HomeMy WebLinkAbout03-27-2023 IOC Agenda PacketCity of San Luis Obispo, Agenda, Planning Commission
Agenda
INVESTMENT OVERSIGHT COMMITTEE
Monday, March 27, 2023
3:30 p.m. REGULAR MEETING Finance/IT Conference Room
990 Palm Street
San Luis Obispo, CA
CALL TO ORDER: Chair Emily Jackson
ROLL CALL: Committee Members Natalie Harnett, Derek Johnson, Debbie Malicoat, Erica
A. Stewart, Anni Wang, and Chair Emily Jackson
OTHERS PRESENT: David Reeser, Managing Director for PFM Asset Management LLC
Monique S. Spkye, Managing Director for PFM Asset Management
LLC, and Teresa Purrington, 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 17, 2022.
BUSINESS ITEMS
2. Presentation of the Quarterly Investment Report on Portfolio Performance & Economic
Outlook
Recommendation: Receive and confirm investment policy compliance.
Investment Oversight Committee Agenda for Monday, March 27, 2023 Page 2
COMMENT AND DISCUSSION
3. Staff Updates and agenda forecast
a. JP Morgan Liquidity Solution
b. Section 115 California Employers’ Pension Prefunding Trust (CEPPT)
ADJOURNMENT
The next Regular Meeting of the Investment Oversight Committee is scheduled for
Thursday, May 11, 2023, at 3:00 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, November 17, 2022
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 17, 2022, at 3:05 p.m. in the Council Hearing Room at City Hall, 990 Palm Street, San
Luis Obispo, by Chair Elke.
ROLL CALL
Present: Committee Members Natalie Harnett, Derek Johnson, Anni Wang, and Chair
Elke. Committee member Debbie Malicoat joined at 3:30 pm
Absent: Committee Member Erica A. Stewart
Others Present: David Reeser, Sarah Meacham, and Monique Spyke, Managing Director for
PFM Asset Management LLC and Emily Jackson, incoming Finance Director.
PUBLIC COMMENT ITEMS NOT ON THE AGENDA
None
--End of Public Comment--
APPROVAL OF MINUTES
1. Review of Minutes of the Investment Oversight Committee Meeting of August 11, 2022
PUBLIC COMMENT
None
--End of Public Comment--
ACTION: UPON MOTION BY COMMITTEE MEMBER JOHNSON SECONDED BY
COMMITTEE MEMBER WANG CARRIED 4-0-2 (COMMITTEE MEMBER MALICOAT
AND STEWART ABSENT), to approve the August 11, 2022 minutes, as presented.
City of San Luis Obispo, Title, Subtitle
Minutes - Investment Oversight Committee Minutes of Thursday, November 17, 2022 Page 2
BUSINESS ITEMS
2. Presentation of the Quarterly Investment Report on Portfolio Performance & Economic
Outlook
Monique Spyke and David Reeser, for PFM Asset Management LLC, provided an update via
PowerPoint presentation and responded to Committee inquiries.
Public Comment
None
--End of Public Comment--
ACTION: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY
COMMITTEE MEMBER HARNETT, CARRIED 5-0-1 (COMMITTEE MEMBER
STEWART) recommendation accept the report and adheres to the City’s policies.
COMMENT AND DISCUSSION
Chair Elke informed the committee that staff is reviewing diversification of the City’s assets by
investing in J.P. Morgan’s liquidity solution attached to the City’s banking environment, as well
as establishing an account with CAMP. The committee had previously reviewed CAMP and
approved the use of this short-term product. Both products currently produce better yields than
LAIF and will provide flexibility in investing short-term funds at a maximized yield.
Staff will further report out as to next steps.
ADJOURNMENT
The meeting was adjourned at 3:53 p.m. The next Regular Meeting of the Investment
Oversight Committee is scheduled for Thursday, February 8, 2023, at 3:00 p.m.
APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: XX/XX/XXXX
Quarterly Investment Report
AS OF DECEMBER 31, 2022
This report presents the City’s investment portfolio for
the quarter ending December 31 ,2022 .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 Considerations
U.S. economic conditions were
characterized by:
•High inflation that shows signs of
slowing
•Continued strong labor market
•Potentially declining health of
U.S. household finances
•Expectations for a modest yet
broad economic downturn
The Federal Reserve is expected to
wrap up their normalization process
•Slowing pace of rate hikes
•Short -term fed funds rate
projected to reach 5.00% to
5.25% by year end 2023
While still elevated, volatility and
liquidity challenges have begun
subsiding.
Source: Bloomberg as of December 31, 2022.
1-5 Year Indices
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
3
M
1
Y
2
Y
3
Y
4
Y
5
Y
10
Y
30
Y
Maturity
U.S. Treasury Yield Curve
December 31, 2022
December 31, 2021
December 31, 2020
0.95%0.87%0.78%
1.73%
2.18%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%U.S. TreasuryAgencyABSCorp A-AAACorp BBB1-5 Year Indices Quarterly Returns
5.6%
3.1%2.5%2.1%2.0%
0%
2%
4%
6%
8%
2022 2023 2024 2025 Longer
Run
PCE Inflation
September Projections December Projections
3.7%
4.6%4.6%4.5%4.0%
0%
2%
4%
6%
8%
10%
2022 2023 2024 2025 Longer
Run
Unemployment Rate
September Projections December Projections
What we are watching…
At present, market expectations are
for a modest economic slowdown
rather than a deep recession.
Despite this, the economic picture
remains cloudy: Employment is
strong and wage growth is elevated,
but consumer savings has declined,
and credit has increased. Household
debt service levels are low, but
household wealth has fallen from
stock market declines and now
falling home prices. Inflation appears
to have peaked and price increases
are slowing, but businesses are
pulling back on capital investment.
We plan to maintain a modestly
defensive duration posture into the
new year but will remain nimble in
evaluating our stance as the Fed
approaches the end of their rate-
hiking campaign.
Source: Federal Reserve, latest economic projections as of December 2022.
0.5%0.5%
1.6%1.8%1.8%
0%
1%
2%
3%
4%
5%
6%
2022 2023 2024 2025 Longer
Run
Change in Real GDP
September Projections December Projections
4.4%
5.1%
4.1%
3.1%2.5%
0%
2%
4%
6%
8%
2022 2023 2024 2025 Longer
Run
Federal Funds Rate
September Projections December Projections
Current Cash and Investment Summary
The following is a summary of the City’s cash
and investments based on market value, as of
December 31, 2022, compared to the prior
quarter.
Investment Entity December 31, 2022 Percent of Total**September 30, 2022
City Held Cash & Investments $32,908,912.55 16.3%$45,840,882.40
LAIF Held Investments $69,371,549.98 34.4%$69,136,285.63
PFMAM Managed Investments*$99,118,718.92 49.2%$98,233,427.05
TOTAL $201,399,181.45 100%$213,424,862.84
*Figures shown exclude accrued interest. **Details may not add up to total due to rounding. ***Differs from last quarters report due to removal of Trustee Account.
Current Cash and 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
Refinitiv, 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. 9/30/22
Permitted by
Policy
U.S. Treasury 54,912,537 55.2%-2.9%100%
Federal Agency 23,499,872 23.6%-0.2%100%
Municipal Obligations 2,057,690 2.1%0.0%30%
Negotiable CDs 2,001,270 2.0%1.0%30%
Corporate Notes 13,752,080 13.8%0.1%30%
Asset-Backed Securities 914,137 0.9%-0.3%15%
Securities Sub-Total 97,137,587
Money Market Fund 1,981,132 2.0%1.9%20%
Accrued Interest 301,896
Securities Total 99,420,615 100.0%0.9%
PFMAM Managed 12/31/2022 9/30/2022
Average Maturity
(Years)2.07 2.17
Effective Duration 1 1.89 1.97
Average Market Yield 4.45%4.16%
Total Return
Total return is calculated
based on interest and both
realized and unrealized
changes in market value;
this is 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
Total Rate
of Return 3 Months 1 Year 3 Years Since
Inception
City of SLO 0.91%-3.69%-0.24%1.01%
0–5 Treasury
Index 0.93%-3.93%-0.45%0.81%
Variance -0.02%+0.24%+0.21%0.20%
1Effective duration is the approximate percentage change in price for each 1% change in interest rates.
