Loading...
HomeMy WebLinkAboutMinutes 01-23-2008 ST. LUCIE COUNTY INVESTMENT COMMITTEE SPECIAL MEETING _________________________________________________________________ Date: January 23, 2008 Convened: 8:05 a.m. Tape: 1 Adjourned: 9:45 a.m. _________________________________________________________________ Present: Howard Conklin, Chairman; T.J. Buckley, Mike Dillman, Todd Bevan, Chris Fogal, Edwin M. Fry, Jr., Clerk of Circuit Court; Shai Francis, Finance Director; Lauri Heistermann, Deputy Clerk ________________________________________________________________ Tape 1 I MINUTES The meeting was opened by Howard Conklin, Chairman. The minutes from the July 18, 2007 meeting were reviewed. It was moved by Chris Fogal and seconded by Todd Bevan to approve the minutes from the July 18, 2007 meeting; and upon roll call motion carried unanimously. The minutes from the October 24, 2007 meeting were reviewed. It was moved by Todd Bevan and seconded by Howard Conklin to approve the minutes from The October 24, 2007 meeting with the correction th to page 3, item 4, 4 paragraph; and upon roll call motion carried unanimously. II. PRESENTATION OF QUARTERLY INVESTMENT REPORT The Finance Director presented the quarterly investment report for St. Lucie County for December 31, 2007. The Finance Director reviewed the investment schedule, the US Treasury Portfolio, Money Market Investments, Certificate of Deposits and the Schedule of SBA Investment Activity. The Finance Director stated that all investment activity was in compliance with the bid process as outlined in the Investment Policy. All of the investment categories and portfolio composition percentages are in accordance with the Investment Policy. 1 The Finance Director advised the Investment Committee that the County was utilizing Bear Stern and Suntrust in place of the State Board of Administration. The Clerk of Circuit Court informed the Investment Committee that Bear Stern and Suntrust were acting as the agents. He stated that the money market funds are with independent corporations. He stated that the investments are all triple A rated. He informed the Investment Committee that the composition of the firm’s investments was looked at. Todd Bevan stated that the 4.99% yield for the Reserve Primary Fund looked a little high. The Clerk of Circuit Court stated that this was the rate at the end of December. The Finance Director stated that before the Fed rate cut it was 4.69%. Todd Bevan questioned the State Board of Administration Fund B. Howard Conklin asked what was happening with the Freeze at the State Board of Administration. The Finance Director reviewed the Schedule of the State Board of Administration activity. The Clerk of Circuit Court stated that when the State put the freeze of the State Board of Administration into effect, one of the recommendations that Black Rock made, which is the firm that the State hired, was that they take the investments that were questionable and place them into Fund B and the investments that were not questionable were placed into Fund A. The restrictions that were put into place was when the State Board of Administration opened the pool up for withdrawal, the County was only allowed to withdraw up to 15% or $2,000,000 from Fund A. He informed the Investment Committee that Fund B is locked. He stated that at this point it is hard to determine what the recovery will be from Fund B. He informed the Investment Committee that $20,000,000 is locked up. At the beginning of December there was $142,000,000 in the State Board of Administration. The State Board of Administration transferred $20,485,000 into Fund B. He advised the Investment Committee that the State Board of Administration opened up the opportunity to withdrawal either up to 15% or $2,000,000 which ever was greater. On December 6, 2008 the County withdrew 15%, $18,290,129. 2 He stated that the State Board of Administration took all of the investment earnings for the month of November and transferred those into Fund B. He informed the Investment Committee that for the month of November there was no interest earnings distributed by the State Board of Administration. He stated that in December there was a distribution of investment earnings on Fund A in the amount of $446,240. In January $509,748 was transferred from Fund B back into Fund A. In addition there was another window opened up for liquidity in the amount of 37%. St. Lucie County withdrew $27,335,269 at that time. He stated that as of January 23, 2008 Fund A had $76,818.542 and Fund B had $19,976,514. Chris Fogal questioned the accrual status. The Clerk of Circuit Court stated that there is flow coming into Fund B. Todd Bevan asked if the County was accruing on Fund B. The Clerk of Circuit Court stated that are no investment earnings on Fund B. Chris Fogal stated that at this point in time they should be undergoing an Independent Audit. He