Create meeting minutes based on the transcription
Brendan: Did everyone get to read the minutes of the previous meeting.
Maureen: Yes. Motion to move
Brendan: Any questions for that about the minutes? Does everyone want to make a motion?
Maureen: Motion to move.
Sheri: Second.
Brendan: A motion is approved, then. So, Jim Lapine had called me up and you had kind of circled back with me. There was a follow up discussion around passive versus active management. So basically, we had a little kind talk with him, Eileen and Maureen were on the line and a couple of people from the fiscal affairs committee as well. So anyway, so we did have a follow up discussion. So anyway, so we had kind of a group discussion and we explained to the people on the fiscal affairs side about Artemis and their style. And we looked at a couple of slides that are in here. Eileen and Maureen, you want to kind of lead the way here a little bit on this stuff since you guys are really much more in tune with what’s happening in the marketplace from that perspective.
Eileen: I think simplistically active and passive is an active versus passive styles of investing often comes up in this sort of context. And the chair of our board was raising the subject because he wanted to make sure it had been considered more than he had a bias toward one or the other. We had a call to talk about it, I guess many months ago. Six months ago or so, the Artemis folks had gone to the to a board meeting to present their perspective on the subject. When we had the call with John McEntee a week or so ago, I put up a couple of extra slides which sort of tries to get at sort of the explanation as to why passive has far outperformed active in the recent past. And the slides which are included on the board effect posting basically speak to the issue that there have been huge flows of money into passive products over the last many years as availability of these products has grown and there’s been huge proliferation of offerings of passive type products, the backdrop of sort of an easy money policy on the part of monetary authorities both here and around the world, has basically prompted an environment that sort of lifts all boats. So, people put money in the market, and everything comes up. And there’s been very little sort of focus on the fundamentals. And so, we all know coming through COVID technology growth loss was sparse and technology was the part of the landscape where there was visible growth. We had great concentration grow in the S&P and some of the other major indexes driven by very strong outperformance by a handful of very large technology stocks. The thought process is now the backdrop basically has changed. The monetary authorities are pivoting from an easy monetary authority, which prompted great multiple expansion, valuation expansion to start to raise interest rates. The inverse is happening. If you look at our year to date basis now, the S&P is down just about 4%. The NASDAQ is down 8% plus. The market basically rotated in recognition of the change in the backdrop, the higher growth components of the market have been hit the hardest. I think a good, healthy sum conversation about the subject. John asked Maureen and I to come to the next board meeting to talk through it a little bit, to I think the thought process is that a combination of both may make sense. I mean, you see on the days where the market wants to go up, there is a rush when especially retail investors have been much more active recently than for the long term. When money comes splashing in, it does it continues to move into these into these ETFs and other passive vehicles. We’re not saying that’s going away, but the incremental we’ve seen the most incremental impact already passed. A combination of active and passive probably is the best place to be. When you look at the portfolio that Artemis has built for Molloy, there is a combination of different types of vehicles.
Maureen: I think you give it a great summary. I think that’s exactly it. I think Artemis has already taken advantage, as we’ve heard from their presentations. They were concerned about the market. You don’t want to miss a running up market like this. That’s why we have the QQQ. It’s obviously helped, but they also are positioning us to be protective with the volatility and a shift to the value side. I think that’s what they’ve accomplished on our behalf. It not unusual for a CIO to be doing this in this marketplace?
Brendan:Yeah, I think they’ve done a very good job considering the circumstances. I think the conclusion we came to in meeting was, you know, we’re no worse off the where for the process that we deployed. But when you kind of lift up the covers a little bit, you know, the reality is that our path of our active investor, our active managers have done horrendously. In the last five years. We don’t even I don’t think we have one winner. Like we’ve had to kick them all out over time because they’ve underperformed. The question from my perspective is, is this just become too difficult a game in that regard or is it just is it just luck again against us? Obviously, we did find from an investment perspective. But even in this, like if you look at this report here today, the are like we have like we only have like one or two active managers in the portfolio and they are grossly underperforming. The one thing that the active manager has that the that the passive manager doesn’t is the ability to pull out of the market. I think we need to hash this out a little bit a little bit again here. We got to this place, despite all of having these active managers, because of Peter’s ability to sidestep the downturn and to be in the areas that of the market and he did the best.
