Minutes - 10/24/2012 - Police Pension Fund BoardVILLAGE OF OAK BROOK
BOARD OF TRUSTEES OF THE POLICE PENSION FUND - Minutes
October 24 2012
UNOFFICIAL UNTIL APPROVED AS WRITTEN
OR AS AMENDED I BY BOARD OF TRUSTEES OF THE
POLICE PENSION FUND ON January 30, 2013
1. CALL TO ORDER:
The Regular Meeting of the Board of Trustees of the Oak Brook Police Pension Fund was called to order
by President Vel Torlo at 7:03 p.m. in the Samuel E. Dean Board Room of the Butler Government Center,
1200 Oak Brook Road, Oak Brook, Illinois.
2. ROLL CALL:
The roll was called with the following persons
PRESENT: President Vel Torlo, Vice President Alan Feldman, Secretary Edward Caspers, Trustee
Hitesh Patel, Trustee Ben Kadolph
ABSENT: None
IN ATTENDANCE: Finance Director Sharon Dangles, Terese Krafchek and Jim Hrabak of MB Financial,
Bill Lowery, Jeff Kowalczyk and Courtney Cervantes of Lowery Asset Consulting, LLC, Pension Clerk Rose
Kane
3. PRESIDENT'S COMMENTS
None presented.
4. APPROVAL OF MINUTES:
a. Approval of Special Meeting Minutes of August 13, 2012
Motion by Vice President Feldman, seconded by Secretary Caspers, to approve the Minutes of the
August 13, 2012 Special Board Meeting, as written. VOICE VOTE: Motion carried.
5 CONSENT AGENDA:
All items on the Consent Agenda are considered to be routine in nature and will be enacted in one motion.
Motion by Secretary Caspers, seconded by Vice President Feldman, to approve the Consent
Agenda.
ROLL CALL:
Ayes: 5 — President Torlo, Vice President Feldman, Secretary Caspers, Trustee Patel, Trustee Kadolph
Nays: 0 — None
Absent: 0 — None. Motion carried.
a. Approval of July1 -31, 2012 checks in the total amount of $168,467.14
b. Approval of August 1 -31, 2012 checks in the total amount of $176,055.88
c. Approval of September 1 -30, 2012 checks in the total amount of $167,387.71
d. Approval of Lowery Asset Consulting, LLC's invoice in the amount of $7,000.00, dated June 20, 2012
e. Approval of Mesirow Financial's Invoice dated July 26, 2012 in the amount of $3,619.00
f. Approval of Contravisory Investment Management, Inc. fees for the period July 1- September 30,
2012 in the amount of $3,442.00
g. Approval of Lauterbach & Amen, LLP's invoices in the total amount of $2,850.00, for services
rendered in May, June and July, 2012
h. Approval of reimbursement to Pension Clerk Kane in the total amount of $1,694.80 for registration
and lodging for three Trustees to attend IPPFA Fall Conference
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6. ITEMS REMOVED FROM CONSENT AGENDA— None presented.
7. UNFINISHED BUSINESS— None presented.
8. NEW BUSINESS
a. Lowery Asset Consulting, LLC /MB Financial Investment Management Performance Reports for Third
Quarter, 2012
Mr. Lowery discussed global events affecting the market and also talked about the Quarter Ending Infinity
remarks made by the Fed Chairman in the United States. He stated that about 10% of the US economy is
related to exports and China's economy is 25% in exports. He also discussed Germany going away from
the Euro. He stated that in the third quarter in the US the consumer is displaying more strength than
expected, and somewhat of a rally in the last two quarters in the housing market. He discussed that the
money market is zero and that stocks are still relatively cheap.
Mr. Kowalczyk stated that for the quarter the large caps did 63% (page 7 of Lowery's Report) and that the
equity rally was broadbased, pretty much any stock, except utilities. He stated that the small caps did not
perform as well, but still a winner at 5.25% and the international developed markets performed at 6.98% for
the quarter. He stated that the big winner for the quarter is the emerging markets at 7.89 %.
Mr. Lowery discussed page 14 of the report in regard to the allocation of 56% in fixed income which is
conservative and relatively defensive. Trustee Patel inquired as to a way there would be less of a
downside risk on the fixed income side, in treasury bonds. Mr. Lowery discussed the credit risks in bonds
and Mr. Hrabak explained that it may not be a bad idea to reduce the fixed income allocation. He stated
that there is discussion regarding the statute language about the 10% in mutual funds being added to the
55% allowed in equity — 65 %, but this may be too aggressive. He discussed mutual funds and some new
opportunities in emerging market bonds to dampen some of the equity risk, but still provide some additional
income on the fixed income side. Mr. Lowery agreed that looking first to diversify the Plan is the first step
and the next step is to preserve the purchasing power in the bond allocation and discussed global bonds.
Mr. Lowery referred to page 9 of the report and discussed the quick overview of interest rates and the US's
government deficit. He then stated that the portfolio was up overall 3.17% as shown on page 15 of the
report and discussed performance of growth managers. He affirmed that per the discussion at the last
meeting they took money from Ivy to the International and discussed the performance during the quarter.
He stated that Nuveen has done very well long -term and the emerging markets came back.
b. Approval of Investment Transactions for Third Quarter, 2012
Motion by Secretary Caspers, seconded by Trustee Patel, to approve the Investment Transactions
for the Third Quarter, 2012.
ROLL CALL:
Ayes: 5 — Secretary Caspers, Trustee Patel, Trustee Kadolph, President Torlo, Vice President Feldman
Nays: 0 — None
Absent: 0 — None. Motion carried.
Mr. Hrabak discussed the fixed income portfolio and diversification strategies. He referred to MB's report
and stated that the total fund is up 3.68% year -to -date as compared with the blended benchmark of
3.31 %. He then discussed bond performance and the structure of the portfolio on page 2 of the report.
