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HomeMy WebLinkAbout05-16-2024 IOC Agenda PacketCity of San Luis Obispo, Agenda, Planning Commission Agenda INVESTMENT OVERSIGHT COMMITTEE Thursday, May 16, 2024 3:00 p.m. REGULAR MEETING Council Hearing Room 990 Palm Street San Luis Obispo CALL TO ORDER: Chair Emily Jackson ROLL CALL: Committee Members Whitney McDonald, Riley Kuhn, Debbie Malicoat, Jan Marx, Anni Wang, and Chair Emily Jackson OTHERS PRESENT: Monique S. Spkye, PFM Asset Management LLC, Justin Resuello, PFM Asset Management LLC, Sarah Walsh, PFM Asset Management LLC, and Michelle Karpovich, 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 15, 2024. BUSINESS ITEMS 2. Presentation of the Quarterly Investment Report on Portfolio Performance & Economic Recommendation: Receive and confirm investment policy compliance. COMMENT AND DISCUSSION 3. Staff Updates and Agenda Forecast Investment Oversight Committee Agenda for Thursday, May 16, 2024 Page 2 ADJOURNMENT The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday, August 15, 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, February 15, 2024 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 15, 2024, at 3:20 p.m. in the Conference Room 6 at City Hall, 990 Palm Street, San Luis Obispo, by Chair Jackson. ROLL CALL Present: Committee Members Derek Johnson, Riley Kuhn, Debbie Malicoat, Jan Marx, Anni Wang, and Chair Emily Jackson Absent: Others Present: Monique S. Spyke, PFM Asset Management LLC, Sarah Walsh, PFM Asset Management LLC, Justin Resuello PFM Asset Management LLC, and Michelle Karpovich, Recording Secretary 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 November 9, 2023 PUBLIC COMMENT None --End of Public Comment-- ACTION FOR ITEM 1: UPON MOTION BY COMMITTEE MEMBER JOHNSON SECONDED BY COMMITTEE MEMBER MALICOAT CARRIED 5-0-1 (COMMITTEE MEMBER MARX ABSTAINED), to approve the November 9, 2023, minutes, as presented. City of San Luis Obispo, Title, Subtitle Minutes - Investment Oversight Committee Minutes of Thursday, February 15, 2024 Page 2 BUSINESS ITEMS 2. Presentation of the Quarterly Investment Report on Portfolio Performance & Economic Outlook Monique Spyke, Sarah Walsh, and Justin Resuello for PFM Asset Management LLC provided an update via PowerPoint presentation and responded to Committee inquiries. 3. Annual Review of City Investment Policy and Management Plan Chair Jackson explained the Committee’s practice of annually reviewing and affirming the City’s Investment Policy and Management Plan, and explained that in the course of the FY 2022-23 audit, the City’s external auditor had identified that the Plan adopted by the City Council 2020 did not incorporate changes previously approved by the City Council in 2018. Chair Jackson noted that staff had since updated the Plan to incorporate changes made in both 2018 and 2020 and that staff was seeking review of the updated plan. PUBLIC COMMENT None --End of Public Comment-- ACTION FOR ITEM 2: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY COMMITTEE MEMBER WANG, 6-0-0, to approve the recommendation to accept the report. ACTION FOR ITEM 3: UPON MOTION BY COMMITTEE MEMBER JOHNSON, SECONDED BY COMMITTEE MEMBER MARX, 6-0-0, to receive and reaffirm the City’s Investment Policy and Management Plan with minor administrative changes and provide a memo to Council to inform them of the updates to the Plan. COMMENT AND DISCUSSION None ADJOURNMENT The meeting was adjourned at 4:04 p.m. The next Regular Meeting of the Investment Oversight Committee is scheduled for Thursday, May 16, 2024 at 3:00 p.m. APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: XX/XX/XXXX Quarterly Investment Report AS OF March 31, 2024 This report presents the City’s investment portfolio for the quarter ending March 31,2024.