ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES January …acgret.org/Docs/Minutes 2014/Jan to Dec.pdf · 2014-12-23 · Arapahoe County Retirement Board Minutes – FINAL 2 of 36 12/23/2014

Arapahoe County Retirement Board Minutes - FINAL 1 of 36 12/23/2014 9:49:43 AM

ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES January 22, 2014 The Chairman called the meeting to order at 3:05 P.M. Board Members Present Others Present Steve Oliver Vicki Johnson, Davis Graham & Stubbs LLP Mike Madziarek Dale Connors, Watershed Investment Sue Sandstrom Consultants Dennis Lyon Nate Valtakis, AD Works! LaDonna Jurgensen ‐ Absent Greg Hein, PWD‐Mapping Larry Stevens, IT Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Lyon to approve the minutes, payment of invoices, retirements, vested and non‐vested individuals, this was seconded by Ms. Sandstrom. The Chairman called the vote on the motion approving the payment of invoices, retirements, vested and non‐vested individuals, and the motion carried.

Invoices as follows:

Vendor Invoice # Amount Purpose

Arapahoe County Treasurer 201312 $8,719.72 Plan Administrator

Watershed Investment Consultants Inc.

1316 $20,340.00 Consulting Services

Davis Graham & Stubbs, LLP 689412 $10,847.58 Legal Services

JP Morgan Asset Management 20131231‐26714‐A $12,384.57 Investment Fee

IMA, Inc. 917981 $10,460.00 Liability Insurance

Pryamis Global Advisors 20131231‐805‐A $24,146.62 Investment Fee

T. Rowe Price 20301 $17,327.29 Investment Fee

Milliman 0016ACR‐2014‐01 $25,000.00 License Fee/Plan Design Changes

Acknowledgement of reimbursement to Lew Quigley in the amount $200.05 for office supplies. Acknowledgement of reimbursement to Dennis Lyon in the amount $100.00 for 2014 College of Business Finance and Real Estate Summit to be held on February 19, 2014.

Retirements; Vested/Non‐Vested Withdrawals

Number Reason Total

3 Retirements as described in detail

7 Vested Withdrawals $178,022.92

8 Non Vested Withdrawals $33,057.65

Deferred Vested

Death Benefits

Watershed Investment Consultants Mr. Connors brought the Board up to date on the Fund Performance through December; the Plan ended the year a little over $263 million; currently the fund is over weight in Domestic Equity, a result of the excess funds being held in the Vanguard Institutional Index fund being held for the Principal Real Estate initial

Arapahoe County Retirement Board Minutes – FINAL 2 of 36 12/23/2014 9:49:42 AM

investment. Mr. Connors brought the Board up to speed as to the resignation of Mohammed El‐Erian, CEO and co‐CIO of PIMCO. As more information becomes available, it will be passed on to the Board as this change could have an impact on the fund and its direction. The Plan is up 13.2% net of fees, these are not reflective of the Real Estate sector performance. In February a review of the 2013 Fund Performance will be presented to the Board. A look at another Core Real Estate as a replacement for UBS might be worth reviewing. Mr. Oliver did ask for a historical review as a point of information, possibly going back to 1975. Mr. Connors had provided this before and will update and present to the Board. Davis Graham & Stubbs LLP Ms. Johnson brought the Board up to speed on the IRS submission; Mr. Quigley will review the submission and let Ms. Johnson know if there are any changes to be made before the final submission. Gabriel Roeder Smith & Co. Not Present Other Business Mr. Lyon brought before the Board the idea of possibly writing guidelines for future Boards concerning the extensive efforts that Boards past and present have gone through to formulate the current plan design. These would be guidelines only and not binding policy; these guidelines could contain the factors that contributed to the Plan’s condition; all of the scenarios the Plan had studied, and the actions taken. It is the hope that future Boards would find this information helpful and provide a basis for the decisions past, present and future. Mr. Quigley informed the Board that the annual Retirement Statements would be mailed to employees homes the week of January 27, 2014. That the year‐end data had been sent to Gabriel Roeder Smith, the information has been reviewed and is ready to be used in the annual valuation. In addition, this office is currently working with the Human Resources Department to rollout the Employee Retirement Handbook along with a Human Resources Guidelines electronically. Continuing to work with the Finance Department to upload the payroll information to Milliman for the MARC system and once that process has been completed successfully will start to work on the employee portal which will replace the “self‐service” panel that employees had used under PeopleSoft. Reminder that the February meeting is the first with multiple money managers and will start at 2:00 pm. For the March meeting one of the topics will be Pat Skahill from Risk Management and a representative from the insurance carrier to talk about insurance types and what the Retirement Board currently has for coverage, and trends in coverage. There being no further business to come before the Board, the Chairman adjourned the meeting at 3:47 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES February 26, 2014 The Chairman called the meeting to order at 2:03 P.M. Board Members Present Others Present Steve Oliver Dale Connors, Watershed Investment Mike Madziarek Consultants LaDonna Jurgensen Gary Ratliff, Watershed Investment Consultant Sue Sandstrom Julie Pierro, UBS Realty Investors Dennis Lyon Tess Shih, JP Morgan Chase Abel Mojica III, Tortoise Capital Advisors Greg Hein, Mapping ‐ PWD Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Lyon to approve the consent agenda; Ms. Jurgensen seconded this. The motion carried and Chairman so ordered.




US Bank 8559690 $14,191.23 Custodial Fees

Davis Graham & Stubbs LLP 690666 $21,836.69 Legal Services

Gabriel Roeder Smith & Co. 405408 $540.00 Actuarial Consulting

Gabriel Roeder Smith & Co. 405907 $11,485.00 Actuarial Consulting

Tortoise $29,357.43 Investment Fees


Number Reason Total


6 Vested Withdrawals $127,227.09


Death Benefits

Acknowledgment of reimbursement to Mike Madziarek for out of pocket expenses related to attending the IFEBP Annual Conference in Boston, MA, October 12 – 16, 2014. Money Manager Presentations Tortoise Capital Advisors – MLP’s Mr. Mojica, III did a quick review of 2013 whereby Tortoise Capital Advisors had over 37% return or 750 basis points; going forward the Plan should expect a lower return. Within two years, the feeling is that oil production will be upwards of nine billion barrels per year. The one item that still has an opportunity for growth is the delivery of resources, the Plan’s current holding is strictly in the delivery of product and very predictable. The investment team is made up of fifty members with vast years of experience, managing seven billion dollars, a third of that being for public funds. The fund has outperformed the index since inception by 400+ basis points. Growth has been ten to eleven percent on a consistent basis and on an ongoing basis have guided participants more successfully then had the client done the investment on their


own. Sector continues to be strong; price will be a challenge. The feeling is that the return and percent of growth going forward should be in the high teens. JP Morgan Chase – Fixed Income Core Bond Tess Shih representing JP Morgan Chase briefly described the funds philosophy and nature of business, thus the explanation of the combination of the two platforms, thus being able to build more strategic solutions for the customer. The focus is based upon on a value driven approach based on a bottom up fundamental analysis. The result has been a consistent value added portfolio with positive cash flows. An interesting aspect of the fund is that the managers are actually the traders doing the buying and selling of stocks. Since inception the fund has been able to beat the benchmark by 125 basis points, in 2013 the fund was able to outperform the benchmark by fifty basis points. For 2014 the economic recovery has continued and is being led by the US market, one of the biggest negatives is what will happen with the slow elimination of the quantitative easing. The thought is that Core Bond will be positioned to outperform the benchmark and JP Morgan Chase has a proven time tested strategy that they believe will continue to provide benefit to the Plan. UBS Trumbull Realty Investors – UBS Trumbull Property Fund Julie Pierro representing UBS Realty Advisors brought the Board up to date on the status of the fund. The Plan has a twelve million dollar investment to date. The fund has three major components, those being diversification, income stream, and low leverage. Apartments and multifamily make up approximately one‐third of the holding followed up with office again at about one‐third, and the remaining being made up of retail, industrial and other‐ hotels. In 2014, the fund is feeling bullish on retail, industrial and hotels. The objective of the fund is to outperform the index on a continuous basis and provide a steady five percent income stream. When asked if the fund was going to change the current strategy with the lack luster performance over the past few years, the answer was “no”, as they believe that the held strategy is going to come back into favor and is expected to do well going forward. Watershed Investment Consultants The Plan assets dropped in January as most areas of the capital markets produced negative returns. Markets have rebounded in February and the Plan should recover the January losses in February. Going forward Mr. Connors suggested that the Plan trim all domestic equity holdings and place the funds in Sankaty, which would temporarily overweight the Sankaty investment, until the funds can be reallocated to the Principal Real estate Debt fund. The first call from the Principal Group should be in March. Various Board members questioned the Plan’s ranking when compared against like plans, and asked what those plans were doing that this Plan was not to have a better ranking. There was a historical period when the Plan was ranked number one is specific aspects of the Plan’s portfolio. The question was asked, “What is different now verses then?” One of the major reasons was the risk tolerance as opposed to risk aversion, in the early 2000’s the Plan was willing to take a higher risk with the rewards of higher returns, then 2008 came along and the Plan paid for those high risk holdings. Subsequently the Plan has taken a less risky policy of investment, reducing the wild swings in earnings. The Board asked what it would take to move the Plan’s ranking up while balancing the risk tolerance. There was further discussion on the active verses passive management, and the thought is that the recent five years have been extremely difficult for active management style when correlations have been as high as they have been. Overall 2013 was a good year with a net of fees return of 13.14%, this will certainly help the long‐term average and chip away at the unfunded liability faced by the Plan.