Eileen:I would just say that when you make the comment that they’ve done a great job. Yes. But this quarter is god awful. When I look at this, the value manager should have defended this is not a good number from their value manager. The growth manager obviously had a very tough quarter, too. I think both portfolios are relatively concentrated, which is meant to be opposite sort of the index. It’s very diversified. I think we should be looking for the explanation. I think all when you make the comment about our active managers not doing well, that was the chart that I had, 87% of active managers underperform. I would have hoped for better numbers from all three. The QQQ exposure which has helped us greatly, has hurt us.
Brandon: My feeling is we don’t have a huge amount of diversification. The point from that perspective is that we went through the high flyer with for the QQQ and we kept our cash position high, which was good, which was a good little balance there. Market really went down. We had money on the sidelines to come back in and do and work with it. Ultimately I just think that there’s nothing wrong with being an active, passive, active manager and passive investments right there. I feel that our portfolio is so small that, you know what, we probably a little bit better off, at least what I would say favor some of these things as opposed to using the active managers for specific things that they’re experts in.
Eileen: I think just following on to your last comment, Peter used the QQQ as a proxy for growth allocation, and that worked until recently. So I think and now we have the two managers, I think basically across the board now given the concentration in the S&P. A complement of active managers to a passive core is a good thing to is a good place to be.
Maureen: But they were right until recently. Right. That was a very good call.But I also think we have to just be careful that they weren’t trying to hedge both angles. That being protective and then also throwing the shoe in there with the market running, that did benefit us. But at the end of the day, as you said, Eileen, they didn’t really chime it or move us actively or quickly enough as the variables in the marketplace changed. So, if they’re going to play in that area, whether they want to pick up the aggressive growth side because of the way the market was, they needed to be a little bit more. Well, we’ll hear today why they weren’t or what they missed or what they think is happening. I think that’s something we have to question.
Eileen: So just one final comment, too, on the subject of their manager selection. We acknowledge generally active managers have had a tough time, but we’ve had significant turnover, especially in the alternative components of this portfolio. I think we have to stay watchful in terms on the subject of manager selection. You know, on the non alternative component to so, you know, and in the same context, I think the recent quarter was disappointing in terms of both of these managers. But I would say generally as I’m going to meetings myself with clients, it’s been a very difficult quarter for everyone, you know, and it’s and you know, and so I’m sort of somewhat patient in watching.
Brenadon:I’m feeling a little differently in this. If it was like a 50 50 flip, some guys did good and some guys did bad. Like I would feel like, all right, well, that’s just it’s very hard and it’s a difficult business. At the end of the day, you know, you got to take your lumps. You got to be happy when you make money. So, and I know I know how that works. I just feel that we haven’t had that’s been a real kind of dark spot on what we’re doing here. We got lucky in this last round up because we had high cash, high shock concentration. I think that for such a small portfolio, like we have a little more diversification in other where we can in different segments of the market or sectors, you know, might be a better strategy because we just don’t have that much money to deploy. Like giving this guy $2 million or this guy 3 million. You know, it’s. I don’t know if it’s worth their while either on the other side.
Maureen: So, a couple of things about that. And I feel like we jump it a little bit ahead of the game because what you are raising Brendan is more about is the right person or manager for the way we want or expect the portfolio to be managed. I would like to suggest maybe we hear what they have to say now. I think we’ve identified that really they have to explain the situation that they’re there in, in terms of why they’ve done what they’ve done. We have to ask the questions that we’re talking about here. But as far as directing them to do different management, it would be less concentrated. I don’t want today to look like that because then that runs the risk that we’re directing, and I don’t want to be in that position.
Brendan: I’m saying that our discussion here is a function of us setting the investment policy for Artemis going forward. Basically, to some degree what I’m thinking is that we should we should be considering changing it to reflect. I’m saying should we be rethinking how we allocate these resources?
Maureen: I think I can’t even respond only because I need to hear what their what they’re thinking right now.
Brendan: I totally agree. There’s two things on the Artemis side, they’re just doing the same thing they’ve been doing for a while. Find a manager here and take position the portfolio there They have been doing the same thing for six years. So, I’m not complaining about it. Our responsibility are we supposed to acknowledge that as a as a group, we it is our job to set the allocations and to approve of the asset classes and things like that. Should we and we direct them. I don’t to be honest, we shouldn’t care about stepping on somebody’s toes and their ego and all the other nonsense. If he’s still going to get paid when he gets paid, that’s all that matters. If it is from his side, he’s managing the money and by him managing the money, and we ask him to do it a little bit differently. we’re not taking the this the so much exposure in like concentrated like single. We only have two managers and they’re managing a lot of the money from both on the equity side on both of our portfolios.
