|Board of Trustee Meeting Minutes -|
Board of Trustees
Minutes of September 13, 2012,
Members Present: John Hammond, Howard Brown, Jay Cuccia, Richard K. Drain, Jay Middleton, M. Kathleen Sulick, Jim Thomas, LeRoy Wilkison
Members Excused: Andrea Fulton, Jonathan Hodgson, Kurt Svendsen
Members Absent: Jennifer Gilbert-Duran
Staff Present: John Peterson, Janet Morgan
Guests: Ed Antoian, Caldwell Calame, Rhett Humphreys, John G. Norman
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 12:13 p.m. by John Hammond.
Mr. Cuccia made a motion to approve the minutes of the August 9, 2012, board meeting.
Mr. Drain seconded the motion, and the board approved the minutes.
Chartwell Investment Partners
Mr. Antoian began his presentation with words of appreciation, noting that the county pension system stuck with Chartwell during a difficult time in its 14-year relationship with the firm. Chartwell manages $5 billion in a variety of equity and fixed income investments. Mr. Antoian reported low turnover among the firm’s employees.
The county’s small cap portfolio has seen accelerated performance, with year-to-date returns of 11.30 percent versus the benchmark’s 10.76 percent. Labeling 2012 a stock-picker year, Mr. Antoian said Chartwell has taken advantage of some dynamic market activity. Auto sales have enjoyed attractive rates, and housing prices seem to be coming back. Indeed, the portfolio includes two home builders.
Cyclical stocks, however, didn’t work this year. Further, Chartwell experienced more misses than usual during the most recent quarter, but good portfolio management saved the firm’s performance. Fortunately, the misses occurred in stocks that have small positions, said Mr. Antoian. The winners have been in stocks with big weightings.
Top 10 holdings include Heartland Payment Systems, Kenexa, and HFF Inc., a commercial real estate and capital markets servicer. The firm also sees great promise in Netgear, which makes routers for Wi-Fi. Mr. Antoian said the ubiquitous Wi-Fi will be the next standard for communication.
Wedge Capital Management
Caldwell Calame, John G. Norman
Wedge began managing investments for the county in July. Founded in 1984, the Charlotte-based firm manages $9.3 billion in assets. Mr. Norman reported a partner will retire in September.
For its small cap portfolio, Wedge targets companies with a market cap between $250 million and $2.5 billion. The firm focuses on stock-by-stock research using an investment process that includes analysis, portfolio construction and sell disciplines. The small-cap portfolio includes 128 well-diversified names, and Wedge tends to hold its stocks for three to five years. On occasion a company’s valuation will increase, and Wedge will move that name out of the small cap portfolio. Such a change has occurred perhaps once during the past two years, said Mr. Norman.
Reviewing the portfolio’s characteristics, Mr. Calame said Wedge prefers the larger companies within the small cap universe. These dominant players tend to have strong balance sheets and offer greater opportunities. The firm has exposure to cyclical names -- companies that will do better as the economy improves -- but not necessarily consumer cyclicals. The firm is underweight to banks and REITS as well as utilities.
Capital goods, which include Chicago Bridge and Iron, General Cable and other companies involved in global infrastructure, make up the firm’s single overweighted sector. Other top holdings include U.S. Airways and Carlisle Companies. The portfolio has grown by about $2 million during the past two months. Wedge seems off to a good start, said Mr. Calame.
New England Pension Consultants
Mr. Humpheys provided a few takeaway points for the August 31, 2012, “flash” report. The pension system’s total equity composite was 11.4 percent versus the index’s 10.8 percent. Active management made the difference in performance, said Mr. Humphreys. Just about all the managers were up except for a few large cap portfolios. Westwood, for example, reported 10.4 percent against a benchmark of 12.2 percent year to date. The international equity managers were also slightly behind their benchmarks.
NEPC will reconcile numbers for Wedge, a new manager, within a few days.
Dimensional, another new manager, came out of the gate with a strong performance of 1.4 percent for the month. The benchmark was -0.3.
Fixed income also had a strong showing year to date. Western reported 6.7 percent; the benchmark was 3.9 percent. ING had a performance of 4.5 percent against a benchmark of 3.9 percent. Penn, a high-yield, defensive fixed income manager, matched its benchmark year to date at 9.7 percent, but its since-inception numbers lagged behind a bit, 7 percent versus the benchmark’s 7.5 percent. In emerging marking debt, PIMCO came in well behind its benchmark with a performance of 7.2 percent year to date. The benchmark was 13 percent.
After a busy summer, retirements are slowing down, said Mr. Peterson. About 10 retirement seminars will take place in October. Recent legislation brings the contribution level for all members of the police plan and all members of the fire plan to the same rate. The staff sent out an initial draft of the experience study, and a new issue of Pension Points is ready to go out.
The meeting ended at 1:19 p.m. The next meeting will take place October 11.