resolution no . 85014 - Los Angeles Fire and Police Pensions

i'l I HUT E S
OF 'fHE
BOARD OF PEHSION COMMISSIONERS
~EETING OF SEPTEMBER 6 , 1984
The
Board
of Pension Commissioners of the City of Los Angeles met in Room
155, City Hall South , on Thursday , September 6 , 1984.
COiWIISSIONERS PRESENT :
Garo V. Minassian , President
Karl L. Moody , Vice Presidentt
Arthur Burdo r f
Bert Cohen
Sam Diannitto
Olga f.1arcus
David Bow Woo
DEPART I4ENT OF PENSIONS :
Gary i4attingly , General Hanager
James J . I.JcGuigan, Assistant General 1'1 anager
Wm. S. Hutchison , Assistant General Manager
President Pro Tern Marcus called the meeting to order at 9 : 40 a.m . and referred
to Item No . 1 on the Agenda.
INV BSTi·lENTS
The General Hanager informed tile Board that Favia- Hill sent a letter requesting
Board approval of their common stock universe and sent a transmittal of their
most recent investment review .
RESOLUTION NO . 85007
2525 NEIl SYSTE[·I GENERAL PENSION FUND
After discussion by the Board it was moved by Commissioner Moody that upon the
advice of Investment
Counsel ,
the Manager - Secretary and/or Favia- Hill &
Associates be authorized to pu r chase up to 5% of cUI'rent portfolio value in
various companies , which motion was seconded by Commissioner Cohen and adopted
by the following vote:
ayes, Commissioners Burdorf , Cohen, Diannitto , l'loody,
Woo and President Pro Tern Marcus - 6 ; noes, none.
rhe General Manager informed the Board that SPIM sent a letter requesting Board
approval of additions to their Common Stock Universe and removal of stocks from
their Common Stock Universe , and a summary of recently completed investment
transactions .
RESOLUTION NO . 85014
2525 UEi" SYSTEN GENERAL PENSION FUND
After discussion by the Board, it was moved by Commissioner Cohen that the Board
amen,d Resolution No . 84083 by adding :
Ahmanson H F Company
Phibro Salomon, Inc .
to the Common Stock Universe, and remove:
Crum and Forster
Gulf Oil
Narathon Oil
from the Common Stock Uni verse, .."hich motion was seconded by Commissioner
Diannitto,
and adopted by the following vote:
ayes,
Commissioners Burdorf,
Cohen, Diannitto, Moody , Woo and President Pro Tem Marcus - 6; noes, none.
The General Manage r informed the Board that SPIM sent a letter requesting Board
approval of guidelines for
their short-term investments, and a transmittal of
their recor d of purchases and sales.
Discussion evolved around this matter .
The Board made and approved the belm, motions for in-house discussion later.
RESOLUTION NO. 85008
2510 FIRE & POLICE SERVICE PEHSION FUND
After discussion by the Board, it was moved by Commissioner Cohen that the
i'l anager - Sec retary be authorized
to invest and r einvest in money market
instruments from issuers from time to time as is necessary in the maximum
amounts and \vi th the maximum maturities indic ated , at the current market,
provided that the yield is not less than 6.0%, and to sell money market
instruments owned by the Board as monies shall be needed for payment of pensions
or for investments al re ady authorized by the Boa rd, which mot ion was seconded by
Commiss ioner r'loody and adopted by the followi ng vote :
ayes,
Commiss i oners
Burdorf, Cohen, Diannitto, Moody , Woo and President Pro Tern Marcus - 6; noes,
none.
RESOLUTION NO. 85009
2515 FIRE & POLICE GENERAL PENSION FUND
After discussion by the Boa rd, it was moved by Commissioner Cohen that the
Manager - Secretary be authorized
to invest and reinvest in money market
instruments from the issuers from time to time as is necessary in the maximum
amounts and with the maximum maturities indicat ed , at the current market,
provided that the yield is not less than 6 . 0%, and to sell money market
instruments owned by the Board as monies shall be needed for payment of pensions
or for investments already authorized by the Boa rd, which motion was seconded by
Commissioner Hoody and adopted by the following vote : ayes , Commissioners
Burdorf , Cohen , Diannitto, Moody , Woo and President Pro Tern Marcus - 6 ; noes ,
none.
