Retirement Board - Regular Meeting

all right we call to order the March 6 meeting of the mon County Employees Retirement Board present I ask CFO to lead us is there any public comment no public comment public comment uh we Mo on to the approval of the december4 minutes make a motion to approve those minutes second second by Jason Salis any objections any comments all in favor approve and C their thank you just um few comments before I turn over Kathy so with the count year ending um 2024 uh we ended up making 100% of our plan uh Pension Plan contribution that was 26.3 Million so that 2024 was the fourth consecutive year that we put 100% of our required contribution into the plan um for 25 we're budgeted at 30.1 million so we will be putting in 7.5 million per quarter the plan each year we allocated by quarter um just an update on the actual AAL valuation report which is currently

being updated as of January 1st 2025 uh we expect that probably by meeting in July the results will be and that'll be presented to you formally by the actuary um just quick comment on overall demographics so as of the end of the year uh the pension plan number of entire reinvested uh participants increased by 3.4% so we have 2,652 retirees and 470 participants that are invested in the plan account so with that I'll D quick question yeah with the actuary reports which say July June July what did you say uh if if we stay on track as we did last year typically it comes out around June and then it's presented to the board forly in July um so we'll as soon as it's released we'll provide it to the board it been sooner we're a lot of This falls in in the Controllers Office Gathering data for them that's happening right now uh we're trying to put a a push to get it done sooner if we can because we're interested in seeing what the actual contribution is going to be we're working on for budgeted number of 30 million Sal so that will will that be I don't remember the timing from last year was that the report that we started looking at if if we can make a pension contribution uh a Col increase yeah that happens once a year that would have to be in the fall and they'll put together you know so they they that's that's a different report that's that'll come after the valuation comes out and that that'll actually tell us valuation will tell us the percentage of funding overall remember we fell a little bit Sher to 80% we're hopeful that you know we get above 80% then you know that discussion for the cwork can happen for

you know next year well with the four years of 100% contribution all that if it's a fiveyear look might get might get lucky this year and be at least 100% yeah I mean the market cooperated by the end of the year kath's going to present so it'll be interesting see how the numbers will shake out once the valuation done is there any way to project project that um I will I'll ask the actuary after we give them some of the data like the the investment performance some of the other information that they can you know ballpark if you know we might be in a better place um so that way the board can start thinking about that but you do you get the formal um analysis from them the cola calculation typically in September and if if capol was to approve a Col for 2026 it would be effective January 1st 2026 the action would have to be um taken before the end of 25 so that'll be the last and uh so the funding level for 2025 will be considered yeah so uh the funding level I was just talking about is the County's contribution we've been at 100% for the last few years but the overall funding percentage of um for the plan overall was under 80% it has to be over 80% considerable through that will be as of January 1st 2025 evaluation okay when we get the ACT report probably in June we'll know 80% level right and what they most one things that they have to do is figure out the rejection of what our

requirement future Mar was but what the project got it well we'll uh we'll reach out and see if we can get uh an early you know p AR estimate based on some of the numbers that we provide and share that board get that okay yep great afternoon everyone Greatful to you how are you great thank you I just wanted to start off and um was fortunate enough to be invited to your 2024 year review so I just want to congratulate you it's really impressed just seeing it all laid out all the great work that you've done for Montgomery County so being a resident of Montgomery County T you so congratulations on your success so I know you're running behind um you know I can do this in couple minutes um you know or so you let me know do I mean you feel free to ask questions the good news is I have good news for 2024 but certainly we all know what's happening today and there's lots of volatility in the market like can speak to that so it's all speak to both so if we can start on the executive summary um lots of numbers here but really just reflecting on um where you come for the year so again on slide three here you can see started the year at 597 million and again we combined the plan in February so one Consolidated number started at 597 million um taking us through the third quarter was up at 6 663 million um down slightly but we did end the year 652.5rpm

unfortunately if you remember 2022 Mark your portfolio was down 15% markets were really significantly down across the board so that number continues to factor into your um your averages and your long-term return but certainly um really had successful year I do have here the January number and I can speak to what the Market's done since then so January was another positive return for the portfolio you can see the market value went up to 667.95 the portfolio earned 2% in January um unfortunately as of yesterday so if you look at the 667 million3 yesterday you're down to 666 million point2 so portfolio's lost about a million it has really been volatile um you know especially the last week markets have been down pretty dramatic and we all know you can count the times I say tariffs in my speech but we certainly know the uncertainty and what's happening in the marketplace and naturally reflected so I'll spend a few moments just to let you know how the performance of the portfolio was for 2024 and then we can talk about what we're seeing today and again I can keep it short and sweet if you like but just a few comments um when you look at the portfolio on the executive summary equities is really a key contributor you can see was up 15% for the year um and we entered forth quarter really positive you know information about the presidential election you know concerns or optimism about tax cuts and deregulation really led the market to excel but we did have a little pullback you know with concerns about tariffs and inflationary pressures so you saw December was a negative month but Allin really positive for us you'll see in a moment International had a challenging quarter you had a strong US dollar concerns about tariffs abroad and that really pulled down um the equivalent of performance for international fixed income an extremely volatile quarter when you think about interest rate and you think about what Federal Federal Reserve cut rates three times in the