Capital Markets ‐ An improved tone for Developed Market economic growth and continued Central Bank accommodation drove strong performance in 2013. Risk assets appreciated significantly, with most notable performance among US equities. US Equity Markets ‐ The S&P 500 posted its strongest annual performance since 1997, as markets rose consistently through – out the year. Year 2013 performance was notable for its distinct lack of volatility. Developed International Markets posed strong returns in 2013, as the EAFE Index appreciated by 22.8% in USD. Emerging Markets lagged during the year, losing 2.3% in USD terms. Central Bank Policy among developed countries in large part drove global equity markets in 2013. Equity stocks rallied strongly in 2013 as almost all posted double – digit returns. Cyclically – oriented companies out – performed during the year, as the prospect for improving economic growth drove equities higher. Consumer Discretionary was the top performing sector within the S&P 500 and EAFE Indices, appreciating by over 43% in 2013. The Financials sector was the largest contributor to both S&P 500 and EAFE performance in 2013. Other cyclically – oriented sectors also performed well, notably including Industrials and Health Care. Within the Fixed Income Market, Treasury yields rose steadily in 2013 as 10 Year Treasury yields rose over 1.25% during the year. Fed Chairman Bernanke’s suggestion in May that the Fed would taper mortgage bond purchases led to a substantial increase in rates. Action was most pronounced during the second quarter as 10 year yields began to rise from 1.6% to 3.0% at year – end. After months of speculation, the Fed voted to begin tapering purchases in December, reducing monthly bond mortgage purchases from $85 billion to $75 billion per month amid limited market reaction. Treasuries were among the poorest performing securities during the year. Long – Duration Nominal Treasuries (>10 year) lost more than 10% during the year, and inflation – adjusted Treasuries (TIPs) in particular were poor performers, as the Barclays U.S. TIPs Index lost 8.6%. Within the Real Estate Markets, the private commercial real estate return, measured by the NCREIF Property Index (National Council of Real Estate Investment Fiduciaries) produced a good year of returns at 11% with roughly half coming from income and half from appreciation. As far as Hedge Fund strategies, the HFRI Fund of Funds Composite Index appreciated by 3.5% during the quarter, ending the year with a gain of 8.8%. Directionally – oriented strategies were among the best performing for the year, as the Equity Hedge and Event Driven indexes posted double – digit returns for the year. Though hedged strategies were positive, they generally lagged long – only strategies as risk assets rallied strongly. The Equity Hedge Index posted a 4.8% return during the 4th quarter, bringing 2013 returns to 14.4%. Equity Long/Short funds have performed well relative to other hedged strategies, driven by strong performance within equity markets. Mr. Gary Ratliff was present to talk about value added Real Estate. There are three types of institutional real estate core, value added, and opportunistic. On a scale core would be very conservative, and opportunistic would be at the other end with the highest type of risk. Value added is more in the middle, tends to be closed end with higher leverage. These types tend to do well in the middle of a real estate cycle. Commercial real estate tends to be a lagging sector and usually follows other aspects of the recovery. Currently core has little upside, while the value added still has a potential to deliver ten to twelve percent returns in the near future. The feeling is that the current value added managers would not be the same group that the Plan has dealt with in the past. Ms. Pierro with UBS did describe a value‐added type fund that is being managed as well as a similar type fund being offered by JP Morgan.


Ms. Sandstrom made the comment that overall the Plans allocations was not the issue, but that manager selection is critical and can dictate success or failure and should be taken very seriously. Mr. Connors suggested that the Board re‐visit the Strategic Allocation Document and up the liquidity amount in light of the short fall within monthly distributions. Gabriel Roeder Smith & Co. Not present Davis Graham & Stubbs, LLP Not present Other Business Mr. Quigley did go over the items for the March meeting, which will include a presentation by the County Risk Manager to talk about Insurance coverage; Ms. Johnson will bring before the Board a draft of the historical vision for the Plan, a backup staff for the Retirement Plan Administrator. In addition an update on the employee website indicating that it will be up and running in April. There being no further business to come before the Board, the Chairman adjourned the meeting at 4:50 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES

March 26, 2014 The Chairman called the meeting to order at 3:03 P.M. Board Members Present Others Present Mike Madziarek Cindy Birley, Davis Graham & Stubbs, LLP LaDonna Jurgensen Dale Connors, Watershed Investment Steve Oliver Consultants Sue Sandstrom Pat Skahill, Risk Manager Dennis Lyon Dorothy Stevens, IMA Greg Hein, PWD ‐ Mapping Robin Cochran, County Attorney’s Office Sally Donga, AD Works! Lew Quigley, Plan Administrator Consent Agenda Mr. Madziarek made a motion to approve the consent agenda; this was seconded by Mr. Dennis Lyons. The motion carried and Chairman so ordered.





Davis Graham & Stubbs LLP 691802 $365.00 Legal Services


Gabriel Roeder Smith & Co. 406284 $12,850.00 Actuarial Services


Number Reason Total


3 Vested Withdrawal $105,890.11


Deferred Vested

Death Benefits

Acknowledgement of reimbursement to Lew Quigley in the amount of $297.80 for office supplies. Acknowledgement of reimbursement to Dennis Lyon in the amount of $2,680.00 for out of pocket expenses associated with his attendance to the IFEBP Annual Conference and CAPPP II in Boston, MA, October 10 ‐15, 2014. Fiduciary Insurance Coverage Ms. Pat Skahill, Arapahoe County Risk Manager, and Dorothy Stevens, with IMA brought before the Board information as it pertains to the types of coverage the Retirement Board currently has in place and what other types of coverage is available. Ms. Stevens went into detail as to what Fiduciary Insurance is and is not, and who may or may not be covered. Cyber Insurance is an additional coverage being looked at by many entities; in general, this is priced per person and provides notification and credit services, which an employee could avail themselves if their personal information has been compromised. Ms. Jurgensen did


ask Ms. Stevens if she felt that there was a need for appointed Board members to purchase liability insurance outside of the Plan’s policy, Ms. Stevens didn’t feel that that would necessary. There was a discussion as to the limit, which is currently set at $1 million, and many Board members wondered if that should be raised to possibly $5 million. Ms. Skahill would look into the rate for the higher coverage and get back to the Board. Davis Graham & Stubbs LLP Ms. Birley brought before the Board the Statement of Intent, which was suggested by Mr. Lyon as a statement of guidance as to decisions that were made in the past and how the Plan got to its status. A Statement of Intent was drafted and presented to the Board for consideration. The Board asked for several clarifications and additions, Ms. Birley would reflect these changes and return to the Board in April for final approval. Ms. Birley informed the Board about the Fiduciary Training being presented in April by Ms. Johnson; a hard copy volume of the Fiduciary Training will be available for Board members. Watershed Investment Consultants Mr. Connors performed an review of TA Realty Associates, all buildings have been sold, and the trailing 10 year worked out to approximately 1.9%, or the equivalent to the operating account. The return as of December 31, 2013, with the exception of the outstanding Real Estate Managers, was 13.7 % gross and net of fees 13.2%. Current year, 2014, showed January as a non‐performer, February’s performance was dramatically higher, making up the losses from January. Currently the Plan is carrying a large balance in the operating account, which will go towards the funding of the Principal Real Estate Fund. The Plan continues to have expenditures exceeding income by approximately $500 thousand per month; in the past monies have been taken from liquid assets to cover the shortfall. Mr. Connors suggested that the operating account balance be increased to $2 million, which should alleviate the need to replenish as often. Additionally Mr. Connors brought to the Board’s attention the increasing lag in the Emerging Market sector and suggested that the Board move funds out of Emerging Markets into funds showing growth. To this end, Mr. Lyon made a motion to move $12.5 million from the operating account into Sankaty Senior Loan Fund, second to move $2.6 million from Aberdeen Emerging Markets Fund into EuroPacific Growth Fund, and third to increase the target limit to $2 million in the operating account. Ms. Jurgensen seconded this motion; the Chairman called the vote and the motion carried. Mr. Connors brought before the Board the discussion of risk and risk tolerance. In the past, the Board has asked for the maximum amount of return with a lower amount of risk. The question before the Board was now the time to take on more risk to hopefully gain higher returns. Ms. Sandstrom voiced her concern and frustration with money manager performance and wondered if there was something the Board could do to better understand the managers when making the choice to invest. As it stands, the Plan will continue with the investment philosophy of maximum returns with a minimum amount of risk and continuing to have a target return of 7.5% Other Business Mr. Quigley explained his proposal for a back‐up staff individual, the employee currently works in Human Resources in the Benefits area and is very familiar with employees and their personal information, understands SAP, and currently has access to US Bank’s data. This individual would be set up under MARC with his or her own access and account. Mr. Quigley explained that he could spend a couple of afternoons training this individual; in addition, there will be files that can be accessed which will detail the processes