RESOLUTIOH NO . 850 10
2520 NEW SYSTE~l SERVICE PENSION FUND
After
discussion
by the Boa rd,
it was moved by Commissioner Cohen that the
be authorized to invest
and reinvest in money market
instruments from issuers from time to time as is necessary in the maximum
amounts and with the maximum maturities indicated, at the cu rrent market,
provided that the yield is not less than 6.0%,
and to sell money market
instruments owned by the Board as monies shall be needed for payment of pensions
or for investments already authorized by the Board , which motion was seconded by
~anager - Sec ret ary
ayes,
Commissioners
Commissioner Moody and adopted by the following vote:
Burdorf , Cohen, Diannitto, Moody, Woo and President Pro Tern Marcus - 6; noes,
none.
RESOLUTION HO . 850 11
2525 HEW SYSTEM GENERAL PENSION
After discussion by the Board, it was moved by Commissioner Cohen that the
Manager - Secretary
be autho rized to invest and reinvest in money market
instruments from issuers from time to time as is necessary in the maximum
amounts and with the maximum maturities indicated, at the current market,
provided that the yield is not less than 6 . 0%, and to sell money market
instruments owned by the Board as monies shall be needed for payment of pensions
or for investments already autho rized by the Board, which motion was seconded by
Commissioner f-Ioody and adopted by the folloYling vote:
ayes , Commissioners
Burdorf, Cohen, Diannitto, Moody , Woo and President Pro Tern Marcus - 6 ; noes,
none.
RESOLUTIOH NO . 850 12
2530 SAFETY ME11BERS SERVICE PENSION FUND
After
discussion
by the Board ,
it was moved by Commissioner Cohen that the
be authorized to invest
and reinvest in money market
instruments from issuers from time to time as is necessary in the maximum
amounts and with the maximum maturities indicated, at the current market,
provided that the yield is not less than 6 . 0%,
and to sell money market
instruments owned by the Board as monies shall be needed for payment of pensions
or for investments already autho rized by the Board , which motion was seconded by
Commissioner Moody and adopted by the following vote:
ayes,
Commissioners
Burdorf, Cohen, Diannitto, Moody , Woo and President Pro Tern Marcus - 6; noes,
none.
~anage r - Secreta ry
RESOLUTION NO . 85013
2535 SAFETY HEHBERS GENERAL PENSION FUND
Afte r discussion by the Board , it was moved by Commissioner Cohen that the
Manage r - Secretary be authorized
to invest and reinvest in money market
instruments from issuers from time to time as is necessary in the maximum
amounts and with the maximum maturities indicated, at the current market,
provided that the yield is not less than 6 . 0% , and to sell money market
instruments owned by the Board as monies shall be needed for payment of pensions
or for investments already authorized by the Board, which motion was seconded by
Commissioner Noody and adopted by the following vote:
ayes,
Commissioners
Burdorf , Cohen, Diannitto , Moody , Woo and President Pro Tern Marcus - 6; noes,
none.
RESOLUTION NO . 85015
2510 FIRE &: POLICE SERVICE PENSION ]<'UND
After discussion by the Board , it was moved by Commissioner Cohen that upon the
adv ice of investment counsel , the Hanager - Secretary and/or Security Pacific
Investment ;'l anagers ,
Inc . , be autho rized to purchase Bankers Trust Company's
Governmental Employee Plan Short Term Investment Fund subject to the follo\ving
limitations :
Fund 2510
Fund 2515
Fund 2520
Fund 2525
Fund 2530
Fund 2535
iliaximum in
S . T. I . Ii'.
F'und
f>1inimum
Yield
$11'-1
$5M
$2H
$5011
$15[.1
$1 5\·!
6.0%
6 . 0%
6.0%
6 . 0%
6 . 0%
6.0%
The motion was seconded by Commissioner Moody and adopted by the following vote:
ayes, Commissioners Bu rdorf, Cohen , Diannitto , Moody , \-/00 and President Pro Tern
Marcus - 6; noes , none .
RESOLUTION NO . 850 16
2515 FIRE & POLICE GENERAL PENSION FUND
After discussion by the Board , it was moved by Commissioner Collen that upon the
adv ice of investment counsel , the Manage r-Secretary and/o r Security Pacific
Investment i'lanagers , inc., be authorized to purchase Banke rs Trust Company ' s
Governmental Employee Plan Sho rt Term Investment Fund subject to the following
limitations :
Fund 2510
Fund 2515
J<'und 2520
Fund 2525
Fund 2530
Fund
2535
Maximum in
S . ff . I.F. Fund
$111
$5f.1
$2r~
$501~
$15rI
$1 5f·l
dinimum
Yield
6 . 0)0
6.0%
6 . 0:;0
6 . 0%
6 . 0%
6 . 0%
The motion was seconded by Commissioner Moody and adopted by the following vote:
ayes , Commissioners Burdorf , Cohen , Dianni tto , f'!oody , Woo and President Pro Tern
Marcus - 6 ; noes , none .
