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Board of Trustee Meeting Minutes - December 8, 2011

Members Present: John Hammond, Dennis Callahan, Jay Cuccia, Richard K. Drain, Andrea Fulton, Jennifer Gilbert-Duran, Jay Middleton, M. Kathleen Sulick, Jim Thomas, LeRoy Wilkison

Members Excused: Jonathan Hodgson, Howard Brown

Staff Present: John Peterson, Janet Morgan

Guests: Faryn Altschuler, John Boles, Geremy Connor, Denise Higgins, Steven Ruth, Keith Stronkowski, Jim Tufts, Arnold West

Recorder: Laura 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 12:05 p.m. by John Hammond. O’Brien Atkinson sat in for Howard Brown.


Mr. Cuccia made a motion to approve the minutes of the November 10 board meeting. Mr. Drain seconded the motion, and the motion passed unanimously.

Investment Committee

Attalus Capital

Attalus manages approximately $1.9 billion in discretionary assets under management across three business segments: hedge funds, fund of hedge funds, and active core. The Anne Arundel County Pension System has invested in the firm’s Enhanced Index Fund since September 2010.

2011 has been a pretty choppy year, said Mr. Tufts. The index fund is performing slightly below the benchmark at -2.55 percent versus 1.30 percent year to date. After making an initial investment of $30 million, the county’s has a balance of just under $36.5 million. Noting that the strategy’s history dates back to 2000, Mr. Tufts said the fund has and will add value as the firm’s relationship with the county continues.

Adding to the challenges this year is the fact that Attalus has grown more conservative in its positioning, said Mr. Connor. Although the market experienced a large equity rally in October, Attalus remained neutral and therefore didn’t benefit from the upswing. On the other hand, the same neutral mindset helped the firm experience positive performance in July when the markets were down, Mr. Connor said. In response to a question from Mr. Callahan, Mr. Connor said the firm plans to maintain its neutral strategy, although the firm can make shifts as necessary. Fund managers expect market uncertainty to persist, however, so Attalus looks to add investments that will make money in any environment.

This year every substrategy had a tough time getting positive returns, said Mr. Connor. Every underlying market experienced a turbulent environment, so it has been a lot harder for hedge funds to make money. Hedge funds typically excel at managing fundamentals and catching trends, up or down, Mr. Connor. This year, however, fundamentals didn’t come into play, and trends have been choppy as well. A neutral position allows the firm to gain advantages in small increments along the way and make quick changes if more stability returns to the market.

Sharing his thoughts on the firm’s economic outlook, Mr. Connor said Attalus seeks to add to fixed income strategies in the immediate term. The firm will remain neutral until fund managers see more stability in macro economies. Government action, particularly in Europe, is affecting all underlying hedge fund strategies. Attalus seeks to remain stable in the midst of the upheaval.


Representatives from ING reported a challenging year as well. The county has invested with the firm since 1983. Mr. West reported no significant changes to the firm.

Mr. Ruth, who heads fixed income, said ING began reducing its exposure to risk toward the end of the second quarter. The firm went into protective mode during the third quarter. Contributors to negative performance included overweights in some of the spread sectors as risk aversion became a growing theme. Mr. Ruth said that he does not see a quick solution to problems in Europe, and he expects the slack in housing and employment to keep inflation well contained. Income-seeking investors should still maintain an allocation to the bond market to balance out the volatility in equities, Mr. Ruth added.

Ms. Higgins, who led the discussion on equities, agreed that the economic environment has been volatile. All the stocks have been moving as a group, Ms. Higgins added, so fund managers have had a difficult time identifying stellar investments. However, equities have outperformed the benchmark year to date. ING held onto defensive, cyclical names such as Waste Connections, a waste management company. Making those moves early in the year helped ING’s equity side during the summer downturn. Now the firm plans to take profits from the defensive names that held up well to invest in companies such as Starbucks.

The firm lost some ground in November with its investment in Abercrombie and Fitch. Other underperformers for the year included Arch Coal, Marvell Technology and NetApp. Companies such as Range Resources, Herbalife and McDonald’s saw strong returns. However, the overall outlook for the market is still choppy, Ms. Higgins said.

New England Pension Consultants

Mr. Stronkowski reported a composite of -1.2 percent on the “flash” report for the period ending November 30. That return was driven by international, emerging equity and debt exposures, which were affected by the turbulence in Europe.

Looking at the equity managers, Mr. Stronkowski noted a great month for Chartwell. Buckhead had a bit of underperformance, reporting returns of -1.8 percent for the month versus the benchmark’s - 0.2 percent. The negative performance flowed out to the firm’s year-to-date numbers, which were -11.6 percent against the benchmark’s -7 percent. Mr. Stronkowski recommended talking to Buckhead in more detail to find out what is going on with that portfolio. Southeastern and Westwood underperformed but both were in line with their benchmarks.

Under fixed income, Mr. Stronkowski reported that Penn demonstrated its defensive value with returns of -1.2 percent versus a benchmark of -1.8 percent. Pimco, an emerging market debt reporting returns of -0.9 percent, was in line with the markets as it suffered on the heels of occurrences in Europe.

Alternative managers Bridgewater and Wellington showed a bit divergence, said Mr. Stronkowski. Both were negative for the month, but year to date Bridgewater reported 18.4 percent returns. Its benchmark reported 5.6 percent. Wellington’s year-to-date numbers were -11.9 percent. The benchmark saw returns of -1.8 percent. Wellington’s numbers look bad against that benchmark, Mr. Stronkowski said, but the firm’s benchmark isn’t an apples-to-apples comparison. Overall, the pension system has experienced a volatile year in a low-return environment, said Mr. Stronkowski.

Administrative Report

December retirement numbers are little higher than last year, Mr. Peterson said, and January 2012’s preliminary number is 15. Mr. Peterson will work with Ms. Morgan on a census report before gearing up for a visit from the pension auditors, who will be on site in January.

The meeting ended at 1:30 p.m. The next meeting will take place January 12. The next investment committee meeting will occur February 2, 2012.


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