Coral Gables Retirement Board - Regular Meeting

One. Oh, okay. One, I worked with Dave and reviewed the transition agreement that we have. So depending upon what the board does now, you've got a transition manager that will transition the funds. With regards to Officer Pagan, we finally yesterday received the transcript of his sentencing. So we needed to review that in order to complete our analysis as to what's gonna happen to his pension. So by the next board meeting, I will provide a report as to what the recommendation is for the board. But it's taken two months for his counsel to get us a copy of the transcript. It was not available online and we could not get it. So he had to order it and we literally got it last night. So now that we've got the transcript, we can finish the analysis. We've done all the research and everything's ready to go other than now we've got to double check what the transcript says. And then so at the next meeting, I'll report what we need to do. And I will also talk to his lawyer to see if we could somehow work something out without having to go through a full evidentiary hearing, which we may have to go through depending upon what position they take. And the last item I have is Renee sent an email. to Ed Amir with regards to what happens to the drop with the change in the assumed rate of return. And everyone, I think, will remember that back in 2021, we discussed this. And when the board changes the assumed rate of return, which was reduced down to 6.95 on May 28th, the next month, it is effective with regards to drop benefits. So it And that's what back in 2021. That's what we decided to be the month after the date that the board puts it into place. That's the way that it's done pursuant to the ordinance.

I didn't find a notification from 2021. But moving forward, I think we're going to notify the participants about that. So they're aware.

Okay, so I don't know if that answers your question. Okay.

It doesn't happen too often, you know, that change, but, you know.

Well, it happens every year that the board changes the, that we lower the assumption rate. If we, right, if we continue to lower the assumption rate, it will continue to happen each year. Okay. And that's all I've got, Alex.

Thank you, Manny. Edemir, you're up.

Yes, good morning. A couple of items. Everybody need to keep in mind that the next joint meeting with the City Commission is going to be in October. Kim is not here, but I'm going to be working with her, trying to coordinate and make sure that everybody is available for October. We'll do like in combination with a regular meeting, so an hour with a regular meeting and another one with a joint meeting with the City Commission.

I think that worked well last time.

Yes. Then the second item, it's in regards to how many people have registered on the pension portal. So active employees, we have 345 members that are registered on the portal and 232 that are pending. And inactives, we have 598 that are registered and 431 that are pending. It's increasing, but slowly. like 1%, 2% every month. And that's all I have for today. My only animal was regarding the drop interest rate, but many covered it.

Thank you. David? Dave? Or actually, I think it's... Who's going to be speaking? Carrie or David? Okay.

All right. Good morning, everyone. Carrie and I are at the time of speaking today. As the chairman laid out the introductory comments, our agenda today is just to give you a very brief summary update for July. Unless anyone had any questions on the quarterly report, we'll keep that segment of our agenda pretty brief today, because we do have final interviews coming with our candidates who potentially want. So that's our agenda, unless anybody had anything else to add. I'm going to just briefly, as I said, I'll go through the flash report. Just to sort of level set what transpired since we last met at the full board. Basically, volatility, obviously, up in July. AI-linked companies came under some pretty sharp selling pressure. This is being interpreted as largely a technical problem. you know, overcrowded trade there, profit-taking. Importantly, corporate earnings growth needs to, you know, deliver. Consumer spending continues to deliver. In this rotation, we saw value outperform growth. So, lo and behold, our value managers we're talking with have had a tailwind and continue to have a tailwind through July. And happily, market breadth seems to be broadening here. My favorite gauge, as I've shared with you before, is watching the S&P 500 index, which is cap-weighted. and has all the distortions, right, of who the leadership is. Well, the S&P Equal Weighted Benchmark has actually been outperforming the Cap Weighted S&P 500 Benchmark. That's a signal, or at least for what time period that it's transpired, that there's definitely a breadth broadening going on in the market. So that's healthy. And then lastly, on the interest rate fund, market sentiment was originally biased towards a Fed tightening right in July. Rates rose modestly, but then we had two very recent economic numbers, one soft employment number and a very benign inflation number. So, you know, the shift is off. So the market is interpreting less pressure to raise rates at the end. at the upcoming Fed meeting. So that's our summary update. Terry, you want to take? Yeah, just a little bit about performance.

I'd say, you know, the results for July were relatively benign. Though domestic equity and international equity markets were slightly negative, you all actually held up a little bit better than that. So you were kind of marginally positive within domestic equity and international equity, about 80 and 70 basis points respectively. As Dave mentioned, it was very much a value-on-quarter, so Eagle did really well, as did Brandywine, which offset some of the pullback that we saw in large growth, particularly Winslow, which was slightly down. And then on the international side, your RBC, more value-oriented manager, also sort of carried the day when WCM on the growth side pulled back a little bit. So slightly positive within equity segments, which was a great thing. Fixed income was slightly negative, about a percent. Rates did tick up as the geopolitical situation heated up again. Garcia-Hamilton was slightly more impacted than Richmond was because they do have a little bit longer duration positioning. And across kind of your non-poor fixed income managers, slightly negative there as well. One kind of green shoot, the real estate managers that did price were sort of marginally positive there. So putting all of that together, we got about 33 basis points positive net. But on the fiscal year, that has us just shy of nine and a half percent. And the market value of the fund is slightly north of 587 million dollars. One other thing I'll point out, I know we've been watching sort of the winding down of the J.P. Morgan Special Situation Fund. We did get a $736,000 distribution for the month, which puts us north of $2.5 million in distribution. So slowly, but slowly, we are getting this fund. But again, almost 9.5% on the fiscal through the end of July. Really happy to kind of say that. And happy to answer any questions you all might have as well.

Mr. Chair, I got a question.

You can go ahead, Troy.

Thank you. I know we're in the queue for getting our funds back from JP Morgan. Should we kind of look at a little more in depth on saying let's be prudent and maybe try not to get it all out over the duration of time and maybe say, hey, look, they're a solid company. Yeah, they've had bad number of years, but let's see, maybe is there a trend going more towards it? What is the forecast for JP Morgan real estate that?

I think what we could do, Troy, is show them versus other funds from an allocation, from a performance standpoint. I think that would help guide the decision and do we kind of cease the redemptions or do we continue to move forward? we could show you what some other managers in that value-add space look like and what they're doing. And that'd be a great kind of educated discussion on the go-forward, I think.

Because I'd hate to just pull out our monies on a loss, a durational loss of time, but a loss nonetheless. And then now all of a sudden you start seeing an uptick and a gradual regain. Yeah.

It's a valid point. I mean, there's there's no doubt the distress was sort of, you know, market wide. And so I think taking another look at that is probably a good exercise.

And if you you said you're going to do a comparative to others that are in that same that kind of value added sort of space that they're in. All right. Yeah, perfect.

When was the decision? I'm trying to think back. When was the decision made to to pull out on on JP Moore two years ago?

It's been two plus years. When was the decision made to pull out? Two years ago? How long have we been trying to pull it out?

It was about two years ago.

To Troy's point, I think it's actually... I think it'd be a really good idea to revisit it and kind of see because

Yeah, for everybody's benefit, just to address the legacy issue there, you know, we had actually reached, and this also addresses your question, Troy. We had actually reached a real estate allocation that was approaching 15% of total plan assets, right? And then we had a related discussion saying, okay, we felt that core real estate was approaching a relatively full value point. And we did, and we're able to rebalance and take approximately 5%. of that allocation off the table, right? So we were successful in our rebalancing. The second part of the rebalancing strategy was to allocate to more niche-oriented, get away from the core plus real estate managers, and go into the specialty managers. And by design, those were perceived to be more opportunistic, less prone to the overvaluation we were looking at. And at that time, the economy and fundamentals were continuing to be very strong for real estate. So as we were transitioning and bringing in the new managers, that's when... the door got locked on us across the industry. And so that's when the queue started. And that was why we were in the queue, because we were rebalancing strategically at that time. But we did get some of it done. Actually, we got a lot of it done, but we weren't able to get most of it done. So that takes you back to that two-year-ish inception strategy.