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: •Robust growth that continues to show surprising strength •Sticky inflation that remains above the Federal Reserve (Fed)’s 2% target •Labor markets continuing to show impressive job gains and low unemployment •Resilient consumer spending supported by wage growth that is outpacing inflation After entering the year expecting 6 cuts in 2024, markets have adjusted their expectations to only 2 to 3 cuts in 2024. This adjustment moves the market into alignment with the Fed’s most recent dot plot. Yields on maturities between 2 and 10 years rose 30 to 40 basis points during the quarter, with spreads in most sectors falling to multi-year lows given the strong economic environment. Source: Bloomberg as of March 31, 2024. 5.32% 4.62%4.21%4.21%4.20%4.34% 0% 1% 2% 3% 4% 5% 6% Yi e l d Maturity U.S. Treasury Yield Curve March 31, 2024 December 31, 2023 3mo 2yr 5yr 7yr 10yr 30yr -0.02% 0.33% 1.01% 0.56% 0.83% -0.5% 0.5% 1.5% U. S . T r e a s u r y Ag e n c y AB S Co r p A - A A A Co r p B B B 1-5 Year Indices Quarterly Returns 2.6% 2.2%2.0%2.0% 0% 1% 2% 3% 4% 2024 2025 2026 Longer Run PCE Inflation December Projections March Projections 4.6% 3.9% 3.1%2.6% 0% 2% 4% 6% 8% 2024 2025 2026 Longer Run Federal Funds Rate December Projections March Projections 2.1%2.0%2.0%1.8% 0% 1% 2% 3% 4% 2024 2025 2026 Longer Run Change in Real GDP December Projections March Projections 4.0%4.1%4.0%4.1% 0% 1% 2% 3% 4% 5% 6% 2024 2025 2026 Longer Run Unemployment Rate December Projections March Projections What we are watching… Although January and February inflation readings came in above expectations, CPI trended lower in Q1, continuing to decline from its mid-2022 peak. Headline and core CPI (which excludes food and energy) registered year-over-year increases of 3.2% and 3.8%, respectively, through February. U.S. real GDP growth in Q4 came in at an impressive 3.4%, capping a strong year in which GDP grew 3.1%. The economy continues to be bolstered by strong consumer spending, supported by the strength of the labor market. This trend is expected to continue in 1Q 2024 before moderating through the year. The U.S. labor market showed little signs of softening, adding over 800,000 jobs in Q1 after 637,000 were added in Q4. In March, 303,000 jobs were created, which is the highest level since May 2023. The unemployment rate ticked down to 3.8% and has been below 4% for over two years. Strong wage increases reflect a competitive labor market and further support consumer spending. Source: Federal Reserve, latest economic projections as of March 2024. Current Cash and Investment Summary The following is a summary of the City’s cash and investments based on market value, as of March 31, 2024, compared to the prior quarter. Investment Entity March 31, 2024 Percent of Total**December 31, 2023 City Held Cash & Investments $37,896,156.24 15.9%$34,429,115.80 JPMorgan Money Market Account $50,000,000.00 21.0%$50,000,000.00 LAIF Held Investments $46,490,219.26 19.5%$46,027,816.72 PFMAM Managed Investments*$104,014,834.66 43.6%$103,666,105.35 TOTAL**$238,401,210.16 100%$234,123,037.87 *Figures shown exclude accrued interest. **Details may not add up to total due to rounding. 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. 