Quarterly investment summary report PFM

1:53:47Merry Christmas. All right, R74, Madam Clerk.

1:53:52Thank you. Yes, um R74 is the quarterly investment summary report for the quarter that ended September 30th, 2025, which is the end of the county fiscal year. We have um coming up to the podium Sean Gannon. He is the institutional sales and relationships manager with PFM. PFM manages a portion of the investment portfolio. And we also have Matt Lazar, he is the financial Finance director of my office and he and his team also manage the other portion of the investment portfolio.

1:54:22So I will go ahead and hand it off and let the gurus give you the update.

1:54:31So uh You know, for the makeup of the presentation, I'll give a brief market update. Um Matt will come in and and talk a little bit about the the overall investments, and I'll come in uh specifically with the regards to the portfolio that we manage. But you know th this slide here is a good quick kits, a good highlights for what we've seen recently in the markets. And just a recall, the portfolio that that we uh PFMS management we manage for you all is operating funds, it's capital reserves, it's short term. It's not related to pensions, there's

1:55:02no stocks uh in in there. Um So uh It's very dependent on labor news, macroeconomic news, as well as the Fed. So talk a bit about that as well. Um button. The the overarching story, excuse me. Uh the overarching story recently has been about the labor market, and I actually thought Mr. Cronin's example was uh fantastic because what we've seen here and what he touched on in Pasco County is actually happening across the country. There

1:55:32are corporations moving and coming in places, but they're not hiring as many people. The data that we used to get from the Bureau of Labor Statistics has not been as readily available with the government shutdown and issues there. So we've had to start relying on private data sources such as ADP and actually indeed.com does a study that they do where they point to new postings and then different data points they collect on. Yeah. Whether there's a salary listed

1:56:02in the posting or not. So the trend has been mildly concerning when it comes to labor. And that's really been the driving force for the Fed's policy. And if you recall, the Fed policy dictates a lot of the investments that we touch, that Matt and his team manage, because it it impacts interest rates and in the short-term fixed income world. They move pretty quickly. When the Fed makes movements, yields on short-term bonds also move quickly. So they're actually meeting

1:56:32today. So they meet today and tomorrow. The final meeting of the year, and they will decide what they're going to do with interest rates. There was yesterday about a 95% chance they were gonna cut interest rates. So the expectation is that they will do that third and final cut of the year tomorrow. Uh what this does and the impact this will have is as ad valorem receipts come in, as new investments are made, those investments are gonna be made at at 25 basis points or a quarter percent lower than we would have been able to

1:57:03make them today or yesterday. So that's the main impact here happening in regards to your portfolio. And on the next slide here, I'll touch on Uh the yield curve, and not to go too in depth here, but you see that it's shaped like a Nike swoosh. Uh that's because there is a lot of pressure downward on interest rates with the expectations of um jobs being cut. Uh there is challenges in the labor market. Uh folks have uncertainty, so when there's uncertainty, they often don't load up on

1:57:33uh salaried employees. It's it's difficult to uh Not to be you know in insensitive but difficult to cut an employee when you started paying them a salary. Uh so it's a a you know a cost that a lot of folks are not willing to take on in the current moment. Uh but we'll see if if that uh changes here once once the the ship writes itself. Um And it was pretty brief on the market update, but do you all have any questions before I pass it back to Matt to talk about the

1:58:03portfolio?

1:58:05No,

1:58:06carry on.

1:58:10Perfect. Matt Lazar Finance Director. So uh Madam Clerk, I realize next time we should bring a giant check because we can put cool numbers on there. That'll probably help this conversation for next time. But what I'm gonna do here is I'm gonna marry the report you're seeing here uh to the quarterly summary investment that is part of your board packet.