So again, I mean, two years is a long time. So I mean, it's maybe worth... Like Detroit's point is let's revisit it and maybe next meeting we can have kind of like an update from you on what your opinions are on it. And, you know, maybe they took a huge write down that we can take the benefit of going forward and not having, you know, not realizing those losses potentially. But I'm not saying that it's making a huge comeback. I mean, I don't think there's any great indications of that. But at least giving it the benefit of a revisit since it's been two years.

Yeah, I think it would be appropriate. We're at 6.5%, below 10% long-term target.

Dave, is it only the special situation one that we're pulling out, or is it also the strategic?

Special situation.

Only the special situation. Special situation, yeah.

Okay.

Yeah, because the other one's doing pretty good.

Yeah, great discussion item. Yes.

Remind me, which was the one that does the government stuff? The one that does the government board is the one that does the government. Okay.

Okay. And I guess that was the presentation, right? So do we have, I guess we'll have dimensional and which one's first dimensional?

Dimensional is first. That's right. Would you like me to give a quick recap before we get started?

Yeah, I think that'd be actually really good. Okay. They were both really good from our perspective. And we really, I think we were kind of torn between the two. I mean, I think it could have gone either way. So we figured it would be great to bring it to the board and make a final decision.

Absolutely. So we are considering the replacement of Brandywine, who is one of your large cap value managers. It's just about $60 million for context and assets. We have two different firms that we heard from in the investment committee that will be here today. Dimensional Fund Advisors, you'll often hear us refer to them as DFA. And DePraise, Rents, DePraise and Zolo, excuse me, which is a fundamental manager. So DFA is all quantitative. They screen the entire universe. They sort for stocks which are profitable, which are trading at a reasonable valuation. And that tend to be smaller because those factors over time tend to outperform. DFA is truly, DRZ is doing fundamental analysis. So they're truly going through balance sheets, talking to competitors, coming up with forward-looking forecasts for where they think earnings might be, where the stock is priced, et cetera. So two totally different kind of approaches. And this is dimensional or DFA to start us off. Good morning. And we've got about 15 to 20 minutes. If you could just sort of hit the high points of the strategy, that'd be great. Sure.

And I have books that would be. Absolutely.

That's okay. We're okay. That's okay.

Actually, I do it too. Okay.

I'll turn my mic off.

All right. Good morning. Thank you for the opportunity to come in and present to y'all again.

Kristen, if you can get closer to the mic.

Yep. Sure. Sorry. All right. Thank you for the opportunity to come in and present again. So I'll give you a quick refresher on Dimensional. By way of introduction, my name is Kristen Bay. I'm a regional director on our global client group. I work very closely with Mariner and multiple public pension plans in Florida. Patrick Southern is a member of our portfolio management team. He has been with Dimensional for over a decade and works on this portfolio every day. So Dimensional has a 45-year track record. We managed $1.1 trillion in assets, which really gives us the staying power to weather the ups and downs of the market. And we have one singular investment philosophy here. across everything that we do, which is based on the work of the world's leading academics and supported by our research team of over 30 individuals, 15 of which have PhDs themselves. Our active systematic approach provides clients with diversified portfolios that are reviewed and created by our portfolio management team on a daily basis while the flexibility and focus on portfolio characteristics as opposed to individual securities allows us to keep turnover and costs low. As a result, we've been able to provide style pure exposure to the area of the market that we're hired to provide exposure to and keeping fees low resulting in beating the benchmark over time. So we're going to share with you how we go about this and how we're different from both index providers as well as concentrated fundamental managers in this regard. So I'll hand it over to Patrick.

Great. Well, thank you all for having us here today to discuss Dimensional's U.S. Large Cap Value Strategy. I'm going to jump in on slide two to really start with just highlighting the differences between dimensional systematic active approach versus traditional passive and traditional fundamental stock pickers. So in terms of passive investing, there are a few really key great aspects of it in the sense that they provide broadly diversified exposure, fairly low turnover, fairly low implementation costs, and fairly low fee. The trade-off that you make there in terms of passive investing is that an index manager's job is really to match the benchmark. They're not necessarily looking to outperform markets. They're looking to track a third-party benchmark. And in doing so, they don't really provide an opportunity to outperform markets. They also tend to be fairly rigid in terms of their implementation, given their goal is to, again, match that benchmark rather than beat it. So active investors don't necessarily have that mandate of matching the benchmark. They tend to look to outperform the benchmark. And the way fundamental stock pickers tend to do that is by buying a subset of securities that they think are going to outperform. Now, what the long term research shows there, though, is that that's really difficult to do. Every day, millions of people are trading billions of dollars. And in doing so, they're conveying their information into the price. And so over time, what we see is that fundamental stock pickers tend to underperform benchmarks due to the higher nature of their fees. Now, Dimensional's approach kind of blends the best of both worlds in the sense that we build really broadly diversified portfolios, but rather than try to outguess the market, what we do is systematically emphasize securities that research shows have higher expected returns. Namely, stocks that tend to be smaller, deeper value, and have higher profits tend to outperform over the long run. And by systematically emphasizing those securities within our portfolio, we've been able to deliver outperformance to our clients over the past 45 years. Now, if we jump ahead to the third slide in your deck there, what we're showing is dimensionals track record compared to the industry over various periods of time. So if you look at on the bottom left there, you'll see that about 33% of firms and funds in the industry over the past year outperformed their benchmark. However, when you extend that time horizon over longer periods of time, you can see that reliability of outperformance tends to decrease. With over the past 20 years, only about one in six funds actually outperformed their benchmark. You contrast this to Dimensional's approach, the reliability of outperformance actually increases over time. So over the past year, about half of our funds outperformed the benchmark. But when you extend that over 5, 10, 15, 20 years, over the 20-year period, you can see that about 80% of our funds have outperformed traditional benchmarks after fees. And we can really attribute that to our, again, cost-conscious systematic approach where we're looking to emphasize securities that all this academic and empirical research have shown really drive returns over the long run. Now, in the context of the US large cap value portfolio, the way we go about designing it is listed on slide four there. And so every day, what we do is we rank securities based on their characteristics. So on the left hand side there, you'll see that dark blue box. That's really the sandbox or the area of the market that we're operating in within the portfolio. So first thing we're going to do is draw a line in terms of defining the eligible size universe. And that's going to be focused on the top 90% of the market to really capture that large and mid cap space. Then we're going to draw a line on a company's valuation. We use price to book. And what we're going to do is focus on the bottom 30% of the market as sorted by price to book. And I'll note that compared to, say, like a Russell 1000 value index, which takes a 50-50 cut on value and growth, we're going to focus on the bottom 30% of the market. So really delivering that tailored and focused value exposure. So a tighter cut on value to really make sure we're capturing that value premium within the portfolio. Then within that space, we're going to systematically tilt the portfolio towards those areas of the market that research shows have higher expected returns. And that's illustrated by the shading there within the three boxes in the middle of the page. Where a darker shade is meant to illustrate a greater than market cap weight and a lighter shade is meant to illustrate a less than market cap weight. So compared to market cap weights, we're going to place more weight in the portfolio within those mid cap stocks, those deepest value, lowest price names, as well as the securities with the highest levels of profitability. Because ultimately what the research shows is that those areas of the market tend to outperform over long periods of time. Now, to put some numbers around that, if we jump to slide five, we have how the portfolio is positioned. And I know there's a ton of numbers on this page. What I would really suggest focusing on is the top number within each box that precedes an X. That's the ratio of the portfolio's weight compared to the overall market weight. And we're segmenting here with size on the left, relative price or value in the middle, and profitability on the right hand side. So if we're looking in that size column there, within the large cap space, you have relatively similar weights between the portfolio in blue versus the Russell 1000 value benchmark in that dark gray. But where you start to see differences is within that mid cap space, you'll see much more significant weight within the portfolio given that focus on mid caps. And conversely, you'll see a lot less weight in the portfolio in small caps compared to the Russell 1000 value benchmark. And that's because the Russell 1000 values are really only rebalancing twice a year. So as security characteristics change, they aren't proactively reacting or rebalancing the portfolio to account for those changes in security characteristics. Whereas we're doing that, you know, 250 trading days per year. In the middle of the page there, you'll see the relative price or valuation spectrum. And what I'd really point out here is on the left-hand side there, you'll see much more weight for the portfolio within that value segment of the market, whereas the Russell 1000 value is going to tend to drift out more to that neutral and growth side of the market. So even though the index may be called a value index, about one-sixth of its weight actually is on the growth side of the market. So this portfolio's focus is really to deliver that tailored value exposure, such that when value does well, your investment does well. Then, please.

