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HomeMy WebLinkAbout05-14-2020 IOC Agenda PacketCity of San Luis Obispo, Agenda, Planning Co mmission Agenda INVESTMENT OVERSIGHT COMMITTEE Thursday, May 14, 2020 Based on the threat of COVID-19 as reflected in the Proclamations of Emergency issued by both the Governor of the State of California, the San Luis Obispo County Emergency Services Director and the Investment Oversight Committee (IOC) of the City of San Luis Obispo as well as the Governor’s Executive Order N-29-20 issued on March 17, 2020, relating to the convening of public meetings in response to the COVID-19 pandemic, the City of San Luis Obispo will be holding all public meetings via teleconference. Th ere will be no physical location for the Public to view the meeting. Below are instructions on how to view the meeting remotely and how to leave public comment. Additionally, members of the Investment Oversight Committee are allowed to attend the meeting via teleconference and to participate in the meeting to the same extent as if they were present. Using the most rapid means of communication available at this time, members of the public are encouraged to participate in Committee meetings in the following ways: 1. Remote Viewing - Members of the public who wish to watch the meeting can view: ➢ View the Webinar: ➢ Registration URL: https://attendee.gotowebinar.com/register/4729636535047824907 ➢ Webinar ID: 213-800-795 ➢ Telephone Attendee: 562 -247-8422; audio access code: 277-677-552 2. Public Comment - The Investment Oversight Committee will still be accepting public comment. Public comment can be submitted in the following ways: • Mail or Email Public Comment ➢ Received by 10:00 AM on the day of meeting - Can be submitted via email to advisorybodies@slocity.org or U.S. Mail to City Clerk at 990 Palm St. San Luis Obispo, CA 93401 ➢ Emails sent after 10:00 AM and up until public comment is opened on the item – Limited to one page emailed to cityclerk@slocity.org, which will then be read aloud during the public comment period on the item specified. • Verbal Public Comment ➢ Received by 10:00 AM on the day of the meeting - Call (805) 781-7164; state and spell your name, the agenda item number you are calling about and leave your comment. The verbal comments must be limited to 3 minutes. All voicemails will be forwarded to the IOC and saved as Agenda Correspondence. ➢ During the meeting – Comments can be submitted up until the Public Comment period is opened for the item when joining via the webinar (instructions above). Once you have entered the webinar/meeting please type your name and the Item # in the questions box. Your mic will be unmuted when Public Comment is called for the item you indicated. All comments submitted will be placed into the administrative record of the meeting. Investment Oversight Committee Agenda for May 14, 2020 Page 2 1:30 p.m. REGULAR MEETING TELECONFERENCE Broadcasted via webinar 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 February 13, 2020 BUSINESS ITEMS 2. Presentation of the Quarterly Investment Report on Portfolio Performance Recommendation: Approve and confirm investment policy compliance. 3. Presentation for ESG (Environmental, Social, and Governance) Investment Solutions Recommendation: Approve the investment philosophy and make a recommendation to the City Council to adopt a policy for ESG investments. ADJOURNMENT Investment Oversight Committee Agenda for May 14, 2020 Page 3 The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday , August 13 , 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 meetings 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, February 13, 2020 Regular Meeting of the Investment Oversight Committee CALL TO ORDER A regular meeting of the Investment Oversight Committee was called to order on Thursday, February 13, 2020, at 1:37 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, Derek Johnson, Debbie Malicoat, and Chair Brigitte Elke Absent: Committee Member Humphrey (Public Member) Others Present: Monique Spyke, Managing Director for PFM Asset Management LLC, Natalie Harnett, Staff, and Megan Wilbanks, Recording Secretary APPROVAL OF MINUTES 1.Review of Minutes of the Investment Oversight Committee Meeting of November 14, 2019: ACTION: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY COMMITTEE MEMBER HARMON, CARRIED 4-0-1 (Committee Member Humphrey absent), to approve the November 14, 2019 minutes, as presented. PUBLIC COMMENT None. --End of Public Comment-- BUSINESS ITEMS 2.Presentation of the Quarterly Investment Report on Portfolio Performance Monique Spyke, Managing Director for PFM Asset Management LLC, provided a PowerPoint presentation and responded to Committee inquiries. Public Comment None. --End of Public Comment-- City of San Luis Obispo, Title, Subti tle Minutes - Investment Oversight Committee Minutes of Thursday, February, 13, 2020 Page 2 ACTION: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY COMMITTEE MEMBER HARMON, CARRIED 4-0-1 (Committee Member Humphrey absent), to accept the Quarterly Investment Report and confirm compliance with the City’s Investment Policy, with the following addition: •Managing Director Monique Spyke will provide an additional slide, for the official record, showing compliance with the Socially Responsible Investing component of the Investment Management Plan. COMMENT AND DISCUSSION Finance Director Elke provided a Cash Flow Analysis update and an agenda forecast. Committee Member Harmon asked for a presentation to assess the possibility to divest from investments in weapons, arms, and akin industries. The item will be placed on the next committee agenda. ADJOURNMENT The meeting was adjourned at 2:19 p.m. 