Investment performance review quarter ending September 30th

1:11:12Okay, now we're gonna go to our regular agenda item. And Is that R ninety seven? My book is right.

1:11:22You've done R 97. 98 is a time certain. 99 is your next one, which is the clerk's presentation of investment performance review quarter ending September 30th, 2021.

1:11:36Let's go to ninety-nine. Thank you, Madam Chair. Um calling up uh Manny Long, my uh Director of uh Financial Services in my office. And also Scott Stitcher, he's the director with PFM Asset Management Investment Advisors. And they are here to present the semi-annual investments of the Board of County Commissioners.

1:12:00Good morning, Chairman Starkey and Commissioners. Thank you for having us. Uh Mandy Long, Finance Director for the Clerk and Controllers Office, where we put the fun in funds. Okay, that didn't go over too well there either. Um so East Pasco Government Center 14236 6th Street, Dade City, Florida 33523. So as we continue to monitor the investment portfolio to ensure compliance with the Florida statutes as well as the Pasco County's uh investment policy. You know, we we we monitor

1:12:31all the investments on a daily basis and with the help of PFM uh giving us some strong advice, even with these low interest rates that we're still seeing, we exceed the benchmarks for our s short and long term investments. Again. First and foremost, we are maintaining the safety and security of the principal for all Pasco County investments. And as you can see here on our slide here, the total unrestricted portfolio that we have is $1 billion. Short-term

1:13:02investments distributed to the Florida Trust day-to-day fund in the amount of $204 million. $162 million in the SBA and another ten point six million dollars in local government investment funds, uh, Florida class. Our longer term investments are with PFM. We have three hundred and ninety-one million dollars invested with PFM underneath their management and Scott Stitcher here who is the investment guru. Appreciate you. Thank you. Thank you. All right. And

1:13:32uh

1:13:35uh ten point seven million dollars in CDs with qualified public depositors. Uh total restricted portfolio is at $490 million, which directly relates to funds that are dedicated to specific projects, your bond issuance of those funds. And when we met the last time, we were had about 71.39% of our investments in local government investment pools. Um the investment policy states that we can

1:14:05have 75 percent, but uh when we did evaluate the investments, we did move a lot of that money out to uh now we're down to 31.6 percent in local government investment pools, um a large chunk of that money. went to PFM to manage some of those uh funds uh in order to go a little longer out on the yield curve and to maximize some of the the yield that we have. So And again, Um we're we're exceeding the benchmarks that are set forth out there by the industry standards. And I think I'm gonna turn it

1:14:35over to Scott so you can not listen to me anymore, but uh he's got a lot of great information. Thank you, Scott. Thanks,

1:14:41man. All right. Good morning everyone. As mentioned, my name is Scott Stitcher. I'm with PFM Asset Management and I'm not nearly as clever as as Manny is, but um I do want to just take a quick moment to thank uh Madam Clerk Alvarez and Manny and and the finance staff. We have a great working relationship with the team. It makes our job that much easier. So I commend uh Nikki and her team. So again, PFM Asset Management has been entrusted with managing a fixed income investment

1:15:11portfolio on behalf of Pasco County. We do so within the parameters set forth in Florida State Statute 218.415 as well as the ordinance investment policy of Pasco County. Uh the main objective of both the statute and your policy uh is safety of principle. Followed by liquidity. and uh and yield. D did you have a question?

1:15:37I I do but I'll ask it at the end.

1:15:39Okay.

1:15:39Okay.

1:15:40Please feel free to interrupt. Uh so as Mandy mentioned, I'm gonna focus on uh the line that says PFM Board of County Commissioners Investment. We've been entrusted to manage a little over 390 million on your behalf. I'm gonna uh pass through uh slides four through seven serve as a uh asset allocation or compliance summary so that you can see that you're it again. Within the parameters set forth by your policy from a sector standpoint,

1:16:10issuer uh allocation standpoint, uh the credit rating agency standpoint. But I wanna make some comments on page. uh nine, if I can, Uh I want to speak first to that duration number and why that's important. You'll note that the duration is a measure of the interest rate sensitivity of the portfolio. Uh I suspect the next time we get together in six months, you're going to see that number be slightly short or

1:16:41or less than the benchmark duration. And that's really because the Fed has indicated uh that they really plan to to raise interest rates come twenty twenty two. They they've really been signaling, uh expediting their timeline given given the right rising inflation numbers that they're seeing out there. So we do anticipate uh interest rates to to continue to rise, which they've uh started to do in the fourth quarter since this report was printed. And therefore,

