# Police and Fire Pension Fund Board Meeting - November 12, 2019 > Auto-transcribed civic record · Board · November 12, 2019 - **Permalink**: https://meetings.lexingtonky.news/meeting/4893 - **Source video**: https://lfucg.granicus.com/player/clip/4893?view_id=14&redirect=true - **Date**: 2019-11-12 - **Body**: Board - **Last revised**: February 6, 2026 - **Length**: 9,400 words > ⚠️ **Auto-generated content.** Audio from the official Granicus video was auto-transcribed by OpenAI Whisper-1, with speaker labels folded in from Granicus closed-captioning. Structured facts were extracted with GPT-4o; the narrative summary was written by Anthropic Claude Sonnet. Speaker labels and verbatim wording may contain errors. See [methodology](https://meetings.lexingtonky.news/about/methodology) or [report a correction](mailto:editor@lexingtonky.news). --- ## Meeting Overview The Board Meeting convened at 9:00 AM with Susan presiding as the meeting officer. The board addressed six agenda items during the session, covering a range of informational presentations and business matters requiring formal action. The meeting featured two key informational presentations: Chad Musoff from Dodge and Cox delivered a presentation, followed by a Capital Markets Overview presented by John Jackson and Jim O'Connor. These presentations provided the board with important market insights and investment perspectives relevant to their oversight responsibilities. The board conducted substantive business by reviewing and approving several critical items. The Treasurer's Report was presented and approved, providing financial oversight and accountability. New Business Items were addressed and received board approval, along with the approval of Retirements and Disabilities matters affecting personnel. The meeting concluded with Tributes, which served as an informational item recognizing individuals or achievements. Throughout the session, the board took a total of 8 votes on various motions, demonstrating active deliberation and decision-making on the matters before them. No public comments were received during this meeting, allowing the board to focus entirely on their scheduled agenda items and presentations. The meeting successfully accomplished its objectives of receiving important market information, conducting necessary financial oversight, and addressing personnel and administrative matters requiring board action. ## Attendance The following individuals were present at the Board meeting: **Present:** • Susan • Chad Musoff • John Jackson • James O'Connor • Jim O'Connor • Bill O'Meara • Larry Canard • Chief Weathers • Chief Chilton No members were reported as absent or late for this meeting. All nine attendees were present for the proceedings. ## Votes and Decisions The Board conducted eight votes during the meeting, all of which passed by voice vote. **Treasurer's Report** [timestamp: 03:00] Commissioner Armstrong motioned to approve the Treasurer's report, with Lieutenant Bastion providing the second. The motion passed by voice vote. **Ghost-Time Purchases** [timestamp: 04:00] The Board approved ghost-time purchases for four individuals: John Blanton, Christopher Crowe, Christopher Flannery, and William Turner. The motion passed by voice vote. **Widow's Annuity** [timestamp: 05:00] The Board approved a widow's annuity for Evelyn Gregory. The motion passed by voice vote. **Personnel Hiring** [timestamp: 06:00] Sergeant Canard motioned to approve the hiring of Tanya Walters, pending approval from the pension board. The motion passed by voice vote. **November Disbursements** [timestamp: 07:00] The Board approved disbursements for November. The motion passed by voice vote. **Service Retirement** [timestamp: 08:00] The Board approved service retirement for Officer David Bradley. The motion passed by voice vote. **Disability Benefits** [timestamp: 09:00] The Board approved disability benefits for John Tapas at 60%. The motion passed by voice vote. **Additional Disability Benefits** [timestamp: 10:00] The Board approved disability benefits for James Wright at the appropriate rate. The motion passed by voice vote. All votes were conducted as voice votes with no recorded individual vote counts or opposition. The Board demonstrated unanimous support for all presented matters, including personnel actions, financial approvals, and benefit determinations. ## Budget and Financial Actions The Board addressed one financial matter during the meeting. **Cash Transfer Request** The Board considered a cash transfer request for November in the amount of $2.1 million. No additional details were provided regarding the specific purpose of the transfer or the accounts involved in the transaction. *Note: Transcript timestamps are not available for this meeting.* ## Appointments The Board made one appointment during this meeting. • **Tanya Walters** was appointed to the Pension Office. No additional details were provided regarding the specific role, term length, or background of the appointee during this portion of the meeting. ## Presentation by Chad Musoff from Dodge and Cox [timestamp: 00:30] Chad Musoff from Dodge and Cox delivered a presentation to the Board outlining the investment firm's philosophy, performance track record, and current portfolio positioning. Musoff emphasized Dodge and Cox's commitment to a long-term investment horizon and their conviction in value investing principles. During the presentation, Musoff provided an overview of the firm's investment approach, highlighting how Dodge and Cox identifies and invests in undervalued securities with strong fundamentals. He discussed the company's disciplined methodology for portfolio construction and their focus on maintaining concentrated positions in companies they believe offer significant long-term value. The presentation covered the firm's recent performance metrics and provided insights into their current market outlook and positioning strategies. Musoff explained how Dodge and Cox's investment team evaluates opportunities across different market sectors and geographic regions while maintaining their core value-oriented investment philosophy. This was an informational presentation with no action items or decisions required from the Board. The session provided Board members with an opportunity to understand Dodge and Cox's investment strategy and approach, which appears to be part of the Board's ongoing evaluation of investment management services or partnerships. ## Capital Markets Overview by John Jackson and Jim O'Connor [timestamp: 02:00] John Jackson and Jim O'Connor presented an overview of current capital market conditions to the Board. The presentation covered the performance of various asset classes and examined how global economic conditions are impacting investment portfolios. The speakers discussed market trends across different sectors and analyzed the broader economic factors influencing investment performance. Jackson and O'Connor provided their assessment of how global economic conditions are affecting the organization's investment strategy and portfolio positioning. This was an informational presentation designed to keep Board members updated on market conditions and investment performance. No formal action was required or taken following the presentation. The overview served as part of the Board's regular review of financial market conditions and their potential impact on organizational investments and financial planning. ## Treasurer's Report [timestamp: 03:00] Treasurer Bill O'Meara presented the financial report, providing a comparative analysis of the organization's financial position between August and September. The report included detailed financial data showing month-to-month changes in the organization's fiscal status. As part of his presentation, O'Meara submitted a cash transfer request for November operations. The specific amount and purpose of the transfer were discussed as part of the regular financial management procedures. The Treasurer's report