I'm going to do this in depth, you know, the whole interview, but the benefit of, I think this is some primary factors that,

on how, as you're describing it here, how the market has impacted the process.

Yeah.

And actually, importantly, understand the process as the through market cycle of us establishing for your performance bandwidth.

Yeah, yeah, absolutely. So, as Kristen mentioned, you know, our founding and our really core principles is backed up by the academic science and what that academic science shows. again, is that there are three really primary drivers of return within the equity space, namely stocks that are smaller, deeper value, or lower price and higher profitability tend to outperform. And when you think about the sensibility of these investment criteria, it really comes down to your expected return Return comes down to two things, the price you pay and the cash flows you expect to receive. So holding all else equal, we like lower prices and higher profits. And looking at companies through that size, value, and profitability lens is a way to really derive that information from the market rather than relying on subjective decisions via fundamental stock picking. Now, in terms of because the portfolio is positioned more towards that deepest value side of the market, when value does well, this portfolio does well. And we actually have some information in a few slides here that really illustrate that. Now, in terms of market cycles, previously in, say, the past decade within the U.S., what we've seen is value stocks have tended to underperform growth stocks. Not so much that value stocks have underperformed their long term historical averages. But really, we've seen this exceptional performance in terms of some of the largest, highest relative price names. You can think of the Magnificent Sevens, the Apples, Amazons, Facebooks of the world. And so because this portfolio tends to have less or no exposure to some of those names, that had been a headwind, I would say, up until the past 18 months or so, where we've really seen a bounce back in terms of that value premium. And in terms of every day, both in the past and looking forward, We're consistently positioning the portfolio to capture that value side of the market such that when value does well, we do well. And compared to, say, a passive or index tracking approach, again, I'll reiterate that we're doing that 250 trading days a year rather than rebalancing on a semi-annual basis.

And just to also, I think, answer your question about sector rotation in and out of the factors, we're maintaining that exposure. It's very consistent. So you know what you're getting at any given time because you really, and we've done research on this, you cannot predict when any given factor is going to show up. So we want you to be invested consistently throughout time.

Exactly. Yeah. So rather than try to time when these factors are going to show up, It's my job as a portfolio manager to make sure that we're consistently positioned to be capturing these premiums when they do. Because what you don't want is a value manager by name who's really providing you broad exposure outside of that mandate. We're going to be very disciplined in terms of our process every day steering the portfolio towards those premiums we want to capture. So from a from a sector perspective, just since it came up, we do allow our sector weights to fluctuate. So you will see some deviation compared to, say, benchmarks or, you know, a market cap weighted approach in terms of the US. What we see is that generally tends to be a little bit more allocated towards energy, a little bit more allocated towards financials. But we still want to maintain those sound investment principles of broad diversification across securities and sectors as well. So we will cap our exposure in any one sector at the market weight plus 10%. So we do have some risk controls in place to ensure that portfolio isn't necessarily just dominated by any one individual security or any one individual sector as well. Maybe another way to highlight this or to reiterate that point is by looking at the portfolio's weights in some of the largest, most prominent names. So if you look at slide six of your slide deck there, what we have is the weights within what's called the Magnificent Seven, the largest, most prominent names. the Apples, the NVIDIAs, the Amazons of the world. We're showing the weight within the dimensional large cap value ETF rather than the mutual fund. ETFs report their holdings on a daily basis, whereas mutual funds report on a lagged monthly basis. So it's a little bit easier for us to show the ETF weights, but it's the exact same strategy, very similar weights within the mutual fund and the ETF. The top of the page there, what we're doing is plotting each of those securities based on their characteristics. And again, this is something that we do on a daily basis. And what you'll see is that there's a fair amount of dispersion in terms of the valuation. If you look from the left to the right, that's sorting companies based on their price to book. And so you can see Apple far out to the right trading at about 40 times its book value, whereas you have some names that are more on the value side of the market, like the Metas and the Amazons of the world. And that's what's going to really influence our portfolio weighting in terms of an aggregate across all those Mag7 names. You'll see that the large cap value ETF holds just under 4% within those names. You contrast that to the Russell 1000 value index, it holds about four times as much at 16%. So we're going to provide, we're not necessarily looking to avoid these names. We will provide exposure to them when they are on the value side of the market. But as they drift out more towards that neutral and growth side, we're going to look to divest them and then reallocate those assets towards more of the value side of the market. Any questions there before we jump to characteristics and performance? All right, great. So last couple things in terms of what we've prepared for today. In terms of characteristics of the portfolio, it's positioned exactly as you'd expect. If you look at slide seven of your deck, what we're showing here is compared Pairing the portfolio against the Russell 1000 value benchmark. And so, again, we are going to maintain those sound investment principles of being really broadly diversified across about 300 securities. That diversification is really important, not just to reduce the stock specific risk. but it's also going to increase the reliability of capturing these premiums when they do show up. Because oftentimes when you see a value premium show up, it's not gonna be uniformly distributed across every value stock. It's gonna fall within a subset of those. But by being broadly diversified across the space, we make sure to capture it when it does show up. Um, I'll contrast this to the Russell 1000 value benchmark, which holds 860 securities. So when you think about the, the large cap universe being the, within the Russell 1000 being a thousand securities, they're investing across 86% of those securities within the large cap space. So it's really not giving you in that, that dialed in value exposure that you're looking to get, even if the name has value in its name. Um, And this also shows up in terms of the characteristics of the portfolio, where on a weighted average market cap basis, we emphasize those smaller mid cap names. And so the portfolio's weighted average market cap tends to be lower than the benchmark. We have that deeper value cut and that tilt towards the lowest relative price names. And that shows up in terms of the lower aggregate price to book. And then while we emphasize profitability, there tends to be a trade-off or push-pull relationship there between valuation and profitability. But by tilting back towards those most profitable names within the value space, that metric's much more in line with the benchmark. Last thing I'll note is in terms of performance on slide eight. And so this strategy, we've been managing it for over 30 years now. And over that 30-year time period, we've outperformed the benchmark net of fee by 34 basis points on an annualized basis. Now, putting some context around those numbers, if you look at the growth of a dollar invested in the dimensional strategy compared to the Russell 1000 value strategy, that 34 basis points compounds to significant differences in returns over long periods of time, where $1 invested within the dimensional strategy would grow to $27 over that investment horizon. Compare that to $1 invested in the Russell 1000 value, you get about $24. So while 34 basis points on an annualized basis can seem somewhat small, compounded over large periods of time, you see about a 10% difference between the two. Last thing I'll note, again, really reiterating the point that when value does well, this strategy does well. Looking at those bar charts on the right-hand side, this is comparing the dimensional fund performance against its Morningstar peers. And this is monthly returns. And so on the left-hand side, you have the portfolio against its peers across all months. And it's outperformed by about eight basis points per month or on an annualized basis, about 1%. Now, in those periods where value has outperformed growth, that outperformance skyrockets. Because, again, we have that disciplined, consistent focus on that value side of the market. And in those periods where value outperforms growth, that monthly outperformance is about 50 basis points or on an annualized basis about 6%. So what I hope you really take away from this is that when value stocks do well, this portfolio is going to be perfectly positioned to capture that premium and deliver that outperformance against both conventional benchmarks as well as our peers. I'll pause here, see if there's any questions. If not, I can turn it back over to Kristen. Questions.

