Live reporting by
Perry Sylvester
Investment Committee wary of possible long-term changes in financial markets during portfolio review.
Perry Sylvester
@PerrySylvester6
Hey, Detroit! Monday, 8/12 at 12 noon I live tweet the GRSD Investment Committee meeting for @DetDocumenters #DETdocumenters and media partners @BridgeDet313 @chalkbeatDET @freep @metrotimes @MichiganPublic @media_outlier @PlanetDetroit @wdet @wxyzdetroit
09:05 PM Aug 11, 2024 CDT
GRSD stands for General Retirement System [for the City of} Detroit. The meeting is held at the Ally Building, 500 Woodward Avenue, Suite 3000. You can access the agenda and (some) past meeting agendas and minutes here⬇️ rscd.org/member_resourc…
rscd.org/member_resourc…
What you will NOT be able to access, alas, is the all-important ✨magic packet 💫 that is privy to the presenters, trustees and committee members...🧙♀️🧙🧙♂️🎩🐰
You can, however, access prior #DetDocumenter coverage...notes from last meeting by yours truly here ⬇️ detroit.documenters.org/documents/inve…
detroit.documenters.org/documents/inve…
And the twitter thread from our own Nachum Eichenhorn @NachumDetroit here ⬇️ https://x.com/NachumDetroit/status/1800196708443517383
@NachumDetroit And we are in, with meeting called in order at 12:05
@NachumDetroit Discussion about approval of minutes—one member asks whether they were sent out, informed they were sent at 11:55 AM
@NachumDetroit Affirms July 10 was “ an inflection point”—points to his experience as portfolio manager during 2000 tech “unwinding”
@NachumDetroit S&P down 5% and signs that concentration in tech sector may be starting the process of “unwinding” with “spectacular/magnificent etc” 7 bearing the brunt
@NachumDetroit On to discussion of GRSD holdings…pointing to quarter to date performance of indices…value outperformed…is this beginning of rotation to value over tech for near future?
@NachumDetroit Now discussing a chart for rolling 3 year period on S&P market cap vs equal weighted performance…when outperformance occurs is do so in big way and lasts for a while…
@NachumDetroit Describes what you buy in two different approaches…market cap index way heavier in IPOs, fintech
@NachumDetroit Now looking at sector valuations…historical price to earnings ratios are, in raw terms, out of whack
@NachumDetroit Moves to recommendation…talking basis points and need to assess situation…so stay put
@NachumDetroit Question from online committee member…when to make change if needed? Answer is it will be driven by performance rather than time…so can’t specify a specific number of quarters…look for trend confirmation and plan dollar-cost averaging exit/change
@NachumDetroit The committee member talking via Zoom is, I believe, Doris Ewing…discussion ranges into concepts of index vs active management, chasing outperformance or avoiding extreme downturns…
@NachumDetroit This is hard to see but basis for much of discussion…showing how performance in sectors don’t always behay
@NachumDetroit Sowersby attempts to put discussion in context…patient committees are not just reactive plus important to not abandon the asset class currently at bottom of the cycle…for example, possibly different fund with different methodology but same sector for diversification
@NachumDetroit Now shift to review of large cap in portfolio…does it have a style or sector bias? Are managers “delivering alpha?”
@NachumDetroit This a slide with stats on their holdings…shows is neutral with downside protection and managers delivering alpha in context of market and various funds true to their stated style (so large cap value really holds large cap equities)
@NachumDetroit Another slide on managers’ performance then active risk/return in portfolio holdings…also another slide showing 3 year rolling average on various managers
@NachumDetroit Yet another slide on manager/fund performance relative to benchmark over time
@NachumDetroit CIO asked for his input—underscores that when reviewing performance context and time frame vital and important to not be reactive or have mindset of quick judgment
@NachumDetroit They are now doing a deeper look into a specific fund manager…I believe it is Edgewoood (sp?)…but font size is such (along with pace & jump-around approach) makes it hard to follow
@NachumDetroit Thomas Sheehan asks questions about Edgewood…finds performance in light of cost disappointing and should be time to look for a replacement for this
@NachumDetroit Presenter says it is important in review process to compare apples to apples and should make sure alternatives are “deep value”…more discussion about style concentration in holdings
@NachumDetroit CIO looks at same data and says that performance, given context, is actually pretty impressive…should the committee move to replacing they should have Edgewood management in
@NachumDetroit Sowersby responds saying Sheehan is correct to push for best performance possible but committee also must “peel away the onion” of context…lots of discussion about concentration in large cap growth where handful of stocks drive 60% of performance
@NachumDetroit Edgewood has strong historical performance…but 5 year results most relevant and question is can their team recover from recent underperformance?