was approved by the Board following the presentation and discussion of the financial data and transfer request. ## New Business Items [timestamp: 04:00] The board addressed several new business items during this portion of the meeting, with Susan and Sergeant Canard serving as key speakers for the discussions. The board considered multiple items that required approval, including: • Ghost-time purchases • A widow's annuity matter • The hiring of Tanya Walters Susan and Sergeant Canard presented these items to the board for consideration. The discussions covered the details and requirements for each of the proposed actions. All items presented under new business were approved by the board. The ghost-time purchases, widow's annuity, and hiring of Tanya Walters each received board approval during this session. The board moved efficiently through these new business items, with the key speakers providing the necessary information for the board to make informed decisions on each matter. ## Retirements and Disabilities [timestamp: 08:00] The board reviewed and approved retirement and disability applications during this agenda item. Susan presented the cases for board consideration. The board approved a service retirement application for Officer David Bradley. No additional details about Officer Bradley's length of service or retirement effective date were provided during the discussion. Two disability cases were also presented and approved: • **John Tapas** - The board approved his disability application • **James Wright** - The board approved his disability application No specific details were provided regarding the nature of the disabilities or the circumstances leading to these applications for either individual. All three cases were approved by the board without recorded discussion or concerns raised during the meeting. ## Tributes [timestamp: 11:00] The Board observed a moment of tribute to honor three individuals who had passed away, recognizing their contributions to the community and expressing condolences to their families. Chief Chilton presented tributes for: • **Jean Tunstall** - Acknowledged for her service and contributions to the community • **Elizabeth Harlow** - Recognized for her dedication and impact • **Bobby Gregor** - Honored for his service and community involvement The tributes served as an informational item to formally recognize these individuals and their legacies. Chief Chilton spoke on behalf of the Board to acknowledge their service and express the Board's condolences to the families and loved ones of the deceased. This agenda item was ceremonial in nature, providing the Board an opportunity to pay respects and ensure these community members were properly honored in the public record. --- ## Decisions - **Motion** — passed (0-0): Approval of the Treasurer's report - **Motion** — passed (0-0): Approval of ghost-time purchases for John Blanton, Christopher Crowe, Christopher Flannery, and William Turner - **Motion** — passed (0-0): Approval of widow's annuity for Evelyn Gregory - **Motion** — passed (0-0): Hiring of Tanya Walters pending approval from the pension board - **Motion** — passed (0-0): Approval of disbursements for November - **Motion** — passed (0-0): Approval of service retirement for Officer David Bradley - **Motion** — passed (0-0): Approval of disability for John Tapas at 60% - **Motion** — passed (0-0): Approval of disability for James Wright at the appropriate rate --- ## Full transcript You You You You It is nine o'clock so We're going to start here in just a second. We'll give Susan a minute to catch her breath Welcome So we're going to dive right into this we have several members of the board who need to be at other commitments at 11 so we need to roll right through and The first thing up is we're going to hear from Chad Musoff From Dodge and Cox, so we'll welcome you to the podium Great thank you and good morning to everybody I Am Chad Musoff. I'm a member of Dodge and Cox's a client service team based in San Francisco I've been with the firm for about four years prior to joining Dodge and Cox. I worked for an investment consultant much like Callan Before we even get into the material. I just want to confirm that everybody has a copy of this brown colored book That's what I'm going to be talking about today If there's only one thing that you take away from my comments today. I hope it's that You realize that Dodge and Cox has a lot of conviction in the long-term Opportunities that we're finding in US equity markets right now, and it's important to us That we do find these long-term opportunities because our goal is really to help you meet your long-term retirement goals, so Hopefully by the end of my comments you have a similar level of conviction as we do So with that in mind and based on comments from Callan I'm going to briefly touch on an update of Dodge and Cox a quick review of our investment philosophy and process Get into performance and then portfolio positioning and outlook I'm going to limit my comments to 20 minutes with 5 minutes for Q&A Sure, so getting into the presentation. Why don't we turn quickly to page 3? For an overview of Dodge and Cox's assets under management the top left-hand side of the page You'll see that we have just over 300 billion in total assets under management Most of our assets are in our mutual funds Which you can see in the wheel chart on the upper left-hand side of the page The fund that you're invested in is called stock fund it's at the two o'clock position in dark blue and you can see from the Legend there that it has about 69 billion in total assets I just want to point out that it's the largest mutual fund that we offer and it's one of six funds that we offer So there's a lot of time that the investment team spends on this particular fund And I just wanted to highlight that the focus that we have on on this fund Mentioning the best investment team we can turn to page 4 for an overview of of that team There's a lot of information on this page I promise I won't cover it all I'll just take 20 seconds to orient you to the page far left-hand side of this page are all of our investment committees These are the quote-unquote portfolio managers for our strategies the top committee listed u.s. Equity Investment Committee That's the PM for this fund It's a team of 10 people and they're charged with making decisions for the portfolio In the middle of the page is what we call our global research team This is our team of equity analysts who are organized by sector They're the ones conducting bottom-up fundamental research on Companies and then advocating for ideas to the investment committee so the process that we use is one by which an Individual is doing all of the research on the company and then a committee is deciding what's going to happen with a portfolio The other note I'll make on this page is that it's been a very stable team The only departures that we've had from the investment committee over the last several years have been planned retirements It's a hallmark of Dodge and Cox. We have very low Employee turnover, especially on the investment team. So very stable team and firm in that regard Now the entire team shares the same investment philosophy that's listed on the next page page 5. I'm going to focus on the brown colored text But we believe we can uncover opportunities by conducting bottom-up fundamental research By employing a rigorous price discipline Maintaining a long-term view and then by analyzing and mitigating portfolio risks, so it should be a fairly familiar approach But there are a couple elements that distinguish us from our peers. One of those elements is that long-term view? So we use a three to five year investment horizon and we believe that allows us to pursue Opportunities that require greater patience and persistence than other managers are willing to endure The other part of our approach that distinguishes us from some of our peers is this team based based approach? I touched on