And all of the slides from the previous presentation are in the appendix if you wanted to look back on those as well. Great.

Any questions?

No? All right. Well, thank you for the time. You know, our job and our history has been centered on beating benchmarks over time for our clients, and we continue to do that today. And we'd really look forward to the opportunity to manage these assets on behalf of the employees of Royal Gables. So we look forward to hearing your decision. And please invite us back in January.

Thank you.

Although the summer's lovely, too.

Thank you.

Thank you. Where are they? Oh, so they're not concentrated in one location.

How are they?

I know.

All right. Appreciate it. Good morning.

Good morning. You can go ahead. I think we have about 15 to 20 minutes allocated. Very good. Thank you.

Good morning. Thank you all for having us this morning. Thanks for having us back. It's a quick turnaround, but always happy to be back down in Coral Gables. As you know, my name is Nate Rasposin, and I've got my colleague here with me, Jamin Lundy. I am the director of marketing at DRZ. I've been with the firm for 18 years. Jamin is a senior research analyst on our large cap value strategy. He's been with the firm for three years and has about 18 years of industry experience as well. We're here to talk about DRZ. We're an independently owned, institutionally focused value equity investment manager located in Winter Park, Florida. We are, you know, the three founders originally started Sun Bank Capital Management back in the 1980s. They formed DRZ in 1995 with our flagship large cap value strategy, which we're here to talk to you all about today. So a couple of themes you're going to hear from from Jamin and I, consistency, continuity of the firm. the process, the methodology, the importance of dividends and our clients as well. You'll hear briefly from me a firm overview, as well as a little bit of a history about DRZ. And then I'll pass it over to Jamin, who's going to talk to you about how we manage money. You'll hear him talk about yield, valuation, and fundamental catalysts. That's the heartbeat of what DRZ does. He'll talk about the importance of dividends. Then he's going to talk a little bit about a company that we own. He's going to give you an example of how we get to investing in stocks that we would own on behalf of you all. He'll pass it back to me to discuss performance and a few closing remarks, and then we'll be on our way. So first and foremost, I would draw your attention to the first page there that that blue sentence is our mission statement. And I actually have a copy of it right here. I carry it in my briefcase every day. It was created in 1995 when the three founders started the firm. And it says here to provide a superior experience, strong long term outperformance and excellent client service to the institutional marketplace. And I'm really proud to say that 31 years later, we still adhere to that mission. As I mentioned, we celebrated our 30th anniversary last year. I shared some of these stats with you all a couple weeks ago, but I'd just like to reiterate those. We currently today have about $7 billion in assets under management, 90 clients across the entire country, a real blue-chip list of clients. We work with some folks, and You know, the city of Houston, I happened to be with last week, city of Fairfax, our director of client service was with just yesterday, National Rail, Boeing, JP Morgan. I mean, it's a real blue chip list of clients that we have across the entire country, across all of our different strategies. 40% of those 90 clients have been with us for over 20 years. That tells you how important our client base is and how we truly do value that relationship that we have that we get to form with our clients. So it's really a privilege to have the opportunity to serve those people that serve us on so many different occasions. What I would also share with you is being an independently owned shop, we don't have to grow for the sake of growth. We have the ability to be mindful of our growth. We always want to put our clients and their interests first and foremost. So having said that, we've closed our strategies to business on three different occasions since we started DRZ in 1995. We said, hey, we don't want any more business. We want to make sure that the clients that we have today we're taking care of. That kind of sounds counterintuitive, right? But if we're thinking of what the client's best interest is and we want to protect the integrity of our investment process and what we're doing for our clients, I think it speaks volumes in terms of how we value our relationships with our clients. So two of our founding partners retired at the end of last year. The important thing that I'd share with you all is that the remaining shareholders bought back their equity. So we're remaining independently owned. So we don't have to answer to any type of parent company. Half of our employees, we have 27 employees, half of them own 100% of DRZ. Our interests are aligned directly with our clients' interests. If our clients do good, we do good. If our clients do bad, we feel the brunt of that. And that's, we believe that we're sticking our neck out of the line and we're really proud of that. In terms of the large cap value strategy, we have about 2 billion assets under management over 35 clients. The average client relationship with our large cap strategy is about 24 years. So as I mentioned, we were with four of our top five largest clients in large cap over the past 10 days. Just so happens that we had meetings, we had client meetings, but it's pretty neat that we get to see so many of these clients on such a regular basis. Over the past three years, we've added 25 new clients. We've lost six clients. three in the large cap space all went passive. We had a consultant tell us we were the best performing manager on the plan, but they decided to throw in the towel on all active equity investing. So we get that happens, but we do believe, and I believe the numbers show that we are very positioned well to perform well and contribute to our clients. We've been FBPTA supporters since the beginning of its foundation. Like I said, we have probably about 30 clients in the state of Florida, 26 public clients in the state. So we're excited about the opportunity to potentially grow that with with the city of Coral Gables. And if there aren't any questions about the firm, I'd love to pass it over to Jamin, who's going to provide some some comments about some stocks we own and how we how we manage money.

