Board of Investment Commissioners Thursday 10/22/2026

Brief, and we will direct the October 22 meeting of the Board of Investment Commissioners School asking the first to take a role, please.

Chairman Mayor Smiley?

Present.

Vice chair, Winslow Barrier? City treasurer, husband?

Present.

Councilwoman Ryan is absent. Mister Costello is also absent.

Mister Hersch?

Here.

Mister Winkelman is absent or present. Three absent, we have for him.

Thank you very much. Welcome, everybody. We're gonna start with the investment performance analysis, and ask Julian from. Thank you very much. Thank you very

much. I'm going to review, good afternoon, everyone, the document entitled analysis of investment performance for the employee retirement system. That should be the first document in front of you, and I'm just going to just get a brief update. We have more details on another document, which I won't review. But on page one, just a brief update on the market environment that we underwent back in September.

So if you're on page one, some statistics on asset class returns for the asset classes that the retirement system portfolio is invested in. Basically, in September, as many, if not all of you will know, was a very volatile period for the bond market. And bond yields rose up, the ten year treasury yield to the highest it's been in a couple of decades. That affects the stock market and also the bond market. Equity returns are still positive, positive double digits year to date.

The S and P 500, for example, up 12.7% year to date. Small cap stocks has given back some of their gains, but still double digit year to date returns for small cap stocks. International stocks have also been strong. Bonds, The US aggregate, bond index, which is made up of government, government agency, and corporate bonds had a negative return of negative 2.6% during the month, and that's because yields rose. And there are a couple of tough reasons for yields rising.

Number one, tougher inflation data re... Related to the war in Iran, and also just general inflation concerns and and concerns in the bond market about artificial intelligence hyperscalers plans to borrow heavily to invest in artificial intelligence infrastructure and the so called artificial intelligence or AI investment kind of the swinging back and forth depending on on what day the market interprets a strong potential future investment return from artificial intelligence. Generally speaking, technology stocks have still done well, notwithstanding some of the back and forth. One final reason I should mention on the note of optimism that bond yields rose is because the forecasts and reports on US economic growth have shown that the The US economy, at least until through the second quarter, has been more resilient than expected. The Bureau of Economic Analysis, the Fed has government up...

Revised upward their estimate for GDP growth for the second quarter of twenty twenty six to 2.2%. And what that really means for the bond market is the anticipation of stronger demand for capital. Again, that would push bond yields up. When bond yields go up, bond prices go down. So through all of this, if you go to page, it should be the third page, page three, just an update on performance both for the month, the year to date, and asset allocation exposures for the portfolio.

Still a very strong return for the fund for the year to date period, 8.2%. That's the six column into the left top row. That's after a negative 1.9 return in September, but still strong year to date gains. Also, should mention and shown elsewhere in our reports, an 8.2% return has generated a little over 49,000,000 in realized and unrealized investment gains, dividends, and interest. So good strong, contribution to growth of the pension fund or the retirement system.

The market value of the systems portfolio shown in the upper left hand side, 677,300,000 at the end of the period. And if we look down year to date column, and I'll just stick with year to date to make make this report efficient, you can see still equities have been... Or stocks had been the primary contributor to the return of the portfolio. Some underperformance from mid cap and small cap value manager, Robico, but their inception date return has been strong, and we still have a a comfort level with the Roboco Boston Partners. If you go to the fourth page, you can see the fixed income returns year to date negative 1.6%.

Not that, you're asking for the October the October 20 report or October 21 report, but I can tell you that bond yields have recently come settled down a little bit. So at least month to date, the bond portfolio should be giving you a modest gain, a little bit of recovery in in bond yields. Should also mention the exposure to equities was 67.4% of the portfolio. That was shown on the prior page. So very close to your 68% target.

Fixed income, 17.7% versus 22% target, and we'll get to cash momentarily. I do wanna mention on the hedge fund line item, page five, the hedge fund portfolio year to date has contributed 8.2% return, so basically matching the return of retirement system. And more recently, hedge funds during the month of September really have done what they were supposed to do, which is to protect a little bit on the downside. Year to date, we have some gains. Should also mention, that, we had discussed with the board of investment commissioners, a search we have underway for replacement manager for Renaissance International Equities.

And based on a kind of a rereview of the investment policy statement for the retirement system, we interpret that we need to take a little bit longer procedure through, issuance of an RFP for replacement candidates. So Wood has already started on that started on that, but that's gonna take a little bit longer. That doesn't change anything from our standpoint in terms of our recommendations or anything else. It's just that we need to make sure that we stick to the details as we interpret them. And then you could see cash, bottom row, 6.6%, obviously above the policy target.

Peter is working with the Department of Finance on redeploying that capital in line with the policy statement. I will say that the month of September was a pretty good month to be over allocating cash because it's not as sensitive to interest rate hikes. We also saw the Fed obviously, hike the Fed funds rate during September. But, nonetheless, that will be taken care of through our work with the Department of Finance. That's really all I have.

I was gonna turn it over to Peter to cover the financial reconciliation and any other comments. Yes. If we

can get turned to page six, look at the financial reconciliation as we do each month. We we give you an idea of what the action was in the month. The total plan began the month at 698,000,000. There were net contributions of negative 7,900,000, which reflects the the payment of pension payroll in the month. Recall we've had meaningful contributions in prior months this year, and we...

