(11:00 a.m. Time Certain) Presentation - Clerk and Comptroller - Investment Performance Review - No Funding Required
What the county recorded
Staff recommendation
Presentation Only
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The source document
The county’s agenda for Board of County Commissioners, Feb 7, 2023
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The county’s minutes for Board of County Commissioners, Feb 7, 2023
The published PDF, as served by the county. This item is one entry in it.
This case, across meetings
CO-23-0117 in full →Heard once. CO-23-0117 appears on no other agenda in the archive.
- Feb 7, 2023BoardR43▶No disposition in the minutesthis item
What was said
Machine transcription of 19m of recording, with speaker names inferred from voice matching. 97% of 62 lines carry a name. It shows what was said, not what was decided, and both the words and the names can be wrong.
It's working for me. So um okay. We had we do have IT working into looking into this as well. Comes in waves apparently. Okay, so we'll go to R forty three. If we can.
But I don't have anything.
Yeah.
Yes we are here early on the time certain, but everybody's here, right? Okay. Yeah, we can go and do our presentation.
So commissioners, I uh you have a packet of information that's at your seat and it includes the annual investment summary report for um the year-ended September 30th, 2022, as well as the quarterly investment summary report for quarter-ended December 31st, 2022, along with a printed out version of the presentation that is um up right now on the screen. I'd like to introduce to you probably a
familiar face. Um we have from I should say familiar faces. Um we have with us um Matt Lazar. He is the interim finance director for my office. Manny Long has uh resigned and taken um a position with the Um First National Bank of Pasco. So Matt was working as the assistant finance director and he's doing an amazing job. So he's here today as the interim
finance director to do part of the presentation. And along with him is Scott Stitcher. He is with PFM Asset Management Group and he does our investments for us as well. Yeah. We have put together the investment summary report before it was just like a one page um busy spreadsheet and we thought let's change it up, let's add more information and explain to you what what has happened the past
year as well as the last quarter. So here um is uh Mr. Lazar and Mr. Stitcher to go further into the details of that. So thank you.
All right. Thank you, Commissioners. So before you, you'll see a period. We're gonna go over first. We're gonna start with the quarterly performance for the period end of December 31st, and then we'll go into what Nikki was talking about: the new presentation, uh more user-friendly format for you guys to kind of look through and look at the investments. Uh, this will be the new format going forward. Um, and then if there's any questions, uh just please feel free to Ask and then any input. It's a document we will update if needed. So uh but we'll go ahead and start.
Jump in there.
Okay. Good. Good morning, everyone. Uh I'm gonna make some brief comments on the uh economy and then uh We'll jump into the portion of the assets that we manage on behalf of the county. And um and then I'll hand it back to you to to to finish up. Um in a nutshell um Last year the Fed was fighting some persistent inflation and that led them to raise interest rates a total of seven
times for uh uh four point two five percent increase in interest rates in total, taking the a Fed funds rate uh today to four point five to four point seven five percent. So in a rising rate environment, that's not a great thing for a fixed income investor. Rising rates lead to uh falling returns, uh uh price decreases. However, in the long term, that's the money
we're talking about here, is long term operating funds, uh it's going to benefit you in in uh higher income in the portfolio. So there's some uh near term growing pains as interest rates rise, but in the long term You will be rewarded. We're seeing that already in the portfolio. And we'll get into this a little bit later when we look at the yield at cost on the portfolio, which is again the income you're earning on the portfolio, has increased consistently throughout the
year, is going to continue to do so as we move throughout 2023. Um Let me Fast forward to
This slide, Matt, you want to jump in here?
So on this slide here, what we are representing to you is the portfolio for the county. This is the unrestricted portfolio. So what you're gonna see here is uh we're showing you the makeup of the different investment avenues. So some of the various local government investment pools in which we are distributing the over $1.4 billion in unrestricted investments, so the surplus funds for the county. You'll see there's been some changes since. Since the last time we presented to you. So speaking to what Scott was talking about earlier, we've started moving some money. The finance
team has done a great job. So Richard Van Steen has led that team to really uh take advantage of the short-term fixed rates. So you will see that in that Florida Palm term, $203 million. So we are trying to take advantage of those so we can make sure to maintain one liquidity, but also the opportunity. Operational needs of the county, so being available those funds being available for use as as you guys see fit. Um Big picture. Uh as Scott was saying at the tail end of the fiscal year 2022
we saw an uptick for s uh September 30 and we finished with uh a return of about eight million dollars. We are already at close to 7.3 million in returns for just the first quarter of our fiscal year. So we anticipate being back in line with the pre-COVID numbers. uh really maximizing returns but also maintaining compliance with obviously Florida statute and the investment policy that you guys have approved. Let's see what else do I have for you? Uh we
uh again just being in line with the the prior year balances, but I think as you can see we're going to continue to monitor this. We work closely with PFM to uh we understand return on investment isn't number one in the listing, but we do want to make sure that is there uh because we want to make sure that if the capital needs, we've heard loud and clear capital big part of the budget. We want to make sure. have those expenditures and and have that the offsetting revenue uh to budget for that. So that is what we're kind of showing here for you. Obviously some
of the other information very familiar to you, but if there's any questions you just let us know and we'll walk through them.
We'll go to the next one actually here for you. We'll just roll through. You can continue to hear my voice. So we'll just keep going here. So in the investment policy, and we're going to talk about this later when we go through the breakdown in the investment policy that the county has approved. There is restrictions on the different pools in which we can invest. So represented on this slide, you will see the gray outline box that is the maximum investment per. percentage of the whole portfolio as approved in that investment policy with the blue bar filling in showing
where we are in line uh with the investment policy. We did wanna Really bring to your attention that bottom line the Florida Prime SBA in the investment policy it does allow for a maximum of 25%. You will see for the period ended December 31. We were exceeding that and that is in line with the ad valor revenues that the county had received in December. So again, we we use this graph and we'll show you later we're gonna incorporate it quarterly to kind of show you where. We're gonna continue to monitor these
so we can uh we're maintaining compliance, but uh that is why you're gonna see that thirty one point seven percent. It was just timing of revenues that the county have received. So
Yeah, I'll j I'll just add that it's not uncommon this time of year when admiral worms are coming in to see cash balance as swell, uh, but our conversations with the the staff, we were able able to redeploy that money and bring you back in compliance. So there are really no concerns there today.
I'll just note too on our portfolio again I'm gonna make my comments around that $376 million portion of the assets that you saw on that summary slide. Um I think it's important to reiterate something Matt alluded to, and that's the fact that what we do on your behalf is driven by Florida State statute as well as the county's investment policy. That drives our investment decisions on on your behalf. Building on the compliance section, this just shows you an issuer diversification
to show you that you're again in compliance from an issuer limit as well as from a credit quality standpoint. So there's no concerns from a policy standpoint with regard to issuers or diversification or credit credit quality. Uh Let's spend a little time on this slide. Again, it is a summary of the portfolio that we manage on your behalf. We ended the quarter at a $376,458,000. Uh I want to
note The effective duration in the portfolio is 1.64 years versus 1.74 years for the benchmark. Duration serves as a a risk measure. It serves as the uh interest rate sensitivity of your portfolio. So the fact that we are short duration relative to the benchmark would mean that we're taking on less interest rate risk in the portfolio. And we feel like that's prudent in an interest rate environment
where we're seeing rates rise. So you're going to continue to see us take a more defensive posture from an interest rate standpoint. I mentioned earlier the yield at cost, you'll note it stands at 1.83%. percent at the end of uh December. It stands at 2.04 percent today. You're gonna continue to see that number tick up as maturities occur, as interest rate uh as interest occurs, pay downs occur in the portfolio, that money will be redeployed into higher yielding securities,
and you're gonna continue to see that number tick up. So again at the end of the first quarter in 2020 The yield of cost stood at point seven six percent today at two oh four. And again, why is that important? Because Interest in the portfolio makes up a large part of the total return. So we're gonna see that interest rate number continue to tick up. uh and and benefit this portfolio and the county over the long term. Uh high credit quality AA for the portfolio. fully diversified
looking at the the pie chart in the upper right hand uh corner you can see we're spread across a number of sectors. Uh do want to point out that we did take action in in uh the third quarter to eliminate the municipal uh holdings that are outside of the state of Florida. So we sold roughly two Million nine hundred and fifty thousand dollars in par for municipal bonds. Uh so Chairman Mariano, I'm hoping that that makes you happy. Uh everybody
interest
helps.
So uh that that is now taken care of. Again, it was about five bonds in total. Uh there was a slight loss that in was incurred, but uh uh a a rounding error when you look at the size of this particular portfolio. Um Down the bottom right is really just a bar chart that shows you how we get to that effective duration number that I was speaking to a little bit earlier. It's just a breakdown of how we are that how that 1.64 years is made up. And again, you can see we
are overweight the shorter end of the duration distribution, which is a good thing. Again, that means more money is coming due that we can invest out and higher yields. And then we give you a credit quality breakdown in that lower left hand corner. Let's get into what you really want to see, and that is performance. Uh we show you uh performance over the last three months, so the quarter ending December 31st, and then we show you the full year ending December 31st in that second column. So Some
very good news over the last three months. positive returns. Uh we haven't seen positive returns in the fixed income market since the third quarter of 2021. So it's exciting to be here today to actually be able to deliver positive returns.
Versus the benchmark at 0.73%. You net out a fee of about a basis point for the quarter, and the net of fee return is 0.81%. So about eight basis points of outperformance for the quarter. The story's a little better in terms of outperformance for the year, but in absolute terms it's not quite as pretty because of the negative number there in front of. of of the return, but a negative three twenty-one for the portfolio versus the benchmark and a negative three sixty-five.
