CO-23-0175

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1. 1Aug 8, 2023
   Board of County CommissionersR58Regular businessNo disposition in the minutes

   Open this item →▶ Play from 1:56:22
   ▶ 1:56:2220m

   Jack MarianoChair

   1:56:22Now we're gonna move to our item R fifty eight investment performance review. Madam Clerk

   Ron OakleyVice Chair

   1:56:28Uh thank you Mr. Chair and fellow board members. Um this is the semi-annual update to the board on the investment portfolio. At the podium we have Scott Stitcher, he's a director with PFM. And um also we have the uh the director of my finan finance department, Matt Lazar. And um they are both going to present to you today. Uh Mr. Stitcher will will talk about um the market. and what's been going on with the with uh what's going on the market, what

   1:56:58the themes are, um and how it ties to interest rate and the idea of higher for longer. And then Mr. Lazar, he's going to go over the portfolio that my office manages for the Board of County Commissioners and also the uh newly uh created report on investments that we're providing. In addition, then uh Mr. Stitcher will come back up after Ms. Lazar Mr. Lazar and talk about the portfolio that they manage for

   1:57:28the board as well. So Mr Stitcher.

   Scott Stitcher

   1:57:33Thank you.

   1:57:36Mr. Chairman, Madam Clerk, Commissioner, thank you for the opportunity to be here with you this morning. I'll try and keep my comments brief on the economy here.

   1:57:48The Fed and inflation continue to dominate the headlines. The good news is that headline inflation numbers like CPI and PCE have been uh starting to to trend lower. Uh we saw a very favorable PCE reading two Fridays ago. We get a CPI reading uh this week. Uh and again those are moving in the right direction from my An employment standpoint, the unemployment rate ticked down to 3.5% last week, and

   1:58:19that gap between the number of jobs available and the number of people looking for jobs continues to narrow, which the Fed is wanting to see. Now, the good news about having an employed consumer is they continue to spend, and they are important in making up the overall growth. Of the economy make up about two-thirds of the growth of the economy. So consumers having jobs and spending money is a good thing. We we saw the uh GDP for the first quarter come in at

   1:58:49two percent. The initial reading for two Q came in uh surprisingly the upside at 2.4 percent. So uh The consumer continues to be very resilient. From uh a Fed standpoint, the Fed actually paused during the second quarter. They chose not to raise rates at their June meeting. Uh however, in July they did raise rates by twenty-five basis points again. The the Fed funds range now stands at five and a quarter to five and a half percent, uh a twenty-two-year

   1:59:19high. Um Yeah. If you believe what the dot plot is telling you, it would say that the Fed might have one more rate hike in them before the year ends. But they've been very transparent in saying they remain very data dependent. So the jury is out on whether we see another rate hike before the year ends. I think what has come out of it though is we're going to remain at these higher levels for longer. I think even the the uh markets are starting to Realize that. So interest rates have moved up based on the

   1:59:49Fed's trajectory, based on the economy remaining very strong, persistent inflation, and again the market's mindset that we are going to be higher for longer.

   2:00:10based on some volatility in regional banks. And so Treasuries outperformed dramatically during the first quarter. The second quarter it the the the reverse occurred. It was sort of a a risk-on mindset and you saw interest rates rise dramatically over the course of the quarter. So the first quarter Was a quarter in which diversification worked against you. The second quarter was a quarter in which diversification was

   2:00:41very helpful, and we'll see that when we look at the portfolio here in a moment. I'm going to briefly stop on page two to just drive home that point that interest rates did move higher during the quarter. And then I'm going to move hand it over to Matt to talk about the county's assets as a In aggregate. So the solid blue line is a snapshot of the treasury yield curve at the end of June 30, the dotted light blue at the end of the first quarter. And again, you can see the dramatic move that occurred during the

   2:01:11quarter. That's a bad thing for fixed income investors over the short term as interest rates rise, bond prices drop. However, uh a longer duration portfolio, a long Or term fixed income investor will be rewarded in higher income over the long term. So it's not all gloom and doom. It just hurts a little bit right now in the near term. So let me stop there, see if there are any questions on the economy, the fixed income market. If not, I'm gonna hand it over to Matt.