fourth quarter but our 10year yield went up interest rates were extremely volatile a lot of concern about inflation continuing to rise again we saw the 10-year rise despite Federal Reserve cutting 100 basis points and we all we talked about that last time with mortgage rates still getting hit with that 10e being up to high so again lots of volatility um and it's interesting a lot of my prepared slides talk about where we were in the beginning of the year and our concerns about the tenure hitting 5% bless you what's happened recently we're seeing that tenure come down a a little bit so really speaks to the volatility that we're continue to see and then finally Alternatives um you have two funds in your alternative exposure that are um one's structured credit and another one is a hedge they continue to add value you see the um structur credit fund was up over 20% for 2024 and your special situations funds over 17 so continue to add that diversification and when you think about what's happening in the market today with the pullback um that Alternatives is really a a source of return that is uncorrelated and really beneficial for the port and at the and you'll hear but at the end of the day the actd allocation is most important what we're doing within your portfolio any questions on the executive summary if we can just flip through um if you want to go to slide we'll talk about the markets quickly on Slide Five this just shows 2024 um I won't spend a lot of time so we talk a little bit what we're seeing today but you can really see large half that first number again this these are the equity Market market large cap had in year particularly large cap grow The Magnificent Seven that we've talked about several times really responsible for what happened um in 2024 with significant return um and small cap Eed out a gain but small cap really pulled back pretty significantly again as concerns about inflation continuing and that continues to hit more domestic areas of of of of us you can see in

World equity and xus there um an Emerging Market the blue bar represents the fourth quarter pullbacks of over 7% for both of those areas again the strong dollar concerns about tariffs really k um but what's what's interesting International the best performer um in 2025 which many would not have expected um again going back to the key points of diversification sixth income was down you can we talked about the volatility of rates um so we saw that across the board however High yielding Market debt areas that you have in your portfolio from fixed income were really beneficial for the next few slides um I I'm just want to spend if you can keep going forward I'm going to skip some of these um I just if you can pause here for a second one back so I have a bunch of slides about the forecast well yeah you're about yeah these are forecast of 2024 20245 of 255 yeah okay the year to come the year to come yeah which is and that's what's so ironic about when you look at this and what's happening today so first I thought you know I'm not going to talk about it because a little bit every moves but I think it's so interesting and it shows the Dynamics and how not to react to what's happening in the markets currently so these These are well-known forecasters you know them you can see them at the bottom of the page Oppenheimer Wells Fargo these are key strategists and every year they come out before the beginning of the year before January 1 they come out with a prediction of where they think the S&P 500 would be and as you can see I mean majority of them half at this page is 20% yeah you know we were clearly down closer to to kind of more the 15 10% but when you think about when we started the year again we have great GDP strong economy consumers are spending unemployment looks good um we have a Federal Reserve that's cutting and then we have an Administration that appears they're going to be sending tax cuts and deregulation so significant eor across

across the board and if you continue on um yeah our perspective was there's some great things that could be happening and that some head so I think this slide is so interesting because it even speak to what we're seeing today we're seeing it's a balancing act and your perception of where that S&P would end really depends on a number of things so on the left hand side you have the cons or the Tailwinds or excuse me the headwinds and on the right are the you know the pros or or or the the talents so you know looking at the positives less regulation's going to boost earnings for companies they're going to have you know it's going to help the market it's going to help risk asset lower taxes lower corporate taxes again is going to help the markets help the economy thisal stimulus but on the right hand side tariffs tariffs can lead to increased inflation immigration policy you look at what's happening that tends to lead to increase in labor um wages which W you know in shortage in labor which is increased wages which really can hurt us so you can kind of see re acceler inflation which we're seeing and we saw that even prior to any conversation with Paris and higher interest rates so it's really this balancing act so really when you look at where most predictions were in the beginning of the year was going to be a great year and we sit here today the S&P 500 from negative territory we're down about um 1 and a half% year to date um since the election is negative2 so again it's this Balancing Act of kind of the market sometimes just reacts on a short-term basis and the news so you have the positive news and then there's concerns um with what's really happening but where we stand is somewhere in the middle but I'll tell you why it's important it doesn't matter what I say it doesn't matter what these key strategist say because on the next slide I think it might be one more side after that this is a very interesting side a little hard to read but what this is is where a number of these key shotes

