PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM BOARD OF TRUSTEES MEETING. January 15, 2014 MINUTES

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1 PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM BOARD OF TRUSTEES MEETING January 15, 2014 MINUTES Present: Others Present: Mr. Brian Tobin, Chairman, Trustee Mr. Gregory Ferguson, Vice Chairman, Trustee Mr. Jeff McHenry, Trustee Ms. Randie Stein, Trustee Excused following Executive Session Mr. Richard Petrenka, Trustee Mr. Lauren Kingry, Trustee Excused, but attended Executive Session by phone. Mr. William Davis, Trustee Mr. Jim Hacking, Administrator Mr. Jared Smout, Deputy Administrator Mr. Ryan Parham, Chief Investment Officer Mr. Marty Anderson, Deputy Chief Investment Officer Ms. Ivy Voss, Assistant Attorney General Mr. Shan Chen, Lead Portfolio Manager Mr. Mark Steed, Lead Portfolio Manager and Chief of Staff Ms. Vaida Maleckaite, Investment Operations Analyst Mr. Mark Lundin, Deputy Chief Investment Officer Ms. Leslie Clark, Senior Financial Accountant/Great Plains DBA Mr. Marc Lieberman, Fiduciary Counsel, Kutak Rock Mr. Allan Martin, Partner, NEPC, LLC Ms. Bridget Feeley, Internal Audit and Compliance Officer Mr. David Hutchings, Head of Private Equity Albourne Partners Mr. John Coelho, Partner, StepStone Group 1. Call to Order; Roll Call; Opening remarks Mr. Brian P. Tobin Chairman Chairman Tobin called the meeting to order at 1:00 p.m. 2. Call to the Public. This is the time for the public to comment. Members of the Board of Trustees may not discuss items that are not specifically identified on the agenda, except to address criticism from the public. Therefore, pursuant to A.R.S (H), the Board of Trustees reaction to any public comment is limited to addressing criticism or recommending that the Board of Trustees or Staff respond or study such comment or schedule the subject matter for further consideration at a later date after appropriate notice. There was no response to the Call to the Public at 1:01 p.m. January 15, 2014 Page 1 of 12

2 3. Appropriate Action for approval of the items on the Consent Agenda (documentation concerning the matters on the consent agenda may be reviewed at the PSPRS office). Any matter on the Consent Agenda will be removed from the Consent Agenda and discussed as a regular agenda item upon the request of any member of the Board of Trustees. a. Acceptance of Elected Officials Retirement Plan of normal retirement benefit of Richard Alton. b. Acceptance of Elected Officials Retirement Plan of survivor benefit of Dorothy Arnold. c. Acceptance of Elected Officials Retirement Plan of normal retirement benefit of Larry Grant. d. Acceptance of Elected Officials Retirement Plan of termination of survivor benefit of Jeannette Kennerly. e. Acceptance of Elected Officials Retirement Plan of early retirement benefit of Eric F. Merriman. f. Acceptance of Elected Officials Retirement Plan of survivor benefit of Catherine Miranda. g. Acceptance of Elected Officials Retirement Plan of early retirement benefit of Thomas Simplot. h. Acceptance of Elected Officials Retirement Plan of normal retirement benefit of Douglas Stanley. i. Acceptance of Elected Officials Retirement Plan of normal retirement benefit of E. Lorraine Vose. j. Acceptance of Elected Officials Retirement Plan of normal retirement benefit of Mary Ann Uhl. k. Acceptance of Elected Officials Retirement Plan of normal retirement benefit of Robert Carter Olson. l. Acceptance of Transfer Between State Retirement Systems of Michael James Todd. m. Acceptance of Transfer Between State Retirement Systems of Shane Burdick. n. Acceptance of Transfer Between State Retirement Systems of Shawn A. Braaten. o. Acceptance of Transfer Between State Retirement Systems of Herbert Groll, Jr. p. Acceptance of Transfer Between State Retirement Systems of Michael Skvarek. q. Acceptance of Transfer Between State Retirement Systems of Michael Rogers. r. Acceptance of Transfer Between State Retirement Systems of Patrick Wilson. s. Acceptance of Transfer Between State Retirement Systems of Carl Clovis, Jr. MOTION: 1 1/15/14 At 1:02 p.m. To approve the Consent Agenda as presented. Mr. McHenry Chairman Tobin called attention to letter k, the retirement of Robert Carter Olson, a past PSPRS Board chairman for many years and Superior Pinal County Court Judge. Mr. Tobin wished him the very best. Unanimous Mr. Kingry was excused. January 15, 2014 Page 2 of 12

