General Employees Retirement Board - Regular Meeting

Thank you.

Melissa, same sign as my daughter.

Oh, my gosh. Melissa said, you might have heard of some sounds where you go like, this is to like, this is what goes on in your head. I just feel like Spritzes.

Thank you.

Good evening. We're going to call the meeting to order. Recording in progress. It's a meeting of the General Employees Retirement Board. Mr. Clark. Yes. Mayor Fremark. Here. Vice Mayor Salver. Here. Councilman Levy. Here. Councilman Salver. Still here. Here to Vice Mayor. Sorry. Yeah. Councilman Sklar. Here. Councilman Wolf. Here. Ryan Cochran. Here. And Lourdes Rodriguez. And we have Fulcrum. Thank you. All right. Please rise for the pledge. Thank you. First item we have is board minutes for approval. I'll take a motion. I'll move it. We have a motion. Do we have a second? Second. We have a motion and a second. All in favor? Aye. Any opposed? Motion carries. We have the quarterly investment report for June 30. George, you want to provide the introduction?

Sure, Mr. Mayor. This item is your quarterly report for the investments. Mr. Lowe is here from Draystone Consultants who will give us an update of where we are as of June 30. Thank you. You've seen the market, so he'll tell you how it's played out.

And we'll keep it brief. I mean, the market keeps going higher, right? We missed last quarter, which was the bad news when the market was down, right? And we've recovered since then. So when we talk about fiscal year and we talk about where our portfolio is, I think that's the most important thing to talk about is where are we for our fiscal year return trying to get to that 5.75%. But if we jump right in and take a look at the numbers, kind of give a high level and a buildup to where we are today, if we're in our books on page 2, We start with domestic equities, the S&P 500, the first benchmark on that page. You can see for the quarters up 1094, almost up 11% for the second quarter of this year, third quarter for our fiscal year. That's a strong return. You look for the year up 6.2 and over the last 12 months up 15%. So equity markets continue to do well. We've seen inflation start to come back down. We saw the Fed last year start to reduce interest rates. We still see positive earnings results. There just hasn't been a lot of bad news. The press tries to say, hey, there's a recession coming. There's headwinds coming. We haven't seen it yet. We did have an inflation print a little bit higher this morning than expected. So out of the S&P 500, 450 stocks were down today. Fifty were positive. The market was still positive. Why? It's those tech names, that Magnificent Seven, Google, Amazon, Tesla. These type of names have been moving the market higher over the last year. two, three, four years and continue to be a market leader just because the size of those companies have become so big. When they move, they really move the market and they've continued to lead it higher. And we've seen still positive results for the last 12 months. Now, do we have some tension between the Federal Reserve and the current administration? Yes. Do we have some difference of opinions on what inflation is going to look like going forward? Yes. And I think that's really going to start playing out this month, into this quarter, into the end of this year, especially with next year, what do we have? Midterm elections. So I think there's been a lot of pressure, a lot of back and forth between the administration and the Federal Reserve, and we'll get into some of that when we look at the fixed income markets. But international markets on page three, we do have international in our portfolio. It actually outperformed the S&P 500 for the last quarter and over the last 12 months. which is kind of counterintuitive. We've talked about tariffs, and we've talked about slowdown of international markets. Well, we've seen a great rebalancing. Most investors have been overweight US equities. International investors have been overweight US equities. So with the uncertainty about the administration, we've just seen rebalancing. There might have been too much risk in the US for investors. They've started looking overseas and started rebalancing portfolios. And with that, it's really been a dollar play. The dollar has been weakening. over the last six months. And if the dollar goes down, that's the tailwind for international investing. Now, is that going to continue? Possibly. We've started seeing it bottom a little bit, but it's actually been one of the most aggressive devaluing of the dollar going back to, I believe, the 50s, 60s, 70s, in that area. So that's been a tailwind for international. It really hasn't been from growth of corporate profits. It's just been from the dollar depreciation. which has helped our portfolio. And the last piece before we get to our portfolios on page four, fixed income markets. Over the last 12 months, for the first time in several years, we've seen bonds do better than cash. On that page, the first benchmark is 90-day T-bills. That's our savings account. You can see for the quarter, up 1%. The second benchmark, the Bloomberg U.S. aggregate was positive 1.2%. Better than cash, 12 months. Cash was up still almost 5%. You can still go buy money markets at 4.25%. Overnight lending by the Fed is 4.25%. Still pretty high. But for the first time in a long time, you can see the Bloomberg aggregate was up 6%, outperforming cash. We think there's still going to be volatility in the fixed income markets. As we had the inflation number come out today, that now is putting the odds on a rate cut. Kind of a little bit lower, right? The Fed is trying to control inflation and control employment. Employment continues to be strong. We've seen some parts of the market where unemployment or there's been layoffs, but there's still growth in the job market. So as long as there's still growth in the job market and we still see inflation a little bit higher than where the Fed wants it to be, we might not see a rate cut. Now, I think Trump is pushing for that rate cut, and there's that head-butting we were talking about earlier, because Trump wants there to be some gunpowder put into the market to keep it up, keep it moving forward, because if interest rates come down, that's going to be positive for consumers, right? I just got a car loan recently, 7% for a car loan. You want to get a mortgage? Still 7% for your mortgage. That's taking money out of consumers' pockets. 70% of GDP is because of the consumer. If we reduce short-term interest rates, that's going to free up some cash to keep this economy going forward. So it will be interesting over the next couple months if we do see inflation stay below 3% and turn back around. Even with now we're seeing the tariffs. start to come in. We saw, I think, I read yesterday in the journal, we actually had a positive, a surplus budget for the first time in a long time, since 2017, I believe. So it's working, but now we have the fear of, okay, well, how is this going to leak into prices? How is this going to continue to affect the consumer if inflation does come back around and we have high interest rates? That's really what we're looking for going forward. I don't think we have any... We don't have any recommendations today. With uncertainty, we'd like to stay on top of our targets. That's where we are right now. And you'll see here in a second when we look at the portfolio where we are currently allocated. But before we get into the actual portfolio, any comments, discussions on the overall economy?

