Longview Firefighters' Relief and Retirement Fund - Regular Meeting

all right good morning everybody we'll go ah and call to order the uh February meeting of the Long View firefighters relief and retirement fund uh members present uh John newad Maria Mills VI Vicky boio Angela Cohen uh myself James Parker I believe Colby is on video so he won't be voting today we have a Corum but he is uh paying attention if nothing else uh only member absent is L lekins uh goe and open up public comment will Charles you guys ready yes sir good morning everyone good morning hey will this will be a investment report for the Long View fireman's pension fund all data in the report will be as of December 31st unless noted pardon me start off with the market commentary which is essentially the year in review after gaining 26% in 2023 the S&P 500 Index ended 24 up 25% keeping the index firmly in bull market territory the S&P 500 registered 57 closing highs in 2024 the fifth most for a given year since 1953 in the six years prior with more than 50 record Clos closes S&P 500's median performance the following year was a decline of 3.5% with gains only twice as of the end of the year the total return on the S&P was 25% for the trailing year 9% per year for the last three years that of course includes 2022 when the S&P was off 18.55% and then 14.5 years per year for the last five years and that includes not only 2022 but also the pandemic in

the beginning of 2020 small caps uh rallied 11 a half% in 24 after having really rallied just in the second half of the Year unfavorable expected policy changes in Washington increased onshoring and lower interest rates and we've can see we've seen a continuation of that theme both small and large caps are up uh between four and 5% just in this very short period of time uh in 2025 after finishing 23 up 55% the bond index finished 24 up just 1.25% and of course that follows 2022 when the bond index was off 133% marking the worst year for bonds ever November inflation data came in at 2.7 and there and bonds are about flat for the year up maybe 1% November inflation data came in at 2.7% up from the inflation read at 2.4 and now we see the new inflation number is pushing uh 3% and we've got a core number of 3.3 where if you take out food and energy it actually goes up because food is actually declining as energy has you've seen the price of oil dip down to about 71 bucks a barrel I think today uh the FED lowered short-term interest rates from 525 to 4.25% in 24 and the yield on the 10-year treasury Rose spooking the bond market now most of the anxiety surrounding 10e yields and indeed the bond market was centered around our fiscal irresponsibility as a country and what we've seen particularly with the debt and deficit spending and what we've seen as of late is the 10-year drifting drifting drifting lower as more austerity measures and efficiency measures are taken at the federal level so I think the more we get our financial house in order obviously the better the bond market will react because the

likelihood of recurring inflation is a bit will be lower um supply side economics and producing more deregulation these are the things that are going to drive inflation lower not so much we just saw what the fed's impact is they lower interest rates 100 basis points and they go up so the question is Market rates are what are real that's what people are experiencing uh that's what our real estate investment manager who will be speaking at the end of my presentation is agonizing over is that 10-year yield because so many loans are pegged to it uh all right and real GDP grew by 3.1% in the third quarter GDP then drifted lower to 2.3% so our Q4 GDP so just as I said last quarter we've got we we've got a setup for some potential volatility I'm actually surprised the market hasn't been more volatile I'm pleased but it has been uh it hasn't been quite as volatile as one might have expected with a 4% unemployment rate Rising inflation fiscal irresponsibility and the like current unemployment rate Rose slightly from 4.1% to 4.2% in November and backed down to 4.1 unemployment is currently at 4 4% about 6.8 million members of the workforce that are unemployed clients fully invested Diversified and rebalanced diligently indeed this portfolio was completely rebalanced to a zero tolerance in the middle of December last year it is our way of recycling gains and um uh driving performance by and also managing risk most importantly we're managing risk every time we rebalance the portfolio it limits the exposure to things that have outpaced other Investments and that manages the risk thus preparing the

portfolio for whatever is to come whether it's good or not so good so a little recap the S&P was up just 2.4% for the quarter up 25% for the trailing year bond index was down 3% for the quarter up 1.25% for the trailing year International stocks were down 8% for the quarter and up five 4.35% for the trailing year and also um emerging and uh International stock International stocks are up almost 9% in the first 6 and A2 weeks of the year and Emerging Markets are up about 4 and a half 5% so they're having a great year um and then oil closed the quarter at 71 bucks a barrel which is where it is at the moment we have a balance sheet on page one this is as of December 31st the total total was 100 million $388,900 568 28 we had $62 million in equities 32.3 million in bonds 3.8 million in alternative funds and $1.6 million in cash the next page is a graphic representation of the prior page highly Diversified portfolio page three is sort of a macro view by asset class we have 44% of the portfolio invested in domestic Equity just 9% in international Equity 5% real estate 5% Emerging Markets 32% uh fixed income 4% alts and just 1% cash the next page is the unit value schedule beginning at the beginning at

the beginning of 2011 on page four on to page 5 2015 16 17 18 I believe our firm was ret ained by the pension fund at the end of 2017 I believe um 2019 2020 and you can see 2020 is where you see the pandemic quarter down 13.89% eeking out an 11.5% for the year with relatively low inflation at that point 1.2% the following year the pension was up 11% yet inflation was at 6.9% thus the actuary really only can work with the 4% left over the real rate of return which as I point out every time the pension fund has a Target rate of return of 75% an inflation Assumption of 3% so the real rate of return Target net of fees net of flows and net of inflation is 4.5% Page seven 2023 you can see that inflation was subsiding a bit 13.79% top line 3.34 on the CPI 10% for 23 and then for 24 the portfolio was up 10.37% net of all fees and flows CPI was just under 3% for the year and the real return for the year 2024 was 7.29% so from 2011 to 2024 there have been $17.2 million worth of inflows starting at a market value of $43 million and the current market value is $12 million um well nearly $13 million so over that 14-year annualized growth rate