3 4. Appropriate Action regarding the Minutes of the December 18, 2013 Meeting of the PSPRS Board of Trustees. Mr. Brian P. Tobin MOTION: 2 1/15/14 At 1:04 p.m. To move the Minutes of the December 18, 2013 Meeting of the PSPRS Board of Trustees as presented, with an amended correction to agenda items 19 and 20. Mr. Davis voted no on those two agenda items. Mr. Davis Unanimous Mr. Kingry was excused. Report by Mr. Richard Petrenka, Chairman of the Investment Committee, regarding agenda items 5. through 17., which were discussed at the Investment Committee meeting held today, January 15, 2014, on or after 10:00 a.m., and possible Action on the Committee s recommendations to the Board regarding same. 5. Report by Investment Department Staff and discussion regarding the Month-End and Fiscal Year-to-Date performance of the portfolio as of the November 2013 month-end. Ms. Vaida Maleckaite Sr. Investment Operations Analyst Ms Maleckaite reported that the portfolio was up 54 basis points, but underperformed the benchmark by 39 basis points. As of the November 2013 month-end, equities and some alternative asset classes increased in value. Fiscal Year-to-Date, the portfolio was up 7.02% as compared to the benchmark which was up 7.43%. Regarding the Calendar Year-to-Date, the Trust was up 12.55% and outperformed the benchmark by 81 basis points. Mr. Parham added that the private equity portfolio is rated number seven in the StepStone universe. 6. Report by Investment Department Staff regarding PSPRS Trust Portfolio Risk for the Period-Ended November, Mr. Mark Lundin Deputy Chief Investment Officer Risk Mr. Lundin reported that there were no substantial changes between the current and previous month. 7. Manager Selection Report by Investment Department Staff and possible discussion regarding a potential investment of up to $30 million direct and $30 million in coinvestments with Alcion Investment Partners or its affiliates, in the Alcion Real Estate Partners Tax-Exempt Parallel Fund III, L.P. or appropriate feeders, blockers or associated or parallel funds of same, subject to final Staff and legal due diligence. Mr. Marty Anderson Deputy Chief Investment Officer January 15, 2014 Page 3 of 12

4 Mr. Petrenka stated that this was a consent item. 8. Manager Selection Report by Investment Department Staff and possible discussion regarding a potential investment of up to $40 million with ORG Portfolio Management or its affiliates, in the ORG AZ Secondary Fund or appropriate feeders, blockers or associated or parallel funds of same, subject to final Staff and legal due diligence. Mr. Marty Anderson This item was held until the next meeting for more due diligence work. 9. Manager Selection Report by Investment Department Staff and possible discussion regarding a potential investment of up to $20 million direct and $20 million in coinvestments with Stone Point Capital LLC or its affiliates, in the Trident VI, L.P. or appropriate feeders, blockers or associated or parallel funds of same, subject to final Staff and legal due diligence. Mr. Shan Chen Lead Portfolio Manager Mr. Petrenka stated this was a consent item. 10. Manager Selection Report by Investment Department Staff and possible discussion regarding a potential investment of up to $75 million with Alphadyne Asset Management LLC or its affiliates, in the Alphadyne International Rates Fund or appropriate feeders, blockers or associated or parallel funds of same, subject to final Staff and legal due diligence. Mr. Mark Lundin Mr. Petrenka stated this was a consent item. 11. Manager Selection Report by Investment Department Staff and possible discussion regarding a potential investment of up to $75 million with TPG Opportunities Partners, LP or its affiliates, in the TPG Opportunities Partners III, L.P. Fund or appropriate feeders, blockers or associated or parallel funds of same, subject to final Staff and legal due diligence. Mr. Mark Steed Lead Portfolio Manager and Chief of Staff Mr. Petrenka stated this was a consent item. 12. Manager Selection Report by Investment Department Staff and possible discussion regarding a potential investment of up to $30 million with Wellington Hedge Management LLC or its affiliates, in the Iguazu Partners, L.P. Fund or appropriate feeders, blockers or associated or parallel funds of same, subject to final Staff and legal due diligence. Mr. Mark Steed Mr. Petrenka stated this was a consent item. 13. Report by the Chief Investment Officer regarding Manager Selections for which Staff has completed legal and other due diligence. Mr. Ryan Parham Chief Investment Officer January 15, 2014 Page 4 of 12