That does explain the the net contributions for the month. You know, we did have a a negative return for the for the for the month. So the cap appreciation, the decline in the market value due to that, negative return, again, as Julian highlighted, driven, by, equity, and, certainly not helped by fixed income returns in the month. We had about four point... 14,300,000 in cap depreciation.

So the market value ending the month of September in the quarter ended at a little bit over 677,000,000.

Any questions for Peter or Julie? Yeah. Have a couple of questions. Looking back on on the equities, there are two that stand out. I remember if you look back in three years, not even two years, especially when you consider, you know, having any of the rehydration process of Niagara P, you buy any new.

You're talking about Robico for both small and mid camp?

That would be those those two would be Yeah. Well, what we've been on in the last few classes. Right. So 10% on $29,000,000.

Yeah. I... Couple of points in that. Number one, I would propose that we report back to in more detail on kind of a comparison of them relative to the index. In fact, we do that at the next meeting of the quarterly report with attribution, why have they underperformed.

But to hit your question directly, we can look at their longer term record now as you probably know. Since you hired them, they have outperformed the index net of fees. But you're looking at the last three to five years, and those are the years to look at. So if it's acceptable to the board of investment commissioners, we will report back in more detail to you. And I would say, it's a good question, and the time is is probably logical to look more closely.

We'll also make one last comment. In small cap, typically, active management, when we look at effective active managers, has paid off net of fees. Mid cap, it's more of a... It's it's a good debate. So my suggestion would be report back with with some more detail for you.

Yeah. You also need one look at the claimers index. So the S and P 600 Yeah. Is is different in the one you buy. It's it's the most of the values are.

Yeah. We're guaranteeing the index return at very low cost. Yeah. And given the time horizon, it seems to be a complicated, especially.

So what we can do there is we had looked at that question through the asset allocation review and modifications that the board approved last year. We can update that for you as well. It's a good question. It's a debating point kind of in our research group, and I think we could support the current state. But there's a case to be made for what you're suggesting, so I think we can update...

Get some analysis we prepared last year, so we'll update that for you. That makes sense? And I don't I don't... You know, if there was... If if it...

If there were great concerns on our side as your investment adviser on those issues within the day, I will tell you that. I mean, I think they're they're strategic considerations.

That works for you. Good. Do you have any further questions? Any other questions for the admissions? Take a motion to move to move by one minute, please.

And with this, Aaron. Second question, you? Movers in favor, say aye. Aye. Any opposed?

The ayes have. Move on to item two, discuss the relative investment fund and the other adjusted accounts. Here? K. We...

You have a handout analysis of investment performance from the city

of Providence Trust Funds. If turn to page six, and we are looking at the performance of of the various trust funds. They... For the month of September, you'll notice the very similar returns across various trusts because they are largely invested in the same way for the same asset allocations. They particularly have similar cash exposures, equity exposures, and fixed income exposures.

They are negative largely because of the action in both equity and fixed income, which was mixed in the month of September. The performance is really as anticipated as as these trusts are heavy in equity relative to the ERS. And the returns, actually, are are quite good relative to the plan index with some slight underperformance about 10 basis points for each trust versus the the plan index. What that means is is that, generally, we had a a negative headwind from being overweight equity, in a month, where equity was negative and underperformed. The offsetting act...

Aspect of it was just that we had active management, perform relatively well. So managers outperforming their benchmark from the economic market, is generally consistent with active management outperformance kinda historically. And so we do see here, active managers, protecting capital in the negative down market. There's nothing to report. Any concerns around the trust portfolios or the the funds and managers that we deploy in them.

Again, the performance, when we look order to date, in one, three, five, seven, and ten years is, well above expectations, for a trust. So we are comfortable with with the return profile as well as the risk profile for the trust that they're investing. If there aren't any questions, I would, turn to page four, and, again, look at the, financial reconciliation. You'll, again see, market values that that begin September, and and, on September 30. We do see the cap appreciation, for each each fund, reflecting those negative returns that we experienced in the month of September.

There was no contribution or distribution activity, in the month of September. As far as the decker decker donation trust, you know, we we believe that portfolio is allocated appropriately. We would not recommend any rebalancing. There is cash efficient, for any, upcoming distributions, and we would not, really recommend a change at this time.

Thank you. Are there any questions on attitude? Seeing no heart. I'll take a moment.. Is there?

As commissioners may be aware, there's a citizen petition finding its way to the November ballots here in Providence that has potential implications of this work. So in order to be proactive and thinking about those implications, we invite the same solicitor here today. Invite Jeff Dana to the table to give us quick free food. So

just start out. I want to... Since I haven't had the ability to interrupt very frequently with this book, the city law department is the, essentially, the in house law firm for the city of Rockets, which means that our client is the whole city government, which includes giving legal guidance to every board and commission in addition to all of the officials and officers. Once... With this particular issue, were sufficient signatures for this potential ordinance to go on ballot, a number of city officers, council members, members of the administration reached out for some legal guidance.

And in response to that, we provided our initial legal analysis and legal guidance, and that is between attorney and client. And as much as in the law department, we we like to remain in a legal bubble, and we... Our mantra is we are passionately dispassionate. We don't... We just give good legal advice, or we try to give good legal advice, and we do not weigh in on policy decisions because that's not our role.

But it's it's... I am aware that some of our initial guidance has made its way out to the public domain and have received some communications from folks who are not thrilled with what they view as our initial legal analysis. I don't... I've not received any communications actually providing contrary to legal analysis. It's just that that our initial concerns are not welcome.