Longview Firefighters' Relief and Retirement Fund - Regular Meeting

Alrighty, we'll go ahead and call the order. The May 19th Longview Firefighters Relief and Retirement

Quarterly meeting. Take note of members' presence and members' absence.

All right.

So we'll go ahead and start off with the citizen comment. Sir, anything? All right, cool. All right, we'll move on to the presentation of the first quarter pension performance from Will Harrell and Charles Smith. Good morning, gentlemen.

Good morning.

Hope everybody's doing doing well today. Yes, sir.

Let me see if I can get my slideshow started here. How's that look y'all? All right, great. Thank you. All right. Well, good morning, everyone. It's great to be with you. We'll get started with the Q1 2026 market commentary. I'm sure you'll be pleased to hear that this should be a relatively short So I won't take up too much of your time. After gaining 25% in 24 and 17.9% in 2025, the S&P finally lost 4.33% in the first quarter of 26 due to uncertainty driven by the Iran war, which began February 28th. Price of oil quickly spiked to 118 bucks a barrel and the 10-year treasury yield neared 4.5%. Of course, it's higher than that right now. The nine publicly traded companies with market values over $1 trillion dropped by an average of 11.2% in Q1. The VIX or the fear gauge, which if you're wondering how that's calculated, that's actually the anticipated volatility, that's investor anticipated volatility for the next 30 days. It hit 31 in late March. So that's just a standard deviation number. Hit 31 in late March, historically averaging around 18. The bright spot was earnings growth. Fourth quarter earnings growth was 14%, which was double the expectations. 2026 earnings growth expectations were between 13 and 18% with small caps outpacing large caps due to the AI spend. I believe I heard this morning that the top, I don't know, five or six tech companies had about $10 trillion worth of market cap and their free cash flow is down to about $6 billion because of how much they're spending on AI. As of 3-31-26, the total return of the S&P was 17.8% for the trailing one-year period, 18.3% per year for the last three years, and 12% per year for the last five years. Small caps were up 12.8% in 2025, continued to gain 89 basis points in Q1, while large caps, as I mentioned, were off 4.33%. Large cap S&P 500 has outperformed the small cap Russell 2000 for five consecutive years from 21 to 25. The only other five-year streak of large cap outperformance was 94 to 98, and in 99, they effectively were even at 19.5% for the year. After finishing 25 up 7.3%, the bond index finished Q1 basically flat with a current yield of 3.9%. And as of today, it's off a little over a percent for the year. This Iran war has got a 10-year yield up to 4.6%. CPI was 3.3% for March, well above the 2% target. We got an April CPI number last week. It was 3.8% because of the effect of the war on oil prices. And the gasoline index increased 21% in March, the largest monthly increase since the index began in 1967. March producer price index, that's the input cost for businesses, was 4%, and currently it is 6% as of the end of April, those numbers released last week. The 10-year yield began 26 at 4.18 and rose to 4.31. It flirted with 4.5, and I believe it's over 4.5 this morning. I haven't had the chance to check it. And then real GDP grew by 4.1%. 50 basis points in the fourth quarter due in part to the 44-day government shutdown. The first print for Q1 was 2%, not as bad as many thought, and long-term GDP, the average is 3.3%. Current unemployment rate, 4.3% through March. Currently, approximately 7.2 million unemployed members of the workforce. There were 178,000 non-farm jobs added in the month of March. which is obviously a bright spot. And then another hundred and I believe 115, 120,000 non-farm jobs added in April. So added a little over 300,000 non-farm jobs just in the last couple of months. The bright spots in the economy, even notwithstanding the war, are really earnings and then the unemployment rate and job growth. And productivity is also growing in a pretty good clip at the moment. Clients fully invested, diversified, and rebalanced diligently. As a reminder, it's May 19th. This portfolio, every single investment in the portfolio has a target weight, and those target weights will be recalibrated and traded into in just under a month. We get started at about June 10th, June 15th, and have everything wrapped up by June 20, June 25. Just to recap, S&P was down 4.3% for the quarter, up 17.8% for the trailing year. Bond index was down 5 basis points for the quarter, up 4.3% for the trailing year. Internationals were down 1% for the quarter, but up 22% nearly for the trailing year. And the EM, emerging markets, were basically flat for the quarter and up 30% for the trailing year. And oil closed the quarter at $101 a barrel. up 76% from 57 bucks a barrel at the end of 25. Okay, we'll jump right into the report. All the data in this report is as of March 31st. Charles, just so I don't toggle back and forth on documents, will you please prepare to report on the updated balance sheet, please? Sure. All right, here's your balance sheet. Now, I know this is a little bit stale. Here we are in the middle of May, and this is the end of March, but for the record, the end of March, total total for the pension fund was $107,187,480.59, with just about $1.3 million in cash. Charles, if you would?

