Boston Public Library
Trustees' Finance and Audit Committee

Board of Trustees
August 6, 2014



Agenda for Trustees Finance and Audit Committee Meeting
Wednesday, August 6, 2014, 8 am to 9 am
McKim Courtyard Room, Central Library at Copley Square

Chairman Evelyn Arana-Ortiz

  • Welcome
    Chairman Evelyn Arana-Ortiz
  • Review and Approval of Minutes from December 23, 2013 Meeting (Attachment 1)
    Chairman Evelyn Arana-Ortiz

  • Award of Contract
    Ellen Donaghey, Chief Financial Officer
    Edward Maheigan, Budget and Procurement Manager
    • Award of Contract
      • Award of Contract for Providing Consultant Services to Develop and Coordinate Relocation Plans for Collections and Services for Phase-1 Construction of the Johnson Building Second Floor, and also Phase-2 Planning Redevelopment of the Lower Three Floors of the Johnson Building.
      VOTED: “that, there be entered into with Ruth Kowal, 35 Presentation Road, Brighton, MA 02135, the sole responsive and responsible bidder, a contract for Providing Consultant Services for the Johnson Building Renovation Project of the Boston Public Library, for the period August 1, 2014 through December 31, 2015 at a total cost not to exceed fifty two thousand, two hundred dollars and zero cents ($52,200.00). The Boston Public Library Evaluation Committee performed an evaluation of the proposal presented by one vendor as described in the Request for Proposal (RFP), and through this process determined the proposal presented by Ruth Kowal represented an appropriate value for the Boston Public Library.”
  • Investment Update: Batterymarch / Legg Mason
    Sebastian Grzejka, Chris Klapinsky, New England Pension Consultants
    • Batterymarch Management Changes
  • Schedule of Upcoming Meetings
    Chairman Evelyn Arana-Ortiz
    • Thursday, September 11, 2014 at 8:00 a.m.
    • Thursday, October 16, 2014 at 8:00 a.m.
  • Other Business
    Chairman Evelyn Arana-Ortiz

  • Adjournment
    Chairman Evelyn Arana-Ortiz

     


Minutes of the Trustees Finance and Audit Committee Meeting
Wednesday, August 6, 2014, 8 am to 9am
Chairman Evelyn Arana-Ortiz

A meeting of the Trustees Finance and Audit Committee was held on Wednesday, August 6, 2014 at 8:00 a.m. at the Boston Public Library, Central Library, Courtyard Conference Room, 700 Boylston Street, Boston, MA  02116.

Present at the meeting were Committee Chair Evelyn Arana-Ortiz and Committee members Zamawa Arenas and Representative Byron Rushing, and Boston Public Library Trustee Jeffrey B. Rudman.  Absent from the meeting was Committee member John Hailer.

In attendance were Boston Public Library Staff: Chief Financial Officer, Ellen Donaghey, Budget and Procurement Manager Edward Maheigan, Supervisor of Accounting, Sean Monahan, President, Amy Ryan, and Clerk of the Board, Deborah Kirrane.  Also present were representatives from New England Pension Consultants: Chris Klapinsky and Sebastian Grzejka.

Committee Chair, Evelyn Arana-Ortiz presided and called the meeting to order at 8:00 am and reviewed the meeting agenda.

Ms. Arana-Ortiz reviewed the minutes from the December 23, 2013 Trustees Finance and Audit Committee meeting.  Ms. Arana-Ortiz and Mr. Rushing asked that an asterisk be added to the minutes, explaining the length of time since the last meeting and indicating the dates of scheduled meetings and reasons for cancellations of same.  Pending the asterisk addition, the minutes of the December 23, 2013 meeting were approved.

Ms. Ortiz reviewed the Award of Contract for Consulting Services to Ms. Ruth Kowal.  Ms. Donaghey explained that the contract provides for the detailed logistical coordination of staffing, deadlines, outside assistance, physical plant requirements regarding the relocation plans contingent to Phases 1 and 2 of the Johnson Building renovations to ensure minimal disruption to the public.  Ruth Kowal was the only response to the public Request for Proposal (RFP) and it was approximately $8,000 below the contract maximum.  The RFP was distributed to members of the Committee.  Ms. Ryan stressed that the award of contract to Ruth Kowal has the support of BPL management.


On motion made and duly seconded, it was:
VOTED:  “that, there be entered into with Ruth Kowal, 35 Presentation Road, Brighton, MA 02135, the sole responsive and responsible bidder, a contract for Providing Consultant Services for the Johnson Building Renovation Project of the Boston Public Library, for the period August 1, 2014 through December 31, 2015 at a total cost not to exceed fifty two thousand, two hundred dollars and zero cents ($52,200.00).  The Boston Public Library Evaluation Committee performed an evaluation of the proposal presented by one vendor as described in the Request for Proposal (RFP), and through this process determined the proposal presented by Ruth Kowal represented an appropriate value for the Boston Public Library.”

Ms. Arana-Ortiz introduced Chris Klapinsky and Sebastian Grzejka, representatives from New England Pension Consultants (NEPC) to present the “Portfolio Update and Small Cap Review” of the Boston Public Library.  NEPC explained that they were present to discuss markets and asset allocation, and provide information on Batterymarch.  NEPC distributed copies of its report to the members of the Committee.

Mr. Klapinsky explained that page 4 of the report provides an update on performance of markets, in general, through the second quarter of 2014.  He explained that it has been a pretty good year until at least the second quarter and that, in contrast to 2013, developed market equities, particularly US equities, are up.  He noted that equity and other asset classes did not fare well in 2013 – a very concentrated market yet.  The diversification in the portfolio has helped in 2014 – a market that is more broad-based.  Mr. Klapinsky opined that the BPL portfolio is slightly overvalued based on the price to earnings ratio over the last ten years. 