is over those 14 years the annualized growth rate is just under 5% net of fees and flows the actual inflation experienced by the pension fund was 2.61% so actually even with the inflation of 20 and 21 and 22 we really didn't um it really didn't budge that long-term average too much and the unit value for the real rate of growth over 14 years is 2.24% as I mentioned that Target is 4.5% when we ran this report at the end of 21 these numbers were 5.67% for the growth 2.17 for inflation and three and a half for the real rate of return so you can see how 22 really knocked our running lights out um because of the exacerbation of the inflation on the uh negative rate of return of course when we were hired in 2017 these numbers were 2.57 1.72 in inflation and that final number was below one so even though we're not on top of our preferred Target we've made a lot of progress over the last uh six years budging a year budging a number that's got 14 years and it takes a little doing um so executive summary on page eight you see the Long View firefighters total plan and a balanced peer group The Five-Year return of 5.83% lands the pension fund in the top third just about the top third the three-year 2.3% again just about in the top third and that 10.37% lands the pension fund firmly in the top third of the database so for the past five years things have been you know they were everything was reallocated five or six years ago and we've been monitoring the managers and rebalancing and we've seen a great deal of improvement in the portfolio particularly and you can see amongst its

rankings among other similarly allocated portfolios so looking at the individual managers Lumis sales growth fund a large growth uh 9th 1st and 24th and as always I really tend to focus more of our attention on that three-year number um the one year tends to Jump Around quite a bit particularly with active investment managers so Luma sales number one out of 629 large gra large growth managers Vanguard Equity income top cortile they had some trouble back in 24 uh actually 22 and 23 that they've worked through in 24 clearbridge 42nd Fidelity low price 36 Hood River third um MFS 83rd they are our One Fund on the watch list but you can see they've already sort of come they they coupled this 83 with a 46 so they're above average already for the trailing one year but they are currently on the watch list MFS International Equity Fund 36 Fidelity Emerging Markets 14th Goldman Sachs was added last quarter 32nd Black Rock high yield Bond top cortile and the senior loan this was met West floating rate fund that converted to an ETF at a much lower cost um in 2024 and so that's it's now called the TC W senior loan ETF yet it is still the exact same investment it was prior to page nine the large cap and now you see instead of alpha in rank you see return in rank so the Vanguard large cap top third midcap top third in the growth midcap core 66 but again you see that top core tile a lot of the a lot of the trouble that the uh interest or the index funds had really happened in 2022 because you had Absol absolute full Market beta full Market exposure in those funds and index funds are the greatest place in the world to have

money it as long as the Market's going straight up when it falls precipitously they take it on the chin because there's no one there with their hand on the tiller able to trade their way out of the trouble they gotten themselves into so you kind of ride that ride with the indices uh but 66 to 27th Vanguard you see that with the with the with the mid and the small 72nd to 40th uh the us uh Reit which replaced Newen 17th Guggenheim 46 PG 34th JP Morgan Global opportunities fund 9th Millennium first first and third and then Blackstone Breads and these are the Investments that really don't have proper peer groups I mean you could you could put them in a peer group but it wouldn't have any analytic heft um Blackstone breads returns cohesive Capital Pimco Bravo fund and then the CC student housing uh that's uh campus Clarion student housing Charles do you have any comments on the Alternatives performance yes um I would look at cohesive capital I believe we got a a distribution in January for a little over 400,000 be sure to speak in the microphone yes so in January we got a distribution from Co um from campus Clarion for a little over 400,000 so that um $600,000 value is going to change but we have not received an updated statement so that's why it looks uh the way it does that's why we have the asteris there for the preliminary uh value so whenever we get that updated we'll let everyone know with that size of distribution the market value is bound to change yes your honor not a problem um we're even uh page 10 of the report is the return the net Return of the portfolio versus its custom Benchmark of course that custom Benchmark changed quite a bit when we were hired six some seven years ago um however I think it's it's a fair comp it's a fairer comparison um probably at

the seven-year cut uh seven-year cut so the total fund that is a net return net of all your fees and the custom Benchmark is gross it has no fees associated with it so going back the seven years 6.26 versus a 549 583 versus a 569 2.3 versus a 211 a 1037 versus a 914 so for the past seven years even net of the fees or gross of the fees the portfolio has out has outperformed its custom Benchmark year in and year out which is um just part of the exercise I mean if if you have a group of investment managers and by and large those investment managers are beating their respective benchmarks and the custom Benchmark is constructed of those indices it makes perfect sense that the that they should at least be within the fees that aren't being charged to those indices and then the ranking on page 11 we saw a little bit of the ranking in the executive summary but um this is just um a little bit broader it goes back 10 years where we have the data so 10 years 57th below average uh seven years top core tile five years nearly top third three nearly top third and the first top third so from a from a broad standpoint the pension fund's doing very very well we're not recommending any changes amongst the current manager lineup that you have the only real um change that we're going to uh request would be the addition of another Diversified hedge fund because Millennium is no longer available to us and we would like to round out that allocation when we were first hired the hedge funds were more than 10% of the total portfolio so actually when we were hired back in 2017 the portfolio was over hedged so for example the portfolio

didn't benefit like it should have in 2016 which was a huge year after the election and 2017 which was another huge year and we weren't able to pry loose of those illiquid Investments and over the years um over these past seven years we did pry loose of balazy which was the other hedge fund that we had but also the traditional portion of the portfolio has simply just outpaced those hedge funds so the allocation to to Millennium has shrunk as a percentage of the whole and we'd like to Shore that up a little bit and I'll I'll get into that just momentarily here are your expenses for the um for the pension fund this includes all of your investment manager expenses $528,000 total uh Moody custody charges 25,000 26,000 $2,674 and then the Alternatives charges Investment Management charges point out that the Kyle project of rastagar has no management fee the only compensation to rasar in that Arrangement is the carried interest that is split between um the pension fund as a limited partner and rasar as a general partner and then our Consulting fees and you can see how those break out as well so for a grand total $751,000 47 to run a $100 million pension and that expressed as basis points is 75 75 basis points and I believe that when we first began it was closer to 88 basis points also um always of Interest I should have mentioned this during the

