During the meeting, the board scrutinized the MFS Growth Fund’s performance, which had consistently lagged behind benchmarks. The fund’s recent 7% decline, juxtaposed with a modest 1% increase in the policy index, highlighted the challenges faced by active managers. With a history of underperformance, the board debated the justification for retaining the MFS Growth Fund, especially with its associated active management fees. A participant cited a report indicating that the previous year was notably difficult for active managers, exacerbated by low-quality rallies. This context fueled discussions about replacing the MFS Growth Fund with the Vanguard Growth Index (VIG AX), which offers a concentrated index with the top holdings representing over half of the fund. Alternative strategies, such as reallocating to the Fidelity 500 Index Fund, were also considered to simplify the investment approach and align with policy indexes.

The board’s dialogue underscored a consensus for change, emphasizing a shift towards index funds while retaining a balanced equity allocation. The conversation reflected on the historical success of index-based investments, with an acknowledgment that identifying competent active managers had been a challenge. As part of the deliberation, board members weighed the implications of reducing active management in favor of a more straightforward strategy involving index funds.

In addition to equity investments, the board reviewed private real estate investments, which had been a part of the pension’s strategy since 2017. The discussion revisited the initial decision to invest in real estate as an alternative to fixed income, given low interest rates at the time. The investments had generally outperformed fixed income until recent market downturns, providing a protective buffer during volatile periods. However, recent challenges in liquidity and market conditions prompted further scrutiny of these investments.

The conversation explored the benefits of diversification, with private real estate showing minimal correlation to publicly traded equities, thus offering a strategic advantage in asset allocation. The board examined the historical performance of these investments, noting returns of 10.8% and 9.7% from the Intercontinental and Principal funds, respectively, which were favorable compared to traditional fixed income. Despite these positive outcomes, liquidity constraints and market dynamics in 2022 raised concerns, prompting a review of redemption strategies and the continued relevance of real estate in the portfolio.

Further discussions addressed the pension plan’s funding status, with the actuary presenting an overview of actuarial assumptions and contribution rates. The plan remains over 100% funded, attributable to investment returns exceeding expectations. Contribution requirements were noted to increase slightly due to updated mortality assumptions. The board considered the implications of maintaining an overfunded status, with a warning that sustained overfunding could attract scrutiny from the state of Florida.

The board also debated the frequency of member statements for the Deferred Retirement Option Program (DROP) participants, ultimately agreeing to provide quarterly updates to enhance transparency and member communication. This change was facilitated by existing provisions in the contract with Foster and Foster, allowing for smoother implementation without formal amendments.