   Jack MarianoChair

   2:01:39All right, so keep moving. Thanks.

   Matthew Lazar

   2:01:42Yeah. Right, perfect, thank you. Um and if we're still taking votes on oak trees, uh my vote is for oak trees, so let's we can do that. Um so just real quick, what you're seeing on this slide is the overall unrestricted portfolio for the county. Um some key items you want to point out just to bring to your attention in the top left that chart is the overall allocation of the diversification. Of the funds that the county, excess funds that the county has invested. Really, what we're

   2:02:12gonna then gravitate towards down on the bottom is you're gonna see a mix of the short-term in the green and the long-term investments in blue. And that again represents about 67% of the county portfolio. So the county portfolio currently stands at $1.8 billion represented in front of you here. Is about 1.2 billion of that. That is the unrestricted investments. One of the big ones we want to point out to kind of tie into what Scott was talking about. The second line is the green box, the

   2:02:42short-term investments for the Florida Palm Term. That has been our moneymaker for us recently, where we've really been do we've been performing a lot of analysis and we found that working with in the Florida Palm Term investment. Has been key to guaranteeing some of those returns that you guys are welcome to see. So of that $396 million in the next 90 days, we anticipate $7.3 million return on that, and then by May of 24, another $11 million. So overall, just in

   2:03:12fixed term alone, $18 million in return. And that's not including any reinvestment of those funds that we would to be. Doing so again, kind of also if you look the monthly uh sorry, the expected yield to maturity is a key indicator. Kind of this got the point. If we would have looked at this two years ago, we'd be on the lower end, three or below. We can see we're we're sticking at five in some of those short-term, uh the unrestricted short term, and even around four close to five in the uh long-term investments, and then obviously.

   2:03:43staying within our portfolio uh the investment policy and floor statute requirements. Um any questions before going to the next slide?

   Jack MarianoChair

   2:03:52No, it looks like you're maximizing very good.

   Matthew Lazar

   2:03:58Maybe. There we go. Alright, so on here we just wanted to reiterate for everybody. While there is an investment policy that the county adopted uh in 2017, which we really started the seeing those returns, we are also driven by Florida Statute 218-415, which in the order you see kind of on the slides, we have to maintain safety in the principal, so we're minimizing capital loss. Then it's liquidity We got to make sure we meet the operational needs of the county. It's the normal week operational

   2:04:28needs of just it could be capital projects. We can't have vendors and tell them we have money tied up. So we're just making sure we work closely with the county departments to make sure any projects, especially with the restricted debt proceeds, that we are within drawdown schedules, and if we need to, we can move those further out to maximize any potential return, which would be third on the list which is the yield so that it is in that order obviously we don't just invest just to say we do it we'd like to see a return but obviously in this order we do make sure we are we are making safe decisions

   2:04:59for of county dollars so on there In here, before I go into the investment schedule, the other investment schedule that was passed out this morning. This is the sector analysis, which in the gray box is the outline you'll see that is the maximum investment we are allowed per the investment policy. Um and then filled in blue with the percentage represented next to it. That is the actual where we stand as of June 30th. So you can see we are well within our Our limits, we are not exceeding any of those. Um

   2:05:29and and that is really we use that in combination, PFM has our policy as well to make sure that we continue to abide by any restrictions that we would have by the investment policy. Uh before I go into the schedule that we provided any questions.

   Unidentified speakerVoice A

   2:05:45No.

   Matthew Lazar

   2:05:46You guys are like it's lunchtime. Go faster. Sorry. I know. All right. So in the schedule you provided this morning, really, real briefly, the very first page that is just a summary of the investment policy up. It is the one it's entitled Quarterly Investment Summary Report for the Quarter ended June thirtieth, twenty twenty three. This is a new format that we are going to to provide. You more detail, give you more information for those of you who've been around. You used to get an Excel spreadsheet, it was really small, probably

   2:06:17couldn't see it. So now this is giving you a high level. So the first page is really just summarizing for a statute and the investment policy going below in the authorized investments section. That is directly from our investment policy that the county adopted in 2017, showing. the minimums and maximums uh for maturities and investment authority. Continuing through on page two will be the kind of a repeat of the slide you see up here. Our goal is to continue to provide that information