Chari: Yeah. I would just take you back to and say that I think we really need to hear their side of the story before we get into a case where we’re kind of micromanaging the way that they handle their investment selection. It has been a tough quarter for everyone and a great one as well. I don’t think it was by any accident that we had the cash in the QQQ positions. Whether they didn’t move quickly enough or whatever the situation is, it’s something that that we should hear from them first before we start to, I think, go down that path. But Brendan, I agree that’s something
Brendan: We have responsibility here, too. Let’s listen to what they say. But this is this is just one quarter anomaly in the marketplace. Half of it’s come back already. I’m thinking more along the lines of should they have all this free reign to be able to put these high concentrations of our money in specific things? Or should we tone them down and force them to be a little more conservative? Or would we fire them and find somebody who wants to do that? I only speak that way because I like to raise I like to be the other side of the argument.
Maureen: I also don’t want them to walk away with any understanding that we want them to do something different. Because I’m not saying that.
Brandon: I’m not saying that either. I’m just saying I’m thinking about us. What’s our job?
Maureen: I think that’s that makes sense. All right, let’s see what they have to say.
Eileen: Exactly going to belabor the subject of active versus passive with them? They have basically explained their perspective on it. I don’t think there’s any point to spending time that way either. I’d rather really have them talk about their performance and the outlook.
Susan: So is it ok to do the other stuff. So, when we were talking with Peter about the Goldman Sachs commodity index. And we he asked us about the fossil fuel, he was focused on that. We were focused on if we were allowed to have that kind of instrument. Recently Dave Devendorf said that our Exhibit B covered that type of investment. However, Brendan would like to also make a change to the definition of real assets so that it’s clear. That that type of a real asset would have been included. Simply saying to to change the phrase to includes but not limited to the definition of real assets. So, it used to say includes oil, gas, metals, minerals, timber and real estate, because one of the issues under that rock was that in that fund was livestock. We didn’t specifically say livestock was okay. So under the definition of real assets. We were suggesting that it just says includes but not limited to oil, gas, metals, minerals, timber and real estate. I’m not sure if Exhibit B needs any more clarification, but when Brendon and I discussed it, we thought it did not. We thought we got we got to had they said we believe it’s covered under your exhibit B. we would have gotten comfortable with it and perhaps moved forward with it. But because we couldn’t find that we were allowed to invest in fossil fuel and livestock, we hesitated.
Eileen: He did the right thing reaching out.
Susan: at 6:35pm are you guys ready Ronald and Dave.
Dave: Peter is not coming but we’ve got some comments from Peter, so it’ll be handling it ourselves right now. March numbers which obviously have been better, but as of right now is you had a fiscal year to date as of February 28 of -4.9% for the fiscal year for non restricted, down about 4.7 for the restricted as of today, that has gone up to slightly under 2%. We think you’re down about 1.9% for the non restricted on a year to day basis. The benchmark has gone from down 1.4 to 3, about 60 basis points, so down about 80. So we’re still trailing the benchmark by about 110 or ten basis points. But it’s obviously been a move in the right direction from the 490 down and it’s been primarily on the equity side. Page one really says it all. It’s been in the equity space and it’s been primarily on the growth orientation of our portfolio. We’re more balanced than we had been in the past, started like in the third quarter of last year, adding value, as you all know. But that’s really been the hit. Come back slightly again, but that’s the big hit. Underperforming 655 to 222 as of the end of February. Fixed income has primarily kept pace. An alternative has actually done slightly better. We do not have yet the breakdown and I haven’t seen the policy numbers yet. They typically do pretty well in a down market and basically the same situation on the on the fixed on the restricted portfolio. So moving in the right direction in terms of March, but still underperforming on the benchmark basis for the fiscal year to date. A couple of comments are fairly consistent with what we’ve seen in the past as far as what Peter’s saying. You know, the inflation spike has been dramatic, but we do expect the economy to remain quite strong this year. A lot of focus is on products as a goods expenses as opposed to the services. So services should still be generally pretty healthy. It’s all coming down to what the Fed is going to do. We have not yet seen any signs of a significant credit contraction. There’s been some tightening of conditions, as we’ve all seen, but we have not yet seen the credit contraction as we measure it. A lot of attention on the yield curve, which we applaud. But the attention has been primarily on the two year to the ten year yield inversion. Two points to mention that typically gives has given false signals that give a false signal in 1998. An inversion occurs, the market doesn’t start to decline right away. It goes anywhere from 7 to 19 months, still positive returns. That being said, when the yield curve that we follow three months to 30 year inverts and certain other credit indicators make it look are deteriorating, we will probably not wait very long to get