1:17:11what we will do is take some of the interest rate sensitivity out of this portfolio by reducing the duration relative to the benchmark. I also want to point you to the upper right hand corner, that sector allocation. Just note that the portfolio is very well diversified. Your your policy allows us to do quite a bit. Um and that's a good thing. Uh and it has served you well, which you'll see when we look at the performance on the previous page, page eight. But the one number I want to point you to is the

1:17:41Treasury number. And that number is a little bit inflated right now. That's a byproduct of the new money that Manny mentioned earlier that you get gave us back in the second quarter of this year, about $175 million to be exact. So that large allocation is again a byproduct of that new money, but it's also more importantly a byproduct of the fact that fixed income markets are very rich. They're trading very rich right now. And so yes, fixed income can be rich like like equities. They can be very similar. So,

1:18:12our job is to be very prudent and methodical in putting that new money to work for you. We don't want to overpay for securities on your behalf. And therefore, again, we've been a little bit slower in putting that money to work and trying to identify opportunities. I spoke to the portfolio manager yesterday, and he said he's definitely not where he'd like to. be, he suspects in the new calendar year that there will be opportunities to move into sectors like uh asset

1:18:43backed securities and corporate notes and possibly even mortgage backed securities as the Fed winds down their asset purchase program. Okay. Uh I'll point you to also the yield at cost. I'd be remiss if I didn't mention that number, that 0.66%. Uh I know it's not really a cartwheel-worthy number, but it is when you compare it to some of your other options, like overnight bank deposits, uh local government investment pools, and money market funds that are yielding somewhere in the point zero three percent range. So there's serious

1:19:13uh interest income pickup. in investing out longer in this portfolio. So let me go back to the I'll pause there for a second. I've thrown a lot at you in a short amount of time. Are any any questions on page

1:19:27Nine. Can we go back a couple of pages?

1:19:31We may. Uh you tell me when

1:19:34to stop there. That's

1:19:34right.

1:19:35The next one right there. Okay. All right. you've got Looking at municipal California earthquake.

1:19:42Uh New Jersey Turnpike Authority. New York State Urban development, state of Connecticut. Is there any reason we don't do more in Florida compared to out there? I know I know one time way back when uh there was an ab apartment complex we invested in with a group and that thing went under And it was part of the big collapse that kept our money tied up for many, many years. These things here kinda scare me a little bit. If it's Florida based, I'd feel a l bit more comfortable. Any reason you're not putting money back into Florida?

1:20:12So

1:20:14One of the challenges we face our firm faces is that we have Up until today, as a matter of fact, we had another business line called PFM Financial Advisors, and they are the largest financial advisory firm uh as far as deal volume in the United States. All right. Um Because of that relationship, we've really been precluded from investing in a lot of deals that take place, not ego only in Florida but in in the rest of the country. Uh when a deal comes to market,

1:20:44our firm has worked on that. We have to wait sixty days. uh before we can actually participate in purchasing that security. Well uh the problem is those securities are no not not available for sale in sixty days. People buy them for a reason, they buy them for the safety they provide for the the income stream that they provide and they're not really looking to sell them within 60 days. So for us a lot of it has been a supply issue and then our our business relationship. And I say that has held true up until yesterday.

1:21:15Uh when We are no longer really affiliated with the financial advisory firm any longer. So I think what that's going to do is it is going to open up the opportunity set in which we can play, and you're likely to see, again, if the supply is there, if the issuance is there, you're likely to see that allocation increase and potentially increase within Florida names as well. We take a very the the names we put in this portfolio go through a very thorough credit process, much like a corporate note that's

1:21:45put in the portfolio, an asset backed security that's put in the portfolio. We have a credit committee, so it's not any one individual that's making that investment decision, that one name that goes in the portfolio. It's a team that does the analysis and creates an approved. approved list that before and and it has to be on that approved list before it can be put into this uh portfolio. It's hard coded into our trading platform, your policy is hard coded in so that a name or something that trips

1:22:16a a f uh uh a parameter within your policy doesn't make it in to to your uh portfolio.

1:22:24Mr m Madam Chair.

1:22:25Yes, Commissioner

1:22:26Moore. If you don't mind me to jump on too. So for example in uh New Jersey Turnpike Authority, you know they've taken a big hit because of COVID, but you continue to invest in that.

1:22:35Well I I think the

1:22:36revenue

1:22:37has, I know that for a fact. Right, right. And I don't know when I need to look to see when we a added this name in in the portfolio. But I just also want to point you to the fact that it it's only a a point one percent allocation. By policy you can go upwards of five percent. Uh so we're really talking uh a a small exposure here. Uh no and I appreciate that but you still

1:22:59uh but you we

1:22:59still invested

1:23:00in it when they're losing revenue.