   2:06:47to you guys. We think it just drives home uh really any talking points you may have. It shows not only are we diverse but we're managing the portfolio appropriately. Um next section will be bond proceeds of investment. That is an important section. There's No detail there this time because there was no new debt issued, but we find that to be important to list because if our portfolio took a huge jump to over $2 billion, we want to set realistic expectations that that could have been influx of debt proceeds that were received. Just to call that out for

   2:07:17you guys when you guys are kind of looking through that. Page three will be the market overview. That'll be a repeat of what Scott had just got. over we will present that quarterly as well just to keep making sure you guys are aware keeping that on the forefront. The next probably most important section for some are the quarterly income earned. So in this section we will we will document for the quarter ended and you will see what we have documented today for June 3rd, 2023 is $2.9

   2:07:48million dollars in the last quarter. We are expecting, uh like I said, in the next 90 days, another guarantee of seven point three million dollars just in the t for com investments and then really by the end of May 24 another eleven million just just in those that one item that we were kind of looking at earlier. Um kind of to bring to your attention overall for the fiscal year, we are about thirty million dollars in income earned, which it brings us back to We would say pre-COVID times. So when we first adopted the policy,

   2:08:18we saw a large increase. Obviously, it gave us more freedom to invest. And so we were at about 30 million with 17 million of that being for unrestricted investments. The rest is related to restricted debt service. Questions? What

   Seth Weightman

   2:08:33year was that? Your

   Matthew Lazar

   2:08:35pre-COVID

   Seth Weightman

   2:08:35number, what year was that?

   Matthew Lazar

   2:08:37So 2017 is when we adopted. After the policy, so two thousand eighteen uh that would have been solved

   Seth Weightman

   2:08:42previously is

   Matthew Lazar

   2:08:44these numbers, yeah,

   Seth Weightman

   2:08:44we

   Matthew Lazar

   2:08:45would have

   Seth Weightman

   2:08:45been in line. So two thousand and eighteen.

   Matthew Lazar

   2:08:48Thank you. Any other questions? No. Good. Makes it easier for me. All right, so the then below that will be the investment activity. That is again just summarizing what has occurred in the last quarter. That's just hitting home what I just talked about before. Sixty seven percent, one point two two billion of our portfolio currently stands within unrestricted investments, with the remaining six hundred million being restricted for debt service or the capital projects that are associated with that. So We set up different

   2:09:18investment accounts for all debt service. Obviously makes it easier to manage, makes it easier for arbitrage compliance as well when we're reporting those calculations. Righty. This next part will go a little bit quicker. So here you'll see we have represented a few schedules for you guys. The first schedule is a summary of what you would probably see in the annual comprehensive planancial report, the ACFER. It's just summarizing the different investment types and then for our PFM unrestricted as well as our Florida Trust Short-Term Bond

   2:09:49Fund. We go into a little more detail because there's a little more More uh More investment strategy driven obviously PFM that being investment advisors, uh the Ford Trust Short-Term Bond Fund also follows a similar format when investing any funds that we would have put into those accounts.

   2:10:13So we're almost there. On page 11 is the distribution of the cash and investments for the county. That again is kind of just showing overall what the county's portfolio looks like as we kind of go through the different diversification of investment. Again, just putting In another format for you guys to see. Schedule three is the cash flow for the county. And within the cash flow of the county, you will see we are trending in a similar direction that we would anticipate. We are still trending

   2:10:43to be higher than prior year ending balance of $1.2 billion. You'll see when you're kind of looking through the fluctuations in cash flow, most out-the-door expenses are going to occur separately. September, October, it's the end of our fiscal year. Also, debt service, debt service payments are usually coming out during that time. So that's going to be important to keep in mind. April is another one, another part of our debt service payment, and then you'll see that big increase when the tax revenue comes in in December. So just kind of as you see the ebbs and flows of the county kind of goes

   2:11:13through cash flow. We are showing its normal processes normal. business operations for the county so far. So All right. Anything so far? No?

   Kathryn Starkey

   2:11:25Just just gotta see we're not investing in the New Jersey. Whatever.

   2:11:32Anything.