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. APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: XX/XX/XXXX Quarterly Investment Report AS OF MARCH 31, 2020 May 14, 2020 This report presents the City’s investment portfolio for the quarter ending March 31,2020.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. COVID-19: A Three-Pronged Crisis Health Crisis Pandemic The rapidly spreading coronavirus is overwhelming healthcare facilities around the world as the number of cases and deaths related to the virus continue to grow. Effects on Financial Markets Treasury yields and stock prices have plummeted while credit spreads and volatility have soared in reaction to the uncertainty created by the pandemic. Effects on the Economy With businesses forced to close their doors and consumers stuck at home “social distancing,” the economy has come to a near standstill over a very short period of time. Closed Until Further Notice Market Themes Market Themes Economic Data & Conditions •Sector spreads spike to levels not seen since the great recession. •US Oil prices slid to an 18-year low as a combined result of the price war and the plummeting demand. •S&P 500 posted a return of -19.6% for the quarter. •Services suffered the steepest decline in output since data collection began in 2009. Equity prices and bond yields plummeted. The Fed cut the target rate by 150 basis points through emergency actions in March. The immediate impact of the pandemic on the economy made typical economic indicators, most of which are backward-looking, essentially irrelevant. Capital Markets Federal Reserve Economic Growth Market Considerations •The Federal Reserve responded aggressively by cutting rates at two emergency meetings to the new target range of 0% to 0.25%. •Treasury yields plunged in the wake of the Fed’s new zero interest rate policy, with longer-term Treasury yields reaching new historic lows. Source: Bloomberg. Market Projection as of March 31, 2020. 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% Dec '16 Dec '17 Dec '18 Dec '19 Dec '20 Federal Reserve Target Overnight Rate target rate (mid-point) Market Projection (4/01/2020) The Fed made a 50 basis point on March 3rd The Fed made a 100 basis point on March 15th Market Considerations •Amid the extreme flight to quality, U.S. Treasuries led all investment-grade (IG) fixed income sectors. •Yield spreads on non- Treasuries widened, generating severe underperformance. •Investment grade corporates produced negative excess returns, with longer-duration and lower quality issues underperforming the most. -3.54% -0.29%-0.24% 1.95%2.81% -6% -4% -2% 0% 2% 4% 6%Corp BBBCorp A-AAAABS 0-3AgencyU.S. Treasury1-3 Year Indices -4.75% -0.46%-0.36% 2.42% 3.80% -6% -4% -2% 0% 2% 4% 6%Corp BBBABS 0-5Corp A-AAAAgencyU.S. Treasury1-5 Year Indices Source: Bloomberg, as of 3/31/2020. What we are watching… •Due to the uncertainty regarding the continued spread and duration of the novel coronavirus, forecasts for economic growth vary greatly among economists. •Investors are anxious to see if the Federal Reserve’s significant and unparalleled monetary policy intervention will be successful not only in supporting millions of Americans through a recession, but also in laying a foundation for a robust recovery. Source: Bloomberg as of March 31, 2020 . 0.07% 0.37% 0.66% 1.31% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3 M 1 Y 2 Y 3 Y 4 Y 5 Y 10 Y 30 YYieldMaturity March 31, 2020 December 31, 2019 U.S. Treasury Yield Curve -4% -30% 14% 9%5%5% -50% -40% -30% -20% -10% 0% 10% 20% 30% Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 U.S. GDP Forecasts Range Average Current Cash & Investment Summary The following is a summary of the City’s cash and investments based on market value, as of March 31, 2020, compared with the prior quarter. Investment Entity March 31, 2020 December 31, 2019 Percent of Total** City Held Cash & Investments $44,416,108 $43,345,881 29% LAIF Held Investments $23,656,340 $23,592,559 16% PFM Managed Investments*$82,306,379 $80,431,220 55% Trustee Held Investments $71,752 $455,833 <1% TOTAL $150,450,579 $147,825,493 100% *Figures shown exclude accrued interest. **Details may not add up to total due to rounding. 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. 