2401 Colonial Drive, 3rd Floor
Helena, Montana
Thursday, March 11, 2004
MINUTES
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BOARD MEMBERS PRESENT:
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Dick Anderson, Chairman |
| Dennis Beams | |
| Karen Fagg | |
| Joel Long | |
| Terry Moore | |
| Tim Ryan | |
| Calvin Wilson | |
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BOARD MEMBERS ABSENT:
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Maureen Fleming |
| Jay Klawon | |
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STAFF PRESENT:
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Robert T. Bugni, CFA, Senior Investment Officer |
| Geri Burton, Deputy Director | |
| Dana Chapman, Mortgage Analyst/Program Specialist | |
| Richard Cooley, CFA, Assistant Investment Officer | |
| Kimberly Dallas, Program Assistant | |
| David Ewer, Senior Portfolio Manager | |
| Edward Kelly, Assistant Investment Officer | |
| Herbert Kulow, Senior Portfolio Manager | |
| Rande Muffick, CFA, Assistant Investment Officer | |
| James R. Penner, CFA, Chief Investment Officer | |
| Delrene Rasmussen, Assistant Investment Officer | |
| Carroll V. South, Executive Director | |
| Louise Welsh, Bond Program Officer | |
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GUESTS:
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Gordon Hoven, Piper Jaffray |
| Aidan Myhre, The Gallatin Group | |
| Steve Bender, Department of Administration | |
| Brain Wolfe, Department of Administration | |
| Don Hoffman, Department of Revenue | |
| Jody Brandt, Department of Revenue | |
| Tom Beck, Governor's Office |
CALL TO ORDER
Chairman Anderson called the regular meeting of the Board of Investments (Board) to order at 1:00 p.m. in the conference room at 2401 Colonial Drive, 3rd Floor, Helena, Montana. As noted above, the meeting convened with seven members of the Board present.
Member Ryan motioned for approval of the January 29, 2004 minutes; Member Moore seconded the motion and the motion was passed 7-0.
PUBLIC COMMENT - Public Comment on Board-Related Items
Chairman Anderson called for Public Comment of Board-Related Items. No Public Comment was made.
PRESENTATION - Dimensional Fund Advisors
Mr. Damon S. Fisher, Mr. Robert Deere and Mr. David New presented the annual review of the DFA Small Cap Strategy for the Board of Investments and they presented an overview of their International Small Cap Strategy.
CHIEF INVESTMENT OFFICER REPORTS
Asset Allocation Report
Mr. Jim Penner, Chief Investment Officer, presented the Asset Allocation report for March 31, 2004 transactions.
Quarterly Investment Performance Report
Mr. Penner presented the Montana Board of Investments Quarterly Board Performance
Reports for the period ending December 31, 2003.
International Equity Investment Program Update
Mr. Jim Penner presented to the Board an update on the status of the International Equity Investment Program. The recent outsourcing of the internally managed MSCI Europe Equity Portfolio and the resignation of the portfolio manager prompted the request for this report by the Board.
Mr. Penner's report included four (4) staff recommendations:
1. Establish a 3% buffer range around the 12% target for International Equity
Program. No buffer currently exists because the actual allocation only recently
achieved the 12% target. This recommendation would force rebalancing at less
than 9% or greater than 15%. The January month end allocation was 12.6%.
2. Affirm the 70% total equity cap and mandatory rebalancing back to 67.5% if
the 70% cap is exceeded at any month end.
3. Provide Board with a detailed review of asset distribution, benchmarks, and
performance analysis within the international equity allocation at the April
22 meeting. Staff has subscribed to and is being trained to use BarraOne, a
software package including asset allocation and is also working with several
outside sources on how best to "slice and dice" the International
Equity Program allocation for optimal results.
4. Move the 3-year total pension fund asset allocation review due in June 2005
to the June 3, 2004 meeting and include recommendations for the International
equity allocation and asset distribution. Since most of the asset target have
been achieved or exceeded (except private equity) consideration should be given
to making this an annual review.
