Longview Firefighters' Relief and Retirement Fund - Regular Meeting

We'll call to order the meeting of the Long View Firemen's Relief and Retirement Fund. If we'll take note of members present. I believe Angela and Miss Boio uh are have not been able to make it at this point. Um citizens comments. No. All right. If not, we're going to move into uh a presentation of the fourth quarter performance uh from uh Robert Herrell, Inc. We have Will Herrell and Charles Smith. Good morning. Great to be with you all again. we will jump right into the economic commentary. Thank you so much for running that. I'm sure you'll do a much better job than Charles. Um, all right, we'll jump into the uh fourth quarter and it's basically the year in review. So, after gaining 26% in 2023 and 25% in 2024, the S&P 500 gained 17.9% in 2025. The only streak lasting as long or longer was the 5 years from 1995 through 1999. Tariffs in artificial intelligence drove much of the gains and volatility in 25 beginning in early April when massive tariffs were announced only to be pulled back over the course of the subsequent months. As of the end of the year, the total return of the S&P was 17.9% for the one year, 23% per year for the last three years, and 14.4% 4% per year for the last 5 years. Just 27% of large cap mutual fund managers beat the S&P 500 in 2025. And small caps were up 11.5% in 24 and continued to gain 12.8% in 2025 due to falling interest rates, which have a larger impact on small companies due to their amount of floating rate debt and

inability to issue bonds. The large cap S&P 500 has outperformed the small cap Russell 2000 for five consecutive years from 21 to 25. The only other 5-year streak of large cap outperformance was 94 to 98. And in 99, the Russell 2000 gained 19.6% versus a 19.5% gain for the S&P. After finishing 24 just up 20 1.25%, the bond index finished 25 up 7.3%. And if you would please just make a note, mental note or otherwise for that 7.3% number because I'll revisit it in a bit. Uh with a current yield of 3.9%. The December consumer price index rate was 2.7% well above the Fed's 2% target. But just recently we got a new CPI number which was down to 2.4%. So January uh January inflation was only up 210 which is a bit less than what they expected. So, uh, inflation continues on its, uh, downward trajectory. Uh, the December producer price index rate was 3%. And the 10-year yield began 2025 at 4.57% and has fallen to 4.18% uh, by the end of the year. And currently, that 10-year yield is just at 4%. So, what we're seeing is uh, continued interest in current bonds because the suspicion is that interest rates will continue to go lower. Therefore, the appetite for current bonds is higher than it would be otherwise. If folks thought that bond yields were going up in the future, hi. If bond yields were going up in the future, then they'd be selling bonds, waiting for a better bond that paid more. Also on that small cap large cap uh divergence uh just year to date for this first seven weeks of the year that large cap growth index is down a little over 5% for the year and the small cap index is up 5.7%.

So I know you've heard me like a broken record quarter after quarter saying the small caps will rally. the small caps will rally. And that's indeed what we're seeing because of these lower interest rates because 20% of small companies debt is floating rate debt. That and that's why you've seen uh a much bigger jump in smaller companies than larger companies. They can't issue bonds. They don't have the free cash flow to finance things. So, they rely very heavily on debt. You'll also see in executive summary that the small cap value funds are underperforming because of their high quality nature. So the low we're having what's called a junk rally in small caps, meaning that interest rates have gone down 1.75% since September of 24. Over that time, what you've seen is an absolute rally in the lowest quality. The companies you would never want to own that take three or four times as much risk as the broader market are at the very top of that peer group or rather were in 2025. And what follows that junk rally is historically called a quality rally, which is now what we're experiencing. So Bridgeway, for example, underperformed all of last year because of its highquality nature and is completely blowing the doors off in the first part of this year, well ahead of its index because a quality rally has followed that junk rally. Uh clients fully invested, oh, I'm sorry, pardon me. The US unemployment rate stayed steady at 4.4% 4% through December, although that we got a great jobs report the other day. They were expecting about 65,000 jobs for January. Uh indeed, we added 135,000 jobs. And if you think about the public versus private uh sectors of the economy, what this current administration has been doing on an economic basis is really what could be termed as the privatization or reprivatization of our economy. Give you an example. There are two million government employees. they produce nothing federal government employees. So