unit value schedule but the pension obligation Bond money that was deposited into the account Midway through 22 and was invested over a course of 3 months in $16 million tranches 16 million in change uh dollar tranches that money net of all fees is up 26% from the point of investment and if you annualize that if you simply take 26 and divide it by the time it's up 99.75% each and every year since that money was deposited so I think that's well in excess of The Debt Service load on those uh Municipal Bond issues are there any questions on the report uh thus far if not if you would please go to tab two and actually I tell you what if you would do me a if You' go to the update and you'll see on the update uh Millennium at I believe right around uh 2 and a 12% what we'd like to do is get that number up to closer to five the hedge funds you're now a $100 million pension fund what we're trying to do is T we don't want to we do not want to Tamp down the the potential appreciation by over hedging as I described from 2016 2017 but at the same time we do want to have some insurance for what is known as tail risk so the types of events that happened in 2022 the types of events that happened in 2020 2015 2011 2008 I mean you can just go back through time every six or seven years it seems like a bomb goes off in domestic equities and what we're trying to do is simply get a little insulation in there because when the bomb goes off in domestic equities it's Millennium and funds like magnitude that go up and so

that's what we're trying I mean your fixed income and and sometimes in in times of great shock the fixed income the bonds and the stock will move together so what we're trying to do is have something we're not you know we've never been crazy about alts but because the Millennium has shrunk to the point it has and we can't get any more of it the utility of having only 2 and a half% it's it's not there and we'd like to liquidate one uh two and a half% of the fixed income the bonds from Guggenheim and pgim they each have currently about 95% of the portfolio we'd like to drop them back to 8 and 1 12% take that 2% invest it into this new hedge fund uh which only has a 1% management fee and decent liquidity um um in order to to get that oh also what I was going to mention is that as and I I want to do this sooner than later but as keep in mind that as cohesive Capital as breads as as the others roll off those four little um alts that you've got as those roll off the cohesive Capital Pemco Bravo and CNC student housing that's another 1% that we can move back into bonds does that make sense yes so it's a little bit of rearranging the furniture but not not nothing too drastic um if you'll go to tab two Charles the magnitude Capital introductory uh magnitude Capital if you're if you're familiar with the hedge fund world and I wouldn't go assuming that everyone is it's pretty boring um de has been a very well-known hedge fund for a very long time and has done amazing work they are one of the Premier hedge funds and have been for for decades there was a lift out years ago meaning a group of De Shaw guys and gals were lifted out and started their own

fund called magnitude I believe back in 2007 and they've done extraordinarily well since then um in fact if you we we read all the investment rags and what pensions are doing across the country some of the largest Pension funds in the country have been hiring magnitude over the last year um they are be they are more than willing to take smaller amounts um is you know it doesn't have to be a a bunch of money but at the same time they've proven themselves to be very flexible and provide the types of returns that I've described just off setting when everything goes to heck and that's really what we need them for um and and and of course I'm not going to read every but you know achieving your objective and their magnitude capital investment approach flexibility uh the flag they were launched 21 years ago it's run by six Partners most of those fellas and gals came out of De Shaw uh they've got8 billion doll under assets U 85% of the AUM in The Firm comes from institutions 68% North America 30% International inside the fund uh you look at the this this page four is interesting the quantity of returns so that's net returns over its lifetime that hfri is the hedge fund Research Institute fund of funds average so you can see how they've done against that average 6.9% annually versus 3.9 10-year trailing 6.6 versus 37 the volatility is lower 4.1 versus 5 the 10-year trailing volatility is significantly lower and that's what we're looking for we're looking for lower volatility a little better return and good positive Alpha production then you've got the um investment team information on page five

and six page seven more um more information about The Firm page one of the next uh of their um quarterly report Charles okay uh quarterly report has all of their returns for um going back to Inception so there's nothing opaque about this about this firm they put it all right right out there and um you know for example you look at the beginning of 2020 when your portfolio was down 15% or 13 and a half 14% uh this investment was down uh 4% so that would have helped you know it's it's that it's that situation that's the utility of H of owning these of these folks um and then also in uh 2022 they also had a pardon me up 7.4% in 2022 when the stock market was off 18.55% that is precisely the kind of uh what we're looking for out of them and then there's some additional commentary that's get gets kind of technical um page three goes through their allocation I think this is kind of interesting so these are the underlying strategies the fund of funds that they are managing they're a manager of managers and when you look at this allocation versus Millennium they're actually quite complimentary which is kind of a little bonus that I did not foresee happening but Millennium is more concentrated they're not nearly as Diversified as magnitude Millennium will capture more of that upside I mean they will beat magnitude on the upside but for us us the utility of owning these hedge funds is not to make more money it's to lose less money because the vast majority of the portfolio is not a hedge fund we're we're literally hedging our

domestic Equity risk just as they were intended to do um and then it goes through bottom contributors top contributors interesting momentum has been a huge part of the market for the last 2 years um it also goes through some Shock periods of on page four of what they did versus the fund of funds and then the outperformance so on a normal period their outperformance from 02 to 07 10% the shock period 1.8 recovery 11.2 another normal period between 09 and 19 their outperformance is 35% and then the current period 20 to 24 up 29 outperformance is 29% um liquidity profile on page six this is as important as anything in any given quarter you can get 35% of your Capital 24 49 three year 3/4 59 and one year 73% that's pretty rare in the hedge fund and Alternatives world that's pretty flexible alrighty and I don't want to just Bo to tears let me jump to our report of course I have all sorts of bias where's Millennium in this I'm sorry where's Millennium in this uh I didn't bring all the millennium's uh firm IM information oh so you didn't okay no sir all I have on Millennium is their returns inside the port in in a regular report format yes sir okay so we don't have so we didn't get the okay thank you yes sir and then on page one of our report I'm sorry uh I'm it's not page one Charles it's the return

