GE-20 - PACE Board Meeting Minutes 0401

8/14/2019 GE-20 - PACE Board Meeting Minutes 0401

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MIN UTES OF Ti l EPACE I NDUSTRY NION-M ANAGEMENT PENSlON FUND

BOARD OF TR ST EES l \ 1 E I T I N GApril 29 - May 1, 2001

PRESEi'lT:Labor TrusteesBoyd Young, ChairmanGary B. CookRoge r HeiserDonald L. Langham

ALSO PRESENT:

Management T r usteesGayle Sparapani, SecretarySusan Stau duh ar

Maria F. Wieck, Administrative ManagerDOll Wilkes, Director, Pensions and Iusurance

Richard E. Nikodym, Financial OfficerDarrin Owens, The Segal Company

Virginia IVcGinley, Th e Segal CompanyBarry S. Slevin, Slevin & Hart., P.C.

The meeting was hel d in San An tonio, Texas.Minutes.Upon a motion duly made and seconded, it \V a unanimous y

RESOLVED, tha t the minutes o f the October 5, 2000 oard o f Trustees'meeting. wit h th e additi on of identi fication of the Blue Ridge participat ingfaci lities , are approved.Chairman .The Chairman noted tha t in the pas t he had expressed his concern about the growt h of the

Fund. r-Ie reviewed wi th the Bo ard the new part icipat ing gro ups and number o f part icip ant s andcomplimen ted the Fund O ffice and Mr. Wilkes on their efforts and the resu lts thu s far . He notedthat the Board needed to continue to explore ways to increase part icipa tion.

GOVERNMENTEXHIBITGE-20


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Counsel.Mr. Slevin reviewed with the Board counsel' s April 21, 200] repo rt. In the con text of tile

discussion regarding the poss ib le creation of a 40 I(h) accoun t for retiree hea lth benefits, it wasagreed that the Trus tees would be provided wi th financial inform atio n relating to the proj ectedval ue of fut ur e benefits of the Potlatch group und er consideration, while counsel goes forw ardwith a private letter ruling request. Upon a motion duly made and seconded, it was unanimously

RESOLVED, that coun sel ' s report is accepted and the Board adopts therecommend ations therein .The Board adjourned and resumed the meeting on the fo llowing day.Independent Fiducial'" Services.Frank Lilly and Ed Patchett attended the meeting on beh alf of lFS. Mr. Lilly directed the

Trus tees' attention to the meeting presentation book and highlighted the agen da items he and Mr .Patchett intended to cover at the meeting. Mr. Lill y said IFS would first presen t its Execu tiveSummary "Flash" Performance Reports through March 200 I since information was avai lableand would also highlight performance for the period ended -ebnuu) ' 2001.

First, Mr. Li lly then reviewed the Flash Performance Report for the Fund through Ma rch31 ,2001, noting that the total Fund's equity managers in total were down -5.3% during themonth ofMarch, a period of very high volatility in the equ ity markets. By comparison, theFund's equiry policy benchmark, the Wilshire 5000 Index, declined 6.7% over the same period.Mr. Lill y noted that all of the Fund' s equity managers posted negative returns over the month.Mr. Lilly then said the Fund ' s fixed income managers performed well over the month of March,co nsistent with the per formance of the Fund's fixed income policy benchmark. He thenindica ted that hi. discussion would focus on the one-year period ended March .

For the one-year ended March , Mr. Lilly said the Fund 's equity manager po. ed a - 10.2%return. compa red to a - 24.8% return for the Wilshire 5000 Index. Mr. Lill y said in general , all ofthe Fund ' s equity managers perform ed we ll relative to their assigned benchmarks, but that equi tyreturns across many equity styles were sharply negat ive for the one-year period. Mr. Li llyreported that Highland Capital returned -6 .3% for the period compared to its benchmark, theS&P 500 Index , which returned - 21.7%. Mr. Lilly said ICC Capital perfo rmed very well duringthis volatile period, returning 9.1% compared to its benchmark, the Wilshire 5000 Index, whichreturned - 24.5%. Shields/Alliance returned 5.6% over the one-year period, compared to itsbenchmark, the S&P Barra Value index, which declined 1.0%. Finally, 1r. Li lly said WrightInvestors returned -25.5% [or the one-year period somewhat behind its S&P 500 Indexbenchmark.

WitJ1 regard to the Fund's fixed income managers, Me Lilly said performance wassharply positive, perform ing as one would hope during a period ofhigb equiry market volatili ty.As a group , the fixed income managers returned 12.3% for [he one-year period , compared to a12.5% return for the Fund ' s fixed income policy index , th e Lehman Aggregate Index. Mr. Lilly


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reported that the Bank of New York and Weaver Bark 'dal e returned 11.4% and 12.YYorespectively, over the one-year period, somewhat below the Lehman Aggregate Index return .Mr. Lilly said that Highland Capi tal and Security Asse t Management bo th ou tperformed theLehman Aggregate Index returning 12.8% and 13.6%, respect ively, over the on -year period .