So you answered, I think, the question I was going to ask, which is do you have any recommendations regarding our policy or any changes that we should consider?

Not today. So we recently did a rebalance. We worked with Rick recently that we are doing payouts in the portfolio. We keep rebalancing back to target. When there's uncertainty in the market, if we don't have data points to make any overweights, Growth has done well. Value's done well. Fixed income's done well. International's done well. It's very hard to predict. We look for data points to make changes. Right now, we want to stay on top of our targets. There may be a point in the next six months that we say, hey, let's look at fixed income again. What do we want to do in this asset class? But again, with the inflation number that came out today, the uncertainty and the back and forth, we don't have a recommendation until we have a little bit more certainty on the footing of the economy and where the Fed goes from here.

Okay, thank you. Councilman Wolf?

And just to that point as well, I mean, you already said you looked at it, but with the significant devaluation of the dollar, you don't see any changes, and again, any movement of investments overseas or anything like that at this point?

We have a good sleeve of international here. I think going forward, most U.S. companies are multinational, right? So we do have that from a multinational standpoint as well. We think it is more of a – One-off, I guess, is the way you put it, that it's not going to be a continued trend. We think it's really been just the rebalancing and a rebalancing of risk within portfolios rather than who's driving the market higher. What have we seen over the last month? Again, we're talking about AI, technology becoming more efficient, and that's really led by U.S. companies. We think it's just been that rebalancing of a portfolio.

Okay. Thanks.

We'll skip the next several slides. If you can't sleep tonight, read them. We're going to get to page 28. Where are we? Mostly passive in this portfolio, right? So we typically stay right close to our benchmarks and we'll talk about where we've gone active in the portfolio, mostly in alternative asset classes. So we stay pretty close to our benchmark. You can see quarter to date up 6.7, but what we always focus on is that fiscal year to date return. Our target's 5.75. At the end of the quarter, we were at 5.58. We're right there. We're within striking distance at the end of the quarter. Since the end of the quarter, markets are up another percent. So I imagine we're getting pretty, pretty close to that target. Now, we still have two and a half months to get to the end of the quarter. Some volatility can come between now and then. But again, we don't see any major hiccups. But we are coming up to earnings season, which we think is going to continue to be strong. But we're going to hear a lot of things in earnings calls. We're going to hear about inflation again. We're going to hear about tariffs. And we're going to hear how they're going to have to reprice. And we've seen over the last two quarters a lot of these guidance. When earnings come, they give guidance. They say, we're not going to provide guidance because there's too many uncertainties going forward. But I think still, with the uncertainties we've seen, with a start to the year that was a little bit volatile, markets were down at one point in April, post-liberation day, almost over 20% intraday. And we've come back. We've hit all-time highs over the last week. Still been a very strong market over the last 12 months, up 12%. If we look at page 29, this is what we were talking about earlier, very close to our targets.