page well go on Charles go back to that first page I can I can Vamp on my feet um so this is the manager performance versus the barlay hedge fund fund fund of funds in index and you can see the return at 6.92% over that period the standard deviation 4.16 under five and the excess return next page please this is simply the trailing year Returns the black bar is the fund of funds index and the blue bar is magnitude next page these are calendar years so instead of being geometric these are arithmetic next page uh you can also see where it sort of lands uh right smack dab in the middle of uh between so if you were to regress it like a like you would maybe an equity manager you see that it's got a lot of midcap exposure in it but that is simply returns based analysis next slide not returns based analysis is is for what we were just looking at is not a fantastic way to look that's not the greatest lens to look uh through when looking at a hedge fund um this is October 22 through 24 the return standard deviation sharp ratio excess return tracking error so that's the volatility of the excess return and that positive 5% alpha upside downside you can see 215 numbers of periods up versus fund of funds index 170 down 52 versus nearly 100 next page and then the alpha production it's enormous beta correlation yeah you can keep going standard deviation see it's below downside deviation is clearly below and then the sharp ratio is clearly above it really it's it really is a a Goldilocks sort of uh scenario with this particular

hedge fund next page next page next page next page and the returns yes sir thank you these are the trailing Returns versus the index next page and then the ranking so they are top desile across the board and that fund of fund index is about where you'd expect an index right in the middle of the peer group over a 10year period are there any questions at this point the next exercise is to actually take magnitude and model it into the portfolio to see how it would react how the portfolio would react to the inclusion of magnitude so if you would please turn to the asset allocation tab in your report this is an annual exercise where we take the where we take the current asset allocation and test it over a trailing an entire um Market cycle so this go around we were going all the way back to the very rough year of 2015 had 2018 20120 and 2022 baked into these numbers uh they are net of investment management fees however they are not net of administrative fees or your Consulting fees or or the like Target is right at about 8% um you can see the retirement fund as it sits now is and again these this is modeling you know this is a statistical exercise to get a handle on what we think the the highest probability of the return and risk characteristics of the portfolio this is not the gospel but it is our attempt to understand what the likelihood is of the portfolio growing and at what rate of risk and

particularly given an inflation rate and given a distribution rate what does that really look like in the long term so the return expectation is a little over 8% standard deviation right at about 11% which means that that normal range of outcomes in any given year would be say 19 or 20 to the upside and maybe neg -3 ne4 to the downside so what that means is that any calendar I know we live and die by calendar year returns but any calendar year that produces a return of say 20 to the upside which would be fantastic nearly three times your goal or -4 to the downside which is twice your goal negative um those are all normal anywhere in between is considered because we can't get the 8% unless we're willing to accept the neg -4 and um so that's sort of the tail of the tape so the the current plan 8.29 with 11% sharp ratio of 4 if we simply take 2% off of a little over 2% off of each one of the bond funds reallocated to magnitude you see it's not a great big Earth shattering change but the return is a little bit higher and the risk is a little bit lower which is precisely what we want out of any new investment I mean otherwise it's not worth the not worth the trouble you can see the weights on page three and Guggenheim you see 10 spot 06 to 883 10 spot 06 to 883 and then magnitude goes you see milenium 253 and magnitude goes from 0er to 247 to round out the hedge fund to 5% I promise I'm getting close to being done um so here is uh I think this is even

more telling than the initial page of this so you go this is how time negates risk and really Smooths uh volatile Returns on page five so there's your best case scenario over a 1 three 5 10 year 20 year period so the the the best case scenario for the pension fund would be that this fund grows at nearly 15% per year for the next 10 years the worst possible scenario would be for this pension fund to only grow at 3 and a half% per year for the next 10 years the most likely scenario is the expected 8% 79 78 so it's somewhere in that 7 and 1 half to 8% with a little bit of insulation in there which is I mean that's by Design and then the range of returns for with magnitude they're just a little bit higher oh oh I'm sorry I misspoke the worst case scenario for the fund I'm sorry for the 10year period would be a 1% annualized growth rate and the expected risk you can see the risk rate dropping but yes the worst case scenario for any you know one year is down 12% down 133% which is about where we found ourselves in 2022 that's why I like using historical data versus trying to project the future because I have no idea what the future brings but I can tell you that there have been some rough spots in this data set uh when I first started doing this um we would go back to 2001 during the tech bubble because we wanted the asset allocation to fall on its face right out of the gate and then as years went by we used 2008 as we wanted that to be the first thing the portfolio did so we'd under promise and hopefully overd

deliver so page six is an a range of returns include including magnitude and it's just a bit higher and the risk is a little a little lower so the Monte Carlos simulation on page seven you see 30 years we're simulating for with 10,000 simulations there's your initial wealth value of 100 million we have an inflation rate of an imputed inflation rate of 3% which is your what Your actuary prescribes and the fixed amount in outflows is about $2.5 million a year right now that's not what it's always been but ever since the city front loaded their contributions in 2022 that's where we find find ourselves so I was trying to paint the worst picture I could and say okay you've got 3 you know as the portfolio grows inflation's going to ding it by 3% and the outflows are going to ding it by $2.5 million a year these are estimates but we wanted to you know you want to put a herd on it and see how it performs so page eight is without magnitude and so the dark green is the worst case scenario this is just the same range of returns so you could be you're at 100 Milli makes the math pretty easy you're at $100 million right now the worst case scenario is that in 13 years or 12 years you'd still be at $100 million the best case scenario is that in 12 years you'd be at uh $370 or so million dollar but the most likely outcome is not the dark blue but sort of that middle blue not the baby blue but the the medium blue I need to come up with a n a name for that color and that and and what we're looking for here is can the portfolio continue to grow in spite of inflation and in spite of the outflows and the answer is yes and so we run this exercise every