Yes, sir. The update as of this morning is $112,277,588.59. And that is a return of 5.45% since March 31st. Would you do me a favor and say that total slowly so everyone can write it down if they like? Sure. $112,277,588.59.

Thank you, sir.

Yes, sir.

The portfolio is allocated 60% to international and domestic equities, 5.39% in hedge funds, just 1.62% in the residual alternative funds, and the new investment in Forbix. And then the bond funds, Guggenheim, PGI, Blackstone, J.P. Morgan, and BlackRock for 30.1%. And then that cash, if you include the mutual fund account, it's closer to 145. Here's simply a graphic representation of the prior page. I would just point out that it is a highly diversified portfolio, not heavily reliant upon expensive alternatives or even illiquid assets. By asset class, you're 42% domestic equity, 9% international, 5% real estate, 5% emerging markets. So a total international of 14%, 31% fixed income and 7% alts. I won't put you to sleep by going through all of this. Also, I forgot to mention, I forgot to say hello to the mayor of Longview. Very nice to have you back on the board. Glad to be here. Yes, ma'am. So 2025 portfolio was up 12.3%, net of all fees and flows. You can see how your outflows, if we go back to the pension obligation bond, how your outflows were modest and they've picked up since this pension obligation bond. It was basically front-loaded contributions from the city. And now we've got about $3 to $4 million worth of outflows on an annual basis. The first quarter was no different. A little over $1 million on net flows out of the pension fund for a net return of negative 61 basis points. The 15.25-year annualized growth rate of 5.28%. inflation assumption is to our inflation experience 2.7 and your net net at 2.5 as you can imagine 2022 this negative 20.54 if you include the negative 14 plus the inflation rate of 22 that negative 20 spot 54 really put a dent in our long-term average of 4.5%. And we are in the process with a 10 and a 7.5 and a 9.16 of digging ourselves out and re-achieving what we had just prior to 22. Let me blow this up just a little bit. All right, the Longview Firefighters total plan, 57th, 41st, and 42nd. So above average on the three and the one year. Slipped a little on the five year. The equity side, 71st, 27th, and 26th. So top quartile amongst the equities for the three and the one year. And then the fixed income is just outstanding. First, second, and ninth. So if you recall in my economic commentary, I mentioned that the... the bond index had done their trailing, the trailing one year number for the bond index was 4.53%. And your bond composite has done 4.96%. So you've only outperformed the bond index by say 43, 46 basis points, or 43 basis points, pardon me, or yes, 43 basis points. But in the bond index, World in the bond peer group just that 43 basis points put y'all in the top decile. For of course it's not a very long trip from the top to the bottom in the bond peer group, but nevertheless outperforming the bond index and looking quite healthy. limit sales growth fun large growth, a little bit of underperformance here is really the fact that it's highly diversified it's not a tech heavy fund. So when tech runs, we do see it underperform a little bit, but it still has excellent long-term risk-adjusted performance. Vanguard Equity Income Fund, 47th. ClearBridge, 25th. Fidelity, 23rd. Hood River, 1st, 1st, and 1st. I think we purchased this fund on your behalf about two years ago, and they're up 30% on the trailing one-year basis. And so they've just been an outstanding manager for the fund. MFS New Discovery, we've discussed this probably ad nauseum, but one of MFS's main screens is for quality. And we have small value has been in the midst of a junk rally for several quarters. Interest rates dropped 175 basis points from September of 24 to now. And what we saw was the companies in the small value space with the absolute worst earnings, no cash flow, and the highest amount of debt have gone to the very top of that peer group. And historically what happens is following a junk rally, a quality rally will follow. Now, having said that, we should be nearing that quality rally very soon, if not already, particularly with a new Fed chairman. which is being installed on Friday of this week. However, if we don't see MFS New Discovery react to that quality rally and participate in it, we will be bringing another fund to replace MFS in the not so distant future. MFS International Equity Fund, 10th, 40th, 55th, Emerging Markets, 45th, bookended by a 10th and a 7th, Goldman Sachs, 33rd, 22nd, 45th, BlackRock High Yield, you know, top quartile across the board, and then let me, oh, I'm sorry, hold on, I'm gonna hit my, wait, sorry, hold on one sec, oops, pardon me, um, Alright, so now we're in the index funds and the bond funds which really don't lend themselves to a risk adjustment, therefore we put them on a return rank. So Vanguard large cap index fund top quartile Vanguard 44 that's a mid cap growth. Mid cap core the top third Vanguard small core top quartile. The REIT, which is how we rebalance your real estate, is nearly top decile. That's just an index fund, an index ETF. A REIT, 16 basis point, I mean, I'm sorry, ranked 16th for Guggenheim on the three-year. PGIM, top decile. JP Morgan, top quartile across the board. Same thing with Millennium, same thing with Magnitude. There's really only one fund that's giving us indigestion, and it's MFS Small Value. but out of 17 or 18 funds, if it's a well-diversified portfolio, you should always have a manager on the watch list, it seems. Okay, let me. And then here is your total return net of all your fees versus your custom benchmark. As a reminder, the Longview Fire Pension Fund has 74 basis points worth of fees Inside the pension fund so that's all of the investment managers that your consultant administrator custodial fees trading fees. All of those fees rolled up as 74 basis points and that that 74 basis points is not. In the custom benchmark that custom benchmark is a gross number, so if we just go back oh I don't know 10 years I think we've been around about 10 years let's start there, I know the portfolio was. underwent some major changes when we were hired. 10 years, it's 72 versus 698, 73 versus 709, 48 versus, 484 versus 476, 1035 versus 1010, 1242 versus 1426. There's some little bit of underperformance on the one year and then year to date the total fund down 61 basis points the custom benchmark was down 36. if you were to pull that fee out as well then there was that's outperforming as well on the year to date and then the return rank your custom benchmark is here and then the long view total is here so top third above average across the board for the last 10 years. And then you can see the 15 years, that 83, just as a reminder, when we first got hired and also we're working with, I should tell y'all, very pleased that y'all hired Mary Catherine Campion, For your Senate bill 322 evaluation she's an excellent choice we've already begun working with her and and we were just pleased as punch that that y'all selected her to help you also just going back one other thing when we were first hired back I guess about 10 or 11 years ago. You see this 83 number and you wonder what the situation was back then. When we were first hired, the first time we did that unit value report, it would be this schedule right here. This number when we were first hired was 0.14. so the portfolio has been through a lot it's um it's it's been completely revamped and other than 2022 um really dropping a bomb on our four percent target or our four and a half percent target um we're just very very pleased with the way the portfolio is uh where the portfolio is and uh not recommending any changes no manager changes If MFS doesn't get their act together vis-a-vis this quality rally, we have no qualms about bringing a replacement. It's a little dicey at the moment because during a junk rally, if you go looking for a manager that's done really well, sometimes you'll wind up with a junky manager. So it's something we'd have to really proceed with caution. But if it's warranted, we will absolutely take that on. Take that on. Mr. Chairman, are there any questions whatsoever?