Thanks, Nate. And good morning again to distinguished members of the committee, Vice Chair Monticone and Dave and Kerry. Certainly is a privilege. Well, how do we think about our process? How do we think about buying stocks? So slide number three, you'll see our process. It's really three stools, if you will, of a proverbial of our framework. a three-pronged process. And so one, yield, valuation, and catalyst. All three have to be present for a stock to be a candidate to be in our portfolio. And so on the yield side of things, we look for stocks that have a dividend yield of 1% or greater. So this is the minimum threshold. On the valuation side of things, this is stocks that are trading at the low end of their historical valuation. So think of high quality stocks that are temporarily dislocated and sold down by the market And then from the catalyst standpoint, this is anything that can inflect the story, any change that can really drive the market to ascribe a higher value to the stock. And so this could be M&A, new management, new product cycle, divesting a business, et cetera. And so really on the catalyst side of things, and many of you may have remembered this from the last time we were here, we spend most of our time focused on fundamental catalysts. And this is talking to companies, doing channel checks, talking to competitors, really rolling up our sleeves to understand what drives the value of a stock. And so just to kind of bottom line, bottom line, everything from our standpoint, our process, we try to be as rigorous, as methodical as, you know, sort of getting a design approved by the board of architects here inside the gables. Maybe, you know, Not that high of a bar. I know that's a high bar, but we try to be very methodical in terms of getting a stock through. And so I think it really will help to kind of understand better if we walk through a real live example. But before we do that, again, I want to reiterate 30 years, one process. And we really focus on having these three elements in play and where bottoms up fundamental value manager. And so with that, if you turn with me to slide number four. So last time we were here, some of you may remember we talked about Cirrus XM Satellite. We still own that stock. We still like the story. Today we're going to talk about one which I'm sure many of you are familiar and probably use every single day. And this is Microsoft. And this is very timely. And it speaks to our process. So what's the punchline here? of the story in terms of why is this so interesting? And so Microsoft is really a leading AI infrastructure player with a cloud business growing 30% plus on pretty large, massive numbers that is really poised to be an AI toll booth, if you will. And again, you can't go a single headline Can't go a single day, excuse me, without seeing a headline about AI. Microsoft's right there in the middle of it. And so why was it interesting? Why is it interesting? So back in March, the stock gets sold off with many of its software peers. Stock was down 20, 25 percent. This is a stock that historically traded at a market premium. The stock at this time when we got interested was at a market multiple. And just to kind of give you some history, previously in times past, for most of the history of the company, we couldn't own this stock, either because of valuation or dividend. And to put some numbers around that, in the entire history of the firm, Microsoft, since it went public, 40 years, we could own the stock roughly 15% of the time. So six years. Why is that? Because simultaneous 1% of greater dividend yield and the valuation piece. And so we saw an opportunistic time to own the stock back in March. Again, stock is sold off. It was interesting. And so if you kind of go back to our process, what do we think about dividend yield met that threshold? The valuation was straight in historical lows. And so you may be asking, what about catalyst, Jamin? Well, I'm glad you asked that. So on the fundamental catalyst side of things, again, as I mentioned, premier AI toll booth. So this is a company that plays in all layers, if you will, of the AI stack. infrastructure layer so think of throwing up and building data centers with all the nvidia gpus inside of it you know microsoft is spending you know billions and billions of dollars every year as their competitors are doing but then also in the application layer so this is one of the first companies to actually monetize ai And they have a product called Copilot, which you've probably seen infused with your Microsoft Office products. They have roughly 30 million paid users today. But then also, if you think about AI from our vantage point, the future of AI is really enterprise adoption. And this is a company with a 40-year-plus history of being very sticky with the enterprise. And so we've seen companies really reallocate their IT budgets to focus on AI, and that's embedding AI in the existing applications, but then also building up their private clouds. And all of this is areas that Microsoft will play and benefit from. And so again, in March, We didn't own the stock. End of March, we saw an opportunity. We bought the stock. for these various reasons. And I'll have you know that the company recently reported Q2 results just a few days after we were last here, and the stock closed up 15 and a half percent on the day after reporting pretty impressive numbers, including Microsoft Azure growth, which is a cloud infrastructure platform of over 40%. And that 15 and a half percent one day close was the single largest market value increase in the history of the stock market. Again, sometimes it's better to be lucky than smart. But that shows you how quickly things can move. That shows you how really identifying that perhaps the market sometimes in the short term can be a short term foolish or short term overly draconian in terms of looking at the outlook of a company. But I can humbly say that this is a prime example of how we think about managing money, implementing and actually executing the process on a day to day basis. And so with that, if you turn to slide five, this is a snapshot of our top holdings. And I'll just highlight a few brief things. So again, at the top, you'll notice that Microsoft went from us not owning a single share in March to now our top position. And so we have high conviction in the story. Again, our process is very dynamic. And so we move and we have been aggressive in adding when the stock was down. And so we try to be very dynamic and very opportunistic in noticing those market dislocations. And so, again, didn't own a share in March. Now it's our highest conviction market. position in a portfolio. And then briefly, I'll just highlight, as you can see, we have sector diversification. So these are well-known brands, well-known companies across a litany of different sectors that we have conviction about and that we trust the catalyst dynamic of these stories. And again, this all ties back with our three-pronged approach to our process and how we think about things. And so with that, I'll turn it back over to Nate to discuss how our process and approach has really fared over multiple market cycles and over time, even decades.

Thank you, Jamin. And just real quickly on the top 10, you all may notice it's a little bit different. We updated this through the end of July versus the end of June. Shows our activity, three new top 10 names. After, you know, the end of June through the end of July. So we've, you know, we talked about SanDisk and Western Digital briefly last meeting. And, you know, as those companies did well, we were trimming those positions pretty accurately. So they're no longer in the top 10. But that shows you the activity and the importance. So the following page, page six, we can just touch on briefly. This looks at a couple periods of significant underperformance that we've experienced over the 31 years of history. Unfortunately, I can't tell you that it's been a straight ride up. There are obviously periods of volatility. We survived the dot-com bubble. We've survived the great financial crisis. We survived COVID-19. And you can see here the positions. And, you know, you look, they started DRZ in 1995. And four years after they started DRZ, we're facing arguably the greatest growth value headwinds they've ever seen. And once that tech bubble popped, you can see what DRZ did in that bottom chart below. Over 700, about 700 basis points above on a three-year basis. Just fast forwarding two years from that tech bubble popping. And then I draw your attention to page seven. This just looks at the growth of a hundred million dollar investment. So we put ourselves, we put DFA who were competing against as well as the index in here. And you can look if you'd invested a hundred million dollars 20 years ago with DRZ, it would that hundred million dollars turns into 650 million, DFA 595 million and the index 539 million. If you go net of fees, this is grosser fees. So if you go net of fees, we're still 576 million. DFA is at 562 million. And the index is 539 million. So you do the math. That's about $800,000 per year. that you all can use at net of fees to pay benefits to your retirees. So we're very proud of the performance that we've provided to our clients. And as I mentioned, we're with four of our five largest clients in the large cap value strategy over the past 10 days. They've experienced this entire experience. You look back on an inception to date basis, and I brought this handout out. This is also net of fees.

Okay. Okay. Okay.

Correct. And I have that chart as well. We can we can pass out. And then lastly, I'd just like to close on the final page. Would you mind please? Page eight, which looks at this is something we've always said and we've always been proud of when values in favor. We're going to do remarkably well. So you look back through the creation of DRZ, going back to 1995, there have been 12 periods where the Russell 1000 value index has outperformed the Russell 1000 growth index by 100 basis points or more. In those periods, nine of those 12 periods, we did exceedingly well. And you can see, and relative to our peers that were in here, over 2,200 basis points of outperformance in those periods when value's in favor. that shows you the conviction we have. Um, you know, it's not a concentrated portfolio. It's 60, 60 to 70 names, but high conviction portfolio, our top 10 names. We have a lot of, a lot of conviction in, and we believe that if we do our work, if Jamin and his team does their work well, we're going to be in a great position to outperform and provide superior returns as our mission statement says, and allow you all to pay those benefits to those retirees. That is so important. Um, And I'd like to just close on, you know, I understand fees are an important part of what we're talking about today. We've talked with the home office. I've talked with the two co-CEOs. I've talked with our CFO. With a mandate this size, I know we proposed a 45 basis point fee. Would love to, would drop it down to 40 basis points for a mandate this size. This is comparable to what we work with with some other plans locally as well. And Manny, I'd share with you lastly as well. We do have a contract up and ready to go. If by chance we do have the opportunity to work with y'all, I understand y'all want to move pretty quickly and we're able to. That's part of the beauty of being a boutique shop. We can move pretty nimbly. You give us some money tomorrow. we're investing it within three days. We'll have it fully invested and we'll start, we'll get off the races. But as I mentioned, it would be an honor to work on behalf of the Coral Gables Retirement System. And we can't thank you enough for having us come in here today to share the story that DRZ is. And if there aren't any questions, we'll let you all get back to your meeting.

Any questions? Thank you so much, guys, for coming. We really appreciate your time. All right. Thank you.

Appreciate it. Thank you.

Yes, in the month of July.

Sorry. Yes, it was.

We were comparing.

Annie, can you turn up? Troy and I were trying to compare, right, where Brandywine is post it's making its changes, right, to where these two managers are, so.

