|Board of Trustee Meeting Minutes - January 12, 2012|
Members Present: John Hammond, Howard Brown, Dennis Callahan, Jay Cuccia, Richard K. Drain, Jennifer Gilbert-Duran, Jonathan Hodgson, Jay Middleton, M. Kathleen Sulick, Jim Thomas, LeRoy Wilkison
Members Excused: Andrea Fulton
Staff Present: John Peterson, Janet Morgan
Guests: Mark Andrew, Joe Kaufman, Keith Stronkowski
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 12:15 p.m. by Dennis Callahan.
Mr. Cuccia made a motion to approve the minutes of the December 8, 2011, board meeting. Mr. Drain seconded the motion, and the motion passed unanimously.
Reviewing the funds the pension system has invested in, Mr. Kaufman said Fund IV shows growth overall. The IRR in this fund is a little low, however, so Crescent is trying to improve performance. The firm has seen growth in 12 out of 15 investments, and leverage is down overall. Cambium Learning, Mattress Firm and Tourneau, a watch retailer, have faced challenges. Waste Equip will go through a restructuring due to the economy, Mr. Kaufman added.
Fund V is off to a great start, said Mr. Kaufman. Managers are keeping an eye on Sun Products. This fund, which is 85 percent invested, has had seven new investments and some realizations. Crescent has begun marketing for Fund VI.
Lexington has $18 billion in secondary capital and more than 300 secondary transactions completed, acquiring more than 1,800 private equity interests. Lexington’s Fund VI closed at $3.8 billion. Fund VII closed at $7 billion.
2011 was a record year for the global private equity secondary market, said Mr. Andrew, and managers expect to hit $25 billion in 2012. 2009, which experienced a steep decline, was marked by uncertainty during that time, Mr. Andrew added. The market opportunity for secondary transactions during the next five years could reach $77 billion.
Mr. Andrew reported an active pipeline of $5 billion. Lexington has an annual opportunity of $1.8 billion. The firm typically buys assets that are five years old.
Lexington’s Fund VI is fully committed and 91 percent invested. Through the fund, Lexington has invested about $3.4 billion. The county pension system is invested in this vintage 2006 fund. The fund, which outperformed the market, is primarily a U.S. fund with some investments in western Europe, eastern Europe and Asia. Mr. Andrew reported a net asset value increase of 17 percent since last year.
The county invested $15 million in Fund VII, Mr. Andrew said. The core fund has a value of about $6 billion. This vintage 2010 fund closed 18 transactions last year, Mr. Andrew added. The fund, which has invested $1.8 billion so far, made four distributions totaling $390 million six months after final closing.
New England Pension Consultants
After a rough third quarter, the pension system’s performance seems to be bouncing back, said Mr. Stronkowski. The “flash” report for the period ending December 31, 2011, showed a composite of 0.2 percent for the month and 4.7 percent for the last three months. Performance for the year was 1.6 percent, which obviously was not where the pension system needed to be for the year, Mr. Stronkowski added.
Reviewing domestic equities, Mr. Stronkowski noted one disappointment. Southeastern showed a flat performance versus a benchmark of 2 percent. Due to ongoing issues in Europe, international equities are in the negative. U.S. markets, on the other hand, were generally positive, especially in the large cap space. Capital flows seem to be moving away from emerging markets into the United States, Mr. Stronkowski said. Managers from Buckhead will meet with the board in February to discuss the firm’s underperformance.
For the total GAA managers, Bridgewater enjoyed another stellar month driven primarily by its all-weather fund, said Mr. Stronkowski. The firm reported last year returns of 20.4 percent versus a benchmark of 6.1 percent. Last month’s performance was 2 percent whereas the benchmark was 0.5 percent. Mr. Hammond noted that $55 million from the liquidated K2 and Mariner portfolios will go to Bridgewater. That is consistent with board-approved action taken in summer 2011 to rebalance the pension system’s portfolio.
Wellington’s performance is the opposite story, Mr. Stronkowski said. That manager had a performance of -1.8 percent for the month against a benchmark of 0.3 percent. Wellington reported a last year performance of -13.5 percent versus the benchmark’s -1.6. Wellington focuses more on international/emerging market equities and commodities. All three of those were down for the quarter, Mr. Stronkowski reported. Long term, however, Wellington has added value to the portfolio, even with a really bad year.
Mr. Peterson reported 17 retirements in January, the highest number in the past year and a half.
The meeting ended at 1:30 p.m. The next meeting will take place February 9. The next investment committee meeting will occur February 2.