MINUTES OF THE
BOARD OF TRUSTEES MEETING OF THE
COLUMBUS GEORGIA EMPLOYEES' PENSION PLAN
February 7, 2007
A meeting of the Board of Trustees for the Columbus Georgia Employees? Pension
Plan was held February 7, 2007 at 2:00 P.M. in the Mayor?s Conference Room.
PRESIDING: Mayor Jim Wetherington, Chairman
PRESENT: Isaiah Hugley, City Manager; Pamela J. Hodge, Finance
Director, Morton Harris Trustee; Omagene Holland, Trustee; Mary
Strozier-Weaver, Trustee; Col. R. George Plummer, Trustee; Alan Rothschild,
Trustee; Joe Smith, Vice-Chairman; Chief Robert Futrell, Trustee; Richard
Swift and Henry Swift, (Smith Barney); Tom Barron, Human Resources Director;
Reather Hollowell, Human Resources; Mike Reid, Columbus Water Works
ABSENT: Harvey Milner, Trustee
GUESTS: Vince Brown, Spears, Grisanti & Brown and Frank Sposato, Lazard
International
Mayor Jim Wetherington called the meeting to order. Ms. Julia Rasch, Recording
Secretary, recorded the attendance.
The Mayor opened the meeting by introducing the newest member to the pension
board, Ms. Omagene Holland. Ms. Holland was a long-time employee of the City
Government and has been appointed to represent the Retiree Community of the
City Government.
MINUTES OF THE PREVIOUS MEETING:
The minutes from the January 7, 2007 meeting was presented for Approval. A
motion was made and seconded to accept the minutes as submitted. The vote was
unanimous.
INVESTMENT UPDATE:
Interim Report (Mr. Richard Swift)
Mr. Swift began with the summary as of December 31, 2006 that 2006 was a good
year for the pension plan. The fixed income managers beat the index; they were
up 4.45% vs. 4.07%. The large growth managers, two of them that did extremely
well and one continues to have a tough time, which is Santa Barbara. The total
growth was still up, 10.02% vs. 9.08%, a very good year beating the index. The
large value, Deutsche and Spears Grisanti, had a fantastic year. They were
both up, Deutsche at 16.18% and Spears Grisanti up 19.40%, but shy of the
index, the index being the Russell 1000 was up 22.21%. In my memo to the
trustees, it was reported that 98% of the active managers in that space missed
that benchmark and a lot of that was the mid-caps and small-caps driving that
index way up. In large core, Madison Equity had a very good year, up 17.18%
vs. 15.80%. Knott Capital, after managing money for the fund for close to two
years continues to struggle. The sub-committee has met with them and unless
performance really improves, is considering terminating them. Lazard
International had a fantastic year, up 26.04%, right in line with the
benchmark. The total fund was up 10.38%, nearly 10.5% for the year. Beating
the 50/50 benchmark and right in line with the 55/45 benchmark, which is good.
An absolute performance, didn?t beat every benchmark, every manager doesn?t
look perfect, but those that don?t, the sub-committee are working with him or
her.
Mr. Swift stated to the Mayor that he had a couple more items to distribute to
the board members. One is the interim report which is a monthly report
presented at each board meeting that shows how the fund has performed vs. the
index since the last meeting. The other item, which has been included for the
board?s review, is a description from Santa Barbara on what has caused them to
miss the benchmark for the last year. Mr. Swift stated that this is not an
accepted excuse but wanted the board to be able to review Santa Barbara?s
comments on why they have been under performing so badly.
Going back to the interim report, which covers the period 12/29/06 to
02/05/07. The first chart is the S&P 500, a slight move in the S&P 500 from
1418 to 1446. The next chart is the bond market and yield on the treasury
bonds showing a slight increase of 4.71% to 4.80% indicating a weaker bond
market. In terms of the manager report, the fixed managers, Synovus, Tattersal
and Madison went from $76,592 to $76,651, basically unchanged, up 0.08%. The
growth managers, Santa Barbara, Rittenhouse, and Trusco, $35,050 to $35,860, up
2.31%, that compares to a little lower than the Russell Growth. Deutsche Asset
and Spears (value managers) went from $43,697 to $44,500, up 1.84%, slightly
behind the Russell Value. The core managers, Knott and Madison; Knott showed a
little bit of improvement, up 1.58%, Madison was up 0.64%. The combined core
was up 1.09%, about 100 basis points behind the S&P 500. Lazard International
actually had a tough period, down ?2.32% about $400,000 for the period vs. the
ACWI index at 1.53% that being a little bit of an anomaly, but looking at the
total City account, the city was up from $201 million dollars to $203 million
which is about 80 basis points for the period.
PRESENTATION(S): Grisanti & Brown Partners LLC
Mr. Richard Swift introduced Mr. Vince Brown from Grisanti & Brown Partners LLC
formerly known as Spears, Grisanti & Brown.
Grisanti Brown & Partners is a small, value oriented investment firm with four
partners and about 2.6 billion dollars their management at the present time.
Mr. Brown stated that the larger firms have big sales forces but they feel that
the value they can provide in terms of customer service as well as portfolio
management is reflected both in the small size of the team as well as the
number of stocks that they own. They have a different philosophy than other
managers as well, as a relatively concentrated portfolio. There process for
selecting stocks is very rigorous in terms of how an idea gets from the idea
stage to become a holding in the portfolio. They feel that over time if they
do a good job of picking those stocks, those stocks will appreciate more
rapidly than the overall market by outperforming the S&P 500 and other averages.
Using a chart, he pointed out that since inception the portfolio has compounded
at about 36% they?ve beaten the S&P and the Russell during that time period.