that's not a productive part of the economy. Over the last I suppose 13 months uh 317,000 of those 2 million people have either been permanently furled or outright terminated. But interestingly their experience in government actually prepared them for a quick turnaround into the private sector. So even though we've lost the 317,000 government jobs, you haven't seen a rise in unemployment, you've actually seen unemployment go down because what happened was those public workers got fired, turned right around and found a job in the private sector, which is why you now see the uh unemployment rate at 4.3% instead of 4.5 or six or seven. Um but that's a very good thing. And of course, it's had a great impact on GDP. GDP grew by 3.8% in the second. Now, keep in mind the long-term average is 3.19. So, GDP grew at 3.8% and that's also net of inflation. So, if you were to add say 2 and a.5% inflation, uh GDP actually grow grew at about 5 and a.5% in the second quarter and in the third quarter it was up 4.3%. So, you could speculate that our economy grew at perhaps a 7% annualized clip in the fourth quarter. And there's talk of the or I'm sorry, the third quarter. And there's talk of the fourth quarter being over 5%. So the economy is is certainly rocking and rolling. And I won't bore you with the Phillips curve uh spiel I gave you last quarter. So the unemployment rate was 44 and now down to 4.3. There are currently about 7 and a half million people that are members of the workforce, but actually labor participation rates are going up as well. So that number should be dropping uh the $7.5 million number or million people number. clients fully invested, diversified, and rebalanced diligently. And as a reminder, this portfolio was rebalanced in the middle of December, meaning that every single asset that you own has a target weight. And trades were

made to get everything right back to their target weights, be it a sell or a buy to ensure that we're buying low and selling high. We're recycling gains, and that we've from a riskmanagement standpoint prepared the portfolio for whatever 2026 has to offer. So, as a recap, the S&P 500 was up 2.66 for the quarter, up 17.9% for the trailing year. The bond index was up just 1.1% for the quarter and up 7.3 for the trailing year. That's that 7.3 number again that I asked you to make a note of. International stocks were up 4.9% and just blew the doors off. Up nearly 40 32% last year. And emerging markets were up 4.8% for the quarter and up over 34% last year. And oil closed the quarter at 57 bucks a barrel on the New York Merkantail Exchange down 20% from 71. And we're seeing that at the pump. The national average is now below $2 a gallon. And oil currently is up to, I believe, 63 64 bucks a barrel. And most of that is due to the tensions in Iran. It really doesn't have to do with a current um supply demand issue. All right, first page of the report will be the balance sheet. As of December 31st, the total uh market value of the pension fund was 108,875,1924. We have an update as of yesterday um $111 million uh I'm sorry 111,493,68. That is a net gain for these first seven or eight weeks of the year of a little over 3% after your fees are paid and taking into effect any uh taking into account any capital money flows in and out of the pension fund. And also I know well I'll get to that momentarily. So the next page on page two is a graphic representation of the prior page. Right

down there in the middle you can see that MFS international equity and Goldman Sachs. Those were those two and Fidelity that were up over 30% for uh 2025. So, as you can imagine, we did some selling in uh in December to get things back in line. Next page is an asset allocation by asset class, 42% domestic equity, 9% international, 5% real estate, 5% emerging markets, 31% fixed income, and 7% alts with a smidgen of cash. In fact, let me go back um to the balance sheet. So, as of yesterday, the cash in the uh pension fund was just over a million dollars. So, I think we're we're good for now. Correct, Pam? Yes, ma'am. All right. Page four begins the unit value schedule. I will not uh belabor every page, but if you'll jump to page seven. Over these past 15 years, you've added $13.5 million in net contributions minus benefits to the plan. We started at $43 million. We're now atund I guess $11 million. Last year you were up 12.3% after you paid all your fees and after all the flows were accounted for. So it was another I mean the last three years you were up 13.8% 8% in 23, 10.3% in 24, and 12.3% in 25. Don't ask me what's going to happen in 26. I knew that was coming. Um, so that long-term growth rate 5.4% 2.62% for the inflation rate for a net reel of 2.7. And that is in recovery mode after 2022, which if you'll just go back one page, you'll see that -14.76 for 2022 exacerbated by that 6 and a half for that nasty inflation number, that negative 20.54.

