Adoption of MGL 203C, Sections 1-11 Prudent Investor

Transcript (~10 min @ 1:04:36)

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▶ 1:04:35 Mark Garipay: Yes. That will get recommended to the full council. Thank you. Thank you very much. Your night. Next up we have, uh, order 2020 ID 2025 dash 63. The, the option of Mass General Law, 2 0 3 C sections. One dash 11 Prudent Investor. And we have ADA with us and she has a guest.

▶ 1:05:01 Speaker 5: Thanks. Evening floor was yours.

▶ 1:05:02 Speaker 11: Pardon me? The floor is yours. Oh, thank You. Uh, the order before you tonight Is to discuss the adoption of Mass General Law 2 0 3 C prudent investment for the investment of the city's trust funds that are currently managed under what is known as the Legal List until September, 2023. The legal list was the only option at the local level allow, uh, provided to municipalities under Mass General Law for the investment of trusts. And it has some significant limitations. Prudent investor addresses those limitations and allows for a more diversified and thoughtful approach to the portfolio composition. So with me tonight is Brian Grose from Bartholomew and Company, who is our partner in investment of our trusts. And he's going to talk to you a little bit about PR investor.

▶ 1:05:53 Speaker 12: Excellent. Thank you. We've been working with the city since 2012 as one of the investment partners. Um, one of the big changes, uh, since this has gone in September of 2023 is, um, currently your OPE funds are currently invested under Chapter 2 0 3 C. This is allowing your, uh, your long-term funds, such as your cemetery, perpetual care, scholarships, and trust funds to be invested in the same manner. Uh, what that does, as Catherine said, is it opens up the opportunity to invest, uh, in all different investment products, method and risk profiles. Um, very simply, it, uh, allows you to invest in a much broader investment vehicle. Uh, right now you're limited with the legal list of investments to 22 stocks, big blue chip companies. And, uh, when you go to PR investor, which is currently how your OP is managed with us, through us with the same type of investment vehicles, uh, it opens up the universe. There's no Bitcoin or Penny stock, so don't worry about that. Um, I can go into more detail. That's kind of high level. Uh, the best way to look at it is, uh, what ka uh, Catherine sent to you on the bar. White paper. Prudent investor gives all the details. Um, I can open it up to questions.

▶ 1:07:09 Speaker 5: Do, does any councils have any questions?

▶ 1:07:16 Speaker 3: Council Stewart, what will you be investing in?

▶ 1:07:19 Speaker 12: Oh, what will we be investing in? Well, it's gonna open it up to a, a global diversified portfolio. Uh, we have a, Um, Well first of all, what we're gonna do is we're gonna understand the different assets that, that are going into that. Okay. Um, are you familiar? Well, it will be invested very much ETFs, stocks, actually, excuse me, mutual funds, ETFs. It opens up the doors for that. Um, US and international mutual fund et TF stocks, bonds, alternative investments, private markets. It opens up the doors to, um, we have that currently in your opep. Sorry, I only need most to read. Uh, we have that in your Opep account, but it opens up that door.

▶ 1:08:03 Robb Stewart: Mr. Amato, what, what's our current return and what, what is, do we have a forecast for expected return based on this?

▶ 1:08:09 Speaker 11: Well, if, um, Do you wanna go

▶ 1:08:13 Speaker 11: Back? Okay, you're, I can't read your writing. I'm sorry. Oh, sorry.

▶ 1:08:17 Speaker 12: Is it alright if I answer that

▶ 1:08:19 Speaker 6: 12% roughly, please.

▶ 1:08:21 Speaker 12: Okay. So I just pulled the last three years and five year averages. Uh, you have to keep in mind that, you know, returns, you have to be careful with the returns based on when you made the deposits and withdrawals. And that does take that into consideration. But the legal list investments, which is representative of those 22 stocks that we talked about, Mm-hmm. That's a 10% equity exposure. The last three year average was 5.41, and the five year was 3, 3 6. In your ope, which is prudently invested, uh, which is 70 30 portfolio, we're recommending a 60 40 with these type of funds, which is slightly a little bit less riskier. Uh, that three year, just to give you an, uh, average was 13.40 and the five year was at 7.56.

▶ 1:09:14 Speaker 3: You like those numbers better?

▶ 1:09:16 Speaker 12: Quite significant. Several hundred basis point change. Yeah, Absolutely. Absolutely. And more diversified, um, as well.

▶ 1:09:23 Robb Stewart: And, and what's, what's the amount of equity that we have invested?

▶ 1:09:27 Speaker 11: What is the amount? Yeah, it's approximately four and a half million. Most of it with cemetery funds.

▶ 1:09:33 Speaker 3: Okay. Okay. We can't,

▶ 1:09:35 Speaker 11: we can't invest the stabilization funds in this.

▶ 1:09:38 Robb Stewart: Right. So we're, we could be drawing decent amount then off of these. Right. We could A couple hundred thousand dollars on a yearly basis. It's great. Great. Wonderful.

▶ 1:09:48 Speaker 12: Yeah, I get excited. We work with, uh, 330 municipalities entities across the state, uh, which represent about 80% of the cities and towns in Commonwealth. Uh, I get excited about the cemetery funds because those pretty much, a lot of cities and towns have had those pretty dormant. And with budgets of being tight, you can now put those to work. If you had that in a money market in the last 10 years, you'd be lucky to get one, one and a half to one eight. Oh, right. You can target now six, 7% return depending on the equity Exposure. Yeah. Super. So we can put that to work so we can handle some of those gaps. Because the trust fund, I mean the cemetery, perpetual care is the only thing that really impacts your budget. The trust funds and the scholarships, those are already, you know, that doesn't really touch the city. It's under your purview and under your, um, stewardship. But quite frankly, that doesn't benefit the city. The, the extra earnings targeted for the cemetery perpetual kit can be used for mowers, blowers, tractors, maintenance roads, no employee costs, but all those such.

▶ 1:10:45 Robb Stewart: Any downside. Do you see any downside?

▶ 1:10:48 Speaker 12: I don't see any downside. Ms.

▶ 1:10:50 Speaker 11: Um, not any more downside than you have with the legal list. There's always going to be ups and downs, but you are providing a much more diversified universe, uh, in which to invest. So it should smooth out.

▶ 1:11:03 Speaker 3: Great news. Thank you, Mr. Thank you. Council Ro?

▶ 1:11:07 Speaker 2: Yes, thank you. I just, um, wanted to clarify. So this is a change due to mass general law? Yes. Okay. And so where, that's just a state law that came out

▶ 1:11:17 Speaker 11: that it it's an option. Yeah. Okay.

▶ 1:11:20 Speaker 8: Mm-hmm. The MA that's recent, I'm sorry,

▶ 1:11:20 Speaker 12: Massachusetts Treasure Collectors Association has been trying to pass this law for the last 10 to 15 years. Uh, there was some sticking points up at the leg, uh, at the State House. Uh, once their clarification had passed, uh, they had asked us, uh, once they had realized, uh, that for the clarification, it finally passed, allowing Chapter 2 0 3 C to be invested in trust funds.

▶ 1:11:47 Speaker 5: Good. Thank you. Council. I'm sorry you all that? Mm-hmm. Council Armo councilor

▶ 1:11:51 Devin Romanul: Asked my question, so I'm also Thank you.

▶ 1:11:57 Speaker 5: Anyone else? I, um, council Williams,

▶ 1:12:03 Speaker 6: Um, are specialized instruments like climate ETFs included in the allowable list of funds that you can invest in by accepting this?

▶ 1:12:10 Speaker 12: Are they allowable? Uh, so we file the, the investment policy statement that's drafted. We can handle all kinds of investments such as ESG, uh, and whatnot. But that would be constructed by the, the boards that are, or, uh, the trustees or the boards that are, uh, in charge of that. Sure, sure, sure. But we could do that. We can handle that.

▶ 1:12:31 Ryan Williams: Do you feel that the, um, prior to acceptance of this MGL chapter, do you feel that it was, that the, the funds are more constrained against this? So are they, is it harder to invest in these sort of purpose-based ETFs and mutual funds? If you're just following the legal list? Is it easier to invest in them if you accept the MGL chapter we're talking about here?

▶ 1:12:51 Speaker 12: So prior to this provision, you really had to follow the 22 stocks period. Mm-hmm. And it was updated by the state, uh, once a year. And that list has been, it hasn't changed since the eighties. Uh, anything, what it's done is it's dwindled. It used to be 40. Mm-hmm. Um, so it's, it really hasn't changed. So it doesn't, it didn't allow you to, you, you had to buy an individual stocks and bonds period. And it had to be specific companies, railroad bonds, uh, and such. Does that answer your

▶ 1:13:24 Ryan Williams: Yeah, I think so. I, I, the, the question I'm getting at is whether or not this opens the door for Melrose to consider putting any investments into these sort of specialized ETFs that are, you know, themed. Right. So like the big one is climate, you know, fossil free funds and things like that. Um, where, given that the return might be sort of similar, you wouldn't want to like severely disadvantage the fund, but you can also then apply a little bit of the community values, um, perspective into the investment portfolio as well.

▶ 1:13:52 Speaker 12: Yeah. We're very independent. We work for the city. So whatever we draft inside the investment policy statement, we'll follow to it t Cool.

▶ 1:13:59 Speaker 6: Alright. Appreciate your time. Thank you.

▶ 1:14:02 Mark Garipay: Um, council of Vandiver, were you next?

▶ 1:14:04 Kimberly Vandiver: I was just going to motion to recommend. Second.

▶ 1:14:06 Mark Garipay: We have a motion to recommend by Council Vandiver seconded by Council Ro on discussion. If I could just say, I'm actually very excited about this. I was on the cemetery commission. We had looked at seeing if we could do something because we were bringing in a half a percent. And once the cemetery closes, we need the perpetual care to continue to grow. So it's not a, a drain on the budget. And I think the perpetual care is somewhere about three and a half or 3 million bucks in there. I would, I would assume so. That's exciting news finally, that they're, they've made the change. Um, we will take a roll call vote if there's no one else on discussion. Mad

▶ 1:14:43 Speaker 3: Vice chair Aldine? Yes. Councilor Occhio. Yes. Councilor Karen Chetty. Yes. Councilor Osky. Yes. Councilor Romanul. Yes. Councilor Stewart? Yes. Councillor Vandiver. Yes. Councillor Williams. Yes. President Elli. Yes. Chair Garipay.

▶ 1:15:02 Mark Garipay: Yes. That will get recommended to the full council. Thank you both for being here. Very thank you. Goodnight.