defensive on your portfolio. So what can happen right now? Right now, the three months, the 30 year is still in good shape. If the Fed raises the 2 to 2 and a quarter, you know, that’s going to be pretty significant flattening of the turn, which would be hitting both the asset prices as well as the as well as the economic activity in the US. The bigger question is what happens on the long end of the curve. You can have a you can have a positively slope yield curve if the short ends at 2% and the long end goes to four, four and a half percent. But that’s certainly not going to be good for a portfolio because now you have fixed income definitely competing with equities. Absent any major geopolitical thing going beyond what we’ve seen so far, and if the outcome is somewhat along the lines of kind of a stalemate or managed resolution of the next 3 to 4 months, we do feel we’ll probably have a rebound in the market and a slight positive to the equity market in 2022. That being said, as we’ve said in the past, we are living on borrowed time and we find it very unlikely that the Fed will be able to navigate this with all the challenges, the high level of debts, the high level of markets and so on, without something without something going wrong. So at that stage we would, for our taxable clients, probably recommend some hedging strategies. And in the case of Molloy, it would probably just be a reduction on the equity side of the book. But again, I would say best guess that that occurs at this stage, probably fourth quarter of this year. If it happens this year or later, 2023 is much more on our mind as being a problem. So that’s a very quick, very, very quick review of the overall asset classes. Is there anything else I can kind of go over in more detail?
Eileen: So Dave, to me the performance for your value manager was quite disappointing when you look at it.
Dave: No disagreement? No, I think that and Brendan had asked a little bit of history, I don’t know if I’m allowed to share a slight I don’t know if I’m if I’m authorized to share on this. I think probably not. So we’ll just see if I can share a screen maybe. No, I’m not able to share a screen, so I’ll send this to you guys separately.
Dave: What you’re about to see is the 2016 Brendon asked for performance 2016 to 2021 of active versus passive. Okay so let me walk you through the two slides here. This is the annualized return from 2016 to 2021. The blue is the S&P 500, the orange is Q. Q. Q, gray is RSP. Rsp is the equal weighted ETF on the S&P 500, gold is AKRIX. That’s our growth manager. The blue is EGFix, which is Edgewood and the green is HS, which is no longer in the portfolio. So what you’re looking at is a five year annualized return on the period and they’re at the top. The Bobby’s two clear winners are the Q. Q. Q as well as Edgewood. Edgewood being a pure growth manager, but they have sector exposures that complement what we saw in the Q.Q.Q and that’s what we adopted them in the portfolio. Then we drop down to the next area, which are also active managers. The green, which we are no longer in, is the is Harry Segal’s, I would say primarily a mixture of growth and equity and then operate in gold. That’s the 21.20 2.3 versus the S&P of 20. And they are technically a pure value manager, but they’ve had some issues in terms of individual names. So, you can see the returns, annualized returns that actually EGFIX and particularly ORCA had done well over this time period as at all active. When we look at a manager, I mean, we look at change in process. We change in personnel or change in the assets under management. Anything significant on that side? And we see nothing of that happening in Edgewood. So we think part of it is partly reverse of the reverse of some of the positions that they had, but generally just individual names. They did have some on the IT side. So they’ve done a little bit on the growth side, but not enough to make us think that they’re moving away. But we’re in touch with them on a on a regular basis. We speak like every couple of weeks. We can give you more breakdowns on individual names and things like that. But this is just one of those unfortunate times when a very high quality manager over a long period of time is just in a difficult situation. Now, one thing about Auxrey that did mention is that they have a number they were probably will be a fair amount of turnover this year because they see a number of names that they did want to make have had on their list to invest in also Edgewood as well and they see some fairly attractive pricing. They haven’t shared the names with us yet. If you go to the next slide, I think there’s something that Peter had spoken with about in the past. You know, again, the issue that we try to look at is as important as previous years. We’re trying to understand what happens in the next stage of an economic cycle. We’ve gotten very accustomed to the outperformance of passive over the active managers, but we look back here in the timing of the last cycle. We’ll also send you tear sheets year by year on each of these, but here you basically have three. Edgewood didn’t start until later, so it wasn’t for the full cycle. But AKRIX was there on the full cycle. We are absolutely convinced that we are have seen no reason to move away from our process of evaluating the cycles. We absolutely believe that OPERATE is an excellent manager in this space. We are, as I mentioned, looking at another manager that we have in the portfolio, Alpine that has been I mentioned the to the last meeting. They’ve been approved but not yet invested in. So that will be adding to the portfolio probably on the value side and compliment to operate. But yes, I can I concede the performance issue and we’ve been disappointed, but it hasn’t violated any of our any of our investment parameters.
Eileen: So when we look at the allocations, this is still a domestic equity component to the portfolio with a real growth bias. As you acknowledge, Edgewood was meant to complement Nasdaq. But when I look at the allocations, we’re really leading growth. So. I understand. So how do we think through the transition? When you mentioned another value manager, would that be funded from most likely from theQ.Q.Q. or from Edgewood? Where are we going directionally? And how do you do that in a market environment where we’ve sort of had validation that value’s a better place to be right now? When you look at the relative performance year to date of value versus growth, it’s hard to move the portfolio without feeling like you’re chasing what’s done best, right? So from your perspective, how do you how do you navigate this?
Dave: I’m going to defer to Peter for impress me. We’ve been we’ve been looking at this on a fairly regular basis and trying to deal with this. One of the one of the challenges, as you’ve seen right now, is in our particular move, in our particular view, the decline from a technical perspective, the technology and the Qs in particular has been way, way overdone and by any chart evaluation are really just looking at I mean, today again was a one date is not a market make, but the Nasdaq was up another 110 basis points. My sense is that you’re probably going to see us taking a very hard look as continuing a hard look on both Edgewood and ARKIX to see if they continue to have challenges. We’ve known these guys very, very long time. I’ve never had a problem to this degree, but we’re obviously living in unprecedented times. We do not anticipate significant rebalancing of the overall equity amount to your point, maybe slightly. We expect some rebalancing maybe this quarter. But as far as where it would come from, it’s really going to be dependent on the on the performance of the active managers. I do think you’re probably going to see more of a shift towards the value by the introduction of the new managers. It’s a question of timing right now. We could have probably made the same argument about a month ago, but the cues captured up about 101 hundred and 5080 basis points. So from a timing standpoint, I will defer to Peter on that, but I would say you’re probably going to see some come from the cues and some come from the active manager on the other side. If there’s no improvement in performance, but short answer is yes, you should have a better you should have more of a balance as we talked about us moving to from value to really back in the third quarter of last year, we spoke about doing this under a kind of a smooth approach. We ran into, quite frankly, the geopolitical events that made it very, challenging and very dangerous to try to do any active trading in this in that environment right there. So, assuming that technology has a rebound, I think you’re probably going to see a reduction on the growth side in favor of the new manager.
Brandon: The question, I mean, everyone talking about the inverted yield curve. And so with that kind of means, the Fed’s going to overcook the rise, the taking interest rates from 0 to 2 and one half percent in the next 16 months.
Speaker6: Right.
Speaker1: That’s what the market is is anticipating. And the the yield curve where people are saying, well, when the yield curve inverts like it is now, then are we supposed to be getting thinking about becoming more defensive? And from that perspective, you know what? So if you just looking into like next [00:54:00.00] year, that would be about the time when things are supposed to be potentially coming unglued with regard to the economy and higher interest rates and things like that.
Speaker6: I wouldn’t use the term coming unglued, but I come back to what I said. It will be very, very unlikely in our mind that the Fed will be able to navigate the multiple challenges and these challenges will take effect next year is our best guess, 0.1. to the yield curve, critical component, not the only component we look at. We look at senior lending activity. We try to finish senior loan survey. We look at a variety of spreads on the on the on the risk assets. On the equity side, we look at momentum indicators. So it’s not the only one. But again, we are fairly clear in looking at the yield curve that is really is the three month to three year and that people right now are focusing again. As you may recall, we’ve been talking about the yield curve. Well, even before, this is one of the key issues of how we how we how we manage the portfolio was not until after a wait that people really began to focus on it. We think the focus is warranted because it’s an indication of credit going in or out of a system. But the two year to ten year has false indicators. We’re going to stick with the three month, 30 year period.