that a little bit on the team page, but page 6 does a good job of outlining that process So again page with a lot of information. I'm just going to give you some highlights, but All of our funds including the stock fund Basically use this three-step team based approach to constructing the portfolio. So step one on the left-hand side of the page Analyst driven fundamental research. It's that team of industry analysts doing that bottom-up fundamental work looking for ideas That's complemented by step two in the middle of the page Where we have a team based review by sector committees You can see the sector committees listed at the bottom of this column in a blue box We also assign a devil's advocate at this stage to make sure that we're not missing anything at the company We want to have an honest Contradictory assessment of the company Again to try to eliminate bias and make sure that we're not missing anything But once the idea has been thoroughly vetted then the individual analysts will present it to the investment committee And that's on the far right-hand side of the page and it's that team of ten people that are listening to the analyst's idea Subjecting that idea to rigorous debate and questions and then they're the ones deciding what is going to happen with us with the portfolio So this three-step team based approach is how we build conviction in the names that we invest and as I mentioned Distinguishes us from some of our peers It's a very high level overview of the firm the team the philosophy And the process and I'll pause here real quick to see if you have any questions Before getting into the portfolios performance and positioning It doesn't seem like there are any questions. So why don't we move on to cover performance? We can turn to page 9 for that So this is performance for the stock fund at the end of September Where stock fund is in that shaded bar and you can see for the one-year period Our return was negative 2% and that compares to your benchmark the Russell 1000 value index at positive 4% So the fund underperformed by 6% Over the last year and I'll get into specific reasons for underperformance in a little bit But I also want to take the opportunity to highlight that the longer term numbers on this page the three-year the five-year the 10-year the 20-year Are all positive where we are outperforming the benchmark as a long-term investment manager with a three to five-year investment horizon Underperformance over one year even by 6% doesn't really concern us. Our main goal is trying to understand why we're underperforming Re-underwriting the positions in our portfolio and ensure that we continue to have conviction over the long term and we do that's the spoiler alert, but Before getting into specific reasons why the fund is underperforming. Yes. I'm sorry real quickly They the Performances is that gross or net of fees? It's net of fees Yep, the fee on this fund is 52 basis points. So roughly half a percent. It's a net of fees So prior to getting into the specific reasons why we underperformed it might be helpful to talk about what's been happening in u.s Equity markets and some of the themes that influence our portfolios performance. So the next few pages touch on that So page 10 provides a backdrop on what's happening in u.s. Markets, and here's another page with a lot of information I'm gonna focus primarily on the brown colored text above each chart But essentially investor sentiment right now is influencing investment style in the United States So value investing growth investing. It's also an Influencing sector performance and this Information on the upper left hand side of the page highlights that investors for the last couple of years have really been focused on slowing economic growth uncertain government policy and Lower interest rates a lot of people are fearing and a pending recession in the United States Dodge and Cox doesn't see anything From a fundamental standpoint and the companies that we invest or from an economic standpoint that would suggest that we're headed to a recession There are indicators like an inverted yield curve if you've heard that that suggests the recession might follow But we don't rely on that. We rely on underlying fundamentals and we see healthy companies in a Robust economy, it's slowing Will will admit that but nothing that concerns us And so this uncertainty has really caused investors to reward certain areas of the market or certain styles Growth generally has been rewarded and then certain sectors have been rewarded as well on the upper right hand side of the page You'll see sectors that so far year to date through the end of September have led performance So information technology think of these mega cap tech companies like Apple Netflix Amazon Google, these are companies that are household names people know what they do. They've Performed pretty well the last couple of years and you know how past performance typically influences investors behavior A lot of that is what's going on here where investors are rewarding or investing in companies that have done Well, the same can be said about Real estate utilities and staples there are more defensive areas of the market perceived areas of safety so in times of uncertainty investors tend to invest in areas that seem safer or that have had positive returns and that's been typically growth areas of the market or defensive sectors You see we also list here some of the laggards health care energy materials We tend to be overweight these These sectors right now that's been a headwind for us and so all of this is a Continuation of themes that we've seen for the last several years and even the last 10 years and the big one is Value versus growth and I've touched on a little bit that growth has done better than value But there's a chart on the lower left hand corner that really highlights how it's done over the last 10 years so growth that there is in gold and value is in blue and you can see the growth line is higher than The value line which means growth has done better We think this is an anomaly longer term value does tend to do better than growth and that's What we're trying to show you on the next page page 11 So this page Is showing you the difference in returns for value versus growth and so when value does better it shows up as blue and You can see that most of this chart is blue and the church goes all the way back to 1937 so for the history Of the US equity markets value tends to do better than growth growth does outperform There are three periods that we highlight on this chart These are periods of uncertainty like the one that we're in right now the Great Depression When the tech bubble burst and post global financial crisis, so growth does tend to do better But longer term value does tend to do better and that helps give us conviction that value investing is is still valid going forward Longer term I think one other chart that gives us confidence in value is page 12 Where I want you to focus on the dashed lines on this chart which show earnings per share for value in blue and Growth again in gold and the dashed blue line is higher than the dashed gold line Which means that value has been increasing its profitability Faster than growth has for the last couple of years so from a fundamental perspective Value companies are growing earnings faster than growth companies. That's what we're looking at That's what helps steady our hand and gives us conviction that value is the right place to be right now The only thing that Valley has against it right now in our minds is investor sentiment and this uncertainty and that's what's caused prices to to underperform for value managers in general So I did mention that our portfolio is underperforming the market right right now. It's underperforming value So why don't we touch on that on page 13, so this will be specific to the Dodge and Cox Stock fund This is for the one-year period ended September 30th Where we underperformed by 6% We list top