stated that there should be a determination made on the potential reserve for Fund B losses. The Clerk of Circuit Court stated that on the State Board of Administration Statement of Account from 12/1/07 to 12/31/07, Fund B net asset Balance was $19,307,115.82 and there was an unrealized loss of $1,179,146.46. He stated that it was state employees that made the mistake and the local governments should not bear the brunt of poor decisions by State employees. Howard Conklin stated that half the pool fled prior to the freeze and there is no logic to penalize those who stayed in. The Clerk of Circuit Court informed the Committee that he was at the Clerks quarterly seminar in Orlando when the problems with the State Board of Administration transpired. He stated that the Clerk’s discussed the issue at the executive meeting. He stated that the consensus of the Clerk’s at that time was to not start a run on the bank. Howard Conklin stated that Bloomberg must have received some kind of inside tip. He stated that Bloomberg reporters hounded the State for 30 days for information. 3 He stated that in this circumstance the information regarding the problems with the State Board of Administration came from Bloomberg, when it should have been coming from the State a month or two ahead of time. The Clerk of Circuit Court stated that there was an internal audit performed on the State Board of Administration and there were a number of comments concerning the investments that were being acquired. The audit was performed back in January or February. He stated that the State Board of Administration never responded to the audit comments. Howard Conklin asked if anyone on the Investment Committee participated in the telephone conference with the State Board of Administration several years ago. Mike Dillman and Chris Fogal stated that they had. Howard Conklin stated that his impression was that they had a number of years with the State Board of Administration, but there was limited outside experience. He stated that it was clear that they relied on their outside advisors for their investments. He stated that the Board of Directors for the State Board of Administration was expansive. Chris Fogal stated that if the State Board of Administration had an internal audit it should have been brought to the audit committee of the State Board of Administration and they should have had an action plan. The Clerk of Circuit Court stated that his goal was to completely liquidate everything out of the State Board of Administration. He informed the Committee that the State Board of Administration had obtained a triple A rating on Fund A, they have outside managers that are managing the fund, and they have hired a new Executive Director. He stated that if the State is unwilling to make the County whole then he will not rely on the State again. Howard Conklin stated that Black Rock is charging a fee on Fund B of either 1.25% or 1.50% and on Fund A they are charging a lot less, but they are out for bid on a new outside management company. The Clerk of Circuit Court advised the Committee that he had written a letter to the Governor expressing his concerns. Chris Fogal asked if anyone had met with Ken Pruitt. 4 The Clerk of Circuit Court informed the Committee that there had been meetings with Ken Pruitt and he is backing the Governor. Howard Conklin stated that the Orange County Comptroller stated that the detail received from the State Board of Administration was inadequate to determine what they were investing in. Mike Dillman asked how we protect ourselves in the County going forward. The Clerk of Circuit Court stated that going into the other money market funds there is a lot more disclosure, they do have the triple A rating from the rating agencies and they are subject to the rules and regulations of the SEC. He informed the Committee that the State Board of Administration was not bound by the rules and regulations of the SEC. In terms of the money market they provide a lot more safety of the funds and there is more diversification. Chris Fogal suggested obtaining an independent advisor through an RFP process. III. OPEN ITEMS 1. FEMA REIMBURSEMENT The Clerk of Circuit Court reviewed the Damage update as of October 15, 2007, which included the cost of damages and the estimated reimbursements for all three storms. Todd Bevan stated that the purpose of this information request was to try and quantify how much the County could be at risk for a major hurricane. Chris Fogal stated that the County should consider a fund to allocate monies every year for catastrophic occurrences. 2. RFP - INVESTMENT MANAGEMENT SERVICES The Clerk of Circuit Court advised the Committee that there is a level of funds that the County does not spend in the amount of $100,000,000 to $120,000,000. He suggested that instead of taking this amount of money and investing it ourselves, turn it over to an Investment Advisor. 