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Good afternoon and welcome to the February 20th, 2025

administrative investment and fiscal management board meeting.

The meeting is now called to order.

Will the clerk please call the roll to establish a quorum.

Thank you chair.

Member Colletto.

Here.

Paulville.

Here.

Member O'Toole is absent.

Members of the manitain is absent and chair bader.

Here.

Thank you.

We have quorum.

I'd like to remind the members of the public that if you would like to speak on an agenda item, please turn on the speaker slip.

For the item begins, you will have two minutes to speak once you are called on.

After the first speaker, we will no longer accept speaker slips.

We will now proceed to today's agenda.

Please rise for the opening acknowledgments and honor of the second minutes indigenous peoples and tribal lands.

To the original people of the land, the Nisanan people, the southern Maidu, the Valiant Plains mewak,

Putwin-Wenton peoples and the people of Wiltner, Anceria, Sakamoto's only federally recognized tribe.

May we acknowledge and honor the native people who came before us and still walk beside us today on these ancestral lands by choosing to gather together today in the active practice and acknowledgment and appreciation for Sakamoto's indigenous peoples history, contributions and lives.

Please remain standing for the pledge.

The pledge allegiance is the flag of the United States of America and to the Republic for which it stands one nation under God and the visible with liberty and justice for all.

Our first order of business today is approval of the consent calendar.

Clerk, are there any members of the public which to speak on this item?

Thank you, Chair. I have no speaker slips for this item.

Are there any committee members who wish to speak on this?

I'll move the item.

Okay, moved by Member Coletto.

Seconded by Member Coletto.

We get a vote.

Thank you. I'll do the roll call vote.

Member Coletto.

Aye.

Member Colville.

Yes.

Member O'Toole is absent. Members of Maniden is absent. And Chair Bader.

Yes.

Thank you, the motion passes.

Okay, we'll now proceed to the discussion calendar.

And we are going to take item seven first, the Siegel-Marcle Adviser's quarterly investment performance report for December 2024.

Okay, thank you, everyone.

Ork should be loading up.

So as usual, let me do a quick recap of what's been going on in the markets.

Interesting, as always.

The fourth quarter, which this is a report as of December 31st, we saw the US stock market just take off after the election, immediately after the election.

But the bond market with the opposite direction, interest rates went up pretty sharply.

I think a lot of that was sort of concerns in the bond market about the impact of tariffs or other things that budget deficits, things that might keep inflation higher than the Fed would like to see.

The Fed continued to cut. They had done a 50 basis point cut in September.

They did a 25 basis point cut in November and another 25 basis points in December.

That's a total of 1% in the course of about three months.

But in their latest meeting, they held steady and have indicated that they're probably going to hold steady for a while.

I think what had been an expectation of multiple rate cuts this year has been pretty sharply reduced in terms of expectations.

It'll all depend on the data. But a very different picture than I think what the markets were assuming a few months ago.

I mentioned US stocks having gone up sharply after the election.

You actually saw small stocks run up like 10% in a week. But by the end of the quarter, they had given all that back.

It ended up being a very concentrated market yet again with the magnificent seven really driving performance.

The big tech companies, Tesla, those things.

It was very concentrated.

You can see on this page, the S&P 500 was up almost 2.5% for the quarter and up 25% for the year.

And that marks two consecutive years of 25 plus percent returns for the S&P 500.

I think that's only ever happened three times in history where you've had two back-to-back years with 25% returns.

International markets went the opposite direction. You can see here down 8% in the quarter.

Positive for the year, but kind of mid-single-digit returns at best.

And part of that was due to the dollar getting stronger.

Interest rates went up in the US and I'll show you a picture of that in a minute.

This next page, again, just indicates what happened in terms of the concentrated nature.

So the Russell 1000 Growth Index, that's where the big tech companies are.

Up 7% in the quarter, 33% for the year.

The value index was actually down. That's utility, energy companies, that sort of thing.

And only up 14% for the year.

So the third quarter had been different. The value companies did better.

It was a much more broad-based market in the third quarter.

But fourth quarter was right back to the concentration that we'd seen earlier in the year.

So I'm going to skip ahead a few pages and here's the yield curves in the upper right.

So the green line is where we ended December.

The brown line is where we had been at the end of September.

So, and then the gold is the end of June.

So you can see rates dropped sharply across the board in the third quarter between June and September.

But then came back up in the fourth quarter, except at the very short end.

And that's where the Fed has kind of been pushing down the short end.

But everything else went back up.

So, roughly for the medium to longer term rates were pretty much where they were at the end of June.

So you had to sort of round trip in the bond market, except at the very short end.

And of course, when rates go up, bond prices go down.

So you may remember the bond index had been up 5% in the third quarter.

Well, it gave back three in the fourth quarter.

So, into the year, positive, but only 1.25% for the aggregate index, the broad market index.

Now, again, the good news with that is with the yields having come back up.

Those yields are a pretty good indication of what long term return expectations should be.

So, 10-year treasuries are somewhere around 4.5% today.

Corporates and other things will be yielding more than that.

So, it's a pretty healthy bond market return going forward.

But we know there's going to be volatility.

And I've told a number of clients that I work with, you know, that sort of the one thing I can guarantee is volatility.

So, let me just strap in, hold on tight.

Day to day, even intraday.

There's a lot going on, which is impacting markets.

So, with that, let me just jump ahead.

Here are allocations, as of on the left is the end of December.

So, 38% roughly in fixed income, slightly under the equities are slightly under 60 combined for the two domestic equity pieces.

International equity, a small piece, about 1.5% and 1% in cash as of the end of the year.

There are the allocations relative to targets.

So, everything's within about 1% international.

And I think this has been an intentional move on Stacey's part to keep the international a little bit below the target by about 1%.

And then performance is here.

For the quarter, down just under 1% for the fiscal year, so halfway through the fiscal year at this point, up just over 5%.

You can see the fiscal year return well ahead of the actuarial assumption, which is 6% for a year, so 3% for half a year.

And also a little bit ahead of the benchmark for the total plan.

Did outperform the plan benchmark in the quarter.

You can see if you go down the columns, the individual pieces, large cap growth, there's not as much exposure to that concentrated set of companies that outperform.

The more value or income-oriented portion of the portfolio, relatively speaking, did very well.

Still slightly negative return, but nice outperformance of its benchmark and the same longer term.

Down at the bottom, the fixed income portfolio, again negative, given what happened in the bond market, but very good outperformance, more than 1% in the quarter for that portfolio.

I can tell you January was a pretty good month for stocks and bonds.

Interest rates came back down a little bit, so the bond market was not quite 1% in January.

US stocks were up, international stocks were up even more.

We're talking 2, 3, 4% something like that.

We've continued to see some volatility.

I think bonds rates have inched back up a little bit so far this month.

But since this December 31st time period, I'd say you're doing okay.

My guess is you're probably somewhere close to your 6% target for the fiscal year, given what's happened.

We've still got whatever 4 months to go to the end of the fiscal year.

A lot of volatility today, stock market was down, not a huge amount, but down.

We're just going to continue to see that.

That was really what I had. Any questions?

Do you have any members of the public sign up to speak on this?

Thank you, Chair. I have no speaker slips on the side.

Questions from any committee members?

Yeah, I have a question.

I noticed as you were scrolling, maybe I read it wrong, if you can go back possibly on the presentation of September's allocation versus December's.

It looked like the fixed income allocation was decreased by about 3 million.

Is that accurate?

Go back to that.

I'm just curious if that is because of withdrawals, transactions, or did we lower our allocation to it?

Yeah, I'm going to say so bonds were down about 3%.

That is about 100 million to 97 million. That's about 3%.

Yeah, that's just market returns.

Now follow up on that. Have we discussed potentially increasing duration?

Now that rates have gone up slightly higher?

So I will be addressing that. The annual asset allocation.

We'll talk about that and that's at the main meeting, but we'll start the analysis on that next month.

Okay.

But I am going to mention that in my presentation as well.

Okay, any other comments?

Okay. Can we get a motion for the item?

Sure. I'll move the item.

Remember Collette.

I'll second.

Seconded by Member Yusuf.

Rule call vote.

Thank you, Chair. I'll now do the rule call vote.

Member Collette.

Aye.

Member Collvill.

Yes.

Our tool is absent. Members of Maniden.

Aye.

And Chair Bader.

Yes.

Thank you. The motion passes.

Okay. The next item is back to item 6. The Scors quarterly investment report for December 2024.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Are you ready for me, Jason? I'm sorry I was talking about.

Okay.

Okay.

Okay.

So I'm just going to touch on a couple of things, a little more in depth that Jeff started on.

On the large cap growth as he mentioned, we continue to underperform.

And this is 100% correlated to the fact that those top seven eight names in the S&P 500, we don't have an extra allocation to.

I am going to have Siegel run some backward looking analysis and see how our fund would have done if we had been benchmarked to the RSP, which is the S&P 500 equal weight fund.

So just to try to kind of take out some of the noise of those handful of names that really seem to move the S&P around a lot.

And we'll see how that looks looking backwards.

It may be a better benchmark just as a result of what's happened to the S&P 500 regular fund in the last several years.

So I'll have him look at that.

And then for the total plan, we're now outperforming on the actual assumption across all the periods now except for the three year period.

Because we did have one large negative return, one fiscal year in there.

But looking long term all the way back to since inception, we are significantly outperforming the actual assumption.

And that is what has contributed to the fact that we are at over 100% funded as of our last actual report ending June of 2024.

So on the International Fund, we'll be something we'll be looking at.

We're going to start the asset allocation study.

We actually just received our reports from Seagull this week looking at projections across all the different asset allocation classes.

And being a, at the moment, fully funded fund our actuaries tell us pretty much every time we meet with them that we don't need to take on more risk, that we need to focus on conserving what we have in the portfolio.

So currently the international makes up two and a half percent of the portfolio.

So we will be looking at one of the proposed new allocations is to take the two and a half percent allocation out of international and add it over to the fixed fund to take advantage of some of that higher interest rate environment and increase the income on the portfolio.

So that's what we'll be looking at in March on that front.

And then I want to do, I want to spend some time on the fixed fund because it is becoming the largest fund now in the plan.

Currently the yield in the fund is over 4% and we're generating over $4 million a year.

In 2022 that number was 2.6 million. So it's quite a sizable increase and that's a combination of a couple things.

The increased allocation and then of course the increased interest rates that we can lock in on that fund.

So if we do look to add the funds from the international over there, we will take you taking a look at the duration that like you mentioned.

Currently we are short duration to the benchmark but it's not as a result of having a lot in the front end.

It's just that we're short in the longer end buckets.

So we're outperforming because we have more allocated to those longer buckets and whereas the fund had more allocated to the one to two year.

So we're over allocated in three to four years which made us shorter but we weren't in the short short buckets that would have heard us when the curve has moved over the last three months.

So right now we have about six million that's going to be maturing in that fund in 2025.

The current interest rate on those is three and a quarter to four and a quarter percent.

So I don't anticipate at this point any problem replacing that income and possibly actually increasing it.

A year ago I was more concerned with reinvestment risk but as a light of what Jeff said that the potential for interest rate cuts as of right now is looking at best case scenario one for the rest of the calendar year.

So we should be able to replace that income as those mature and when those mature we'll probably be looking at the three to ten year range to get closer to what the benchmark is and increase the duration a little bit on the portfolio.

But it's really going to come down to if the curve is flat at the time and if we're getting paid to extend those couple years because if we do get a steepening curve then obviously it makes sense to go longer.

So it's going to be as each of those items mature and we get funds allocated we're going to have to look at how flat the curve is going forward.

And that's all I have.

You mentioned the recommendation to not take any additional risk because it's not needed. Are you going to be reducing or changing the options program as part of the program has naturally shrunk over the last several years.

I mentioned that every time and what's continued to occur is we have a handful of stocks with stock prices that are several hundred dollars and as a result we own very few shares and it's not economically feasible to write only a couple contracts on them.

So what's probably what has started happening will probably happen more the options that we would write would be on the ETFs because we own larger portions of that and those don't tend to be as volatile.

We don't get paid as much premium on those but they would probably be the future of the option program.

The option program over the years has really its impact has gone down quite significantly and I would expect that as you move towards a more conservative portfolio it would continue to be reduced.

Thank you.

I'm just seeing you guys are doing a great job. The returns speak for themselves and I'm fully in support of you moving to a more conservative position as well.

Thank you.

I have a follow up just operationally. Did you have the freedom to effectively move within a range if you know something like an opportunity with the rate environment was to present itself.

And you know equities are effectively growing at a faster rate. Fix income was dropping so our allocation I assume fixed income was effectively lower.

Are you able to in general just move up the fixed income to kind of like rebalance and get into the higher end of the curve.

Yes we are. We have we have our target allocation then on either side of that we have 5%.

So usually what happens is I'm a continuous seller for the operating fund so I'm always raising funds right now just this week in fact I had to raise $2 million to pay the operating account and so they're coming out of the equity funds because there's been so much growth there.

So as a natural it's a natural rebalance when I do it that way by taking the money out of the equity funds. The percentage of the fixed fund goes up but if there was a large shift and we wanted to we have the ability to go 5% over an allocation or 5% under.

And to not miss out on any sort of opportunities I mean obviously we can't time it but if we have a higher rate environment especially with the 10 year to be able to move up in duration sooner than may that's something that's on the table for you to look at.

It is and so we'll come to you in May but if we if staff has already termed that that's the direction we want to go we have the ability the goal is that when July one hits the portfolio is where we want it to be.

We do have the ability to trade ahead to get there because we have those 5% ranges so I'm not out of I'm not out of compliance if I do it ahead of time as long as I say within the current 5% range.

Okay perfect thank you.

Okay sir motion on the second for the item.

I'll second.

Can we please get a call for roll.

Thank you chair member Coletto.

I.

Number Colville.

Yes.

Number O tool is absence members of Maniden.

I.

And chair better.

Yes.

Thank you the motion passes.

Next item is item number 8 the Scurres Annual Financial Report from fiscal year 2024.

Good afternoon everyone.

My name is Mohammed Balmali and I'm the senior accountant auditor in the accounting division for the Department of Finance.

Today I'll be presenting the results of the financial statement audit related to the Sacramento City Employee Retirement System Scurres for the year ended June 30, 2024.

The financial statement for Scurres were audited by the independent audit firm MGO and I'm pleased to announce that we got an unmodified opinion which means that we got a clean, clean audit.

You can see the auditor's opinion on page 12 to 15 of the report.

I'm going to go over some of the financial highlights and just put it here for.

As you can see on page 20 of some of the items I would highlight is that position increased by 3.5 million when compared to the previous year.

And the increase was mainly due to an increase in investment investment assets.

Even also on page 20 of the report as it's increased from 250 million in fiscal year 23 to 256 million for fiscal year 24.

And that many relates to an increase in interest rates across the board.

Total liability increased from 56,000 in fiscal year 23 to 2.2 million in fiscal year 24.

And the main reason for the variance is like, unlike fiscal year 23, the benefits payments for June were paid on July 1st of fiscal year 24.

That's why there was an increase in liability.

And as a result of the change in assets and liabilities net position for the restricted for pension increase from 250 million in fiscal year 23 to 253 million in fiscal year 24.

So, I think it's a good question.

It wasn't an accounting issue. It's just the cutoff for the fiscal year. That's why it was just a cutoff where the payment was made.

Thank you.

Next on page 21 shows the statements of changes in the plan for the sharing net position.

We can see a total contribution increase from 3,000 to 1.4 million when we compared the past two fiscal years.

And the reason is, unlike prior, the only contributions were made by the employees.

Since the city elected not to make any contribution due to the funding status of the plan and recommendation from the evaluation report.

Next I'm going to talk about the city's net pension asset liability.

Sorry, that's the wrong page.

On page 31 of the report, the city's net pension, there was a city net pension asset for up 4.1 million which is a decrease in the liability of 16 million when compared to physically a 23 balance of 11.8 million.

So funding status increased from 95.5% in fiscal year 23 to 101.6% in fiscal year 24.

Page 5 and 6 of Appendix B includes details showing why the net pension liability decreased.

Finally as we know the scores, it's a closed plan.

Any members of the public signed up to speak on this? Thank you chair. No members of the public are signed up to speak.

Committee members.

Okay, this is a receiving file item so that doesn't require a vote. Thank you.