and procedures. Mr. Oliver stated that he would talk with this employee’s immediate supervisor and Ms. Sandstrom would talk to Mr. Hernandez and stress the importance of this issue. If this is approved, then Mr. Quigley would be able to start training immediately. Mr. Quigley demonstrated the Employee Retirement Planner under the MARC system, covering each page and tab that will be available to the employees. A rollout letter will be mailed to each eligible member with a targeted live date of April 15, 2014. The Board did expressed its satisfaction with the website and felt that it would be beneficial to employees. There being no further business to come before the Board, the Chairman adjourned the meeting at 5:17 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES April 23, 2014 The Chairman called the meeting to order at 3:05 P.M. Board Members Present Others Present Steve Oliver Dana Woolfrey, Gabriel Roeder Smith & Co. Mike Madziarek Vicki Johnson, Davis Graham & Stubbs, LLP Dennis Lyon Dale Connors, Watershed Investment Sue Sandstrom Consultants LaDonna Jurgensen Tina Seberg, US Bank Greg Hein, PWD ‐ Mapping Sandra Gronquist, Finance Lew Quigley, Plan Administrator Consent Agenda Mr. Lyon made a motion to accept the Consent Agenda with the exception of the minutes; Mr. Madziarek seconded this. The Chairman called the vote and the motion carried. Ms. Jurgensen asked for some edits to the minutes, the March minutes will be brought back to the Board at the May meeting.






J.P. Morgan 20140331‐26714‐A $12,539.69 Investment Fees


Milliman 0016ACR‐2014‐03 $6,250.00 License Fee

Tortoise Capital Advisors N/A $31,910.87 Investment Fees

Pyramis 20140331‐805‐A $24,378.35 Investment Fees

Acknowledgement of reimbursement in the amount of $25.00 for out‐of‐pocket expenses associated with Mr. Lyon’s attendance to the 2014 Annual IFEBP Conference in Boston, MA, in October 2014. Acknowledgement of reimbursement in the amount of $280.00 for out‐of‐pocket expenses associated with Mr. Lyon’s attendance to the 2014 Annual IFEBP Conference in Boston, MA, in October 2014


Number Reason Total




Death Benefits

Gabriel Roeder Smith & Co. As a step forward beginning January 2014, Part B benefits were implemented in conjunction with contribution increase to 8.0% of pay, both Employee and Employer. This was one of the many steps taken to bring the Plan around towards a more favorable funded status. In addition, 2013 ended with greater than expected return on investments, which resulted in funded status improvement from 64% to 68%, or 71% market value for 2013. In addition, more importantly, there was a reduction in normal cost, which will help those 8% contributions go further and puts the Plan on the path back towards a


fully funded status. In fact, the Total Annual Required Contribution amount fell from 21.21% to 18.78% in 2013. These improvements by no means have solved the funding issue for the Plan, but have made a positive improvement in the Plan’s funded status. Going forward assuming the assumptions are realized, the funded ratio should trend up over time. The Plan needs to monitor the future progress and continue to study and measure to make sure that the Plan is headed in the right direction.

The Board asked Ms. Woolfrey to be prepared to make a presentation at the annual Study Session with the Board of County Commissioners. Mr. Oliver will work on the Board Summary Report, and the Board asked that the Study Session be scheduled for June 30, 2014 from 1:00 to 2:00 pm.

Watershed Investment Consultants Mr. Connors brought before the Board the March 31, 2014 data; currently the Plan is outside the suggested range in a couple of sectors, but this will be addressed in the upcoming months. The first capital call came from Principal Real Estate Group, for the new Real Estate Debt Fund investment, which will be funded out of the Operating Account. So far this year the Plan is up approximately $5 million. The year to date returns net of fees have been positive while three and five year results are ahead of the actuarial 7.5% return target. Davis Graham & Stubbs, LLP Ms. Johnson brought before and went over with the Board the Fiduciary Training materials. These materials have been updated to reflect the latest changes in the statutes so that they are in compliance. Ms. Johnson stressed that as Board members they have a legal obligation to act in a fiscally prudent manner and to take responsible actions when necessary for the protection and sustainability of the Plan. The four main areas of fiduciary responsibility are Administration, Investments, Actuarial, and Legal. Under each of these topics, there are specific statutes, laws that must be adhered to, to be in compliance. Ms. Johnson did bring before the Board a revised Acknowledgment of Fiduciary and Ethical Obligations, which the Board did discuss and chose to sign at the end of the training. Ms. Johnson did administer the oath and notarized the Board member’s signature, copies will be provided to the Plan Administrator’s Office. Other Business Mr. Quigley gave the Board a series of available dates for the annual Study Session with the Board of County Commissioners. The Board members decided that June 30, 2014 would be the most agreeable date. At that presentation, Ms. Thompson will provide the annual valuation report as a means of checking in with the Board of County Commissioners on the fiscal status of the Plan. Available Board members will be in attendance to answer any questions and to provide their comments. Mr. Quigley did inform the Board, that the Human Resources employee originally chosen to be the backup for the Retirement Plan Administrator in a crisis or emergency has given notice and will be leaving Arapahoe County on May 5, 2014. With this employee’s resignation this puts the idea of a back‐up staff on hold since there is no one currently within the County employment able to perform these functions Mr. Quigley did inform the Board that he would be out of the office May 11 through the 19th and beginning June 2nd and possibly returning June 18th. Mr. Oliver and Ms. Sandstrom will make time to sit with Mr. Quigley for basic training in the MARC system and some of the commonly asked question/request. The


Board will continue the discussion in regards to additional/back up staff for the Plan Administrator’s position. Plan Members Questions There being no further business to come before the Board, the Chairman adjourned the meeting at 4:50 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES May 28, 2014 The Chairman called the meeting to order at 3:17 P.M. Board Members Present Others Present Steve Oliver Cindy Birley, Davis Graham & Stubbs, LLP Mike Madziarek Dale Connors, Watershed Investment Dennis Lyon Consultants Sue Sandstrom Gary Ratliff, Watershed Investment LaDonna Jurgensen Consultants Ashley Cassel, Aberdeen Asset Mgmt. Maree Mitchell, Aberdeen Asset Mgmt. Jeff Doran, Sankaty Advisors Stephanie Walsh, Sankaty Advisors Jim Carroll, Pyramis Gerald Branka, Pyramis Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Lyon to approve the consent agenda; Ms. Jurgensen seconded this. The motion carried and Chairman so ordered.




Milliman 0016ACR‐2014‐04 $1,200.00 Website Customization



T. Rowe Price 20937 $17,373.96 Investment Fees

US Bank 8703605 $14,131.12 Custodial Services

Gabriel Roeder Smith & Co 407551 $17,324.50 Actuarial Services

CliftonLarsonAllen 831777 $9,500.00 Audit Services


Number Reason Total




Death Benefits

Acknowledgement of reimbursement in the amount of $1,740.00 for conference expense for LaDonna Jurgensen to attend the 2014 IFEBP Annual Conference in Boston, MA Oct 12 – 15, 2014.


