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Board of Trustee Meeting Minutes -  June 14, 2012

Members Present:  John Hammond, Howard Brown, Jay Cuccia, Richard K. Drain,              Andrea Fulton, Jonathan Hodgson, Jay Middleton, M. Kathleen Sulick, Jim Thomas,        LeRoy Wilkison   

Members Excused:  Jennifer Gilbert-Duran

Staff Present:  John Peterson, Janet Morgan

Guests:  Peter R. Duffy, Derek C. Fan, Rhett Humphreys, Stephen Loizeaux,                     Julien A. Scholnick

Recorder:  Karen Morganelli, Audio Associates

Writer:  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 John Hammond.


Mr. Cuccia made a motion to approve the minutes of the May 10, 2012, board meeting.              Mr. Drain seconded the motion. Mr. Hammond noted one change: Mr. Wilkison had an excused absence from the May 10 meeting. The board members adopted the minutes.

Investment Committee

Western Asset

Derek C. Fan and Julien A. Scholnick

Western Asset, based in Pasadena, has $446.7 billion in assets under management. The firm focuses on diversified strategies, integrated analytics and risk management, and long-term fundamental value discipline.

Year to date the pension system’s portfolio is ahead of its benchmark 3.9 percent versus 2.3 percent. The fund’s five-year performance of 7.5 percent against a benchmark of 6.7 percent includes the 2008 crisis. Western hopes to see that five-year number increase as the 2008 performance rolls off. The portfolio, which focuses on U.S. core investments, has a value of $89,941,368.

The firm, which has seen a strong recovery from the 2008 financial crisis, is now trying to stay away from the troubles in Europe. As part of its risk-reduction efforts during the first quarter, Western sold some its European bank financial exposure. Mr. Hammond noted the portfolio has a large cash position. Part of the firm’s strategy is to maintain funds or “dry powder” for future needs.

Western still believes there is a great deal of value in non-agency, mortgage-backed securities despite the previous volatility in this sector. Investment grade credit and high yield credit also have shown strong performance year to date. The firm, however, maintains a cautious, incremental approach toward high-yield investments.

Discussing the firm’s global investment themes, Mr. Scholnick said Western anticipates a mild recession in Europe and below trend growth in the United States. China should experience a soft landing as growth slows to 8 percent gross domestic product (GDP). Primary risks include the European crisis, financial regulation and upcoming elections. Housing remains a slow process. In response, managers continue to focus on conservative positions while carefully selecting the best investments. Western also expects much more uncertainty about inflation over the long term.

Penn Capital

Peter R. Duffy and Stephen Loizeaux

Penn Capital, founded in 1987, has $6,250 million in assets under management. The firm added three new analysts this year.

The county pension system invests in a Defensive High Yield Fixed Income portfolio, which has a total value of about $2.2 billion. As part of its conservative strategy, Penn avoids troubled investments by focusing on single-B and above-credit quality and self-sustaining companies. The firm has limited exposure to Europe because it invests only in 100 percent U.S. dollar cash pay securities. Mr. Duffy noted that the county underperformed its benchmark during the last 12 months, but the since-inception and year-to-date numbers are strong. The pension system’s portfolio has a value of $71,547,446.62

Events in Europe continue to drive the daily ups and downs of the market. Low interest rates in the Unites States, however, have been a positive trend for corporations. Sluggish growth of 2 percent to 3 percent gross domestic product will impact equity prices more than credit prices. Although U.S. corporations are in excellent shape, consumers still need time to heal and recover from events in 2008. Further, unemployment may remain a long-term problem. Still, the U.S. economy is pretty resilient, said Mr. Duffy.

Banking, natural gas and coal prices have been big themes this year. Limited capital has held down hotel construction in most of the United States, which increases the room rates charges. Penn likes the broadcasting sector because candidates will rely on TV advertising prior to the upcoming presidential elections. The firm has decreased its weighting to health care due to expected cuts in Medicare spending.

New England Pension Consultants

Rhett Humphreys

In the “flash” report for the period ending May 31, 2012, Mr. Humphreys reported a performance of -3.5 percent for the month, although year to date the county beat its benchmark 2.9 percent versus 2.7 percent. Domestic equity showed a performance of 5.3 percent; however, international returns pulled total equity down to 2.7 percent.

Mr. Humphreys also presented a proposed portfolio rebalancing schedule.  


MOTION: A motion was made to accept NEPC’s recommended rebalancing schedule.         Mr. Drain seconded the motion, and the board unanimously passed the motion.  

Mr. Humphreys also discussed the county’s investment policy statement. Page A7 of the statement spells out guidelines for asset allocation and the target asset mix. According to the guidelines, the chair of the Investment Committee will review asset allocation at least quarterly.

MOTION: Mr. Wilkison made a motion to accept the investment policy statement. Mr. Cuccia seconded the motion, and the board unanimously passed the motion.   


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Anne Arundel County, Maryland. 44 Calvert Street, Annapolis, Maryland 21401 | Tele: (410) 222-7000