RESOLUTION NO . 85017
2520 NEW SYSTEM SERVICE PENSION FU]D
After discussion by the Board , it was moved by Commissioner Cohen that upon the
advice of investment counsel , the Manager - Sec r etary and/or Security Pacific
Investment Hanagers , Inc ., be authorized to purchase Bankers Trust Company 's
Governmental Employee Plan Short Term Investment Fund subject to the following
limitations :
j<'und 2510
f·lax i mum in
S .T.I.F. Fund
f.linimum
Yield
Fund 2515
Fund 2520
Fund 2525
Fund 2530
Fund 2535
S1I~
.$5H
$2H
$50i1
S15J.1
S15H
6 . 0%
6 . 07"
6 . 0%
6 . 0%
6. 0%
6. 0%
The motion was seconded by Commissioner j·ioody and adopted by the folloVling vote:
ayes, Commissioners Burdorf, Cohen , Diannitto , Hoody , \'/00 and President Pro Tem
Marcus - 6 ; noes , none.
RESOLUTION NO. 85018
2525 NEIl SYS'i'BJ.1 GENERAL PENSION FUND
After discussion by the Board , it was moved by Commissioner Cohen that upon the
advice of investment counsel , the Manager-Secretary and/or Security Pacific
Investment Hanagers , Inc ., be authorized to purchase Bankers Trust Company ' s
Governmental Employee Plan Sho rt Term Investment Fund subject to the following
limitations:
Fund 2510
Haximum in
S . 'J: . I.F . 'P und
Binimum
Yield
Fund 2515
Fund 2520
Fund 2525
Fund 2530
}'und 2535
$11<1
Si5H
Si2 r·l
$50N
$15;,1
$15l'l
6 . 0",
6 . 0%
6 . 0%
6 . 0)6
6.0%
6.05<>
The motion was seconded by Commissioner Moody and adopted by the following vote :
ayes , Commissioners Burdorf, Cohen, Diannitto, I,joody, vloo and President Pro Tern
Marcus - 6 ; noe s , none .
RESOLUTION NO . 85019
2530 SAFETY 11EHBERS SERVICE PElISION FUND
After discussion by the Board , it was moved by Commissioner Cohen that upon the
advice of investment counsel , the Manager - Secretary and/or Security Pacific
Investment r'lanagers , Inc., be author i zed to purchase Bankers Trust Company ' s
Governmental Hmployee Plan Short Term Investment Fund subject to the following
limitations:
Fund 2510
Fund 2515
Fund 2520
Fund 2525
Fund 2530
Fund 2535
Max imum in
S . T. I . F . l<'und
$1~l
$5r1
$21'1
$50N
$151:!
$15rI
i'linimum
Yield
6 . 0%
6 . 0%
6.0%
6 . 0%
6 . 0%
6 . 050
The motion was seconded by Commissioner Noody and adopted by the following vote:
ayes , Commissioners Burdorf, Cohen , Diannitto , Noody, Woo and President Pro Tem
~a rcus - 6 ; noes, none .
RHSOLUTION NO . 85020
2535 SAI-'ETY iIlBHBERS GENERAL PENSION FUHD
After discussion by the Board , it was moved by Commissioner Cohen that upon the
advice of investment counsel , the Manager-Secretary and/or Security Pacific
Invetment U!anagers , Inc . , be authorized to purchase Bankers Trust Company ' s
Governmental Employee Plan Sho rt Term Investment Fund subject to the following
limi tations :
Fund 2510
Fund 2515
Fund 2520
Fund 2525
Fund 2530
Fund 2535
l"laximum in
S . T . I . F . }'und
$HI
IHnimum
Yield
6 . 0%
6 . 0);
$2M
$501-1
$1
5j~
$1 51'1
6 . 0~
6 . 0%
G . O~
6 . 0;0
The mot i on was seconded by Commissioner Noody and adopted by the following vote:
ayes , Commissione r s Bu r dorf , Cohen , Di annitto , Noody , 'tloo and Pres i dent Pro Tern
Marcus - 6 ; noes , none .
The General Manager informed the Boa r d that Wright Investors ' Service sent
letters requesting Board approval of their stocks on their approved investment
list and a r ecord of thei r sales of stocks .