Really shot our running lights out. Um, prior to that, the long-term average was 3.5. And so, we're working our way out of that little hole. Page eight is the executive summary. The total pension plan is dropped into a balanced peer group. You can see uh 5.99% uh each year on average for the last five years, 12.17% per year each year for the last three and 12.36% uh last year. Looking at the in uh the equity composite 8% for the trailing 5-year 16.35 and your top decile for the three and the 5-year and then the fixed income is absolutely at the top of its game first and 15th and that includes frost which dipped into the 99th percentile. I'll get into that shortly. Um so 2.3% for the fixed income over a 5-year period. uh 6 point nearly 7% and that 7.79 if you'll recall that 7.3% number I kept asking you to make note of. So the the bond benchmark was up 7.3% last year and it has no fees taken out of it. Net of fees y'all were up 7.8%. Which it's a very short trip in bonds from the top to the bottom. So just outperforming by seven, you know, 78 versus 73 puts y'all in the top 15th percentile. So, and you'll see if you get, you know, if you produce 5.8%, you wind up in the very bottom. So, it's not a very long ride from the top to the bottom. Uh, looking at the individual managers, Lumis sales growth fund 16th, 44th, and 65th. The reason for that not underperformance but that 65th percentile ranking is primarily due to the fact that Lumis sales is a fully diversified large cap growth fund. It's not just a tech fund. So when tech ran for the last couple years and AI was the

trade, Lumis sales did not fully participate in that and neither are they fully participating in what has been an enormous tech selloff in the in the first part of this year. Uh, equity income 59th, Clearbridge 12th, Fidelity Low Price 12th, Hood River, Hood River was up over 35% last year. That's 6.45% in the 97 and the 94. That is their quantifiable stock selection skill. Uh, MFS new discovery, this is the small value I was mentioning earlier. So, the comp here, I've got a few notes. So if you take the companies in the small cap value space and you rank them from the highest return on equity to the lowest return on equity, the companies with the lowest return on equity, the bottom 20%, the dregs, the trash in the peer group outperformed high quality by 42% last year because of that drop in interest rates. Biotech was up 24 25 with no earnings mind you and no cash flows were up 25% in the last quarter of the year. So not even for the whole year. So what's happened is this enormous junk rally which makes a high quality manager like MFS or Bridgeway or some others look very very silly in the short term. But we are not recommending terminating them because if we did and did a search right now for what would amount to be the best manager, what we would wind up with is a basket of stuff that we wouldn't want to hold long term. And the quality rally that I mentioned is already uh uh shooting green shoots now in the early part of the year because we're seeing the outperformance of MFS and Bridgeway and some other small cap value managers that are high quality. So, it's really not something that's alarming to us. Uh, MFS 34th, Fidelity Emerging Markets dipped into

the 70th, but still a great 5-year record. Goldman Sachs 40th, a Black Rockck High yield 17th, and the senior loan fourth. You'll notice that the senior loan is great in its peer group, but as I've mentioned quarter after quarter, I know I sound like a broken record, that that floating rate trade was going to end at some point. and the utility of owning that floating rate investment will have exhausted itself. Today's the day it is per it is now completely exhausted itself and now it's becoming a drag on the fixed income because of its floating rate nature because interest rates are indeed drifting lower and the more economic data we get the more sure we are that they're headed in the in you know lower. Therefore, the floating rate is an investment that we'll be asking the board for approval to excuse and reallocate those funds to the total return managers and BlackRock to bump it up to 5%. But I'll get that get to that shortly. Uh Vanguard 23rd, Vanguard Midcap 27th, uh Russell uh Midcap Corps 20th, uh the small core 18th, 15th, 9th for Guggenheim. See, uh, Guggenheim and PGIM 9th, 10th, 16th, and 31st. So, that's one of the reasons why your fixed income composite is so great is because your two primary total return managers are at the top of their peer groups. And then global bonds 21st, Millennium, your hedge fund sixth, and then magnitude seventh. So, your two hedge funds are doing great as well. Uh, next page would be the net return trailing for 15 years versus the benchmark. I guess now would be as good a time as ever. If you just to uh go a couple of pages, you'll find a uh spreadsheet looks just like this. Exactly. Thank you so much. So, this would be your expense analysis as of the end of the year. Uh last year, we we run this analysis every year and then we

turn part of this information over to the PRB, the only the investment related. But currently your uh total uh investment management fees $536,291 your Moody custody charges at 26,000 or 26,825 your U alts 109,000 uh RHI consulting fees $129,438. So a total estimated annual investment management fees based on asset values at the end of the year a little over $800,000 to run the pension fund and that expressed as ba in basis points is 74 basis points. Last year that same analysis yielded 75 basis points. So headed in the right direction. If we'll back up just a couple of pages please back where we were on page 10. Uh, and I bring up the fees just because it's important to remember that the Long View Total Fund is net of fees and the Long View Custom Benchmark is gross of fees. So, just running your finger back, oh, I don't know, uh, all the way 15 years, 5.42% 42% versus 65, 723 versus 71, 85 versus 82, 599 versus 568, 1217 over 11.9, and 1236 uh over 1282. So very solid u regular reliable outperformance. And then on page 11 is just your return rank. And you can see it's just above average. Well, in the past it was a little it was a little weak 15 years ago at 83rd, but as you can see, it's been right above average for the uh for that entire period. All right. Any questions on the report before I move on? And we've covered the uh the Any questions on the expense analysis before I move on? Can I ask you to pause for just a second?

