The URL can be used to link to this page

Home My WebLink About02-13-2020 IOC Agenda PacketCity of San Luis Obispo, Agenda, Planning Commission Agenda INVESTMENT OVERSIGHT COMMITTEE Thursday, February 13, 2020 1:30 p.m. REGULAR MEETING Council Hearing Room 990 Palm Street San Luis Obispo, CA CALL TO ORDER: Chair Brigitte Elke ROLL CALL : Committee Members Heidi Harmon, Daniel Humphrey (Public Member) Derek Johnson, Debbie Malicoat, and Chair Brigitte Elke OTHERS PRESENT: Natalie Harnett, Staff, Monique S. Spkye, Managing Director for PFM Asset Management LLC, and Serenity Whorley, Recording Secretary PUBLIC COMMENT: At this time, people may address the Committee about items not on the agenda. Persons wishing to speak should come forward and state their name and address. Comments are limited to three minutes per person. Items raised at this time are generally referred to staff and, if action by the Committee is necessary, may be scheduled for a future meeting. CONSIDERATION OF MINUTES 1. Minutes of the Investment Oversight Committee of November 14, 2019. BUSINESS ITEMS 2. Presentation of the Quarterly Investment Report on Portfolio Performance Recommendation: Review and confirm investment policy compliance. Investment Oversight Committee Agenda for February 13, 2020 Page 2 COMMENT AND DISCUSSION 3. Cash Flow Analysis and agenda forecast ADJOURNMENT The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday , May 14 , 2020 at 1:30 p.m., in the Council Hearing Room, 990 Palm Street, San Luis Obispo, California. The City of San Luis Obispo wishes to make all of its public meet ings accessible to the public. Upon request, this agenda will be made available in appropriate alternative formats to persons with disabilities. Any person with a disability who requires a modification or accommodation in order to participate in a meeting should direct such request to the Finance Department at (805) 781-7125 at least 48 hours before the meeting, if possible. Telecommunications Device for the Deaf (805) 781-7107. Meeting audio recordings can be found at the following web address: http://opengov.slocity.org/WebLink/1/fol/61037/Row1.aspx Minutes - Draft Investment Oversight Committee Thursday, November 14, 2019 Regular Meeting of the Investment Oversight Committee CALL TO ORDER A Regular meeting of the Investment Oversight Committee was called to order on Thursday, November 14, 2019, at 1:30 p.m. in the Council Hearing Room at 990 Palm Street, San Luis Obispo, California, by Chair Brigitte Elke. ROLL CALL Present: Committee Members Heidi Harmon, Daniel Humphrey (Public Member), Derek Johnson, Debbie Malicoat, and Chair Brigitte Elke Absent: Others Present: Richard Babbe, Senior Management Consultant for PFM Asset Management LLC, Natalie Harnett, Staff, and Serenity Whorley, Recording Secretary APPROVAL OF MINUTES 1. Review of Minutes of the Investment Oversight Committee Meeting of June 15, 2019: ACTION: UPON MOTION BY COMMITTEE MEMBER MALICOAT, SECONDED BY COMMITTEE MEMBER HUMPHREY, CARRIED 5-0-0, to approve the June 6, 2019, minutes, as presented. PUBLIC COMMENT None. --End of Public Comment-- BUSINESS ITEMS 2. Presentation of the Quarterly Investment Report on Portfolio Performance Richard Babbe, Managing Director for PFM Asset Management LLC, provided a PowerPoint presentation and responded to Committee inquiries. Public Comment None. City of San Luis Obispo, Title, Subtitle Minutes - Investment Oversight Committee Minutes of Thursday, November 14, 2019 Page 2 --End of Public Comment-- ACTION: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY COMMITTEE MEMBER HUMPHREY, CARRIED 5-0-0, recommendation. COMMENT AND DISCUSSION Finance Director Elke provided an agenda forecast. ADJOURNMENT The meeting was adjourned at 2:07 pm. The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday February 13, 2019 , at 1:30 p.m., in the Council Hearing Room, 990 Palm Street, San Luis Obispo, California. APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: XX/XX/XXXX Quarterly Investment Report AS OF DECEMBER 31, 2019 February 13, 2020 This report presents the City’s investment portfolio for the quarter ending December 31,2019.It has been prepared to comply with regulations contained in California Government Code Section 53646.The report includes all investments managed by the City on its own behalf as well as for other third-party agencies on a fiduciary basis such as the Whale Rock Commission.It also includes all City-related investments held by trustees for bond debt service obligations.As