Nex t, Mr. Lilly highlighted the F lash Per formance Report thro ugh February 200 1.indicat ing the Fund ' equity composite returned 5.2% for the one-year perio d, well ahead of theFund ' s Equity Policy Index, the Wilshire 5000 Index, which declined 14.5%. Mr. Lilly alsoreported that the Fund ' s fixed incom e composite returned 13.6% for the one-year period ascompared to the Fund's Fixed Income Policy Index , the Lehman Aggregate Index , whichreturned 13.4%. 1\1 r. Lilly said all of the Fund 's investment managers performed eitherconsistent with or ahead of their respective performance benchm arks over the one-year periodended -cbruary 2001.

Thereafte r, Mr. Patchett reviewed lFS' Performance Report which contained peeruniverse comparisons, for the period ended December 31, 2000 . Mr. Patchett said such un iverseinformation is normally available after six weeks following each ca lendar quarter end and wasnot yet avai labIe for the first quarte r f 200 1.

Mr. Patchett directed the Tru stees ' attention to that port ion of the repo rt that comparedthe Fund ' s performance to tha t of other multiernployer defined benefi t plans and reported that heFW1d ranked at or above the un iverse median over the past year, and on an annualized as isgoing back six years. Mr. Patchett also said perform ance was ahead of the Fund Policy Index forthe year and on an annualized bas is for the past three years . As compared to the universe ofcorporate defined benefit plans, Mr. Patchett reported the Fun d ranked within the top quartileov r the past year and was at about the median 0 11 an annualized basis over the pas t four years.

Mr. Patchett then report ed that the Fund 's equ ity composite, consisting of all equ itymanagers as a group, ranked above median over the past year as com pared to the universe o f allother equity portfolios. On an annu alized basis over the past six years. Mr. Patchell saidperformance was ahead of the equity policy index and at about the universe medi an.

With regard to the Fund' s fixed incom e composite, consist ing of all o f the Fund 's fixedincome managers, Mr. Patchett said performance was ahead of the Lehman Aggregate policyindex over the past year and abov e the universe median. On an annualized basis over the pastthree and five years , Mr. Patchett sa id performance was generally consistent with the policyindex but ranked somewhat below median.

Next, Mr. Patchett reported on the risk and return rankings, peer universe comparisonsand portfo lio characteristics for tile Fund s equ ity managers . Mr. Patchett said Highland Capitaldemonstrat ed favorable risk/return characteris tics tor the five-year period ended December 31,2000 whi le Shields/Alliance was clo se to the universe median. Mr. Patchett said Wrigh tInvestors demonstrated about median return volati lity for the five-year period with below medianper formance. Mr. Pa tchett sa id the Fund' s other equity managers did not yet have a five yearper formance his tory with the Fund and were not incl uded in the risk/ return analysis .


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Sh iclds!Alliau ceoNext, Dick No lan and Aryeh Glatter of Shields!A lliance presented to the Trust ees a

review o f the large cap value equ ity account the firm manages on beh alf of t he Fund. First , Mr.olan provided an overv iew of the firrn, its perso nnel and resources . He also reported thatAl liance acqu ired Sanford C. Bern stein during the past year , no ting that the investmen t disc ipline

the firm uses remains unchanged but is augmented by Bernstein 's strong, fundam en ta l researchcapabi lities . N xt, Mr. Iolan repon ed that the account inc reased 10 .7% sinc e fo r the year endedDecember 2000 compared to an increase of 6.0% for the S&P Ba rra Value Index . For the firstquart er 0[200 I, M r. No lan reported the accoun t declined 2. 1% compared to a 6.5% decline inhe S&P Barra \ alue Index.

Mr. G lan er then reviewed the investment ph ilosophy and process by whichShields!Alliance ma nages the port fol io on beha lf of the Fund. Thereafte r, Mr. G larier providedhis finn' s out look for the ma rket. After respon ding to quest ion s posed by th .Trustees, Mr.G lau er and Mr. io lan were thanked for their presentation and excused from the meet ing.