Can I interrupt you a second?

Yes, sir.

This is as of June 30th. I know that the first couple of weeks of July were pretty positive. If we're targeting 5.75, we're within striking distance.

We're within striking distance, yeah. So the markets add since the end of the quarter about a percent. We have 60% of our portfolio is in the stock market. So we've got probably 60 basis points around that off that. That put us right there and maybe a little bit above. Right. Page 29, where are we? Right on top of our targets. Overweight, that first box at the top. You can see a little bit above with equities because equities have done well. That target in the middle, that blue bar is our target. Allowable range is the whole box. If we go to the next page, 30. Where were we overweight? Second manager down, Vanguard growth index, a little overweight, because growth has done so well. That all makes sense to us. Again, we're right on top of our targets. A little underweight real estate, which has helped our portfolio, and we continue to want to maintain that underweight to real estate as interest rates are high. Until we see that start to reverse, I don't think there's a reason to get back to target or even overweight real estate at this point. Double-clicking on page 31, we look at equities. If we look down that left-hand column, Vanguard, Vanguard, Vanguard, Vanguard, all passive in our domestic equity, so we're getting benchmark returns. No recommendations there. Fixed income, we're using passive as well. Where we do see some active managers are in the alternative space on page 32. So halfway down that page, we have Blackstone Multistrategy, Cone and Steers Global Infrastructure, and Aries Private Real Estate. Now if we were here a quarter ago, Most of our managers were negative, not in this space, but domestic managers were down 4%, 5%, 6%. Why do we have alternative investments to be positive when the market is negative? Last quarter, all three of our managers were positive. What they do over the long term is smooth out returns, reduce volatility. That's what we want to see. So you can see a little bit below the equity managers for the quarter to date over the last year, but we get there with a smoother ride. And you can see Conan steers global equity. Infrastructure, middle of that column, up 16% over the last year. One of the best performers in the portfolio, up 5% since we've added him. So every manager's got a part of this portfolio. They've all lived up to the expectations. Recommended changes at this point when we start to get some clear guidance So we see what Federal Reserve is going to do have a little bit more data points on that We might start talking about fixed income again there We're trying to get five and three quarters if we can get five and a half six percent start locking some of that in and fixed income It might make sense but given the volatility there still we're just not ready to make that call at this point Any questions on the portfolio

Loris, anything? Anybody have any questions?

No? That's all I've got. Awesome. Appreciate your time.

Well, it's a positive report, so it's always the easier ones to make. They are. Okay.

And it's rare for Scott to have me to come to these meetings. I usually come when there's bad news, right? So I appreciate your time, and we'll see you next quarter. Thank you very much. Thank you. Thanks for being here.

All right. Next item, 5.1, drop exit rollover request. Mr. Manager?

Mr. Mayor, yes, thank you. As you know, we're the general employee pension board, but there is a quirk in our system where if you are an employee who worked for the village general employees and then later became a member of the police pension system, the pensions kind of get blended but remain standing. And so we had a recent retirement from one of our police officers who fit that bill. He was part of the General Employee Pension Board for some time. He was in the drop. He has completed and separated the city, the village. And so we're here to award the drop portion of his pension At this time, from the general employees, he'll do the same on the police pension side.

Thank you. Any questions? All right, I'll make the motion. Do we have a second?

I'll second it.

We have a second. You're good, Dwight? All in favor? Aye. Any opposed? Motion carries. Any public comments? Seeing none, we'll adjourn the meeting. Thank you all very much. Take a break.