CITY OF PONTIAC, MICHIGAN

discretionary income to fill up their vehicles and SUV’s. Managers will setup a thesis based on a
volatile market and how this will drive small cap and other high volatile stocks. This could
change the impact of the Middle East.
Kelly Ko from Lombardia Capital said that they are a bottom up manager. They would wait to
see how valuations within a sector react. They have already skewed toward oil and expect more
volatility and will see the change in the pricing of raw materials and in other sectors that will
affect rising consumer prices.
Allen Meyers from AMBS Investment Counsel said that this affected the screening at the
beginning of the month in their portfolio. They have increased their exposure to larger
capitalization stocks in the portfolio due to the lower price to earnings forecast for these
companies. They are still finding good reads as potential candidates.
Mr. Kuhn asked the managers about the banking issues in Europe and whether the stress test is a
complete farce. He asked what could happen to imports if banking systems fail in Belgium,
Greece, Spain, Ireland and France.
Rick Plummer from Systematic said that their portfolio is well positioned. They are mindful of
the insurgence and the financial issues affecting Europe. They are well capitalized domestically.
Joe Gatz from Loomis Sayles said that the financial service companies including banks have
improved their capital structure and his portfolio is pretty well insulated due to the regional bank
focus. By the third week of April they expect to see European financial services take a big hit so
they have positioned themselves away from European issues.
Michael Santelli from PNC said that money market funds are efficient and guaranteed at the
value of the dollar. A significant amount of money market funds are off balance sheet
investments and what is owned by more European owned banks. They are 8% capitalized and
may be impacted by mortgage underwriting at 20% to30%. A lot of bank capital is invested in
mezzanine in the real estate market and within two to three years the capital could be wiped out.
Chairman Harrison asked the managers when they look at financial investments in 2010 why are
banks holding on to large amounts of cash. Are they making their money on fees When you
look at GDP growth at 1% to 2% and now at 3% what is holding them back from doing business
with consumers,
Mr. Plummer said that banks are making loans. There is construction loan runoff. They are
waiting for the economy to fully recover, for demand and good projects. It will be a slow
process. They will issue new originations to offset loans coming due.
Mr. Cahill said that financial services performance is up 37%. They are starting to see banks
lend.
Chairman Harrison asked if banks have leveraged cash or are they growing by fees.
GERS Special Meeting Minutes
February 22, 2011 - 6 -