single year to not only test the constituents of the portfolio like what is their risk and return what do their return and risk characteristics still look like and do we need to make any adjustments to still achieve the 8% well no the answer is no not to the macro mix but to shore up the hedge funds in case of a rainy day which seemed to come about every six years we would indeed like we would indeed make that recommendation but as far as manager changes we're not making any are there any I feel feel like I've gone through a lot today uh are there any questions I'm happy to discuss any portion of this presentation as long as the percentage fits within our investment policy yes sir I I do have some questions sure um so we're leaving we're leaving Millennium unchanged and we're adding mag magnitude uh both will be about the 2 and a half% 2.6% mark which Le us about 5% total of the portfolio um and we're taking 1.23% from the Total Bonds of Guggenheim and Blackstone which uh carry PG PG PG andhe PG sorry yes sir which is a weighted total of 10% each on that a little about 10 six yes sir yeah so 20% total of the portfolio and you're reducing about 5% so we're at 15% correct on that um and I talk to you on a sidebar about it but um my concern again is the timing of the bonds so yields fall bond prices rise we're coming off of a worst performing Bond deal and so it's like we're taking it from we're buying we're selling selling low and moving into something else so that's that's my concern and what's your thoughts on that well uh for us this is more about in Insurance than anything else and I agree with you completely I would have we would have

thought that the bond market would have rolled over or improved or found its footing however you like to put it sometime last year but it just never did because the Spectre of inflation is still looming and that has not changed so we feel like the inflation could be very persistent moving forward particularly given some of the policies that are being sort of batted about and we just don't see bonds producing um yet otherwise we would have already changed some of the um well for example we would have reconstituted your fixed income composite by eliminating some of the floating rate which initially we thought well maybe the floating rate will be the place we'll go for the hedge funds but the the the the floating rate it's still yielding 9% and there's still still just a slight chance that interest rates could continue to go up and so we're just we don't want to get we don't want to try to predict the future when it comes to bonds but we know we want to we're not sure of what the future of bonds holds but we're certain that the volatility and Equity markets needs in $100 million pension fund needs just a little bit of tamping down not much but just a little bit okay so you answer the question my next question be why not go after the floating rates that's precisely why I I would have preferred to do it but you haven't seen you haven't we're nowhere near our terminal rate and the pro likelihood of the FED continuing to lower rates this year is getting smaller and smaller and smaller well the issue I mean as long as the government keeps adding I think it's like $200 billion do worth of debt and then of bonds and then you have the FED rolling off about20 billion in bonds per month so it's really more about them unlevering their balance sheet you're going to continue to have a supply side like you talked about the concern so what happens with let's say it does change though what is your what do you see as the plan for the floating rates exactly to move that too that's a great

question we would take the floating rate and most likely redirect it to a private credit or potentially a high yield bond fund okay and those are actually actually that's something go ahead John no that's no it's just something that you triggered I'm I mention I meant to mention this earlier but we would also like the permission of the board because we want to kind of get ahead of this fixed income Market a little bit uh we'd like the board to entertain a presentation by a private credit manager um in order to potentially entertain that as a as a as an option when we do get a little closer to the terminal rate and we feel like the bond market has really found its footing I think that'd be good we' be increasing our alt exposure with that as well in addition to this addition we're already making to too exactly um on the um also on the just on the 10e treasury like we've double topped and so it looks like it's F like it's holding in that end we don't know where it's going to go but it seems like it's been double topped on the 10year treasury dingers crossed I'm not much of a technician okay me neither but that's um so we have that and then the other side of it you mentioned what was the actuary rate on the investment return they were seven and a half seven and a half and that's not before inflation right correct that's that before inflation net of inflation it's four and a half yes sir four and a half net of inflation correct there's a 3% inflation assumption okay and then looking at the performance of 24 versus 23 M um we underperformed in 24 compared to our performance in 23 based on even the S&P having similar returns for those two years what would you credit that to Pardon Me let me get back to my unit value that's fine

schedule so we did a nominal return of 13.79% and 24 I um H well I do know that the the stock market was higher in 2023 about two points higher but that wouldn't account for 3 and a half% Delta I wouldn't want to speak out of turn but I'm happy to get you a a full explan of that all right but that could easily be chocked up to some manager underperformance I know that there hasn't been a great there hasn't been asset allocation changes in those last two years of any significance so I would imagine that it's partially it's going to be the fixed income because the equity's performed similarly in both those situations but 35% of the portfolio is fixed income and alts and the cohesive capital and the Breads and so those clearly contributed to that underperformance in that relative underperformance in 2024 because the equities had a similar experience in 23 as they or 24 as they did in 23 I believe we sold out of a high growth Tech type fund too maybe if I remember correctly um on on that because we had a terrible underperformance in 2022 with that fund due to the tech selloff I don't I think Luma sales our large cap growth fund's been there for some time I believe small growth oh small growth small that's the one you're thinking of yes Hood River was was hired to replace um the small growth manager and that was a source of underperformance on that yes sir yeah if we just look at that um on their overall though it's it's gr just curious because they were similar in performance uh on the S&P for that and then um the other thing too on your report for the total plan and on uh for your that shows the date market value contribution