1:58:31They'll be excited. I haven't got there yet, though. It's unexpected, so you'll be excited. That's right. Um, so what you're seeing here presented, uh, if we start in the top left, you're seeing the diversification of the portfolio that the clerk's office manages, and that is from a high level. The different investment partners that we work with closely, including PFM, um having those conversations and and making sure that We're also diverse in where those investments go. There's two different types of diversification. We don't just want to say we're diverse and show you different

1:59:01investment partners. We do get the data to show where that investment is going. And that is important because we don't want to be too oversaturated in one market. We want to kind of spread out any impact, especially when the Fed is meeting and they don't give us a lot of information. We want to sure we minimize any impact. That we have there. So that is from the diversification perspective. As we go lower down on that chart, you're gonna see that is the county's investment portfolio, which currently stands at $1.9

1:59:32billion. You have the unrestricted portfolio, which is $1.3 billion, and then restricted from the means of we'll look at it as a from debt service perspective. perspective of about 500. So when you look at those two numbers, a large chunk of the county's portfolio currently sits as unrestricted, not meaning it's not committed to a certain special revenue project, but that is deemed unrestricted from debt service. So We look closely at that information, obviously in compliance with Florida statute, as

2:00:02well as the county's investment policy, that gives us the four corners of where we manage the investments. We look at the different cash flows, right? We know at the beginning of a fiscal year we see an influx of revenues from tax revenues. So being ahead of the game so we can make those investment decisions to maximize what the county is going to do. to receive and return. And this is where that cool check would come into play because for the uh past uh quarter for uh ended September thirtieth, the county experience thirteen million

2:00:33dollars in it realized earnings with e just over eleven million of that being in the unrestricted portfolio and for the fiscal year excuse me that i i I'm just so excited I guess. The fiscal year that extended ended September thirty, we saw a total of eighty million dollars in realized earnings. Over sixty six percent of that was within the unrestricted portfolio. Um and how

2:00:57how much was that?

2:00:58Sixty six percent. So just over it was eighty million total for the year. And then it's about fifty-three million in unrestricted funds. And we heard you loud and clear at the last meeting, so I can actually give you some more details, right? The general fund. Of that $53 million or $80 million total, $12 million went to the general fund this year. Um as you guys are aware, interest earnings are they're in flux. You don't know what that's gonna be. So that is a conserv the county

2:01:28wisely budgets very conservatively. So the budget for those group of funds was four million dollars. So Over budget, three times more went into the general fund uh than what was budgeted. Um so I don't

2:01:42recall this in any of my budget here. Do any of you? I don't remember hearing anything about this. Thank you very much.

2:01:50I am so sorry. So there is that. That would be the check to bring. Yeah, that's why see? Now you guys would have been impressed with a giant check.

2:01:58I'm hearing

2:01:58mill I'm hearing millage rate reductions is what I'm

2:02:01hearing

2:02:02That didn't come from the clerk's office. So maybe we're going to be able to do that. But it that also what we do from the clerk's office as interest earnings come in, those that is quarterly, we take a look at those interest earnings and those are allocated to the different funds. So it would make sense that the general fund would see a large chunk of those earnings because it goes based off the equity that a fund puts in. The general fund is a large operating fund, so it's going to see that. That large increase along with the file ser fire services MSTU, which also saw about

2:02:32another, I want to say $3 million in revenues from just the interest earnings side. So that just to we've heard you at the last board meetings kind of where does that money go? That is where those sit af as we go through the quarterly process. I will pause there and you can pretend I had the big check, but any questions before I move to the next slide here? Any questions?

2:02:55I I had one question.

2:02:56Mr. Starkey.

2:02:57What's a Florida palm?

2:02:59That is a local government investment pool, uh similar to the Florida Trust or Florida Prime. I don't

2:03:05know what that is, but it's called Palm. Yes.

2:03:07It it um it is the investments that the schools

2:03:11created? Yeah. Okay. I I remember when that was crashing when I was chair of the school board and I had to make

2:03:20Well it's well it's high performing now. Yeah. We stayed in, we kept it from crashing Pasco County, and we got our money back.

2:03:29Okay. That was when I think everything was crashing. S

2:03:31D A was crashing. Like two two oh seven? Yeah.

2:03:35Yeah. Hurt us hurt us bad right here.