1:23:02Again, I I need to look and see when we added the name. I I'm I'm I'm guessing we did so before COVID and I and I can confirm that and get get a number back to you. So we're not adding money.

1:23:13Okay. So uh for example and just tie into what Commissioner Mariano, I think commission uh Chairman Chairman Mariano. Um If we're if if you're looking at investments throughout the year and you notice that for example, COVID's going to have an impact on some of these investments, like a turnpike authority, where less cars are on the road, less people are traveling on the roads. Um would you not want to go in there m and obviously, you know reinvest those funds into another fund.

1:23:46Yes and no. And I will say that our again I mentioned that credit committee. They're continuously doing research on the names on our approved list. And I will say at the height of ковід. Mm-hmm. they they were meeting on a weekly basis and looking at the names for potential impact to uh to principal, whether the that these entities would be able to pay the principal back. Uh and it's a name again that that has passed that credit

1:24:16committee's review and they continue to be comfortable in keeping that name on the list and in the portfolio. Were we adding uh to to names that we had you know concerns about during COVID? No, definitely not. Uh as a matter of fact, we stopped making any purchases in the Muni space, in the corporate space, and asset back space as well. Again, this was at the height of the pandemic, so we're talking back in March through June. We were not adding to these names. But are we comfortable

1:24:46continuing to own them today? Yes, we are.

1:24:51Can I do a follow up question as well? Yes, excuse me. So so when I look at uh as you point up municipal, I I look at all the bonds above it from supernatural agencies, mm-hmm. They're all double A, triple A, but California Earthquake Authority got No rating, no rating in A. Then you got double A's and then New Jersey Turnpike Authority, as Commissioner Weightman. is only single A. State of Connecticut is only single A with

1:25:16So I mean there's a If I'm going to invest in a municipality, I'd rather see it I don't know. In my own state. my own county and even with My own termpike authority that that runs through the county. Okay. Is there any reason we don't do that? Or because i if if if they don't fit, so be it. But is there any reason?

1:25:36I think the reason is pretty much what I had stated earlier was uh it's a a supply issue, so just not even having the availability of those names to to invest in. But here's what I'll do. I will go back today to the portfolio manager and share this feedback with him, share his concerns. about the n some of the names in the portfolio and ask that he focus more on trying to identify Florida names that again I think may become uh much more uh available to us. given

1:26:06that we don't have that financial advisory relationship any further, that should open some doors for us. So I'd be glad to share this feedback.

1:26:14And if there was a suggestion that they had as far as maybe it's legislative something needs to happen to the state. To make it more viable to go invest this way, then then so be it. Let's let's get that. We can even reach out to our legislators that you know, could get the legislation change if we needed to to make it better.

1:26:30No, I really don't think it's a legislative issue and and I just want to make out make one point too. Uh you shouldn't be concerned about the NR two that not rated. Uh that does should not be perceived as a weaker credit. It just means that that entity is not paid up for uh in this case S P and Moody's to to rate them. So this comes at with a fee that you know, for them to have that rating. They have to pay those entities for that rating. So that shouldn't be perceived again as as

1:27:00a weakness in their credit rating at all. It just means they're not willing to pay it or they don't feel the need to to pay it given Who they are. Madam Chair?

1:27:10Yeah. Thank you. Thank you, Madam

1:27:12Chair. Um you mentioned there's a committee that reviews these, is that correct? And wh where are these committee members located?

1:27:18Um our trading desk is in Harrisburg, Pennsylvania. That's where we're based. So we manage about $176 billion. I always say we're probably one of the larger asset management firms you've never heard of. So we have about $176 billion, about $130 billion of that is in discretionary money, meaning our clients entrust us to make buy and sell decisions on their behalf, much like Pasco County board does. So that committee uh again meets monthly.

1:27:49Uh to talk to discuss New names they want to bring to the list, to n names that they consider removing, and then just again reviewing the the list as it stands. Um we do that for commercial paper, municipals, asset back, and corporate notes secure.

1:28:11So you know New Jersey Turnpike Authority, New York, uh New York State Urban Development Corp, State of of Connecticut. We're looking at three um northeastern states that abut each other that um Pasco County is making investments in. I don't take kindly to that. Okay.

1:28:27Make uh Madam Clerk Commissioner Fitzpatrick.

1:28:31Um yes, and looking at the New Jersey Turnpike Authority and I would like to look further into it, but as looking it up, it does have straw in traffic and revenue histories. So I would just like to see what the histories are currently up to date, if they are Bringing increasing their budget and increasing their gross revenue or if it's decreasing, because I know it's very exp It's it's it brings in and generates a lot of revenue. So I would like to see what rate of return we have on that

1:29:01investment. Thank you.

1:29:03Okay.

1:29:04Is there more to your presentation?

