Presentation - Pasco County Clerk’s Office - Investment Performance Report

45:09All righty, that does it for consent. We'll move on to the regular agenda.

45:17The wrong place. So R one, Madam Clerk, that is yours.

45:22It is. Thank you very much. Um R one is a It is a presentation. Manuel Santos Long, Manny Long, coming up to the podium from my office. He is the finance director. And we also have attending virtually via WebEx is PFM, who um the attendees for PFM are Scott Stitcher, Stephen Alexander, and Sean Gannon. And we're here to present to you the investment portfolio to let you know how it's

45:53going. Once we're done, um what I would like to know from this board is do you want um a a presentation on a regular basis, be it annual, biannually, quarterly? We do submit the performance of the investments quarterly on the consent agenda, so I'm just looking for the board to let me know what you would like. But so we have, if you don't mind, we do have a presentation if it's ready to to go.

46:23And uh Manny is going to be covering the um part of the portfolio that he manages in our office, and then PFM is going to be going over the basically the economy as a whole and then the their performance on the amount that they are investing for us.

46:38Good morning. All right, good morning. Thank you, Madam Clerk, uh, Mr. Chairman Mariano, Commissioners. Uh so Manny Long, Finance Director, 142366th Street, uh suite two. Dade City, Florida. Uh we will go ahead and uh uh start with uh Steven Steve Stephen Alexander or Scott Sitcher with PFM.

46:57Hey, good morning, Manny. Thank you. Uh just a quick sound check to make sure everybody can hear me just fine.

47:01We can, thank you.

47:03Yeah. Good. Thank you for the opportunity to be with you this morning. My name is Scott Stitcher. I will begin the conversation, but I as uh Madam Clerk mentioned, I'm joined by teammates Steve Alexander and Sean Gainton. Steve is gonna make some comments at the end. of our presentation as well. Steve leads our Florida practice. Uh again, thank you for the opportunity to be here. I'm gonna jump in and make some comments on the economy. uh the the world

47:33and how that impacts what we've been doing on behalf time. Of the county. So it probably goes without saying, but the pandemic continues to shape the global markets and economy. Yeah. Business as usual is not likely to return until a vaccine is widely distributed. Looking at the first half of 2020 here at home. It really was a tail of two quarters. Interestingly enough, if you had gone to sleep on January first and then woke up today,

48:04you might think not much had happened in the fixed income and equity markets, but Uh really that's not the case. Uh we're gonna focus our comments today on fixed the fixed income markets that most impacts what we're doing on your behalf. Uh the first quarter saw significant volatility in the markets and the start of a pullback in the economy as the realization of the pandemic in the US Uh really came to fruition. We saw businesses, schools, and travel

48:34shut down. And what occurred as a result of that was a flight to quality. investors flocking into treasuries, driving their prices up and yields down. It was a quarter in which diversification really worked against the county, worked against the portfolio that we made. Now, in an effort to stabilize the markets, the economy, the Fed took action with two emergency rate cuts. totaling about one and a half percent, taking interest rates virtually to zero. And indicating

49:04the likelihood of lower interest rates for longer, as well as announcing a number of monetary stimulus programs. Now the second quarter saw some normalcy begin to creep back into the markets and economy as some states and businesses began to reopen. The Fed support stabilized the bond market and returned liquidity and the risk off trade that flight to treasuries that I spoke of earlier, that risk off trade that was prevalent in the first quarter disappeared. And

49:35the diversified fixed income portfolio outperformed an all treasury portfolio during the second quarter. So that that's sort of how I want to frame our backdrop for our discussion this morning. But before we get into the PFM portfolio, I'm gonna turn it back to Manny. to address uh the the the Catholic school. Unrestricted assets in advocate on page three.

