Item No. 8.
| MEETING DATE: September 21, 2020 |
|
| TO: | HONORABLE MAYOR AND COUNCILMEMBERS |
| FROM: | JIM SADRO, CITY MANAGER By: Mel Shannon, Director of Finance |
| SUBJECT: | RECEIVE AND FILE TREASURER'S INVESTMENT REPORT FOR THE QUARTER ENDING JUNE 30, 2020 |
RECOMMENDATION:
That the City Council receive and file the Treasurer's Investment Report for the quarter ending
June 30, 2020.
June 30, 2020.
DISCUSSION:
The Finance Department invests City funds in compliance with the California Government Code, Section 53600 et seq., and the City’s Investment Policy. As of June 30, 2020, these funds had a market value of $64,817,490, with $30,593,268 (47.20 percent of the portfolio) maturing within 180 days, ensuring that sufficient funds are available to meet the City's budgeted expenditure requirements for the next six months.
Compliance: All investment transactions have been executed in conformance with the City's 2020 Investment Policy and the California Government Code. The term of maturity for all investments is limited to a maximum of five years unless the City Council gives prior approval to exceed this limitation. The average weighted maturity of the City’s portfolio did not exceed three years.
Investment Performance: The City’s portfolio is generally invested in four types of fixed-income investments: U.S. Agency obligations, U.S. Treasury obligations, highly rated corporate bonds, and the State of California Local Agency Investment Fund (LAIF). In general, Treasury, Agency and corporate securities held by the City have maturities ranging from eight months to five years, as authorized by the City’s Investment Policy and the State of California Government Code. City funds invested in LAIF are considered to be available overnight and, therefore, are assigned a one-day maturity.
The following table summarizes the performance of the City’s general government investment portfolio as of June 30, 2020:
Investment Environment (provided by Chandler Asset Management):
We believe the economy contracted sharply in the second quarter, but market participants are expecting a meaningful rebound in the current quarter. Although we anticipate that the recovery will be somewhat bumpy, we believe the weakest economic data is in the rearview mirror. Robust fiscal and monetary relief should continue to fuel improvement in economic output in the second half of the year. Job loss caused by the pandemic has been severe, but many jobs have begun to return as indicated by the better than expected employment reports for May and June. Nevertheless, we believe there will be a growing amount of pressure on the federal government to provide additional fiscal relief, particularly as some temporary unemployment benefits expired at the end of July. We believe pressure for more state and local government fiscal support as well as another round of direct payments to households is likely to continue.
The Federal Open Market Committee (FOMC) kept monetary policy unchanged at its June 9-10 meeting, as expected, with the fed funds target rate in the range of 0%-0.25%. According to the Fed's economic projections, policymakers expect to keep that range unchanged through 2022. Although some economic data has recently surprised to the upside, Fed Chair Powell has maintained a dovish tone. Multiple Fed policymakers have cautioned that the outlook for the economy remains highly uncertain and depends largely on the path of the pandemic. Overall, the Fed remains highly accommodative, and we believe the Fed will continue to use its balance sheet to any extent necessary to support the flow of credit and stability of financial markets.
Treasury yields were nearly unchanged in June. The yield on 2-year Treasuries declined about one basis point to 0.15% and the yield on 10-year Treasuries was essentially unchanged at 0.66%. Global economic weakness continues to put downward pressure on inflation expectations. An ongoing global demand for safe-haven assets has also kept a lid on Treasury rates.
At June month-end, Treasury yields were much lower on a year-over-year basis. The 3-month T-bill yield was down 196 basis points, the 2-year Treasury yield was down 161 basis points, and the 10-Year Treasury yield was down 135 basis points, year-over-year. Much of the spread movement was in the month of March 2020, with the Fed cutting rates by a total of 150 basis points and concerns about a global recession and a flight to safe-haven assets driving down yields across the curve.
Cash Management Goals:
The City's general government portfolio investment goals are to maintain and preserve the safety of funds in custody and provide liquidity for anticipated expenditure needs.
Trust Funds:
The City also has investments in irrevocable Section 115 Trusts for the purpose of prefunding retiree health care costs, also known as other post-employment benefits (OPEB), as well as retiree pension obligations. In March 2016 the City Council approved the establishment of Section 115 OPEB Trust with CalPERS California Employers’ Retiree Benefit Trust (CERBT). Subsequently, in June 2018 the City Council approved the establishment of a Pension Rate Stabilization Trust Fund administered by the Public Agency Retirement Services (PARS). The goal of investing funds in the Section 115 Trusts is to provide a reasonable level of return and growth that can create additional resources to help partially offset future OPEB and pension obligation payments. Some of the benefits of Section 115 Trust are:
The following table summarizes the performance of the City’s PARS Post-Employment Benefits Trust (pension obligations) as of June 30, 2020:
Compliance: All investment transactions have been executed in conformance with the City's 2020 Investment Policy and the California Government Code. The term of maturity for all investments is limited to a maximum of five years unless the City Council gives prior approval to exceed this limitation. The average weighted maturity of the City’s portfolio did not exceed three years.
Investment Performance: The City’s portfolio is generally invested in four types of fixed-income investments: U.S. Agency obligations, U.S. Treasury obligations, highly rated corporate bonds, and the State of California Local Agency Investment Fund (LAIF). In general, Treasury, Agency and corporate securities held by the City have maturities ranging from eight months to five years, as authorized by the City’s Investment Policy and the State of California Government Code. City funds invested in LAIF are considered to be available overnight and, therefore, are assigned a one-day maturity.
