by David Chapman
Staff Writer
An ordinance to allow the City’s Pension board of trustees of the Jacksonville retirement system to further invest in potentially riskier but higher-yielding strategies was discussed with City Council Finance Committee members on Tuesday.
A Council Auditor’s Office review strongly recommended thorough discussion on numerous points.
The proposed measure would allow the expansion of investments of the General Employees and Correctional Officers Pension Plans to include additional alternative investments already allowed by Florida statute when locally authorized.
The ordinance would allow up to 10 percent, up from 5 percent, of the fund to be invested in private equity, venture, hedge and distress funds or a direct investment in a portfolio company through an investment manager.
It would also allow for the short sale of securities and investments and allow up to 35 percent, up from 25 percent, in foreign stocks and bonds.
The amendment was introduced by the council president at the request of the City’s pension board to increase yields while reducing volatility and to limit the risk of declining markets, according to the auditor’s report and bill background information.
The auditor’s report, however, points out six negative aspects of the bill the office said needs to be discussed.
The first is the “black box” nature of hedge funds that allows little transparency to the investors from the hedge manager because transparency could cause the fund to lose its competitive advantage.
Another hedge negative, it states, is the difficulty to effectively measure its value by an independent third party because of no readily available information sources.
Liquidity limitations were also mentioned in the auditor’s review because it said hedge funds are not freely traded on exchanges. Also, they can’t be sold quickly if there is an immediate need for cash because they generally are longer-term investments.
Asset management fees are also mentioned as a negative to discuss.
The report also points out the volatility of short sales that can result in losing more than the amount invested and the dependency of currency fluctuations and political risk in the foreign investment market.
Council Auditor Kirk Sherman, who gave the report, said it’s good to try to earn “more bang for your buck,” but said such investments require sophisticated management.
Mickey Miller, the City’s chief financial officer, said he didn’t disagree with the report but saw the proposed strategy as progressive.
Miller said it was the fifth time he has looked at such proposals in the past 15-20 years and said the current market conditions and accessibility to the correct investment managers could make the proposed amendment viable.
“That’s all changed post 2008-2009,” said Miller. The stock market suffered steep declines in that period.
The finance committee deferred the measure for further discussion.
Sherman said he would meet with City officials about the proposal.
Also at the finance committee meeting:
• The committee now has seven full-time members with the appointment of council member John Crescimbeni. The committee had been operating with six members after the departure of former chair and now state Rep. Daniel Davis. Council member and committee Chair Warren Jones said having seven members will make it easier for the group to reach a quorum.
• The committee approved an ordinance to appropriate $6,500 to buy eight new computers for the Duval County Law Library. The funds will come from the law library/judicial courts repair and maintenance account. The law library realized savings of almost $7,100 on software maintenance agreements and the savings will be applied to the purchase.
• An amendment that would prohibit an elected official to simultaneously collect a City salary and a pension was deferred. The measure is sponsored by council member Glorious Johnson.
• The sale of two surplus properties on McCoy’s Creek Boulevard, appraised at $30,000 and $32,000 respectively, was ap-proved. The two parcels will be sold to Miner Properties to allow for expansion, with the proceeds deposited into the Community Development Block Grant reversion account as required by the federal grant the City used for the original purchases.
• The committee approved an emergency ordinance to appropriate more than $2 million in Department of Health and Human Services grant funds from the Ryan White Part A Program to provide HIV-related health and support services to people living with HIV/AIDS in the grant area. The move requires no matching funds from the City, with the term of the grant from March 1 this year to Feb. 28, 2012. The grant is normally approved during the budget process but was left out in error.
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