Members Present:  

John Hammond, Howard Brown, Dennis Callahan, Jay Cuccia, Janelle Davis, Richard K. Drain, Andrea Fulton, Jonathan Hodgson, Jay Middleton, M. Kathleen Sulick, LeRoy Wilkison

Members Absent: Jennifer Gilbert-Duran

Staff Present: Janet Morgan, John Peterson

Guests: Rhett Humphreys, Robert Kinsey, Uri Landesman, Keith Stronkowsky, Arnold West

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 12:15 p.m. by John Hammond.

Minutes

Mr. Wilkison made a motion to approve the minutes for the November 12 , 2009, Board of Trustees meeting. The motion was seconded by Mr. Drain and approved unanimously.

Investment Committee

ING

The county’s pension system has enjoyed a lengthy relationship with ING. The firm manages a core fixed income portfolio and a large cap growth equity portfolio. ING saw a much stronger performance in 2009 than in 2008, said Mr. West.

Reviewing organizational changes, Mr. West said ING will combine its asset management firms in the Americas, Europe and Asia Pacific, as well as its real estate firm ING Real Estate Management, into one global investment management firm. This strategy will help clients get the best ideas from across the globe, he said.

ING also will move toward a full separation of banking and insurance/asset management.

Mr. Middleton asked about reports that ING was selling off assets. Mr. West said ING hopes to separate insurance and asset/management from banking through an IPO or perhaps divestiture. None of this should have an impact on the investment teams, said Mr. West.

Reporting on the fixed income portfolio, Mr. Kinsey mentioned several changes. In light of the intense turbulence in the market during the past two years, ING has created a stronger system of checks and balances to improve quality control. Among other things, client portfolio managers will oversee those who buy the individual bonds in order to get a closer look at the risks imbedded within the portfolios, he said. Mr. Callahan noted those strategies should have been in place all along. Mr. Kinsey said the fixed income side lacked adequate oversight.

The fixed income portfolio took its lumps during the first quarter of the year, said Mr. Kinsey, but by year end ING’s returns were 5.51 percent versus a benchmark of 3.74 percent. Year-to-date performance was 8.94 percent versus the benchmark’s 5.72 percent. Managers invested in banks and insurance companies, and ING still likes nonagency mortgages -- not the Freddies, Fannie Maes or Ginnies, said Mr. Kinsey, but the more conservative, senior positions. Over the long term, Mr. Kinsey said he doesn’t expect the federal government to do any tightening in the market during 2010.

On the equity side, Mr. Landesman said ING struggled from March to May during a rally of  low-quality stocks. The firm has since recovered by sticking to its investment strategies. For the quarter ending September 30, the county’s portfolio showed a performance of 14.46 percent, beating the benchmark’s returns of 13.97 percent. 

Although ING managers believe the nation emerged from the recession in July, consumers still aren’t participating in the economy, said Mr. Landesman. ING expects 2010 to be an average year with some volatility, and fund managers anticipate a gradual economic recovery. The rate of unemployment will determine next steps for housing, taxes, interest rates and other factors.

New England Pension Consultants

November was another good month for the county’s pension system, said Mr. Humphreys.  The “flash” report for the period ending November 30 showed financial composite returns of 3.1 percent versus a benchmark of 2.4 percent. Year-to-date performance for the pension system 20.3 percent. The benchmark reported returns of 16 percent.

Active management worked well this month, said Mr. Humphreys, who praised the board’s investment committee for wanting to hang on to Southeastern. Southeastern’s year-to-date performance is 52.4 percent against a benchmark of 17.6 percent. 

Holding onto Western and ING was another smart move, said Mr. Humphreys. Both firms show strong signs of recovery after battles with mortgages and credit. Western’s year-to-date performance is 18.8 percent, and ING Fixed showed returns of 11.4 percent. The benchmark reported 7.6 percent.

Going into next year, NEPC will most likely encourage clients to redeploy profits made from bank loans or significantly pare down those holdings, said Mr. Humphreys. Reviewing the county’s performance, he said the pension system is ending this year in a better position than last year.

Administrative Report

Mr. Peterson said that Clifton Gunderson is beginning the pension audit. In-house work on the pension audit would begin January 18. The ADP system which is used for pension payment is being upgraded and the upgrade should be completed in March.

Board members reviewed a letter from Bolton Partners regarding the cost to the county to remove the negative cost of living adjustment. The annual amount is approximately $80,000 and assumes that the cost is determined on a total benefit basis and not separately on the pre and post benefits. Mr. Cuccia noted that he still gets inquiries from retirees about the negative COLAs.

The meeting adjourned at 1:50 p.m. The board will reconvene in January.