Mr. Chair, what was the return for July for DOZ?

I didn't think they did.

They have June 30th. One year through June 30th here.

Alex, because the fees seem pretty high for these guys.

Yeah, I mean, I think what you're comparing a little bit of apples to oranges, right? One's a more boutique, you know, real active stock picker. The other group, you know, is a little bit more, you know, I think you're mirroring. I think last time, Dave, the other group, DFA, is, you know, they're mirroring more, you know, the broader index, right? I think the last time we had said, if you, if you were to look at the correlations between the index and each one of them individually, I'm not sure what was the request. I remember it was related to the correlations on the returns.

Yeah. The summary on that is. uh you know we did the correlation analytics because obviously we're looking for the best pairing um or contrasting style of play if you will to the um to the index but also to your other uh to to you know the eagle So not to belabor the response, well, let me answer the question first. So DRZ would have the lowest correlation mathematically to the other candidates. And then secondarily, if we look at it, the process Fundamentally, obviously, they are materially different in their approach to DFA, who both DFA and DRZ are materially different in their approach to Eagle and where they fish and migrate and the factors that are driving their returns. So all three candidates provide a very nice diversification from a correlation perspective. But, you know, DRZ would show up as the more extreme as far as differentiating mathematically. And on that point, I think one of the things that we were discussing at the investment committee meeting was the performance cyclicality, right? We got that out from DRZ. I was trying to extract that from DFA so we could all be on the same page. And DRZ is definitely has a... very defined performance cycle, headwinds and tailwinds, to the extent that we wanted to make sure we addressed that. And they did, and they showed their biggest tailwind is right after major market debacles, at which point they've got a massive tailwind to their strategy, where DFA is steadier, but less differentiation performance-wise from the benchmark. So from a team player calculating the stats on the play, a lot more volatility with DRZ, but they were able to maximize that in a positive way and obviously showing net outperformance and net outperformance net of fees too.

I have a 1.31 for DRZ for July, 1.31.

that month so do you want to go what's your recommend I mean I guess we can we should I mean we have to make a decision today at this point right what we should do you want to go down around the room you know, and kind of give recommendations or Dave, do you want to start and kind of give your, your opinion on which way we should go and then anybody else can chime in on it.

Would you mind if I ask a question before you start Dave in your analysis? Okay. So on page eight of DRZ, they're, they're demonstrating that during the R-1000V, when it outperforms the R-1000G by greater than 1%, that generally, yeah, 9 out of 12 times, I guess, they are outperforming DFA. But what about when it's a flip? It's R-1000G is outperforming the V-1000V. which is in most of the cases of growth, it's a growth year instead of a value year, because what do we have here? 12 years out of the last 30 years almost. And so how does DRZ perform in comparison to DFA when it's flipped and the G is outperforming? And also, how is DRZ handling that growth year? Are they more volatile or are they – because they're only putting in their – of course, they're going to put in their best numbers, which is – I would do the same. But how do they handle the growth years when value is not able to – I mean, do you have that? If you don't have that information, I got it.

I have the rolling returns and I can just say, you know, it has definitely been a growth on environment. So that should come through in your three and five year numbers kind of overall. And I'll say per Morningstar through July, DRZ on the three year basis was up just shy of 17. DFA was up about 17.3. That's a three year basis. On a five year basis, DRZ was up about a 12.4. DFA about an 11.8. on a seven-year basis um drz about a 13.3 dfa about a 12.4 we can say we we didn't carve up year by year obviously but i think it's fair to look at the trailing numbers because we've been in such a growth on environment for so many of the last few years now 2022 you know was a value year but other than that to your point it's been very heavily growth is that gross net of fees this is from morningstar so likely it's gross It's kind of mixed, unfortunately, because for separate accounts, they do gross. For mutual funds, they do net. So it tends to be mixed that way.

Not to go back, but the numbers are close to what Brandy was at 70.

They're extremely, extremely close. Yeah, the issue on the table is what I think is arguably what's transpired is Kerry communicated with those relative results. What's transpired over the last maybe three to maybe stretch it out five years where we're in a super cycle, arguably in a super cycle for growth with this whole AI theme. and uh value managers are suffering brandywine suffered and those managers that outperformed and i'm just being observational only those managers value managers that outperformed had more of an earnings growth bias in their portfolio metrics that's why i was asking those questions extract you know um how you were able to to you know stay up in here and um you know, both managers did it in a different way, right? DRZ had Microsoft, right? And that was a growth, earning growth driven decision in my interpretation of the explanation. And DFA in their quantitative metrics, they emphasize growth is one of the screen, metric screens that they use quantitatively. And that's what helped both of these managers grow. Definitely differentiate from the rest of the value universe. And that's where Brandywine struggled a little bit because they, even though they're a quantitative manager, they did not have the same emphasis in that growth of earnings element. And I'm really simplifying things here, but that was the focus. And that's what's driven stocks for so long. So that's what's created the performance differentiation over this last three to four years. Is that addressing the question or confusing the issue?

No, I understand what you're saying. I mean, I hope everybody understands what I'm trying to get at is that how are they performing during the growth years, both of them in comparison to each other. And the numbers that Kerry gave me, if some of them are net and some are gross fees, which it's difficult to differentiate, but the fees of DRZ seem excessive or high. And so maybe a lot of those years that they outperformed DFA now I'm not recommending DFA I'm just saying that the years that they outperformed DFA maybe they didn't because it could have been those gross years because you look at the difference of their return From 649 and from – they were almost 55 ahead, 54 ahead. And then all of a sudden now they're only $10 million spread between the two of them or 12 or whatever. And that's because of fees. So maybe their fees would – if they were distributed the right way or put on the same plane as DFA, they might have actually underperformed them. in a majority of those years because the numbers you gave me, I believe, are not far apart from each other. So, I mean, I'm not a finance guy, and please help me out, folks that are, but I just think, I don't know. I mean, both of them seem like they're doing okay, but DRZ's numbers are longevity.

All right. Can you mic up? The microphone.

So I'm looking at the methodic approach. And with DFA, they show consistency that their expenses are low. And the fact that they're performing just as well as DRZ with a huge amount of assets in our management, I'm heavily leaning towards DFA. I think they have everything that we're looking for in a portfolio management group, and their performance shows it. So low expenses, huge assets under management, long-term returns, and their performance. So I'm leaning towards them.

I think there's no harm in that, right? You sort of tested the market. If you'd like to give Brandywine more runway, I think that's reasonable.

That's what I was going to say. I think I'm thinking the same thing you're thinking, right? And it's hard to say after we've, you know, we kind of made that decision a few weeks or a few months ago.

I think you came to a recommendation to definitely replace Brandywine. Yeah. Can you explain to us why, now that we're looking at the July numbers, where they actually did better, so their strategies improved? Gotten a foothold. Right. The question, I think, and it's your decision as the board, but the question is, should we give them another month or two of runway and see what happens before we pull the trigger, based on the fact that they actually, in July, outperformed these two.

Yeah, by a lot.

By a lot. By a lot. Yeah.

first time and how long does it hurt to wait right does it hurt to wait we never right i guess you never know right yeah as sean said we're a fun and long a longevity fund it's not like we're retired we're all retiring and pulling everything out next month or even here i gotta be honest with you i think we should give them an opportunity because they've pivoted and they've turned They've made these major changes according to what I've read from investment.

And Alex, the only other thing I'll say is, and we can have the numbers, but if you look at the three-year and seven-year numbers for Brandywine, I think the numbers you read out, and it's confusing, right? What's net of fees versus gross of fees? But they're almost identical to what Brandywine did at three years and seven years. So it looks like it's more been for anyone short-term issue on how they reacted to things. But now for the most recent time that the market went down in July, they outperformed these two.