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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.
Environmental, Social, and Governance (ESG) Investment Objectives
ESG investing is the process of incorporating the
analysis of non -financial environmental, social, and
governance factors into investment decisions
alongside traditional financial criteria. As set forth in
the City’s Investment Management Plan dated
August 18, 2020, it is City’s objective to integrate
environmental, social, and governance (“ESG”)
factors into investment decisions for its investment
portfolio to the extent practical and possible.
In order to achieve this objective, the City will apply
the ESG Investment Criteria to the following
Investments: Asset-Backed Securities, Bankers’
Acceptances, Commercial Paper, Corporate,
Medium -Term & Bank Notes, and Negotiable Bank
Deposit Obligations.
The ESG investment criteria is based on ESG Risk
Ratings, industry and subindustry definitions, and
subindustry rankings as provided by Sustainalytics.
1. Market Value includes accrued interest as of December 31, 2022.
Source: Sustainalytics. Please see important disclosures at the end of this presentation.
ESG Performance SummaryQ4 2022
ESG Rated Portfolio
23/30 issuers with a MV of $97.4 million1
Green shades are ESG-rated sectors
$40,356,864 (41%)
57%
2%
24%
14%
2%
1%
Sector Allocation
U.S. Treasury
Municipal
Federal Agency & MBS
Corporate Notes
Certificates of Deposit
ABS
0 20 40 60 80 100
Management
E xp os ur e
ES
G
Ris
k
Rat
ing
0%
52%45%
3%0%0%
52%45%
3%0%
Sustainalytics’ characterizations of ESG performance
Source: Sustainalytics. Data as of December 31, 2022, and September 30, 2022 , as indicated. Please see important disclosures at the end of
this presentation
ESG Quarter-Over -Quarter Summary Comparison ESG
Risk Rating
21.0
Negligible Low Medium High Severe
21.0
12/31/22 9/30/22
Exposure
Management
Low Medium High
Weak Average Strong
42.241.9
53.152.6
•On average, the portfolio
maintained medium ESG risk
as of December 31, 2022
•The portfolio’s ESG risk
exposure score remained
within the medium range. A
lower ESG exposure score
generally reduces ESG risk
•The portfolio’s ESG
management rating improved
during the quarter, once again
moving further into the strong
range. Higher management
scores generally reduce ESG
risk
29.1 20.9 20.6 24.6 16.4 24.7 19.1 17.1 14.30
10
20
30
40
ESG Risk Rating by Industry
Portfolio holdings and Sustainalytics data as of December 31, 2022. “ESG Risk Rating by Industry” represents the market value-weighted
average ESG risk rating for each industry, as classified by Sustainalytics. “Industry Distribution” charts show the total number of issuers per
industry and the allocation as percentage of portfolio market value.
Industry Diversification
Average ESG Risk Rating = 21.0
Universe Average ESG Risk Rating by Industry
2 7 3 1 1 2 4 1 21
Industry Distribution
(# of Issuers)
3%63%10%7%
2%
3%8%
1%
3%
(Allocation % of Market Value )
Source: Sustainalytics and the Investment Policy Statement as of December 31, 2022. Changes in approved list shown reflect issuers eligible
for purchase in the portfolio based on ESG criteria and IPS limitations but may not be held by the client.
Top Changes in ESG Risk Ratings in Q4
Largest Decreases in ESG Risk Rating
Mastercard Incorporated
Barclays PLC
Deere and Co.
↓1.4
↓0.5
↓0.3
15.6
23.8
16.4
Largest Increases in ESG Risk Rating
Toyota Motor Corp
JP Morgan Chase & Co.
