

Their benchmark, mainly due to stock selection, they ended up with a decent overweight to tesla, which.

F

Underperformed and not really any exposure to microsoft, which was one of the growth stocks that.

F

Did quite well so they were a little bit behind for the quarter since its session, which is again.

F

Just six or seven months, all the way to the right. You can see much more favorable numbers for them.

F

If you look at the developed non-us equity composite that was ahead of the.

F

Benchmark so that's the darker line towards the bottom of the page. Now one of the reasons we saw.

F

Out performance in non-us relative to the us was because of that growth value difference. It was.

F

Much bigger in the u.s than in non-us so in the first part of the quarter, where we still.

F

Had that growth under what or overweight excuse me, it wasn't as big of a headwind.

F

As we saw in the us and then once the changes were made, we brought things more back into balance.

F

Then we saw the positive addition from that in the back half the back half of the quarter so skipping.

F

Ahead a little bit and talking more about the real estate on page 29, you can see under that composite.

F

We've broken things out between open-ended real estate, those private reits and then.

F

Closed and real estate, the illiquid investments so for the private reits during the quarter, we.

F

Did see some positive returns kind of ranging between you know one and a half, eight percent.

F

uh The stronger eight percent return is within a fund of blackstone, the fourth one down there.

F

That is being liquidated, not even with the board's approval. That was a decision by blackstone itself.

F

Because, historically, the fund hadn't done particularly well, so they made.

F

The decision to wind down the fund, we would expect that money to be fully returned by year end.

F

Or hopefully quarter one so when it continues to come back, we'll continue to figure out where to.

F

Put that money to work, but again, if you take a weighted average of those four managers, you're.

F

Probably looking at around four percent, which again was below that eight point, three percent.

F

That was in the policy, so that was a head one. When you look at the closed end real estate.

F

Again, we don't have q1 data, but we do have a page on those returns that we'll look at just shortly.

F

And if you look at hedge funds towards the bottom of the page, you know some.

F

Strong numbers, we saw graham put up almost eight percent during the quarter versus two. Now that.

F

Is manager that's being liquidated because over the long term, they haven't delivered.

F

But importantly, just like with any investment you know, sell high and buy low. So it's great that.

F

They're closing out first quarter and hopefully the second quarter with some strong returns.

F

So, then, that we would expect that money to come back in mid-july and much like the private reits.

F

We can figure out where to put that to work when we see it come in at the next meeting in july.

F

We continue on to the next page here again the private equity and credit, we'll look at in just.

F

A minute, but if you work your way down to you, know the bottom third of the page, where you see fixed.

F

Income so the composite there again the weighted average of the managers down about 3.1 percent.

F

In line with the policy again, we had a headwind in the first half of the or really january and.

F

February, when rates were rising, but you could see the two active managers, they're developed.

F

Or excuse me, delaware, slightly ahead of the benchmark, but then loomis sayles, just down a.

F

Percentage point versus three and a half for the benchmark, so the out performance by those managers.

F

Did offset some of the underperformance that we saw earlier in the quarter so on page 31, this is a.

F

Look at all of the private closed end investments, so we are separating things here at the top as.

F

Real estate, private equity and private credit, so, as we work our way from left to right here, we'll.

F

Just start with real estate, so there are three real estate managers. There. You see their vintage.

F

Years so that essentially means the inception date of the fund when they started calling capital.

F

The respective commitments, what remains unfunded what's been contributed over the life of the fund.

F

And if they've made any distributions yet the valuation is their 1231 balance and then you see.

F

The performance all the way to the right here and the most important number of the three is the irr.

F

So when we think about performance, the numbers I showed on the previous page say for the equities.

F

And the fixed income managers- those are time weighted, returns, okay, and what I mean by that.

F

It's just measuring, say you know a growth of a dollar or a hundred dollars over time, because it.

F

Minimizes or really takes out any impact of cash flows because you, as the investor control the cash.

F

Flows when to add money when to take it away, the manager doesn't control them. Now that is.

F

Completely different for the private markets, they control the cash flows. They ask for the money.

F

They decide when to return it, so this irr is not time weighted. It's called dollar weighted.

F

Return, meaning that in the earlier part of a fund's life, when it doesn't have a lot of money,.

F

That period won't carry nearly as much weight until later in the fund when they.

F

Are managing a lot of money so that period will have a bigger impact in the return.

F

Than when they just have a little bit of money, so you can see in aggregate for the real estate.

F

Managers there is just about four percent. um The funds are relatively new, like we talked.

F

About in the past, they generally fundraise over a couple years. They make investments and.

F

They tend not to realize value until say five, six, seven years into the life of the fund, so.

F

We would hope that over time that that four percent comes up, maybe to say, 10, 11 12 over.

F

Time once these funds begin to mature- and I think that's nicely illustrated by the private equity.

F

Composite where you see in the vintage years there were, you know three, four or five funds.

F

That were made that commitments were made too much earlier. So when you look again at the irrs.

F

All the way to the right and then summed up in that blue for under private equity at almost 13.

F

That's more what you would want to expect from making those types of investments. If you decide.

F

To do that, you want to be compensated in excess of what's available in the public.

F

Markets anywhere between three to five percentage points, so that's a little on the lower end to.

F

Of your expectations of what you would want to be compensated for, we would hope.

F

That would be more in sort of the 13 to 15 percent range and again I should mention.

F

These irrs are neta fees. They do take into account the fees being paid by the managers.

E

Would you unpack, please the two um acronyms that are to the left of internal rate of return.

F

Yes, I'm sorry, I can do that, so the the the this the dpi is distributions relative to what's.

F

Been paid in so that means, if you could see those first two rows in the real estate, so they haven't.

F

Made any distributions, so it's distributions, divided by what you've paid in, in other words,.

F

The contributions that have been made- it's just sort of a you, know a fraction. So that's why it's.

F

Zero for them and then the dpi for the last one in bridge is a positive number, because they've made.

F

Contributions of about 27 between what's already been contributed. So what do those letters stand.

E

For what I'm sorry, tvpi total value divided by what's been paid? Yes, sir, thank you. You're welcome,.

F

So then, finally, at the bottom of the page for the private credit composite the takeaways, there are.

F

Largely in line with what we saw in real estate, given those funds have relatively short horizons.

F

To this point, so the irr in aggregate is around six. You know we would expect over time to want.

F

To be compensated more in sort of the nine to ten percent range again, a premium relative to what we.

F

Would expect in the public market so for real estate and private credit? It's still a little.

F

Early to draw a lot of conclusions to this point, I think you know you actually have to wait. Two.

F

Three, maybe even four years in order to determine you know, have these investments performed in line.

F

With what you would have hoped for, you know approving them in the first place, namely.

F

Compensating you more than just moving the money into straight equities in the listed equities.

E

But, but even even if they do what we hope they do. Yes, sir, isn't there a time.

E

Value of money that we could be doing other things with, while they're in the accumulation stage or.

E

We're waiting for them to call those allocated dollars away, etc. Yes, so what what exactly happens.

F

Is you know if you make a two million dollar commitment, they don't call it two million at one.

F

Time so the difference is invested in other areas of the portfolio and then you would generate that.

F

Cash as they make those calls over time through rebalancing, so you don't just have to hold it.

F

In cash because you do get at least 10 12 days notice for when they're calling the money. So you.

F

Can make a decision or keep a requisite amount in cash? Assuming calls will come over time in.

F

Between meetings, when we don't have time to make a decision about where to source the money, but.

F

All the unfunded commitment isn't sitting in cash. It's invested throughout the rest of the portfolio.

E

But even taking that into account, didn't you say in a previous meeting, they could extend the.

E

Did the close out by another two years? Yes, that's right, so we could go to seven years.