predicted the S&P would be um the S&P 500 so if you just look at the last column there which is 2024 here we just went throw so you can see their target where they would end and you can see the actual if you look down the actual varies anywhere from 133% so I think it was like 20% Incorrect and again these are key professional strategies of the largest investment advisors so I have you know three words for you or four words for you the bottom of the page which is really what our solution is and how we Monitor and manage your assets allocation divers discipline we're not reacting to what we're seeing today you have very strong allocation you have significant assets that provide that return but you also have assets that provide that risk management that are supporting you now and getting your goals of of extending those cost of living increases so it's really managed our strategic asset allocation which by the way we're going to revisit again this year um seci is a co- fiduciary of your plan we officially visit it at least once a year so you remember we went through that whole process when we combine the Vanguard we're going to officially look at that and the hopefully and and determine if there's any tweaks that we need to make but at the end of the day your allocation is long-term strategic there are absolutely some funds within there that look at some of the shortterm and I speak to them occasionally like the Dy Dynamic asset allocation fund we have positions on inflation on central banks and what they're going going to do currency so we definitely have some short-term perspective and each of our funds are managed by managers that have a perspective on the economy at the end of the day the key AC allocation should be should in long term and that's yeah so so quick question these were all a year out yes and the one thing that's interesting though is they're all T it

seems like they tend to be GR in the same direction yes right um yes so what if that I think that the market maret are forward looking so again when you think about what we were entering in this year all the things I mentioned I still strong I know that they're thinking GDP May flounder a little bit this first part but still strong consumers are still sending still have a lot of good fundamentals with in the marketplace and then if you have an Administration that looks like they're going to continue to again cut taxes and cut regulation all that positive Euphoria you know but then when you see these little market you know just before I walked in I think it was announced that tariffs won't go through with Mexico until another month until April so you saw just you know the markets just gate Down based upon their short term but they when these predictions are made they tend to try and look forward looking at what's happening they there's always an outli there's always contrarian and we do all kinds of studies to say well what if we would have listened to the contrarian you know but the good news is that's not how I think it's all very interesting and these guyses are always very interesting I clients that used to clients for years when I walk in they would say okay Cathy what's what's the S&P 500 going to end the year and I was like I don't know and it doesn't matter because you know we have a diversified disciplined process that gives you exposure um clearly our investment point of view is very important and that's how we manage as well but um again more for interesting perspective than how we're managing your full of pension assets oh I go ahead I was gonna say I think the point is that you can't chase the market on a daily basis because um there's a lot of other indicators that happen uh there's Market manipulation that goes with major best considers that have controls in certain market segments that they can move money around and when they do that it has direct impact on the market um and then you know there's a

lot to talk about tariffs but nobody's talking about the trade IM balances the tariffs are trying to even out right and the capital spending in right so there's a lot of complexities and unfortunately the media focuses on the six six letters or whatever it is I didn't count them seven letters right you know but there's there's a lot more going on that nobody reports on um so it's it's going to be an interesting couple months but abely I would suspect that as the year goes on everything's going to kind of balance out yeah and we feel the same way I mean we're definitely expecting volatility but if you look at the for the beginning of the year you look at where things are now you know it'll smooth out hopefully the expectations of where we're heading will be a little more clear um and we won't be living dayto day you know with uncertainty and at the end of the day markets hate uncertainty so whenever you have that you're going to see the ups and downs and you're right you can't really look at that I mean even entering into the Year everyone said us is the place to be and again International Europe is still is the best performing um ethic class so far in quite at least it was until a couple days ago so it's very interesting um it's it's interesting conversation right but certainly you know when you want to make sure that when you look at your portfolio you have exposure to all PA classes us Equity International develop Emerging Markets even in fixed income high yield which is a more you know um a unique asset within fixed income that has a little more risk but gives you opportunity to return and then your Alternatives um we want to continue to have that conversation because in private areas is where where we can get you additional return as well but it's that diversification that helps balance out so you don't have when you have the pullback it's certainly important not to go backwards and use you know the great work been great progress that you guys have done I have the performance numbers in here but you let me know if you want to or you want me to wrap it

