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HomeMy WebLinkAbout07.d.1)a) Action Summary-Finance Committee 6-9-14A s • .A A A, A, A ACTION SUMMARY Chair Causey Member Nejedly Monday, June 9, 2014 3:00 p.m. Executive Conference Room 5019 Imhoff Place Martinez, California -700 j `� A) BOARD OF DIRECTORS: DAVID R. WILLIAMS President MICHAEL R. MC'GILL President Pro Tent PAUL H. CAUSEY JAML'SA. NEJEDLY TADJ. PILECKI PHONE: (925) 228 -9500 FAX: (925) 372 -0192 www.centralsan.org PRESENT: Chair Paul Causey, Member Jim Nejedly, Finance Manager Thea Vassallo, General Manager Roger Bailey, Director of Administration David Heath, Environmental Services Division Manager Danea Gemmell, Safety and Risk Management Administrator Shari Deutsch, Finance Administrator Todd Smithey, Managing Director of Public Financial Management, Inc. Lauren Brant (left after Item 3.), Purchasing and Materials Services Manager Stephanie King (left Item 5.), Senior Administrative Technician Christina Gee 1. Call Meeting to Order Chair Causey called the meeting to order at 3:00 p.m. 2. Public Comments None. *3. Receive report on options for Investment Officers other than the County Treasurer; investment alternatives with the potential to yield a greater return Managing Director of Public Financial Management, Inc. Lauren Brant gave a presentation (attached) on investment options, stating her opinion that the District's holdings in investments, Local Agency Investment Fund (LAIF), and cash is prudent. She summarized the current market climate and opportunities in credit investments, as well as investments in longer maturities. She related the Finance Committee June 9, 2014 Page 2 District's current investment policy to what is allowable by the California Government Code, noting that the maximum maturity is currently on the shorter end, while the California Government Code allows for up to five years. She stated that investing in outside pools could yield greater control. 4. Old Business a. Review staff's response to questions regarding expenditures at the previous meeting: b. Receive information requested regarding usage of the District's fleet of pool vehicles, including their year and odometer reading C. Receive information requested regarding the contract with lobbyists Federal Advocates, including what services the District receives and when the District last did a Request for Proposal (RFP) for lobbying services Environmental Services Division Manager Danea Gemmell stated that Federal Advocates was selected after staff had contracted with other lobbyist groups and determined that it was the best fit for the District. General Manager Roger Bailey noted that, while it is difficult to evaluate progress, lobbyists are necessary to effect change in Washington, D.C., and staff could reevaluate periodically whether their services are still necessary. 5. Expenditures a. Review Expenditures Finance Committee June 9, 2014 Page 3 ,�, l �_ �` r i' is -s .�r<..� �• i 6. Review draft Position Paper authorizing the General Manager to renew insurance coverage for Fiscal Year 2014 -15 for excess liability and property coverage Safety and Risk Management Administrator Shari Deutsch stated that coverage renews on July 1, 2014, requiring Board action to direct the General Manager to renew at the June 19 Board meeting. The renewal premium for the excess liability with AIG remained the same as last year at $233,875. Member Nejedly stated that he did not recommend purchasing the additional $10 million in coverage from Lexington for $103,000, as he felt the current coverage was sufficient. Chair Causey agreed with Member Nejedly, suggesting that staff keep an eye on the pricing of such policies and what sort of coverage is available. COMMITTEE ACTION: Reviewed and recommended the Board authorize the General Manager to renew insurance coverage for excess liability with AIG for $233,875 and to renew property coverage with the Public Entity Property Insurance Program (PEPIP) program at rates not to exceed a 15% increase of $150,000. Recommended against purchasing the additional $10 million in coverage from Lexington for $103,000. 7. Announcements a. Future scheduled meetings: Monday, June 23, 2014 at 3:00 p.m. Monday, July 7, 2014 at 3:00 p.m. Monday, August 4, 2014 at 3:00 p.m. • ", 8. Suggestions for future agenda items 9. Adjournment — at 3 :48 p.m. * Attachment Central Contra Costa Sanitary District Investment Advisory Discussion June 9, 2014 Lauren Brant, Managing Director PFM Asset Management LLC 50 California Street, Suite 2300 San Francisco, CA 94111 (415) 982 -5544 The PFM Group • Founded in 1975 • Our company culture is based on: Highest ethical standards Independence Commitment to meeting client needs Compliance and transparency Stewardship of public resources Corporate environmental sensitivity The PFM Group • Fixed - income asset ea Advice on capital management transactions • Bond proceeds ■ Strategic consulting management n Budget and financial • Structured investments planning W Multi -asset class management Investment consulting (204 employees) (304 employees) The PFM Group refers collectively to Public Financial Management, Inc. and PFM Asset Management LLC. Our goal is to provide the highest quality advice to our clients so they are able to raise, invest, and manage the resources they need in the most cost- effective manner possible. © 2014 PFM Asset Management LLC 1 Overview of PFM Asset Management LLC Experience Public sector focus $60 Act as a fiduciary $50 30+ years of asset management experience $50 billion* of assets under management $40 Specialties ° $so Fixed Income m Investment -grade short- and intermediate -term $20 funds with maturities of 10 years or less Multi -Asset Class $10 Best -in -class manager selection for long -term investment needs $0 Success Long record of performance in excess of benchmarks Helped our clients successfully navigate the markets during the credit crisis PFMAM Growth in Assets Under Management 2009 2010 2011 2012 2013 `As of December 31, 2013 © 2014 PFM Asset Management LLC 2 PFMAM's Commitment To California Public Agencies z Emil 11 Coachella Valley Alameda County Water District ���� Water District = City of Hayward H /N/! / /INC//U!!) HN / /N / / /.S7N //7 Illill SACRAMENTO Sacramento San Bernardino � '-aftw ►r-1 City of Concord SUBURBAN Suburban Water � llcy Municipal Water WATER D1S,RI C! District District gF 3 �Z West Basin Municipal Goleta West j City of Antioch Water District ` Sanitary District ,,NItCA,, Santa Margarita �Ir Manteca = IEUCADIA Leucadia Water District y City of Manteca WASTEWATER °- D I S T R I C T Wastewater District City of Benicia , 1■� Ventura Regional gym;`" s` San Benito County Sanitation District ?'.. Water District Contra Costa Antelope Valley East Aaaib� Delta Diablo Water District Kern Water Agency Sanitation District Select clients, as of March 31, 2014 © 2014 PFM Asset Management LLC 3 PFMAM's Investment Philosophy Philosophy Safety: Preserve capital with high - quality investments Liquidity: Plan for and provide liquidity as needed Return: Safely increase earnings through disciplined portfolio strategy Approach Portfolios are designed to match our clients' specific investment needs. We achieve strong results by: 1. Understanding our clients' investment objectives 2. Carefully matching maturities to the client's cash flow needs 3. Limiting investments to those of high quality 4. Selecting investments based on relative value 5. Utilizing low -risk portfolio management techniques to add value © 2014 PFM Asset Management LLC 4 Observations about Central San's Operating Portfolio District Holdings Investments LAI F Cash Total 100% 75% 50% 25% $15,911,124 $43,011,748 $3,803,040 $62,725,912 LAI F 68% Sector Allocation of District Assets Cash in bank F a o/- Maturity Distribution of District's Assets 0% 4- Overnight 1 Day - 1 Year Source: District's CAFR. As of June 30, 2013 © 2014 PFM Asset Management LLC 1- 2 Years 2- 3 Years 3- 4 Years lificates Deposit 11% Certificates of Deposit - Debt Reserve cial 9% raper 6% 4- 5Years District's Investment Policy Investment Types Local Government Bonds U.S. Treasury Obligations Municipal Obligations of California Municipal Obligations of all 50 states Federal Agency and GSE Issues Banker's Acceptance Commercial Paper, Prime Quality Negotiable Certificates of Deposit Repurchase/ Reverse Repurchase Agreements Medium -Term Notes (A or better) Money Market Funds/ Mutual Funds Mortgage Backed and Asset Backed Securities Collateralized Certificates of Deposit Local Agency Investment Fund (State Pool) Source: District's Investment Policy © 2014 PFM Asset Management LLC Maximum Maturity 5 years 5 years 5 years 5 years 5 years 180 days 270 days 5 years 92 days 5 years 5 years Maximum Allocation 100% 100% 100% 100% 100% 40% 25% 30% 20% 30% 20% 20% 30% Maximum Maturity 5 years 1 Year 180 days 270 days 1 Year 1 Year 1 Year Maximum Allocation 100% 10% 10% 10% 100% N Cash Flow Analysis Determines "Core" A historical cash flow analysis can help determine funds that may be invested in potentially higher yielding, longer investments. Liquidity Balance — Funds to cover