gj-16 - laborers local 91 investment meeting 0801

8/14/2019 GJ-16 - Laborers Local 91 Investment Meeting 0801

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LABORERS' LOCAL #91SPECIAL INVESTMENT MEETINGAugust 10, 2001

The Laborers' Local #91 Special Investment meeting was held on Friday,August 10, 2001 at the Como Restaurant, 2220 Pine Avenue, Niagara Falls,New York. Time: 9:45 a.m.Present for the meeting were: Mrs. Cheryl Cicero, Mr. Dominick Dellaccio,Mr. Edward Carlo, Mr. Frank Mirabelli, Mr. Donald Smith, and Mr. AngeloMassaro.Also present for the meeting were: Mr. John Frosolone, CPA; Mr. EugeneSalisbury, Attorney; Mr. Leonard O'Sullivan, Actuarial Consultant; Mr.Daniel Parisi, Senior Financial Consultant, Mr. Michael Quarcini, BusinessManager; and Mrs. Jo.Anne Govern, Administrator.Mr. Mirabell i, Chairman, called the meeting to order.Mr. Smith made a mot ion to approve the Specia l In vestment MeetingMinutes of June 27, 2001, 2nd by Mr. Dellaccio - carried.Mr. Massaro explained that he, Mr. Quarcini, Mr. Sal isbury, and Mr. Parisihad a meeting in July and discussed that the Pension Fund trustees aregoing to search for a consultantwith no affiliations to any brokerage firmsor banks, etc. Mr. Massaro informed Mr. Parisi, of the fact that, out ofcourtesy to him, he is welcome to give a presentation today on aconsultant basis; there is no commitment on anyone's part and he can tie itin with his annual report of our investments f rom inception to date. Mr.Parisi began With his annual report by addressing a couple of issues thatwere raised throughout the first year.The f irst issue originated back in September/October of 1999. That waswhen we fired three (3) existing managers and began hiring a total ofeleven (11) managers. In the liquidation of al l of the accounts, Mr. Parisisaid the best way to do it is to set up a sweep account. The liquidatedproceeds could go in to the sweep account, together with bond interest,and other payments resulting f rom the liquidation, so we cou ld documentand follow. It was a very busy t ime, as the sales came in from themanagers that we were leaving, there were several liquidations at one t ime;we were trying to get new managers on board . In addition, complicationsarose from Turner Partners, who turned us down, forcing us to replacethem.There was a mistake on two (2) bond trades for HGK fo r a value ofapproximately $80,000.00. Mr. Parisi found the mistake and alerted hisfirm, Advantage Capital. One (1) of Five (5) brokerage dealers whichAdvantage uses, Sun America was merging and going through changes.Some of Mr. Parisi's staff was le t go and new people were tak ing over.