withdrawal nominal return that that page yes sir page so is there a reason why we use a 14-year that's all the data that was available to us when we were hired okay so uh could we do it where we show like Lifetime and then one year five year 10 year is that reasonable lifetime would be a a lot of work well lifetime would be I'm talking about when I say lifetime I'm talking about 14 based on the the data that we have oh the Inception date correct the Inception date you went on the trailing page that would be a better I guess okay um because everything and also if we could put on the report somewhere there's a Mark that y'all could show where you end up um taking over the portfolio sure and indicating because every time we do this meeting we do an adjustment for that to explain it which I think is important to know for the public but we could just have that on the report at time so we don't of you make a not of that yeah I believe our first quarter was first quarter 2018 yes sir just we'll put an asri by our first quarter yeah put something there to indicate and we can put the trailing 3 and one so you'll have them on page n at the top of the executive summary and you'll also have them at the bottom of the unit value schedule okay awesome and then you'll have them on the regular trailing Returns on page 10 just to add Inception correct well yeah in since Inception just if we're going to do because I mean 14 years is a hard way to look at it in a sense but if it makes sense if it's coming from an Inception date and then looking at it in those other increments that we're using that normal fund provides the information on it yeah we use the 14 year because whenever we first started that's all the data that we could get that was reliable we could probably get more data but we had to reconcile everything no that's fine I mean there's there's plenty of history there uh for us to base off so appreciate it thank you thank you John question Mr chairman that would conclude my presentation for the day the

only thing left would be a short presentation from investment manager Ari rastagar who is on a zoom call or Zoom uh conference video conference and he will give us an update on the Kyle project that I had mentioned during the fee analysis thank you Ari morning me hello everybody hi Ari morning well will I I I took notes during your uh during your presentation myself literally so uh can everybody hear me okay yeah um so a few things um one with respect to the project I think uh I want to knock on the wood that this um that this computer is resting on because Kyle has just been in absolute anomaly um with respect to other markets look you know looking at real estate at a you know from from a bird's eye view there's been just a lot of pain in the market um overall I mean rates have been a tremendous problem as we know um just you know kind of a base case understanding um or a rudimentary understanding of real estate speaks to you know as rates begin to rise um cap rates begin to rise and values um begin to drop as a general rule I think the 10year has been a very very interesting exercise um because the rat's gone down the 10e has been um has been difficult to say the to say the absolute least um on the Kyle Loan in particular for the first phase 1A which is about 338 lots that we've done we've been working through all the horizontal construction work to activate um the elementary school which I can um very joyfully report to everybody will open in fall in the fall of 2025 um which seems almost incomprehensible being you know just a couple years ago we were at the at the

groundbreaking ceremony had hundreds of friends and family and uh clients from all over the country there um but the school is opening um we continue to construct grismill Road um which is the main thoroughfare between the two lots that we um that we aggregated and in fact um we expect for the first trunch of lot sales which is the first part of our business plan um to effectuate and close at the beginning of Q2 um we put 338 um Lots under um under contract with two uh National builders um and those will close then which would pay off the um you know the large interim financing loan with Tres Capital which is about $32 million plus or minus um the loan was um was actually set against Prime which is um as you all know is um closely run with how the the federal fund rate works um and has a um has a floating rate loan which has actually worked to our benefit during this time uh the cost of capital um is a a little bit higher than than than I um initially underwrote a couple years ago when we were looking this looking at this through through a spreadsheet uh but the market continues to um to to increase in demand um and price across the board so much so that we are in final negotiations with Dr Horton um to buy another 500 Acres um in Kyle which um I believe um with the construction of the um the remaining the Lots um the the Apartments Etc would make us the by far the largest owner um within the city which has been very advantageous um for for our clients um which is great so really the this site um catalyzed for lack of a better word um the the the growth across um across the region so

Austin um as a whole um on average has has struggled um the the supply around Apartments um has been um you know has been a challenge um the the bigger stuff around you know the industrial the master plan communities um data center um prospective data center sites have done incredibly well um so Kyle has really been a a breath of fresh air and we continue to um to optimize that portfolio and find ways to really keep some of this product a little bit longer term so once we do um we do sell enough lots to begin um to pay off this initial loan we plan by the end of um by the end of Q3 going into Q4 of this year um we believe we can start to um look for potential liquidity events uh for our investors within this within this product clearly some of the uh built for rent housing and some of the apartment construction and commercial construction uh will be a little bit longer um by Design but we're going to have a very serious dialogue about whether or not we want to continue to sell um more lots to drisk and return a little bit of our initial Capital um do we do we still feel the the risk profile is as such that we can um be you know a little bit more longer term and get some um some recurring cash fls from the BTR and for the apartment construction on the site um the net net is it's been it's just been great and um which has been nice considering the pain that we've seen in um other parts of the market and uh we're going to continue to invest in Kyle continue to uh make our presence known in Kyle and do something really really special so um we're um we're we're pleasantly surprised with some of the some of the other more Global kind of Doom and Gloom news that you see across real estate in general um we're we're kind of done waiting for rates to come down uh quite frankly I I think you know sitting and waiting for the rates

to come down restructuring some previous loans um is just a game that you you can't control as much and I think you know we've been we've spent a little too much time obsessing over it and I want to shift our kind of energy itic asset allocation um to what we feel like we do best which is creating Alpha um through entitlements and not focusing so much on the beta aspects of our business and that's where we found the most success um and where we found the success in our big project in Dallas which is coming online um construction starting over the next four to five months um construction starting on a on a large multif family um project uh that's Frontage Road on South Congress so this is a very profound year for ragar as a firm for our clients um all our consultants and staff that we really continue to um go vertical on land that we've held for many many years gone through the entitlement process gone through the permitting process um created the value um through you know more of the operational prowess such as the entitlements Etc and um it's it's continued to do what we've done we've built the machine um we have phenomenal groups that we're working with down there in Kyle and it's to continue to rinse and repeat and continue to refine our process around um around lot sales around the horizontal development move into more in the vertical uh vertical development side over the next two quarters and um continue to reap the benefits um not only of the city's growth but um of the work that we're doing every day with boots on the ground all right uh just quick question um I know that we've obviously this is a long running project for a you know yeah a lot of moving Parts uh do we have any kind of time frame on a re-evaluation uh for our records sure it's a great question so the the what we what we do as a firm what we've done for