RESOLUTION NO . 850 14A
2525 HE'll SYSTEr4 GENERAL PENSION FUND
After discuss i on by the Board , i t was moved by Comm i ssioner ~oody that upon the
advice of Investment Counsel ,
the Manager - Secretar y and/or Wright Investors '
Serv i ce be autho ri zed to purchase up to 5% of cur r ent portfolio in various
companies , which mot i on was seconded by Commiss i one r Burdorf and adopted by the
following vote :
ayes , Commissioners Burdorf , Cohen , Dianni tto , i'loody , \'100 and
Pr esident Pro Tern Ma r cus - 6 ; noes , none .
OLD BUSINESS
The General Manager , Mr. Gar y Mattingly , stated he had no Old Business .
By di r ection of the Chair , staff was di r ected to have perma- plaqued the
congratulation letter the Board is sending to Ronald S . W. Lew on his elevation
to the Supe r ior Court .
NEil BUSInESS
hr . Hattingly asked
if any Boa r d member had made any e x pend i ture to influence
state legislative or admin i strative actions ,
to wh i ch their r eply was in the
negative . Mr . Mattingly said he would so report that there we r e none .
Commissione r Cohen d r ew the Boa r d ' s attention back to Item No . 1 - Investments and made reference to staff ' s
report of stocks selling more than 30 percent
above or below cost and r eminded staff that the Board wants backup material
regard i ng this i ssue .
Pr esident Pr o Tern Mar cus suggested that since the
investment managers were present today in the Board room that they explain
orally why they bought or sold stocks more than 30~ above or below cost and that
in the futu r e backup material be provided to the Boa r d.
Mr .
Mattingly introduced Dellene Arthur to the Board and said she has been
Mrs . Artllur was
nominated by the Hayor as a new Commissioner to this Board .
welcomed by the Board .
--- --- -----
COi'lilUHICATIONS TO THE BOARD
Communications were submitted to the Board .
INVESTr<1:BNT P~RFORl"IAtlCE EVALUATION FOR 'iHE QUARTER
JUNE 30, 1984, BY SEI FUNDS EVALUATION SERVICE
~NDING
.4 r. Joseph P . Perna, of SEI Funds Evaluation Service, came forward to make a
presentat ion.
Mr.
Perna said that first he would take a brief look at the
capital markets and then look at the pensions data base . Mr. Perna stated that
the Standard and Poors 500 Stock Composite Index recorded a 2 . 6 percent loss at
the end of the second quarter of 1984. Nr . Perna said that stocks continued to
underperform bonds.
'ihe best performing stocks were in the sectors of
consumers ' staples , utilities and consumer discretionary.
Mr. Perna noted that
the S&P 500 was down 4 . 6 percent for the year ending June 30, 1984. Nr . Perna
said that in the last 1 2 months there has been a two tier market but in June ,
the market flattened and then dropped .
The larger capitalized stocks performed
better.
In relation to the bond market, Mr .
Perna advised that the Shearson
Lehman Government - Corporate Bond Index fell app roximately 1. 8 percent in the
last quarter.
He noted that it paid to be on the short side.
However the bond
index for the year showed an increase of 1.8 percent. Gove rnm ent issues
outperformed corporate issuers. Mr . Perna advised the Board that int erest rates
on 91 days 'ireasury Bills continued to rise in the second quarter and had a
yield of 9.2 percent over the preceding year.
Looking at the pension fund en vironment, Nr . Perna referred to the figures in
tile BEl book on Balanced Fund Median Retu rns and provided supplemental
information relating to 400 large public pens ion funds.
Mr. Perna noted that
the public funds performed better because of a different asset mix, having about
17 percent lower equity exposure and a 15 percent higher bond exposure and
approximately two percent more in cash equivalents . Mr. Perna then commenced
discussion of the rates of return for the Los Angeles Fire and Police Pension
System for the period ending June 30 , 1984.
He referred to a summary page in
the SEl Book .
He noted that the overall return for the quarter ending June 30 ,
1984 was minus 1 . 6 percent which placed the Pension System in the 50th
pe rc entile of the SEI Universe. For the one year end ing June 30 , 1984 the rate
of return was minus 6 . 0 percent , putting the Pension System in the 69th
percentile rank, while for the three years ending June 30 , 1984 the rate of
return was listed at 1 3 .9 percent which put the Pension System in the 16th
percentile ranking , meaning that it outperformed 84 percent of 400 other public
funds.