Of course. Miss Booio, would you like to come join us up here? She was being very polite and not wanting to interrupt your role there. Yes, tardy. Oh, that's perfectly fine.

All right, we'll jump right into the asset liability study. Uh, this is as of the end of the year. And basically what we're looking at here is looking over an entire economic cycle and testing the portfolio for what it might produce by way of return and risk over that economic cycle. So we take the last 10 years worth of data and use it to gauge expectations moving forward because we've been through it all in the last 10 years from COVID to 22 to 9.1% inflation, war, pestilence, famine, you name it, we've seen it. And we take the portfolio and the only difference between these two graphs is on the left we have the portfolio as it sits today and on the right is eliminating the floating rate fund and reallocating that four uh let me see yes that 4% to 1% to high yield and the other 3% to PGIM and Guggenheim. It's not a major change. You can tell by the expected rates of return and risk. It's not going to move the needle much. Uh but it will from the standpoint that floating rate will has become a drag on the portfolio. And it's hard to gauge because floating rates done so many good things for the portfolio over the last five years. We implemented in the end of 2018 when interest rates were just about to go up. They went up and then immediately came down. So we were a little early, but it was a defensive position. And for example, in 2022, when the bond market was experiencing its worst year on record, it was down 13%, the worst year ever for bonds, that floating rate position was only down about 5%, but it was also yielding almost 9% at the time. So, it did exactly what we needed it to do, but moving forward, we just don't think and floating rate is also embedded in Guggenheim and PGIM. So those are total return managers with a a wide variety of bonds inside those funds. So adding a floating rate position as we

did was just our way of being cautious and that and those days have uh have ended. The next page page three I suppose is just the weights and I would uh I would draw your attention to Guggenheim about halfway down that 8.3 becomes 9.8. So it's 1.5% higher. Same thing with PGIM, 1.5% higher. The senior loan ETF goes from 4% to zero. Um, and then the Black Rockck goes from 4% to 5%. So that is the those are all the changes we are um recommending at this time for the asset allocation. The page five is God, you're right. You're you're right. You're reading my mind. Fantastic. You just got yourself a job. um the return and standard deviation of each asset class. We call this the marginal return and risk of each of your investments. The range of returns becomes a bit more interesting on page six. So there's your expected rates of return that a little over eight. And what we're really shooting for is not the one-year number, but it's the 20-year number over here on the far right. Because your target rate of return at the moment is 7.5% with a 3% inflation assumption. So your real target rate of return is 4.5%. We have to gross that up just a little bit over 75 for a little insulation, but that's what we're shooting for is about an 8% rate of return over long periods of time. And then you see your worst case scenario. So you know in in a in any given one-year uh period your best case scenario is up about 32%. Your worst case is down 11.75 which tells you how rare 2022 was because you were down about 15%. And with inflation at 6% it became a

negative 20.55 I believe on the reel. Um but you can also see how time negates that risk. the further out you go. And then the final page or not the final page but the following page is simply uh the pension fund with the high yield changes that we're recommending. Again, it doesn't change much over long periods of time. This is more of a a um a tactical move to eliminate a defensive position that's become a drag. Then the Monte Carlos simulation on page eight. So we've got 30 years to simulate 10,000 trials, $ 108.9 million at the end of 2025. We have a 3% inflation assumption at the top right. And then the outflows. So I didn't I did not do any prospective estimating of flows moving forward. I simply took the $13 million, divided it by the 15 years, and came up with the outflows of uh $2.5 million. Actually, that's not true. What I did was I looked over the trailing few years ever since the PO ever since the bond was issued because it was frontloaded it and we average those years and it's about $2.5 million out. So, this uh simulation and also if I might pause for just a moment because I promised myself I would never forget this. The pension obligation bond was issued in 2022 and that money was invested about halfway through the year. The return on that money right now in a cumulative sense is 41.85%. And if you annualize that since 22, you're earning 10.6% per year on that pension obligation bond money. I just did not want to neglect that. Pardon me. And then page nine of 10 is simply the Monte Carlo percentiles. And what we're really looking for is the shape of this