1:29:06I I really was g going to speak to performance on page eight, but in the interest of time I I'm I'd be glad to stop there.

1:29:12Well performance is important, so I think it's a very important thing.

1:29:14Performance is important and I would say I I think it's been um Again, Manny made the comment earlier about the the county's portfolio outperformance benchmark. We we are part of that uh outperformance. So on this page we show you Uh returns in dollar terms as well as percentage terms, total return percentage terms at the bottom. And for the three months ending, September 30th, the portfolio was up 0.09%. versus the benchmark in that beige gray area at 0.06%. We also show you net of fees. Uh

1:29:44and that net of fee return was 0.08%, so about two basis points of outperformance for the quarter. And then we show you the trailing fiscal year end, the one-year number for September 30th. 2021, the portfolio was up 0.29% versus the benchmark at 0.03%. And then on a net of fee basis, the portfolio was up 0.23%. So that equates to about $800,000 in dollar terms. Not a number we we like to see, but it's just a a byproduct of where we are today,

1:30:15the interest rate cycle. We're hoping that we start to move towards since inception type numbers out there to the far right. Again, as interest rates rise, might be a little painful in the beginning. Uh again, as interest rates rise, bond prices fall, but long term you're gonna be investing at higher yielding securities, so that interest number should offset any pain uh in the long term. So again, we think we're headed more towards these since inception type numbers, two percent, north of two percent.

1:30:46Okay, um my question and Manny you may have said at the beginning and I was getting organized here so I missed it, might have missed it. But I know it's it was unusual for when we got the money from the feds in one of the distributions um that we were allowed to get interest on it because apparently normally we don't get to collect the interest on it. So is that money c did that money go here? Um where you know where'd that money go?

1:31:10So since the money was originally supposed to be spent by twelve thirty-one uh last year, so we we actually did put that in a short term uh day-to-day fund in the local government investment pools, which has a maturity of about thirty-five days. So we had easy access to that money and liquidity.

1:31:27And and we're collecting interest on that? And what about the second round that did and have we received any money the the second distribution, which is coming in two years? Is it the AIRP? Yes.

1:31:41Yeah, we only got the first distribution last April ish, May. I can't remember.

1:31:45And we are allowed to collect the interest on that because

1:31:49We

1:31:49are Yeah.

1:31:50Okay. And do we does that interest get go into this fund and get mixed up somewhere or do we get to put that interest um which is unusual for this kind of money, in a separate um line item to be used uh, say in general revenue where

1:32:09So that interest income is based upon the fund balances and y whatever that interest is, it's divvied up between all of the fund balances based upon the percentage of their fund balance. So each fund gets a percentage of that interest.

1:32:25Well what kind of fund did you put the AAR the ARP money in?

1:32:30So it's in it's in the general revenu uh general fund, um so in the oh oh one general general fund. I don't understand why the interest

1:32:39this isn't my world and maybe one of y'all can so

1:32:42say it better

1:32:42than the other thing.

1:32:43So technically if we put a hundred million dollars in there, then that hundred million dollars would go to the general fund.

1:32:48No, I'm talking about the

1:32:49interest. Yeah, the interest would on that money would go towards the general fund.

1:32:53Okay, but but you know, I'd like to see that number called out eventually. Because in my mind that's undedicated money that we're earning on the federal money.

1:33:03But you had to spend the first chunk you had to spend by December thirty first. So

1:33:09I'm not sure what the rules are on the interest.

1:33:10It's a lot of intr it's a lot of money. in a low interest bearing because it had to be liquid. So

1:33:17Madam Chairman Mariano The General Fund is a unrestricted fund. So putting the monies in there, they are not restricted. You can use them. for what you would need. Um the uh parameters upon you know the CARES funding, you had to m make sure that it checked the boxes on what that amount of of money could be used for. But it's all within the general fund, the interest and the original money.

1:33:41Okay. All right. Any other questions?

1:33:44I I know what you were getting at.

1:33:47It's extra money for us. Yeah. Unrestricted. Yeah.

1:33:49Yes. And you can use it.

1:33:51Yes. I just want to know how much it is. So you Because we allotted spending based on the f the number that we received, but it didn't include the interest we're earning and what are we going to do with that money? And that's up to this board. Correct. That's what I'm saying. So one day I'd like to see that number. We're very good at spending it. Okay, any other questions? Okay, I think we have a time certain. Did we did we miss that?

1:34:18No, they're here. They're out there.

1:34:19Okay, eleven thirty is the next one. All right, thank you very much. Appreciate it. And I think we we gave you some questions here. Okay.

1:34:27Thank you.

1:34:28All right, what do we have next?

1:34:32All right. R ninety eight.