The data also indicated that the Pension System had underperformed the
median for 400 pension funds in the SEI total data base for the period ending
June 30 , 1984 .
It had also underperformed for the year ending June 30, 1984,
but outperformed the median for the 400 pension funds for the three year period
ending June 30,
1984.
In comparison with 38 large public pension funds with
assets over ~250 million,
the Los Angeles Fire and Police Pension fund was at
the median performance rate for the quarter ending June 30 , 1984, under the one
year performance rate, but over the three year performance rate.
Mr .
Perna then moved on to discuss specific performance of the investment
advisors . He referred to figures on the rates of return summary concerning
rates and rank since inception . These figures indicated that Favia- Hill had
produced a positive 9.7 percent return but ranked in the 89th pe rcen tile , while
Security Pacific produced a rate of 13.5 percent and ranked at the 52nd
percentile, and Wright Investors produced a return of 14.4 percent and ranked at
the 45th percentile.
Comparable figures for the bond managers were not
presented .
Mr.
Perna noted that the 17 . 4 percent return for Security Pacific
Investment Managers bond portfolio for the three year period ending June 30,
1984 was estimated and was subject to reworking since the full report was not
available .
At this point, Commissioner Cohen asked for more data which would permit
comparison of the performance of the Los Angeles Fire and Police Pension System
with large public pension fund bond and equity manager performances .
A
discussion followed . Mr . Perna advised the Board that he was not sure when the
data would be available .
Moving on to discussions of the performance of the individual investment
counselors for the quarter ending June 30 , 1984, Mr.
Perna commenced with
Wright Investors . He noted that at the end of the quarter, Wright Investors
portfolio was valued at $284,519 , 000; 28 . 4 percent of the total portfolio was
in cash equivalents .
The Wright rate of return for the quarter was a negative
0 . 1 percent which ranked them at the 16th percentile in the BEl Universe.
Mr.
Perna pointed out that Wright had achieved a positive 12 . 0 percent return for
the three years ending June 30, 1984 , which ranked them in the 31st percentile.
Regarding Security Pacific Investment Manager ' s equity portfolio, he noted that
the total SPIM portfolio at the end of the quarter was valued at 8247,211,000;
24.9 percent of this was in cash equivalents.
Mr.
Perna stated that this
represented a relatively high commitment to cash . The SEI presentation material
indicated that the SPIM equity portfolio had achieved a negative 3.0 percent
rate of return for the quarter ending June 30, 1984, which ranked in the 66th
percentile of the SEI Universe . For the one year period ending June 30, 1984,
the SPIM equity portfolio showed a loss of 16.7 percent ranking in the 84th
percentile . However, for the three year period ending June 30 , 1984 , there is a
positive return of 11.3 percent with the SPIM equity portfolio ranking in the
39th percentile.
Mr.
Perna then moved on to a discussion of the Favia- Hill & Associates
performance . Mr . Perna noted that the Favia- Hill portfolio was $217,278,00 as
of the end of the quarter; 37.3 percent of the portfolio \,as in cash equivalents
or cash.
At this point, Commissioner Diannitto inquired about the lack of the
executive summary which is typically provided to the Board by SEI Funds
Evaluation Service . Mr. Perna apologized for the lack of the executive summary,
indicating that internal computer program problems "lere the cause of the
omission.
SEI had no final data on the bond portfolio managed by Security Pacific
Investment Managers .
Data was available on the Boston Company bond portfolio
which Mr . Perna proceeded to discuss .
Mr. Perna stated that the Boston Company
fixed income portfolio was valued at $248,340,000 as of the end of the quarter
ending June 30, 1984; 9.5 percent of this amount was in cash equivalents and
cash.
Boston Company had produced a negative rate of return of 2 . 1 percent for
the quarter ending June 30, 1984 , which ranked them in the 68th percentile. t'or
the one year ending June 30,
1984 they had achieved a total rate of return of
1.7 percent, ranking them in the 51st percentile . For the two years ending June
30, 1984 they had achieved a rate of return of 16.6 percent, ranking them in the
8th percentile of the SEI Funds Universe .
Hr .
Perna then summarized his presentation noting that the stocks. held by
Favia- liill and Security Pacific were not favored during the one year time period
ending June 30 , 1984. Both accounts (stocks plus cash) declined approximately
16 percent . The two bond manager accounts , Boston Company and Security
Pacific , performed in line with the Lehman Bond Index which was up about 1.8
percent for the year.
Overall the total Los Angeles Fire and Police Pension
Fund declined six percent for the fiscal year.
For the last three years , the
fund averaged a posi ti ve 13.9 percent return per year, which \,as about one
percent better than the median for large public funds. Mr. Perna also pointed
out that the st rong stock market in August 1984 helped the fund earn back most
of the fiscal year decline.
At this point in the proceedings , Commissioner Diannitto asked for more recent
preliminary rate of return data for the money manager semi - finalists being
considered by the Board . Mr . Allan Moore, Investment Officer II, indicated this
data was not available . iclr . Moore provided the Board with performance data for
these potential money managers through June 30 ,
1984 . Commissioner Cohen asked
staff to have something ready for the Investmen t Comm i ttee .
Further discussion
indicated
that
the Investment Committee should ask the money managers
semi - finalists for recent rate of return data when they make the site
inspections .
After the above presentation , President
The meeting resumed at 10:50 a . m.
Pro
Tem
Ma r cus recessed the meeting .
PRELHIINARY PERFORIIIANCE DATA FOR PERIODS SUBSEQUENT TO JUNE 30 , 1984
Material was handed out to the Board by Mr . Allan Moore and discussed .
PROPOSED INVESTIIIENT POLICY AMENDMENT - APPROVED STOCK LISTS
Mr . Mattingly summarized the staff report to the Board concerning change in the
Investment Policy in r ega rd to approved stock lists . Mr . Mattingly painted out
that staff was recommending that the Board approve a revision to the Investment
Policy which would modify the provisions relating to approved stock lists by
permitting all advisors to pu r chase a stock which has been approved for purchase
by any advisor , and permitting the Investment Committee of the Board to approve
stock purchases between Boa r d meetings , subject to approval by the full Board at
its next meeting .
Discussion ensued.
The discussion
involved
certain
complications and the concern of various Board members over approving stocks for
purchase which were not on any of the adviso rs' lists .
Prac tical difficulties
that could arise from a conditional approval by the Investment Committee were
also discussed . Commissioner Diannitto stated that he had reservations about
the matter .
At the conclusion of the discussion, President Pro Tern Marcus
referred the staff recommendation to the Investment Committee for further
attention .
INVEST~~NT
ADVISORS PRESENTATIONS
Security Pacific Investment Managers . Mr . Jack Ellis came forward
A.
and gave the Board an ove rvi ew of the 1984 economic situation as viewed by
Secu ri ty Pacific Investment Managers .
IIIr.
Ellis noted that the real gross
national product YTas strong , being up about six percent:
inflation was expected
to go highe r by the four to five percent range . Unemployment was expected to
decrease; housing starts 'tlere expected to be higher by about ;;;1 . 8 million ;
interest rates were expected to go higher than 1 984 levels ; and corporate
profits were expected to be up about 28 percent .
Mr . Ellis stated that the
first half of 1985 is expected to be stronger than the second half .
i,jr . Ellis
went on to say that SPIN expects the inflationa r y trend will decrease during the
remainder of the 80 ' s , averaging app r oximately six percent fo r the five year
period, with maximum peaks of eight percent . Hr . Ellis presented various charts
to the Board providing support for his views on the decreasing inflationary
trend .
These charts included a consumption deflator chart , and an average
hourly earnings chart showing year to year percent of changes over an extended
period of time . With regards to the latter chart, Mr . Ellis indicated that the
early 1984 3 . 5 percent figure was the lowest in years since the 1960 ' s . Mr.
Ellis also presented a collective bargaining cont r act and total adjustments
chart which indicated there had been a significant decrease in rates of increase
since 1982 .
l'lr . Ellis stated that we should \vorry about the Federal deficit , "hich could be
exacerbated by the indexing of income taxes which "ill commence January 1, 1985.
Mr. Ellis then discussed the bond portfolio managed by SPIM .
He presented a
chart sho"ing maturity diversification as of June 30, 1984 and December 31,
19B3.
The chart indicated a greater cash equivalent as of June 30 , 1984. Mr.
Ellis then presented a chart showing economic sector diversificat i on on stocks .
This chart indicated heavy involvement in the consumer and finanCial/utilities
sectors as of June 30 , 1984 and as of March 31 , 1 984 .
The chart also indicated
a significant increase in cash equivalents and cash.
B.
Favia- Hill & Associates Messrs . Jack Favia and Vince Castelli then
addressed the Board. Mr . Favia stated that at the last Board meeting he
attended , he had described a cautious investment cl i mate . At that time the
equi ty exposure in the }<'avia- Hill po r tfolio was about 63 percent , with the
balance in cash. [·lr . Favia stated that the economic markets had remained under
pressure but in June some cash went back into the market .