Member Beams motioned for approval of the staff recommendations as presented; Member Fagg seconded the motion and the motion was passed 7-0.
Professional Development Policy Amendment
Mr. Jim Penner presented the Professional Development Policy for Investment Staff. The Policy required amending language for clarification purposes. The amendment states "New employees still serving the one-year probationary period will not be eligible for pay increases by virtue of passing a level of the CFA exam or advancing in status in the CMB Program until they have successfully completed the probationary period and are no longer on probation. Increases thus earned will be effective on the date of release from probation".
Member Ryan motioned for approval of this amending language as presented; Member Beams seconded the motion and the motion was passed 7-0.
LOAN PROGRAMS
Consideration of Commercial Loan Participation - Permanent Coal Trust Fund
Ms. Delrene Rasmussen presented staff's recommendation to participate in the following loan request:
Member Beams moved for ratification of loan committee recommendation; Member Moore seconded the motion and the motion was passed 7-0.
Member Moore moved for ratification of loan committee recommendation; Member Wilson seconded the motion and the motion was passed 7-0.
Coal Tax Loan Program Activity Report
Ms. Delrene Rasmussen presented and the Board reviewed this report for January.
Coal Tax Loan Program Delinquent List
Ms. Delrene Rasmussen presented and the Board reviewed this report for the period ending December 31, 2003.
Pension Mortgage Program Activity Report
The Board reviewed this report for January.
Residential Loan Delinquency Report
The Board reviewed this report for the period ending December 31, 2003.
Residential Loan in Foreclosure Report
The Board reviewed this report for the period ending December 31, 2003.
Value-Added, Infrastructure and IRP Loans Report
Ms. Delrene Rasmussen presented and the Board reviewed this report for the period ending December 31, 2003.
Commercial Loan Service Agreement
Ms. Delrene Rasmussen presented the revised Montana Board of Investments Loan Servicing Agreement for the Commercial Loan Program. Once this Agreement has been approved by the Board, it will be sent to all Approved Lender's for their signature and for updating of files.
Member Long moved for approval of this recommendation; Member Wilson seconded the motion and the motion was passed 7-0.
EXECUTIVE DIRECTOR REPORTS
Budget Status Report
Executive Director Carroll South presented this report for the period ending February 29, 2004.
Department of Revenue Loan
Mr. Carroll South presented staff recommendations to the Board for the Department of Revenue Loan Request and the INTERCAP Bond Resolution No. 206.
The Board has approved INTERCAP loans for the Department of Justice and the Department of Revenue and has also approved a Preliminary Bond Resolution to issue the bonds required to fund the loans. While discussing with Bond Counsel the necessary disclosure language required for the issuance of the bonds, we were informed that the Legislative Auditor is becoming concerned about the Legislature's increased use of the INTERCAP Program to finance state government operations and whether those loans constitute state debt.
As a result of discussions by all interested parties, staff determined that the $18.5 million in INTERCAP bonds required to fund the Department of Justice loan should be issued but the bonds to fund the Department of Revenue loan should not be issued. The state constitution requires that state debt be authorized a two/thirds vote of the Legislature or by a vote of the electorate. Legislative session records confirm that the Department of Justice loan, authorized by House Bill 261, received a two/thirds vote of both legislative bodies. However, Senate Bill 271, authorizing the Department of Revenue loan, did not receive a two/thirds vote of both houses.
Mr. South stated that any INTERCAP bond disclosure statement reflecting the Legislative Auditor's concern and its plan to review the "state debt" issue during the next year could place a cloud on all INTERCAP bonds.
Mr. South continued by presenting the following recommendations:
Department of Revenue Loan:
1. Authorize a loan from the Coal Tax Trust Permanent Fund of up to $10,311,975
to the Department of Revenue to finance the tax processing system.
2. Loan maturity would be August 15, 2010 or shorter depending on the useful
life of the system
Bond Resolution No. 206:
1. Adopt the final bond resolution.
2. Authorize staff to take steps as deemed necessary to issue $18.5 million
in INTERCAP bonds for a term of 25 years.
