December Board of Trustees Meeting Summary

The Budget and Audit Committee of the Board of Trustees convened at 8:30 a.m. with the regular session of the Board of Trustees meeting following at 10:15 a.m. In attendance were Board members Jason Steliga, Beth Knes, Dr. Kyle Collins, Sharon Kissinger, Dr. Eric Park and Allie Gassmann. Also present were Executive Director Dearld Snider; Assistant Executive Director, Operations Bill Betts; Assistant Executive Director, Investments Craig Husting; General Counsel Sarah Swoboda; Chief Financial Officer Anita Brand; Director of Member Services Nicole Hamler; Director of Employer Services Stacie Verslues; Director of Legislation and Policy Mike Moorefield; Director of Internal Audit Jeff Hyman; Director of Communications Susan Wood; Chief Technology Officer Lisa Scheulen; Director of Human Resources Kim Harris; Director of Executive and Board Administration Jennifer Martin; and various other PSRS/PEERS staff members.
Budget and Audit Committee
Approval of Minutes
The open session minutes from the June 6, 2022, Budget and Audit Committee meeting were approved by unanimous vote.
Review of the Fiscal Year 2022 Annual Comprehensive Financial Report (ACFR)
Ms. Anita Brand from PSRS/PEERS reviewed the purpose of the ACFR. The ACFR is an accumulation of all activity conducted by the Systems during the fiscal year and becomes a historical document for current and future users. The ACFR is prepared in compliance with accounting requirements established by the Governmental Accounting Standards Board (GASB). The Government Finance Officers Association (GFOA) also provides guidance on the content of the ACFR. The Systems strive for excellence in reporting and transparency, therefore the ACFR exceeds the GFOA requirements. Ms. Brand focused on the report’s five distinct sections: 1. Introductory, 2. Financial, 3. Investment, 4. Actuarial and 5. Statistical. The full version is also found on the PSRS/PEERS website at https://www.psrs-peers.org/About-Us#Annual-Report-PanelID
Independent Auditors’ Report
Mr. Nick Mestres, Ms. Kim Skarda and Ms. Kristen Brown from Williams-Keepers, LLC discussed the recent June 30, 2022 audit of the Systems. Mr. Mestres provided an overview of Williams-Keepers, LLC and the overall audit engagement with the Systems. Ms. Brown indicated that Williams-Keepers, LLC had issued an unqualified audit opinion on the June 30, 2022 financial statements. Ms. Brown indicated an unqualified audit opinion represents the following: the “highest opinion” available, that the financial statements are fairly presented in all material respects in accordance with U.S. Generally Accepted Accounting Principles, and the financial statements can be relied upon. Ms. Brown briefly reviewed the audit process, financial statements, and footnotes. Ms. Skarda reviewed the Audit Communications Letter to the Board of Trustees. She indicated they found no significant deficiencies or material weaknesses in internal controls. Ms. Skarda also briefly discussed the Governmental Accounting Standards Board Statement No. 68 audit. She reviewed the roles of PSRS/PEERS’ staff and Williams-Keepers, LLC during this process and the joint effort made with participating employers.
The audit report was approved and recommended for acceptance by unanimous vote by the Budget and Audit Committee.
Investment Office 4.0
Mr. Craig Husting from PSRS/PEERS reviewed the history of the PSRS/PEERS Investment Office including the next stage of growth needed to maintain and increase the breadth of the investment infrastructure. Mr. Husting recommended the addition of five full-time positions to the Investment Department and the opening of a secondary office in the St. Louis area for the continued build out of the Private Equity and Private Credit programs. The recommendation for a St. Louis office location is based on recent recruitment efforts, an analysis of the post-COVID pandemic landscape and additional research by staff. The secondary office is expected to facilitate enhanced recruitment and retention and long-term succession planning. Following discussion, the proposed recommendation was approved by unanimous vote.
Budget Adjustment
Ms. Brand reviewed a memo regarding a budget amendment request to support the continued build out of the Private Equity and Private Credit programs as previously discussed. The budget amendment included costs to add five full-time positions in the Investment Department and to facilitate opening a secondary office in St. Louis. The budget amendment was approved and recommended for acceptance by unanimous vote by the Budget and Audit Committee.