GOVERNMENEXHIBIT

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In all the managed accounts, Mr. Parisi explained that he has a weeklypractice where we balance with our managers. Harold C. Brown hadmissed $20,000.00. which was on Advantage's books, and not theirs. Thepractice of balancing our managers weekly was not in place fo r the sweepaccount because i t was set up only fo r transferring accounts and supposedto be temporary. The sweep accountwas there to 1.) have a trail, and2.) balances distributed to the new managers.Mr. Parisi said that Manning& Napier was upset that we were taking allmoney from them to meet the monthly pension needs. Then we hadmeetings to discuss how much money we were going to take from eachmanager to cover the pension needs. In the meantime, Mr. Parisi wasconcentrating on getting eleven (11) new managers in place. Because ofall of these circumstances he overlooked fol lowing up on HGK and makingsure the moneywas re-deposited. He then had conversationswith Mr.Frosolone and had to go back and have the account credited back to HGKand then credited back through the sweep account.Mr. Massaro explained to Mr. Parisi thatMr. Frosolone is doing an audit toinsure that these things do not happen and neverwill happen again. Mr.Massaro clarified that Mr. Parisi is saying he is now balancing the sweepaccount weekly to avoid this in the future. Mr. Massaro's biggestconcernis that as trustees we recognize that this can happen, but at an interveningmeeting you knew about it and we were not made aware of it. ThatDecember meeting, had we had a discussion we would have been morecomfortable. Mr. Parisi responded by saying that Mr. Frosofone was il l atthat meeting and the meeting was cut short. Mr. Massaro explained that heis not concerned with that but he prefers knowing immediately; with goodintentions of resolving any issues. Mr. Massaro suggested to Mr. Parisif rom this point on he should know what we as trustees are 'ooking for.Mr. Parisi continued with the second issue that arose during the course ofthe year. He explained that originally we hired two (2) fixed incomemanagers; Phoenix and Wright. Phoenix is more aggressive on credit riskand trading activitywith bonds, to enhance the return. Mr. Parisi explainedthat we have ten (10) managers on the account; and f ive (5) or six (6)should be the tops: too much duplication. We were going to try them outand then come to an opinion within 12, 16, or 18 months to narrow downthe field. With Phoenix, there are two (2) problems. The first problem isthat Mr. Parisi tried to provide the custodial services to the fund since 1995by utilizing soft-dollar trade-off, commissions paid for services. Thatprocedure would save the Fund paying custodial fees. There were nocomplications therewith Phoenix. They have been trading away from dayone. If the trade is delayed, they put an extension ufee attached" to goahead and settle the trade. Mr. Parisi wanted Phoenix to get him theinformation on time so he could have a balanced account. He explainedthat they have to supply us with the required information because we arenot mind readers; there is electronic confirmation, but we don't know thatuntil the next day, therefore we need to be aware of these transactions.Mr. Sallsbury explained that with bonds, you have a 24-hour settlement

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.period. If a manager sells bonds and notification doesn't come in to ourclearing place (Pershing), they have to pu t it in a margin account becausethey were spending money that wasn't there. If they had to trade throughAdvantage Capital, they needed a letter saying that. They were sellingissues through another desk, not reporting it, that was the request fo rdirected brokerage and then buying something else with money they didn'thave, because th e previous trades never settled. Mr. Parisi commentedthat this was no fault of his. Mr. O'Sullivan questioned if this was just us?Mr. Salisbury explained that no they trade wherever, they have manytrading desks, and whoever they have dealtwith before may have giventhem the authority. Mr. O'Sullivan wondered if it would be easier to trade. n ot o ut of Pershing, but through a bank? Mr. Parisi explained that if yo uuse a bankltrust company foryour custodian, then the account is set up fo rdelivery vs. payment. This means that everything is held in that accountan d then a vault, everything goes to and from. When it is a brokerageaccountthe money manager needs to notify the broker of a trade away. Mr.Massaro is concerned with the problem arising because they didn't reportto Mr. Parisi. Mr. Salisbury explained t ha t t he transaction could beelectronic. Mr. Parisi agreed with MI:. Salisbury that if the trader doesn'thave time, the transaction could be done electronically. Mr.O'Sullivancommented that others use custodial banks. Mr. Parisi remarked that thereis no problem with that. Mr. Massaro commented that i f we go into thiswith someone else or with Mr. Parisi, we would be better off with a bank.Mr. O'Sullivan asked what we are paying now? Mr. Parisi replied that hetakes the commissions and pays the fee. Approximately $90,000.00 incommissions at .07 cents a share = $6,300.00; Pershing is trying to ge t to. ~ cents a share, because .04 cents a share is the cost of doing business,the other .02-.03 cents a share is their profit.' Mr. Massaro commented thatour biggest problem is that Mr. Parisi was trYing to provide a custodial. Ifyou separated your functions and pald yourself fo r custodial fees we wouldhave demarcation. Mr. Parisi replied by saying yo u still have to paycommissions, and he was trying to show us over time what i t can amountto. We should have four (4) or five (5) money managers working fo r thefund an d we have been trying to revamp du e to this terrible market. Mr.. Massaro wants to separate custodial from consulting.Mr. Parisi moved the discussion to the "Inception to Date Performance andInvestment Proposal" booklet. He discussed the Tab 1 chart which tracksth e different investment classes to show yo u have to diversify. In theperiod 1995 thru 2000, we had Harold C. Brown (HeB) running in large capgrowth stocks, ou r only large cap growth manager. Large cap growth wasup steady fo r the periods 1995,1996, 1997, and 1998. With five (5)managers we need to cover different sectors:

A.) Balance yourself by hiring a specific manager to run largecap growth such as HCB; a large cap value manager suchas NWQ, and a fixed income manager such as WrightInvestors Services.* Specialty managers as needed."'I.1


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B.) Hire three balanced managers, large cap value balanced,such as NWQ, large cap growth balanced such as HeB,and large cap core balanced such as Wright InvestorsServices.C.)Use the wrap program as per presentation.

Mr. Massaro commented thatwe have a core manager to run the balanceand he takes this chart and rotates it. Mr. Parisi remarked that hewill usethe phifosophy for the growth sector, he will move it and never overweight,he will be-more of a core guy. Mr. Massaro heard that Manning & Napier islarge value but can move it around. He wants a guy who says today l'mgoing large value stock because they are leading the pack and tomorrowthis and that - can we do that? Mr. Parisi replied to the question "no," hehas fiduciary responsibil it ies and he can't guess the market. We need toreduce the number ofmanagers. Mr. Mirabelli questioned how we got toeleven (11) managers in the first place? Mr. Parisi explained that he neverwanted eleven (11) managers, but a maximum of six (6). Mr. Massaroquestioned Mr. Parisi if he is Willing as a consultant to find managers whowill decide everything. Mr. Parisi said we will have whatwe want, but thathe doesn't know ifwe will be able to find a manager whowill take on thefiduciary responsibility; but with proper diversification we shouldn't needit, because we will be able to handle the risk.Mr. Parisi moved the discussion to Tab 3 - "Asset Allocation by Manager."Simms is at 11%, Manning & Napier is at 13%,Niagara Investment Advisorsis at 8%, inclusive of bonds, and HCB is at 12%. Niagara and Key were. hired to be balanced and now Key is Victory and they have.changed hats.They hired a new portfolio manager, and they are run of the mill inperformance. The next page with the YTD values from 111/01 thru 7/21/01,NWQ is up 4.37%, and Niagara Investment Advisors is up 1.13%. Wright isup 6.45%. They used the government index because the portfol io is in theintermediate sector. Therefore, we don't have them rushing out to hit homeruns. HSBC had great growth before of 18%,then 1 Y2 years ago becausethey were over-weighted in technical and pharmaceuticals, they lost theirgroundwhen the market wacked technical and pharmaceuticals. Now theyhave two new people managing our account. Mr. Parisi doesn't think wewant managers that are that aggressive. HeB's performance is not thatbad, they are down -3.39%, but the index is down ':'2.70%. They are a puregrowth manager, they give you growth when they can and protect youwhen the times are bad. NWQ from inception to date has done exceptional,EqUity is at 34.81%, and NWQ 90+ is at 25.89%. The end result is that thefund is up 4.67% in comparison to the benchmark of -4.48. This will becondensed as soon as we can get the managers down to four (4) or five (5).Mr. Parisi recommends pulling the bonds away from all existing managersand transferring them to Wright Investor Services.Mr. Massaro directed the conversation to the hiring of a consultant. Thischart, Tab 3, page 2 "YTD Value" disturbs him because we acted uponHSBC at a high level of performance, and now we have stood in breach.