required,the report provides information on the investment type,issuer,maturity date,cost,and current market value for each security. Market Themes Economic Data & Conditions •Inflation remains elusive of the Fed’s 2% target •Yield spreads remain narrow across most spread sectors •Trade conflict concerns continue to linger •Consumer confidence remains near all-time highs •S&P 500 ended the fourth quarter up 31.5% year-to-date •Yield curve un-inverted in the fourth quarter Market indicators are generally positive and support the fact that the economy is steadily growing The Fed elected to cut rates by 25 basis points (0.25%) at their October meeting U.S. economic growth expectations have moderated throughout the quarter Capital Markets Federal Reserve Economic Growth Market Considerations •In the fourth quarter, short-term yields fell in lockstep with the Fed’s rate cut at the October FOMC meeting, while longer-term rates climbed on the outlook that the Fed is unlikely to cut rates any further over the near-term. This steepening effect benefited shorter-duration portfolios, while longer-duration were negatively impacted. •The Fed has defended that the economy is solid, and the current policy stance will remain appropriate as long as “incoming data remains broadly consistent with the outlook.” 0.5% 1.0% 1.5% 2.0% 2.5% Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 target rate (mid- point) Market Projection 20173 20184 20193 Federal Reserve Target Overnight Rate Source: Bloomberg. Market Projection as of December 31, 2019. -50 -40 -30 -20 -10 0 10 20 30 40 50 Dec '18 Mar '19 Jun '19 Sep '19 Dec '19Basis points (bps)U.S. Treasury Yield Spread 10-year minus 3-month 10% 15% 20% 25% 30% 35% 40% Dec '18 Mar '19 Jun '19 Sep '19 Dec '19 Recession Probability Q4 Q4 What we are watching… •According to a Wall Street Journal forecasting survey, economists view a near-term recession as less likely now than a few months ago. •This drop in recessionary expectations appears to have occurred in tandem with the recent un-inversion of the U.S. Treasury yield curve. Source: Data as of 12/31/19. Wall Street Journal Economic Forecasting Survey (top); Bloomberg (bottom). Current Cash & Investment Summary The following is a summary of the City’s cash and investments based on market value, as of December 31, 2019, compared with the prior quarter. Investment Entity December 31, 2019 September 30, 2019 Percent of Total City Held Cash & Investments $43,345,881 $26,061,006 29% LAIF Held Investments $23,592,559 $24,039,591 16% PFM Managed Investments*$80,431,220 $80,377,095 54% Trustee Held Investments $455,833 $960,802 <1% TOTAL $147,825,493 $131,438,495 100% *Figures shown exclude accrued interest. Current Cash & Investment Summary There are several factors which result in changes in cash and investment balances from month-to-month and quarter-to- quarter, dependent on the receipt of revenues or a large disbursement. •Some major City revenues are received on a periodic rather than a monthly basis. Property Tax is received in December, January, April, and May of each year. Transient Occupancy Tax is received monthly but varies considerably due to seasonality. •Payments for bonded indebtedness or large capital projects can reduce the portfolio substantially in the quarter in which they occur. •The City pays its CalPERS obligation in a lump sum at the beginning of the fiscal year to achieve interest savings. Factors Securities Securities in the City’s portfolio are priced by IDC, an independent pricing service at the end of every month. In some cases, the City may have investments with a current market value that is greater or less than the recorded value. These changes in market value are due to fluctuations in the marketplace having no effect on yield, as the City does not intend to sell securities prior to maturity. Nevertheless, these market changes can impact the total value of the portfolio. Security Type Market Value % of Portfolio % Change vs. 9/30/19 Permitted by Policy In Compliance U.S. Treasury $37,956,527 47.2%+3.8%100% Federal Agency $13,502,058 16.8%-2.6%100% Municipal Obligations $1,027,530 1.3%+1.0%30% Negotiable CDs $9,665,484 12.0%+0.7%30% Corporate Notes $15,207,477 18.9%-1.0%30% Commercial Paper $0 0.0%-1.9%25% Asset-Backed Securities $2,931,178 3.6%<0.1%15% Securities Sub-Total $80,290,254 Money Market Fund $140,966 0.2%-20% Accrued Interest $439,469 Securities Total $80,870,689 Total Return Total return is calculated based on interest and both realized and unrealized changes in market value, expressed as a rate of return over a specified period of time based on cost and is backward-looking. •Focused on long-term performance and growth •Affected by both yield and market value fluctuations •Reflects “true value” of the portfolio •Recommended approach by the Government Finance Officers Association PFM Managed 12/31/2019 9/30/2019 Average Maturity (Years)2.21 2.27 Effective Duration1 2.05 2.11 Average Market Yield 1.69%1.81% Total Rate of Return 3 Months 1 Year 3 Years Since Inception City of SLO 0.44%4.17%2.28%1.76% 0–5 Treasury Index 0.39%3.85%2.04%1.58% Variance +0.05%+0.32%+0.24%+0.18% 1Effective duration is the approximate percentage change in price for each 1% change in interest rates. Summary of Activity for the Quarter & Future Liquidity As of December 31, 2019, the investment portfolio was in compliance with all State laws, the City's Statement of Investment Policy, and the City’s Investment Management Plan. Cash receipts and disbursements are consistent with past trends for the quarter. The cash management program contains enough liquidity to meet at least the next three months of expected expenditures by the City as well as by related parties. If you have any questions concerning this report, or require additional information, contact Brigitte Elke, Finance Director at (805) 781-7510. Investment Portfolio Benefits All Funds The City’s cash and investment portfolio represents money from all City funds, including the General Fund, enterprise funds (Water, Sewer, Parking, Transit), special revenue funds (Tourism, Downtown Assessments), capital projects funds, and other funds which are restricted to specific purposes. In general, monies held by the City are either allocated by the City Council for spending or are purposefully retained in reserve. For example, the money in the Capital Outlay Fund has been identified to provide particular capital projects for the community, and there is a plan for spending down the cash balance as the projects progress. Balances held in reserve per the City’s financial policies equate to 20% of the operating budget. For the fiscal year 2019-20, they are listed in the chart to the left. Fund FY 2019–20 General $ 10,230,000 Water $ 4,572,000 Sewer $ 2,844,000 Parking $539,000 Transit $820,000 Tourism $100,000 Investment Objectives The investment objectives of the City of San Luis Obispo are first, to provide safety of principal to ensure the preservation of capital in the overall portfolio; second, to provide sufficient liquidity to meet all operating requirements; and third, to earn a commensurate rate of return consistent with the constraints imposed by the safety and liquidity objectives. The City follows the practice of pooling cash and investments for all funds under its direct control. Funds held by outside fiscal agents under provisions of bond indentures are maintained separately. Interest earned on pooled cash and investments is allocated quarterly to the various Quarterly Investment Report funds based on the respective fund’s average quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited directly to the related accounts. It is common for governments to pool the cash and investments of various funds to improve investment performance. By pooling funds, the City can benefit from economies of scale, diversification, liquidity, and ease of administration. The City uses the services of an investment advisor, PFM Asset Management, to manage a portion of the City’s portfolio. The City’s strategy is to retain approximately 25% of the portfolio to manage its day-to-day cash flow needs, while PFM’s focus is on longer-term investment management. In addition, the City has retained direct control of several investments that had been acquired before the City began to use investment advisors. All investments are held by the City in a safe keeping account with Bank of New York Mellon, except for investments held by trustees related to bond financings, which are held by either US Bank or Bank of New York Mellon. Distribution List City Council Heidi Harmon Mayor Aaron Gomez Vice Mayor Carlyn Christianson Council Member Andy Pease Council Member Erica A. Stewart Council Member Investment Oversight Committee Heidi Harmon Mayor Daniel Humphrey Public Member Derek Johnson City Manager Brigitte Elke Director of Finance Debbie Malicoat Accounting Manager/Controller Natalie Harnett Principal Financial Analyst—Budget Independent Auditor Badawi & Associates PFM Asset Management Monique Spyke Relationship Manager