Adobe Systems Inc
29.2
29.3
12.9
↑0.4
↑0.3
↑0.3
Exposure
Management
Exposure
Management
0.0
↑1.1
Exposure
Management
0.0
↑0.8
Exposure
Management
0.0
↓0.8
Exposure
Management
0.0
↓0.5
Exposure
Management
↑ 0.2
↓0.8
0.0
↑4.1
Holdings as of December 31, 2022 –Sorted By ESG Risk Rating
Source: Sustainalytics. Holdings as of December 31, 2022. Quarter -over -quarter (“QoQ”) change in ESG risk rating reflects the overall change
in risk rating for each issuer, as defined by Sustainalytics, from December 31, 2022 to September 30, 2022 . Issuers with “-” under ESG
contributions means data not available.
Issuer % Weight Subindustry Subindustry
Percentile
ESG
Risk
Rating
12/31/22
QoQ
Change in
ESG
Rating
Contributions
E S G
CarMax Inc.0.5%Automotive Retail 15 12.1 +0.1 -66%34%
The Home Depot Inc 0.8%Home
Improvement Retail 15 12.5 -29%41%30%
Adobe Systems Inc 0.6%
Enterprise and
Infrastructure
Software
3 12.9 +0.3 17%43%40%
Target Corp 0.7%Department Stores 7 14.5 -16%50%34%
Mastercard
Incorporated 0.6%Data Processing 12 15.6 (1.4)5%40%55%
Deere & Co 0.8%Agricultural
Machinery 7 16.4 (0.3)19%42%39%
Intel Corp 0.6%
Semiconductor
Design and
Manufacturing
5 17.1 (0.2)28%32%40%
Federal National
Mortgage Association 13.4%Thrifts and
Mortgages 14 18.2 (0.1)-59%41%
Federal Home Loan
Bank System 2.6%Consumer Finance 12 18.8 --53%47%
The Toronto-
Dominion Bank 1.0%Diversified Banks 16 19.9 -5%42%52%
Bank of New York
Mellon Corp 1.0%
Asset Management
and Custody
Services
12 21.1 +0.1 6%42%52%
The PNC Financial
Services Group, Inc.0.8%Regional Banks 15 22.5 +0.1 6%46%48%
Bristol -Myers Squibb
Company 0.3%Biotechnology 7 22.7 --68%32%
Federal Home Loan
Mortgage Corp 7.4%Thrifts and
Mortgages 25 22.9 (0.3)-58%42%
Issuer % Weight Subindustry Subindustry
Percentile
ESG
Risk
Rating
12/31/22
QoQ
Change in
ESG
Rating
Contributions
E S G
Barclays PLC 1.1%Diversified Banks 31 23.8 (0.5)6%33%61%
Walmart Inc.2.8%Food Retail 40 24.6 -17%56%27%
Pfizer Inc 1.1%Pharmaceuticals 7 25.2 -11%53%35%
Federal Farm Credit
Banks Consolidated
Systemwide Bonds
0.8%Consumer Finance 48 25.7 ----
Bank of America
Corporation 1.5%Diversified Banks 41 26.8 -5%42%53%
Honda Motor Co Ltd 0.3%Automobiles 61 28.7 (0.3)28%43%29%
Toyota Motor Corp 0.8%Automobiles 68 29.2 +0.4 25%38%37%
JPMorgan Chase &
Co.1.1%Diversified Banks 52 29.3 +0.3 4%44%52%
Amazon.com Inc 1.1%Online and Direct
Marketing Retail 94 30.3 -23%43%33%
Holdings as of December 31, 2022 –Sorted By ESG Risk Rating
Source: Sustainalytics. Holdings as of December 31, 2022. Quarter -over -quarter (“QoQ”) change in ESG risk rating reflects the overall change
in risk rating for each issuer, as defined by Sustainalytics, from December 31, 2022 to September 30, 2022 . Issuers with “-” under ESG
contributions means data not available.