In 2006 they had a tough year, lagging a little behind the Russell but did, in
fact, end up having decent performance.
Next, he addressed the structure of the portfolio. Last year when he was here
he talked about the performance of the basic material stocks, energy in
particular, those stocks were very good to them and about the middle of 2005
they shifted gears and began moving the money out of what was kind of the hot
sector into what was the more out of favor sector. One of the areas they
looked at was out of favor stocks because they felt that the larger
capitalization names, particularly the financials were an area where there had
been neglected names and they purchased AIG, CITIGROUP, and they?ve continued
to hold Fannie Mae which has been frustrating. They found that by being early
sometimes, they?re often rewarded later on and that happened last year in
particular in the financials, it was almost the tale of two markets in 2006.
They lagged a little bit in the first half of the year as they shifted money
out of energy and commodities but they benefited quite sharply from having been
a little early in the fourth quarter where they had very strong performance.
One of the observations that they feel is true today and even truer today than
it was several years ago is that most money managers have gotten very focused
on short-term results, in other words, how is the company doing this month or
this quarter. They feel they have the luxury of looking out a year or two and
that often times that is where value is found if management is willing to be
patient. They try to look out farther than the next quarter and recognize that
they?re owning shares of a business, often times businesses go through
difficult periods. If the management is good and if the business strategy is
right, ultimately the stock market will come around and reward them for being
patient.
The next chart was a summary of the holdings by sector. One of conscious moves
they?ve made to rebalance the portfolio in 2006 is to move away from the hot
spots of energy and commodities into what they think will be the next hot spot,
which are financial services.
Mr. Richard Swift stated that they had some energy stocks that were doing
quite well and then they shifted to some of the large cap stocks that helped
late in the year. He asked Mr. Brown where are they at this time and what are
they looking to change within the portfolio?
He responded that one of the struggles they have right now is that they have
some stocks that have done very well relative to their expectation but have
reached their target and are probably sources for cash. They are finding more
value in the larger capitalization as opposed to the smaller and mid-cap
names. He thinks that?s probably consistent with where they are, it?s been a
very good market over the last couple of years for those stocks and looking at
the numbers of, like Citigroup for example, or JP Morgan, the stocks haven?t
done very well, yet the companies have done well, they?ve grown their earnings
and they?ve repurchased shares. Now some people say well, dividends aren?t
that important, they kind of think of them as a measure of financial confidence
and real part of a return. If you start with 4 or 5 percent, that?s a pretty
good starting point and with capital appreciation on top of that, and
particularly in the large cap financial sector, stocks such as Citigroup, JP
Morgan, Bank America is where they?re looking right now. They are also looking
at some of the technology names that were out of favor and will probably add
those to the portfolio.
With no questions or comments Mr. Brown thanked the board for their confidence
and left the meeting.
PRESENTATION(S): Lazard International Asset Management
Mr. Frank Sposato, Sr. Vice President was introduce to the board and began his
presentation with the following outline:
Lazard?s Investment Philosophy
Lazard believes that bottom-up, value-driven investing leads to uniform
portfolios that outperform in the long term
Philosophy
--Focus on those companies that are financially productive and
inexpensively valued
--Add value through stock selection and portfolio management
Objectives
--Outperform relevant benchmark over a full market cycle
--Participate in rising markets; preserve capital in falling markets
--Outperform our investment competitors
--Generate consistent results
Year To Date Overview (2006)
Strong Absolute Returns
--MSCI EAFE Index +26.3% vs. S&P 500 Index +15.8
High Risk Appetite ?Bull Market? continues
--MSCI Emerging Market Index: +32.2%
--MSCI European Small Cap Index: +42.7%
Sector and Capitalization Leadership Changing
Relative Performance: Lagged in Europe in very strong up-market
Year To Date Overview (2006)
This section presents the total fund performance against the MSCI
ACWI, MSCI EAFE, and the MSCI Emerging Markets for the 2006-year, the 2006
fourth quarter and the annualization for the last five years and since
inception.
Outlines the portfolio composition as of December 31, 2006 and the statement of
changes for 2006.
Risks: Catalysts for a Change in Environment
Global Economy Cooling
--Forecasts for global GDP growth have been revised downward for 2007
--U.S. housing market at risk
--China/India
Global M&A (Merges & Acquisitions) at all-time highs
--YTD announced global deal value up 33% YoY to roughly $2.9 trillion
--Sign of excess liquidity, extended valuations and low risk premia
Global Contraction of Cheap Credit
--Little room for further compression
Geopolitical Risks
--Issues spreading beyond Iraq and general terrorism fears
Holdings By Sector
Holdings By Country
Following a brief general question and answer session, Mr. Sposato was thanks
for a very informative presentation.
A copy of the evaluation reports and the other information presented to the
board is retained in the Finance Director?s Office by the Board Secretary and
is available for review upon request.
OLD BUSINESS:
a. Statement of Investment Policy Amendment (Richard Swift)
The amended investment policy had been sent to the City Attorney, Mr. Clifton
Fay, for his approval and Mr. Richard Swift, at this time, presented the final
copy to the board for approval and requested that each board member to please
affix their signatures.
NEW BUSINESS:
Current List Of Money Managers and Their Contact Information
The current list of money managers was distributed to each board member along
with a list of all the trustees with their current information.
With no further business for discussion, the meeting was adjourned.
The next regular meeting is scheduled for March 7, 2007 at 2:00 p.m. in the
Mayor?s Conference Room. The guest speaker(s) will be from Buck Consultants.
_______Julia A. Rasch ____
Julia A. Rasch
Recording Secretary
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