12/31/19 Permitted by Policy In Compliance U.S. Treasury $37,297,352 45.3%-1.9%100%✓ Federal Agency $16,120,372 19.6%+2.8%100%✓ Municipal Obligations $1,042,622 1.3%-30%✓ Negotiable CDs $9,350,062 11.4%-0.6%30%✓ Corporate Notes $14,199,283 17.3%-1.6%30%✓ Commercial Paper $0 0.0%-25%✓ Asset-Backed Securities $4,137,727 5.0%+1.4%15%✓ Securities Sub-Total $82,147,419 Money Market Fund $158,960 0.2%-20%✓ Accrued Interest $406,319 Securities Total $82,712,698 Socially Responsible Investment Policy The City’s Investment Policy restricts issuers from the portfolio who generate revenue from tobacco, electronic cigarette, or tobacco-related products, or who support the direct production or drilling of fossil fuels. The City’s portfolio is in compliance with the SRI restrictions. Aside are the Bloomberg Industry Classifications (“BICS”) for all of the portfolio’s holdings. Issuer Sector (BICS) Ally Auto Receivables Trust Automobiles Manufacturing American Honda Finance Automobiles Manufacturing CarMax, Inc Automobiles Manufacturing Copart, Inc.Automobiles Manufacturing Hyundai Auto Receibles Trust Automobiles Manufacturing Nissan Auto Receivables Automobiles Manufacturing Toyota Motor Credit Corp Automobiles Manufacturing Bank of Montreal Chicago Banks Bank of Nova Scotia Banks Nordea Bank AB NY Banks Skandinav Enskilda Banken NY Banks Societe Generale NY Banks Swedbank NY Banks Wells Fargo & Company Banks Westpac Banking Corp NY Banks Apple Inc Communications Equipment Unilever NV Consumer Products Issuer Sector (BICS) San Diego CCD Education General Electric Electrical Equipment Manufacturing Walt Disney Company Entertainment Content BNY Mellon Financial Services DNB Bank Financial Services Hershey Company Food & Beverage California State General Government FHLB Government Agencies FHLMC Government Agencies FNMA Government Agencies John Deere Machinery Manufacturing Wal-Mart Stores Mass Merchants Pfizer Inc.Pharmaceuticals Amazon.com, Inc.Retail -Consumer Discretionary Home Depot Retail -Consumer Discretionary IBM Software & Services U.S. Treasury Sovereigns Source: Bloomberg. BICs is an industry classification system developed and utilized by Bloomberg that classifies securities based on business, economic function, and other characteristics. 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 03/31/2020 12/31/2019 Average Maturity (Years)2.28 2.21 Effective Duration1 2.11 2.05 Average Market Yield 0.90%1.69% Total Rate of Return 3 Months 1 Year 3 Years Since Inception City of SLO 2.28%5.21%2.90%2.12% 0–5 Treasury Index 3.20%6.02%3.01%2.11% Variance -0.92%-0.81%-0.11%+0.01% 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 March 31, 2020, 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 safekeeping 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 Andy Pease Vice Mayor Aaron Gomez Council Member Erica A. Stewart Council Member Carlyn Christianson 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 Managing Director Investment Oversight CommitteeRegular MeetingMay 14, 2020 Webinar Information: Registration URL: https://attendee.gotowebinar.com/register/4729636535047824907 Webinar ID: 213-800-795 Telephone Attendee: (562) 247-8422; Audio Access Code: 277-677-552 Public Comment: •Verbal Public Comment Participants of the webinar can provide Public Comment by: •Submitting a ‘question’ that includes their name and item number (or public comment) for the item they would like to speak on •Once public comment for the item is called, your microphone will be unmuted. You will have three minutes to speak. •Email Public Comment Comments up to one page can be emailed to cityclerk@slocity.org. Please indicate the item number. Comments will then be read aloud during the public comment period for the item specified. PUBLIC COMMENT PERIOD FOR ITEMS NOT ON THE AGENDA At this time, people may address the Committee on items not on the agenda. Items raised are generally referred to staff and, if action by the Committee is necessary, may be scheduled for a future meeting. Public Comment: •Verbal Public Comment Participants of the webinar can provide Public Comment by: •Submitting a ‘question’ that includes their name and item number (or public comment) for the item they would like to speak on. •Once public comment for the item is called, your microphone will be unmuted. You will have three minutes to speak. •Email Public Comment Comments up to one page can be emailed to cityclerk@slocity.org. Please indicate the item number. Comments will then be read aloud during the public comment period for the item specified. Item #1 CONSIDERATION OF MINUTES 1.Minutes of the Investment Oversight Committee meeting of February 13, 2020. _______________________________________________ Recommendation: Approve the minutes of the Investment Oversight Committee meeting of February 13, 2020. Item #2 BUSINESS ITEM 2.Presentation of the Quarterly Investment Report on Portfolio Performance ________________________________________________ Recommendation: Approve and confirm investment policy compliance. Item #3 BUSINESS ITEM 3.Presentation for ESG (Environmental, Social, and Governance) Investment Solutions ________________________________________________ Recommendation: Approve the investment philosophy and make a recommendation to the City Council to adopt a policy for ESG investments.. ADJOURNMENT The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday, August 13, 2020 at 1:30 p.m. location to be determined.