2:03:37That was that was rough.

2:03:38That was

2:03:39rough times.

2:03:40Uh next slide. On the next slide, this will be really brief. This is just the county's investment policy in picture form. So in the gray outline bars, that is the restriction of the different sectors of investments that the county allows per the policy. Shaded in blue is where the county sits as of September 30th. So you can see we're well within the allowable limits for the various investments. That is a big part of monitoring cash flows because as money comes in,

2:04:10that can really shift those bars a lot. So making sure we're putting In different buckets as necessary. So we monitor cash flow, which you'll see in schedule two of that investment packet. And then if you had any other questions or want to see further detailed, schedule five goes into further detail on the different types of investments, especially when it comes to different uh investment pools, local government investment pools. Um I will turn it back over to Sean unless you guys have any other questions for. For me. Any questions? Okay. Thank you.

2:04:44Thank you, Matt. And um Commissioner Starkey, the the reason you may not recognize Florida Palm is because it went through a name change. Uh so it used to be Florida Education Investment Trust Fund.

2:04:53Yeah.

2:04:53And it was created in two thousand ten. So

2:04:55I was th I'm thinking you were probably thinking with the SBA when it um

2:04:58S B A is the one that exploded.

2:04:59That was the one that exploded and

2:05:00broke the buck.

2:05:01Okay, you couldn't get your money out, like they had locked it down. Yeah. Yeah. We stayed.

2:05:05Yeah.

2:05:05Stabilized it.

2:05:08So um just to to touch on on this slide, I know we're you know short on time, but the the two data points that I want to touch on are yield at cost and yield at market here. Um so they're in that top left table, they're kind of you know a few lines down, but Yield at cost represents a number where it is actual earnings expected from the portfolio, the longer duration fixed income portfolio that we manage. Yield at cost represents if on 9 30, when this report was generated, what would the market give for that mix of securities that you see in the top right? So that that's the

2:05:38diversified, you know, the different sectors that it would be. Um so as you can see, your portfolio is outperforming pretty handily. When it comes to the comparison of yield at cost, or you know, actual represented yield versus the yield at market. So a nice number we like to see there. It's expected to continue to decline as interest rates move downward and there's reinvestments and there's maturities and pay downs. So that number, the yield at market number, moves more quickly. It changes every single

2:06:08day. We had a cost changes on a a trade date, if there is a maturity, a purchase, a sale, something like that. Um and to look at the the performance numbers for the uh quarter, one year, and and other various time metrics, uh just to touch on this briefly, you know, there is outperformance in the the you know all aspects of the the total return here. Um You know, Matt touched on interest earnings, so I'll be fairly brief on this slide. The real benefiters

2:06:38to or um additory sectors were corporate notes. Um historically they've given around 50 to 60 basis points of spread above a treasury. So a treasury is yielding four percent. Uh corporate note often will yield somewhere around 4.5%. So being able to diversify across sectors by different names, you know, a very high credit quality, double A, single A, AAA, has been very beneficial to the performance of the county's portfolio. Um and again,

2:07:09last just look at this portfolio specifically. Um, this is the interest income, the accrued interest income uh for again for the portfolio that uh PFM manages. Uh this does not include the restricted funds that that Matt alluded to. Uh this does not include any of the LGIP balances. So this is just the portfolio. Um And one note, you know, we have worked very closely with staff to ensure that as interest rates are expected to decline, we

2:07:40are taking a look at liquidity, taking a look at upcoming projects, and determining if we can put any funds further out and lock up higher interest rates before we expect interest rates to move downward. Which is where everybody really expects them to go. You saw the yield curve, you saw that the Fed again meeting today and tomorrow. Everybody is kind of on this downward trajectory. So as we look to extend duration in aggregate, and as we look to add to this portfolio to hopefully retain some of

2:08:10these budgeted interest income numbers, because they will be coming down as interest. Rates come down. And that's just a natural function of the cyclicality of the interest rate market. Um so with that, I'll Wrap up unless there's any questions. Any questions?