MINUTES OF THE
BOARD OF TRUSTEES MEETING OF THE
COLUMBUS GEORGIA EMPLOYEES' PENSION PLAN
January 9, 2008
A meeting of the Board of Trustees for the Columbus Georgia Employees? Pension
Plan was held January 9, 2008 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; Carol
Strozier-Weaver, Trustee; Col. R. George Plummer, Trustee; Major Lemuel Miller,
Trustee; Joe Smith, Vice-Chairman; Richard Swift and Henry Swift, (Smith
Barney); Tom Barron, Human Resources Director; Denise Baxter, Revenue Division
(Investment Officer)
ABSENT: Alan Rothschild, Trustee and Reather Hollowell, Trustee
GUESTS: Peter V. Miklos, Balaam T. Elliott, Richard O. Applebach with
Evergreen Investments and Karl R.S. Engelmann with Cambiar Investors
Mayor Jim Wetherington called the meeting to order. Ms. Julia Rasch, Recording
Secretary, recorded the attendance.
MINUTES OF THE PREVIOUS MEETING:
The minutes from the November 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 interim report for the fourth quarter. The Ten Year
Treasury Bonds chart showed that the yield dropped from 4.57% to 4.09% which
indicates a better bond market, and that, in the current environment, helped
the pension plan a lot. The next chart, the S&P 500 showed a drop in the stock
market from 1526.75 down to 1478.79. As represented in these figures, the
market has been very volatile. Some managers have performed quite well and
others are down drastically.
First are the Fixed Income Managers, Synovus, Tattersal and Madison. The value
in the bond portfolio went from $85,018 million to $87,839 million, up 3.32%.
Tattersal is here today and they will report what has been happening within the
bond market. This is a good return from our fixed income managers vs. the
Index.
The Growth Managers, Santa Barbara, Rittenhouse, and Trusco are the next
group. Also included in this area is the new account which is the Russell 1000
Growth account, which, is the exchange-traded fund, representing that index
investment. The combined growth went from $37,206 million to $36,560 million,
down -1.74% vs. the benchmark of down -1.08%. The Russell 1000 Growth Account
was down 25 basis points, while the Russell 1000 Growth Index was down -1.08%.
The difference being, that cash was held in this account throughout the
quarter. There is still about 25% of that account still in cash and this cash
position helped the fund quite a bit for the quarter.
The next space is the Value Space, TCW, Cambiar, Spears and the Russell 1000
Value account. The Value asset class went from $35,035 million to $33,419
million, down -4.61%, a very, very tough quarter for the value managers.
However, they held their heads up relative to their benchmark quite well, the
benchmark was down -6.46%.
The Core Managers, Knott, Madison and the S&P 500 account, $34,027 million to
$34,163 million, up 40 basis points vs. the S&P 500 which was down -3.14%.
This was a good out-performance from the core managers.
Last is our international manager, Lazard International and the EAFE Account.
The combined value was $21,654 million and it went to $22,538 million, up 5.20%
vs. the EAFE being down -4.36%, therefore a good return by Lazard. Lazard, in
the past, has had a few quarters where they had been under-performing so this
is a really good report from them.
Your small-cap fund is a new account. Two million dollars was put into that
account when it was initially started. It was very close to 9/30/07, the first
investment was 10/02/07 so it was a few days after this but the account was
funded at that time. It is now at $1,954,000 down -2.30% vs. the Russell 2000
index which was down -4.35%.
The mid-cap is the other new account. Two million dollars was put into that
account when it was initially started. It is now at $1,966,000 down -1.70% vs.
the Russell Mid-Cap index which was down -3.59%.
The managers have held up very well in spite of a volatile quarter. In
summary, the combined fixed went from $85,018 million to $87,838 million, up
3.32% and the combined equity was down -1.00% from $131,922 million to $130,600
million. The total city account went from $216,940 million to $218,438
million, up 69 basis points vs. the 60%/40% benchmark which was down -1.14%.
The fund finished the quarter at $218,438 million.
It has been an extremely volatile marketplace. Although there were some
managers who were disappointing in their performance, all-in-all the
performance was good vs. the marketplace and again this represents why bonds
are so important, the bond performance is what saved the fund during this last
quarter.
Mr. Swift passed copies of memos that had been sent to Rittenhouse, Santa
Barbara, and Madison Core Equity. The first one, Rittenhouse, stated that
Smith Barney?s Consulting Group had put Rittenhouse on watch due to the
departure of John Waterman. John Waterman had been a key figure in
Rittenhouse?s platform but his role has changed over the last few years from
portfolio manager to a more supervisory role as Chief Investment Officer.
Rittenhouse?s performance has improved over the last 12 months yet the group
will keep a close watch on Rittenhouse due to this management change.
The next memo was to Santa Barbara notifying them that they have formally been
put on watch until December 31, 2007. The memo stated that should the gap in
their performance narrow in the 4th quarter, the board would discuss their
options at that time, but if the gap widened then the board would have to take
the position to consider termination.
Madison?s memo basically stated the same as Santa Barbara?s, placing them on
watch until December 31, 2007. Madison, however, did narrow the gap; they beat
the benchmark for the quarter and therefore have bought themselves another
quarter.
Smith Barney?s recommendation is that Santa Barbara be terminated and that a
search be launched for a new manager.