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We did no t ac t on Manning & Napier when they were at lo w performancebecausewe discussed getting rid of them at three (3) meetings. Mr.Massaro questions ho w wi11 he know when to act? Mr. Parisi remarked thatwe didn't hire HSBC to do what Manning & Napier does; we wereuncomfortable with ho w Manning & Napier was managing the money. Mr.Quarcini mentioned that at the t ime the problem was a trust factor and heknows other funds that have dumped them. Mrs. Cicero commented thatManning & Napier di d poorly fo r a number of years. Mr. Parisi explainedthat they were vofatile and they were playing around.Mr. Parisi moved the discussion to Tab 5 "Commission and Manager Fees,"a s e ction tha t wa s prepared at the trustees request. There was $159,820.97in commissions. Mr. Quarc;n; commented that there is no percent ofmanager fees to commissions. Mr. Parisi said it is in there. He directed theboard to Tab 6, "Plan SaVings Statement from 1996 to Date." Mr. Parisi gotal l th e statements and the historical data andworked up a report whichshows an inception date of 1996 o f which $50,000.00 wa s spent oncustodial fees at .12 cents a share. In May of 1997 we started paying Mr.Parisi $30,000.00 with a reduced commission to .07 cents a share, and he istrying to get that reduced to .05 cents - .06 cents a share. Mr.Massaroasked what the manager fees fo r the tw o (2) years were? Mr. Parisi repliedto th e question, 12 basis points, which Mr. Parisi has since reduced to 58basis points. Mr. Parisi commented that in th e year 2000, th e consultingfees would have been $184,678.10 vs. $107,728.90 for Advantage Capital,an d fo r th e year 2001 to date, the consulting fee would have been$88,546.41 vs. $51,652.07 for Advantage Capital. Mr. Parisi noted that wehave saved $280,931.93 on management fees alone from th e period of 1997through 2000. .Mr. Parisi mov ed the discussion to Tab 7A. The trustees asked Mr. Parisiabout a custodial bank. Mr. Parisi went out an d spoke to several banks.Keybank is local, f lexible and he worked out this breakdown. He wouldalso like to do a study fo r the trustees fo r custodial fees at anotherinstitution once th e fund is down to around five (5) managers, which wouldinclude transaction charges for everytime anything is bought or sold. Fo rcustodial fees, there is a broad range of prices, an d Keybank is the mostcompetitive fo r pricing and up-to-date systems; these figures in Tab 7Arepresent proposal #1. If we keep NWQas our large and midcap value, andkeep HCB as large cap growth, and move t he b on d money to WrightInvestors, and create ou r ow n balance, then we have to decide aboutSimms. Mr. Paris i is assuming we will keep NWQ because they are doingexcellent, and on large cap value, they have outperformed Manning &Napier. Mr. Parisi advises U5 to keep Simms because performance wise, itis best not to leave them and lose money and hold on until globalperformance comes around. Referring to Tab 7A, if we keep three (3)managers, Simms, and NWQ All Cap, the cost at Keybank for custodial feeswould be $408,569.05 vs. the cost at Pershing of $348,089.05. Mr. Parisirealized a savings to the fund of $60,480.00 fo r proposal #1. Fo r proposal#2, if we keep three (3) Balanced Managers, Simms, and NWQ All Cap, th ecost at Keybank fo r custodial fees would be $458,219.04 vs. the cost at


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Pershing of $397,739.04. Mr. Parisi realized a savings to the fund of$60,480.00 fo r proposal #2. Mr. Parisi remarked that we would have addedsavings if proposal #1 is chosen over proposal #2 for management fees, anamount of $40,000.00 per year.Mr. Massaro asked Mr. Parisi how he gets paid? Mr. Parisi explained thatwe are currently paying him $30,000.00 per yearwith the inclusion of theWelfare Fund consulting fee. Mr. Massaro confirmed Mr. Parisi stance; thatif we hire Mr. Parisi and we have to give our assets to the custody ofPershing, then everything is in the same posit ion except we win have 4-5managers instead of nine (9). Mr. Parisi remarked no, we will have todecide what we want to do. Mr. Massaro asked Mr. Parisi what hisrelationship is to Pershing? Mr. Parisi explained that they are hiscustodian, yet sometimes he has the opportunity to keep assets at the FirstNational Bank or Schwabb. Mr. Parisi commented that he has never had aproblem with any manager not being able to work with Pershing orAdvantage Capital except for this issue with Phoenix. Mr. Parisi explainedthat most of the informational material that comes to us is directly from themanagers themselves. If I don't favor them, or a particular manager, thenthey hurt me by saying something bad about me. Mr. Massaro asked Mr.Parisi what his relationship is with Advantage Capital? Mr. Parisi explainedthat he is their employee, and we can trade for .05 cents or .06 cents, andwe can trade wherever. I would like to be at seven (7) basis points basedon the plan assets, which yields approximately $35,000.00, and it goes upor down with the plan assets. Mr. Massaro confirmed Mr. Parisi's proposalto be:

1.) Involve him as a consultant for seven (7) basis points, which isapproximately $35,000.00a year. '2.) Hewill make recommendations to us.3.) Ifwe stay with Pershing, Mr. Parisi is the f iduciary to us. Therewill be no tie-up of our funds with Advantage Capital.

Mr. Massaro asked Mr. Parisi if he could leave Advantage Capital? Mr.Parisi replied to the question, no because his l icense is with them. Mr.Massaro is concerned with Advantage Capital because i fwe choose not touse them, we should have that r ight; we should be able to write a contractthat says you can't go through Advantage Capital; or be able to tell amanager that if they don'twant to go through Advantage Capital, they don'thave to. Mr. Parisi said he can't do that, but we could put ourmoney in acustodial bank or leave the money with Pershing. Mr. Massaro asked Mr.Parisi what the relationship of Pershing is to Advantage Capital? Mr. Parisireplied to the question, Pershing is where Advantage Capital keeps theirassets. Mr. Massaro questioned how to accomplish keeping our money ina custodial bank? Mr. Parisi explained that if we use Keybank or any bankas our custodian we would be paying a far higher price than if the moneywas held at Pershing. Mr. Sal isbury asked Mr. Parisi if Advantage Capital isa brokerage house? Mr. Parisi replied that Advantage Capital is a broker


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dealer. Mr. Salisbury questioned Mr. Parisi if he had bonds and the bestdeal he could get is Treasury's, then what is the difference if he goes to thebond desk at Advantage Capital vs. the bond desk at Merri l Lynch? Mr.Parisi said there is no difference. Mr. Salisbury asked Mr. Parisi howAdvantage Capital benefits i f the money is at MerriU Lynch? Mr. Parisiexplained that FSC Advantage Capital has their own bond desk, and theyare capable of executing their own trades, whereas Pershing only executescertain trades. Mr. Salisbury commented that a manager doesn't have tocall Advantage Capital to make a trade but yet the trade goes throughPershing and they decide to make the transaction through the AdvantageCapital desk, then Advantage Capital gets the commission. Mr. Massaroquestioned how he would know that we are getting the best deal? Mr. Parisithought it would be an enormous assistance to the trustees i f they couldlook behind the second yellow tab in the booklet to the section entitled"Trustees Handbook." This will explain that the money manager wants togo out and trade wherever he wants and saving money is important andprudent.Mr. Quarcini commented that the whole idea of looking for a consultant notconnected to anyone, not telling the consultant where to trade, or howmuch to trade, or how much the trades cost, etc... because the consultantis suppose to direct us - is this not what we are looking for? Mr. Salisburyexplained that is exactly what we want. If a managerwants to trade at aparticular place, then the manager should be able to trade wherever theyare using soft dollar. Mr. Salisbury mentioned that he knows a couple offirms that will only deaf with Merrill Lynch therefore; you call isolate thisproblem, but you can't eliminate it because it's the way the industry works.Merri!l Lynch has Bloomberg and they trade there because Merrill Lynchlets you use Bloomberg free of charge. You can definewhat you want in acontract and they wil l do this and that, but they can go to any house theywant because they can. Mr. Parisi commented that some managers willuse other broker dealers to trade away and they trade away because theypay fo r Bloomberg services or research services. Mr. Massaro demandedthat he have an independent consultant. Mr. Quarcjni questioned if thereare any consultants that have no connection? Mr. Salisbury said that thereis. Mr. Parisi explained that he has no problem with the assets being held. at a bank. Mr. Massaro mentioned that if we select someone other than Mr.Parisi as our consultant, then we have to pay someone else other thanPershing. Mr. Parisi explained that he can do an ail inclusive fee programat Pershing, SEI, Brinker, or Lockwood. Mr. Massaro explained that ifMr.Parisi is hired there would be a restr iction that he is an independentconsultant.Mr. Parisi wrapped up by saying that we now have a study of what we havespent. We now know what it wil l costwith or without custodial fees. Younow know what a wrap fee is, and that I can do it with Lockwood FinancialServices, Pershing, or Brinker. If you want further research, Mr. Parisi canbring five (5) managers, 75 basis points; you can tel l them to use Pershingand peak managers will probably absorb the brokerage fees. Mr. Parisiurges the trustees to read the handbook at the back of the book behind the