49:59Okay, thank you, Scott. And uh so the w the way we manage the portfolio again, section two eighteen-four fifteen of Florida statutes um requires the safety and security of the investment principle. The liquidity and the rate of return in that order. Specifically, Florida statute does say state that exactly. So Pasco County's investment policy. uh was established to accomplish exactly that. Protection and security of the principal low-risk investments for

50:29Pasco County include banking accounts that are established as a qualified public depositor, local government investment pools, certificates of deposit, money market funds, U.S. Treasury bills, U.S. Treasury notes, bonds, and corporate bonds. Again, and first and foremost, we are maintaining the security and principle of all Pasco County's investments. And you can see that most of our investments are in local

50:59government investment pools. PFM has approximately about 17% of our portfolio. The remaining 10% is in certificates of deposit and money market funds. Next, we're ensuring liquidity in the investments since uh the Pasco County expenditures are approximately $60 million per month. And we manage those funds to ensure liquidity, and we take pride in our ability to be able to manage the funds to meet the obligations of Pasco County. Finally, interest

51:30income. Earned through the end of August for FY20 was $24.4 million. Again, ensuring that we do protect the principal um f of the investment and the taxpayer uh dollars that are invested here in Pasco County. So Scott, I'm gonna uh turn that back over to you um to go over PFM PFM's uh management of a portfolio.

51:57Great. Thanks, Manny. So I'll uh work from slide four.

52:03Just make some high-level comments on the portfolio again that PFM manages on behalf of the county. A lot of information here. I'll try and condense it into a few comments for you. I'll point you over to the portfolio statistics on the left and just note that we ended June 30th with assets under management of $214,735,612. Um also point you to the fact that this is a very high quality Portfolio with an average

52:34credit quality of double A. We show you that breakdown in the upper left pie chart. It is a diversified portfolio. So uh the upper right hand chart speaks to the sectors that we invest in. And I mentioned earlier that the diversification worked against us in the first quarter, but definitely uh in the worked against us in the first quarter, came back in favor during the second quarter. What I wanna stop for a moment though and just speak to the yield at cost. Uh again, as Manny

53:04mentioned, safety liquidity is a priority for us, but thirdly is yield. You we are trying to earn a competitive return on your behalf. I want to point you to the yield at cost, which is 1.99%, which is very favorable given where short-term interest rates are going, money market funds, bank deposits, all these are trending towards zero at some point here in the near future. I point you in this 1.99% because

53:35this is a longer duration portfolio, you should continue to earn an attractive yield for a longer period than what an overnight investment is going to provide. So to put that into perspective, I'll point you to the number right above that, the yield at market, which is 0.75%. So again, let me put this into perspective. Today your portfolio yields 1.99%. Okay. If you hypothetically could go out and buy your portfolio today, buy all the same names,

54:05all the same weights. You would actually only earn 0.75% if you were to buy this portfolio today. So this is one of the benefits of having a long-term portfolio, having locked in this portfolio a while back. You know, your decision to go out and RFP and hire a long longer duration portfolio manager is definitely going to benefit the county here as interest rates again move to zero. So an interesting point I wanted to make there.

54:35Let me go to what you're really most interested in hearing about, and that is on page five, where we show you performance. Now Sure. There's a lot of numbers here, but I'm I'm only going to focus on a few of these. I want to drive home the story that I told about the flight to quality in the first quarter and then diversification coming back in favor at the end of the second quarter. So I'll point you to the column that's labeled 331-20, and you'll see our return for

55:06the quarter end, so three months ending March 31 was 1.4%. grosso fees, one point three nine percent neta fees. And then the benchmark, which is again made up mainly of treasuries and agencies, up 2.78%. So you can see that flight to quality where Treasury outperformed uh worked against a diversified portfolio. We underperformed the benchmark during that quarter. Fast forward to the end of June. The portfolio returned one point five five percent

55:36for the three months ending June thirty. Neta fees 1.54%, the benchmark only up 0.14% as again the markets returned to somewhat normalcy. So we outperformed by 1.41% gross of fees or 1.4 net of fees. I'll point you out to the one year number. This aggregates the previous four quarters and the portfolio returned four point three three percent. Versus the benchmark of 405. So we've outperformed by about 0.28%

56:07gross of fees and 0.22%. uh net of fees. Uh I I just want to caution that I think A return north of 4% is going to be challenging over the next 12 months. Given interest rates have fallen so much, there's really not going to be that price appreciation that occurs when interest rates fall. So I I I caution people that four percent may be very challenging, and to more than likely your return is going to be driven by the income that's produced in

56:37the portfolio, which we've already talked about should remain. fairly attractive over the coming quarters. So we should end the fiscal year on a positive note, a strong fiscal year for 1920. And again, challenging yet productive returns in longer duration portfolios going out over the next year.