Following a short discussion on how to handle the termination and disbursement
of the stocks, Mr. Harris made the motion to terminate Santa Barbara, liquidate
the stocks and move the funds into the Russell 1000 Growth Account (ETF) until
such time that a new manager is found.
At this time there was some discussion between several of the board members
about the loss that would or could occur by liquidating the stocks. It agreed
that following the presentations by Evergreen and Cambiar that Mr. Swift would
come back and have those figures and the discussion could continue at that time.
Ms. Hodge did ask Mr. Swift that when this action was taken in the past, was
the stock typically liquidated when a new manager was hired or did they just
take over the portfolio.
Mr. Swift stated that what has typically been done in the past is that a search
would be launched, bring the recommendations back to the sub-committee and give
them the choice to select one of the new managers or to keep the current
manager and give them another chance to improve their performance. Once a
decision was made, the funds would be either moved to the new manager or stay
with the current manager.
Mr. Smith commended that he didn?t have a problem seconding the motion but
would rather wait until after the presentations and the board has the figures
they have requested.
Mr. Swift stated at this time that there are two managers to make their
presentations. The first manager was Evergreen, Tattersal Fixed Income. Peter
V. Miklos, the outgoing relationship manager; Balaam T. Elliott, the new
relationship manager; and Richard O. Applebach, the portfolio manager. The
second manager was Karl R. L. Engelmann with Cambiar.
PRESENTATION(S): Evergreen, Tattersal Fixed Income
Capital Markets Overview
Economic Review/Outlook
Growth
Consumer Fundamentals
Capital Outlays
Inflation
Monetary and Fiscal Policy
Capital Markets Performance Summary
Fixed Income Review
Treasury Market Performance
Fixed Income Sector Performance
Performance By Credit Rating
Investment Objectives
Investment Policy
Fixed Income Guidelines
Allowable Assets
Prohibited Assets (not limited to)
Portfolio Review
Fixed Income Portfolio
Portfolio Reconciliation
Investment Performance
Fixed Income Analysis
Portfolio Review
Sector Allocation
Duration Distribution
Strategy and Outlook
Portfolio Characteristics
Quality Distribution
Fixed Income Market Outlook
PRESENTATION(S): Cambiar Investors
The Cambiar Advantage
34-year record of consistent out performance of the market
Performance-driven
Fundamental Research
Opportunistic Philosophy
Consistent Out performance
The Cambiar Investment Team
Tenured Investment Team
Fundamental, Bottom-up Research
Focused, Dedicated Professionals
Contra-sector Approach Provides Target-rich Environment
The Cambiar Investment Process
Quality Companies
Attractive Valuation
Catalysts
High Upside
Portfolio of 35-40 Stocks
Sell Discipline/Risk Control
A good sell discipline takes the emotion out of selling
Disciplined about selling positions as they hit their price target or when the
initial investment premise is no longer valid
Demonstrated Active Management ? 12/31/07
Cambiar?s benchmark-agnostic investment approach
They recognize that to outperform the benchmark, it is sometimes necessary to
look different than the index
Holdings decisions are driven by fundamental conviction, not the composition of
the index
Stock Example ? Archer Daniels Midland (ADM)
Overview
Compelling Value
Perception Gap/Catalysts
Portfolio Positioning
Sell Example ? Washington Mutual (WM)
Overview
Investment Thesis/Perception Gap at Entry
Fundamental Change to Original Purchase
Market Cycles
Rolling 2-year performance (Annualized as of 12/31)
Rolling 5-year performance (Annualized as of 12/31)
Portfolio Profile ? December 31, 2007
Characteristics
Top Ten Holdings
Sector Weightings
Investment Performance ? December 31, 2007
City of Columbus Holding ? December 31, 2007
Performance ? 05/31/07 to 12/31/07
Contributing Sectors to Cambiar?s Performance
Detracting Sectors to Cambiar?s Performance
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.
Following the presentations, Mr. Henry Swift reported to the board the numbers
they had requested. Santa Barbara was hired on May 31, 2005. Since that date
through September 30, 2007, according to the last audited numbers, they are up
8.35% vs. the index being up 12.33%. The problem comes when the last twelve
months are evaluated. For the last twelve months they are up 11.7% vs. the
index being up 19.4%. At the current moment, they have $260,496.00 in gains.
From the point of hire and through January 8, 2008, they had had $789,000.00 in
gains, so there have been no losses, there?s been losses but they have been
netted out by gains, so the manager has not lost us money, they just have not
made as much as the index that they are in has lost.
Mr. Richard stated at this time that he understood Mr. Harris? motion to be
that Santa Barbara is fired and the funds be moved into the index fund, in
Growth space until at which time a new manager is found and the funds placed
with them.
Since the motion was made by Mr. Harris and seconded by Mr. Smith, the vote was
taken and it was unanimous that Santa Barbara is fired and the funds be moved
into the index fund in the growth space.
Mr. Henry Swift asked the Mayor to appoint a 3 or 4 man subcommittee who will
be charged with finding a new manager.
OLD BUSINESS:
None
NEW BUSINESS:
None
With no further business for discussion, the meeting was adjourned.
The next regular meeting is scheduled for February 6, 2008 at 2:00 p.m. in the
Mayor?s Conference Room. The guest speaker(s) will be from Lazard
International and TCW.
_______Julia A. Rasch ____
Julia A. Rasch
Recording Secretary
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