Money Manager Presentation Ms. Cassel and Ms. Mitchell representing Aberdeen Asset Management gave an update on the particular fund of which Arapahoe County participates, which is the Emerging Market Equities sector with a total of $541 billion in holdings. The Arapahoe County Retirement Plan has approximately $14 million invested in this particular holding. Performance was tough during 2013, and did not do as well as expected. Unfortunately emerging markets underperformed developing markets by as much as twenty percent; this was not a result of changing fundamentals, but indiscriminate selling in the rush to developing markets. Aberdeen as a whole is a bottom up and not macro driven; which was in fashion during 2013, this along with other factors had a negative impact on the funds’ performance. Seventy five percent of the fund’s under performance are directly tied to asset choices. Within the first five months of 2014, Aberdeen has seen a reversal of last year’s negative activity making up a portion of the underperformance. The expectation is that as the US and UK markets and economies improve there will be an increase in imports thus driving up the emerging market economies. Fund positioning overall has the allocation over weight in Hong Kong, India, and Brazil; under weights are in China, Korea, and Taiwan. Financial sector holdings were overweight in Financials, Consumer Staples, and Energy; underweight sectors were Industrial, Information Technology, and Utilities. Both Ms. Cassel and Mitchell felt that Aberdeen’s philosophy and method were coming back into favor and should see improvement in the fund’s performance. Mr. Doran and Ms. Walsh representing Sankaty Advisors brought the Board up to speed as to the type of asset class the Sankaty holding is designated. The fund that the Arapahoe County Retirement Plan invests is the Senior Secured Bank Loan with a floating debt rate, which can offer a higher rate of return some of which is guaranteed. Currently Sankaty believes that in the short term the market drivers are investor demand, and Capital Markets; and in the long term both the US economy and Corporate outlook. Sankaty’s industry team evaluates every security in a company’s capital structure looking for the best relative value. These are categorized into safe, covered, or stressed and whether they are very, moderate, or less liquid. Because of this due diligence Sankaty’s Senior Loan Fund is an actively managed fund only holding thirty‐nine of the top one hundred issuers of the LSTA index. Since October 2013 the Plan’s investment has returned 3.4% net versus 2.5% for the LSTA index. One of the concerns with this type of debt is the default rate, Sankaty’s default rate better than the markets with positive returns. Mr. Carroll and Mr. Branka representing Pyramis gave a brief overview of the fund. Pyramis Small/Mid Cap Core seeks to provide 4% annualized excess return relative to the Russell 2500 over a full market cycle. This particular fund only invests in US small and mid‐cap stocks; it is actively managed bottom‐up team focused strategy. This strategy is broken down into eight holdings, each working with the analyst and specialist in that sector. The philosophy is to have a smaller number of holdings, of a much high better quality; the total holding is about one hundred and eight holding. Stock picking is driving the holding, with the relativity to the benchmark being very important. Recent trends seen in the universe have been movement in a net positive direction. Even though markets are doing well, there continues to be slow growth with a lagging employment numbers and slow housing market. Performance at the three‐month and year to date are slightly behind the benchmark, but the one‐year and since inception are ahead of the benchmark. The top five sector holdings are Financials, Information Technology, Health Care, Consumer Discretionary, and industrials. Watershed Investment Consultants Mr. Connors brought before the Board an update on Capital Market performance. Through May 2, the S&P 500 index has increased in value while volatility has diminished. Interest rates in the U.S. bond markets have been decreasing, a direction not expected by most fixed income market participants and hence causing consternation for our managers. Looking at specific markets sectors there is a selloff in small and


micro caps, thus Pyramis poor performance this year, growth stocks being out of fashion. Quarter‐to‐date Emerging Markets are doing well as well as Developing Markets. As of April 30, 2014, the fund was flat at approximately $266 million, not much change from the end of March. Fixed Income did very poorly, Real Estate did not have any monthly updates, and there has been some re‐allocation of funds to realign the Plan with the proposed allocations. All of the Fixed Income as well as the Real Estate managers are behind the index. Hedge Funds are behind for the month but appear to be ahead year to date. International Managers did a switch as to positive and negative performance. Manager by Manager, the more conservative were doing better than the aggressive managers were. The Review of Investment Objectives and Asset Allocation Study stressed that the review has a twenty to thirty‐year window and typically not focused on the immediate short term. The rate of return assumption used in the actuarial valuation is 7.5%. There have been concerns as to whether this assumption is achievable, historically, achieving a 7.5% annualized return over longer periods of twenty, or thirty years has proven relatively reasonable. But, based on Watershed’s forward looking long‐term efficient frontier modeling assumptions, a 7.5% annualized return over the next twenty years is less probable without generation of alpha from the investment structure and/or investment managers adding value. To achieve better returns there are a couple of options; Continue with the current constraints on the portfolio. • To meet the current 7.5% assumed return rate, the efficient frontier modeling would indicate a need to significantly reduce the fixed income allocation with a corresponding increase to the other asset class allocations in the portfolio. Or Expanding the constraints on the portfolio improves the risk/reward characteristics along the efficient frontier. • The efficient portfolio with a 7.5% expected return has 51% in equities; 41% in public equities and 10% in private equities. Or The investment structure can be oriented to target positive alpha above the efficient frontier beta expectations. • Utilizing other than index portfolios affords an opportunity for alpha. Alpha Strategies to consider would be: • Active management throughout the portfolio • Master Limited Partnerships (MLPs) • Unconstrained bonds • Floating rate debt • Private real estate debt • Value‐add and Opportunistic equity real estate (In liquidation) Potential alpha/beta strategies • Add a new value added real estate fund – Watershed has recommended a 5% commitment to the Harbert United States Real Estate fund V • Addition of private equity In conclusion the current structure of the investment portfolio is not expected to earn the 7.5% assumed rate of return over the next 20 years. The addition of private equity and an increased allocation to the real estate would potentially improve the risk/reward characteristics of the portfolio. • Watershed would recommend starting education on private equity.


• No increase in the hedge fund allocation is recommended as this time. • Watershed has recommended a value add real estate manager to replace the liquidating Metropolitan Real Estate and TA Realty funds. • Watershed recommends an addition of 5% to the core real estate exposure to be funded by a reduction in the fixed income portfolio allocation. The investments will need to produce alpha above the expected beta of the portfolio. • Without alpha, an “efficient” portfolio would include a lesser allocation to fixed income investments. Fixed Income going forward is believed to be a drag on the fund and should possibly be reduced, thus being replaced with Alternatives. The other asset classes could be Private Equity, Value Add Real Estate, or additional funds in the Core Real Estate. These options would be funded out of Fixed Income adding 5% to both Private Equity and Core Real Estate, and letting the Value Added Real Estate run its course. Ms. Jurgensen observed that the markets of today are in new territory and seem to be all over the board, making it very difficult to plan for the future using what had been sound criteria. Mr. Connors went into the Harbert Real Estate Fund asking for a five percent allocation to this fund. The belief is that now is a good time to invest in value added real estate. Mr. Ratliff has a long time relationship with Harbert Real Estate Fund and feels that they are a solid performer. This type of investment falls into the category of Value Add properties which are located in non‐core major markets, and a little more cyclical in nature. Value added tends to do better in the middle of an economic recovery, the belief is that going forward there should be mid‐teens returns. Harbert will eventually close on approximately twenty‐four deals with $300 million in assets focus on Office, Multi Family, Industrial and Retail, with a ten‐year life. The fund should be completely closed out in the ten‐year period, the majority of the returns will come from the sale of the property. Cap rates in the value add property are looking to be between six to eight percent. Once properties are sold, the funds are returned to the investors not re‐invested in additional holdings. In a step to begin to realign of the Plan’s assets, a motion was made to approve the funding of the Harbert Real Estate Fund for $13 million so moved by Ms. Jurgensen and seconded by Mr. Lyon. The Chairman called the vote, the motion passed with four affirmative, and Ms. Sandstrom voting in opposition. Ms. Birley passed out a resolution to the Board incorporating the aforementioned motion, which the four Board members who voted positively signed. Mr. Ratliff gave a brief overview of Private Equity which has been very active in the Public sector for the past thirty years. In that time the Private Equity has become about a 40% share of Public sector holdings. The average allocation is about 5 to 10% of the total Plan assets. Mr. Ratliff will provide additional education to the Board throughout the summer months, to provide a good basis of understanding before the Board makes any definite decisions. Davis Graham & Stubbs, LLP Ms. Birley brought before the Board an updated copy the By‐Laws with the addition of the “Statement of Intent,” the Board asked for changes to the Statement of Intent, which Ms. Birley would make. Ms. Sandstrom made a motion to approve the Statement of Intent with the discussed changes made during the meeting, Mr. Lyon seconded the motion. The Chairman called the vote and the motion passed. Other Business Mr. Madziarek brought the Board up to date on the possible Sheriff Office staff member who could help out as backup in the Retirement Administration office. The Board discussed a variety of ideas as to the


additional/backup staff: Mr. Quigley did assure the Board of the provisions in place for his upcoming absence, and will when possible work from home during his period of absence. The Board felt that this is worthy of a continued discussion of a more permanent solution. Mr. Quigley did remind the Board of the BOCC Study Session to be held Monday, June 30 @ 1:00 pm in the West Hearing Room of the County Administration Building. Ms. Sandstrom and Ms. Jurgensen stated that they would be in attendance at the June Board meeting. There being no further business to come before the Board, the Chairman adjourned the meeting at 5:24 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES June 25, 2014 The Chairman called the meeting to order at 3:01 P.M. Board Members Present Others Present Mike Madziarek Dale Connors, Watershed Investment LaDonna Jurgensen, absent & excused Consultants Steve Oliver Gary Ratliff, Watershed Investment Sue Sandstrom, absent & excused Consultants Dennis Lyon Vicki Johnson, Davis Graham & Stubbs, LLP Greg Hein, PWD‐Mapping Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Madziarek to approve the consent agenda; Mr. Lyon seconded this. The motion carried and Chairman so ordered.