E

To see how things pan out so actually you know I mentioned the five six seven years.

F

That's when they start to realize value, but to your question, mr walters. A lot of these funds.

F

Have in their legal documents, the life would be between 10 and 12 years.

F

And then they can per their discretion, ask for one-year extensions from that point. So.

F

In actuality, it could be anywhere between 12 and 15 years, but at that part of the fund that.

F

Part of the life of the fund, they would have already returned most of the money. At that point,.

F

It would just be maybe one or two assets that are still looking for strategic buyers or, admittedly,.

F

Might just have to write off at the end of the fund, but the value at that time would be minimal.

F

Relative to the original commitment, but either way it is acknowledged as being a long-term.

E

Recognition of a hoped-for payout- yes, sir, all right! Yes, thank you. You're welcome.

F

So if I could just draw your attention as we wrap up here on page 33, I believe I might have.

F

Mentioned this at a previous meeting, but I don't know it's something that you may have received in.

F

The past, but we include a fee summary for every single investment that is in the fund, so you.

F

Can look to the left of the page there? That is all the equity, fixed income, private real estate.

F

You know cash, you name it everything that was in here. As of quarter one, you can see the fee.

F

Schedules in the middle of the page, the percentage of the portfolios and then the estimated annual.

F

Fee for each of the investment managers, as you work up your up and down the page here,.

F

And again, there's a lot of data on this page. The key takeaway is on the next page on page 34, all.

F

The way at the bottom, where you see the aggregate fees so right now all the way to the right there.

F

You can see there's point five, nine percent of fees, so that is that is on the higher end.

F

Most institutions of this size, we think probably more in the you know, low to mid 40s. Now that will.

F

Come down because we are also including those private reits, we're at one one and a quarter.

F

Percent, which has been liquidated at about five or six percent of the portfolio so really even.

F

Doing nothing else through the end of this quarter, that's going to come down to maybe the lower mid.

F

50S and then once graham is liquidated at the end of june, then we can expect a further reduction at.

F

Fees so over time that's going to be a big theme or point to continue to review to keep those fees.

F

Down and bring them down over time, as we continue to work with the investments that are in the.

F

Portfolio and and call the roster and after all those adjustments are made over time. What would be.

E

A good ballpark figure that we should be kind of looking at. I think it depends on what the ultimate.

F

Asset allocation is obviously more straightforward. It's going to be a cheaper cost, but again I think.

F

The median for an institution of the size of the fund is probably in that low 40s type range. You.

F

Know the mid 40s so a 50 reduction from where we stand today. Okay, thank you. You're welcome, sir.

F

So that wraps up my comments as far as the report is concerned,.

F

Happy to answer any other questions or comments. The word has at this time.

A

Okay, all right! Well, if there's no comments, I'd look for a motion. I'm trying to find a page.

E

Here there is a comment I'll make a motion to accept the march 31st one. Second, oh yeah,.

E

Yeah we'll go with that. I do have a question, but it doesn't hold up accepting no, no good.

E

Where you had at the beginning, all the different sectors, how they were performing? um Okay,.

E

So this is kind of a naivete question, but do we have too many things in our portfolio.

F

Many things, meaning managers asset classes, both not so much asset classes. We might have the right.

E

Number of classes but overloaded, the number of managers that we need to get them.

E

Populated yeah, I would say that there are, there are more managers than we typically see, so you.

F

Know think about it as a process, so we started off with implementation and think you know, how can we.

F

Kind of improve this structure and now we'll do asset allocation, but it's a it's a continuous.

F

Process or sort of feedback loop and once we get that ladder piece, then we're going to circle right.

F

Back to implementation, to make sure to your point: do we still need all these managers? Do we need to.

F

Tweak any of the strategies and things like that to get it more in line where we ultimately settle.

F

On asset allocation, but to your question I would fully expect to be a reduction in the number of.

F

Investment managers, as we head forward based on that outcome. Okay, thank you. You're welcome,.

A

Thanks, do you have a motion? I move to approve the first quarter, 2021.

H

Sorp performance report- I will second, we have a first and a second all in favor.

A

Motion carries eyes, have it next, we have uh discussion materials which would be the reit.

A

Manager search, I think yes, sir, so this is in the other book. All of those items are are in.

F

The other book that we will tackle uh in order for the agenda so again, if you bear with me and.

F

Hop behind that hardcover page and then, where you see the cover page as far as saint mary's county.

F

Sort of discussion, materials and look at the table of contents quickly. So as a broad overview of what.

F

We'll discuss today, based on our conversations at the april meeting, bringing back more options.

F

For the board to consider for a read allocation, so we'll walk through those options. Talk about.

F

Characteristics, exposures returns pros and cons to make that decision that will flow right into.

F

The recommendations, if the board decides to move forward with a new read manager where to source.

F

The money for that investment and then we'll round out our discussion with asset allocation.

F

And then a custody overview, which is something that we've talked about for quite some time.

F

Meaning that now you know, we tackled a lot from implementation, we're kind of towards the tail.

F

End of asset allocation, so let's continue on those next steps: those priorities, those custody.

F

Evaluations, we have some key data really around pricing, to show the board about you.

F

Know what could possibly be expected in an rfp process so we'll round out the discussions there.

F

But with all that said, please hop behind exhibit one and we'll look at the reap manager search here.

F

So this is on page four, where it says manager overview so in the top grade, column or bar excuse.

F

Me there there are three managers that we're putting forth for the board's consideration.

F

The first is dfa real estate security strategy, the second there you see, dws u.s real estate.

F

Security, so those are both active managers and then again, the fidelity real estate index fund.

F

For your consideration for a passive approach now, when you think about the spectrum of say passive.

F

Investments to active investments- it's not one or the other right, there's. Certainly a spectrum.

F

Because there are differentiations in the active manager universe, so all the way to the left would.

F

Be the fidelity index fund, you know purely passive fund trying to track that benchmark. Dfa would be.

F

Somewhere in the middle they're, more of what's called, say, an enhanced index manager where they're.

F

Making slight tweaks to their holdings relative to the benchmark, based on their strategic belief.

F

But they're a fairly diversified portfolio and because they're only looking at things.

F

From a quantitative perspective, say: valuations income statements, things of that nature, they're.

F

Not necessarily meeting with management talking to suppliers and competitors, they keep the cost.

F

Of the portfolio down fairly low and then all the way to the right is dws they're, your traditional.

F

Bottom-Up stock picker trying to look at the cash flows for the companies, the supply and.

F

Demand demand dynamics for their underlying real estate holdings again to try to pick the winners.

F

And the losers within that marketplace, so there's a lot of information on this page here I'll talk.

F

About some of it at a high level, but focus on the more important characteristics. So you can.

F

See all three strategies have more than a decade of being an existential all three strategies are.

F

Fully at scale, meaning that they have billions of dollars in assets in the fund and then the number.

F

Of holdings, you know just echoing my comments there, you can see dfa about 150 holdings, so a.

F

Very diversified portfolio not terribly different from the index just making tweaks here and there.

F

But if you contrast that with dws only about 40 holdings again so they're, a pure active manager.

F

Trying to identify those winners and losers, you know typical of what you would see from an.

F

Equity manager, just holding maybe 40 50 securities relative to the benchmark and then again, fidelity.

F

At 175 securities, the most diversified because they are holding everything in the benchmark.

F

Now the top 10 holdings again should be somewhat intuitive, given the fact that, if you are a more.

F

Concentrated portfolio again you see dws in the middle, then you would expect more of that.

F

To be in your top holding so almost half of the portfolio, their top 10 holdings account for dfa to.

F

The left of that a little bit more diversified and then to the right, fidelity, even more diversified.