5 The Clerk of Circuit Court recommended that the County move forward with an Investment Manager. He suggested selecting 3 Investment Managers and turning over anywhere from $35,000,000 to $50,000,000 for them to manage for the County. Howard Conklin asked if there was an existing Financial Advisor to the County. The Clerk of Circuit Court stated that the existing Financial Advisor is for Bond issuance for debt. He stated that obtaining an individual that invests funds for a living, even considering the fee that they charge, they should be able to obtain a higher return than we would be able to internally. He stated that they would have to provide monthly reports that would be reviewed with the Investment Committee. The Clerk of Circuit Court requested the consensus of the Committee. Howard Conklin stated that it was a good idea and he suggested that the duties of the Investment Manager be expanded. In addition to investing $50,000,000 he suggested that they review the quarterly results from the County to see if they have any opinions or recommendations on shifts of funds. Chris Fogal stated that Investment Managers are backing off in the opinion part due to litigation potential against them. He stated that what they will bid on is what they have control of. Todd Bevan stated that if an Investment Manager makes a recommendation it is self serving to them. Howard Conklin stated that if there is a $50,000,000 cap that would not be an issue. The Clerk of Circuit Court stated that one thing there may be difficulties with is that if there are 3 firms selected, how would you balance out any difference of opinions between the 3 firms. Chris Fogal stated that you would have to request as much quantitative support as possible such as ratings, fund history, structure, soundness, risk etc. 6 Mike Dillman stated that this would be treated as 3 separate portfolios. Each Investment Manager would have a percentage in a money market and they could designate that money market for their portion. The Clerk of Circuit Court stated that he would like the Investment Manager to do the long term investing. Chris Fogal stated that he sees it as two separate requests. He stated that one request would be for someone to handle the $50,000,000 and the other request would be to overlook everything. Howard Conklin concurred. The Clerk of Circuit Court stated that the only part that we would be retaining would be the liquidity in the short term. The longer term investments would be through the Investment Manager. Chris Fogal stated that the Investment Manager would have knowledge of Fed funds and other issues would be key in the long term held monies. Todd Bevan asked where the Treasury portfolio fit in. The Clerk of Circuit Court stated that this would happen over time and the County would keep the Treasury portfolio and if the Committee is comfortable with moving forward as the Treasuries mature the money would go into the money market fund and the County would stop acquiring Treasuries. Chris Fogal stated that purchasing Treasuries was one of the smartest things that the County had done. The Clerk of Circuit Court stated that if someone else was managing the longer term funds they could achieve a better return over time. Chris Fogal stated that we have talked about return but at the same time we also talk safety and soundness. Todd Bevan stated that if they are going to get a higher return they are obviously taking more risk and they are being paid to take that risk and you would be relying on their expertise to manage the risk. This would be spread between 3 managers so each manager would be doing something differently. 7 The Clerk of Circuit Court stated that if over a two year time frame you find that one of the managers is not performing then you would have the option to replace them. Howard Conklin asked how the market would respond to the proposal. He asked if there was enough money involved to interest them. He stated that over time the amount could be increased that each firm would manage. If there are 3 firms involved, there would be a competitive element, but they will be bound by the Investment Policy. Todd Bevan stated that with agencies they are not as safe as you may be led to believe. The Clerk of Circuit Court stated that a professional manager would know that. Howard Conklin requested that the actual contract that the Investment Managers enter should obligate them to attend the Investment Committee meeting on a quarterly basis either in person or by phone. Todd Bevan suggested keeping the treasury ladder for awhile and go with 2 Money Managers and see how the County likes its and if it works liquidate and go out with a third Money Manager. The Clerk of Circuit Court asked if the recommendation was to continue to acquire treasuries. Todd Bevan stated that the County should not acquire new treasuries, but continue to keep the ladder going. The Clerk of Circuit Court stated that it was not his intention to liquidate the treasuries. He stated that we would keep the treasuries and not add any new treasuries. Howard Conklin asked for the consensus of the Committee. Chris Fogal stated that the term of the contract is good. It is a two year term and if they satisfactorily perform they would have 3 one year options. He stated that he did not know if the calendar of events was sufficient time. He recommended going out a week on the proposed dates. 