General Employees Retirement Board - Regular Meeting

No, I wasn't going to say that at all.

He went six for six last week. Six for six.

I wish I'm Carly.

Who would be sitting here right now?

I just made the mess.

No, you know what? Sometime we should have. No.

Okay. Good evening, everyone. Apologies for the delay. We're going to get started with the General Employees Retirement Board meeting. Mr. Clerk.

Yes, roll call. Mayor Fremark. Here. Vice Mayor Salver. Here. Councilman Albem.

Here.

Councilman Sklar. Here. Councilman Wolf. Here. Lissandra Almaguer.

Here.

And Lourdes Rodriguez. We have quorum. Thank you.

Please rise for the Pledge of Allegiance.

with liberty and justice for all.

Thank you. First item is the approval of the minutes from the April 9th, 2024 meeting. I'll make the motion. Is there a second?

I'll second it.

We have a motion and a second. All in favor? Aye. Aye. Any opposed? Motion carries. Next is the quarterly investment report. Mr. Manager?

Mr. Mayor, thank you. This is our quarterly report as the report indicates. TJ is here and he's going to give you a brief.

20, 30, 40 minutes? No, I can do this in about 10. It's easy, right? When the markets are up and we're hitting all-time highs and we're doubling our actuarial assumption... It makes for quick, easy meetings, right? All you have to do is tell us what the feds are going to do tomorrow. You know, that's – yes, absolutely. They're going to cut rates, right? I think that is baked into the market. Now it's really a 50-50 shot, and if it's 25 basis points or 50, right? And the speed at which they continue to reduce these rates is going to be really what dictates the next 12 months, and that's really going to be dictated by what's going on in the economy. Are we slowing down? Are we heading to a recession? But keep things high level, and I'll give a couple bullet points to back that up on page two in your books. When we say it's a good market and we're up 24.5% for the last 12 months, the S&P 500, the first benchmark on that page, up for the quarter. But what's shifted over the quarter? If we go down that first column, you see 4.28% on the S&P 500. You start going down, you see brackets, negative returns. So not everything has been up. We're starting to see a bifurcated market. Growth continues to lead higher. If you look at the bottom of the page, technology, 13.8%. Communication services, 9.37%. It's still been led by NVIDIA. We've seen some volatility since the end of the quarter, but it's really been those... They were calling them the Fab Four, the Magnificent Seven. It's the same story we've had for the last 18, 24 months. It continues to rhyme. But what's changed is that bottom half of that column, the negative returns in mid-cap and small-cap. Why? Why do we have negative returns if interest rates are higher? The end of June, middle of June, the Fed came out and said we're going to keep interest rates higher for longer. And just like you and I, companies are affected by that. We go get a loan for an automobile. We get a mortgage now. It's money out of our pockets, real money that we have to spend. Now, it's not 2.5% for a mortgage anymore. It's 7%. So it's hurting the consumer. It's hurting business as well. If they have debt on their balance sheets, mid- and small-cap companies have a lot more debt. It hurts earnings. The market's forward-looking. So they pull those returns down, and stocks hurt in that space. International markets rhyme, you know, not as strong as we were on page three. Negative for the quarter over the last year, though, up 11.5 over the last five years. Positive 6.46. There's going to be a point where this is going to look better. And right now we have highest interest rates globally. There's strong demand for the dollar. In international investing, when the dollar starts to weaken, that's when we want to be in there. We don't know when that's going to happen. We're waiting for data to start leaning more into international. It does look cheap, but it's cheap for a reason. So there's going to be a point where we want to add to it. It's not right now. But to Mr. Mayor's point on page four, what is the Fed going to do? We've seen a lot of volatility in the fixed income markets. We went from 3.8% on the 10-year Treasury all the way to 5%, back down to 3.8%, up to 4.5%. Now we're at 3.6% to 3.7%. Why? Well, the Fed has indicated they're walking a tightrope right now. They have two mandates, full employment... And low inflation. Well, we've seen inflation come below 3%. Their target's 2. It's going the right direction. But they're starting to see weakness in the labor market. So for the quarter, it was flat. We've seen good results, OK results over the last 12 months. Cash has still been one of the best asset classes of being. But as the Fed has indicated, they're going to start reducing rates. And it's really going to be about the speed they do that. If we go to page 8. The top left is the unemployment picture. At the end of the quarter, it was 4.1. It's been trending up. We went from 3.4 to 4.1. And in July, we had a surprise number of 4.3. The market sold off 5% to 10%. It's recovered since then. So we're really starting to look at the data and we're saying, okay, well, what is happening? If the labor force continues to get weak, we have a lot of individuals coming back into the labor force. At the same time, companies aren't hiring as many individuals. So that's going to put pressure, continued pressure on the market. And if we go one more page forward to page 10. What we show on page 10 is consumer debt through the roof. It's the dark blue line, all-time highs credit card debt. We're seeing delinquencies. We're seeing delinquencies on auto payments. So the consumers are starting to be tapped out. Lower jobs, not as many jobs. People are tapped out. Things cost a lot more. It's going to affect the market. But when we look at the market on page 12, what do we talk about? When you buy a stock, you buy a multiple. Price per earnings, right? The company earns something. You pay a multiple just like when you're buying a house. Price per square foot is a way to think about that. It's stretched right now. We're at about 21 to 22 times earnings. Either one or two things are going to happen. Either we're going to stay right about here as earnings start to catch up, or we could see a pullback in this market. It's really going to now depend on the weakness in this economy, if we continue to see the Fed cut at fast pace, or if it's going to be a couple quarter points at a time. Right now, we believe it's going to be a couple quarter points this year, maybe three cuts, tomorrow, November, and December. But we'll see. It's going to really be data dependent on the picture of employment. But with all that, if we go and jump to our returns to keep on pace, page 29. For the quarter, up 0.76. What's more important is that fiscal year return, up 15.32%. Our actuarial target, 7. So we've doubled our actuarial target. We're above our benchmark. The changes that we've made into alternatives, different asset classes, has added value. For the fiscal year, we started at $19 million. We added about $1 million of new dollars, and we had growth of $3.1 million so far for the fiscal year. Now, fiscal year ends a couple weeks. We've added a little bit since the end of the fiscal year, I mean since the end of the quarter, so we should have a pretty strong actuarial report when they come next year and give a report on that. So that's great news. As always, we have two decisions.