Small World Solutions 125245 $680.00 Death Audit Service

Clifton Larson Allen 011‐056812 $4,000.00 Audit Fee

Acknowledgement of reimbursement of $2,669.19 for registration and travel expenses for Lew Quigley to attend IFEBP – Certificate Series – Pension, July 22 – 27, 2014 in Milwaukee WI. Acknowledgement of reimbursement of $149.01 for office supplies to Lew Quigley. Acknowledgement of reimbursement of $323.00 for travel expenses for Mike Madziarek attendance of IFEBP Annual Conference held in Boston, MA October 12 – 18, 2014.


Number Reason Total


0 Vested Withdrawal 0.00


Death Benefits

Watershed Investment Consultants The Plan ended the month at $270 million, up 4% through the end of May, long‐term numbers looking up across the Board with exception of Fixed Income. Long ‐term staff will be keeping a watch on the T. Rowe Price Structured Research, whose performance has been off the benchmark. Metropolitan Real Estate and


TA Realty continue to wind down. There is a concern that Wall Street may be complacent and not fully taking into account the world economic conditions, which may result in an over confident market. While earning 7.5% was relatively easy in the past, going forward may not be the case, so Mr. Ratliff with Watershed Investments went into the overview of Private Equity. The main theme with all Private Equities is that you would be dealing with non‐publicly traded investments; major types include Buyout, Venture Capital, Growth Equity, Mezzanine, and Special Situations. Typical stream of investment is the investor goes through a fund‐of‐funds, who goes through the private equity fund and finally to the company or investment in question. The goal of the private capital portfolio is to generate a long‐term returns premium to the public market equity returns. Over the past 20 years, private equity has generated an annualized return of 15.9% vs. 9.3% for US equities. Private Equity fund raising has grown steadily over the 5 years with a current market share of approximately 2.5 trillion. Public pension funds invested approximately 30% of Private Equity assets over the last decade, which is the largest investment amount relative to other investor types, and then within the asset allocation of the Public Pension funds the amount is 5 to 10% of the funds holding. Some advantages of Private Equity are that they out‐perform Public Equity Markets and tend to enhance the investors total portfolio returns. In general, there seems to be strong alignments of interests between the money manager and the investor since both have a stake in the investment, these also tend to reduce the impact of Public Markey Volatility. Some disadvantages are these tend to be long‐term in nature 10 to 12 years in duration, the median Private equity returns tend to under‐perform Public Equities so you need to be with the top‐performers otherwise it’s not worth the investment, and generally there are higher fees associated with Private Equity. Almost all Private Equities follow a “J‐Curve,” whereas in the beginning years you will see negative returns. There can be implementation issues ranging from barriers to entry into the top‐performing funds, it may take 3 to 4 years to achieve the desired target allocation, and there tends to be a 90 to 120 day financial reporting. Capital Calls are generally done “Just‐in‐Time” – 10 days, which could be a problem if available capital in illiquid. If the Board were still interested, the next step would be to bring back specific scenarios, then if still interested, bringing in perspective money managers. Davis Graham & Stubbs, LLP Ms. Johnson attended to discuss issues during the Executive Session. Gabriel Roeder Smith & Co. Not in attendance Plan Member Questions and Comments Mr. Hein asked if there was any discussion as to why employees were leaving and the lower amount of vested and non‐vested withdrawals. Other Business Mr. Quigley reminded the Board of the BOCC Study Session, which will be Monday, June 30, 2014 at 1:00 pm in the West Hearing Room. The July Arapahoe County Retirement Board meeting will be held on Wednesday July 16, 2014. Mr. Oliver made a motion to go into Executive Session; Mr. Madziarek seconded this. The Chairman called the vote and the Board went into Executive Session at 4:30 pm. Mr. Oliver made a motion to come out of Executive Session and to reconvene the regular meeting; Mr. Lyon seconded the motion, the Chairman called the vote, and the motion passed. The Board came back into regular session at 4:50 pm.


There being no further business to come before the Board, the Chairman adjourned the meeting at 4:51p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES July 16, 2014 The Chairman called the meeting to order at 3:00 P.M. Board Members Present Others Present Mike Madziarek Gary Ratliff, Watershed Investment Consultants LaDonna Jurgensen William Petri, Clifton Larson Allen, LLP Steve Oliver Steve Shanks, Clifton Larson Allen LLP Sue Sandstrom Sandy Gronquist, Finance Dennis Lyon Greg Hein, PWD – Mapping Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Lyon to approve the consent agenda; this was seconded by Mr. Madziarek. The motion carried and Chairman so ordered.










Milliman 0016ACR‐2014‐06 $6,250.00 License Fees

J.P. Morgan 20140630‐26714‐A $12,727.88 Investment Fees

Pyramis Global Advisors 20140630‐805‐A $24,564.67 Investment Fees

Acknowledge reimbursement for Dennis Lyon for one‐year subscription to The Economist in the amount of $155.00.


Number Reason Total




Death Benefits

Clifton Larson Allen LLP Mr. Petri and Mr. Shank made the annual audit report on behalf of the audit firm Clifton Larson Allen LLP. The Arapahoe County Retirement Plan received a clean audit with no management issues. One of the significant changes was a better reporting of investment income vs: investment expenses. Going forward these costs will be more apparent and detailed in the financial notes and statement. There were no questions or comments from the Board, and the auditor was thanked for their service. Watershed Investment Consultants


Mr. Ratliff brought the Board up to date on Plan performance year to date, 2014 has been a good year for equity markets especially those with emerging market exposure. Within fixed income most people thought that there would be an increase in interest rates, and the opposite has happened with interest rates going even lower. As of June 30, 2014 the Plan assets were at $274.3 million, currently Real Estate is off its target, but will be back on target as capital is called down from Principal Real Estate and the new investment in Harbert Real Estate Fund V. Year to date the Plan has increased its asset balance by $15 million, and should be on track to hit the return in investment target of 7.5%. In a continuation of the discussion of investing in Private Equity, today’s discussion was more about the process which will be used to actually choose a manger. Private Equity is viewed as a bottom up, opportunistic approach, with a very broad diversification. Because of the long term aspect of these types of investments the focus should be on upper tier investment funds that can out‐perform public markets. Watershed Investments uses a team approach for its Private Equity group and focuses wholly on Private Equity. The team uses a six‐step research based approach to narrowing down the vast array of managers to the final recommendation; this process can take three months or longer. To start investing in Private Equity, the Plan would work with a specialty Fund‐of‐Funds manager who would in turn go out and find a number of private equity funds to invest with. Over the last two years, Watershed has evaluated over 150 funds analyzing general vs. specialist funds‐of‐funds. From this evaluation it was determined that managers with smaller fund sizes are more likely to operate in less competitive market segments with a better capital allocation and alignment of interests. Preferred managers have been identified in the small company buyouts, venture capital and distressed, which tends to be cyclical in nature. Strong monitoring and reporting is essential especially when the manager is requesting additional funding. Annual Pacing studies to forecast cash flow needs, capital calls and distribution are essential along with pro‐active fund identification and due diligence. The Board chose to go to the next step and requested a Pacing Study to determine how much the Plan would have to commit to make this a viable investment. Other Business Mr. Quigley brought before the Board the “Engagement Letter” from Gabriel Roeder Smith & Co. in connection with the additional services that will be required in 2015 in preparation for compliance with GASB 67 and GASB 68 in 2016. Because of these two actions, there will be additional studies and the actuary as part of their annual valuation going forward will provide information that will be required in subsequent audits. Ms. Sandstrom made a motion to accept the engagement letter from Gabriel Roeder Smith & Co. this was seconded by Ms. Jurgensen. The Chairman called the vote and the motion passed. Mr. Quigley did remind the Board that his office would be closed the week of July 21, as he would be attending an educational session at IFEBP offices in Milwaukee Wisconsin. Mr. Quigley did inform the Board of the upcoming Pre Retirement Planning Seminar which will be held Thursday September 11, 2014. Ms. Sandstrom did bring up that the County was going out to bid on the 457 Deferred Compensation providers. There being no further business to come before the Board, the Chairman adjourned the meeting at 4:30 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES August 27, 2014 The Chairman called the meeting to order at 2:00 P.M. Board Members Present Others Present Steve Oliver Dale Connors, Watershed Investment Mike Madziarek, Consultants Dennis Lyon Gary Ratliff, Watershed Investment Consultants Sue Sandstrom David Orlando, T. Rowe Price LaDonna Jurgensen Ann Holcomb, T. Rowe Price, by phone Larry Stevens, IT Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Lyons to approve the consent agenda; Ms. Sandstrom seconded the motion. The Chairman called the vote and the motion carried.