graph. And as you can see, the bottom green part would be that lowest quartortile. The light blue is the next, the darker blue, and then the darkest blue. So that average really lies between the light blue and the medium blue right there. But even the worst case scenario is still in a positive trajectory. And then of course, because the changes weren't drastic, the next graph looks almost identical to it because the changes we're recommending just aren't that extreme. We're not adding a new manager. We're just shifting a few things around and dismissing one manager. Mr. Chairman, um I know that was a long report. It's our longest of the year and I apologize. Um but if are there any questions whatsoever? We're we're here as long as you need us. Any questions from the board? So to be clear, the recommendations would be to um terminate the floating rate bond fund and redistribute those to Guggenheim and PGIN

and BlackRock and 1% to BlackRock. Yes, sir. That's exactly it. All right. Thank you. Thank you. Yes, sir. All right. Uh next we'll move to action item A. Review and motion regarding the recommended trades from the fourth quarter present fourth quarter pension performance presentation. Make a motion to move forward with the presentations or the advisement of Robert Herald. Second.

All right, we have a motion and a second uh to move forward with the recommendations as presented in the presentation. Do we have any discussion? If not, all in favor say I. I. I. Anyone oppose? Motion carries. Next we have action item B, review and motion regarding the reconciliation for the month of January 2026 for Moody checking account, Moody dispersement and Morgan Stanley Smithy Omnibus. Was Lewis Hart from last month? Yes.

Okay. I move to approve the reconciliations. Second. I have a motion and second to approve action item B. Is there any discussion? If not, all in favor say I. I. Anyone oppose? Motion carries. Action item C, review and motion regarding the internal financial statements for January 2026.

Still no change on Rastagar approve the balance sheet. I move to approve the balance sheet financial statement. Second. All right. And we got a motion and a second uh to review uh to approve the internal financial statements for January 2026. Is there any discussion? If not, all in favor say I. I. I. I. Anybody opposed? Motion carries. review a motion regarding the minutes for January 2026 meeting.

I move to approve. Second. Have a motion and a second to approve the minutes from the January 2026 meeting. Is there any uh discussion? If not, all in favor say I. I. Anyone opposed? Motion carries. That'll move us to uh discussion items. Uh upcoming retirements. Uh the the only one I I'm aware of that is just a possibility is Captain Williamson, but I haven't heard any definitive uh month or two out at

Yeah, I think his is dependent on

All right. Uh, next discussion item. Uh, next month we will be reelecting the citizen board member for their two-year term and Miss Boio will be coming up for her two-year term uh at the next meeting. Action item C, upcoming conferences. Texer's annual conference in Galveston will be held on April 26th through the 29th. Uh there'll also be um core training available on that Saturday um to uh meet those requirements right there. The Teler peer review will be held in Austin May 7th and 8th. Uh Tex summer forum in San Antonio August 2nd through 4th and the Telra annual conference will be in Harligen this year October 4th through 6th. Uh please get with Pam and let her know if you plan on attending uh any of the events, especially the Techers or the Peer Review uh as soon as possible, please so she can make reservations. If you are coming to the Techers annual conference and you will be there Sunday night, if you could just get with Will and let him know you're going to be there if you would like to uh join us all for dinner, just uh help him get a headcount and if you have any guests coming with you. Other than that, our next regular scheduled board meeting is March 17th at 8:30 a.m.

St. Patrick's Day according to my phone. So wear your green. Colby, what's the difference between the summer forum and the annual conference for texturers? Uh the annual conference is typically a little bit longer and they do offer the Saturday classes of core and advanced trustee training that aren't offered in the summer forum. Um and uh other than that uh the location, but the format is very similar other than that. So, uh, either one will get you the C hours that you would need to to to be compliant for the year. Okay. Spring. Neither are in El Paso in August this year. San Antonio is not a whole lot different.

It's not much better. I agree with you. Okay. Spring is very challenging for me this year, but um, maybe I can make the summer one. That sounds good. All right. If not, do I have a motion to adjurnn? Motion to All right. Second. All in favor say I. I. I. Thank you everyone for your attendance. Making close. Can we uh again I apologize. Can we