In August , Hr. tavia
stated there was a surge in the equity market . Favia- Hill equity exposure rose
to about 80 percent .
t4r . Pavia stated there had been some selling since then
and tavia- ilill was now at the 75 percent level of exposure .
He mentioned
several stocks sold , such as Carnation, by reason of potential takeover
attempts .
Mr . Favia stated that there was more upside potential in eq~ities,
but he remained concerned over interest rates .
lie stated that inflation is
becoming the focus of attention , but may be under control . Interest rates could
be affected by the change in inflation in the next year with lower rates
resulting. Mr . Favia stated that equities will react to lower interest rates.
He stated the stocks in the Pavia- Hill portfolio now will be of the highest
quality.
He also emphasized that there had been a significant improvement in
performance over the last six months .
He discussed the figures in the SEI
material for these quarters . The Board then proceeded to discuss the Favia- Hill
& Associates performance progress . Nr. Pavia stated he was giving intensive
personal attention to the account.
Commissioner Woo stated he was concerned
about aspects of Mr. Favia's pe r sonal
involvement:
" Did this personal
involvement also include backup from the entire organization? " Mr . Favia stated
he "as not the sole "pilot " of success on the Pension System account . A Board
DIScussion of ~he Favia-Hill performance ensued . Commissioner Woo asked Mr .
Favia how he "ould implement a 50 percent reduction in the portfolio assigned to
Pavia- Hill .
Nr. Favia stated that there is cash available and also that the
high quality stocks may be considered to be very liquid.
He stated that a
reduction in
the portfolio could be worked out over a month or two .
Commissioner Dianni tto then asked r'lr . Favia , "What would 'l ost ' cash do to his
total perfo r mance? " Commissioner Diannitto went on to inquire about divesting
Favia, Hill of the entire portfolio : "Would that result in a wholesale sell
out?"
Discussion followed regarding the mechanics of such a situation .
After the above p r esentation , President Pro Tem Harcus recessed the meeting for
five minutes . The meeting resumed at 12:00 noon.
C.
Boston Company Mr . Desmond lleathwood then addressed the Board .
He
introduced Mr . Steve Ballasino . ~r . deathwood referred to a chart on page
of
the Boston Company written presentation showing Tr easury interest rates .
kr .
Heathwood noted that the chart was in reverse order because bond prices move
inversely to interest rates.
The Chart
showed increase i n interest rates from
~eptember 1983 to April 1984 with some decline
in interest rates commencing in
June 1984 .
In terms of economic outlook , Mr. Heathwood advised that the Boston
Company expected economic growth continuing into 1985 although at a somewhat
slower pace .
He said a continued upward p r essure on interest rates due to
Treasury financing and accelerating private credit demands could be expected ,
and inflation should accelerate ove r the next year . Hr . Heathwood said that the
bond price trend is expected to be down with no recovery through 1984.
Mr .
Heathwood then d i scussed the business cycle profile developed by the Boston
Company . He indicated that the profile is moving towar d a peak and that the
chart tells us to be cautious in the bond market .
Again referring to a chart in the Boston Company ' s written presentation , Mr .
Heathwood stated that the r e had b een a sign i ficant r eduction in bond maturities
since early 1983 and it is now a more defenSive portfolio . Also he advised
that the portfolio now includes about 12 percent cash . He stated Boston Company
Commissione r Vloo asked f.1r .
way want to go out to a longer term in 1985.
Heathwood how any add i tional funds might be posit i oned .
Hr . Heathwood said
that they would be positioned the same as the August 1984 status of the
portfolio .
At this point in the proceedings, President Minassian entered the Board room and
took the Chai r.
D.
Wright Investors ' Service . Messrs . Jatin Mehta and Donald Krysynski
then came forward to address the Boa r d . Mr . Krysynski asked the Board for any
ideas or suggestions regarding what Wright Investors could do to help the Board
and supplement information the Board had from SEI . Mr . Mehta then commenced
with a discussion in which he suggested that one o r two additional charts be
added to the BEl information which would supply data the Board members had
requested in the past . Mr . Mehta thought that such additional information would
be helpful to all concerned .
He particularly suggested more comparative
information whe r e large public penSion systems are concerned .
After some
discussion with the Board , Mr . Mehta offe r ed to put his thoughts on paper .