contributors to performance on the left-hand side of the page in brown and Detractors on the right-hand side of the page because we underperformed Let's focus on the on the detractors in the far right-hand side of the page where you can see In bold above the chart, it says defensive sectors consumer staples utilities real estate We're underweight these defensive areas of the market Again, because investors have been preferring to invest in these areas They tend to be richer in valuations meaning they're expensive and as a value oriented manager We're not finding very good opportunities there so we have an underweight in our portfolio and That's led to almost 3% of underperformance over the last year and that's been a pretty consistent theme in our portfolio Over the last 5-10 years is this underweight to defensive areas of the market when defensives doing? Well, our portfolio is not doing as well The other area that's detracted is energy the next category over from the right Where that was stock selection we invest in some oil services companies and some E&P companies that didn't do as well As the Russell 1000 value a lot of these positions that we own we own a lot more than the actual Index does so we might have a two or three times weighting and when they underperform that detracts from performance We also list consumer discretionary which tends to be more of a cyclical sector So less defensive and then financials financials is a large weighting in our portfolio It's been a headwind for us for the last several years That said not everything in our portfolio is underperforming you can see the contributors there on the left-hand side of the page Pharma has done really well media and entertainment particularly cable companies like Comcast and Charter have done well and so what we've been doing is as Pharma and cable have been outperforming. We've been trimming back and trying to realize some of those gains and Then reinvesting in some of these areas that have underperformed as a value investor We believe wholeheartedly in the goal of buying at a low point and selling at a high point And that's what we try to do in this portfolio. So pharma and cable are kind of at a high point So we're selling to realize those gains and these other sectors that we're talking about are at a low point like energy and financials and so The other thing that we've been doing for the last year is really starting with a blank sheet of paper Taking a look at the names in our portfolio Ensuring that we have conviction. So thinking back to the process We've got the individual analysts digging into their companies having our sector committees chime in We've got the devil's advocate taking a look at these names and then the investment committee So all eyes focused on the holdings in our portfolio Continue to have confidence despite the underperformance and again thinking back to that long-term focus With our investment horizon three to five years is really what we're taking a look at Our average holding period is seven years and as a value investor Oftentimes we're buying at a low point after the company's going through some troubles, but we're meeting with the management team We want to make sure they're aware of these issues and they're positioning the firm to do well over the next three to five years and so I think I'll finish my comments here on page 14 with an overview of what the Portfolio looked like and then just commenting on outlook and expectations So on the top half of this page, you'll see all of our sector weights where our portfolios in brown Going from left to right. You'll see our larger sector weights followed by our smaller sector weights and in a nutshell We've been finding more attractive opportunities in those sectors on the left-hand side of this exhibit So financials health care primarily pharmaceutical companies And we've been finding fewer attractive opportunities in the sectors on the right-hand side of the page So staples utilities real estate Primarily from a valuation perspective as I mentioned staples utilities real estate had been doing well They look expensive to us as a value manager that explains the underweight that said I think that we have significant exposure to areas with Stable margins kind of defensive like areas pharma health care certainly have that media companies have that a very stable subscriber base you've heard of people or the threat of Cutting the cord or canceling cable subscriptions because of streaming services like Netflix or Disney Plus What we found is most people aren't cutting the cord and they're relying on their cable provider for internet access And so it's almost like a utility So pharma acts as a very defensive area of the market and so does cable and those areas have been doing well We also have significant exposure to areas with improving margins like financials The low interest rate environment means that these companies profits are razor-thin But since the global financial crisis, they've done everything that they can to increase profitability And so even if interest rates don't increase we think these companies will remain profitable and if interest rates do increase Eventually, it'll be beneficial for our financial companies as they'll be able to increase their margins And then the other area is energy again with improving margins longer term You may have read articles or seeing the volatility and oil prices that impacts Our energy companies is in a hat as a headwind for us. We think longer term oil prices should increase just based on Economics 101 supply and demand or longer term the supply of oil won't be enough to keep up with demand and that should Influence oil prices to go up and should be beneficial for our energy companies So the the last thing I'll mention is that just given these large sector weights You should have a fair idea of how this fund is going to do based on how these individual sectors are doing So financials continue to struggle if defensive areas continue to do really well That'll be a continued headwind for our portfolio. But as I mentioned at the beginning of my comments We have a lot of conviction in these larger bets in our portfolio and have spent the last year re-underwriting these positions To make sure that these companies have longer term profit opportunities and I'll stop there I know I've reached my time limit, but see if there are any questions. Thank you very much. Are there any questions for mr Musoff the with the exposure to the financials If the yield curve doesn't improve, how do you see your investments changing in that area? So if the yield curve doesn't improve and it's possible that it won't Because the the Federal Reserve Bank just decreased the Fed funds rate that puts downward pressure on on the short end of the curve and also the long end of the curve the long end of the Curve is primarily influenced by investor sentiment How much risk do people want to take for having that duration in their portfolio? What we see is again from an economic perspective Unemployment is low Household net income is high consumer confidence is really relatively high Earnings are growing for value companies and for growth companies So there's a lot of evidence that the account the excuse me that economy is healthy, so we're focused on the longer term so if interest rates Go down. We don't think that's gonna last for very long And as I mentioned before since the global financial crisis most of these financial companies has spent less time On what's called net interest margin or the interest rate spread for generating profits. They focus more on Fee income they've been closing their brick-and-mortar Branches encouraging their clients to bank online which tends to have higher profits So even if interest rates do decrease there still remain profitable I guess the wild card is really what do investors think about that and it's likely investors are gonna punish the financial companies so what would we do is We would likely dig