   Matthew Lazar

   2:11:34No, we are not anymore. So uh going through just kind of wrap up before I hand it back over to Scott real quick. Uh we've heard through a few of the meetings that we've attended, you know, understanding more of how does all these pulled investments how does that affect the overall funds of all the county. So we've kind of done a breakdown in schedule for so the overall cash cash equivalents of one point two billion dollars. It's not in just one place. So we do allocate that based on the funds that are the county uses to do normal

   2:12:04operations. So the general fund, probably the number one priority for many, is above that 1.2 billion accounts for about 209 million of the that equity. And then you can kind of see we kind of list it throughout capital projects funds would be really the highest at 417 billion million. You got to keep in mind that's all the impact fee revenues that are going there, so they are going to get a bigger portion of excess funds that may be invested. Um, and then again, just giving you a chart to kind of look at uh if you like pictures better, we did that as well. And

   2:12:35then the last schedule uh that for you guys is again just reaffirming our investment strategy. We are sticking within the zero to twelve month range, obviously. That has been where we are maximizing return. Obviously still third, but we do want to keep it in that range, and we're continuing to work with PFM and really all our investment partners just to kind of make sure. PFM's always given us great advice and we've had great discussions, and it's really helped lead us into discussions with our other investment partners to make sure we're following suit. And we may see some of

   2:13:05this gravitate in the coming periods, but right now, really in zero to twelve months is where we stand for. overall investments uh mature. So thank you very much. Yep.

   Ron OakleyVice Chair

   2:13:15And if there's any additional information you would like to see in the report, we'll be happy to include it. Um this was just us to provide additional information about the portfolio and the investments in the activity.

   Jack MarianoChair

   2:13:27Okay.

   Scott Stitcher

   2:13:29Okay. I w I'll try and put a bow on this and do this pretty quickly. I'm gonna start on page nine and and I'm breaking out basically one line item from page four that that Matt went over and that's the portion of the unrestricted uh cash that we're responsible for, longer duration portfolio. As you can see on this page we ended the quarter at 381 million six hundred and ninety-four thousand dollars. We've taken a uh defensive stance in this portfolio and you can see that based on the duration number we show you there

   2:13:59versus the benchmark, 1.71 years versus 1.74 years. Duration is a a measure of the interest rate sensitivity of your portfolio. So if you think interest rates are going higher, you want to be a little more defensive in the portfolio. And that's what the stance we've taken. I want to point you to the yield at cost number, 2.88%. That's basically what you would earn today if you held the portfolio until maturity. As opposed to that yield at market number, if you were hypothetically to go out and recreate

   2:14:30your portfolio, which again would be challenging, but if you were to recreate your portfolio today, you would earn a 4.76%. So the good news is that yield at cost number continues to creep up thanks in large part to maturities that are occurring, interest that is occurring in the portfolio being reinvested at higher yields. So today the portfolio actually stands at a 3.12% and it's going to continue to rise with time. And

   2:15:00the the beauty of that is you're locking in that yield for longer than say like a money market fund which resets much, much quicker. So that near-term pain that I talked about earlier, you're being rewarded in a higher yield at cost over the long term. That serves as an insurance policy really to the county. We talked about being diversified. The upper right hand corner shows you the sector allocation. It is a high credit quality portfolio, double-A on average. You see that in the lower left-hand corner.

   2:15:31And then that duration distribution. How do we get to that 1.71 years? Your portfolio is represented in blue. And the thing to note there is you have an overweight in the zero to one year space. Money that'll be coming due that can be invested in higher yields. So we were seeing uh five point two nine, five point four seven. And

   Jack MarianoChair

   2:15:51and if you could, we gotta we need to wrap it up. You you've done a phenomenal job. Well you uh so happy to see happy happy to see the high yields and you capitalize on that short term numbers that are boosting up to carry us on. So I think you're doing great.

   Scott Stitcher

   2:16:03Great. Thank you. Then I'll just finish on the performance page where we did outperform. during the quarter, we've outperformed for the year. Um you know, and that's net a fee. So We we want to give back less than the market. We've accomplished that. And uh numbers have actually returned positive for the trailing twelve months. We think income is gonna continue to increase over the next twelve months. You feel like you're in a good good spot.