Anybody? All righty.

Will Charles, thank you.

We appreciate you.

Yes, sir. Thank you very much. Let us know if you need anything. Thank you. Thank you.

All right. So items for action. There were no recommended trades. So I'm going to go ahead and pass on one or on A. Action item B, review and motion regarding reconciliation for the month of April 2026 for Moody checking account, Moody disbursement.

Now we have a motion and a second.

Do we have any discussion? I'll let you catch up. I'm sorry. No discussion. All in favor?

Aye.

Any opposed? All right. Action item C, review and motion regarding internal financial statements for April 2026.

So $113 million versus $107 in the March. Right, yeah. I like that number.

I do too.

I motion to approve the financial statements. Second.

We have a motion and a second. Any discussion? All in favor? Aye. Any opposed? All right. Action item D, review and motion regarding minutes for April 2026 meeting.

Move to approve the minutes.

I'll second.

We have a motion and a second. Do we have any discussion? All right. All in favor of approval, say aye. Aye. Any opposed? All right. Action item E, review and motion regarding expense reports for TexPERS annual conference, April 26th through 29th in Galveston, Texas.

make a motion to approve peer review is good

A lot of seaweed on the beach. Do we have a second?

I'll second.

All right. We have a motion and second for the approval of action item E. All in favor? Aye. Any opposed? All right. Action item F, review and motion regarding expense reports for TELFRA peer review May 7th through 8th. I do want to say thank you to Garrett Hanlon, our Tier 2 guy that showed up for training. We appreciate the effort from the next round of folks.

I move to approve the TELFRA expense reports.

Second. We have a motion and second. All in favor? Aye. Any opposed? All right, so items for discussion. One thing we are going to have a conversation about real quick is we have a position on our board that's a mayoral appointed representative. That's been filled by Councilman Shannon Moore for the last year or so, roughly. Our mayor has actually decided she's going to take over that position herself, and we're super excited to have you. Thanks.

Welcome, Chris. I'm very excited to have you back.

all right uh other items for discussion uh upcoming retirements we're not really aware of any that are coming up in the next month or so uh it's not on the agenda so and she's the one representing that position so so she is uh right yeah whether she likes it or not she's there now so

Okay, that was easy.

All right, so no upcoming retirements we know of. Upcoming conferences, TechSpurs Summer Forum in San Antonio, August 2nd through 4th. The TELFRA Annual Conference in Harlingen, October 4th through 6th. And then the next scheduled board meeting is June 16th. At 8.30 a.m. Hopefully everybody can make that. Hopefully if they want it, we shift. Of course. All right. Any other discussion items anybody has? I'll make a motion to adjourn.

Second.

We have a motion and a second. Any discussion? All right. All in favor? Aye. Any opposed? See you, Colby.

Bye, Colby.

Y'all have a good day.