57:01Mm-hmm.

57:03I'm gonna turn it over. To my colleague Steve Alexander for an asset allocation or compliance summary on slide six.

57:15All right, good morning. My name is Steve Alexander and also let me just do a quick sound check if everybody can hear me okay.

57:21Yeah you're good then.

57:24All right. Thank you. Well good morning. Uh I'd like to spend a little time on the next couple of pages which as Scott said is the compliance pages. And to follow up on Manny's discussion about safety, liquidity, and yield Uh there also the compliance. As you know, the county has a very detailed investment policy. That stipulates or permitted investments, various types of asset allocation percentages to ensure diversification within the entire portfolio. We monitors monitor the compliance

57:54on a regular basis to ensure that the compliance of the investment policy is fulfilled on a r on an ongoing basis. On page six you'll see the various uh permitted investments. Uh the gold lines represent the maximum permitted by each of these various asset classes. The blue of course represents what was in those asset classes as of June 30th. So you can see that most of the asset classes are being utilized and as Manny pointed out earlier Uh there is a Uh about

58:24sixty-eight percent is in governmental pools and that makes up a couple different pools that are being utilized. The compliance page indicates that everything is in compliance as of June thirtieth. On the PFM portfolio, of course we monitor that portfolio on a daily basis. And all the characteristics of the investment policy are all computerized to ensure that Portfolio managers can only purchase what is permitted by the investment policy. If we move to the next page on page seven, But you'll see the

58:54detailed holdings followed on the next couple of pages of all the uh securities within the portfolios as well as the total assets of the county. I wanted to point you out that there's quite amount of diversification in the portfolio. Each of the holdings represent uh something less than ten percent uh within the portfolio. In many cases, less than 1%, as you see, the various bond holdings. This is to ensure a great amount of diversification. And

59:24that speaks to the safety and liquidity of the portfolio as we talked about earlier. On the page nine you'll see the final conclusion of the compliance report. And then, of course, that represents also that the permitted investments as of June 30th are all meeting the various requirements of the investment policy. The main part of the compliance is also reviewed by our credit committee. Each corporate bond has to go through a a committee review to ensure that

59:54corporate bond is suitable for Pasco County. Uh once that uh bond receives approval by the credit committee Which may which is made up of several individuals. Uh with a tremendous amount of experience both in the market and both as credit analysts, review that uh approved list. And to ensure the ongoing approval, if the bond is somehow does not fit that approval anymore, of course we'll take action and notify the county. So the county can be assured there's an ongoing review process of each corporate

1:00:25holding on an ongoing basis. Uh so if there's uh I'll turn that back over to Scott.

1:00:32Thanks, Steve. That's all we had really as far as prepared remarks. I think I'd be remiss if I didn't thank the clerk and her team, uh Heather Browns, Manny Long, Matt McCarrell, Pit Long. Thank you for the open lines of communication and the partnership that we have with the county and help make our jobs a lot easier. I'm gonna open it up to questions, see if there's anything we can address on any of the information we may have covered this morning.

1:01:00Questions? Questions? Commissioner Weightman.

1:01:03Mr. Chairman Mariano. I think this would would have been good data to have if we could have looked at it ahead of time to study a little bit more. Um But it's good to see we're putting getting some return on on investments which were very little before. So good job with that. But I would like to study a little bit more as we go forward. But Um I appreciate the presentation. I think it would talk about it maybe every maybe biannually might be good to have this type of presentation, but I'm Delighted you brought it forward, Ms. Madam Clerk. Thank you.

1:01:32Thank you. Other questions?

1:01:35I'd just like to say it biannual I I would agree. Uh if you look at it quarterly it'll be too soon 'cause Each quarter that could change, but I think Every six months be fine.

1:01:46So

1:01:47Yeah. Sounds like we have some direction we can do this on a semi annual basis.

1:01:51Okay, great. We'll still continue to file the report quarterly.

1:01:55Yep.

1:01:55And um we'll send it out at least electronically ahead of time so that you can see it.

1:02:01Thank you. Appreciate everything. Thank you.

1:02:03Thank you.

1:02:04All

1:02:04right.

1:02:05Apologize. Let

1:02:06me