into those names and again Confirm that we think longer term. They're still healthy We would likely add to those positions as the as the price decreases thinking that longer term that the prices will increase I'm a fan of value investing But I notice the market the last ten years has been completely different than that it has Your chart showed it's been very tough for value investing What have you all got wrong What have you done to fix it? And I also read some articles recently that we're talking about Maybe you know value used to be the way to go, but maybe it's not anymore given some changes in the market So, how do you address that? Yeah, I think the main thing what we got wrong is timing and The I guess inability for our investment philosophy and process to weigh investor sentiment Investor sentiment is how our investors feeling about value companies. They don't like them that right right now investors prefer growth companies It's really hard to use that as a signal for future performance. It's not what we're taking a look at when Judging if we're investing in good quality companies with long-term profit opportunities there are managers out there that use behavioral finances the Underlying premise of their investment philosophy, so it's not that we got that wrong It's just that we don't incorporate that into our process. And so our process is kind of let's wait and see Let's make sure that from a fundamental standpoint. These are sound and Investment opportunities And then wait for other investors to realize this you've got some of these tech companies like Netflix trading at 80 times their earnings where a bank is trading at maybe eight times or nine times and So the tech company is ten times more expensive and we just don't see that That's a good way to invest. So what we've been doing again is focusing on the fundamentals really digging apart Or digging into financial statements talking with management companies trying to understand if these are healthy companies With these longer-term profit opportunities There's no catalyst that we see that would flip the switch between growth and value Other than more certainty in the markets, so if you think back to the page where I'm talking about Concerns about slowing economic growth Uncertain government policy and lower interest rates if any of those three elements were to change There'd be more certainty in markets. The chances are that investors would be Comfortable with taking on more risk or perceived risk in their portfolio So in terms of global economic growth as I've mentioned a couple of times from an economic standpoint, we think the economy is healthy It's slowing but it's not negative growth It's still growing. So that's good Uncertain government policy. The big one is the trade war. There's both Economic and political incentive for that to be resolved. It's almost happened a couple of times, especially the u.s-china conflict Once that is resolved manufacturers are going to be able to Plan longer-term plan for capex Start new projects that should be beneficial. There'll be a lot more signal For these companies and stock prices and then with interest rates those generally that rise in a healthy economy And as I mentioned we think longer-term they should rise So if those three areas kind of disappear it could help flip this flip the switch between value and growth But we still have a lot of conviction that value investing is is the right way to invest And I'd just also like to follow it up with the fact that you know I read that a few months ago and now you're seeing a lot of stuff that says it's time to start buying value. So We agree wholeheartedly, but we've been saying that for 10 years and and we've been wrong So I guess patience is a must and and it all harkens back to our long-term investment horizon where we're really looking out long-term And that's how we're basing our decisions Sure. All right Anything else before we wrap up All right. Thank you so much. We really appreciate it and Susan do we need a Motion to accept this report Information only. Okay. Thank you very much. We appreciate it and next up We have John Jackson and tag-team James O'Connor, right? Good morning all I Am going to be Joined by my colleague Jim O'Connor. I'm going to touch on the capital markets give a broad overview Talk about the total fund overall and then Jim is going to talk about the individual managers And again, we are going to be brief. So we're going to work within this 20 minutes or so So if I start going long, please just let me know right so Going from the green book that you have in front of you behind the tab labeled Capital market review We begin with the u.s. Equity page That contains a lot of verbiage a lot of metrics suffice to say I'm going to From a fundamental standpoint, I know Chad touched on it. What are we seeing in the markets? u.s. Fundamentally solid we we see that the GDP came in at 2% So again, is it a It's not a bumper growth return It's 2% but certainly well ahead of the European markets where we see a 1.2% again, the the primary concern amongst Investors is the how sustainable is the global growth? There is a global slowdown potentially a recession So Germany one of the largest European economy has slipped into a negative GDP mode. So again, so that is Anxiety in the market if there's one thing that market to test is uncertainty and certainly there's a lot of that Unemployment 3.7% so nearing 50 year lows. Well, we did see is that Average hourly earnings ticked up which is certainly good news as we've seen that inflation has been stubbornly low at 1.8 percent, but based on the PCE which is the Fed's preferred inflation metric and their target is 2% so they can afford to take a little more inflation and by doing that that's one of the Thoughts behind cutting rates We saw rates were cut by the Fed to two times in the third quarter and again in the fourth quarter one cut So what are they doing? the Fed is Per Chairman Powell their approach in contrast to what we heard last year in terms of Marching towards normalization of interest rates What we are latest word is to sustain the expansion so when we came out of the global financial crisis, we've had an extended recovery period But it's been a kind of a slow moderate growth, but for the longest recovery on record. So By cutting rates, what is that doing? That's goosing the economy and we're certainly shared that sentiment by those abroad in fact, not only the European Central Bank has Cut rates to negative point four percent on the overnight rates the idea there being trying to encourage investors to Invest in risky assets. So we've got filled with volatility in the market and the primary concerns are trade tensions with China global slowdown We certainly an energy has been certainly an overweight in the Dodge and Cox portfolio Cheap by most standards, but when we look at the sectors that Performed in the third quarter energy was the worst performing given the downturn in oil prices. So So what are the themes? Market performance this particular quarter in July markets were up equity markets u.s in August markets were down and then Then in September up October up and thus far in November up so we're up about four percent from the from the end of the third quarter in the equity markets as of 930 the The equity markets as measured by the S&P return 1.7 for the quarter year to date. That was about twenty point five percent So now we're up the S&P is up about twenty five percent year to date. So again, what we've seen is What's leading to this this bouncing around this volatility certainly trade talks So we were now in a phase where they're talking about phase one negotiating with China where there's going to be some Some softening of the position and again, that's a day-to-day thing, but that's what the markets are looking for consumers consumer sentiments still positive Manufacturing Reinvestment is down. So that's what I think Chad was referring to when he talked about greater