12/31/23 Permitted by Policy U.S. Treasury 64,570,620 61.8%4.3%100% Federal Agency 12,217,947 11.7%-15.9%100% Municipal Obligations 940,154 0.9%0.7%30% Negotiable CDs 1,972,662 1.9%0.5%30% Corporate Notes 18,157,471 17.4%0.4%30% Asset-Backed Securities 5,981,019 5.7%-0.5%15% Securities Sub-Total 103,839,873 0.4% Money Market Fund 174,962 0.2%-35.0%20% Accrued Interest 475,926 0.5% Securities Total 104,490,761 100.0%0.8% PFMAM Managed 3/31/2024 12/31/2023 Average Maturity (Years)2.43 2.32 Effective Duration1 2.12 2.04 Average Market Yield 4.67%4.36% 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 0.33%3.40%0.26%1.42% 0-5 Treasury Index 0.25%3.05%0.06%1.21% Variance +0.08%+0.35%+0.19%+0.21% 1Effective duration is the approximate percentage change in price for each 1% change in interest rates. 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. Market Value includes accrued interest as of March 31, 2024. Average ESG Risk Rating is weighted by market value. Please see important disclosures at the end of this presentation. U.S. Treasury and municipal obligations are not included in the analysis. ESG Risk Composition Overview The ESG Risk Rating measures economic value at risk based on ESG factors. A company’s ESG Risk Rating is comprised of a quantitative score and a risk category. The score indicates unmanaged ESG risk. Risk categories are absolute and comparable across industries. Lower scores represent less unmanaged risk. Ratings are scored on a scale of 1-100 and are assigned to one of the following ESG risk categories: •Negligible Risk (overall score of 0-9.99 points) •Low Risk (10-19.99 points) •Medium Risk (20-29.99 points) •High Risk (30-39.99 points) •Severe Risk (40 and higher points) 31/36 of portfolio issuers are rated with a total rated market value of $38.5 million (37%) Negligible Low Medium High Severe Portfolio Average ESG Risk Rating 19.8 Allocation by ESG Risk Rating Low 23% Medium 13% High <1% Not Rated 63% Industry Diversification Portfolio holdings and Sustainalytics data as of March 31, 2024. Average ESG Risk Rating represents the market value-weighted average ESG risk rating for each industry. 28.9 19.6 19.5 25.3 22.0 17.2 17.3 17.3 15.4 0% 20% 40% 60% 80% 0 10 20 30 40 Po r t f o l i o W e i g h t ( % ) ES G R i s k R a t i n g Industry Exposure and Weighted Average Risk Score S&P Credit Rating Distribution ESG Risk Rating Key Negligible Low Medium High Severe 0-9.99 10-19.99 20-29.99 30-39.99 40-100 Portfolio holdings and Sustainalytics data as of March 31, 2024. If a security is not rated by S&P, the equivalent Moody’s rating is used. NR stands for ‘no rating’ and implies that the issuer is not rated by S&P or Moody’s but is rated by Fitch. $0 $5 $10 $15 $20 A AA AAA Market Value Allocation (Millions $) Credit Rating Grouped by ESG Risk Rating Category 22.5 16.9 21.8 0 10 20 30 40 AAA AA A Average ESG Risk Rating by S&P Credit Rating Holdings as of March 31, 2024 Sorted By ESG Risk Rating Source: Sustainalytics. Holdings as of March 31, 2024. Issuer % Weight Subindustry Subindustry Percentile ESG Risk Rating 3/31/2024 CarMax Inc.0.1%Automotive Retail 25 12.2 Coöperatieve Rabobank U.A.1.0%Diversified Banks 3 13.2 The Home Depot Inc 0.9%Home Improvement Retail 24 13.3 Federal National Mortgage Association 6.2%Thrifts and Mortgages 7 14.0 Adobe Systems Inc 0.6%Enterprise and Infrastructure Software 6 14.9 Microsoft Corp 1.5%Enterprise and Infrastructure Software 7 15.2 Novartis AG 1.5%Pharmaceuticals 1 16.2 Mastercard Incorporated 0.6%Data Processing 15 16.6 Federal Home Loan Mortgage Corp 4.8%Thrifts and Mortgages 13 17.0 Intel Corp 0.5%Semiconductor Design and Manufacturing 8 17.3 Fifth Third Bancorp 0.7%Regional Banks 12 17.7 Target Corp 0.7%Department Stores 19 18.4 Federal Home Loan Bank System 0.7%Consumer