February 13, 2017 Board Meeting Summary

The February 13, 2017 meeting of the Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) Board of Trustees convened at 10 a.m. at the Retirement Systems office in Jefferson City, Missouri. In attendance were Board members Aaron Zalis, Yvonne Heath, Jason Hoffman, Scott Hunt and Jason Steliga. Also present were PSRS/PEERS Executive Director, M. Steve Yoakum; Assistant Executive Director, Investments, Craig Husting; Assistant Executive Director, Operations, Dearld Snider; General Counsel, Alan Thompson; Chief Financial Officer, Anita Brand; Director of Member Services, Ronda Peterson; Director of Employer Services, Omar Davis; Director of Legislation and Policy, Maria Walden; Internal Auditor, Jeff Hyman; Chief Technology Officer, Bill Betts; Director of Administrative Planning and Design, Nicole Hamler; and various other PSRS/PEERS staff members.

SYSTEM OPERATIONS

Minutes

The Board voted unanimously to approve the open session minutes from the December 12, 2016 Board meeting.

INVESTMENT REPORT

Investment Performance Report (12/31/16)

Mr. Craig Husting from PSRS/PEERS and Mr. Michael Hall from Willis Towers Watson (the Systems’ investment consultant) reviewed the investment performance for the period ended December 31, 2016. The one-year PSRS/PEERS’ investment return was reported as 8%, while the fiscal year return (July 1, 2016 through December 31, 2016) was reported as 4.5%.

Ongoing Investment Activity

Mr. Husting and Mr. Hall reviewed ongoing investment activity, which included estimated investment performance through January 31, 2017. Mr. Husting discussed the current asset allocation of the PSRS/PEERS portfolio, in which he reviewed the long-term strategy, portfolio themes and the broad portfolio expectations. Mr. Husting also reviewed the tentative Board investment calendar.

Anti-Terrorism Policy Review

Mr. Husting and Mr. Hall reviewed the Systems’ Anti-Terrorism and Economic Sanction Investment Policy. The Board adopted the policy in 2005 and last reviewed it in February 2016. The policy requires PSRS/PEERS staff to provide a report to the Board on an annual basis that identifies any investment actions taken due to links to terrorist or sanction-related activities.

Mr. Husting stated that the Systems have several safeguards in place to ensure compliance with the policy, including:

At the end of the report, Mr. Husting stated that both staff and general counsel recommended no investment action be taken this year with regard to the Anti-Terrorism and Economic Sanctions Investment Policy.

Affirmative Action Policy Review

Mr. Husting and Mr. Hall reviewed the Systems’ Affirmative Action Policy and Procurement Action Plan. The policy was last revised in October 2014 and last reviewed by the Board in February 2016. The policy requires PSRS/PEERS staff to provide a report to the Board on an annual basis regarding the Systems’ efforts to assure equal opportunities for minorities and women as money managers, brokers and investment counselors. Mr. Husting stated that the Systems are in compliance with the policy.

Sections 104.342.13(6), 104.621, 105.702, and 169.573, RSMo require the Systems to make an annual report to the Governor’s Minority Advocacy Commission and the Joint Committee on Public Employee Retirement regarding the progress made in the area of utilization of minority and women money managers, brokers and investment counselors. Staff submitted the required report on January 25, 2017.

At the end of the report, Mr. Husting stated that both staff and general counsel recommended no investment action be taken this year with regard to the Affirmative Action Policy and Procurement Action Plan.

Private Assets Program Review

Mr. Husting and Mr. Hall provided a broad overview of the Private Assets Composite. The long-term target allocation to Private Assets is 25% with an interim target allocation of 20%. The five-year annualized return for the Private Assets composite for the period ended December 31, 2016 was 12.9%.

Ms. Susan Conrad and Ms. Chhayhea Sam from PSRS/PEERS reviewed the Systems’ Real Estate portfolio including program objectives, long-term results and funding strategies. The five-year annualized return for the Real Estate composite for the period ended December 31, 2016 was 12.1%.

Mr. John Tuck and Mr. Dan Case from PSRS/PEERS reviewed the Systems’ Private Equity and Private Credit portfolios including program objectives, long-term results and funding strategies. The five-year annualized return for the Private Equity composite for the period ended December 31, 2016 was 14.6%.

