Trustees move to trim equities after allocation hits 68.8%, citing 65% ordinance cap
May 13, 2021 | Jacksonville Beach, Duval County, Florida
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Trustees for the Jacksonville Beach pension systems voted to move money out of equities after consultants reported the combined plans’ equity exposure had climbed to 68.8%, exceeding a 65% cap set in the city ordinance.
Investment staff presented three options—do nothing, perform a minimal adjustment to get to 65%, or rebalance to a midpoint (62.5%). The consultant said the minimum step to get under the 65% rule would require roughly $4.85 million in sales from the largest equity overweights. "Our total equity exposure is up to 68.8% — certainly well above the 65% maximum that is allowed," the consultant said.
Trustee Hogan moved, and Jason Sharp seconded, a motion to sell specified holdings to reduce equity exposure. The motion as read in the meeting specified approximately $1,350,000 from the Vanguard Total Stock fund, $2,900,000 from Wells Capital and $600,000 from the EuroPacific fund, with proceeds moved into cash/fixed-income-like positions; the board discussed using a 62.5% compromise target and leaving a portion of the gains in equities.
After discussion about the risks of trimming winners, market timing and the legal cap in the ordinance, trustees voted. "Motion passes all 3 boards," the chair announced after the roll-call.
Legal counsel and staff said the ordinance cap is enforceable but not measured daily; boards have reasonable time to bring allocations back into compliance and may seek council action to change the ordinance if they want broader flexibility. Counsel also suggested increasing a cap rather than removing it entirely could be a compromise.
Trustees also authorized handling a $500,000 near-term cash need for benefit payments out of the portfolios, which the consultant had incorporated into rebalancing scenarios.
The action instructs staff and the investment consultant to implement the trades to bring allocations into compliance and to report back at the next meeting on the result and any recommended policy changes.
Investment staff presented three options—do nothing, perform a minimal adjustment to get to 65%, or rebalance to a midpoint (62.5%). The consultant said the minimum step to get under the 65% rule would require roughly $4.85 million in sales from the largest equity overweights. "Our total equity exposure is up to 68.8% — certainly well above the 65% maximum that is allowed," the consultant said.
Trustee Hogan moved, and Jason Sharp seconded, a motion to sell specified holdings to reduce equity exposure. The motion as read in the meeting specified approximately $1,350,000 from the Vanguard Total Stock fund, $2,900,000 from Wells Capital and $600,000 from the EuroPacific fund, with proceeds moved into cash/fixed-income-like positions; the board discussed using a 62.5% compromise target and leaving a portion of the gains in equities.
After discussion about the risks of trimming winners, market timing and the legal cap in the ordinance, trustees voted. "Motion passes all 3 boards," the chair announced after the roll-call.
Legal counsel and staff said the ordinance cap is enforceable but not measured daily; boards have reasonable time to bring allocations back into compliance and may seek council action to change the ordinance if they want broader flexibility. Counsel also suggested increasing a cap rather than removing it entirely could be a compromise.
Trustees also authorized handling a $500,000 near-term cash need for benefit payments out of the portfolios, which the consultant had incorporated into rebalancing scenarios.
The action instructs staff and the investment consultant to implement the trades to bring allocations into compliance and to report back at the next meeting on the result and any recommended policy changes.
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