5 Mr. Petrenka stated this was a consent item. 14. Presentation and discussion by Investment Department Staff and Specialty Consultants regarding the annual Private Equity Overview and Strategic Plan. Mr. Shan Chen Mr. David Hutchings, Head of Private Equity Albourne Partners Mr. John Coelho, Partner StepStone Group Mr. Petrenka indicated that the reports regarding private equity were informative and that the Investment Committee was satisfied completely. He indicated that the discussion explained why we have private equity as an asset class and why, in the early years, there is a J curve effect. He also indicated that staff and the consultants will search for a benchmark that may be a better indicator of performance. Mr. Chen presented a summary of the overview of private equity that was presented this morning to the Investment Committee. Mr. Chen indicated that there has been more activity in private equity since spring of This morning StepStone and Albourne reported and staff focused on pacing, cash flow and how to access performance for each private equity investment. They also discussed how to create value, investments since inception at PSPRS, total value since inception and future trends. Additionally, they discussed diversification and returns over vintage years, how terms are negotiated for each private equity investment, pacing models, and the importance of the initial investment. 15. Presentation and discussion regarding the role of leverage in institutional investment portfolios. Mr. Mark Lundin Mr. Alan Martin, Partner NEPC, LLC This was tabled until the February, 2014 meeting. 16. Discussion and possible Action on the adoption of certain proposed revisions to the Amended and Restated Statement of Investment Policy. Mr. Ryan Parham The Investment Committee recommended the adoption of the changes but with one modification and held back the section involving leverage until that topic can be addresses at a future Board meeting. January 15, 2014 Page 5 of 12

6 MOTION: 6 1/15/14 At 4:42 p.m. Future joint venture real estate investments with real estate developers will not be allowed but joint venture real estate investments with private equity and hedge fund managers will be allowed. As recommended by the Investment Committee Unanimous Mr. Kingry and Ms. Stein were excused. 17. Discussion with Staff and counsel and possible Action to recommend to the Board of Trustees that they renew through October 23, 2015 the System s consulting contract with New England Pension Consultants ( NEPC ) to enable NEPC to continue to serve as the System s general investment consultant as well as the specialty consultant for credit opportunities. Mr. Ryan Parham MOTION: 7 1/15/14 At 4:45 p.m. To renew the contract with New England Pension Consultants (NEPC) and to authorize Mr. Hacking to approve the fourth amendment to the contract with no fee change. Mr. Petrenka Mr. McHenry Unanimous Mr. Kingry and Ms. Stein were excused. 18. Report by the System s Internal Audit and Compliance Officer and discussion regarding investment compliance, holdings and transactions as of November 30, Ms. Bridget Feeley Internal Audit and Compliance Officer A report was attached to the information given to the Board members. There were no items out of compliance. Presentation by Mr. Gregory Ferguson, Chairman of the Operations, Governance Policy and Audit Committee, regarding agenda items 19. through 26., which were discussed at the Operations, Governance Policy and Audit Committee meeting held today, January 15, 2014, on or after 11:00 a.m., and possible Action on the Committee s recommendations to the Board regarding same. 19. Presentation of the Month-to-Date Budget Report for FY 2014 and possible Action on same. Mr. John Hendricks Manager of Finance and Accounting January 15, 2014 Page 6 of 12

7 stated the budget report is in the Board s information packet and that the System is forecast to be over budget at the end of the fiscal year. 20. Update on the progress of the Local Board Training Program and discussion and possible Action regarding the same. Mr. Robert Ortega Local Board Training Coordinator and Human Resources Manager Mr. Don Mineer Local Board Training Specialist indicated that the new CORP Handbook is on the PSPRS website. 21. Presentation of the "Requests for Local Board Rehearing" Report for the current month. Mr. Jim Hacking Administrator reported that there are three outstanding requests. We are waiting for paperwork from two rehearing requests and for a medical report from the third one. 22. Review and discussion regarding the January, 2014 Kutak Rock and other law firms' billings for legal services performed in December, Mr. Jim Hacking The Operations, Governance Policy and Audit Committee approved payment of $156, for the billings for legal services performed in December, Report and possible Action on FY 2014 Compliance and Internal Audit Plan. Ms. Bridget Feeley reported that the Internal Audit Plan remains unchanged. 24. Update on the search for an Internal Audit and Compliance Auditor. Ms. Bridget Feeley Ms. Feeley stated that the job description for the position has been finished and that it has been posted. She also said that it has been placed on the Arizona Department of Administration s job website, the Association of Pension Fund Auditors website and has been sent to several other organizations. We will accept resumes through February 3, Discussion and possible Action with respect to retaining a communication services consulting firm. Mr. Jim Hacking Mr. Hacking informed the Board members that a Request for Proposal was sent to seven organizations and that we received four responses. A staff working group and Operations Committee Chairman Greg Ferguson interviewed the responders. He added that there is an immediate need for someone to serve as the System s liaison to the media, since Doug Cole will not be able to perform that function for us now that the new legislative session has begun. January 15, 2014 Page 7 of 12

8 MOTION: 3 1/15/14 At 1:18 p.m. To accept the recommendation of the Operations, Governance Policy and Audit Committee to authorize the Administrator to negotiate with Avant Strategies to provide PSPRS with spokesperson services for the short term. Mr. Hacking will negotiate terms of a scaled down proposal between the Board and Avant Strategies. The primary focus will be that of liaison to the media. As recommended by the Operations, Governance Policy and Audit Committee. N/A Mr. Petrenka and Mr. Davis voted no;, Mr. McHenry, Mr. Tobin and Ms. Stein voted yes. Mr. Kingry was excused. 4 to Status report on candidate screening to fill the position of in-house investment counsel. Mr. Jim Hacking Interviews have been completed with the candidate we have in mind for the position and a draft of an employment agreement is being developed. Once it is signed, the necessary transitions can be accomplished so that the candidate can begin work in 30 to 60 days. 27. Discussion and appropriate Action regarding Board of Trustee member requests to participate in training, educational and due diligence opportunities. Mr. Brian P. Tobin There were no requests. 28. Report by the Administrator on the performance review of the Chief Investment Officer and discussion and possible Action on the Administrator's recommendations with respect to the Chief Investment Officer's Employment Agreement. Mr. Jim Hacking Mr. Hacking said that the results of the review of the Chief Investment Officer were very positive and that those results will be introduced into the ADOA format. Based on that, he is recommending a two year extension of Mr. Parham s employment agreement, but he thinks the agreement should be with the Administrator (rather than with the Board and that he be authorized to negotiate the additional terms of that extension. January 15, 2014 Page 8 of 12

9 MOTION: 9 1/15/14 MOTION: 10 1/15/14 At 6:03 p.m. To approve a two year extension of Mr. Parham s employment agreement as Chief Investment Officer. The agreement will be with the Administrator. The Administrator is authorized to negotiate the terms of that agreement. Mr. Hacking will report back to the Board the results of the negotiation. Mr. Petrenka There was discussion regarding whether or not Mr. Hacking has to report back to the Board. Mr. Hacking stated he will do so. Mr. Davis stated he is not in favor of a two year extension. Instead he offered a modifying motion to extend the agreement for one year. At 6:06 p.m. To approve a one year extension of Mr. Parham s employment agreement as Chief Investment Officer. Mr. Davis Mr. Petrenka Mr. Davis and Mr. Petrenka voted yes. Mr. Tobin, Mr. Ferguson and Mr. McHenry voted no. The motion failed. MOTION: 11 1/15/14 At 6:08 p.m. To return to the original motion to approve a two year extension of Mr. Parham s employment agreement as Chief Investment Officer, with the agreement to be between Mr. Parham and the Administrator to whom the Board grants the authority to negotiate the terms of that agreement. Mr. Hacking will report back to the Board the results of the negotiation. Mr. Petrenka Mr. Davis and Mr. Petrenka voted no, motion passes with 3 voting yes: Mr. Tobin,, and Mr. McHenry. Mr. Kingry and Ms. Stein were excused. January 15, 2014 Page 9 of 12