MANAGEMENT REPORT

Board Governance

Mr. M. Steve Yoakum presented the Board governance report recently completed by Cortex Applied Research, Inc. Cortex conducts a general review of the extent to which the Board is operating in accordance with its governance policies and charters. The process involves reviewing Board and committee meeting minutes and related documentation, as well as follow-up discussions with senior management. Mr. Yoakum explained that the primary goal of the annual review is to ensure that the Board’s governance policies and charters are living documents that truly guide how the Board functions, while also evolving to meet the changing needs of the Board and the Systems over time.

Cortex had recommended a few minor updates to the Board governance policies and did not have any recommendations for the charters. The changes bring the policy in line with current practices. Cortex combined the charters and the policies into one document to be reviewed in full each year. After review, the Board voted unanimously to approve the report with the suggested changes.

Website Review

Mr. Dearld Snider, Ms. Susan Wood and Mr. Bill Betts demonstrated the PSRS/PEERS website, https://www.psrs-peers.org, to the Board. In particular, Mr. Snider focused on updates made to the Board section of the website. There is now a tab on the top of the home page entitled, “Board.” This link goes directly to a dedicated section containing Board of Trustees information.

Mr. Snider discussed other changes:

Mr. Betts recommended that email addresses should not be posted on the PSRS/PEERS website due to cyber security concerns, and discussed the security threats that public web links to email addresses can pose to the Systems.

Ms. Wood reviewed the philosophy behind the structure and design of the website, as well as key attributes of the site including placement of news and other high priority information and Web Member Services login access. Ms. Wood also discussed recent statistics for the site including user demographics and usage of both the public site and the secure portion of the site (Web Member Services), which is accessed by login.

Legislative Update

Ms. Maria Walden and Mr. Jim Moody, Legislative Consultant, updated the Board on the current legislative session. Mr. Moody reported briefly on state revenue and gave an update on January 2017 revenue to the Board. He also discussed sales tax growth and Missouri income from capital gains and dividends.

Ms. Walden reviewed the upcoming important legislative dates, the legislative statistics and new legislation filed. There are several bills that have been filed this year that have a direct impact on the Systems:

Ms. Walden also discussed other legislation the Systems are monitoring, but which does not have a direct impact on the Systems.

Following the legislative discussion, the Board voted unanimously to support legislation for the divorce popup (HB 304/SB 394) and also the legislation dealing with working after retirement and third-party consultant work (HB 305).

The Board voted unanimously to oppose any legislation that has a cost to the Systems or removes the Board’s ability to use discretion when setting the Funding Policy or COLA.

CAFR Review

Mr. Yoakum reviewed the Comprehensive Annual Financial Report (CAFR) for the year ended June 30, 2016 with the Board. He discussed what to look for when reviewing a CAFR:

A PDF version of the CAFR can be found on our website or a hard copy can be requested by contacting our office.

Public Comment

None

Other

Mr. Yoakum discussed the calculation of the Consumer Price Index (CPI) calculated by the Bureau of Labor Statistics (BLS). The CPI is the measure of the change in prices of goods and services purchased by urban consumers between any two time periods. The CPI is based on prices for major groups: food and beverage, housing, apparel, medical care, recreation, education/communication and other goods and services. There are a total of over 200 categories that make up the major groups used to determine the CPI and each category is weighted differently.

PSRS/PEERS’ regulation requires that the time period for the CPI calculation is from June to June. Based on the values provided by the BLS, the CPI-U, which is used for COLA calculations, is up just 0.16% for the last six months (fiscal year 2017). 
CPI-U Calculation:

Raw CPI-U Index Values
  Index Values
Jun-16 241.038 Month To-date
Jul-16 240.647 -0.0016 -0.1622%
Aug-16 240.853 0.0009 -0.0768%
Sep-16 241. 428 0.0024 0.1618%
Oct-16 241. 729 0.0012 0.2867%
Nov-16 241. 353 -0.0016 0.1307%
Dec-16 241. 432 0.0003 0.1635%

CLOSED SESSION

The Board went into closed session at 1:15 p.m.

ADJOURNMENT

The Board adjourned at 1:32 p.m.

These are 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 scheduled for April 10, 2017 and will posted to our website at that time.