Member Ryan moved for approval of this recommendation; Member Fagg seconded the motion and the motion was passed 7-0. Member Fleming and Member Klawon were absent.
Out-of-State Travel
Executive Director Carroll South, presented travel recommendations for:
" Dick Bridegroom and Sandi Conrady to attend the "Loss Mitigation
& Claims Property Preservation" Conference, March 8 - 12, 2004 in Bismarck,
ND. Estimated cost of trip, including airfare, lodging, registration fee (if
any), meals and misc. expense is: $265.00
" Bob Bugni to attend the Finance Industry Conference for Fixed Income
Investors, May 10 - 14, 2004 in Washington DC. Estimated cost of trip, including
airfare, lodging, registration fee (if any), meals and misc. expense is: $2,575.00.
Member Moore moved for approval of this recommendation; Member Beams seconded the motion and the motion was passed 7-0.
BOND PROGRAM / INTERCAP
Activity Report
The Board reviewed this report for the period ending February 29, 2004.
INTERCAP Staff Approved Loans Report
Ms. Louise Welsh reported that:
has been approved by staff.
INTERCAP Loan Requests
Ms. Louise Welsh presented staff's recommendation that the Board authorize staff to proceed with processing and closing the following loans using the Board's standard Bond Program Office procedures:
Member Moore moved for approval of this recommendation; Member Wilson seconded the motion and the motion was passed 7-0.
Member Beams moved for approval of this recommendation; Member Moore seconded the motion and the motion was passed 6-0. Member Ryan abstained.
INVESTMENT ACTIVITY - Equity
Domestic Equities (Montcomp)
Mr. Rande Muffick presented January transactions, the holdings report as of January 31, 2004 and the current investment strategy. Member Beams moved for approval of the Montcomp strategy as presented; Member Long seconded the motion and the motion was passed 7-0.
Mr. Muffick recognized the Accounting staff for the time and work they have contributed over the last two years on a class action lawsuit. Board of Investments received $736,000 back.
Additionally, Mr. Muffick recognized the Equity staff for their hard work over the past 18 months. The MTCP portfolio has expanded from 90 names to 120 names.
Montana Private Equity Pool (MPEP)
Mr. Ed Kelly presented January transactions and the holdings report as of January 31, 2004. Member Moore departed from the meeting at this time.
INVESTMENT ACTIVITY - Fixed Income
Intermediate Funds
Mr. Cooley presented January Treasurer's Fund transactions, and the Treasurer's Fund holdings report as of January 31, 2004, the January State Fund transactions, the State Fund holdings report as of January 31, 2004, and the current investment strategy for both of these funds. Member Ryan moved for approval of the Treasurer's Fund and State Fund strategy as presented; Member Wilson seconded the motion and the motion was passed 6-0.
In addition, Mr. Cooley presented the Investment Policy Statements for Montana Pole Superfund Site Settlement Fund; Fish, Wildlife & Parks License Account; Fish & Wildlife Mitigation Trust Fund; and the Abandoned Mine and Reclamation Trust Fund. Member Ryan moved for approval of the Investment Policy Statements as presented; Member Long seconded the motion and the motion was passed 6-0.
Long Term Funds
Mr. Robert Bugni presented January transactions, and the current investment strategy. Member Ryan moved for approval of the Fixed Income strategy as presented; Member Wilson seconded the motion and the motion was passed 6-0.
In addition, Mr. Bugni presented the Investment Policy Statements for Coal Tax Park Trust Fund and Cultural Trust Fund. Member Ryan moved for approval of the Investment Policy Statements as presented; Member Long seconded the motion and the motion was passed 6-0.
INVESTMENT ACTIVITY - FYI Items
The following Investment Activity reports was presented and available for informational purposes. None of these items requires Board action.
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NEXT MEETING
The next regularly scheduled meeting of the Board will be April 23, 2004.
ADJOURNMENT
There being no further business, the meeting was adjourned at 4:40 p.m.
BOARD OF INVESTMENTS
APPROVE:
Dick Anderson, Chairman
ATTEST:
Carroll South, Executive Director
DATE: