Naples trustees approve moving small‑cap mandates to Russell 2000 index, weigh bigger fixed‑income allocation and pause new private‑credit funding

Trustees for the City of Naples’ three pension plans spent the bulk of their March 6 meeting on investments after a Greystone Consulting presentation that showed strong one‑year performance and reiterated a long‑term return target near 7%.

Scott Owens of Greystone (a Morgan Stanley business) told trustees the plans’ one‑year return was in the mid‑teens and repeated the board’s stated objective of targeting about 7% over the long run with the lowest reasonable risk. "For the year, our return was over 15%," Owens said. He also noted the board had added private credit after December 31 and that recent reallocation activity had reduced portfolio volatility.

Trustees debated manager performance, with several noting that two small‑cap active managers (Silvercrest and another small‑cap manager, referred to in the materials as DfDent) had lagged over recent periods. Citing fees, tracking error and the difficulty of beating the index in that segment, trustees moved to replace those active small‑cap allocations with a Russell 2000 core index blend across the General, Police and Fire plans; the motions passed by voice vote.

"Let's compare both up, blend them together, it's 4% of the portfolio," one trustee said in arguing the change would save fees and reduce manager selection risk. Greystone noted small‑cap active management represented a modest share of the portfolio and recommended an indexing option if trustees wished to eliminate paid active risk in that sleeve.

On fixed income, trustees discussed proposals to increase publicly traded fixed‑income exposure (roughly 15% at the time) toward about 20% to raise dependable income for benefit payments. Options included unlevered high‑yield or preferred‑share funds and adjusting incumbent managers; Greystone and trustees debated trade‑offs among income, credit risk and duration.

Private credit: trustees also reviewed recent deployment to the Blackstone private credit vehicle (BCRED). Several trustees raised concentration and valuation transparency concerns (noting some public market sister vehicles traded at discounts); the boards voted to maintain the fund at current funded levels but to add no new money until further review and more reporting.

Motions and votes: The General, Police and Fire plans each approved motions to move Silvercrest and the other small‑cap manager into a Russell 2000 index (voice votes). Trustees also approved a motion to maintain the current private‑credit allocation and to direct any future redemptions or liquid inflows to cash until trustees review options.

Next steps: Greystone and staff will return with specific manager or index vehicle recommendations, yield/credit options for fixed income, and implementation steps. Staff will document trades using the Morgan Stanley platform and report back at a subsequent meeting.