Other
None
Regular Board Meeting
System Operations
Approval of Minutes
The open session minutes from the October 23 and 24, 2022 meetings were approved by unanimous vote.
Order of Business
None
Other
Mr. Bill Betts from PSRS/PEERS introduced the incoming Class of 2023 Leadership Exploration and Development (LEAD) group. The cohort for this class include Brian Lemons, Christina Bisges, Debby Buschjost, Diane Luebbering, Jade Moeller, Jen Troesser, Jonathan Pund, Kris Judd, Lisa Hiatte, Megan Ambrose, Nichole Williams and Susan Boessen. In coordination with the Missouri Training Institute, the LEAD program is intended to develop leaders at all levels of the organization who support the culture and ongoing growth of PSRS/PEERS.
Chairman Steliga congratulated Ms. Kissinger on her retirement from Kissinger & Kirkman Investment LLC. He also congratulated Craig Husting on being recognized as one of Trusted Insights 2022 Top Pension Chief Investment Officers. Chairman Steliga finished by congratulating Mr. Bill Betts on accepting the position as Executive Director at the Missouri Local Government Employees Retirement System (LAGERS).
Investments
Investment Performance Report (9/30/2022)
Mr. Husting and Mr. Michael Hall from Russell reviewed the investment performance for the period ended September 30, 2022. The one-year PSRS/PEERS investment return was reported as -7.4% while the fiscal year return (July 1, 2022 through September 30, 2022) was reported as
-3.4%.
Ongoing Investment Activity
Mr. Husting and Mr. Hall reviewed ongoing investment activities, which included estimated investment performance through November 30, 2022. Mr. Husting discussed the current asset allocation of the PSRS/PEERS portfolio, in which he reviewed the long-term strategy and broad portfolio expectations.
Global Investment Performance Standards (GIPS) for Asset Owners
Mr. Husting reported that the Global Investment Performance Standards (GIPS) are ethical standards for calculating and presenting investment performance based on principles of fair representation and full disclosure. PSRS/PEERS claims compliance with GIPS and has been independently verified for the periods from July 1, 2020 to June 30, 2022.
Investment Policy
The Investment Policy was originally adopted in 1995. The investment staff periodically conducts a full review of the Investment Policy and recommends changes to the Board. The last full review was conducted in December 2021.
Mr. Husting discussed proposed changes to the General Policy, the Portfolio Rebalancing Policy, the Service Providers Policy, the Environmental, Social and Governance Policy, the Brokerage Policy, the Proxy Voting Policy, the Securities Class Action Litigation Policy, the Anti-Terrorism and Economic Sanctions Policy, the Personal Trading Policy, the Affirmative Action Policy and the Implementation Manuals for Private Credit, Real Estate and Private Equity. The recommended changes were primarily considered ‘clean-up.’ Within the Proxy Voting Policy, language was included to allow for the adoption of a third-party proxy advisor. Based on the proposed language, the Systems may direct their external managers holding the Systems’ assets in separate accounts to vote proxies based on a Voting Policy from a third-party proxy advisor. Following discussion, the proposed investment policy changes were approved by unanimous vote.
Proxy Voting
The Systems’ active public equity investment managers are currently each responsible for voting proxies in the best interests of the members of the Systems. Mr. Husting recommended that PSRS/PEERS change that process and fully direct the proxy voting process for public equity managers (where the Systems have authority) consistent with the PSRS/PEERS’ newly adopted Investment Policy. Specifically, Mr. Husting recommended that PSRS/PEERS adopt the Glass Lewis Governance-Focused Thematic Policy for proxy voting with passive managers (BlackRock) and for all actively managed public equity separate accounts. Following discussion, the proposed recommendation was approved by unanimous vote.
Townsend Real Estate Review
Mr. Seth Marcus and Ms. Kathryn Finneran from Townsend (the Systems’ Real Estate Consultant), presented several items to the Board, including a Real Estate Market Overview and details of the PSRS/PEERS real estate portfolio. Townsend reported that the PSRS/PEERS’ Real Estate portfolio had produced an annualized return of 11.9% (net of all fees) for the five-year period ended June 30, 2022.