F

Again, because they're holding everything, every single security in the index itself.

F

As far as cash below that that's really relevant for the active managers again, we don't really want.

F

To pay anybody active fees to hold cash right, so we want them to be fully invested. Most of the time.

F

So the fact that those numbers are low or is is a good sign that you know they're doing what we want.

F

Them to do and then, if you look at the dividend, yield below that, I included that specifically.

F

Because dfa is a little higher, so one of their strategic beliefs is to invest in more undervalued.

F

Type securities cheaper securities across their platform. So if you have lower valuations lower.

F

Prices, then you would expect a higher dividend yield for their stocks relative to the other two.

F

Options for the board's consideration. You can see the weighted average market cap below that so.

F

That's just company size, so not terribly different between dfa and fidelity, however dws they tend to.

F

Have more of a lower exp or a higher exposure to smaller cap companies or smaller companies?.

F

And then, most importantly there at the bottom, you see the fees so dfa very reasonably from a.

F

Cost perspective, given it's an active manager, dws a little higher and then fidelity will.

F

Obviously be the cheapest option, because it's just a passive fund tracking that passive index.

F

But all three of those well below the average sort of active u.s refund, which is sort of.

F

More in that 80 to 1 percentage point range. So with that said, if you look at the next alec.

F

uh Section to um you know circle back to some of your comments, mr walters. I think a key takeaway.

F

Here, when we box this up is that office and retail exposure and the big takeaway there you can see in.

F

Those boxes is that dws certainly has much lower exposure to the office sector and a slightly lower.

F

Exposure to retail so them being more of an active manager, think of them as more fluid as opposed you.

F

Know in sense of making changes to the portfolio over time where the latter two options are going.

F

To be much closer to the benchmark themselves and then all the way to the right there, you can.

F

See the specialty that's pretty much a catch-all for anything. That's not in those other buckets.

F

So again, reits that operates cell phone towers data, centers, billboards, farmland, timberland, but.

F

Those non-traditional sectors have become a much much bigger part of the reid universe, because in.

F

Order to be a read, actually don't have to own and operate commercial real estate. It's actually a.

F

Tax status, whereas you as a company, have to distribute 90 of your earnings to main that.

F

Maintain that tax favored status so over time many companies have sort of shifted or claimed this.

F

Read status to gain that favorable perspective from an income tax perspective and then just.

F

Pass along pretty much the predominance of their earnings back to their investors.

F

So with that said, before we hop into the returns, you know one of the conversations. If we look at page six was you know.

F

Fidelity changing their benchmark um more recently, so what I wanted to do, I thought.

F

Would be helpful was show the performance of the benchmark that fidelity is tracking now.

F

Which is the orange line versus the blue line, which is this ftse narrative? All equity reaches.

F

Which is more, the most sort of industry standard read index, that's been around since the late 70s.

F

And importantly, you can see they're pretty much right on top of each other. So the reason again.

F

For showing this, when we look at the returns, the fidelity returns aren't necessarily.

F

Relevant because they've been tracking a different index since prior to december of last year. So when.

F

We look at this data. This ftse index is included in the data, so when we think fidelity that's.

F

Really a better proxy for the historical returns for the fidelity index because they were tracking.

F

A different index prior to december 1st of last year. So again, when we look at the rest of the data.

F

Starting on page seven and there's a lot of data on this page but ignore the the top chart there.

F

It's a little difficult to kind of decipher. What's going on, I think the table is much more helpful.

F

Where you could see the returns of the two active managers on top across their respective periods.

F

And then the relative rankings compared to the universe. So, as you work your way from left to.

F

Right from those two actives, you know there are times where they're below the medium, but it's been.

F

Fairly consistent over time, sort of in that top quartile or second quartile relative to the index.

F

A lotto to their investment process, but also a lot ode to their lower fees over time. If you look.

F

Below fidelity to that benchmark, I spoke to it's a similar story right one year, a little bit below.

F

The median, but then three five so on and so forth, more in that top quartile second quartile and the.

F

Reason behind that again, like we talked about the universe of reits, is, is minimal right, fidelity's.

F

An index fund and there's only 175 securities. So if you're investing in an area where there's.

F

So few securities, and then the differentiation of returns, isn't all that much it's hard for managers.

F

To outperform net of their costs and that of their fees.

F

And that's why you see the u.s real estate at the bottom of that page? That's the average.

F

Fund over the longer intermediate, particularly the longer 10 and 15 year, returns sort of comfortably.

F

Below that medium, where we have multiple market cycles to incorporate and to take into account so.

F

Anything can happen in a given quarter a given year and things of that nature, but over the.

F

Longer term, again, fairly difficult for most active managers to outperform the benchmark.

F

So skipping ahead to the next page on page eight here it's a similar story, similar analysis, but.

F

Instead of looking at the cumulative periods, it's looking at uh individual years, the year.

F

To date, number is through april, but again please just focus on those bottom uh bottom table there.

F

Where you see the returns and the ranks again so again, those first two managers sort of oscillating.

F

Sort of above and below the median for the first couple years, but pretty consistent.

F

Over the long term, even if slightly below the median when things are going well,.

F

They generally rank pretty favorably a similar story with the ftse narrator equity reits index.

F

Below that gray line, sort of oscillating above and below the median but again longer term in.

F

Those earlier years generally in that top quartile again because it's difficult for active managers.

F

And you can see the active manager returns, they're, really oscillating above or below.

F

The median not necessarily uh too different, since it's an aggregate of everything in the universe.

F

So, on page nine we talked a lot about it returns, but risk is obviously very important as well.

F

So, on page nine you look at that top chart here. It's just a simple risk and return graph where the.

F

Horizontal axis is the returns over the past five years and excuse me the vertical axis and then the.

F

Horizontal axis is the standard, deviation or risk, and if you look at those later gray circles in.

F

There that's all of the managers in the universe there and you can see you know a lot more than.

F

Half of them, as we would expect again below the return of where you see in the circle, which is dfa.

F

Dws and that ftse index essentially right on top of each other, so the risk and return.

F

Characteristics of those three funds have been very favorable relative to peers and also.

F

In line with each other over the past five years and similar to that, if you look on page 24.

F

Another measure of risk here, drawdowns so essentially peak to trough returns over the.

F

Past five years, and notably, you could see the biggest draw down again, not surprisingly, in that.

F

Top chart in early 20 2020 amid the pandemic, the numbers themselves are in that bottom left table.

F

Where you can see the max draw down for dfa and dws around 24 25 and then that ftse benchmark 24.

F

As well so consistently, you know sort of returns in line with each other that are favorable.

F

Relative to the universe, but not just from a return perspective from a risk perspective in.

F

Line with each other sort of all good candidates for the board to consider for the mandate.

F

So, to sum up on page 11, you know we walk through a lot of things here. So what's the takeaway, you know.

F

As far as far as pros and cons are considered as far as dfa strong, long-term track record low.

F

Fees cons, they do have the highest office in real estate. Exposure dws has gotten a strong long-term.

F

Track record lowest office and retail exposure, but the highest fees and then finally, fidelity lowest.

F

Fees, moderate exposure to those areas, but they have changed their benchmark over time. So just.

F

Quickly, you know, why would somebody change their benchmark? Probably a couple reasons number one and.

F

I would say that this is different than an active manager, changing their benchmark but important.

F

Nevertheless, so number one that msci index that they're tracking now is only about five years old.

F

So they might have come to a conclusion that this is a better representation.

F

Of what they should be tracking in the market moving forward, but, more importantly, for investors.

F

When you have an index fund, those managers have to pay licensing fees to the index providers, so msci.

F

Constructs this index and fidelity in order to track it needs to know what the holdings are so.