8 The Finance Director advised the Committee that the proposals will be sent via e-mail. Howard Conklin asked how many recipients the County thought they would receive. The Finance Director stated that currently we have about seven or eight. She informed the Committee that she was going to contact a few cities and counties that utilize Investment Managers. Todd Bevan stated that he likes the concept and believes that this is the right idea and direction and recommended moving forward. It was moved by Chris Fogal and seconded by Mike Dillman to move forward with the RFP for the Investment Management Services and upon roll call motion carried unanimously. The Clerk of Circuit Court reviewed the RFP with the Investment Committee. ?? TERM OF CONTRACT – RFP – PAGE 5 The Clerk of Circuit Court stated that the RFP had a base term of two years with three options to extend the contract for one year each. He stated that he was thinking of changing this requirement to a term of two years with the option to extend the contract annually thereafter. Chris Fogal stated that he felt that verbiage needed to be added to the contact establishing the right to terminate the contract. Mike Dillman stated that the firms are going to want an economic cycle as their term. He voiced his concern with a two year term. Howard Conklin recommended a three year term. Mike Dillman concurred. He stated that if you terminate a contract at the bottom of an economic cycle then you would not be able to get them back. Howard Conklin stated that in the interest of the County it is important to obtain as many bidders as possible and he recommended a three year term. 9 Mike Dillman stated that as long as the out clause is incorporated into the contract. Chris Fogal concurred. Howard Conklin outlined examples of reasons to terminate such as if the firm is under regulatory investigation or issues of solvency. The Clerk of Circuit Court asked for the consensus of the Committee to extend the contract. Mike Dillman stated that if the RFP had a three year base term with the option to extend the contract for another three years, the County would receive more bidders. He stated that there may be no term needed as long as the out clause is incorporated. Chris Fogal stated that he would recommend that the base term remain incorporated because it requires the County to revisit the contract. Mike Dillman stated that language needed to be incorporated requesting the Investment Manager come in, annually for a review. The Clerk of Circuit Court stated that this could be incorporated into the contract. The Finance Director stated that we could have an open ended contract with the option for the firm to terminate or the County to terminate the contract with a 30 day notice. Mike Dillman concurred. He stated that he would not put a term in the RFP, but incorporate a termination clause and an annual, in person, review requirement in the contract. Chris Fogal concurred. Mike Dillman stated that on the 30 day term if the County has $50,000,000 invested you may not be able to get out of the position in a 30 day time frame. Chris Fogal recommended 60 day termination clause. 10 Mike Dillman concurred. The Clerk of Circuit Court requested verbiage for the term of contract. Mike Dillman suggested removing the term of contract. Todd Bevan recommended the following verbiage: The contract is terminable by either party with 30 or 60 days written notice. ?? CALENDAR OF EVENT – RFP PAGE 5 AND 6 The Clerk of Circuit Court stated that if the Committee is comfortable with the RFP and the changes as discussed, the RFP will be released this week. Since the RFP will be released through e- mail, any questions should be able to be turned around fairly quickly and then they will be posted. By February 8, 2008 we should have the responses in. The Clerk of Circuit Court reviewed the calendar of events as follows: Release of RFP – January 24, 2008 Last day for submission of written questions – February 1, 2008 All questions and responses will be posted on the Clerk web site – February 5, 2008 The proposal will be due by February 8, 2008 Todd Bevan stated that this was very tight. Mike Dillman suggested allowing a whole month for the firms to respond. Todd Bevan suggested giving them 4 weeks from the time the RFP is released. The Finance Director stated that the proposals would then be due February 22, 2008. 