Your current quarter is through June 30. Yes, sir. So we still have the final quarter to catch up. And we do. It was pretty positive. It's been very positive.

This quarter's been pretty positive, yeah. And with rates have come down, so our fixed income's done well. Stocks hit all-time highs today briefly. That looks good. Everything looks good as long. Knock on wood, we don't have a very volatile two weeks to get into the end of the quarter or the end of the fiscal year. But we should have strong mid-teen returns. How do we do that? Asset allocation and manager selection, right? Page 33. Right now we're a little overweight equities, and I imagine we're still a little bit more overweight since the markets continue to go up. Our only recommendation today is let's get back on top of our targets. If you look at page 34, we're overweight value, a lot more overweight growth. Let's take some of that chips back, get back to our targets, as there could be volatility going forward. Let's add back to fixed income a little bit to keep some protection in the plan. That would be our only recommendation that we have today is to rebalance two targets on the portfolio. If the managers, we have mostly passive. If we go to page 36, our alternatives are doing what we'd expect. Blackstone Multistrat, about halfway down the page, is outperforming the benchmark, up 10% over the last year, five since inception, outperforming the benchmark. Cone and Steers, our infrastructure, It's paying 4% yield. It should be less volatile than equities if we do see some volatility pick up. And real estate, we spent a lot of time talking about real estate towards the end of last year. We've seen buyers start to come back. Blackstone is one of the largest real estate buyers in the country, in the world. And they started coming in purchasing mid-July. So we think there's starting to be a bottom in the real estate market. Prices are very depressed. So we think there's a turnaround there. But overall, like I said, strong returns make for an easy report. Our only recommendation would be to get back on top of our targets.

Apologies for this. We are having to go to the book as it's not what's in our agenda. It's page 12. So we're catching up. Not a problem. We're fine. Okay.

That's the page he was just saying, 20-something.

We're fine. We're fine. You sure?

Yep. You can go ahead now. That was it. I mean, we've had strong returns. I think if, you know, looking forward, if there is weakness in the economy, we're an open plan. We still have dollars coming into this plan. We're a long-term investor. Our target is 7%. I don't think there's a – we can't time markets. We could be wrong more often than we're right. That's why we're getting back to our targets, making the recommendation to get back on top of those targets, take a little bit of the profits we've had on the equity side of the equation, and rebalance back to those targets.