Arapahoe County Treasurer 201407 $14,309.45* Plan Administrator

US Bank 8849565 $14,437.05 Trustee Services

Tortoise NA $37,238.00 Investment Fee



CliftonLarsonAllen 892042 $3,500.00 Audit Services


*A result of three paydays in the month of August.

Acknowledgement of reimbursement to Lew Quigley for $328.27 for the purchase of Office Supplies.

Acknowledgement of reimbursement to Lew Quigley for $866.36 for travel expenses related the attendance of the IFEBP Certificate Series in Milwaukee, WI, July 22 – 27, 2014.


Number Reason Total




Death Benefits

Money Manager Presentation Mr. Orlando and Ms. Holcomb representing T. Rowe Price brought the Board up to date on the fund’s activity; assets continue to grow at a steady rate, and they are starting to expand outside the U.S. This particular fund is a fundamental bottom‐up approach to stock selection – whereby focused industry analysts make the buy and sell decisions. The US Structured Research Equity strategy has over thirty analysts working specifically on this fund. The benchmark for this fund is the S&P 500 Index. Total Return Performance year‐to‐date is behind the benchmark, although from inception the fund is ahead of the benchmark, with the hope that the positive return is a result of stock selections. The fund structure tends to correlate very closely with the S&P 500 with the exception of holdings, 262 vs. 500.


Blackstone Alternative Asset Management and Metropolitan Real Estate did not make a presentation. Watershed Investment Consultants Mr. Connors briefly went over the fund performance; the second quarter was a good quarter with Emerging Markets outperforming Developing Markets and Large Cap outperforming Small Cap. There has been a rotation from Value to Growth then back to Value within the span of sixty days as demonstrated in the markets volatility from June through today. The Bond and Real Estate sectors had positive returns for the quarter. Market studies indicate that there may be a lowering of the inflation risk. For June the Plan was up 5.5% net of fees; but July was an absolute turn around with the total market down over 2%. August has seen another reversal, with the Market bouncing back and chipping away at July’s losses. Year to date net of fees are back up for August and on a good pace to meet the 7.5% rate of return. Mr. Ratliff did a brief overview on Private Equity and the advantages to becoming involved in the Private Equity sector. For a first time investor the Fund‐to‐Fund structure would be the best exposure and ideal way to go. The discussion was based upon either a 5% or 10% allocation, in which the fund would be allocating $6 to $12M until you have met your obligation, typically a four to five year period. With a new investment in this sector, the two best areas would be Small Company Buyouts at 70% and Venture Capital Management at 30% making up the total allocation. As to the determination of the allocation both Mr. Connors and Mr. Ratliff expressed that the final level of involvement would be directed by the Board’s risk tolerance and at the 5% allocation, the Board could always go up if they were pleased with the performance. There are four firms that are recognized leaders in this area; they are FLAG Capital, Horsley Bridge, Private Advisors, and Siguler Guff. This strategy is just one of the offerings of each manager and all have some exposure in public entities, all are closed end funds. Ms. Jurgensen made a motion that the Arapahoe County Retirement Plan allocate 5% of the Plan’s total assets to the Private Equity Fund to Funds strategy, Mr. Madziarek seconded the motion, the Chairman called the vote, and the motion passed. Mr. Lyon made a motion that within the Private Equity Fund of Funds strategy the Plan will allocate $4.3M to FLAG Capital, dependent upon legal review, Ms. Jurgensen seconded the motion, the Chairman called the vote, and the motion passed. Other Business Mr. Quigley did inform the Board of the Pre‐Retirement Training scheduled for September 11, 2014 and is almost full, a number of employees are bring their spouses and this has grown to be very popular presentation. The Board did make its IRS Determination submission earlier this summer; this past week Ms. Birley did inform Mr. Quigley that the IRS has requested several additional items some dating as far back as the early 1980’s. Fortunately Ms. Birley has worked on this Plan from the late 1970’s and has access to the requested items and is putting together the additional documents for submission by the deadline of September 4, 2014. Ms. Thompson will be presenting the Experience Study to the Board at the November meeting, thus giving enough time for discussion if they recommend a change in any of the assumptions used for the Plan’s valuation.


There being no further business to come before the Board, the Chairman adjourned the meeting at 4:45 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES September 24, 2014 The Chairman called the meeting to order at 3:00 P.M. Board Members Present Others Present Mike Madziarek ‐ Absent Dale Connors, Watershed Investment Consultants Steve Oliver Gary Ratliff, Watershed Investment Consultants Dennis Lyon Andrew Sramek, Watershed Investment Consultants Sue Sandstrom ‐ Absent Eric Perlyn, Blackstone Alternative LaDonna Jurgensen ‐ Absent Asset Management

Martina Hansen, Blackstone Alternative Asset Management Greg Hein, Mapping ‐ PWD

Lew Quigley, Plan Administrator Consent Agenda Due to the absent of three Board members a quorum wasn’t present at the meeting; in order to pay the invoices in a timely manner Mr. Lyon made a motion to approve the Consent Agenda, and Mr. Oliver seconded the motion. The Chairman called the vote and received two affirmative votes. At that time, an email was sent to the three Board members not in attendance asking for a vote. Ms. Jurgensen replied during the meeting with an affirmative vote and Ms. Sandstrom followed up shortly thereafter with an affirmative vote. Thus the Consent Agenda passed.




NCPERS 3738 $250.00 2015 Membership Dues


Acknowledgment of reimbursement to Lew Quigley for office supplies in the amount of $187.89.


Number Reason Total




Death Benefits

Money Manager Presentations Mr. Perlyn representing Blackstone Alternative Asset Management brought the Board up to date on the activities of the fund. Mr. Perlyn did a brief overview of the fund reiterating that that this is a broadly diversified commingled fund, seeking to produce attractive long‐term, risk‐adjusted returns. This particular fund was established in 1996 by the then Senior Partners of Blackstone, and has had annualized net returns since inception of 7.6%, net of fees. The fund has a wide range of allocations, approximately nineteen, with the expectation that the wide variety will reduce volatility and produce downside protection, while capturing significant upside performance. The 2013 net return was 8.9% and so far this year the net return has been above 5%, quantitative strategies is about 10% of the holding has done been well in 2014 along with the credit and mortgage areas. The thought is there could be extended recovery, possibly one to two


more years, due to the severe and deep recession; historically the economy would be poised on the verge of a recession if history were to repeat itself but does not appear to be the case. Watershed Investment Consultants Mr. Connors brought the Board up to date on the Plan Performance, which is currently up to $277 million bumping up against our limit for equities. Currently the Plan is at 7% net of fees through August and is on a good pace towards the assumed 7.5% annual rate of return. A number of the sectors are out performing the benchmark, TA Realty Associates should close out during the 4th quarter, and Metropolitan is liquidating and winding down. Eventually the Plan will need to close out one of its CORE managers using the proceeds to fund other investments. Other Business Mr. Quigley did inform the Board that his office will be closed for the period of September 29 through October 6, 2014, as he would be out on vacation. The IRS made a second request in regards to the Plan’s Determination submission, of which Ms. Birley and her staff have answered their request. There being no further business to come before the Board, the Chairman adjourned the meeting at 4:00 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES October 22, 2014 The Chairman called the meeting to order at 3:00 P.M. Board Members Present Others Present Mike Madziarek Dale Connors, Watershed Investment LaDonna Jurgensen Consultants Steve Oliver Tina Seberg, US Bank Sue Sandstrom Greg Hein, Mapping ‐ PWD Dennis Lyon Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Lyon to approve the consent agenda; Mr. Madziarek seconded the motion. The motion carried and Chairman so ordered.



