Permanent Fund Committee Meeting Minutes January 28, 2010

Session 10-02 a Special Meeting of the Permanent Fund Committee was called to order at 12:02 p.m. on January 28, 2010 by Barbara Howard at the Homer City Hall Conference Room located at 491 E. Pioneer Avenue, Homer, Alaska.

PRESENT: COMMITTEE MEMBERS: REGINA HARVILLE, BARBARA HOWARD, JO JOHNSON, MATT NORTH, BETH WYTHE

APPROVAL OF AGENDA

The agenda was approved by consensus of the Committee.

PUBLIC COMMENTS REGARDING ITEMS ON THE AGENDA

There were no public comments.

APPROVAL OF MINUTES

VISITORS

STAFF & COUNCIL REPORT/COMMITTEE REPORTS/BOROUGH REPORTS

PUBLIC HEARING

PENDING BUSINESS

NEW BUSINESS

A. Telephonic Interview with Rod Castelda & Clarence Hughes of US Bank for Investment Services for the Permanent Fund.

Rod Castelda, Clarence Hughes, and Sarah Beeley appeared by telephone.

US Bank will create an investment policy statement with 60% bonds and 40% stocks. Mutual funds will be used for the approximate $600,000 in equities and U.S. Government stocks for the approximate $400,000. The SP 500 will be used on the equity side and the Barclay’s aggregate for the fixed income portion. Additions to the fixed income portion of the portfolio will be used to purchase individual bonds. The portfolio is reviewed on an annual basis for changes in the use of assets. There is constant monitoring of the portfolio.

Quarterly teleconference, in person meetings, phone and email communications are available. Electronic monitoring is available with real time access and as many users as desired.

The US Bank fee schedule is 1% of the fair market value of funds managed. No additional fund transaction or service fees will be charged. For the estimated City’s $1.5M investment, the monthly fees will be $1,250. Operating expenses of mutual funds are billed in at 1%; the City receives the net rate of the return and will not see the internal expenses.

Committee discussion ensued on the fee structure. The $1.5M is invested with US Bank and 1% is charged to manage the money. Mutual funds use no load funds, annual operating expenses are .6% to .8%. Expenses are charged, just not seen. It was the consensus of the Committee the management fees outweigh the monies available for investment.

In accordance with HCC 3.10.130(c): The city, with the approval of the city council, shall retain one or more professional investment managers to design portfolios and invest funds in accordance with the written investment policies adopted by the city council. The investment managers shall be registered financial advisers with both the United States Securities and Exchange Commission and the state of Alaska, unless otherwise exempt from registration, and the investment managers shall agree to serve as a fiduciary to the city. Each investment manager shall carry professional liability insurance in an amount satisfactory to the city, and the terms of the investment relationship shall be memorialized in a written contract entered into between the city and the respective investment advisers.

The Committee determined an actively managed fund company would be better suited to manage the funds at a much reduced price. The Request for Proposals requested a wrap account. It was determined in the best interest of the City, the proposals should be rejected and a new RFP be issued. The City needs a financial advisor that will provide the use of an actively managed investment portfolio wholly funded through the annual operating expense. There will be no upfront commission or back and load fees. The fees are paid out of the return of the fund.

WYTHE/HARVILLE – MOVED THAT THE RECOMMENDATION OF THE COMMITTEE TO THE COUNCIL AT THE FEBRUARY 8TH MEETING WOULD BE A RESOLUTION REJECTING ALL BIDS, BECAUSE BASED ON THE REVIEW OF THE FEES RELATED TO A FULLY MANAGED PLAN AS BID, THE EXPENSES EXCEED OUR ABILITY TO INVEST AND MAKE A RETURN. THE COMMITTEE RECOMMENDS REBIDDING FOR AN INVESTOR TO PROVIDE AN ACTIVELY MANAGED INVESTMENT PORTFOLIO WHOLLY FUNDED THROUGH OPERATING EXPENSES WITH NO UP FRONT COMMISSIONS OR BACK AND LOAD FEES.

It will be the responsibility of investors to contact the City for an RFP. Local bidders receive a 5% preference. The RFP will be advertised in the local newspapers, the Clarion, the Anchorage Daily News, and KBBI. Letters of appreciation will be sent to the three proposers.

The resolution will be placed on the February 8th City Council agenda and a backup memorandum from the committee will be provided.

VOTE: YES. NON OBJECTION. UNANIMOUS CONSENT.

Motion carried.

INFORMATIONAL MATERIALS

COMMENTS OF THE AUDIENCE (3 MINUTE TIME LIMIT)

There were no members of the public present.
COMMENTS OF THE CITY STAFF

Regina Harville and Jo Johnson had no comments.

COMMENTS OF THE COUNCILMEMBER

Councilmember Wythe had no comments.

COMMENTS OF THE CHAIR

Chair Howard had no comments.

COMMENTS OF THE COMMISSION

There were no comments from the Commission.

ADJOURNMENT

There being no further business to come before the Committee, the meeting was adjourned at 12:50 p.m. The next Regular Meeting is scheduled for Thursday, April 8, 2010 at 6:00 p.m. the meeting will be held in the Homer City Hall Cowles Council Chambers, 491 E. Pioneer Avenue, Homer, Alaska.

Submitted by Jo Johnson