Socially Responsible Investment Policy
In addition to the ESG criteria,
the City’s Socially Responsible
Investment (SRI) Policy
restricts portfolio issuers who
generate revenue from
casinos, gambling, racetracks,
brewery, wine/spirits, tobacco,
electronic cigarette, or
tobacco-related products, or
who support the direct
production or drilling of fossil
fuels. The tables to the right
show the Bloomberg Industry
Classifications (“BICS”) for all
the portfolio’s holdings.
Issuer Sector (BICS)
Adobe Inc Software & Services
Amazon.com Inc Retail -Consumer Discretionary
Bank of America Co Diversified Banks
Barclays PLC Banks
The Bank of New York Mellon Corporation Financial Services
Bristol-Myers Squibb Co Pharmaceuticals
Carmax Auto Owner Trust Automobiles Manufacturing
State of California General Government
California Earthquake Authority Financing & Development
Deere & Company Machinery Manufacturing
FFCB Government Agencies
FHLB Government Agencies
FHLMC Government Agencies
FNMA Government Agencies
Honda Auto Receivables Automobiles Manufacturing
Home Depot Inc Retail -Consumer Discretionary
Issuer Sector (BICS)
Intel Corporation Semiconductors
JP Morgan Chase & Co Diversified Banks
Los Angeles Community College District Education
Mastercard Inc Consumer Finance
State of Maryland General Government
New Jersey Turnpike Authority Transportation
Pfizer Inc Pharmaceuticals
PNC Financial Services Group Banks
San Diego Community College District Education
U.S. Treasury Sovereigns
Toyota Motor Corp Automobiles Manufacturing
Toronto-Dominion Bank Banks
Target Corp Mass Merchants
University of California Education
Wal-Mart Stores Inc Mass Merchants
Source: Bloomberg. BICs is an industry classification system developed and utilized by Bloomberg that classifies securities based on business,
economic function, and other characteristics.
Distribution List
City Council
Erica A. Stewart
Mayor
Carlyn Christianson
Vice mayor
Jan Marx
Council Member
Andy Pease
Council Member
Michelle Shoresman
Council Member
Investment Oversight
Committee
Erica A. Stewart
Mayor
Anni Wang
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 LLC
Monique Spyke
Managing Director
Appendix
-Additional ESG Information
-ESG Themes Information
0 5 10 15 20 25 30 35 40
Federal Agency & MBS
Certificates of Deposit
Corporate Notes
ABS
ESG Risk Rating
Source: Sustainalytics. Data as of December 31, 2022. Bars represent the range of held issuers’ ESG risk rating that fall under each sector,
and lines indicate the sectors market value-weighted average ESG risk rating. Please see important disclosures at the end of this
presentation.
ESG Risk Rating by Sector
Maximum
Medium
ESG Risk Score
Maximum Permitted
ESG Risk Score
(Top Subindustry
Performer)
22.7
19.4
21.9
19.9
ESG Themes Glossary
ESG Theme Theme Description Key Indicators
Environment
Carbon Output &
Energy Use
Refers to a company’s management of risks
related to its energy efficiency and
greenhouse gas emissions in its operation
as well as its products and services in the
production phase and during the product
use phase
•Carbon intensity
•Renewable energy use
•Env. Mgt. System certification
•GHG reporting / risk management
•Hazardous products
•Sustainable products & services
Waste & Pollution
Evaluates the management of emissions
and releases from a company’s own
operations to air, water, and land, excluding
greenhouse gas emissions
•Emergency response program
•Solid waste management
•Effluent management
•Radioactive waste management
•Hazardous waste management
•Non -GHG air emissions programs
•Oil spill disclosure & performance
•Recycled material use
Resource Use &
Biodiversity
Analyzes how efficiently and effectively a
company uses its raw material inputs and
water in production. It also encompasses
how a company manages the impact of its
operations on land, ecosystems, and wildlife
•Biodiversity programs
•Deforestation programs / polices
•Site closure & rehabilitation
•Water intensity & risk management
•Forest certifications
•Supplier environmental programs / certifications
•Sustainable agriculture programs
Community
Impact
(Environmental)
Evaluates the community impact from an
environmental risk perspective based on an
assessment of Community Relations,
Products & Services, Occupational Health
and Safety, and Product Governance
•Env Impact –Community Relations
•Env Impact –Products & Services
•Env Impact –Occupational Health and Safety