The BPL portfolio has yielded strong results overall, showing a return of 5.7% calendar to date.  Ms. Donaghey indicated that the fund was worth $58.3 million as of June 30, 2014 and, while returns in June 2014 were negative, the overall returns are positive.  NEPC indicated that they will forward the report for July 2014 to Ms. Donaghey.

Mr. Rudman asked NEPC to discuss “smart data” and asked that they please report to the Committee any recommendations NEPC may have for including such indexed funds in the BPL portfolio.  In particular, Mr. Rudman asked that NEPC consider Wisdom Tree and Guggenheim funds.  Mr. Rudman also asked that NEPC report to the committee what the BPL pays in fees to NEPC and the fund managers.

Mr. Klapinsky next discussed asset allocation.  He explained that after two years of 25% returns in US equities, the outlook for US equities is subdued and non-US equities are now favored.  NEPC’s recommendation is to reduce equity exposure and diversify away from US to non-US equities.  And, in regard to fixed income exposure, to move from core bonds to more diversified strategies.  Given the results of calendar to date, NEPC supports bond allocation.

NEPC’s recommendation is to diversify a portion of the portfolio to diversified bonds, or strength bonds, and adopt a strategy to looks to diversify interest rate and bond exposure.  Mr. Klapinsky stated that currently the BPL holds 40% in core bonds with a sub 3.5% return.  He explained that other clients are moving some of toward more flexible strategies.  Mr. Klapinsky suggested that NEPC bring a number of managers to the next Finance and Audit Committee meeting to discuss this.

Mr. Rudman added that the problem with a core bond portfolio is that it is heavily weighted to US-based corporate debt with some treasury debt.  NEPC added that the benchmark is 80% government and 20% corporate debt, but that the current manager is overweight to corporate debt.  The yield is currently unremarkable, but it is higher than a 10-year treasury yield which is currently at 2.5%.

Mr. Rudman asked that NEPC please look at Delaware High Yield Fund, which is currently paying 5.96% and is up year to date.  He also asked that NEPC consider emerging market debt Franklin Templeton Fund, other Templeton Global Bond funds, and if NEPC could make some very specific recommendations about unconstrained bond fund and report this information to the Committee.  Finally, he asked that NEPC look to an ETF called Preferred Stock Fund which is currently yielding close to 6%.

The types of bonds, US Treasury bonds and corporate bonds, their movement in particular landscapes, the timing and the length of time of the investment, were all discussed.
 
NEPC indicated that they would provide more information on the bond strategy for the next meeting.

Mr. Rudman next asked what percentage of the BPL portfolio is sitting in very high quality US companies that pay good dividends, like Johnson & Johnson, Procter Gamble, Berkshire Hathaway.  NEPC replied that the majority of the Boston Company and the S&P are invested in those types of US companies, but that they will report their answer to this question at the next meeting.

Ms. Arana-Ortiz asked that, from a bond perspective, instead of going into a fixed income category, can the BPL go to other types of investments that offer low risk but with a favorable return.  Mr. Rudman explained that he prefers US equities to fixed income investments, and feels bond market will not likely be better soon.  If the BPL were to be in the bond market, it should own very short maturities that may be rolled over when rates go up.

The Committee then discussed ETFs of developed countries with very good dividends.  Ms. Ortiz asked that NEPC return to the next meeting with different category options.

Mr. Grzejka next discussed Batterymarch and the announcement that Batterymarch’s parent company is buying QS Investor, a quantitative equity manager that performs a lot of the same processes as Batterymarch.  QS Investor does not provide for small cap ability, which is what the BPL is invested in.  He recognized that whenever there is a significant change such as this, the concern is whether the original investment strategy will change and will the staffing of the portfolio change.

Mr. Grzejka recommended that Batterymarch attend a meeting to update the Committee on what has happened thus far and what the impact of those changes would mean for the BPL.  He next listed certain managers that could be compared to Batterymarch and from which a selection could be made for the addition of managers to the portfolio.

The recommended managers are: PNC Capital Advisors, RBC Global Asset Management, Segall Bryant & Hamill, and TAMRO Capital Partners.  NEPC is recommending Segall Bryant because of their perspective of looking at both sides – growth and value securities and, in addition, Segall Bryant shies away from risk.
Mr. Grzejka referred the Committee to a benchmark statistic of 6.7% return for the past seven years.  He explained that PNC is ahead of that number, Batterymarch a little behind, and Segall Bryant, the least volatile of the strategies, captured the most upside.  Again, he recommends having Batterymarch speak to the Committee about what the plan is for the future.  He asked the committee to evaluate managers based on a seven year return as it captures a full market cycle and illustrates what managers have done in very good, and very bad, times.  NEPC prefers Segall Bryant, but is comfortable with any of the names.
 
Ms. Arana-Ortiz next listed items for action, based on the proceedings: NEPC to bring Batterymarch, Segall Bryant, diversified bond options, and fixed income information to the next meeting of the Finance and Audit Committee meeting.

Mr. Rudman asked if the Committee had ever considered alternative investments, such as private equity or hedge funds.  Ms. Arana-Ortiz’s response was that all conversations have been based on NEPC recommendations.  NEPC could be open to that, but that it would be a big move from where the BPL currently is. 

Ms. Arana-Ortiz confirmed the date and time of the next meeting: September 11, 2014 at 8:00 a.m.

There being no further business, the Trustees Finance and Audit Committee adjourned at 8:55 a.m.

Respectfully submitted,



Deborah A. Kirrane,
Clerk of the Board