Yeah, from the consultant's chair, right? So that's the reason why I was, you know, never on the track for a manager, right? No vested interest on other than making sure you all get the best professional decision, right? But so, you know, I was essentially laying on the tracks recommending, hey, let's let's let this performance cycle play through. And that's that's why, you know, we are I guess I'll take responsibility. Didn't recommend taking the steps that we did. And our performance step was continuing to grow. And I'm. you know, professionally, I'm concerned. So we absolutely had to address it. We had the manager in. They explained why, and I think it's pretty clear why everyone who performed well or didn't perform well did or didn't because of that orientation. They did make an adjustment to the program. We always hesitate any time a manager makes a change to a process, right, because they're data mining. They're going back and saying, oh, well, this would have worked if we did this. But in, you know, in that particular instance, I think they were proactive in making changes on the margin. And, you know, so far, I mean, a month, two months doesn't – shouldn't drive a decision here, right? This was – This is a long term. Is this repeatable? Is the good performance repeatable or are we going to see, you know, bad, bad performance coming out of the manager? So it's a very challenging decision. We're trying to be, you know, professional and analytical.

Do you have an opinion one way or the other? I mean, is there a recommendation on your part as our consultant? You know, should we sit tight with Brandy? Should we make a change anyway? I lean on you mostly. So give me one second.

Yeah. Taking it from a consultants here, top line approach. Okay. We almost went to the index with growth, right? And we were concerned about the cycle high and the distortions if we buy the index. Oh, we terminated a manager for bad performance and changes in the firm, and we moved that money over to Winslow, right, because they're – A little more all-weather strategy, and we were afraid of going into the index, justifiably afraid, in my opinion, of going into the index with these massive AI allocation distortions. So I think that was a very prudent decision to make. So let's go over to the value side of the court. We feel that Mariner feels that, and I echo this, that there is more opportunity for in the value court for managers to potentially add value over time through their performance cycle, right? Through market cycles. So we think, you know, if you can lay the chips on the table or the cards, we think there's a much higher probability of finding a manager with a long-term track record that will underperform in value. That being said, We tried to approach this where in our candidate search here, OK, if we are going to go active, are we going to go active? Or are we going to be cautious in the approach, pay a lower fee, but have a lower margin of return above the index? So our thinking on this was, let's bring in a very low correlated manager. Yeah, their performance is cyclical, but they've demonstrated over the last 30 years that You know, they more than make up for their, you know, challenge periods. So that's why we introduced DRZ as a candidate, because we felt like historically anyway, you're getting more bang for your buck. The fee is higher, but on a fee weighted basis, you know, you're still, you know, you're getting more. active performance out of your active manager in a space where there's more potential for managers to outperform. I mean, they've been around for a long time, been through a lot of market cycles. But the other side of the equation is we also want to introduce a manager with low volatility of manager returns and, you know, give you the opportunity, more diversified, uh, give you the opportunity to maybe take that, take that path. Uh, but our position top down, just macro, regardless of who the managers are, um, you know, we think if you're going to, if you're going to go active, let's go active, make sure the fee is reasonable from our perspective, both manager fees are reasonable. Uh, they're competitive. Um, So that, you know, that's how we tried to approach the search. And ideally, at the end of the day, as coach of the team, you want players that play well together. And going back to the, you know, the correlation map there, historically, anyway, you know, DRG ends up being the lower correlating performer.

Yeah, I think the biggest question here is, do we really want to go with an active manager, or do we want to basically mirror the index? I mean, that's ultimately the way I kind of see the two, right? To me, DFA is just mirroring the index. They're active. I know. I understand that they're active, but their returns are almost identical to the index with very little differentiation.

So that goes with the index, sure. To get the higher fees.

I don't consider 34 basis points really too much of an outperformance. But, I mean, in general, I mean, yes, you're right. They outperformed. But the correlation between DFA and the index is almost one-to-one. That's all I'm saying. The correlation and no real major difference in returns. That's all I'm saying. The two are very similar.

Again, I'm perfectly happy with going that route.

um i think they're both i think they're both they both have a great track record um but the main what we're looking at here is the main difference is are you going with a more active stock picker or are we going with somebody who's a little bit more mirroring the uh the index and there i don't think there's there's a there's an argument for both so

I think the model tweaking is what kind of makes you wonder losing confidence in there.

Now it's on. Okay.

I think there's a lot going on in the background with Brandywine. They were acquired by Franklin Templeton a few years ago. We're seeing some of the folks that we would deal with either laid off or leaving the firm. We see that they're tweaking the model. The folks they're bringing out with them are Franklin Templeton folks. Those are the things that I think about when I make this decision. Like, you know, do we, do we replace or not? It's not just underperformance because we know that value has been challenged. It's what's going on in the background. Is there distraction? You know, has there been, and we know, again, they're making changes to the model. And so nobody knows what the future holds, but putting those things together, it just really kind of gives you pause. I think when you're in our chairs.

So your recommendation is make the change now.

Yes.

Can I say a couple of things about Brandywine? I thought we made a decision already to get rid of them. But if you look at the report, every single metric, they've underperformed the benchmark. Inception, 10-year, 7-year, 5-year, 3-year, 1-year, fiscal year to date. Just because they outperformed one month, I think that's too short term. If anything, that's an advantage for us to sell when they're getting high. And then two, I don't think if they're changing their style, I don't think it's our responsibility to not be the test subject for them. Let them have a track record with us out, not in the fund. If we see they're outperforming, maybe we can bring them back in. But I don't think it's responsible for us to be in there. Let them testing with us their new strategy when we've already made a decision to get out. The other two funds, I don't mind. Both won't seem fine. DRZ and DFA. I mean, I guess we can go on off your recommendation. I think it's pretty clear we should get out of Brandywine. I think it's pretty clear.

It's to get out of Brandywine. Okay. Alex, I don't want to terminate the discussion, but can we decide first if, as a board, we're ready to make the change? And if so, then we could focus our attention as to which one of the two.

I think the decision to get out of Brandywine was made and voted on. I agree. Yeah, this was just a discussion. It was more just a discussion item rather than a decision. That's fair. If that's everybody's understanding, I agree. That decision was made. Yeah. So now it's just... Which one? Which one? I mean, from my perspective, I'm on the fence between both of them. Each one has their pros and cons. It's a really tough decision, honestly.

Let me just go back. Mariner, what was the recommendation you guys have between the two new funds? Between DF and DRZ.

Because of the way that they pair, DRZ essentially was our recommendation.

Is there a motion?

So therefore... So the recommendation from Mariner is to move with DRZ based on the fact that I have lower correlation in regards to the whole fund. Is there a motion for that?

One quick thing before I do a motion for that is they said that they were lower by five basis points. You think that's all the squeeze we can get out?

it's always possible to, to go. Yeah. It's always possible to go again for another round.

He offered that, but that doesn't mean that.

Yeah.

Yeah.

I can ask the question. We can't answer definitively. However, we were tasked with investigating fees. Yes. I read that. And I, I did have a conversation with DRC and I, They came back basically with a realistic industry answer. And that's, you know, in the public fund space, you know, your contracts, your fee schedule, you're subject to MFN, right? And they have so many clients in the area of equivalent size or whatever in the Florida public fund space that they really, their response was that they really couldn't come off on the fee that much because then they would start violating MFN provisions of other client contracts. So that's how they came back. I was, pleased that they came back this morning with five. Kennedy wasn't expecting anything, though I asked for it. But that's why they only came off. And then with regard to DFA, those are SEC registered funds. So there is no fee negotiation there. It's just not, it can't be done. So that's, I hope that addresses the question. fee question I mean we can go back but you know I'm not I'm not sure given their their response you know MFN concerns I think they put their best foot forward on that and Dave from being able to get in get out it's very liquid okay no lockout periods nothing like that no they'll hold dedicated publicly traded equities in your name so very liquid and you have complete control over that structure Yeah, so this will be the same exact structure. NT will be custodian. It'll be buying and selling individual securities. We have total control.