10 29. Discussion and consultation with legal counsel and Staff and possible Action regarding IRS determination letter requests, proposed legislation, investment matters, ongoing, contemplated or threatened legal action involving the Trust and Plans, including vendor disputes, public record requests, personnel matters and actual or potential litigation and claims based on contract, tort or statute, including matters involving, judges Thompson and Hall, retired judges Fields and Lankford, retired police officers Rappleyea and Everson, active police officers Parker, Griego, Manganiello and Robles, Jack Cross, Anton Orlich, the Pivotal Group, the Seldins, Stroh Ranch Development, Timbervest, Jennifer Wright, and claims raised by the survivors of deceased fire fighters John Percin, Jr. and Sean Misner. The Board may vote to discuss these matters in Executive Session pursuant to A.R.S (A)(1), (2), (3), (4) and (7) as set forth in item 30. MOTION: 5 1/15/14 At 3:27 p.m. To act upon the advice of counsel, counsel is to work with the Administrator to provide notice of a security issue to the System s members and to the System s asset managers and to provide protective credit services as necessary. Mr. Petrenka Unanimous 30. The Board of Trustees may vote to go into Executive Session (which will not be open to the public) to discuss matters pursuant to A.R.S (A) (1), (2), (3), (4) and (7), as applicable, including to obtain legal advice from the Board s attorneys on any matter listed on the agenda, including: a. Status report from Ben Cooper of Steptoe & Johnson LLP regarding the four (4) lawsuits challenging provisions of Senate Bill 1609, which lawsuits involve judges Thompson and Hall, retired judges Fields and Lankford, retired police officers Rappleyea and Everson, and police officers Parker, Griego, Manganiello and Robles, as authorized by A.R.S (A)(4). b. Discussion with legal counsel (and possible recommendation to the Board of Trustees) regarding IRS determination letter requests and about legal developments, claims and issues (including settlement discussions) involving investment-related public record requests as well as the Trust and Plans contracts and investments, including legal matters concerning the Trust s custodians, lenders, securities lending agents, investment contracts, vendors, advisors, investment managers or joint venturers (as well as any investments managed by the Trust s investment managers or joint venturers), as authorized by A.R.S (A) (2), (3), (4) & (7). Matters discussed may include claims or potential claims by, against or involving (or issues concerning) Stroh Ranch Development, Timbervest, The Pivotal Group, and/or Millard and Scott Seldin. Discussion may also include the Trust s negotiations regarding disposition of its joint venture real estate portfolios, as authorized by A.R.S (A)(7). January 15, 2014 Page 10 of 12

11 c. Discussion and consultation with legal counsel and Staff regarding ongoing or threatened legal action involving the Plans or Trust not otherwise referenced above, including internal investigations, public record requests, and actual or potential litigation and claims based on contract, tort or statute, including claims involving Jack Cross, Anton Orlich and Jennifer Wright, as well as claims raised by the survivors of deceased fire fighters John Percin, Jr. and Sean Misner, all as authorized by A.R.S (A) (2), (3) and (4). d. Discussion regarding the performance review of the Chief Investment Officer and the Administrator's recommendations with respect to the Chief Investment Officer's Employment Agreement, as authorized by A.R.S (A)(1). MOTION: 4 1/15/14 At 1:20 p.m. To move to go to Executive Session for Agenda items 30a, b, and c. Mr. Davis Unanimous Mr. Kingry was excused. Open session resumed at 3:24 p.m. with Mr. Kingry and Ms. Stein being excused. MOTION: 8 1/15/14 At 4:48 p.m. To enter Executive Session on Agenda item 30d. Mr. Davis Mr. Petrenka Unanimous Open Session resumed at 5:58 p.m. 31. Set the next meeting date. (Currently scheduled for Wednesday, February 26, 2014.) The next meeting will be held on Wednesday, February 26, Adjournment. The meeting was adjourned at 6:10 p.m. January 15, 2014 Page 11 of 12

12 Brian P. Tobin, Chairman Gregory Ferguson, Trustee, Vice Chairman Randie A. Stein, Trustee Jeff Allen McHenry, Trustee Richard J. Petrenka, Trustee Lauren Kingry, Trustee William C. Davis, Trustee January 15, 2014 Page 12 of 12