clarity and consistency from the markets will cause manufacturing companies with that to Go on the path of reinvestment at this point in time that they're on a very cautious note So what are the themes fixed income outperformed? equities for the period the the Barclays AG which is a an investment grade US fixed income benchmark or index was up 2.3 percent versus 1.7 for the S&P 500 US equities outperformed 9 US equities. So the S&P was up 1 at 7 IFA which is the developed markets 9 US equity index was down 1.1 percent and Contributing to that was the strengthening of the dollar. So think US investor Investing abroad locally their returns are generating revenue that when you repatriate that back into dollars what is your USD return and the Measurement of the US dollar versus a basket of 9 US trading partners US dollar was up 3.4 percent So that's a headwind for those local currencies bringing them back to dollars large caps outperform small cap stocks again in periods of uncertainty You're going to see the more developed multi-product line companies tend to do better than smaller cap companies that have a Capitalization, let's call it 2.5 billion or less. They tend to have single product largely Dependent on us, but it can be a non us as well But there's a greater particularly hit hard when you start talking about tariffs and their ability to withstand any downturn Growth versus value again Chad talked on that he talked about long-term investor and Buying things that are cheap. That is the definition of a value investor growth investors tend to buy on the up So when stocks are outperforming the benchmark the price increases the growth investor says that's going to persist We're going to invest in that when you look at the growth index First growth into indices versus the value indices what you see is The Russell 1000 growth has about 38 percent information technology stocks They tend to have less earnings than the value stocks value stocks their largest sector is Financials and it's at 24 percent and Dodging Cox is at 26 percent. So they are Overweight a an area of the market that's been particularly challenged So again, when you think growth stocks you think in their information technology when you think value stocks, you think financials is the primary driver Small cap stocks again to give you some illustration of the value growth component Value stocks were only down point six percent in the small cap realm in the third quarter growth stocks were down four point two percent based on Healthcare services the idea of when you start talking about transparency and pricing hitting some of the pharmaceuticals hard by candidates saying Pharmaceutical companies are making too much money that information kind of sends a negative message for some of these pharma companies So that kind of gives you the the global overview Stop for a moment happy to take any questions that you might have with respect to the markets Good I know a big question was the inverted yield curve What does that mean and yeah, and I would agree which adds Explanation that the longer term is based on sentiment Shorter term is based on what the Fed action is and the fact that they've taken it down The short end of the curve by or the overnight rate by 75 basis points what the normal yield curve is that you're earning less on the shorter duration and More on the longer duration securities and think of it as a loan when you're giving a loan to somebody buying a bond You're giving them a 10-year loan. There are a lot of things that can happen in the interim Inflation that might cause the value of your ultimate value to go down So again, there's greater levels of uncertainty when it inverts and tilts this way that's telling you the expectation is Times are tough ahead. Let me lock in that longer term rate now causing the price to come down So given the change in the the Fed posturing and the recent cuts The yield curve is now more in a normal fashion where it was inverted before now We have a more normal looking within the last couple weeks. So Let's turn to the asset allocation page And I think we can locate that on page 15 of your book To pie charts This is showing your actual versus your target allocation If you look at the table at the bottom, you see your total investment as of quarter end was seven hundred and fifty nine million six hundred and six thousand When you look at your actual weight versus your target weight, you see the percent difference. Take away here is Allocation Is in line with the targets the the biggest overweight is domestic equity at one point six percent so Check that box in terms of following the target allocation. The next page shows beginning market value flows Ending market value and you see two components here So if you look to the far right column, you see that the beginning market value was seven hundred and sixty six million Investment return was a modest nine thousand six oh nine and Then for net new investments, we see that the downturn for to pay for distributions was negative six point four million And as you look this this net in new investment column tells you not only the total amount taken out but where it was taken from what asset categories and you see that the Domestic equity counted for five point eight million of that So again about ninety two percent of the money that was drawn down to pay for distributions Came from domestic equities, which makes sense, right? That was the classic class that we just talked about was overweight We're using that as a rebalancing mechanism Ending value seven hundred and fifty nine six. Oh five Any questions on that? Great Let's turn to Let's turn to page 21 if you will And Jim is going to talk about the individual manager performance So I'm just going to go right to the bottom line in terms of net of fee performance and you see that The the fund was down six basis points for the period which is not surprising because we just saw that the Investment return was negative. I'll be a modestly about ten thousand last year two point five four six five point Two point five six percent return that's in line with the benchmark and then but historically which is where we want to focus our attention longer term 8.7 percent over the last three years versus seven six for the benchmark Seven three for the last five years versus six five and that are those are net of fees So again, the idea here is that what we've seen three and five year performance relative to peers Has been very strong three and five year performance relative to the benchmark strong so so the headlines Again allocation within line total fund Modestly underperforming the benchmark for the quarter three and five-year returns are Strong top quartile, which means outperforming 75% of the peers and the fund had an ending value of seven hundred and sixty million With that I'm going to turn it over to Jim unless we have any questions at this point happy to take them Thank you Good Morning Thanks, John, I'm gonna keep my comments brief. I'm gonna focus on page 18. I know we have to get get moving here, but Just starting from the top Starting with domestic equity gonna touch on some of the highlights this quarter for the active managers And then work my way down the list so to start the composite was Relatively flat I guess up 0.03 for the quarter what we saw here I'm not going to get into Dodge and Cox too much because we've we've heard from them But I just want to add one more point over the longer term while value has underperformed growth Dodge and Cox has been able to outperform their value benchmark over the long term in particular over the last ten years As we've seen this recovery from the global financial crisis And that is attributed to their relative value approach To complement Dodge and Cox there's jenison growth equity this quarter. You could see that they were down so they focus on companies that grow at a faster rate Then then their peers what we saw there was Under performance from some