F

They have to pay a licensing fee to msci, which maybe only be may only be a basis point or two.

F

But that's built into the cost. So if this fund had a cheaper licensing fee than the previous fund.

F

Then they'll change the benchmark and pass along those cost savings to shareholders.

F

However, as we look forward here, you know, I would suspect that they wouldn't change the.

F

Benchmark again, but I can't say that with any certainty and if they do, then we could find.

F

Ourselves in a position where we have to revisit and have a have another conversation about it. If.

F

That happens again, I wouldn't expect it happen, but it's not out of the realm of possibility.

A

So my question is, I understand active management versus passive management. You.

A

Know an index fund versus not so fidelity's passive index fund is for this mc msci.

A

But it seems like ftse, the ftse or whatever it's called has seems to be much better. Is there a.

A

Passive one for ftse is there an index fund for ftse, so the biggest uh index fund managers in.

F

The space, both vanguard and fidelity track the msci index. So the reason that it's not.

F

Doesn't have a long track record is because it was only intercepted or msci only created.

F

It right I understand about five years ago, and that's why I wanted to show earlier on.

F

The performance of msci versus ftse, which has essentially been the same so historically.

F

Fidelity was tracking something else. So let's go back to the numbers, then that show like a.

A

Nine percent versus five percent for the ftse. Where would that have been in europe? Let's see.

A

Is it page seven right page seven, which shows the five years then has the you know the dfa and dws.

A

At roughly nine and then the ftse is roughly nine at five years, but then fidelity tanks all the way.

A

To 5.9 is that, because of the difference, that's because it was a different benchmark prior to.

F

December 1st 2020., the different benchmark would have been the ftse benchmark. No, it's a benchmark.

F

That's not on this page. It was actually called the dow jones. Oh, they did something.

F

Okay, yes, yes, I apologize yeah, they were tracking a different benchmark. Called the dow jones select.

A

So now so now, they're on board, basically with a generic version of ftse, then.

F

Or with a yes with a different version of fletchy and that's common among those index providers, sure.

F

You steal something that works. I I get that so if we were to go with and that's why, because I.

A

Was not as impressed with them, but what you're telling me is if we were to go with fidelity.

A

We would more likely see footsie those those types of returns right which which and if you look at.

A

The ftse returns on that same page of seven it tracks your you know, like your five and ten years.

A

Track, your nine, you know you're, roughly your nine percent, which is what the dfa and dws that you're.

A

Paying more for active ones, that's great! That's correct! I should mention these returns are net.

F

Fees as well, okay, so you know that important not to push anybody in any direction, but that that was.

A

The hang up I had about fidelity, but thank you for untangling that and the mess I call a mind and.

A

I'm happy with fidelity, then I don't mean to jump ship on anybody or.

E

It's called front running: okay, okay, I don't know if there's as if they're, all tracking, if they're.

B

All returns, they're gonna track the index. Why would you pay more right right right? Look. I.

A

Love my index funds. Anyways. You had slipped a word into your presentation way back at the beginning,.

E

And the word was enhanced. I get real nervous when I hear the word enhanced associated with an index.

E

Fund, can we unpack that a little bit? Yes, so when you think about an enhanced index, it's.

F

It's active in the sense that it's not tracking the index to a t, but it's just making slight.

F

Tweaks trying to add a little bit of value, so what dfta does specifically is they'll. Look at.

F

The universe of investments, but then they will weight the securities a little bit differently.

F

Based on three measures number one cheaper securities will get a little bit bigger waiting.

F

Number two higher profitable or more profitable securities and number three they tend to not so.

F

Much in this product, overweight, smaller companies- because this gets back to the fama french.

F

Analysis way back in the day who worked at dfa long long time ago, their value premium proposal.

F

And their small cap premium proposal that would outperform over the long term, so they're not.

F

Doing any fundamental analysis like meeting with companies, suppliers, competitors and things like.

F

That they just look at the balance sheets and the income statements to make those slight tweaks. So.

F

Over time, when you think about relative to the index dws, since they are an active manager, you.

F

Could expect more deviation relative to the index since they're more concentrated, whereas dfa you're.

F

Probably getting more index like returns, with the hope that maybe over five seven eight years, maybe.

F

You're 10 15 basis points ahead and that's why they offer it at such a cheap cost. Would they.

E

Also, under the term enhanced be doing things like puts and calls and other strategies. No, it is 100.

F

Long long, only equity, okay and so then to make me still feel comfortable about fidelity. On page nine.

A

Then the whole reason that the the fidelity orange um triangle looks so much sadder than the.

A

Ftse one again over time, that triangle is going to basically go up to where ftse is.

A

Is what you're right so so this data is through uh april. They changed that.

F

Benchmark at the beginning in december, so five out of the 60 months or at the other benchmark.

F

And 35 out of the 60 are at the new benchmark and 55 out of 60 or at the old one, which was.

F

Admittedly- and you could see through that much more aggressive type of uh real estate industry.

A

But what you're basically saying is the fidelity one's going to when it's all said and done is.

A

Going to match the ftse unless they change the benchmark, which again, I would not expect that's.

F

That's why we have you right because you cannot expect, but obviously, if that would happen.

F

I would bring that to the board's attention. I don't think they'd tell him anyway, fidelity's.

F

A big firm: they are under a lot of compliance and regulatory uh pressures, so that would come out. I.

F

I assume, in being a big firm, does not ensure that where you've already been there, that's true that.

F

Was funny yeah? Well, that's a good point. Some of them hopefully have learned their lessons.

F

Some, not anybody, we know. Okay, so are you now asking us our choice or recommendation, so I.

A

Think we can. We can probably shift to the next section unless there are any comments around.

F

That, but uh in the next section you know asking for the board for a decision.

F

Okay, so under exhibit two and again don't want to jump the gun on the agenda or move on sure. Okay,.

F

Thank you. Thank you, so, under the recommendations before we get into that quickly, just you see the.

F

Fund allocations on page 13 a couple of quick points there you can see the total assets.

F

Up at the top there, uh the third column over from the right, the fund, through the end or through the.

F

Middle of june is at 129 million so again up about 6.2 million dollars. So far during the current.

F

Quarter again, equities have done well, so that's proven very helpful. The key consideration down.

F

Below, if you look at the bottom left chart is the asset allocation in black. The targets in blue and.

F

Then the differences to the right there in green so again we're overweight, equities, we're within.

F

The bands of the policy statement, because we have plus or minus nine percent and all well nearly all.

F

Of that is being sourced from fixed income, but the last point there we have a pretty decent.

F

Overweight to cash right now, as we sort of you know, continue the process of making this decision.

F

So the recommendation here, if you look at the middle column and the rebalancing in.

F

The middle of the page would be sourcing the money from cash, mostly out of wells, fargo.

F

Some from morgan stanley, as as well keeping some money there for upcoming capital, calls.

F

But then moving four million dollars is what I've called here: the new read manager and then.

F

To the right on the bottom to table, obviously the equities, the fixed income, doesn't change.

F

But the underweight to alternatives where we're bucketing, this investment for policy purposes.

F

Comes down slightly and then the cash comes down, so on page 14, as far as proposed board action.

F

Remember recommend the board to approve the proposed rebalancing the.

F

Outlined on the previous page and some below here, so four million dollars to the reap manager.

F

Four million dollars from cash and before we get into that discussion, just to reiterate.

F

That gram redemption is coming in mid july, so we're going to circle back up on that and in.

F

Later july, you know what that amount is probably uh if we look on this page, mr walters, where am I.

F

Not saying new hedge funds, I think it was about 2.8 percent of the portfolios. That would be.

F

Four million dollars about so we're replenishing the kitty very soon.