Arapahoe County Treasurer 201409 $9,539.62 Administrator Expense




Pyramis Global Advisors 20140930‐805‐A $24,513.68 Investment Fees

IFEBP INV‐304219‐B3M2R7 $835.00 Annual Membership

Milliman 0016ACR‐2014‐06 $6,250.00 License Fee

J.P.Morgan 20140930‐26714‐A $12,829.60 Investment Fees


Gabriel Roder Smith & Co. 410255 $980.00 Actuarial Fee

Tortoise N/A $37,236.06 Investment Fees

Acknowledgement of reimbursement for $749.71 to Sue Sandstrom for expenses related to attendance of the Colorado Public Plan Coalition Annual Conference, held September 2 – 5, 2014, in Beaver Creek, Colorado.


Number Reason Total


2 Vested Withdrawal 63,005.30


Death Benefits

Watershed Investment Consultants Mr. Connors brought the Board up to date on September’s performance, which negative in nature but preliminarily October has had better performance thus far. In November, Mr. Connors will bring before the


Board a comparison of like Plans operating in the United States. Using a new provider of comparison data will give the Board a better picture of the Plan and its relationship with other like Plans. T. Rowe Price is underperforming and has much higher fees when compared to the index, in light of this Mr. Connors recommendation is to close out the fund and move the funds to the Vanguard Institutional Index Fund, which mimics the index and has lower fees. Of late, T. Rowe Price’s stock selections have been sub‐par and were anticipated to add value and instead have had more of a growth slant. Ms. Jurgensen made a motion to close out T. Rowe Price and move to the Vanguard Institutional Index, Ms. Sandstrom seconded the motion. The Chairman called the vote and the motion passed. The PIMCO Unconstrained Bond fund is a unique style at PIMCO. This product is designed to produce positive results through varying market conditions with an ultimate goal of returning LIBOR plus 3%. Managers at PIMCO are given broad latitude to accomplish this goal, including the typical “plus” securities such as high yield and non‐U.S. as well as the ability to short and use derivatives to adjust characteristics bets largely than allowed in the total return strategies. Two of the three portfolio managers now assigned are new to this style. The newly named PM on the Unconstrained Bond mutual fund is Mohsen Fahmi. Mr. Fahmi has been with PIMCO for one month and was with a hedge fund firm, Moore Capital prior. The combination of greater latitude given to a new investment professional with a hedge fund background leads to the conclusion to discontinue use of the Unconstrained Bond fund. Considering Watershed’s previous recommendation to reduce the Plan’s overall fixed income allocation to 15% of Plan assets to fund potential new investments in real estate and private equity, we are recommending the proceeds from the PIMCO Unconstrained Bond fund sale be added to the proposed REIT fund and used to fund future capital calls from the Harbert and Principal real estate investments. The question asked was wasn’t the reason for the initial investment was an interest/inflation hedge, which Mr. Connors agreed, but now has some question as to the new direction based upon the team now managing the unconstrained bond fund. Mr. Madziarek made a motion to close out the PIMCO Unconstrained Bond fund and move the proceeds; approximately 12.3 million unto the Vanguard REIT Index fund, Ms. Sandstrom seconded the motion. The Chairman called the vote and the motion passed. Eventually these funds will fund an investment in the UBS Trumbull Real Estate Fund. Additionally, Ms. Jurgensen made a motion to get into the queue for 5% of Plan assets, approximately 13.5 million, for UBS Trumbull Real Estate Fund; Ms. Sandstrom seconded the motion. The Chairman called the vote and the motion passed. US Bank Ms. Seberg had nothing to report. Other Business The 2015 Meeting schedule was passed out to the Board members. Members Questions There being no further business to come before the Board, the Chairman adjourned the meeting at 4:15 p.m. Steve Oliver, Chairman



ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES November 19, 2014 The Chairman called the meeting to order at 2:02 P.M. Board Members Present Others Present Mike Madziarek Dale Connors, Watershed Investment Consultants Steve Oliver Gary Ratliff, Watershed Investment Consultants Sue Sandstrom Matt Clark, PIMCO LaDonna Jurgensen Keith Mekenney, Vanguard Dennis Lyon Mario DiVito, Capital Group Vicki Johnson, Davis Graham& Stubbs, LLP Leslie Thompson, Gabriel Roeder Smith & Co. Mike Garnsey, Sheriff Lynn Obremski, Finance Shannon Geyer, Communications Sandra Gronquist, Finance Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Lyon to approve the consent agenda; Ms. Sandstrom seconded this. The motion carried and Chairman so ordered.




US Bank 8988530 $14,691.97 Custodial Fees



Number Reason Total




Acknowledgment of reimbursement of $1,035.92 to Mike Madziarek for out of pocket expenses associated with his attendance at the 2014 Annual IFEBP Conference, held in October 12 –15, 2014 in Boston, MA

Acknowledgment of reimbursement of $1,376.29 to Dennis Lyon for out of pocket expenses associated with his attendance at the CAPPP Certification and the 2014 Annual IFEBP Conference, held in October 10 –15, 2014 in Boston, MA

Acknowledgment of reimbursement of $1,535.90 to LaDonna Jurgensen for out of pocket expenses associated with her attendance at the 2014 Annual IFEBP Conference, held in October 12 –15, 2014 in Boston, MA

Money Manager Presentations


Mr. Mekenney with Vanguard brought the Board up to date on the Plans performance; to date Vanguard assets under management passed the three trillion dollar mark. Vanguard prides itself on lower expense ratios and no outside ownership. There is a 60/40 split of institutional, non‐institutional, and wide variance of holdings. Vanguard continues to strive putting the client’s interest first while managing with prudence and fiscal responsibility. The Dividend Growth Fund, Institutional Index Fund and the latest addition The Vanguard REIT fund bring the Plan’s total holdings at Vanguard up to approximately $87M. Institutional Index tries to match the S&P 500 Index, and is managed in‐house dealing in large cap stocks. The Vanguard REIT tries to mirror the MSCI Equity REIT Index, wide diversification over several real estate sectors, again should be spot on when comparing to index. The Dividend Growth fund is an actively managed fund looking for companies that can grow the dividend; this fund has a concentrated number of holdings when compared to the index, with both under and over weights relative to it’s comparable index.. M. Clark with PIMCO did bring the Board up to date on the leadership changes that have been in the news of late. The PIMCO Total Return Fund is currently behind the benchmark although the holdings are varied with less interest rate sensitivity. Long‐term treasuries have been a driver of the funds underperformance. Economic outlook looks favorable for the United States, but not as favorable for Russia, Asia and other developing countries. Over the long‐term basis PIMCO has continued to provide favorable returns, in fact 70% of the quarters in the past ten years have outperformed the index. Mr. DiVito with The Capital Group, which handles the EuroPacific Growth Fund, talked to the portfolio. This places a heavy emphasis on the 4 and 8 year rolling performance period with incentives based upon long‐term performance. As a client, you get the best of each individual portfolio manager who are given the latitude to manage their particular sleeve of the fund’s assets. This is an international equity growth fund investing in all other countries other than the United States looking for capital appreciation and growth opportunities. The long‐term record of the rolling 10‐year period the fund outperformed the index over 98% of the time. In the periods of outperformance, these have been much larger than the period of underperformance so capturing the upside and minimizing the downside. Watershed Investment Consultants Mr. Connors briefly went over the third quarter review of the Plans performance showing that large cap stocks where the place to be, otherwise you had lackluster performance. Bond risk did not pay off as it had earlier in the year; REITs have been performing strongly, Hedge Funds were positive and Emerging Markets over Developed Markets. Bond rates are being monitored especially in the short term. There has been an upward trend in respect to credit spreads. Inflation is a nonevent and oil has fallen significantly, which could influence the oil fracking production. For third quarter there was a slight negative return, the total fund was 5.7% net of fees. Looking at the five‐year numbers the fund is up 8.22% net of fees. T. Rowe Price has been closed out as well as PIMCO’s Unconstrained Bond Fund. Pyramis is being closely watched mainly due to a manager shift of late. Through October, the Plan is up 6.2% on track to meet the 7.5% rate of return. Mr. Ratliff talked about the Venture Capital Fund of Funds, which is the other part of Private Equity investing. Venture Capital is making investments in startup and growing companies knowing that this tends to be a rather risky investment because of the failure rate but have the possibility of huge returns. The allocation to Venture Capital would most likely be at $3M, which is a very smallholding in the overall picture. The three funds under consideration are FLAG Capital, Horsley Bridge, and Northgate Capital; many of these funds operate in multiply aspects of the Private Equity sector. These firms all have established records of accomplishment making investments in underlying partnerships with potential exposure in 300 to 400 opportunities. FLAG Capital is on their ninth fund, raising $175M to invest in ten to twelve funds, first close February 2015. Horsley Bridge a well‐known firm with historically large minimum purchase