Speaker1: Yeah, I actually have a different view.
Speaker3: Just so you know. Okay.
Speaker1: So right.
Speaker6: So that would okay.
Speaker1: So basically this is my game. Okay. So the long end of the yield curve. All right, the Fed’s just stop buying treasuries two and one half months ago. Three months ago. Right. They’ve been buying so many treasuries for so long. And there’s so many people that have been on the sidelines and cash. Hope interest rates go up. Now you have this situation where the rates are moving up and people are the long end of the curve is not moving because it’s underinvested at this point right now. What’s going to will eventually start to happen is now the chickens are going to come home to roost because the as the Treasury needs to issue more and more securities to pay for our $6 trillion and for the existing debt, the amount of supply is going to start to increase dramatically on a relative basis down the road. So right now, [00:56:30.00] the the yield curve is flattening, I think, because there’s still a huge amount of people under invested in that part. Everyone’s been sitting in cash for 15 years hoping for rates to go up or whatever. So. So. So I think that’ll take some time for that that to clear. But the reality is, you know, you have 7% inflation.
Speaker3: That money is gone.
Speaker1: So we’re going to start to run into a problem with gigantic outstanding Treasury debt and higher interest rates and that becoming a compounding effect on the amount of issuance in the future and eventually the yield, once this clears the yield curve, will will steep it out, especially if inflation remains above 2% and the short term rate is sitting at two and one half.
Speaker3: Right.
Speaker6: A couple of points. Yeah. And that I would get back to what, what Peter, what I mentioned from Peter’s comments earlier that the equally disturbing, as I said, is that the tenure went up to the higher level and it’s not unrealistic because it’s got a trade typically ahead of the inflation rate. You’re absolutely right. And that’s when we would basically say, look, it’s much more attractive with equity risk premium standpoint being in fixed income to equities. But I would make I would I would make probably just a couple of a couple of comments. It has not happened yet. Rates in the US are still more attractive than international. I haven’t I haven’t watched the latest auctions going out. I believe the coverage has probably been pretty good. I am personally much more worried, quite frankly, to your point about about fixed income debt outside of the United States, particularly in some of the emerging markets. Given what’s happened on the geopolitical side, that’s probably where I would be more concerned that we’re going to have a problem on that side. We’ve seen already with the US situation in just one number I didn’t mention, but even if you look at the equity markets again, [00:58:30.00] the S&P and the fiscal year is down to 20, the all country world index is down 617. So that means the international markets are down over 10%, probably E and so on. So what does that mean? It means basically there’s still a flight to the United States and many of the cases here. But you’re absolutely right, if this happens, the question is timing once the yield curve does invert. So two areas, once the yield curve inverts as we see it and other credit indicators come in, it’s close to game over. We become very defensive. We will take we will recommend [00:59:00.00] taking the portfolio down to the minimum allowed on the on the on the investment policy statement.
Speaker3: Point one.
Speaker6:For some of our active clients, we may even hedge like we did in no way down to no equity exposure, but that’s going to depend. Then obviously we’re going to go probably in in high quality fixed income credit to get again, not to try to make money in that individual environment, just try to not lose money. So that would be that would be what we would do in that environment. The other issue is to your point, if we saw suddenly a significant steepening up with the yield curve, that would again, that would be a problem. So so either one either scenario, if they don’t navigate either scenario, we’ll have the same outcome, which is a quadrant for environment credit coming out of the system and we move primarily sidelines and you’re going to have lower returns going forward. But we don’t think we’re there yet. We think right now there’s been a significant I won’t say overreaction. I am watching closely and we’re trying to get an understanding of this recent rise in the market. How much of this is due to rebalancing by by pension funds do typically same thing happen if you may recall at the end of the first quarter of 2020, March 31, suddenly the equity market in April was very, very strong.
Speaker6: There was no COVID vaccine. There was not even any new new information coming in. But what we saw was an automatic rebalancing of large scale pensions, public as well as corporate pensions, because their equity exposure was targeted at 60, went down to 48, went back up to 60. We’re in the same situation now. People are sitting on significant losses on their equity. So are they going to be doing the same thing because it’s a flow of funds argument that could push the market back up? Bottom line is we’re on the same page. We really are. We’re both. We’re both. We’ve been talking about this for a while. Our our challenge right now is not to put the not to run to the sidelines too early when we thinks things have moved to extreme in one direction, which is what we feel right now. But, yes, if you were asking me, do we expect to come to you and all of our clients and say, game’s over, go at a minimum equity exposure? I would say it’s highly likely by by the fourth quarter of this year sooner if the numbers deteriorate.