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yellow sheet of paper. Mr. Parisi explained that he has pu t his heart andsoul into the pension fund and the trustees over the years. He has heldnothing back regarding his feelings towards the managers and he feels weare better off having the control over the managers, than the other wa yaround.Regarding Duff & Phelps Investment Management Co., a PhoenixInvestment Partner; Mr. Salisbury sent a letter explaining thatwe are goingto revamp our system, and would hope that Duff&Phelps would like to beincluded. Mr. Thomas Steenburg replied to Mr. Salisbury's request bysaying he would be honored to participate in whateverwa y we would like.Recruitment of a consultant: Mr. Massaro made a motion to have aseparate custodian that is no t affiliated with any brokerage firm or they cannot participate, 2nd by Mr. Dellaccio - carried.Mr. Massaro made a motion to interview th e five (5) remaining potentialconsultants on September 13, 2001 at 10:00 a.m. at th e Como Restaurant,an d Mr. Salisbury, Mr. O'Sullivan, and Mr. Frosolonewill prepare aspreadsheet outlining the necessary characteristics that we are looking for,2nd by Mr. Dellaccio - carried.Mr. Carlo made a motion for the transfer in kind of the bonds at PhoenixInvestment Company to Wright Investors Service, 2nd by Mr. Massarocarried. 'Ol d Business:Mr. Frosolone has reviewed the investment accounts from the period o f1995 to the Spring of this year 2001. Everything is complete except fo rExecutive Investment. The account manager is deceased. Mr. Frosolone. spoke with the wife of the deceased, she wa s very upset over her loss ands ai d s he would tr y to f ind the records. Mr. Frosolone explained that weonly have the Advantage Capital records in our possession. Based uponthose records to date, he feels thatwe do not need to push for theexecutive statements. Presently, Mr. Frosolone only has a handful ofquestions for Mr. Parisi regarding discrepancies found. One of those itemsis t ha t t he a mo un t on the Advantage Capital statement doesn't multiply out,there is either a $4,500.00 or a $2,500.00 difference - one (1) bond, on e (1)stock share multiplied by the price. Either Advantage got more money on apurchase or paid us less on a sale.Mr. Frosolone discussed the liquidation of HGK. There is approximatelythree (3) dozen transactions - where the bonds had commissions charged.There were thirty-six (36) trades at the time of liquidation at $62.00-$65.00atrade. On it s face the trades look normal, bu t when yo u multiply it out andwith accrued interest, it doesn't f igure out. Mr. Frosolone is assumingcommissions were charged when they shouldn't have been. He is going tocontact Mr. Parisi to discuss this.


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Mr. Frosolone explained that he could clearly see that the transactionstraded away without final confirmation were corrected and the accountwould show corrections and cancellations: It also appears that there wasreconciliation. The trades done away clearly showed time differences fromwhen the trade was done to when it was balanced. There were atsooccasional ordinary errors in the instances of closing the HGK account.Mr. Frosolones' proposal is to follow-up with Mr. Parisi on the questionableitems. Mr. Massaro asked Mr. Frosolone if he could certify that everythingis in order? Mr. Frosolone commented that he could after 'ooking over thecalculations from Advantage Capital.There being no further business, a motion to adjourn was made by Mr.Massaro, 2"d by Mr. Dellaccio - carried. Time: 2:15 p.m.Respectfully submitted,C } ~ ~ .Jo.Anne GovernAdministrator

gj-16 - laborers local 91 investment meeting 0801

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