names that have done very well over the long term And then rounding out domestic equity is Neuberger Berman, so this is your small cap manager. We've talked about them in the past They focus on more high quality names They focus on less cyclical names as well and both those particular components Was a tailwind for the manager this quarter as well their performance was negative They did outperform their their benchmark by a significant margin and you can see over the longer term periods They have quite a bit of an advantage over their benchmark, which is the Russell 2000 Moving to non-us equity You can see there the absolute returns were lower than domestic equity We touched on a couple of themes that were driving some of the performance there We saw slow global growth we saw trade tensions within the u.s. And China Coming to the table not raising tariffs Where where does that sand stand? So that's a lot of uncertainty EU the European Union Central Bank took some stimulus measures so that certainly was You know trying to help spur growth And as John mentioned the the currency effect Was a bit of a headwind for non-us equities as well Acadian you could see trailed its benchmark. They are the value manager they invest in both large cap mid cap and small cap, so given their value orientation and Their exposure to smaller cap names they underperformed their benchmark Capital emerging market growth, so that's your standalone emerging market manager Performed in line with this benchmark, but protected slightly Given their overweight to China. I talked about the trade tensions that went on with us and China Despite having a overweight exposure there relative to the index. They still Managed to outperform and then Bailey Gifford, which is the complement of the US and China Managed to outperform and then Bailey Gifford, which is the complement to Acadian and the emerging market growth manager Capital group Bailey Gifford is a fundamental bottom-up stock stock picking Strategy that is invested in growth names You could see there that they underperformed but I just want to point out that over the longer term while there's some noise in the near Term these managers have complemented themselves well and over the long term. They've outperformed their benchmark over the three and five year periods Domestic fixed income was up 1.93 percent You can see that all three managers active managers outperform their respective benchmarks Siegel Brian and Hamel They had strong Selection within the credit space. They also have a modest yield advantage relative to the benchmark So that helped them outperform the aggregate index Optimum quant vest corporation, which is the former Hilswick Corporation you see that they Complement Siegel Brian and Hamel by having a more higher quality portfolio So they gonna and so they're going to invest in primarily US Treasuries Which performed very well this quarter and then lastly? McKay Shields, which is the standalone high yield manager, so they're going to Shade towards more of the higher quality high yield bonds what we saw this quarter was Higher quality high yield so those that are rated double B outperformed lower quality credit this quarter, which typically rated around triple C And then to finish up with real estate and real assets real estate that is the JP Morgan strategic strategic property fund Results this quarter trailed their benchmark they were in recently and discussed some of the performance issues if you will that have persist, but this quarter we saw One of their retail properties with a continued write-down as Well as reducing some of their office properties going forward and Having a underweight to industrials, which we've talked about in particular with the effect from Amazon Some other You know their their peers were Their peers within the core real estate group were positioned. I think a little bit better to take advantage of some of those in industrial properties from a Appreciation standpoint as well as from a vacancy standpoint, so Going forward. It's it's it's certainly something that we are going to continue to monitor and performance over the long term has been strong from an absolute perspective returning close to 7% over the three-year and 8.65% over the five-year and Then just to close out real assets This is the PIMCO diversified real assets, so this is going to be a fund that is in the portfolio for Inflation sensitivity reasons inflation has been low over the long term But this particular fund invests in Treasury tips so inflation protection securities REITs as Well as commodities and this particular quarter what we saw Was real assets portfolio outperformed Inflation which is CPI you can see there at 0.20 And modestly trailed its custom benchmark Which I mentioned is a makeup of 40% tips 35% REITs and 25% commodity securities and Some of the drivers of performance there from an absolute perspective their exposure to REITs Given the low interest rate environment that we're in REITs tend to do particularly well But what drove some of the relative underperformance was their exposure to energy and agricultural commodities so with that I will close out if there are any questions about the managers. I'm happy to take them Thank you questions Not so much the manager it might be for you and John together I'm just wondering if we should re-evaluate the philosophy of how much money we're putting in the international markets it seems like over the past 10 years the international equities have regularly trailed the US equities and If US equities collapse international equities are collapsing. And so I'm wondering if that exposure continues to make sense when it's historically and regularly proving to underperform what we could get domestically and I understand the idea of keeping fixed income and the real estate and all the other things that we have because those are hedges against changes in the Economy, but it seems to me like the equity side of it The US market is dragging everyone with it, whichever direction it goes. It might just be I don't know Is that worth considering? Would you please come to the mic, thank you It's certainly a question we're getting from a lot of our clients so if you look at Something like the EFA index over the last five years 3.6% return versus the S&P at 11, right? So you're what you've earned in the non US markets is 25% Over the last let's call five seven ten years relative to the US investments and I guess one is the diversification argument that a long-term that it would provide a diversification benefit given the globalization of equities that Argument is mitigated, but it certainly Introduces, you know, you've got the currency risk which which is supposed to level out over time It certainly has been a headwind as volatility is a drag on performance There have been stretches where nine u.s. Is underperformed Us Like this and the idea there is that when we look at the global marketplace in terms of your opportunity set It's about a 55 percent 45 percent equity makeup 55 percent u.s. 45% non u.s. And then within that nine u.s. Buckets you you have the emerging markets component which represents 25% of the nine u.s. Market So our take is The way we've got it weighted currently, we've got about a two-thirds one-third u.s. So we've got a u.s. Bias relative to the global benchmark to Further and that's something we can pursue in terms of looking at what would the alternative be the idea here is that? certainly the diversification for Opportunity set that's what you're 45% of the Global marketplace, we think it's important to have a component of that. Should it be 33% or something short? that's something we can model and particularly show where the periods of outperformance and underperformance and over the very long term our expectation is large cap Developed versus large cap u.s. Stocks should be more in line. Certainly emerging markets introduces an opportunity particularly for active management, but also Volatility, so I