@NachumDetroit Sheehan would still like to see other large growth managers with lower management fee structure/costs
@NachumDetroit CIO Kevin Kenneally still wants to have Edgewood team in…Sowersby asked if he has reached out to them, and Kenneally says he has
@NachumDetroit Another committee member asks for a search and comparison report that will have less numbers and more words
@NachumDetroit Another committee member noted the underperformance in Edgewood began 2 years ago…should they have done this review and search for alternatives earlier?
@NachumDetroit Presenter responds that the data they are reviewing is a 3 year rolling average and it was just one very bad year that skews the results … question asked by June Nickleberry
@NachumDetroit Here is the link to Investment Committee members⬇️ rscd.org/about_grsd_/me…
rscd.org/about_grsd_/me…
@NachumDetroit Question about what the management firm (NEPC) has as a rule for establishing a performance watch list.. they have one and he explains
@NachumDetroit Some discussion on current weighting/balance of portfolio…should they make tactical shift to value overweighting via rebalancing? Still lots going on that can be impactful, like the upcoming election
@NachumDetroit Sheehan asks about continuing to feed some specified funds…discussion about monthly outflows for benefit payments (?) which is $20 million…return to discussion about flow of funds from the BlackRock Short Duration
@NachumDetroit Discussion about how much they are holding in cash…$78 million (?) at end of June, but some is earmarked…back to confusion about nature of cash holdings, the working account & sweep account
@NachumDetroit A lot of this confusion goes back to last meeting where funds are directed to fund s from convertible bond fund to private credit…but it is a slow draw, over 3 years
@NachumDetroit They are returning to discussion of where funds from liquidating convertible bond fund are to go and how quickly…now they are recommending some recommendations different than before…Sowersby recommending $20 million to small cap equity fund
@NachumDetroit Still discussing pace & process of liquidating convertible bond holdings…technical issues for fund managers based on features of holdings
@NachumDetroit More talk about private credit possibilities…CIO points to a manager discussed at previous meeting that they did not act on, single A rated Collateral Loan Obligations (CLOs)…
@NachumDetroit Things are very confusing right now…does not seem to be a consensus as to what they are doing…funds for benefits payments are available but unclear what bucket is filling that cash payment account 🤷🏼♂️🤔
@NachumDetroit Sheehan asks about where BlackRock Short Duration funds were going…if I understand correctly, CIO says it is rolled into portfolio for rebalancing
@NachumDetroit Motion made and supported to immediately liquidate the convertible bond portfolio…approved
@NachumDetroit They move on to real estate…$15 million returning from UBS Trumbull property fund…Deutsch Bank estimates around $3 million per month cash flow..this out of $160 million overall position in real estate sector. No idea of context to this…assume it is sell off of one holding
@NachumDetroit Sheehan wants the committee to reconsider a manager fund called Seminole…private debt investment currently held by them but starting new fund…questions from committee about this new 3 year offering, but agreed they need to look into it more deeply
@NachumDetroit Some talk about how the committee reports will look following the rebalancing done in the international/global equity sector
@NachumDetroit Doris Ewing requests reports that also show fund outflows to better understand cash flows (she asked for this last meeting)
@NachumDetroit Back to discussing property sales of holdings in Hawaii…2 holdings, aggregate value of $1.8 million…acquisition predates Bankruptcy agreement and continuation of process of getting rid of inappropriate investment holdings
@NachumDetroit If I understand correctly, one property in process of sale for $600,000 and the other to listed for $1.2 million with CBRE⬇️ cbre.com/services/inves…
cbre.com/services/inves…
@NachumDetroit They move to approve the minutes of the June minutes…approved, then they move to adjourn at 2:21 PM with reminder next meeting is October 14
@NachumDetroit Okay, a few things…first, I repeatedly spelled the chairperson’s last name wrong 😕… it is Sowerby, not ‘Sowersby’. Apologies!
@NachumDetroit Second, the meetings tone was largely set by concerns about current “market volatility”… meaning it looked like crash 😲but, fortunately, order was restored…at least partially. And yet…
@NachumDetroit Concerns remain…as in we have passed an “inflection point”, meaning a change in what had been a long(ish) term trend…due to changes in the “real” economy, trading volume, govt policy, ‘sentiment’, central bank policy…
@NachumDetroit Etc. You got time? Analysts got ‘reasons’ 😆No one really knows but when a person with Sowerby’s experience raises concerns it is good to put on one’s listening ears. Yep. Pretty good thing to do
@NachumDetroit A “long unwinding” in market land refers to investors selling securities or derivative products…refers as much to changing sentiment as the actual selling…but also a thing in futures/options
@NachumDetroit If you have an hour—and who doesn’t?—this podcast provides a view of the current economic situation unavailable at CNBC et al ⬇️ podcasts.apple.com/us/podcast/geo…
podcasts.apple.com/us/podcast/geo…
@NachumDetroit So that is my coverage…if anything is inaccurate email Documenters@outliermedia.org with “Correction Request” in subject line