requirement, although currently dropping the buy in to $3M, is currently raising $1B both in and outside the United States, this fund with first close January 2015 in fifteen to twenty funds in very early stage of development. Northgate Capital is on fund seven with first close in November 2014 in eighteen to twenty funds in middle or late stage of development. As far as basis management fees, FLAG Capital is the lowest, Northgate Capital in the middle and Horsley Bridge being the highest, but having no carried interest fees. Both FLAG and Northgate Capital have incentive fee structures while Horsley Bridge does not. The lockups for each of the funds range from ten to fifteen years with a minimum of $3M investment. This would work in conjunction with the Private Equity currently in place. Anticipated returns are in the fifteen to twenty percent range. The Board will re‐visit this decision, but has asked that Davis Graham & Stubbs, LLP, review the Horsley Bridge paperwork. Gabriel Roeder Smith & Co. Ms. Thompson went over the experience study with the Board commenting on some of the assumptions. One possibility would raise the Inflation rate from 2.5% to 2.75%; the possibility of lowering the Rate of Return on Investments from 7.5% to 7.25%; decreasing the salary increase rate which should come down based upon actual experience; and going to a generational mortality table. Ms. Thompson will come back in January and actually go through all of the factors as presented in the study with scenarios as the result of making specific assumption changes. The Board did ask for scenarios with and without changing the Investment Rate of Return, and eliminating or changing the Partial Lump Sum program and thirty year projections.. Davis Graham & Stubbs, LLP Ms. Johnson informed the Board that there needs to be a Plan Amendment based upon the IRS Determination whereby the next time the Plan asks for a Determination Letter these items need to be included and before year end. Ms. Jurgensen made a motion to approve Amendment #1 to the Arapahoe County Retirement Plan; Mr. Madziarek seconded the motion. The Chairman called the vote and the motion passed. Ms. Johnson will gather the signed documents and provide originals to the Plan. Ms. Johnson will come back to the to the December meeting with an opinion as to the Partial Lump Sum provision of the Plan and whether or not it can be changed. Other Business Mr. Oliver did announce his retirement effective January 16, 2015 and did direct Mr. Quigley to call for a Special Election to fill the vacancy created by Mr. Oliver’s retirement. Mr. Quigley did inform the Board that provisions for the Special Election were already in place, with announcement and notification ready to go out starting November 21st, December 5th and 12, 2014. There being no further business to come before the Board, the Vice Chairman adjourned the meeting at 5:10 p.m. Steve Oliver, Chairman


ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES December 17, 2013 The Chairman called the meeting to order at 3:00 P.M. Board Members Present Others Present Mike Madziarek Vicki Johnson, Davis Graham & Stubbs, LLP LaDonna Jurgensen Gary Ratliff, Watershed investment Consultants Steve Oliver Dale Connors, Watershed investment Sue Sandstrom Consultants Dennis Lyon Janet Kennedy, Finance Sue Good, Human Resources Darcy Kennedy, Community Resources Erick Burge, Finance Jennifer Bennett, Finance Loren Kohler, Finance Sandra Gronquist, Finance Mike Garnsey, Sheriff Don Klemme, Community Resources Joe Barela, AD Works! Betty Fine, Assessor Susan Goodwin, Assessor Greg Hein, Mapping – PWD Lew Quigley, Plan Administrator Consent Agenda A motion was made by Mr. Lyon to approve the consent agenda; Ms. Sandstrom seconded this. The Chairman called the vote and the motion carried. Invoices as follows:



Davis Graham & Stubbs LLP 702939 $802.50 Legal Services


Gabriel Roeder Smith & Co. 410791 $7952.50 Actuarial Services


IMA Inc. ‐ Colorado Division 966016 $10,633.00 Liability Insurance

Acknowledgement of reimbursement to Lew Quigley for $173.84 for office supplies.


Number Reason Total





Watershed Investment Consultants Mr. Connors brought the Board up to date on the November performance, September and October saw a down turn in earnings, but November was a good month making up some of the losses. As of the end of November, the Plan was up 7.6% net of fees just ahead of the Plans expected rate of return of 7.5%. In December, volatility has returned as a result of the erratic movement in the energy sector. Stocks have come down; in fact, the S&P 500 is off over 4%. Consequently, the Plan may end the year below the expected rate of return. As far as the new reporting, starting in 2015 the Board will start to see a “Money Weighted Return” in addition to the figures currently be reported to meet the changing GASB reporting requirements. Mr. Connors continued the discussion in regards to the Venture Capital strategy, focusing on Horsley Bridge as they were the Board’s favorite last month.. Mr. Ratliff talked about Horsley Bridge, who has pushed back their first close to January 26, 2015 and the recommendation is to be part of the first close, the target amount for the fund is $1billion and have already experienced more demand and could end up over subscribed. Documentation review should be very straight forward, Davis Graham & Stubbs, LLP is already reviewing for another client. Ms. Jorgensen made a motion to invest $3 million in Horsley Bridge Venture Capital contingent upon review of legal documents by Davis Graham & Stubbs, LLP. Mr. Lyon seconded the motion, the Chairman called the vote, and the motion passed. Davis Graham & Stubbs, LLP Ms. Johnson brought before the Board another clean‐up amendment to the Plan; the IRS has put out another bulletin of items to be included when submitting a Plan for favorable determination and Ms. Johnson recommended that these items be included before year‐end. Ms. Sandstrom made a motion to accept Amendment II to the 2014 Plan Document; Mr. Madziarek seconded the motion, the Chairman called the vote, and the motion passed. Other Business The Chairman opened the floor to nominations to fill one of the non‐elected employee seat on the Arapahoe County Retirement Plan Board. Mr. Don Klemme, Community Resources nominated Ms. Darcy Kennedy also from Community Resources, this was seconded by Mr. Joe Barela who represents AD Works!. Ms. Darcy Kennedy accepted the nomination. Ms. Sue Good, Human Resources nominated Ms. Janet Kennedy, Finance, who was then seconded by Mr. Erick Burge, Finance. Ms. Janet Kennedy accepted the nomination. There were no other nominations for the non‐elected employee vacancy. The Chairman closed the nominations. Mr. Quigley will get with both candidates to gather any kind of biography or materials they would like to have sent to county employees. The slate of candidates will be placed in the Friday, December 19th edition of the AC Weekly. The election will be electronic and held the week of January 19, 2015, closing at noon on Friday 23 January. The next item was the annual election of officers for the Arapahoe County Retirement Board. Mr. Quigley called the election and opened the floor for nominations for Chairman. Mr. Madziarek nominated Mr. Lyon for Chairman; Ms. Sandstrom seconded the nomination. The vote was called and Mr. Lyon was elected Chairman. Mr. Oliver nominated Mr. Madziarek for Vice Chairman; Ms. Sandstrom seconded the nomination. The vote was called and Mr. Madziarek was elected Vice Chairman. Mr. Dennis Lyon nominated Ms. Sandstrom for Secretary/Treasurer; Mr. Madziarek seconded the nomination. The vote was called and Ms. Sandstrom was elected Secretary/Treasurer.


Executive Session Mr. Oliver made a motion to go into Executive Session to discuss personnel issues and obtain legal advice as it pertains to the Partial Lump Sum benefit option currently offered to employees. Mr. Lyon seconded the motion. The Chairman called the vote, the motion passed, and the Board went into Executive Session. After discussion in Executive Session, Ms. Sandstrom made a motion to go back into regular session; Mr. Oliver seconded the motion, the Chairman called the vote, and the motion passed. The Board was now in regular session so that they could take action on items discussed in the Executive session. Ms. Jurgensen made a motion to approve the Performance Evaluation and to provide a 2.25 % salary increase consistent with the County’s policy for 2015 as the Treasurer’s budget will allow; Mr. Madziarek seconded the motion, the Chairman called the vote, and the motion passed. There being no further business to come before the Board, the Chairman adjourned the meeting at 4:30 p.m. Steve Oliver, Chair

Documents

ARAPAHOE COUNTY BOARD OF RETIREMENT MINUTES January …acgret.org/Docs/Minutes 2014/Jan to Dec.pdf · 2014-12-23 · Arapahoe County Retirement Board Minutes – FINAL 2 of 36 12/23/2014