up so December sure I have December and January December I mean or calendar year 2024 or J I'd rather talk about today um there are biker manager changes which I'm not going to go through but I do want to reinforce um that FCI is making within your funds there's managers that manage the money we making changes to those managers and a lot of those changes revolve around better risk management there's one um firm that te portfolio managers left the firm and they went to a new firm and we felt so strongly about them that we followed them to the two firm so you know they where we're switching to a brand new manager stre essentially fired that sub advisor and and are following them and they're going to a firm that not many may know about but we know the portfolio manager so that's the type of um due diligence andary over that we will to who's managing the money within a mutual fund so there's a lot of detail in there which I won't go through but the December report is on slide this 17 and this just speaks to uh I'll focus on year-to date numbers here so 11.7% is your year-to date return that's your calendar year one your number you can see your net number is 1169 and I think an important number that we used to talk about a little before not as much now is that when you look at your index your portfolio Blended index that's 99.6% so that's essentially two Bas or 200 basis points or 2% above an index and that's speaks to the level of active management you have 50% of your portfolio in what's called passive funds index funds which do not provide active management above a a benchmark so the job of a passive fund is just to completely match that index um because

because you know we were able to have some of your portfolio and some of those actively managed funds which managers are kind of picking and choosing those Securities that they have faith in um you did get additional so that gives you additional 2% return again to continue towards your goals so that was um we may not see as much of that going forward again because 50% of your assets now pass within within the equity f but you can see looking on a on a year-to day basis which is the same as the one year 15% for your Equity um us you know your us Vanguard stock fund clearly the dominant um S&P 500 has returned over 25% last years that has been the place today um and again A lot of it was magnific seven but clearly you know you have significant to that which is wonderful International funded well 5% but curly not as strong your fixed income area we put in a little limit duration which benefited you as short duration and when we think about rates were Rising on the long end of the curve that shorter duration helped you and then um you can see there's other areas of fixing how much benefit of the portfolio and then finally on the next page uh we have your Alternatives I gave you those numbers in the beginning 20% for structure credit 17 for special fs and then your Dynamic fund is the fund at the bottom there where we actually take a shorter term implementation and that's where our Outlook was higher inflation our out was that central banks will diverge um we've had certain trades on the US dollar versus Euro versus the Yen so different trades that benefited the portfolio as well and we're actively looking at that based upon our shortterm and I will end on slide 19 um this is your calendar year which I think is very ightful um again your year today 11.71 but you can see last year a great year 15.7% but then unfortunately year 2022 down 15% see um two years in a row will help soften some of that blow that you've had

but if you're averaging out your fiveyear numbers you can see beyond 2022 health and then Jan January follows but I don't even think I'll even go there January just about all every asset class is positive but we've pretty much lost that um in the last month and a half so again my you know we don't look at the market daily we certainly you know don't recommend anyone does that but um certainly in a little bit of a fun ride for the next coup months so that 2022 number is potentially could impact our um Cola opportunities yeah that huh yeah yeah yeah I know we seci can do estimates but I think it certainly because you're so close for that 8% it sense to have more of an accurate right from your act but yeah you you're not alone not actually 15% I have many see many organizations down there want put that in so that's really been oh yeah was yeah and and this is you know I think we get a little spoiled when you look at the s&p500 the last years over 20% I think not we're not used to seeing the markets pull back and I think this is why it's really important to really we have that diversification because we could we could get more P back they say it's it's common every year the S&P to pull back several times 5 to 10% it's Comm I can show you a chart every year in which it's expected to happen and if doesn't happen then there's I will end it I want make sure that almost that's right snapshot yeah that's that was when count this model

right with so when you look at it you know and that's the right and that's what weow for for the long term to get you that number that really help you a lot of the goals that you're trying to Cy from an actual perspective and that's our number go to help that your funding any questions can talk more about what going on today but you guys have been sitting all morning oh yeah that's always de had asked me I threw the um card in the back the qu um that also reminds you I the CL for in and out of favor you know you look at intern International has not for 10 years has not us for 10 years International so if you look at it us it's that it's not thank you sorry I was you behind it I it do play 2017 yeah but if you look at a 10 year number I guess maybe that's my perspective you'll see that us but it's um it just shows you basically kind of if you think that you want to invest um we have the study which is so interesting to say if you invested in top performer the year before how do you look if you invest in the works um but really that's the value loation what's interesting is you see us large cap up there a bunch of times really really doing especially the last two years been the Domin yeah and then that that concentration that we se500 I think that's where a lot of

people concerned about AI that's told that but that's really L the returns in L there seven SS 50 to 60% question I talk fast to tr and go fast pleasure to thank you very much [Music] comments all in favor