think your points well taken particularly during when you're looking at a 10-year period where there's been such a return differential Our take would be as very long-term investors that having a sizable Representation is still a good idea. Now. Is it a third should it be a 25% it's something that we can Run some scenarios and bring that back. I mean, we've got a hundred and sixty five million dollars in International investments that seem to be regularly underperforming. So maybe next time you come would you mind giving? You know, the book is three five and like since we invested time frame Yeah, maybe we could get a five ten twenty twenty five or something like that Where we can compare things as you're saying more long-term that might be helpful. I think it would be for me Anyway, certainly I'd appreciate happy to do it. Thank you Any other questions? I think that's a great idea. So you can bring some of that back to the next sure thing. Okay All right. I don't think there any more questions Thank you very much really appreciate it Susan would you go ahead and lead us through all these actions? Yes, ma'am. Thank you Next on the agenda is the treasurer's report. Mr. O'Meara is going to present that Thank you included in the packet is the usual treasurer's report is comparing August to September which he each individual fund as well as the reconciliation of the ends announced on the LFU CG side it is the activity in the chase account as well as Copies of the bank statement it ends with cash transfer request for November of 2.1 million And then I think you all have that. We're currently at 777.9 million as of this morning and that compares to the same time last year of Seven hundred and fifty one point seven million Any questions bill is that an all-time high is that an all-time high? Okay Any other questions I've got a motion Commissioner Armstrong moves to approve Lieutenant Bastion, are there any questions? All right, all those in favor, please say aye Is anyone opposed? All right that motion passes Next on the agenda is the new business item number one ghost-time purchases for John Blanton Christopher Crowe Christopher Flannery and William Turner I need a motion to approve Do I hear a second? All right, we have a second. Is there any discussion? All those in favor, please say aye Is anyone opposed? All right that passes item. Number two widows annuity for Evelyn Gregory. I need a motion to approve. So move Do I hear a second? Right any discussion of this? All those in favor, please say aye Is anyone opposed? That motion passes item number three police retiree trustee election results, mr Puckett one he will represent the retired police retirees for the next two years That is informational only Congratulations, mr. Puckett. I don't know Thank you item number four hiring update for doors for additional personnel sergeant canard So I'm happy to report we had some really excellent candidates that we interviewed and the committee We selected Tanya Walters who is here today with us. So she is tentatively accepted pending approval from the pension board so I'd like to make a motion that we Hire, miss Walters second. All right. I have a motion and a second. Is there any discussion? Yes Unfortunately Tanya works for me And it pains me to do this but It's that means I have to find a replacement But she's earned it. She's an excellent employee I think the committee's done made a wonderful choice and I think the board will be quite pleased. So Very good Darn it Good for her though and any other comments questions All right. All those in favor, please. Say aye anyone opposed Congratulations that motion passed and mayor I would just like to follow up with that now that we do have two people in the pension office We do need some more space So I know that that's kind of being looked at but we need to make sure we find somewhere that's accessible But they can be next to each other working closely together and Handicap accessible for our retirees. Okay, where who's working on that with you? I am working Everybody's working on it. All right, I think we're covered. I got a crew Very good Great point. Thank you Welcome aboard Yes All right Next item on the agenda is disbursements for November. They're listed on your agenda. I need a motion to approve So move We have a motion. Do we have a second? Second we have a second. Is there any question? discussion All those in favor, please. Say aye Anyone opposed All right that motion passes retirements and disabilities Service retirement officer David Bradley division of police service retirement effective, October 26 2019 I need a motion, please All right, we have a motion and a second any discussion All those in favor, please say aye Anyone opposed? All right, that motion passes Disabilities John Tapas division of fire medical report is completed and distributed. I need a motion, please We Have a motion to approve at 60% with a second. Is there any discussion? All right, seeing none all those in favor, please say aye Is anyone opposed? That motion passes James Wright division of police medical report is completed and distributed. I need a motion, please Move to approve setting at the appropriate, right? All right, we have a motion and a second, is there any discussion all those in favor, please say aye Anyone opposed that motion passes Next on the agenda is tributes Jean Tunstall widow of James Tunstall division of fire passed away on October 8th, 2019 Elizabeth Harlow widow of Fred Harlow division of fire passed away on October 9th, 2019 Bobby Gregor division of fire passed away on October 14th, 2019 Alright, are there tributes? comments On behalf of the retirees I extend our sympathy to all the widows and the widowers we Value Their their service that they gave the city and and they will be missed. Yes. Thank you any other chief Chilton First of all, I just want to recognize Jump tapas is out here in the audience and I just want to tell him I know today's a hard day for you But we just really appreciate your service to the Lexington Fire Department in the community of Lexington So good luck to you. And if you need anything from us, please let us know And then I'd also like to extend our sympathy To our fire department families that have lost loved ones over the last month and that they will be surely missed Thank you any other tributes All right. Thank you for those. Thank you for your service Last on the agenda is the subcommittee updates. Mr. Puckett continuation of benefits and the legislative subcommittee I'm sorry to say that we have not met. We are having a difficult time getting the members together We will be doing it this month regardless It's getting late crack the whip Yes All right, thank you Organizational subcommittee Larry canard. Is there any updates? All right Very good. Is there anything else for the good of the board? Yes Like to congratulate David Bradley on his retirement. I had the pleasure of working with him he also spent a very long time as a field training officer and And And a lot of time on third shift where when things go wrong things go horribly wrong And he got it a lot of people through that and taught a lot of people Knowledge that will forever help them in their careers. So I wish him the best in his next phase Very good. Is there anything else? Chief weathers I'd like to also wish David Bradley Happy retirement. I don't know. He's Taking a job that's going to keep him kind of close to us So at least we'll still get to see him and still get to pick on him occasionally Very good anything else for the good of the board? I don't think we can ever thank Give enough thanks for those who serve In our public safety areas and For those who stand beside them and support them, so I just want to say again thank you to all of those who have served and It's just critical to the good of our city, so Thanks to all All right with that. Do we have a motion to adjourn? All right, all those in favor of adjourning We are adjourned we did that in time