F

Yes and then the kitty will be high again and will look good to make those.

F

Adjustments as appropriate, so with all that said again, let me pause for a second for any.

F

Additional comments around the proposed managers or questions as the board considers that proposal.

A

What's everybody's thought on the three you know in the past, we've only um with the previous.

I

Advisor they would just generally give us one idea where to go. We've asked pat to give us a couple of.

I

Options and and walk us through that. Thank you for that um and that you know, as we all come to.

I

Our own conclusions, I'm just interested. What would be your? What would be your overall recommendation.

I

To the board, for which one to pick and then we can discuss if there's any variance between individual.

I

Board members, perhaps so perhaps unsurprisingly, my recommendation hasn't hasn't changed from march.

F

And april, I think for really from two main reasons, as we think about reits. Again, it's difficult for.

F

Active managers to outperform, obviously the two we've shown you here, we think highly of.

F

But when we're looking for exposure to an asset class- and we can do it in a cheap way, I.

F

I think that's certainly an advantage and related to that sergeant. We're still working.

F

Through the asset allocation, so if reits ultimately aren't a part of that portfolio.

F

It's much easier to move out of an index fund than an active manager per se and then ultimately, if we.

F

You know sit here in two years and reits are a part of the portfolio. Then we're going to continue.

F

To do diligence uh across the board across all the investments and then make recommendations.

F

And changes that's appropriate, but as it stands right here, my recommendation would be fidelity.

F

Thank you, you're welcome everybody comfortable with that or and and it is again.

E

I'm sorry yours was uh fidelity. Mr walters, I'm comfy with that yeah me too.

A

Okay, I'd look for a motion then.

E

Well, I'll move that we put four million dollars into the fidelity.

E

Reit, as recommended and as discussed with the dollars coming from essentially cash.

A

Okay, I have a motion, a second, a motion in a second any discussion, if not all who seconded it, I did.

F

Okay, let me ask you something: pat yes, real, quick on page 14.. Please use microphone.

C

On page 14, where it says recommend the board approve the proposed rebalancing as.

C

Outlined down page four: no! I'm sorry that that that's my mistake, that is a typo! I that.

F

Should say page 13., I apologize okay, okay, so I have a first and second, all in favor say aye.

A

Aye aye aye eyes have it motion carries thank you, sir, and we are now on to asset asset allocation.

A

Study also by mr wing asset allocation. All right, so did you find this in the next exhibit and, as I.

F

Mentioned earlier, this is really the culmination of our discussions over the past couple of months.

F

And I think hopefully I illustrated the importance of the decision based on the performance report.

F

But as we work through these numbers and analysis, it's important to think about this as not in.

F

Isolation of you know, x and y, but but trade-offs and sort of the range of outcomes and then.

F

Directionally between all of the options here, so we let's skip ahead to page 17 in the interest of.

F

Of time here so on page 17, what we're showing here is four uh options and again I should preface this.

F

If you know we'll walk through this today, if the board wants to, um you know, think more about it or.

F

Request other analysis, then we're happy to do that. So by no means do we need an a an.

F

Answer today, if we get it, that's that's terrific, but if not happy to provide additional analysis to.

F

Get us where we need to be so. You see the first. Well, you see the asset classes listed up and.

F

Bottom there on the left you can see. The first option is a 6535 portfolio, so just traditional.

F

uh Equities and fixed income per the board's request at the april meeting. Now importantly,.

F

When you work your way from left to right, you see within liquid. So again we are sort of locked in to.

F

The private equity, the private credit, the private real estate, so what I've done here is adjusted.

F

The 65 per you know 35 portfolio based on those exposures that aren't going away anytime soon. The.

F

Third, one is with the liquids, and the hedge fund, again graham, is going away, however, millennium, I've.

F

Talked to you about that, a couple of times, they're, a very good manager, a track record second, to none.

F

So we wanted to include that in case the board wanted to consider maintaining that exposure.

F

And then, finally, you see mai, that's marquette associates, incorporated recommendation so based.

F

On the discussions, the education around the asset classes, we wanted to put this in here for.

F

The board's consideration and the key differences around that you'll see in the boxed up or excuse.

F

Me, the darker rows would be a lower allocation of fixed income. Given the challenges there lower.

F

Allocation equities, although higher than what you have now and then uh in the real estate and other.

F

Assets bucket, you know, maintaining some exposure to real estate. You know we can do this through.

F

An open-ended or more liquid format that would be more consistent with institutional investors.

F

And then below global infrastructure again we did an overview of that. You know the importance.

F

Of having assets that do well in inflationary environments and then maintaining the private.

F

Debt and the private equity target, so when we think about the middle two, those alternative.

F

Allocations would, in theory, be coming down over time right, like we, we needed here today, because it.

F

Is what it is, but if we don't make new commitments, the money is returned and it'll be coming down.

F

Over time- and we can revisit it year in and year out and make tweaks as appropriate, we look on page.

F

18 we'll get into some of the data, and I think we can walk through these pages and in short order.

F

Because the takeaways are generally consistent, so this is our base case for the next 10 years.

F

Low rates, like I talked about some overvaluation with inequities, suggest us to do the outlook.

F

So you see the 6535 there, our base case tenure returns about six and a quarter percent.

F

The middle two of with the liquids and liquids of hedge ones, a little higher than that.

F

We expect private market investors to be compensated like they have historically, and it is.

F

A little bit of additional diversification right, you know you're having more tools in your tool, kit.

F

And then, finally, you see our recommendation there, the middle row. There is the volatility or risks.

F

For each of those portfolios, but the key dynamic is in that third row, the average return divided by.

F

The average volatility so think about that as your risk adjusted return. How much are we getting paid.

F

For the risk that we're taking so you want that number to be as high as it possibly can.

F

So that's the summation of sort of a base case outlook, but importantly I can sit here and promise.

F

You that the base case will not unfold to a t. Okay, so that's the base case, but we're highly cognizant.

F

Of the range of outcomes right the trade-offs of these various portfolios. And if you look to.

F

Page 19: this is more of a range of outcomes on this say a worst case scenario and then a.

F

Best case so, where you see the 50th percentile, those base case numbers match the previous page.

F

Above that, the 5th and 25th percentiles, that's more of a worst case type outcome. That's why those.

F

Numbers are numbers, excuse me are lower than the base case now, admittedly, based on our.

F

Our software and our beliefs, we do feel that more diversification would provide more downside.

F

Protection, as you can see in the numbers and then on the upside as well just having a little bit.

F

Less money and fixed income could also prove helpful over time, but again, as we continue.

F

Through this discussion, look at this as as directional and then the range of outcomes as well.

F

So, on page 20, it's a similar exercise but as a part of the analysis, we work with the actuary.

F

Right, we get the cash flows and we build them in to give you an accurate representation of.

F

How things could unfold and then on the next page we also collect liabilities, so we can think about.

F

The funded ratios, but here again there's a distribution right. So if you have a more.

F

Favorable return range, then, obviously that will work to more favorable market value ranges. So you.

F

Can see the diamonds there in the middle of those columns? That's the base case and then everything.

F

Above that would be the upside and below that the downside. So obviously, if they have a lower floor.

F

From a return perspective, then in theory you would have a lower floor from a market value perspective.

F

As well and it's the same takeaway on page 21., you know when you have more favorable market value.

F

Ranges then, in that would lead to more favorable funding ratios. So we collected the liabilities.

F

From bolton that 50th percentile, so that's the base case in any scenario, things are looking good.

F

Right, you know that's the name of the game to to improve the health of the fund in the best.

F

Case scenarios, you know be happy with any one of those numbers in any iteration. That's for sure.

F

But then, in the worst case scenario again, the the relatives or the trade-offs are exactly.