The following table summarizes the performance of the City’s general government investment portfolio as of June 30, 2020:
| Values as of 6/30/20 | |||
| Portfolio Funds | Amount of Funds | Effective Yield | Average Weighted Maturity |
| Internally Managed Funds (shorter-term) | $30,110,193 | 1.71% | 1 day |
| Externally Managed Funds (shorter-term) | $34,707,297 | 0.32% | 2.8 years |
| Total Investment Portfolio | $64,817,490 | 0.97% | 1.5 years |
| Comparative Total 03/31/20 | $59,458,384 | 1.14% | 1.5 years |
| Comparative Total 12/31/19 | $54,716,757 | 1.79% | 1.6 years |
| Comparative Total 09/30/19 | $54,001,427 | 1.86% | 1.6 years |
| Comparative Total 06/30/19 | $62,905,735 | 2.02% | 1.4 years |
| State of California L.A.I.F. | For comparative purpose only | 0.92% | 191 days |
Investment Environment (provided by Chandler Asset Management):
We believe the economy contracted sharply in the second quarter, but market participants are expecting a meaningful rebound in the current quarter. Although we anticipate that the recovery will be somewhat bumpy, we believe the weakest economic data is in the rearview mirror. Robust fiscal and monetary relief should continue to fuel improvement in economic output in the second half of the year. Job loss caused by the pandemic has been severe, but many jobs have begun to return as indicated by the better than expected employment reports for May and June. Nevertheless, we believe there will be a growing amount of pressure on the federal government to provide additional fiscal relief, particularly as some temporary unemployment benefits expired at the end of July. We believe pressure for more state and local government fiscal support as well as another round of direct payments to households is likely to continue.
The Federal Open Market Committee (FOMC) kept monetary policy unchanged at its June 9-10 meeting, as expected, with the fed funds target rate in the range of 0%-0.25%. According to the Fed's economic projections, policymakers expect to keep that range unchanged through 2022. Although some economic data has recently surprised to the upside, Fed Chair Powell has maintained a dovish tone. Multiple Fed policymakers have cautioned that the outlook for the economy remains highly uncertain and depends largely on the path of the pandemic. Overall, the Fed remains highly accommodative, and we believe the Fed will continue to use its balance sheet to any extent necessary to support the flow of credit and stability of financial markets.
Treasury yields were nearly unchanged in June. The yield on 2-year Treasuries declined about one basis point to 0.15% and the yield on 10-year Treasuries was essentially unchanged at 0.66%. Global economic weakness continues to put downward pressure on inflation expectations. An ongoing global demand for safe-haven assets has also kept a lid on Treasury rates.
At June month-end, Treasury yields were much lower on a year-over-year basis. The 3-month T-bill yield was down 196 basis points, the 2-year Treasury yield was down 161 basis points, and the 10-Year Treasury yield was down 135 basis points, year-over-year. Much of the spread movement was in the month of March 2020, with the Fed cutting rates by a total of 150 basis points and concerns about a global recession and a flight to safe-haven assets driving down yields across the curve.
Cash Management Goals:
The City's general government portfolio investment goals are to maintain and preserve the safety of funds in custody and provide liquidity for anticipated expenditure needs.
Trust Funds:
The City also has investments in irrevocable Section 115 Trusts for the purpose of prefunding retiree health care costs, also known as other post-employment benefits (OPEB), as well as retiree pension obligations. In March 2016 the City Council approved the establishment of Section 115 OPEB Trust with CalPERS California Employers’ Retiree Benefit Trust (CERBT). Subsequently, in June 2018 the City Council approved the establishment of a Pension Rate Stabilization Trust Fund administered by the Public Agency Retirement Services (PARS). The goal of investing funds in the Section 115 Trusts is to provide a reasonable level of return and growth that can create additional resources to help partially offset future OPEB and pension obligation payments. Some of the benefits of Section 115 Trust are:
- The City maintains oversight of investment management and control over the risk tolerance level of the portfolios through the investments it authorizes.
- The deposited funds and interest earnings can be accessed by the City at any time in order to help fund annual OPEB or pension payments, which will help partially offset impacts to the annual General Fund operating budget (rate stabilization).
- Assets held in the funds allow for greater investment flexibility and risk diversification compared to the City’s general government portfolio investments or, potentially, what CalPERS is authorized to invest pension funds in.
| CalPERS Retiree Medical Trust - (OPEB) | Amount of Funds | Investment Return |
| Values as of 06/30/20 | $3,157,810 | 14.22% |
| Comparative 03/31/20 | $2,402,744 | -15.16% |
| Comparative 12/31/19 | $2,832,128 | 5.62% |
| Comparative 09/30/19 | $2,681,546 | 1.24% |
| Comparative 06/30/19 | $2,648,590 | 3.23% |
| *Plan's Inception Date: 4/20/16 |
The following table summarizes the performance of the City’s PARS Post-Employment Benefits Trust (pension obligations) as of June 30, 2020:
| PARS Post Employment Benefits Trust | Amount of Funds | Investment Return |
| Values as of 06/30/20 | $1,717,170 | 10.94% |
| Comparative 03/31/20 | $1,550,076 | -10.70% |
| Comparative 12/31/19 | $538,899 | 4.30% |
| Comparative 09/30/19 | $517,439 | 1.25% |
| Comparative 06/30/19 | $511,379 | 1.42% |
| *Plan's Inception Date: 10/12/18 |
FISCAL IMPACT/SOURCE OF FUNDING:
There is no fiscal impact related to receiving and filing this report.
GENERAL PLAN RELEVANCE:
D 9 Fiscal Strength-Stability
Attachments
- 1. Investment Portfolio Summary, Investment & Trust Portfolio Summary, and Investment Portfolio Chart
- 2. Reports from Chandler Asset Management, CalPERS and PARS.