Net of uh uh fees a a negative three twenty six. So about forty basis points, point four zero percent of outperformance There. I I just want to stress, you know, although that number is negative, keep in mind the the importance of these assets and what state statute says, and that is safety of principle and liquidity first and foremost. So it may seem ugly, but think about an SP return last uh of nine in uh last year of
a negative 19%. Yeah. Uh and then this sort of uh you know is why you are taking a more conservative approach in investing these these assets. So uh negative three percent is much more palatable than a negative nineteen percent. Let me stop there. I've thrown a lot of information at you in a short amount of time, just see if there are any questions. to this point.
Let me just um lead with you know w I think you're right the the short term market is where we should be going right now. And if if you uh my thinking is if we need direct to give you direction to kind of change where we've gone in the past I'm I'm happy to kind of look to go that way because the short term market is the highest interest rates. What's what's the highest interest rate on the C D right now? It looks like it's a three point eight five? It's probably more than that depending on how far you're going out. Okay. So I mean I I think we should be taking especially if it's C D's whatever, I don't care if it's six months or
a year, if we can put that in there and and take advantage of the high rates right now, because if they do drop down the next year or two then The more revenue we can draw around right now, I think we should, and especially it's it's being more liquid puts us in a good position for the next move.
Mr. Chairman if I'd like um I'd like Mr. Lazar to talk about some of the strategies um he and his team have been implementing on the short term. Talk specifically directly to what you're saying.
Okay. So uh I think great minds think alike, I'm gonna say, because we have done that. We've been looking at that, so that's back to that Florida Pump fix rate. Those are very short term, giving us a fixed rate. The last one we took participated in is a five point one four percent return. And then we also are uh working with finalizing some items related to CDs. We're averaging about four point two five percent return on those CDs. So we are in line with you and we will continue to monitor those. That has uh been a bulk of what the Treasury team has done, but we will continue
to look into those. So
Those are the safest investments for us to be in as well, correct?
They are they they are safe. I mean we're gonna get we're fixed rating that, so we're we're knowing what we're gonna get. We have an expectation, so we wouldn't see a loss on there. So
I
mean
for for the years that we struggled with the down economy, the low interest rates, right now's an opportunity for us to to maximize this return. So I I like that approach. I think it's good to keep on going. And if you need flexibility from us how we've said the portfolio should be, I think we can say that if we look at it Safer is better, which would be shorter term. So if I needed if you need direction from us, I think to structure, I I hope you ask for it.
So um I I feel that the portfolio um uh uh uh the policy for investment gives us the latitude to do that and we are taking advantage of that. One thing that they balance is if they take money out of long term now, they have to make sure that we're not doing it at a loss. Right. Right. So they're investing the money, taking it out of long term, where we're not going to get hit with a loss, and then uh reinvesting that in short term to take advantage of those higher yields.
So you'll you'll know when to take the the right time to take the right ones out.
Yeah, yeah, and again, I think you're really gonna see that in our next perf uh performance on in the next quarter, you'll see more in line. Kind of we'll have the CDs reflected on there and all those short-term gains. Yeah.
Very good. Any other thoughts or questions?
Right. Okay. I I honestly I I really didn't have a whole lot more as far as prepared remarks, but I'm happy to address any other questions that that might exist. And the other I I'll just point out too, keep in mind that uh You know, the the uh longer term portfolio is sort of like steering a a aircraft carrier. Uh so I I mentioned that yield of cost ticking up uh each quarter, and at some point that's gonna be a really, really attractive yield.
And uh The other thing to keep in mind is when interest rates do start to fall, money market or short-term yields fall much quicker than what you'll see in this portfolio. So the goal here is to lock in higher yields for a longer term. So you continue to maximize that income and return. But we'll continue to have those conversations on what the right mix of liquid liquidity is and and long term investments are so that's uh the you know the
beauty of working with uh the county staff is that the the lines of communication are very open we meet quite frequently and again you know with uh the interest in mind of maximizing the overall portfolio of the county's total assets so
very good commissioner Starkey had a question
I just want to say that one and I I got the the other day and I went through it. Um I did look at who we were invested with. And if you remember in the past we had little angst for our new board members. I can't remember we were with something in New York City. Yeah. New Jersey Turnpike. New Jersey Turnpike and you know some things that probably we here didn't want to be in. So I've got to see it. I couldn't find one that I said would want to say, get us out of there. That's right. Not that I'm an expert, but yeah. So thank you.
You're welcome. We appreciate your maximizing investment. We do know it's a big ship to churn and sometimes you've got to look up when you can get out, but uh I'm glad you're taking care of these short term opportunities that are in front of you now for the expire ones that make it easy to make the shift. But I think I think your approach is going great. So thank you for listening to us about the uh previous investments as well. Absolutely. Our pleasure.
Thank you.
Good job. Thank you. All right. Have a great day. You too.
Thank you, gentlemen.
Okay.