F

What you would expect, based on the returns and and the market values, meaning sort of you know.

F

A difference between a straight traditional portfolio and the ones including a little bit.

F

More diversification could provide some downside protection over the long term.

F

So importantly, to wrap up this discussion here. If you look at page 22, you know.

F

Really, poor outcomes don't tend to happen over 10 years, they tend to happen in in in bursts right.

F

In short term periods, so one of the uh helpful things we can do with our analysis is to say.

F

What would these four portfolios have done in the financial crisis in black monday.

F

Right in q4 of 1987 in october, where the market was down 25 some odd percent- and it was a very.

F

Poor quarterly return and what the analysis is showing you can see each of the dots and those.

F

Graphs are on top of each other in 2021, because that's basically the very start of a crisis.

F

And then the year, subsequent to that, were how asset classes did subsequent to that.

F

So on the right on those tables you could see, we have a beginning market value of about 125 and.

F

Million in this analysis, what the market values would have been if the portfolios.

F

Were positioned based on those options, three years subsequent to the financial crisis,.

F

Similar story for black monday, what would the portfolios have? Look like three years.

F

Subsequent for that crisis and then obviously, if a 6535 portfolio has a lot in equities.

F

The portfolios that don't have as much inequities intuitively when equities are doing poorly would.

F

Lead to slightly better results on the next page on page 23, you know: we've lived through a lot of.

F

Poor equity environments, we haven't had a poor interest rate environment for quite some time.

F

But it's certainly within the realm of possibility, given the low rates, where rates stand right now,.

F

So it's a similar story or similar exercise, there's a interest rate spike in 94 and 81.

F

So we look at the portfolios at 125 million dollars and how would they have changed over.

F

The subsequent three years, so with fixed income, you know being a lower portion of the portfolio.

F

And some of these other iterations fixed income would be the worst performing asset class if.

F

Interest rates spiked, so more diversification would be helpful sort of all else. Equal there.

F

The last analysis, I'll show here on page 24, I think, is- is very helpful. You know I talked about.

F

Poor markets tending to happen not necessarily over 10 years, but in short bursts. So we actually.

F

Do a simulation so that first one perfect storm for one year, that means equities are down by 20.

F

Rates are up by one percent, so an environment where equities and bonds are doing poorly and.

F

Admittedly, that's rare, but it's not a realm of possibilities, so you could see again.

F

Same market value as of 2021 and how they would change over the subsequent three years and again.

F

Having less inequities and less than fixed all else equal with more diversification, the market.

F

Values at the end of 2024 in the range of say, five to seven and a half million dollars higher.

F

And then the perfect storm for three years. This would be a really poor environment.

F

Equities declined 15 percent a year rates, move up one percent a year.

F

But a similar takeaway again, if you look at the trade-offs between a traditional portfolio and.

F

One incorporating some other asset classes, so with all that said, I know there was a lot of.

F

Information, I walked through it fairly quickly because the takeaways were largely similar.

F

But again let me pause for a quick second here for any comments or questions from the board.

A

Are you looking? Are we looking to make a decision on this today? Is this just informational? This is.

F

Informational there would be no formal approval. Anything formal will be done when we circle back.

F

With the investment policy statement and update to that, but the strategic asset allocation is a.

F

Part of that statement, so we can't do that without coming to a decision here. That's why I mentioned.

F

Earlier on that, if the board again is a lot of decision, a lot of information wanted to digest.

F

And sort of circle back in the next meeting or say: hey, you know, pat, can you look at xyz.

F

We'd be happy to do that as well, so nothing that has to be decided today.

F

Probably just more direction about how to proceed. I gotcha and I guess my my first takeaway is.

A

It doesn't seem like that big, a difference between the 6535 to your recommendation in terms of.

A

You know the the number between, but I but I think that's because I'm thinking when I'm.

A

Used to seeing these charts, I'm doing it for my retirement right, which is you know, a gazillion.

A

Years away right so these charts, you know so these charts show a huge number disparaging despair. You.

A

Know that if I invest you know, if I take risks, I'm making you know x, whereas if I don't take the.

A

Risks I'm making y and there's a huge difference in number. Your difference roughly on some of these.

A

Is like 10 million, so that doesn't seem a lot to me. You know in terms overall, but I think it's.

A

Because it's we're looking at it in like the next three years right. So if you were to carry this.

A

Out the way, my you know, retirement calculator does we're really talking huge huge differences.

F

I think it's important to be cognitive of a couple things too, so this is an.

F

Incredibly important exercise, so once we get to a place, that's the board's comfortable with.

F

We'll update the policy statement, but we will review this. Maybe once a year two years like.

F

Most as capital markets change characteristics of the funds change things of that nature, but.

F

uh um Unlike your retirement, unfortunately, this fund operates in perpetuity right right.

F

So that's also people are withdrawing from it. As we speak right true, another characteristic is it's.

B

Actively paying benefits- that's true! Well, that's not calculated in these numbers. It is oh wow.

A

Okay, okay, so I'm close, but that's a really good point. Thank you for asking, but even though people.

F

Are withdrawing funds according to the bolton projections which we have to rely on them for.

F

The actuary right, the cash flows, are not expected to turn negative for at least the next decade.

F

As the you know, the county contributions, the employee contributions, sort of outweigh.

F

The benefit payments and expenses, and if we have that in the back of your mind, you know the worst.

F

Thing you can that any investor can do you know thinking about retirement, so your retirement.

F

With a million dollars in the market tanks in your first year and you have to pull money, then.

F

That's a big problem because then you have a lower base moving forward right, it's called sequencing.

F

Risk, it's much better have a huge gain in that first year, as you begin to draw it down. But if.

F

You don't have the negative cash flows, then that becomes less of a risk because you know generally.

F

Don't have to sell something to meet a benefit payment or liquidity. Need you really only do it.

F

For rebalancing purposes, so the cash flow profile is of utmost importance to keep in mind as well.

A

E

Just an opinion.

E

I tend to be kind of a plain, vanilla investor. I like managed funds.

E

I, like them from well-established funds with long track records from the managers.

E

I could I could go with something a little more exotic, such as you've outlined here.

E

Than just plain vanilla, but I think the lesson that we hopefully have learned is: if we don't dig.

E

Down and find out exactly what we don't see we're headed for trouble. We have found some.

E

Things in retrospect that we probably wish we had known before we went in.

E

And I think that's that's the only only pitfall I think you have been.

E

Very good about being transparent, but the devil's going to be in the details. If we go with.

E

Something other than plain villain which I'm going to describe as the 6535 mix sure preferably clean.

E

Index or even managed funds agreed, and I think you know the biggest takeaway is you know, sort of the.

F

The trade-offs um between the two approaches, you know, if you think about the earlier section, you.

F

Know what we're trying to hit unless it's lowered in the future is that seven and a quarter percent.

F

Return, um so we have to keep that in the back of our minds to your point, mr walters. It would be.

F

I don't want to use the words my recommendation, but, to the extent that you continue to allocate.

F

Into some of those areas, I would bring options like we did with the refunds most of those funds.

F

Would have many historical vintages that you could look at? You could see the returns things.

F

Of that nature, the holdings and then for the investment management agreements that you know.

F

We have a lawyer on staff looking through those. Obviously we're not party to those agreements.

F

We are a third party, we we're a facilitator and an aider if you will, but to the extent that you.

F

Wanted to be more comfortable, you know we have many clients that run it through their. You know.

F

Solicitors up in pa or county attorneys, to really dig through the the black and white of those.

F

Things as well and then some of those managers will, if you have any issues with any of the.

F

Language, they will approve, what's called a side letter between themselves, and you saying you know.