the past decade is these types of project we keep um we keep it par and in and again the the Auditors you know come and look at this stuff and um I can set up a time for y'all to speak with our thirdparty admin to get U more of an assessment for your records but us internally um if we start valuing these properties what happens is you could create a a taxable event through these particular vehicles without having the cash to cover the taxes um and with some other uh family offices along with um along with you know your pension and others that don't have the same tax treatment um it could be quite negative assessment to really look at what the values um are are going to be so I can speak with our Auditors speak with our admin and see if we could come up with with some sort of soft assessment uh or get a broker's value opinion um or something that could help with your records but getting an actual assessment done that would give the the quote market value today for the entire fund for um for tax purposes is not something that we're going to do in the foreseeable future we understand that sir it's just you that soft assessment for us would would be appre so yeah yeah let me let me think about um let me think about how to do that um and I'll work with Will and work with Charles and work with our admin uh to put something together what I am very confident um to tell you is that we have uh this one's this one's going really good so I'm I'm pretty proud of that for all of us that's what I was goingon to ask you Ari is that we're not going to hold you to this I'm not gonna pin you down but what does your gut tell you you've done this for a long time I have I have and look I I think that the the the only reason I give a little bit of a of of pause and all of you all know me I don't have a problem talking unfortunately good better and different um the only thing that gives me so we I look at our

performa before this call and I looked at what our projected returns are and the multiples on Equity U that we're projecting I think we're very much in line with performa in terms of value Creation The One X Factor as we all know is that our borrowing cost um was substantially higher than um than we initially underrot so I think we're about 375 basis points higher um than we had initially thought where the rates were were when we really um carved in these numbers we were more you know closer to the zero rate interest rate environment so you know with that said I think we're absolutely trending towards performa we're absolutely trending towards a multiple une Equity um and and if uh a couple things go go well our way I think we could actually beat the proforma which would be um trending towards um above a 20 net irr um with respect to the trajectory that we're on at the moment thank you thank you sir Mr ragar thank you for your time one one second Ari we've got another question for you I'm sorry AR uh so last time you spoke you were talking about there's going to be a u return of capital in first first quarter second quarter of this I think it was this year right and uh not no it was last year um and what was the delay for that what's the reason for that sure yeah sure so so basically the there's no there's no delay per se the the the lot the negotiation for the lot sales which is the phase 1A and phase 1A um uh 1A comp composes about 338 initial Lots so what we had thought initially was that we would sell what's called paper Lots which were lots that weren't weren't fully fully built out to pass along to the builders um which is a a smaller a smaller dollar amount um and less infrastructure cost for for the

firm itself so in looking at the upward trajectory of the market um we we saw that um to capture better risk adjusted returns we would go in and build more of the horizontal infrastructure more of the uh below grade construction so in procuring the loan with Tres Capital which is a Canadian um you know Private Bank out of Canada um we we went and did more of the work and increase the increase the timeline I'll be at the cost but when you look at the the spread on Alpha longer term to be able to utilize that Capital um for more to invest more into the project to recycle into the further development the longer term um net return um appears to be significantly outsized um so is a better use of capital to use some of the financing mechanisms to go towards what we call Finish Lots versus paper lots and um miss out so to speak on a shorter term um liquidity return of capital but we would have been missing out on a much larger game thank you that answered the question on that so the um and you're talking about also I mean it's a to me it's a return of capital just different way right you're just investing it reinvesting in the business the other part of it when you look at doing the liquidity event and end of Q3 Q4 uh with the return of capital I mean is this going to you have different options you can reinvest you can debt pay off you can um uh do a distribution are are we going to maintain the same amount of ownership that we have from what you see or will our ownership stake you be reduced in that event how would that work that's an excellent excellent question and with a with a lot of this size would be a very um poignant answer um if this was one uh property uh so to speak with respect to if this was uh 1899 mcken it's a single lot um let's say you you bu bu a building of condos we're building apartments but you build condos you sell a few um there's a

profit margin there's a return of capital and that part of the asset is sold gone liquidated well in this particular project you have over 1,000 single family lots that can be either sold as paper Lots on one one phase can be sold as finished Lots could be kept longer term for additional Equity to build build for rat houses um some of the homes could be built for sale in partnership with a with the Builder in addition to the commercial site that will be built um to cash flow in addition to the 1400 Apartments um that can be built in cash flow longer term I say all that to you is the the the this project has so much inherent diversity in it and so many different levers that can be pulled from a liquidity and from a cash flow standpoint to where if we sold Lots um at these first 338 lots and they are completely sold and we didn't have the debt instrument well that would be return of capital with a certain amount of property and that's kind of gone um so to speak but the but the capital that we could um that we could generate from building the apartments getting a stepped up value from zoning um and returning you know some of the initial Equity there are parts of within that structure that we would keep um our ownership percentage intact with respect to that phase but depending on how the liquidity event um is stru Ed and what we are selling and where the cash flows are being generated um from we'll determine whether or not we're actually selling our interest and liquidating a percentage point or we are reinvesting or getting um revenues that have been created through construction so I know it's a little bit of a convoluted answer um but there's still some things in the in the future that we're trying to figure out um with respect to actually liquidating selling and drisking or do we still believe um that there is a very very strong risk adjusted returns that

would that would enable us to continue Recycling and in that event the the the principal percentage ownership is not changed um in fact the percent the percentage and the value of the P of the fund um value amount is actually increasing incrementally and so what I'm going to do is um with respect to the previous question I'm going to work with our admins and work with our Auditors to see if we can come up with a um with a current valuation for you um with a um with either a broker's value opinion um a series of um a series of third-party opinions um because I said from an audit standpoint um I don't want to create a a taxable event without having the capital so let let me work through those things um I'll get them to you and as the um as the market dictates um the the path for the highest level of risk adjusted returns with respect to this liquidation um I can come back here in a few months and we can talk through with that um what that looks like but when you have this type of Versatility in a project of this scope and magnitude and quite frankly us as a firm continuing to buy another 500 Acres within very close proximity um and another 100 acres on a previous on another development site would put our total Holdings to close to a th000 Acres uh within this Market which is a testament to our belief um in the long-term um value creation and the downside protection um with respect to where the pricing dislocations are in Austin so I know that's a that's a little bit longer answer than you bargain for um but I will um but this is something that I is Contin continuing to iterate our goal right now is to close on this first 338 lots that are under contract with earnest money up to pay off this first um this first phase 1A um construction loan and once we make that payment um pay that off together we'll reassess the entire project and build