11 Mike Dillman stated that the firms will have to look at any conflict of interest. Todd Bevan referred to section 5.3.4. He recommended leaving the total assets under management requirement in place, but deleting the rest of 5.3.4. The Clerk of Circuit Court stated that 5.3.3 will be deleted since there will be no benchmark requirement. He also stated that 5.3.4, the first bullet point will remain in place and the next two will be deleted. He also stated that in 5.3.5 the reference to the index will be deleted. The Clerk of Circuit Court asked the Committee how long they would need to evaluate the responses. Chris Fogal stated that it should be the Clerk of Circuit Court and the Finance Director to rank the top three. Then the Committee could review the top three. It was the consensus of the Committee to hold a special meeting once the top three firms were ranked. The Clerk of Circuit Court advised the Committee that he would provide the proposals for the top three ranked firms to the Committee and at that point we could establish a special meeting to ratify the recommendation. He stated that by March 7, 2008 the recommendations could be provided to the Committee. It was the consensus of the Committee to hold the Special meeting on March 19, 2008 at 8:00 a.m. The Clerk of Circuit Court stated that the notification of award could be held on March 21, 2008. He suggested giving the respondents until February 29, 2008 to submit their responses. ?? BENCH MARK INDEX – RFP – PAGE 4 AND 9 The Clerk of Circuit Court referred to page 4, under the business requirement and requested input regarding a benchmark. 12 He stated that the part of the benchmark will dictate how they will manage the portfolio. He stated that they will be bound by the Investment Policy which is a maximum of 5 years on a maturity. Mike Dillman stated that the firms will probably come back with a blended index. Todd Bevan stated that the benchmark should replicate what they are doing in their portfolio. Conceivably you could have 3 different benchmarks because each of the Money Managers could be doing something different. Howard Conklin stated that he was not sure the wording was correct. It states strict compliance with the County’s policy guidelines. He stated that there could be an internal conflict that the benchmark may be broader than the Investment Policy. The Clerk of Circuit Court stated that the benchmark needs to meet the requirements outlined in the Investment Policy. Todd Bevan suggested changing the wording to say the results are compared to a benchmark. The Clerk of Circuit Court stated that they could change the wording as follows: The assets to be managed by awarded respondents of this RFP will be compared to a pre-determined benchmark. Howard Conklin suggested that the benchmark should not be their management criteria, but a measurement standard. The Clerk of Circuit Court questioned what the benchmark should be. Mike Dillman suggested letting the firms come back with their own benchmark and then the County could ask them for the components of the benchmark. The Clerk of Circuit Court voiced his concerns with the Committee. He stated that if the proposals have different benchmarks then it could make it more difficult to compare the proposals. 13 Howard Conklin asked if a benchmark was necessary since the firms would be re-evaluated after two years. The Clerk of Circuit Court stated that from that stand point, maybe a benchmark is not needed because they would be looking at the total return that each Investment Manager provides. Chris Fogal stated that they have a benchmark if they acknowledge the policy and guidelines that are established. Howard Conklin stated that by eliminating the benchmark the County would receive a broader bidding process. The Clerk of Circuit Court stated that we would delete the benchmark requirements. Anywhere within the RFP that references a benchmark would be deleted. Mike Dillman voiced his concerns regarding the Investment Policy page 5 item G, repo agreements collateralized by t-bills or notes having a maturity of two years or less. He suggested changing this to five years so that the Investment Manager could go out on a longer term. The Clerk of Circuit Court stated that his concern has always been security on the repurchase agreements and would like to leave it at 2 years. Howard Conklin recommended that if any of the firms want exceptions given to any of the policies, they must provide reasons as to why they would not be able to comply. The Clerk of Circuit Court stated that he did not want to open this window up. He stated that they are going to have to abide by the policy because it is what the Board has approved and the Investment Committee is comfortable with. He stated that the Committee has spent a lot of time and effort on the Investment Policy to determine what are suitable investments for the County. 