He commented that there is a difference between having a portfolio of nothing but high - yielding bonds or
emerging market bonds versus a well- diversified portfolio where you could take 5% of the bond portfolio
and incorporate high -yield bonds and you could take another 5% and incorporate international and maybe
another 5% in emerging market bonds. He stated that you do it within a fund where the manager is
trusted and has the expertise, it will actually help to reduce the risk of the bond portfolio in total because
ultimately you want securities that are moving somewhat independently of one another. Trustee Patel
remarked that there are controlled risks which the Fed is watching, but expressed concerns about
unmanageable risks with 56% in asset class. He suggested thinking of creative ways of managing a
mutual fund as previously suggested to help diversify the risks. Mr. Hrabak commented that the "fiscal
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Minutes Page 2 of 4 October 24, 2012
cliff' scenario being discussed would probably be a boon for fixed income and would certainly hurt the
equity market more than fixed income. He further commented that the risks overall from a long -term
perspective is that the policy does begin to generate some growth, but that policy- makers cannot respond
fast enough and inflation starts to take hold, the greater risk. Mr. Hrabak explained MB's investment
process in the bond portfolio, as far as managing risks, wherein they utilize "shock analysis" and look at
every individual bond in the portfolio as well as in the benchmark and determine in total expected
performance of the benchmark and also the portfolio under a number of different interest rate scenarios.
He stated that there is some safety built into the portfolio in terms of interest rates increasing. Discussion
ensued regarding the direction the market will take, .how much interest rates will increase and corporate
bonds. Mr. Lowery discussed dividends with certain companies and pipelines which produce high
dividends. Vice President Feldman stated that there are three avenues the Fund could take, such as
moving 5% to the high -yield bond area, 5% in the high- dividend blue -chip stock area and maybe another
5% to equity, but not do all three at the same time. Some discussion ensued regarding the recovery of
the housing market and real estate. Vice president Feldman suggested a 10% shift over the next six
months into the areas of higher dividends and higher yields. Trustee Patel suggested that the equity
should be at least 50% and maybe 5 or 10% in corporate bonds. Mr. Hrabak stated that the only
limitation with corporate bonds is that they have to be investment - grade. Discussion ensued regarding
recommendations and strategy for moving from the fixed income side and Mr. Lowery agreed to have
something in writing for the Board to consider in the next three weeks.
c. Approval of Matthew Phillips' Application for Admission to the Police Pension Fund
Motion by Secretary Caspers, seconded by Vice President Feldman, to approve Matthew Phillips'
Application for Admission to the Police Pension Fund.
Lowery and MB Financial representatives exited the meeting at approximately 8:20 p.m.
ROLL CALL:
Ayes: 5 —Trustee Patel, Trustee Kadolph, President Torlo, Vice President Feldman, Secretary Caspers
Nays: 0 — None
Absent: 0 — None. Motion carried.
d. Ratification of MB Financial's Release Authorization
Motion by Secretary Caspers, seconded by Vice President Feldman, to ratify MB Financial's
Release Authorization.
ROLL CALL:
Ayes: 5 — Trustee Kadolph, President Torlo, Vice President Feldman, Secretary Caspers, Trustee Patel
Nays: 0 — None
Absent: 0 — None. Motion carried.
e. Approval of Lauterbach's Engagement Letter
Discussion ensued regarding the length of the contract and that there is a price break with going with a
three year contract. It was commented that active members are able to contact Lauterbach with
questions about their upcoming retirement. Consensus to go with a three -year contract.
Motion by Secretary Caspers, seconded by Trustee Patel, to approve Lauterbach's Engagement
Letter.
ROLL CALL:
Ayes: 5 — President Torlo, Vice President Feldman, Secretary Caspers, Trustee Patel, Trustee Kadolph
Nays: 0 — None
Absent: 0 — None. Motion carried.
f. Discussion regarding Pension Trustee Mandated Training
Pension Clerk Kane informed the Trustees of status of their mandated training. Trustee Patel offered to
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conduct training seminars and it was suggested that the Firefighters Pension Board could be invited to
these, as well as pension boards from other surrounding communities like Hinsdale. It was discussed what
topics would be useful and perhaps contacting Attorney Reimer for the legal and medical aspects, as well
as proof of training conducted by Trustee Patel, such as creating an agenda, handouts, etc. Consensus to
authorize training by Trustee Patel and expenses of Attorney Reimer be shared with the Firefighters
Pension Board. President Torlo remarked that he believed that it was said at the conference that the
Board's meetings could count for training if approved. Trustee Patel discussed that he can teach the Board
about topics like Code of Ethics as part of their quarterly meetings and he stated Fridays from noon to 4:00
he would be available.
Finance Director Dangles exited the meeting at approximately 8:38 p.m.
It was inquired whether outside Pension Boards could be charged a nominal fee to offset expenses of
seminars and it was agreed to check with Attorney Reimer on this and other training questions.
Pension Clerk Kane reminded all present who have not already completed the Open Meetings Act online
training from the Illinois Attorney General's Office to do so by December 31, 2012 and to provide her with
copies of their certificates.
9. INFORMATION & UPDATES
a. Scheduling of first quarterly meeting in 2013
Agreement to meet on January 30, 2013.
General comments ensued.
10. ADJOURNMENT:
Motion by Secretary Caspers, seconded by Trustee Kadolph, to adjourn the Board of Trustees of
the Police Pension Fund meeting at 8:55 p.m. VOICE VOTE: Motion carried.
ATTEST:
Edward J. Caspers /s/
Edward J. Caspers, Secretary
Board of Trustees of the Police Pension Fund
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