Speaker3: Okay. Anybody else would.
Speaker2: Would you just comment on the PIMCO dynamic income opportunities? I’m just less familiar with that than other PIMCO funds.
Speaker3: Yes.
Speaker2: Talk about the job performance.
Speaker6: Yeah. So let’s talk briefly about the PIMCO Fund. So PIMCO Dynamic Opportunities Fund was an equivalent of a high yield unit within PIMCO. There was a new issue that came out in the fourth quarter of first quarter of last year, which we participated in. It was a $20 price, came out of $20 brought by Morgan Stanley and a couple of other firms. Pimco has a closed end fund structure on basically what we’ll call some illiquid debt that typically [01:02:00.00] people would get in the, shall we say, in the private credit markets, where then you’re unfortunately locked into a three year transaction or a five year transaction. Think of it, Malina, as a unit within PIMCO. That acts in the intersection and is its mandate is to build a very diversified position of the best ideas of each of the areas that is collateralized loan obligations, that is high yield, that is international emerging markets, that is high yield debt, that is MBAs. Essentially, it’s a collecting point where they said, what we’re going to do is we’re going to have this in a closed end fund structure so that, yes, you’re going to have a change in that asset value, but you’re not going to be putting the client, as we’ve seen in the past, in a three or four or five year structure where they’re not able to get out.
Speaker6: We looked at it and we said what we liked about the idea was we like the fact that it was PIMCO. They had already done two other closed end funds of the same classification, both of which had traded at a premium. We liked the point about. The fact that they could they could they acted as a center point. And they were, I won’t say agnostic towards the different business units that they can get products from, but they were very, very diversified. I think their portfolio probably has around 115 positions. We like the fact that their leverage wasn’t huge. I think it was about once it could go up to 1.6 to 1.7. So all the signs looked pretty good. As you may know, we actually we got out of about two thirds of your position last year. I can get you the exact dates. Ron, do you know off the top of your head, when did we get out? I’ll get the dates to everyone. It was over the course of about a month or so.
Speaker2: On a profit. Best thing.
Speaker1: You see? Now you get.
Speaker6: Okay. All right. Ron, I’m not sure if you knew we about the timing on the PIMCO.
Speaker6: Okay. So getting back to PIMCO, it performed strongly last year. We got out of about two thirds. We’ve been disappointed in two issues. One was it did not have a lot of liquidity in the secondary market. And the second has been that the fund has traded at a bigger discount. Historically, we’ve looked at the underlying positions. It’s obviously been hit by what we’ve seen in the fixed income market in general and a bit more on the risky risk groups, but they haven’t changed their prices and so on. We are going to be waiting. It is still paying a very high dividend excuse me, distribution that has not deteriorated. So the underlying assets are performing in line with what they’ve done historically. But the problem is that it has not it has been trading at a discount. And I think it’s primarily a lack of flow on both sides. So it was a it was something that worked out and helped the portfolio. Last year, I think we ended up crystallising about a 9% gain on a larger part of the portfolio, but it’s been a very disappointing disappointment during this time. We will take a look at again, we’re supported by the yield or the distribution of I think it’s about 8.7 right now. But we do we do fully expect to be exiting that position. It’s a fairly small position right now in the portfolio and it will be exited, I would say, probably the next 3 to 6 months.
Speaker2: Thanks.
Speaker1: So is there any other questions for Dave or Ron? Now. Well, guys.
Speaker6: I appreciate it. I would like to suggest we keep the regular dialogue I think you’ve had with Peter commenting on a weekly or bi weekly basis. If this works, we’ll just send a quick blurb telling you of any changes, anything that’s going on in the portfolio. And we want to be obviously difficult, challenging times right now, but we want to be very open and transparent. So we’ll keep the conversations going and make sure that we have an update for you on a on a on a weekly or a bi weekly basis at worst. And please feel free to reach out.
Speaker1: I think, Dave, you guys, when there’s things that are affecting the portfolio, you mean you don’t have to just send an email just because it’s Friday? Only if it really matters. If there’s something going on that that’s of interest to us would be fine. Aronoff All right. Well. Thank you very much, guys.