He
did refer to a char t in the written information Wright Investors submitted to
the Board . This chart was a type of account i ng statement illustrating portfolio
performance in dollar terms over an approximate four year period. f4r. Nehta
suggested that this type of chart could be done fo r the entire system , manager
by manager.
Commissioner Cohen stated the staff should be able to provide that
type of information. Discussion followed as to who should develop this type of
data. Mr . Perna stated that the format is different from the SiI format.
Mr .
~ehta
also indicated that he would like to be provided with the SEI report on a
regular
basis .
Discussion followed regarding the propriety of releasing
information prior to presentation to the Board.
Pres i dent Minassian then asked
Hr . Mattingly to check with the other investment advisors and deteroine whether
any had an objection to the dissemination of the SEI Executive Summary to the
other advisors .
Mr . Mehta then resumed his presentation to the Board,
stating that Wright
Investors had participated in the August market rally . He stated the interest
rates are still high and that bond yields are attractive but that some caution
was necessary . Mr. Mehta advised that in the next few months, it would become
clearer that interest rates will become lower and there would be some
corrections in the market. Mr . Mehta advised the Board that Wright Investors
currently supported full involvement in the market.
ASSET ALLOCATION
The Board then launched a detailed discussion of asset allocation.
Mr . Allan
Moore,
Investment Officer II, discussed the allocation figures contained in the
General Manager ' s report to the Board , and advised the Board how the figures
were developed . Mr . Mattingly , the General Manager , stated that
the major
question is the disposition of the Favia Hill & Associates portfolio. Mr .
Mattingly referred to his report before the Board recommending the termination
of the Favia Hill contract because of poor performance and the payback of
approximately $13 million "borrowed" from primarily the bond managers some time
ago to meet the pension payroll.
Hr. IJIatt ingly indicated to the Board that the
matter should be resolved by the current Board before the new Board members
joined the Board .
Detailed discussion followed regarding the proposed payback
of approximately $13 million to the bond ad visors .
This amount had been
"borrowed " to meet pension rolls.
Commissioner Noody moved that $4 , 727,235 be
restored to the Security Pacific Investment Manager ' s fixed income portfolio and
that $273 , 992 be restored to Wright Investors .
The motion was seconded by
Commissioner l'1arcus and adopted by the following vote :
ayes , Commissioners
Burdorf , Cohen , Diannitto, Marcus, Moody , Woo and President Minassian - 7; noes,
none.
President Hinassian then discussed the matter of terminating t"avia Hill it
Associates and dividing their portfolio among the new managers .
President
I~inass ian stated he felt the present Board
should not take that action but
should make a recommendation to that effect to the new Board.
Commissioner
Diannitto stated that any such discussion should be deferred pending on site
inspection of the money manager semi - finalists facities by some Board members.
Commissioner Cohen stated he disagreed . He felt the new Board would necessarily
have to go through all of the figures pe r taining to possible termination of
Favia Hill & Associates.
Commissioner Cohen stated he believed the present
Board should make the decision at this meeting . He stated that the Board had
all the information .
A lengthy discussion ensued . Commissioner Cohen, Marcus
and Hood y all believed the present Board should make the decision today.
Commissioner Cohen then made a motion that the Favia Hill &
Associates
portfolio be reduced by 50 percent and that when new investment counselors have
been selected,
that this half of the Favia Hill & Associates portfolio be
allocated to them .
The motion was seconded by Commissioner Diannitto and
adopted by the following vote:
ayes,
Commissioners Burdorf, Cohen, Diannitto,
Ma rcus, Noody and Woo - 6; noes, President Minassian - 1 .
President l.Jinassian recessed the meeting at 1: 10 p . m. for p i cture taking .
ON - SITE INSPECTION OF MONEY MANAGER CANDIDATES ' FACILITIES
RESOLUTION NO . 841030
The General Manager asked the Board to conside r
their investment Committee
conducting on - site i nspections of money manage r candidates ' facilities in New
York and Houston . The estimated cost is $ 1, 600 pe r person .
Commissioner Moody made a motion that three people be authorized to conduct
on - site inspections of money manager cand i dates ' facilit i es in New York and
Houston , which motion was seconded by Commissioner Diannitto and adopted by the
follo\"ing vote : ayes , Commissioners Burdorf , Cohen , Dianni tto , 11arcus , Hoody,
Woo and President Minassian - 7 ; noes , none .
At this point in the p r oceed i ngs , Pr esident Minassian cal l ed for ad j ournment .
The meeting adjourned at 1 : 25 p.m .
~LA
President Pro ~~