specific, predictable cash flows (i.e. payrolls, debt service) — Short -term money market instruments such as CP and LAIF. Core Portfolio — Funds not needed for immediate liquidity, but may be disbursed in extraordinary circumstances. — Intermediate -term securities matched to future cash flows or targeted along yield curve in securities that have potential for higher return. $80 $70 $60 $50 $40 $30 $20 $10 $0 Sample Cash Flow Analysis Forecast * For illustrative purposes only © 2014 PFM Asset Management LLC 8 Observations and Strategies in Current Market Market Observations Intermediate -term interest rates likely on an upward trend. Federal Agency debt shrinking as Fannie Mae and Freddie Mac wind down programs to mandated levels. Short -term rates remain at low levels, anchored by fed funds rate. Duration management will be very important. Opportunities Steep yield curve. Credit instruments have value relative to Treasuries and Agencies. Pools, like LAIF, will lag the market once short -term rates rise. © 2014 PFM Asset Management LLC 9 Opportunities —Steep Yield Curve Steep yield curve provides incentive to invested in longer- maturities. — Higher initial yields — Potential for additional return through roll down 1.00% 0.80% 0.60% as 0.20% 0.00% Source: Bloomberg © 2014 PFM Asset Management LLC U.S. Treasury Yield Curve April 30, 2014 3 6 1 2 3 M m y y y Maturity 10 Opportunities — Credit Instruments Credit instruments offer attractive yields relative to Treasuries and Agencies. Corporate fundamentals are strong. 2.50% 2.00% 1.50% d 1.00% 0.50% 0.00% 3 M $120 $100 Yield Curves as of 4/30/14 $80 S &P 500 Earnings per Share 50% 45% 40% 35% 30% 25% 20% 15% 6 1 2 3 5 10% M y y y y 5% Maturity polo Source: Bloomberg © 2014 PFM Asset Management LLC S &P 500 Balance Sheet Cash & Equivalents o� 6 o� o° � � oo �NZ' G,�o ANN GNP. c0 G'�ti Nb c 11 $60 U.S. Treasuries $40 Federal Agencies $20 AA -Rated Financial Corporates $0 S &P 500 Earnings per Share 50% 45% 40% 35% 30% 25% 20% 15% 6 1 2 3 5 10% M y y y y 5% Maturity polo Source: Bloomberg © 2014 PFM Asset Management LLC S &P 500 Balance Sheet Cash & Equivalents o� 6 o� o° � � oo �NZ' G,�o ANN GNP. c0 G'�ti Nb c 11 Current Interest Rates U.S. Treasuries 0.06% 0.11% 0.36% 0.81% 1.59% Federal Agencies 0.07% 0.12% 0.36% 0.83% 1.64% Commercial Paper/ 0.20% 0.36% 0.43% 1.08% 2.10% A -rated Corporate Notes Negotiable Certificates of Deposit 0.28% 0.38% 0.42% - - Source: Bloomberg, as of 5114114 © 2014 PFM Asset Management LLC 12 Opportunities —Pools Will Lag the Market • In a rising interest rate environment, pool yields increase slower than the market. LAIF Yield vs. 2 -Year Treasury Yield April 30, 1997 —April 30, 2014 Benefit of a Disciplined Approach Total Return and Earnings Past 5 Years Ending March 31, 2014 LAIF 0.51 Years 0.48% $51,213,803 - 0 of 20 0 -3 Year Treasury 1.47 Years 0.87% $52,216,557 $1,002,754 4 of 20 1 -3 Year Treasury 1.90 Years 1.10% $52,818,830 $1,605,027 4 of 20 1 -5 Year Treasury 2.69 Years 1.62% $54,198,960 $2,985,157 6 of 20 3 -5 Year Treasury 3.81 Years 2.46% $56,452,154 $5,238,351 6 of 20 Source: Bank of America Merrill Lynch Indices and LAIF website. 1 - © 2014 PFM Asset Management LLC 14 Appendi Economic Summary Economic Conditions According to the advance estimate, the U.S. economy barely grew in the first quarter of the year, registering growth of just 0.1 %, impacted in part by severe winter weather. The labor market accelerated in April, creating 288,000 new jobs; the prior twelve months averaged 190,000 per month; the national unemployment rate fell to 6.3 %, the lowest since September 2008. The Federal Reserve noted that growth in economic activity had picked up recently, after having slowed sharply during the winter; household spending also appeared to be rising more quickly; the FOMC announced a further $10 billion reduction in its bond - purchasing program to $45 billion a month. The next FOMC meeting is June 17th and 18th. Market Reaction Treasury yields fluctuated as markets reacted to emerging economic data, but ended the month mostly unchanged; the yield curve remained steep; Treasury bill paydowns drove short maturity yields to zero. Demand for yield continued to drive yield spreads narrower across all sectors; short agency spreads are zero, while industrial corporate spreads have fallen to historic lows. Global equity markets withstood intra -month volatility to produce positive returns in April. © 2014 PFM Asset Management LLC 16 Disclaimer This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. © 2014 PFM Asset Management LLC