Finance 12 18.6 The Toronto-Dominion Bank 1.0%Diversified Banks 18 19.0 American Express Company 0.8%Consumer Finance 16 19.3 BlackRock, Inc.1.2%Asset Management and Custody Services 9 19.6 Deere & Co 0.7%Agricultural Machinery 36 20.0 Bank of New York Mellon Corp 0.9%Asset Management and Custody Services 10 20.2 Kubota Corp 0.3%Agricultural Machinery 53 21.0 Holdings as of March 31, 2024 Sorted By ESG Risk Rating Source: Sustainalytics. Holdings as of March 31, 2024. (continued) Issuer % Weight Subindustry Subindustry Percentile ESG Risk Rating 3/31/2024 Bristol-Myers Squibb Company 0.3%Biotechnology 11 22.6 PACCAR Inc 0.7%Heavy Machinery and Trucks 27 24.4 Walmart Inc.1.3%Food Retail 61 25.3 The PNC Financial Services Group, Inc.0.7%Regional Banks 38 25.5 Bank of America Corporation 3.0%Diversified Banks 43 25.5 Citigroup, Inc.1.7%Diversified Banks 51 26.9 Hyundai Motor Company 0.3%Automobiles 66 27.3 JPMorgan Chase & Co.2.3%Diversified Banks 61 28.4 Honda Motor Co Ltd 0.6%Automobiles 73 28.7 Toyota Motor Corp 1.0%Automobiles 84 29.3 General Motors Company 0.1%Automobiles 86 30.0 Amazon.com Inc 0.3%Online and Direct Marketing Retail 93 30.2 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 American Express Credit Account Credit Card ABS Bank of America Auto Trust Automobile ABS Bank of America Co Diversified Banks BlackRock Funding Inc Financial Services Bristol-Myers Squibb Co Pharmaceuticals Carmax Auto Owner Trust Automobile ABS Chase Issuance Trust Credit Card ABS Citibank Credit Card Issuance Trust Credit Card ABS Citigroup Inc Banks Cooperatieve Rabobank U.A.Banks Deere & Company Machinery Manufacturing FHLB Government Agencies FHLMC Government Agencies Fifth Third Auto Trust Automobile ABS FNMA Government Agencies GM Financial Automobile ABS Home Depot Inc Retail - Consumer Discretionary Honda Auto Receivables Automobile ABS Issuer Sector (BICS) Hyundai Auto Receivables Automobile ABS Intel Corporation Semiconductors JP Morgan Chase & Co Banks Kubota Credit Owner Trust Other ABS Los Angeles Community College District Education Mastercard Inc Consumer Finance Microsoft Corp Software & Services New Jersey Turnpike Authority Transportation Novartis Capital Corp Pharmaceuticals Paccar Financial Corp Transportation & Logistics PNC Financial Services Group Banks State of Maryland General Government Target Corp Mass Merchants The Bank of New York Mellon Corporation Financial Services Toronto-Dominion Bank Banks Toyota Motor Corp Automobile ABS U.S. Treasury Sovereigns 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 Andy Pease Vice Mayor Jan Marx Council Member Emily Francis Council Member Michelle Shoresman Council Member Investment Oversight Committee Jan Marx Council Liaison Anni Wang Public Member Whitney McDonald Interim City Manager Emily Jackson Director of Finance Debbie Malicoat Deputy Director of Finance/City Controller Riley Kuhn 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 ESG Risk Rating Range and Average by Sector Source: Sustainalytics. Data as of March 31, 2024. 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. Sector Analysis 24.5 21.6 16.1 15.5 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 / c 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 informatio n 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 consi stent with the applicable Environmental, Social, and Governance (ESG) guidelines. As a result, the universe of investments availab le will be more limited. ESG criteria risk is the risk that because the investment portfolio ESG criteria excludes securities o f 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.