•Env Impact –Product Governance
ESG Theme Theme Description Key Indicators
Social
Human Capital
Management
Evaluates the management of risks
related to human rights, labor rights,
equality, talent development,
employee retention, and labor health
and safety
•Discrimination policy
•Diversity programs
•Gender pay equality / disclosures
•Employee development
•Supply chain management / standards
•Human rights policies & programs
•Employee health & safety
Product
Governance
Focuses on the management of
risks related to product quality,
safety, wellness, and nutrition, as
well as customer data privacy &
cybersecurity
•Product & service safety programs /
certifications
•Data privacy management
•Media & advertising ethics policy
•Organic products / GMO policy
•Product health statement
Community
Impact (Social)
Assesses how companies engage
with local communities and their
management of access to essential
products or services to
disadvantaged communities or
groups
•Equitable pricing and availability
•Access to health care
•Price transparency
•Human rights / indigenous policy
•Community involvement programs
•Noise management
ESG Financial Integration
& Resilience*
Analyzes financial stability and
issues that pose systemic risks and
potential external costs to society in
the financial services industry. Also
measures ESG activities by financial
institutions
•Systemic risk management / reporting
•Tier 1 capital
•Leverage ratio
•Responsible investment / asset management
•Underwriting standards
•Financial inclusion
•Credit & loan standards
•Green buildings investments
ESG Themes Glossary
ESG Themes Glossary
ESG Theme Theme Description Key Indicators
Governance Corporate
Governance
Evaluates a company’s rules, policies, and
practices with a focus on how a company's
board of directors manages and oversees
the operations of a company. Also assesses
the management of general professional
ethics and lobbying activities
•Board/management quality & integrity
•Board structure
•Ownership & shareholder rights
•Remuneration
•Audit & financial reporting
•Stakeholder governance
•Bribery & corruption policies / programs
•Money laundering policy
•Whistleblower programs
•Business ethics programs
•Political involvement policy
•Lobbying and political expenses
Disclosures
This material is based on information obtained from sources generally believed to be reliable and available to the public, however
PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information
purposes only and is not intended to provide specific advice or a specific recommendation.All statements as to what will or may
happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation.
Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our
control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not
a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securit ies.
There is no guarantee the investment objectives will be achieved as the investment portfolio will only include holdings consistent
with the applicable Environmental, Social, and Governance (ESG) guidelines. As a result, the universe of investments available
will be more limited. ESG criteria risk is the risk that because the investment portfolio ESG criteria excludes securities of certain
issuers for nonfinancial reasons, the investment portfolio may forgo some market opportunities that would be available to
investment portfolios that do not apply ESG criteria.
PFM Asset Management LLC ("PFMAM") is an investment adviser registered with the U.S. Securities and Exchange Commission
and a subsidiary of U.S. Bancorp Asset Management, Inc. ("USBAM"). USBAM is a subsidiary of U.S. Bank National Association
("U.S. Bank"). U.S. Bank is a separate entity and subsidiary of U.S. Bancorp. U.S. Bank is not responsible for and does not
guarantee the products, services or performance of PFMAM. The information contained is not an offer to purchase or sell any
securities. Additional applicable regulatory information is available upon request.
For more information regarding PFMAM's services or entities, please visit www.pfmam.com.
I. Economic &
Market Update
Incredibly Volatile Market Environment
1Source: Federal Reserve Bank, Bloomberg, as of 3/20/2023.
▸Recent bank failures, along with fears of contagion to other regional banks, caused a flight-to-quality with a
dramatic rise in market volatility at levels not seen in over a decade.