F

We don't like xyz, can you do that and sometimes they say yes and sometimes they say no, but.

F

It's very important to be cognizant not just of the risks of doing something like this, but.

F

All the fine print in in the contracts themselves, but, as I did show earlier on, I think maybe in.

F

January and february, the allocation of say outside of traditional investments,.

F

Amongst your peers and everybody's, unique and different is kind of in that 18 to 20 range and.

F

I don't want to speak out of turn, but those of you on the opeb fund have certainly seen them. You.

F

Know somewhat of well not somewhat, but a benefit um from having allocations to these areas where.

F

You're using more institutional quality managers, so we look at the lineup of private credit, private.

F

Equity and private real estate- here's probably only maybe one or two were where we really like.

F

So we would come back with, admittedly other names uh for you all to consider, so that was.

F

You know a lot to digest, but not important to you know, put forth in front of the board.

A

I thank you for that. What what is um you're all roles I mean, do you have an obligation to go back.

A

To your to the fop to your to your people to ex say: hey we're thinking about you know.

A

Doing something like this or they just completely trust you guys to make that yeah not for decisions.

D

Like this, okay, I'm just for other, like uh the implementation of the drop program. If you make.

D

An amendment uh right right: I got you but but stuff like this, that's what that's, what they.

A

Voted you on, for, if it's a benefit, enhancement or reduction, we ever got to that point. We would go.

I

And then right get feedback like we did for the drop, but but making decisions like this.

A

Okay policy statement for the rebalancing and allocations: okay, you keep them informed, but you.

A

Don't right generally yeah right right, I was just curious. Okay, I got you and all this is um posted.

B

Certainly, certainly certainly, okay. Well. Thank you. I do. I do know that we need to make or be close to.

H

What our discount rate is based on the actuarial, like you said, so that we're at least making it.

H

So that we can, for the long term of the plan and actually sure for the people yeah for the.

F

Long-Term health of the plane because at the end of the day, say you're you're, making six.

F

Percent and the actuaries assuming you're, making seven and a quarter, then that's an actuarial loss.

F

Right right and then you're talking about more contributions, lower funded ratios and.

F

The implications that that that has so in a perfect world, again all equal your asset.

F

Allocation would be more or less in line with that assumed rate of return. Okay. Well, thank you.

A

That's all there is with that. Then the next would be the custody overview.

F

uh Yes, you know if I just ask quickly before we move on yeah, I need marching orders.

F

Or or just to digest, then we can talk more about it. The next meeting.

F

I thought that's. We were at the digesting stage. Okay, that's where I am.

F

Oh apologies. Okay. I didn't realize that right. So we'll come back at the next meeting and.

F

Is that okay, that was oh, absolutely happy to do whatever the board sees, so that does not imply.

E

A huge shift we're just going to bend the curve a little bit right right, all right and then the.

B

Investment policy statement would follow. Based on the board's. You know decision direction. I guess.

A

Or rocky road right, that's what we're trying to figure out all right. So you know for the custody.

F

Overview, why don't we skip ahead and we'll just get to the main takeaways here? I know that.

F

It's my understanding whether it's some of you are pressed for time. If you can look at page 29.

F

Behind the previous exhibit, so you know when we spoke about earlier on we're.

F

Talking about you know, could there be possible fee savings for all three of the funds, so the.

F

The sorb, the opeb and the low sap to be custody to under one umbrella. So right now, as you all.

F

Know the sworp is at wells fargo. We are also asked informally for pricing proposals from other banks.

F

uh The first being u.s bank- they don't have a big presence in maryland, but we work with them.

F

On a number of other relationships, and we and our clients are very happy with them. The big player in.

F

Maryland all the way to the right is wilmington trust. If you look across the county marketplace,.

F

They probably own about 75 or maybe even more percent of that market. But with these informal.

F

Proposals, this is really two key takeaways. If you look at the first, the market value fees.

F

In the middle wells, fargo right now is three basis points, so we said you know what, if all of.

F

The funds are under your purview, they would drop it to two and a half. You could see. That's probably.

F

If I'd done, the math, maybe 30 to 40 percent higher than what u.s bank and wilmington trust.

F

Is proposing from a market value fee? The other key difference on the second row here would be.

F

The annual account fee, so what that means is you know if you have a sorp, you have a low sap and.

F

And an open, they would charge two grand for each of those three accounts, whereas u.s bank wouldn't.

F

Charge anything and the wilmington trust fee is nominal, but where wilmington trust or excuse me.

F

Wells fargo makes up for some of those fee. Differences is all the way at the bottom.

F

Where you see the security holdings would see security holding commingled funds. That would be.

F

Like a hedge fund, that's an open-ended vehicle, the private reits, if those were still hold.

F

Holdings, you know things that are custodied elsewhere, but they're mirroring on their.

F

Statements and then the closed-end funds that would be the private equity and credit that has.

F

Distributions and capital calls that is a little bit nuanced to keep track of so u.s bank would.

F

Charge a little bit more to monitor those assets. Wells fargo wouldn't charge anything and then.

F

Wilmington trust would also have a fee to monitor or report on those assets in their statements.

F

But if you look on the next page on page 30, the take away here and we'll just go to the the bottom.

F

Row here and that where you see the total fees that first darker line so all in with the three.

F

Funds us bank would be about 68 thousand dollars 300. Now, that's a little on the low side. They do.

F

Have a minimum account fee so for the low sap it would probably be about twenty five hundred dollar.

F

Hundred dollars higher, so they would be pretty much in line where wells fargo is and then all the.

F

Way to the right you see, wilmington trust would come in about 10 grand lower than the other two.

F

So from the soar perspective, I had it on a previous page, but just to give you a sense.

F

The annual sort of estimated fees about forty two thousand two hundred fifty dollars.

F

So for these fees it would really be on a percentage basis and if the soap comprises about.

F

50 percent of the assets, then you can think about the source fees- would be about half of this. So for.

F

Us bank and one and wells fargo be about 35 five and then wilmington trust call it. You know.

F

Thirty, six, fifty so about ten thousand dollars lower for this for the sorb fund.

F

Based on these informal proposals, so if we look at the next page on page 31, what we're.

F

You know putting forward from the board to consider today is just an approval.

F

To move forward with an rfp, uh the opeb and lowsat boards approved that earlier this month,.

F

If you all prove that would be taken before the commissioners in in july for their approval.

F

August september later in q3 we will work with staff and.

F

We meeting marquette will work with staff and procurement to develop the rfp and put it out.

F

We'll can get the responses score them. You know, have interviews as appropriate, not just with.

F

Any technical evaluation committee, but probably important to bring anybody before uh the boards.

F

Themselves and then, once the decision is made, have that transition be in q1, whether it be you know,.

F

Moving everybody under the wells, fargo umbrella or everybody moving under a different umbrella.

F

So with all that said, let me pause again for any any questions or comments from the board.

E

So we we could not go our own way. We have to go whichever way the other two groups want to go or.

E

Vice versa, I would leave that for somebody else to answer so, and that was one of the purposes.

B

For the rfp, for the investment manager also was to try to have economies of scale and save some fees.

B

By by commingling the funds, so yes there's a great desire to find one custodian for the three funds.

B

Okay administration purposes um and and they're the size, I think we feel like we've outgrown.

B

Schwab, which is the provider for opeb and low sap? Yes, so looking back on your page, 29.

E

In the annual account fee line, second, one down under wells, fargo.

F

Yes, sir, does this explain why every time we had a report, there was the account number showing as.

E

The last four digits like we would put the last four digits of our social security number in.

E

And they were all different, were they harvesting two thousand dollars per line from us.

F

Oh, you mean on the previous report the previous advisors report, where there was 70 rows.