Wrigh t Invcstors Service.Next, Ken Singer , D iane Timpany and Pat Pierce of Wright Inv estors Service presented

to the Tru stees a review of the large cap core equity account Wright man age s on behalf of theFund . Firs t, M r. Singe r report ed that the acc oun t decreased 8.7% fo r the year end ed December2000 com pared to a decreas e o f 9 .1% for the S&P 500 Index. For the first [WO months o f2 001,Mr. Si nge r reported the accou nt decl ined 8.2% compared to a 5.9% decl ine i ll the S&P 500In dex . Mr. Singer ind icated tha t the portfolio had per formed cons isten t w ith the S,,"p 500 Indexsince Ms. Pie rce assumed responsibil ity for th e account a fte r the first qu arter of 1999 , increasing1.5% from March 31, 1999 through February 200 I com pared to a de lin e o f 1.4% in the S&P500 Inde x ov er that same pe riod .

Thereafter, Ms . Pierce reviewed th e investmen t philosoph y and process by which Wrighthas bee n managing the account since she assumed responsibility fo r the finn's large cap corestrategy. Ms . Pierce said the firm has become much more sensitive to benchmark sector weightsand has so ught to m in imi ze sector weigh t dev iat ions from the ben chm ark in order to focus ongenerating excess per formance thro ugh stock selection. Ms. Pierce then reviewed the portfoliosector allocati n . sec tor perfo rmance and portfolio characteristics as of December 2000. Ms.Pierce then high ligh ted certain stoc ks that performed poorly over the first quarte r o f _0 l ,includ ing C isco. Sun Mi r systems and Adobe, which contributed to the firm 'sunderpe rformancc year -to-date in 200 1. The Trustees questioned Ms . Pierce concerning therecently report ed trouble Ci sco ha encountered regarding alleged fin an cial repon ingirregu lari ties and she discussed her overall opi nion of Cisco as a company.

Therea fter, the Trustees ask ed the Wright representative addi t ional quest ions related tothe (irrns organizationa l stru cture and inv estment pe rformance. After responding to these items :the Trus tees thanked M r. Singer, 1s. Pierce and Ms. T impany for their presen ta tion and excusedthem from the meeting.


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Th ereafter, the Trustees asked Mr. Lilly and Mr. Patchell for IFS ' opi nion ofWrigh t andtheir inves tment approach and performance. Mr. Lilly and Mr. Patche tt sai d tha t they be lievedthe addition o f Pat P ierce to the team appeared to be a positive step as sh e has instilled anaddit iona l level of discipline to the portfolio construction process which, except for the past fewmonths, appeared to have a somewhat favorable impact on performance. Hov.-ever. when theflTI11 'S performance since 1999 is linked to pre- I999 periods, Wrigh t' s performance trailed theS&P 500 Index and ranked well below median in the firm 's peer universe.

Based on this, Mr. Lilly said IFS recommended that the Trus tees conside r reallocatinghalfo f Wright's account value to other ofthc Fund's equity managers and reconsider the firm' smandate at the next Trustees' meeting, at which time the finn would have a 2 11 yea performance record under Ms. Pierce ' s direc tion. Upon further discussion of this matter, theTrustees directed IFS to analyze, 6:0111 a fee and equity style allocation perspective , real locatingthe entire Wright port folio , total ing approximate ly $80 million, to other existing inves tmentmanagers.

Upon returning to the meeting after perform ing the rea llocat ion analys is, Mr . Lilly and1r. Patchett said the Trustees could reallocate approximately $25 million each to HighlandCap ita l and Shie lds/Alliance and approximate ly S15 each to ICC and Battcrymarch withoutsignificantly altering the Fund's overa.ll style exposures or overall equity manager fees.Thereafter, the Trustees asked Mr. Lilly and Mr. Patchett to ana lyze the impact, aga in from asty le and fee perspective, rea llocating hal f o f the Wright portfolio value to Sh ields /Alliance andha lf to ICe. Upon performing the analysis, Mr. Lilly and Mr. Patchett ind icated the overall Fundequity style exposur e from this reallocation could result in somewhat of a "value" bias ascompared to the Wilshire 5000 Policy Index, and that equity manager fees wou ld decl ine byapproxima tely $70,000 per year given the lower ma rginal fee breakpoints, After discussion,upo n a mo tion duly made and seconded, it was unanimously

RESOLVED, to term inate the account managed by Wright and to realloca tehalf of the account assets to lee and half to hields/Alliance,Mr. Lilly indicated that If'S cou ld, if directed by the Trustees, ob tain asset trans itionproposals from the Bank of New York and Lynch, Jones & Ryan, for the assets in the Wright

accou nt that neither ICC nor Shields/A lliance would like to receive in kind and to coordinate theoverall asset trans fer wit h the Fund office. A ftcr discussion, upon a motion duly made andseconded , it was unanimously

RESOLVED, to authorize IFS to obtain the two transition proposals and topresent the results by conference call with hairman Young and Sec retarySparupani who would then direct the selection of a tran ition service provider.

GE-20 - PACE Board Meeting Minutes 0401

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