Members Present:  John Hammond, O’Brien Atkinson, Dennis Callahan, Jay Cuccia, Janelle Davis, Richard K. Drain, Andrea M. Fulton, Jonathan Hodgson, Jay Middleton, M. Kathleen Sulick, LeRoy Wilkison

Members Excused:  Howard Brown  

Members Absent:  Jennifer Gilbert-Duran

Staff Present:  Janet Morgan, John Peterson

Guests:  Robert W. Spencer, James E. Thorsen  

Recorder:  Laura C. Jackson, Audio Associates

The meeting of the Board of Trustees of the Anne Arundel County Retirement and Pension System (Board) was called to order at 12:11 p.m. by John Hammond.  Mr. Atkinson sat in for Mr. Brown during the meeting.

Minutes

Mr. Wilkison moved to approve the minutes for the September 10, 2009, Board of Trustees meeting. The motion was seconded by Mr. Cucia and approved unanimously.

Investment Committee

State Street Global Advisors

With more than 26,000 employees in 17 countries, State Street Global Advisors focuses on research, discipline and quantitative processes to capture market inefficiencies. The firm has managed funds for Anne Arundel County’s pension system since January 2007. The county’s International Alpha Select fund has a balance of close to $70 million, said Mr. Thorsen. 

Noting the volatility in the economic market, Mr. Thorsen said these are days people will remember to their grandchildren.  In 2007, the firm’s ability to add value faced consistent challenges. In 2008, one of the most difficult years on record, the firm outperformed by about 130 basis points.   

Although State Street’s performance has faced difficulties, Mr. Thorsen said he’s noticed a bit of a turnaround during the last quarter. The firm, which successfully completed a stress test in January, remains strong. Global Advisors, one aspect of State Street Corp., reports $1.6 trillion in assets under management. The firm, one of the nine original banks that took TARP money under the Treasury Department’s program, repaid those funds in July. Further, fund managers note a sense of momentum in terms of earnings and growth, said Mr. Thorsen.

For the county’s fund, SSGA seeks to outperform international equities by taking advantage of mispricings in the market. Investor behavior, such as risk aversion, create opportunities for the firm, said Mr. Spencer. SSGA uses a disciplined, quantitative approach to get a balanced picture of long-term investments and select the best stocks. This approach succeeds over the long term but can experience market challenges, said Mr. Spencer. The firm, for example, lagged behind during a rally of low-quality stocks earlier in 2009. SSGA’s positive returns in September and October show that the rally has run its course, he said.

Mr. Hammond asked if SSGA had ever seen these kinds of results in past cycles. Although low-quality rallies and sharp turns in the economy have occurred, Mr. Spencer said the market hadn’t experienced results of this magnitude since the ’30s.

Mr. Hodgson asked how the firm factors in a weak dollar and other threats into its management strategy. Mr. Spencer said the portfolio offers currency exposure, so if the dollar continues to weaken, the assets in the portfolio would increase in value. And despite concerns about the declining dollar, no other type of reserve currency is available, he said. Mr. Thorsen added that the last two years have taught public funds the benefit of diversification into international equity markets, a strategy that creates a natural hedge against dollar weakness.   

New England Pension Consultants

The “flash” report for the period ending September 30 showed financial composite returns of 11.3 percent for the last three months, whereas the benchmark posted results of 9.8 percent. Year to date, the pension system has returns of 18 percent versus a benchmark of 14.5 percent, said Mr. Humphreys.

Buckhead and Southeastern led the way with returns of 23.7 percent and 50 percent, respectively, during the last three months. Their benchmarks, in contrast, had returns of 16.4 percent and 14.8, respectively. Mr. Humphreys said the pension system’s year-to-date returns should go higher once the board factors in hedge fund performance.

On the bonds side, Western and ING have recovered from a period of dismal performance. Their year-to-date returns were 16 percent and 8.9 percent, respectively, versus a benchmark of 5.7 percent. Both firms struggled greatly due to downturns in credit and mortgages, said Mr. Humphreys.

For total GAA, Bridgewater reported returns of 7.5 percent against a benchmark of 3.1 percent. Wellington also outperformed its benchmark with 27 percent versus 21 percent. Overall, the pension system posted strong returns after a difficult couple of years, said Mr. Humphreys.

The Investment Committee will meet November 5.

Administrative Report

Retirement seminars have had a strong turnout, Mr. Peterson reported, although the number of retirements has gone down slightly. 

Bill 74-09 will be heard by the County Council on October 19, 2009. This piece of legislation had recently gone before the Council as Bill 61-09, emergency legislation that would provide for calculating a pension at the negotiated merit rate for those unions that had an agreement with the county. The Council defeated Bill 61-09.

The meeting adjourned at 1:15 p.m.  The next meeting will take place November 12.