F

So what I believe- and I don't know this for certain since we're not the previous advisor but.

F

So remember those three um separate account managers that were liquidated earlier this year.

F

Was the kane anderson, the kbr? The third one is escaping me, but that technically would have been.

F

Another account being held because those managers are managing securities within their own specific.

F

Accounts, so I think, instead of being 70, it would have been, at least at that point. uh Four.

F

Accounts, it's water over the dam, but I never could understand why every line item every investment.

E

Had its xx, xxx and then four digits and they were all different as the account number at wells.

F

I I don't know the answer for certain we'd. I've, admittedly never seen anything like that before.

F

I believe I think that might have been more of an internal morgan stanley type of um nomenclature.

F

But if I'm, if I'm wrong, I know that those three funds earlier had their own accounts. So, yes, it.

F

Would have been not just the one, but it would have been the four. But now since we've gotten.

F

Away from that, we will only have the one account okay, and this last comment is not directed at you.

E

You didn't do this, but when the rfp goes out and the results are analyzed, I would very much like.

E

The results to come to the trustees before they go straight to the commissioners for signature.

E

I think we need to know what is being signed off on and agree with. It.

E

I'm not saying we need to be the signatories, but I think it was kind of.

E

A mistake not to run the results of the rfp.

E

Through the various boards, because those boards have the responsibility for the decision.

E

So there was a recommendation from procurement and that's fine but don't leapfrog it straight.

E

To the commissioners for action, I would have I'm going to have to check the procurement policy.

B

Because we have to follow the county's procurement policy and I don't know that.

B

The boards would have a decision-making role. I think the technical evaluation committee does.

B

And the procurement manager um well, it makes no sense if, if we're sitting here where and as our.

E

Attorney says putting on our fiduciary hats and then for us not to be in the loop. That's not right!.

A

Your argument, which I completely see, is, I know st mary's. You know we're concerned about saving money.

A

With all three of them, but your point is you're not going to save money for low sap by sticking.

A

It to us and making us pay more, that we should still have the best eat as a board. It's our duty.

A

To say we want the one that costs the last and provides the best it's our duty to want. Whatever.

E

Right, we might not even agree with the with recommendation coming from procurement right. So if.

E

As you say, and I'm not doubting your statement but if that's what's baked into the procurement manual.

E

I think that's a flaw. A big flaw needs to be rewritten, that's something I'll have to.

A

Look at we'll have to well, and we had a lot long discussions about. Should these procurements even.

B

Follow the county procurement process right, should they be outside of it.

B

And we obtained mary claire's advice and that they should absolutely follow the county procurement.

B

Process because yes, boards have a fiduciary duty, but so do the commissioners and the funds are.

B

Funded by county public money right, so we have to follow the county public procurement process.

E

Well, I still think it's flawed, because if lawsuits start flinging around we're going to be named long.

E

Before the commissioners are for screwing this up, but doesn't the technical evaluation committee.

I

Have people from every board so we're covered there? It's like um right, you know, because we.

I

Worked with our major to look at some of those and evaluate them right, we did. We do because.

I

That's fine and those representations of all the data that gets put together in the final report.

I

Comes from a conglomerate of the three boards- and I agree with that- so there were representatives to.

E

That mix and collectively they came to a single recommendation right, not not.

I

Not in concert with each other, but as an average of all the scores put together so that we couldn't.

I

Actually collude for some reason right: it was kind of kept uh individualized right right. Yes, yes, the.

B

Indi, the the technical committee actually reviewed it and they each individually scored.

B

Right you score individually, you don't score as a group right correct, but out of.

E

That came a front runner, yes, okay and then the procurement officer sitting here in front of us.

E

Telling us what the results were and I'm going to quote him now and those papers are in the hands of.

E

The commissioners for signature, even as we speak right, that's not right. I don't care what the.

E

Policy says the policy needs to be fixed so that this board is part of the process. Otherwise, what.

D

What would this board do if we've already been involved in the beginning, but are we.

H

Purely like advisors to the commissioners, the commissioners are the ones truly making the.

H

Decision well, they're, not making they're not making these decisions on these items. Correct.

H

But as far as county funds, public funds, as they are responsible for the budget and the overall.

H

So any planned amendment has to be approved by them comes from any planned. Amendment has to come.

I

Goes to them for final approval right. We make the recommendation, it gets put on a green sheet and.

I

Comes over to the commissioners for final approval, I would recommend and much mr walter's point. I.

I

I do agree, I see that as a somewhat as a flaw that the boards do not have the the trustees of.

I

The boards that were not part of the technical evaluation committee should be able to review them.

I

And provide at least concurrence or state their objections on the record, a recommendation.

I

Yeah right yeah, I see history reviewed prior to yeah, correct yeah. Thank you for saying that we're.

A

Part of that, thank you for saying it better than I stated, but you're exactly right, and if that means.

E

We have to amend a policy somewhere. Then, let's get on with the amendment easier said than done right.

B

Here we can, we can take a look at it offline and discuss with procurement, but at the end of the day,.

H

The commissioners are on the hook for approving it. I think, based on what comes out of procurement.

H

Office and we could add, you know, recommendation, maybe you know we can look at it. Yeah we'll look.

B

At that, we have to be cautious right, because um some of the material is proprietary right.

B

So you have to be careful about who has access to it exactly um so we need to look at it.

B

And we also need to look at the role of the board of trustees right. um The documents that outline.

B

What our role is so maybe yeah talk to mary, claire yeah. I can bring that back. There's plenty of time.

E

So we're going to think on this all right, that's good, but in the meantime, with the board.

B

Does the board endorse beginning an rfp process, or do you want to work on these things? First,.

E

I'm certainly not happy with the current custodian, so my my inclination is yes. I.

I

Concur: we've been with them for more than five years, and I think, a year ago we started.

I

Pre-Pandemics started to discuss an rfp for wells fargo and then we went through.

I

What we went through with them, they changed the pinnacle and all that stuff principal sorry, yeah.

I

So I've long supported an rfp for wells, fargo all right, then I'll move that we take the first step.

E

To get an rfp out for a common custodian, a second, we have a first and second, is there any discussion.

A

If not all in favor vote eye eyes have it motion carries. Thank you thank you and that would bring.

A

Us to the end of mr wing's presentation and to the committee reports of miss karen gates.

C

Okay, we've we had three invoices for payment for this meeting, two from whiteford taylor.

C

And preston and one from bolton the first invoice from whiteford taylor and preston.

C

Was for consulting services through april 30th of 2021 in the amount of 2175 dollars.

C

And I've included the backup, you know a detailed breakdown of the invoice.

C

For your review, the second invoice from whiteford taylor and preston was for consulting services.

C

Through the end of may 2021 in the amount of 787.50, and then we had an invoice from bolton.

C

For one thousand one hundred and two dollars, I'm sorry one thousand twelve dollars.

C

um Part of that invoice was for a retirement calculation in the amount of 262 and then bolton.

C

uh Calculated payment projections in order for um marquette to for the asset liability study.

C

And that was for 750, so the total amount for this report is 3974.50.

E

Move to approve the administrator's report dated june 24 2021, as presented a second.

A

We have a first and a second all in favor, say aye aye aye any nays eyes. Have it.

A

And that would bring us is at the end of the committee report.

A

Yes, thank you. Yes, that would bring us to public comments. Are there any public comments.

A

No, there is not.

A

Okay. Moving on to item number six, I would entertain a motion. I moved to adjourn the meeting.

A

Oh sorry, all right, yeah, we we reversed six and seven at the beginning,.

D

Sorry for my tardiness: that's okay I'll make a motion to move into the closed session at this.

D

Time we have a motion, a second all in favor, say aye aye always have it. Motion carries.

A