Accounting
Investment Office 4.0
Mr. Craig Husting reviewed the history of the PSRS/PEERS Investment Office including the next stage of growth needed to maintain and increase the breadth of the investment infrastructure. Mr. Husting recommended the addition of five full-time positions to the Investment Department and the opening of a secondary office in the St. Louis area for the continued build out of the Private Equity and Private Credit programs. The recommendation for a St. Louis office location is based on recent recruitment efforts, an analysis of the post-COVID pandemic landscape and additional research by staff. The secondary office is expected to facilitate enhanced recruitment and retention and long-term succession planning. Following discussion, the proposed recommendation was approved by unanimous vote.
Budget Adjustment
Ms. Brand reviewed the budget amendment request presented to the Budget and Audit Committee to add five full-time positions in the Investment Department and to facilitate opening a secondary office in St. Louis. The budget adjustment was approved as recommended by the Budget and Audit Committee by unanimous vote.
Independent Auditors’ Report
Ms. Anita Brand briefly reviewed the purpose of the ACFR which was previously shared with the Budget and Audit Committee.
Ms. Anita Brand and Mr. Nick Mestres from Williams-Keepers, LLC briefly reviewed the recent June 30, 2022 audit of the Systems as previously shared with the Budget and Audit Committee.
The audit report was approved as recommended by the Budget and Audit Committee by unanimous vote.
Management Report
Legislative Update
Mr. Jim Moody, the external government relations consultant, and Mr. Mike Moorefield from PSRS/PEERS presented the December legislative update. Mr. Moody provided an update on November Missouri state government general revenue collections and an overall review of the fiscal position of state government going into the 2023 legislative session.
Mr. Moorefield provided an update on House and Senate leadership elections and who the new leadership teams are for the next two legislative sessions. Additionally, Mr. Moorefield identified potential topics that will be debated next session and issues that the PSRS/PEERS government relations team will be tracking. Finally, Mr. Moorefield provided the Board with an update on the government relations external consultant RFP search process.
CPI-U Update
Mr. Dearld Snider from PSRS/PEERS reviewed the COLA policy that was set by the Board of Trustees at their November 3, 2017, meeting. According to the policy, COLAs may be granted based on the CPI-U as follows:
CPI-U | COLA per Board-Approved Funding Policy |
---|---|
Less than 0.0% | 0.0% |
0.0%-2.0% | 0.0% when CPI-U is cumulatively below 2.0% |
0.0%-2.0% | 2.0% when CPI-U cumulatively reaches 2.0% or more* |
2.0%-5.0% | 2.0% when the CPI-U is at least 2.0%, but less than 5.0% |
5.0% or more | 5.0% |
*resets cumulative calculation after a COLA is provided |
Mr. Snider explained that the Consumer Price Index for Urban Consumers (CPI-U) is calculated by the Bureau of Labor Statistics (BLS). The CPI-U is the measure of the change in prices of goods and services purchased by urban consumers between any two time periods. PSRS/PEERS’ regulation requires that the time period for the CPI-U calculation used in the determination of a COLA be from June to June. Based on the values provided by the BLS, the CPI-U is up 0.5741% through October 31, 2022.
Index Values | |||
---|---|---|---|
June 2022 | 296.311 | Month | To-Date |
July 2022 | 296.276 | -0.0001 | -0.0118% |
August 2022 | 296.171 | -0.0004 | 0.0472% |
September 2022 | 296.808 | 0.0022 | 0.1677% |
October 2022 | 298.012 | 0.0041 | 0.5741% |
The November reading for the CPI-U will not be released until December 13, 2022.
Public Comment
None
Other
None
Closed Session
The Board went into closed session at 12:41 p.m.
Adjournment
The Board adjourned at 2:14 p.m.
This summary is not official minutes of the PSRS/PEERS Board of Trustees meeting. The official minutes will be approved at the next PSRS/PEERS Board of Trustees meeting and will posted to our website at that time.