Northern Essex Community College
Board of Trustees Audit and Finance Sub-Committee Minutes
Wednesday, February 14, 2024
Attendees: Trustees Jennifer Borislow (via Zoom), Jouel Gomez via Zoom (via Zoom), Lloyd Hamm, and Evan Silverio, President Lane Glenn, Michael McCarthy, Anthony DeGregorio, and Linda Buckley, Note-taker
Guests: Jim McCarthy, Dylan Connolley, and Matt Perachi
Chairman Hamm called the meeting to order at 4:12 pm. The minutes of the December 6, 2023 meeting will be approved at the next meeting due to time restraints.
Introduction of GWK Investment Management
James M. McCarthy, Chief Investment Officer of GWK, and his associates, Dylan Connolley and Matt Perachi, provided the committee with a review of the investment portfolios for NECC, as shown below.
Performance – looking at performance as of the end of January the portfolio had returned close to 9% over the last 12 months, 3.9% over the last three years and 9.6% over the last five years. Performance was driven by strong growth in large cap stocks. The large cap holdings in the portfolio returned over 23% on the year. Equity markets were driven by large cap growth stocks especially in the technology sector. Other areas of the equity markets had much more subdued returns. Mid cap stocks returned over 12% but small cap, international and emerging market stocks were slightly negative on the year. The fixed income portfolio had returned roughly 1.7% on the year as it begins to recover from 2022 which was one of the worst bond markets in history. This was driven by a dramatic increase in short term interest rates by the Federal Reserve causing much higher than expected movement in the bond market. In November it became clear that the Federal Reserve had started to make progress on inflation and then in December they signaled interest rate cuts for 2024. The fourth quarter of 2023 was one of the strongest in the bond market in many years.
Allocation – portfolio has roughly 64% in stocks and 36% in bonds and cash. We feel this is reasonable at the current time as interest rates in the bond portfolio are much more attractive and equity markets have hit new highs. We currently have no changes to allocation. The guidelines allow us to allocate up to 70% in equities and if there is a market pullback we might look to increase our allocation.
Outlook – we have been very pleased with the economic environment as data continues to surprise to the upside. Equity earnings showed strength in the first quarter and we believe that the decrease in earnings we have seen over the last year has bottomed. Markets entered the year believing the Federal Reserve might cut interest rates as many as six times but that has now pulled back to three possible cuts. Equity markets have taken this in stride as the economic numbers continue to boost the markets. Inflation has been holding steady and the Fed will wait to see further progress before they cut interest rates. Our expectation would be to see interest rate cuts later this year. If the Fed is able to start cutting interest rates and the economy remains strong this could be very positive for markets.
Custodian – GWK recommended a move to Charles Schwab from FNZ. There have been growing issues with FNZ since its purchase of State Street. Schwab is GW&K’s largest custodian and will result in cost savings in regards to custodial fees. Schwab does not charge a fee, only $5 trades on bonds. FNZ was charging 5basis points on the overall relationship.
In the Approved FY2024 QT 2 YE Projection Notes, the Key Assumptions made by Vice President Michael McCarthy were as follows:
Key Notes
· QT. 2 projected YE Tuition & Fees Revenue represents a decrease of ($610k) or (2.69%) from the approved FY24 Supplemental Budget. Based on YTD QT. 2 actual reported completed credits of 62,193 which is a decrease of (1510) from the approved FY24 Supplemental Budget.
· QT. 2 Student Financial Aid (SFA) increased slightly by $129k or 1.56%; resulting in a projected annual discount rate of 37.65%.
· QT. 2 projected YE Grants & Other Revenues total $20.8 million; representing a decrease of (379k) or (1.79%). Decrease was driven by the Governor’s FY24 State Budget funding reduction for community colleges’ SUCCESS award.
· QT. 2 YE projected Salaries & Benefits increased by $2.39 million, projections include actual paid unions’ and NUPs retros and raises.
· OT. 2 YE projected Other Operating Expenses is $15.4 million, a decrease of ($480k) from the Supplemental Budget. The decrease is from various operating expense categories.
· QT. 2 YE projected Depreciation Expense was increased by $705k to $4.7 million, to recognize the new YE FY23 capital assets.
· QT. 2 YE projection for State Appropriation has increased by $2.1 million to $35 million; projections include actual paid unions’ and NUPs retros and raises.
· QT. 2 YE projected Net Investment Income is $1.2 million, similar to FY23.
· QT. 2 YE projected Capital Appropriations of $1.4 million represent an increase of $935k for our current planned projects to be completed by 6/30/24.
Results in a QT. 2 YE FY24 projection of a positive increase of $14k Change in Net Position. The Approved Supplement Budget was a $290k positive increase.
With no further issues, the meeting was adjourned at 4:55 pm.
Respectfully submitted by Linda Buckley. February 28, 2024