some more forward-looking models with which parts we want to keep to rent which parts we want to keep for sale um if we want to sell some of the multif family lots and once we um create that updated model um based upon the the success to this point um I'm happy to to sit with the board and walk through what that strategy is and kind of reassess what we think the timeline is not only for uh return of capital which is the the most important thing for me um as we're talking is in a perfect world if we get to a point where we can sell enough Lots um that are finished or paper and return a vast majority of our initial capital investment but still retain a large percentage um in the overall project um I believe that that particular model if we can pull it off is the most advantageous because it allows us to really capitalize on the uptick of Kyle um one thing I've a very very strong level of conviction about is 10 years from now when we look at this um this micro economy that has consistently been in the top one and two fastest growing markets in the United States of America um really since 2010 it's been on the top 10 list um we want to keep this stuff as long as we can because it's going to be one of those things where we look back and say Shucks we you know we should have kept more build for red houses we could have kept apartments and been a little Penny smart pound foolish and not really capitalized um on the true value of an eLiquid investment because um I think something that you know that we look at and we you know speak about with our with the advisers we work with in the various pension plans or family offices or institutions is what is the net benefit I'm getting as a pension or as an investor from um an E-liquid asset so if you're trading liquidity for returns which effectively is what you're saying

in a vacuum and is well if I can't you know liquidate this thing right now now we should be able to make outsize returns whatever that number is you know 500 bases above the S&P 500 basis points above the S&P 500 as an example is one of our one of our institutional clients they look at for if there's not at least that much of a of a spread you know they don't want to take the El liquidity risk so that's the part that I'm kind of weighing right now is you know where can we truly capitalize on the El liquidity of this asset and really create long-term value um and not be Penny smart pound foolish thank you and that yeah it would be interesting whenever we get to that point to know what were that return of capital with what percentage of that is our initial investment and how much does it reduce our ownership compared to capital gains because like you know we're not a taxable entity so I know we have a little different of uh stack on how we want the returns to be so well we we'll work we'll work with your with your advisory team and um as we get closer to that these are um based on some of the other loan restructurings and things that I deal with in my day job um these are very high quality problems and I'm happy to report that thank you Ari sir will was there anybody else yet no sir that would conclude our presentation thank you everybody thank thank you all righty uh I guess we'll go on to move to uh items for Action uh review and motion regarding recommended trades or fourth quarter pension performance presentation move to approve second uh John moveed to approve Maria uh seconded all in favor any discussion oh I apologize thank you any discussion look everything was pretty solid as long we're staying within our our range and trying to protect

ourselves in every every path I'm good with it thank you very much wait now you vote Yes ma'am anybody move to you move to approve you move to Second all in favor all in favor I I motion passes all right uh item action b um review and motion regarding reconciliation for the month of January 25th uh 2025 sorry January 2025 for Moody checking account Moody dispersement and mmsb Omnibus I move to approve and the big check to Nationwide PM from it's a drop from previous month approval okay retiring second any discussion all in favor I I I review and regarding internal financial statements for January [Applause] 2025 I move to approve second any discussion all in favor of approving I hi uh review and motion regarding minutes for January

2025 motion to approve second any discussion all in favor of approving minutes I hi uh action item e review review and motion regarding refunded contributions to Carla Reigns due to separation uh for those who don't know she was one of our newer folks had some issues with some testing sounds like she was a solid employee and I think we'd be happy to have her back um but it wasn't anything of a negative action so I move to approve second any discussion uh all in favor of approving uh all right uh items of discussion uh upcoming retirements I think we have two in the next couple months uh March we've been told March I don't know has been pass along to you um a captain and a chare yes yes maam that's all I know of I don't knowbody else but uh discussion of children's benefits um this was something we talked about last month and requested I believe Pam sent a certified letter trying to get information uh so we're not going to say her name obviously since the recorded line but she has been verified um that's good and that's the form in front I believe so yes ma' verification then I move to approve her benefits second I guess we're not voting we're just discussing okay that was just letting you all know that Pam did follow up she did send uh that's good news certified notification stuff finally got the verification enrollment I guess she said that uh it's been a consistent issue from that school getting that

verification so uh so do we on item or items for discussion see the re-election of Citizen board member for two-year term I think we vote on it next time vote next time so if y'all want to bring somebody up here we can do it out are you still interested you're still interested still it uh sounds good um D upcoming conferences the Tex Spurs annual conference March 30th through April 2nd uh that looks like it's down in Austin and then the textur summer Forum August 3rd through 5th in El Paso and then the telra annual conference in abene October 5th through 8th um I know I won't be attending the first one but I'll be going to El Paso I won't go on the first one either I'm not going all right Vicky you going I'm going okay Angel's uh next regular scheduled board meeting is March 18th at 8:30 uh I will not be at that one I don't know if anybody else has any issues we can res schedu that one March 18th I probably won't be either I will not be here it's my wife's birthday uh we'll check with Colby and Logan see if we need to reschedule we're I can be okay I I know I for sure won't be so if we won't have a quum we'll see if we can reschedule with those folks if there's an issue with anybody all right uh anything else from anybody would like to pass along or discuss great job Jr yes good job or if yall okay with it um we'll go and discuss adjourning motion to adjourn second all in favor hi hi little Charles thank you very much coming out thank you