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24
Implied Fed Funds Rate
20-Mar-23 1-Mar-23
3.87%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Jan-23 Feb-23 Mar-23
2-Year Treasury
Yields Moved Lower Across the Curve
Source: Bloomberg, as of 3/20/2023.2
4.42%
4.73%
3.87%
3.50%3.43%3.63%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%YieldMaturity
U.S. Treasury Yield Curve
1 Year Range
March 20, 2023
March 01, 2023
3mo 2yr 5yr 7yr 10yr 20yr 30yr
2000
2500
3000
3500
4000
4500
5000
Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23
S&P 500 Closing Price
Equities Back in Positive Territory Despite Market
Turmoil
3Source: Bloomberg, as of 3/15/2023.
+1.4%
2023 YTD
Total Return
Fixed Income Markets Total Returns
4Source: ICE BofAML Indices. ABS indices are 0-5 year, based on weighted average life. 2023 year to date as of 3/17/2023.
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
U.S. Treasury Agency ABS AAA Corp A-AAA
1-5 Year Index Returns
Fourth Quarter 2022 2022 2023 Year to Date
56%
58%
60%
62%
64%
66%
68%
2000 2005 2010 2015 2020 2025 2030
Labor Force Participation Rate
Actual LFPR CBO Forecast Potential
U.S. Economy Added 311,000 Jobs in
February; Unemployment Rate Rose to 3.6%
5Source: Congressional Budget Office February 2023 economic projections, Bureau of Labor Statistics. Bloomberg, as of February 2023. Data is
seasonally adjusted.
The labor force participation rate
rose to 62.5%.
April 20
14.7%
February 23
3.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2019 2020 2021 2022
Unemployment Rate
Consumer Sentiment Rises to Highest In a Year,
Driven by Falling Inflation Expectations
6Source: Bloomberg, University of Michigan Consumer Sentiment and underlying index components, as of February 2023.
40
50
60
70
80
90
100
110
120
2013 2015 2017 2019 2021 2023Index Value (1996=100)Consumer Sentiment Index
0%
1%
2%
3%
4%
5%
6%
2017 2018 2019 2020 2021 2022 2023Median Price IncreaseUniversity of Michigan Survey of
Consumers
Expected Change in Prices
Next 5-10 Years Next Year
Inflation Continues to Trend Lower…
Source: Bloomberg, as of February 2023.7
6.0%
-2%
0%
2%
4%
6%
8%
10%
Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22 Aug-22 Nov-22 Feb-23
Factors Contributing to the Consumer Price Index
(CPI Year over Year)
Services (Ex Food & Energy)Goods (Ex Food & Energy)Food Energy Headline YoY%
…Although Fed’s Preferred Gauge of Inflation is
Moving in the Wrong Direction
8Source: Bloomberg, as of 2/28/2023.
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23
Inflation –Month over Month
Core PCE MoM Fed's Inflation Target
Jan ’23
0.57%
2% Annualized ~ 0.17% per month
Manufacturing Sector Improves but Remains in
Contractionary Territory
9Source: Bloomberg Intelligence, Institute for Supply Management, as of February 2023. Demand consists of orders, export orders, backlogs, and inverted
customer inventories. Inputs consists of inventories, imports, and inverted deliveries.
25
30
35
40
45
50
55
60
65
70
2017 2018 2019 2020 2021 2022
ISM Manufacturing
Recession Demand Production and Employment Inputs
Demand-side indicators strengthen,
although some business segments are
reporting drops in sales and more price-
sensitive consumersExpansionEasing cost pressures and fewer
supply chain disruptions create
reasonable conditions for
manufacturers
Contraction
Disclaimer
Investment advisory services are provided by PFM Asset Management LLC (“PFMAM”), an investment
adviser registered with the U.S. Securities and Exchange Commission and a subsidiary of U.S. Bancorp
Asset Management, Inc. (“USBAM”).USBAM is a subsidiary of U.S. Bank National Association (“U.S.
Bank”).U.S. Bank is a separate entity and subsidiary of U.S. Bancorp. U.S. Bank is not responsible for
and does not guarantee the products, services or performance of PFMAM.The information contained is
not an offer to purchase or sell any securities. Additional applicable regulatory information is available
upon request.
For more information regarding PFMAM’s services please visit www.pfmam.com.
Disclaimer
10