I mean, one of the stats that really resonated with me was the amount of long-term clients that they've had and the low turnover. I mean, it's, it's as boards turn usually, but in their space, right, where, you know, you go around the whole country, you know, and as boards turn, they usually have a tendency to want to get rid of funds and stuff. And they've actually been able to just to not have that type of turnover amongst their pension clients and around the whole country, which to me resonated, um, a lot in terms of the service that they provide and the performances that they've been offering.

And Alex, when we review the contract, we can make sure that we've got an MFC or most favored nations clause in ours. So that, right. So we make sure we've got the best fee that that's out there. Yeah.

Okay. Is there a motion?

We don't keep kicking this around unless anybody, unless anybody has anything. Motion. Motion. I second.

Okay. Well, I don't think the person... I think we went through it. I think you've got to make the motion. I did, but somebody was... No, Troy, you go.

Oh, that's... That's me, it's Derek.

No, no, I know. I kept trying to talk and somebody kept talking over me.

You've got to make the motion.

Okay, I'd like to make the motion that we go with DRZ as our... Money manager for the value space.

Is there a second? All in favor?

Aye.

Opposed?

Aye. With the addendum that we're replacing Brandywine as the value money manager.

Okay, so I think motion passes. I think it was two nays. Rene.

Okay, let's talk to transition. In the past, and we covered this in the investment committee meeting, but for the benefit of the full board, there's a cost associated, right, anytime you change managers. And we're recommending using a third-party independent transition manager. We've used... campus institutional in the past here to transition. They work on a one-time agreement. They serve as fiduciary to you, the fund, and their sole responsibility is to complete the transaction in the most cost-effective manner possible. So we're getting, we ask them to forward an agreement and the commission structure is preset. We review it, make sure it's competitive, number one. And number two, there's a cost savings here because DRZ may own some or want to own some of the same securities, highly likely that Brandywine is in. And the big benefit here is the transition manager will review both portfolios they'll cross positions and they will establish DRZ's portfolio in the most efficient manner. So anytime we can just transition stocks already owned over and not have to sell and then repurchase, there's a cost savings there. So that's a huge part of what a transition manager will do. And then the third part is they will complete it in a very efficient manner to minimize our out-of-market time. I've been in this business long enough to know you do a transition today or expect to do a transition tomorrow and all of a sudden tomorrow the market rallies or falls out of bed. And all of a sudden, you know, you've gained or lost something that you can't predict in the portfolio. So from our perspective, it's best as an institution, minimize your out of market time suspense. So that's the third big benefit of going with a transition manager. So if it's agreeable to the board, Mariners recommending utilizing a capitalist institutional contract is ready for approval for one-time transition from Brandywine to DRZ. And they'll work with Northern Trust, who will service custodian to the entire process from beginning to the end portfolio that DRZ will provide.

Dave, is there fees for doing this? It's net-net. It's going to be cheaper than going through the transactions. I just want to make sure that we're going to end up net positive and that there's no possibility of where we end up in a worse place.

Yes, that's the objective, right? And just in the dark ages, and again, this is the dark ages, when a portfolio, and this is a business model decision here, right? When a manager is terminated, right? You want to avoid, and I'm not saying any manager that we're dealing with would do this, but from a business perspective, that manager has free reign on liquidating the portfolio. So they could hypothetically go to broker ABC and say, liquidate this portfolio, give me the soft dollars to pay for my research. I'm being draconian here, but that's what used to take place. Not likely to happen anymore, but from a fiduciary oversight perspective, this is a very clean business model. It eliminates any Potential for conflict of interest. Nothing can come back to any of us. We are operating on a clean, transparent basis. The second part of that is that the campus will provide a pre-cost estimate report. And they will provide a post trade estimate report. So they're going to give us an idea of what the expense is before we go in. And they're going to give us some final accounting. Again, all good for the record. And it's like I said, if the market blows up or rallies or some way, they're going to account for that. So we'll know why there was a differentiation. And the final report over was expected. So it just covers every point from A to Z with full transparency and independence as fiduciaries.

And to Dave's point too, they're selling Brandywine while they're buying DRZ to try to keep you market neutral rather than having Brandywine sell out those funds that in cash are kind of subject to whatever happens in the market that day. They're literally selling and buying at the same time to do their very best to keep you market neutral. And that's a huge part of the advantage as well.

Did I ask a question? Yep. Thank you.

Okay.

We need a motion to approve using.

Okay. So is there a motion? yes yeah i like the motion that we use campus for the transition between brandywine and drz all in favor all right all right one opposed all right motion passes um i think um new any uh we're done with that um any new business and any public comment

Yes.

Okay. Hi, Harry, go ahead.

Yes, hi. ...in 2006. Quick question. I don't see Pete there, so I guess I'll direct my question to Dave. On page seven of the July flash report... The first three line items are total fund net, total fund policy, and total fund gross. When looking at the third quarter report and comparing it to the July report, those percentages vary from 8.72 to 10.31. Which is it of those three line items that you look at that we would most likely use to determine if a COLA is going to be, our eligibility for a COLA would be triggered or not?

Yeah, that's a great question. So I'll give you the long answer after I give you the short answer. So we were looking at the 9.08 fiscal year to date total fund net. And the reason behind that is Florida state law requires that we report your total fund performance net of your manager fees. And the reasoning behind that is that is the actual number that the actuary is going to use, right? We can't use a gross number because there's money going to be taken out for fees. So consistent with Florida state statutes, we'd be using the 9.08% number as a best estimate of You know, what's the common?

Yeah, another quick question or comment. I just wanted to make a point. Two days, within several days of the last Joint Commission Retirement Board meeting, Mayor Lago put out a blast email to all the residents in the city about the pension system and other items. But one of the comments that he made was, In six years, on October 1st, 2032, which is the estimated point where we'll be 100% funded, and as long as the fund that year makes 10% or above, we'd be eligible for a COLA. Now, the ordinance caps any COLA that's granted by the commission. It caps it at 8%. And I'm just assuming that when that time comes six years from now, we're going to be eligible for an 8% COLA. And if the commission approves it, that's going to be a huge hit on the pension fund. And my guess is that then it'll send the pension fund back into unfunded liability. So it just seems like to me the mayor's comment about you know, the second that we become 100% funded, that he said in his email that it would save the city $27 million. And they could use those monies to go towards infrastructure or sidewalks or whatever. I mean, I don't know if my statement is all that accurate, but does it doesn't make any sense? Is it true?

Yeah, this is Dave West. I'll field that one. I think that is an actuarial question appropriate for Pete Strong. And I'm sorry, I did not have I wasn't privy to the mayor's memo on that. I would suggest deferring that question to Pete Strong and he can give you a lockup answer on that one.

Okay. Yeah, I appreciate it. And I'm not, you know, saying anything derogatory about the mayor. I'm just, you know, looking ahead at what's going to happen. I mean, and cause there's now you got another joint meeting coming up in October and it might be something that you might want to discuss with the mayor. So anyway, that's all I have. Thank you so much. And y'all are doing a great job and thank you for keeping on top of things and managing our fun and so well.

Thank you, Harry as a valid point to watch to bring it up that over meeting. Okay, any other public comment. I think that brings us to adjournment motion to adjourn. Second, I. Motion passes. Thanks. Meetings.