14 Mike Dillman asked if the Investment Managers would have to sign a certification stating that they will abide by the Investment Policy of the County. The Clerk of Circuit Court stated that it would be incorporated into the contract. The Investment Committee asked for more time to review the RFP for Investment Management Services. The Committee members will send any additions or deletions to the Finance Director by Friday, January 25, 2008 for incorporation in the proposal prior to it being released. 3. ANNUAL OF INVESTMENT POLICY ?? ADDING SECTION FOR DELEGATION OF AUTHORITY – INVESTMENT MANAGER(S) – PAGE 2 AND 3 OF THE INVESTMENT POLICY The Clerk of Circuit Court informed the Committee that he had pulled out some of the phrasing that was under the investment performance and reporting and incorporated it into the delegation of authority. He stated that they had also added that the Clerk may employ Investment Managers to assist in managing some of the Boards investment portfolio. Todd Bevan voiced his concern with the delegation of Authority. He stated that when the Committee was formed one of the concerns was the legal liability. He stated that they were not a decision making body, but an oversight body. The Clerk of Circuit Court stated that they would change the following sentence to read: The responsibility for providing oversight and direction in regard to the management of the investment program resides with the Clerk of Circuit Court. This was changed from the Board’s Investment Committee as previously written. The Clerk of Circuit Court stated that the following sentence would be deleted: The Investment Committee will rely on the Clerk of the Court, Finance Director, and their staff for support. 15 The Clerk of Circuit Court stated that he would change the following sentence to read as follows: The Investment Committee shall meet quarterly to review the Clerk’s investment strategy and results. This was changed from the Board’s Investment Strategy as previously written. ?? THE MAXIMUM MATURITY ON ANY CERTIFICATES OF DEPOSIT CHANGED FROM ON YEAR TO TWO YEARS – PAGE 6 OF THE INVESTMENT POLICY The Clerk of Circuit Court reviewed section VIII, item C, number 2 with the Committee. He stated that he had changed this to read as follows: The maximum maturity on any certificate shall be no greater than two years from the time of purchase. This was changed from one year as previously written. He suggested that when the County was looking at CD’s we were looking at anything from 6 months to 18 months. He informed the Committee that one investment was purchased with a 15 month term. He stated that the County would purchase Certificates of Deposits for short term funds. He advised the Committee that the County would also continue to utilize the Florida Local Government Investment Trust. Mike Dillman questions VIII Portfolio Composition A. 1 the Local Government Surplus Trust Fund (SBA) of the Investment Policy. This allows a maximum of 80% of the portfolio may be invested in the SBA. The Clerk of Circuit Court stated that he would like to leave this in place at this time. He advised the Board that eventually there would be no funds left with the State Board of Administration and at that time it could be removed. 4. QUESTIONS SUBMITTED TO FLGIT – ANSWERS PROIVIDED BY DON RINGHEISEN The Clerk of Circuit Court reviewed the questions and responses provided by FLGIT. 5. REVIEW OF DEALER/CONTACTS (FHN/TRN FINANCIAL, VINING SPARKS, FIFTH THIRD BANK, OPPENHEIMER & CO.) 16 The Clerk of Circuit Court advised the Investment Committee that 6 months ago we had reviewed requests to be added to the Authorized Dealer/Contact list from FHN/TRN Financial, Vining Sparks, Fifth Third Bank and Oppenheimer & Co. At that point it was the direction of the Committee to not add them to the list at that point and to review their requests again in 6 months. The Clerk of Circuit Court stated that since that County is looking at contracting with a professional manager, there is no need to add any additional dealers to the list. IV. COMMITTEE COMMENTS/RECOMMENDATIONS Chris Fogal questioned Merrill Lynch being one of the Authorized Dealers/Contacts that the County utilizes based on the recent news. The Clerk of Circuit Court stated that this would be resolved if we move forward with an Investment Manager we would not be purchasing treasuries. Merrill Lynch has been the pass through for purchasing securities. Chris Fogal voiced his concern with Merrill Lynch being listed on the Authorized Dealers/Contact list. The Clerk of Circuit Court stated that they are only utilized to buy the Treasury notes, but the treasuries are held in a safe keeping through a third party trustee. V. SELECT DATE OF NEXT MEETING The next scheduled Investment Committee meeting is April 23, 2008 at 8:00 a.m. VI There being no further business the meeting was adjourned at 9:45 a.m. 17