So I'm going to circle back to the first comment that I made. How do you think about the allocation of the portfolio in what will be probably a declining interest rate market? How do we protect against that?

Well, that's a benefit for us. If rates are coming down, we're going to get the benefit of the principal appreciation. So it's going to be the reverse of what we've seen over the last three years. So we're going to start seeing some of our money come back.

Now, does that change any of – the strategy in your view as it regards the investment portfolio itself?

It would be if you felt the urge to de-risk a little bit out of equities, now would be the time to do that. But as us trying to get 7% and we have, again, an open plan and cash flow is coming in, we wouldn't make that recommendation. If the market started to fall apart and we saw weakness in equities, our fixed income is going to do really, really well. And at that point, we'd make a recommendation, hey, it's going to be hard to do, but let's take some of that fixed income and move to equities. So from an allocation standpoint, we're set on our targets. We can't time things. We have a short manager. We have an intermediate floating manager. We're set up to take advantage as rates come down.

Okay. Questions on the part of other committee members?

All right. Thank you very much. We do have a recommendation on that rebalance. We'd make a recommendation to rebalance to our targets. We're a little overweight equities right now. We're at all-time highs. Let's take a little bit of those equities off the table, get us back to target, add that to fixed income to get us back to the target in fixed income.

That would make sense. Discussion on the part of the committee, please.

Vice Mayor? Buying fixed income now with rates coming down, I mean, I guess it's the long play anyway, so it doesn't really matter.

Yeah, so with the rates coming down, two things are going to be positive. One, we're adding to rates when they're higher. Right now, rates are a little bit high. If they start coming down, though, the price of our bonds are going to go up. So we're actually going to have positive results as rates come down. It's an inverse relationship between rates and the price of our bonds. So it's going to be a benefit by adding to bonds.

Anything else on the part of the members? No?

Thank you very much. Do we make a motion on that?

Do we need a formal action? Yes, to accept it? Okay, so I'll move that we accept the recommendation. I'll second it. We have a motion and a second. All in favor? Aye. Aye. Any opposed? Motion carries.

Brief. Appreciate it. We'll see you guys next time.

Thank you very much. Thank you. Keep up the good results. Item 5, lump sum requests. Mr. Manager.

Mr. Mayor, there are two items together here. The first one is an employee who separated from the village was not vested and is therefore not entitled to a pension benefit, but he is entitled to receive the contributions he made as well as any corresponding interest with that. And so this would approve the refund of that gentleman's amounts. Okay.

Motion? I'll make the motion to approve the whatever we're calling it.

I'll second it. All in favor? Aye. Any opposed? Motion carries. Next.

Mr. Mayor, the second one is also a former employee. In this instance, the employee, in fact, had the years, you know, certain vesting. However, the employee is always entitled to request a lump sum and forego the vesting, which is what she is doing in this instance. And so this would provide her lump sum contributions plus her corresponding interest. But there's no pension obligation at that point.

All right. I'll make the motion. Is there a second? I'll second. We have a motion and a second. All in favor?

Aye.

Aye. Any opposed? Motion carries. Item 6.1.

Mr. Mayor, the last item is since we're at the end of the fiscal year and soon starting a new fiscal year, this is the proposed operating budget for the plan. It generally is a flat budget. There's a reduction on actuarial cost, an increase in management fees, and it's a total bottom line about a $4,000 increment for the year. It should be page exhibit A of your report.

Yeah, that's here. Any discussion? I'll make the motion. I'll second it. We have a motion and a second. All in favor? Aye. Any opposed? Yes. Motion carries. Are there any public comments? Sure. Please.

Management fees went up, what, 16%? That's a pretty big jump. It was approved at $18,000 last year, and it's $22,000 this year.

Although your actual is $20,000. I think that is a function of the performance, or how does Rick come up?

I'd like

Good evening. I budgeted the investment fees, taking into account the market and how accelerating. It's good to have higher fees because it means your assets under management are better.

So it's a reflection of the performance.

We've managed more fees than you're paying.

Thank you. Good?

Okay. Thank you, Rick. Thank you. All right. Motion to adjourn?

Second.

The meeting is adjourned. Thank you all very much.