The final item is the selection of the chair and vice chair for calendar year 2025 and I'll hand it over to the city clerk.

Thank you chair. My name is Jacob Bradberg with the office of the city clerk.

There's no staff presentation on this item. All information is detailed in your staff report.

However, I will remind members of a few things. Members may nominate another member or themselves for chair or vice chair.

Typically we do the nominations for the chair position first and vice chair after.

Members may serve as a chairperson or vice chairperson for no more than two calendar years.

And the newly elected chairperson, vice chairperson will start their duties at the next regular meeting.

So of the current roster.

Of the current roster, it does appear that member Colville is not eligible to be a vice chair for calendar year 2025.

Just vice chair. Just vice chair. You are eligible for chair.

And I will now turn it over to the commissions for nominations and discussion. Oh, and sorry for the record we have no speaker slips on this item.

And just to tell them earlier, this is my last meeting. I'll be moving over to a different department. So yeah, so if you're interested or anyone is, I'll be vacating the seat.

The city manager seat is still to be determined. I guess at the next meeting.

I mean, I'd be open to being vice chair. I don't think I'm there yet to be chair.

So Mr. Colville is okay with. I mean, someone has to.

Rochambo.

Yeah, Rochambo.

Sure, I can be the chair. Okay.

Thank you. That will second.

Just to make the record clear, I heard a nomination by member Colville nominating member Coleto as chair for calendar year 2025 with a second by chair.

Bader.

Excellent. And I'll.

How do we do it one at a time?

We can do it on one motion. We can do it on one motion. I have a full motion here so I can do the roll call vote really quick. And then we'll move on to vice chair.

Excellent. Member Coleto.

I.

Member Colville. Yes.

Member O'Toole is absence members of Maniden. I. Ian Chair Bader. Thank you. The motion passes.

I'd like to nominate member Yusuf as vice chair.

All second.

Excellent. We have a motion by chair current chair Bader.

Dominating members of Maniden as vice chair for calendar year 2025 with a second by member Coleto.

I'll now do the roll call vote member Coleto. I.

Member Colville. Yes. Member O'Toole is absence members of Maniden. I.

And Chair Bader. Yes. Thank you. The motion passes.

Okay. Any member comments closing comments any public comments. Thank you for serving as chair.

And we're going to miss you and find it.

I want to bring up something that Stacy brought up to meet today and hopefully we're going to get some clarification from Pete because apparently I think it's his group.

Stacy keeps track of all the beneficiaries and all the participants in the plan.

And in her surveillance she noticed that there's several beneficiaries that have probably exceeded the 100 year old age group.

So they're probably not still with us and she's actually done some research to determine that somewhere.

So we'd like to and it could particularly affect the funding status of the account because.

And these people are no longer with us so we would like to know if there's any way we could do us have a mail or something out.

To current participants or beneficiaries to determine who the beneficiaries are and if they're available because it could impact the funding status of it.

Contact the HR and they said it comes out of your group so you know we write payroll rights that checks.

And you share the list will take will look into it.

And I don't know if that's something you want to contract out to do or you want to do it just some.

I want to talk to the payroll payroll folks and see what they can do internally and we'll see because I think it's important that we have.

Up to date information all this since we're coming to the end of the you know.

We're coming to basically the close portion of this fund and we need to really be able to determine what the longevity of it is and without knowing the actual ages of the beneficiaries.

It's kind of hard to determine.

When the actual rate can determine when this plan will terminate the reality is.

Can I clarify real quick? I don't know if I understood so are we saying that there might be members or beneficiaries that are above age 100 that are still receiving payments.

No we're thinking the beneficiaries are dead.

Right okay yeah so they're not they're receiving well no they're not receiving payments they're just next in line to receive payments.

Okay so there's no active payments being sent out.

Okay all right all right no I think the whole gentleman with the bill worried when he said that.

I was going to do you know yeah it's a you're like John was saying because the plan is sunset.

We want to try to figure out when we're going to not have any more benefit payments but yeah we'll look into and see what we can.

What we can do internally and what we might need to contract out.

Is that about our stasis out what you need?

Okay that's all I got Chase.

All right so meetings adjourned thank you.

Thank you.

Mask.

Shot the gun.