Managing Public Funds Safely

Transcription

1 Managing Public Funds Safely Scott Stitcher, CFA & Richard Pengelly, CFA, CTP November 9, PFM Asset Management LLC

2 The Mission Local Government Officials Have a Significant Fiduciary Responsibility 2016 PFM Asset Management LLC 2

3 Government Investment Objectives Safety Liquidity Yield What is Safety? 2016 PFM Asset Management LLC 3

4 Losing Power Purchasing Power Loss is a Component of Protecting Principal Inflation Rate (Core PCE) Percent (%) Investment Rate (3 month Treasury) 0.00 Jan-2009 Apr-2012 Jul PFM Asset Management LLC 4

5 Federal Reserve s Dual Mandate Fed Uses Interest Rate Tools to Manage the Economy Maximum Employment Price Stability 2016 PFM Asset Management LLC 5

6 Government Investment Objectives Safety Liquidity Yield What is Liquidity? 2016 PFM Asset Management LLC 6

7 Measuring Liquidity Careful Cash Flow Analysis and Forecasting Helps Minimize Excess Liquidity 350,000, ,000, ,000, ,000, ,000, ,000,000 50,000,000 Short-term Portfolio Long-term Portfolio Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep PFM Asset Management LLC 7

8 Short-term Portfolio Investment Options Each Alternative Will be Impacted in the Current Environment Bank Deposits Money Market Funds LGIPs (Local Government Investment Pools) Customized Individual Portfolio 2016 PFM Asset Management LLC 8

9 Our Most Valued Customer Local Governments May Face Less Demand for High Deposit Balances Bank of America drops some small towns and cities 2016 PFM Asset Management LLC 9

10 SEC Reform New Rules Will Make Prime Money Market Funds Less Attractive Prime Funds Government Funds 2016 PFM Asset Management LLC 10

11 Supply & Demand Divergence Demand Shifts Will Cause Money Market Security Yields to Diverge Prime Funds Gov t Funds Illustrative Only 2016 PFM Asset Management LLC 11

12 The LGIP Alphabet Soup Liquid investment Option Only Available to Local Governments 2016 PFM Asset Management LLC

13 Customized Individual Portfolio Alternative that Could be Less Costly for Larger Portfolios Corporate Notes/Bonds 1.44% Commercial Paper 15.33% Portfolio Composition LGIP (Florida Educational Investment Trust) 26.53% Money Market Fund 11.67% AAAm 38.20% Credit Quality Distribution 1 AA % Federal Agency Obligations 26.87% U.S. Treasuries 18.16% A-1 (Shortterm) 13.14% A-1+ (Shortterm) 19.18% 100% Portfolio Maturity Distribution 2 Portfolio Characteristics Strategy Short-term 80% 60% 40% 20% 0% 38.2% 33.4% 24.5% Overnight Under 6 Months 6-12 Months 3.8% 0.0% 0.0% 0.0% 0.0% 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5 Years and Over Benchmark Effective Duration Average Credit Quality S&P GIP Index 0.48 Years AA+ Credit rating of securities held in portfolio, exclusive of money market fund/lgip. Standard & Poor's is the source of the credit ratings. All indices are Bank of America Merrill Lynch (ML) Indices and Bloomberg is the source of information. Investors cannot invest in indices PFM Asset Management LLC 13

14 Government Investment Objectives Safety Liquidity Yield What is a Good Yield? 2016 PFM Asset Management LLC 14

15 S&P Government Investment Pool (GIP) Index Commonly Used Benchmark for Short-term Assets 57 Rated LGIPs AAAm & AAm Ratings 2016 PFM Asset Management LLC 15

16 Global Sovereign Debt 30% of Global Traded Sovereign Debt is at Negative Rates 30% Negative Rates 2016 PFM Asset Management LLC 16

17 The Taxman Cometh Slowly A Swiss Municipality Has Eliminated Early Payment Discount for Taxpayers Considering Zug the negative interest rates which have to be paid, the canton has no incentive to motivate taxpayers to make early payments 2016 PFM Asset Management LLC 17

18 Homework Time to Review Investment Program in Light of Regulatory Changes Regulatory and monetary policy changes are shifting the short-term landscape Understand cash flows and investment options Critical time to review investment policy Review lineup of pools & LGIPs Employ a APT US&C pool questionnaire 2016 PFM Asset Management LLC 18

19 Important PFM Disclosures 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. The views expressed within this material constitute the perspective and judgment of PFMAM at the time of distribution and are subject to change. Any forecast, projection, or prediction of the market, the economy, economic trends, and equity or fixed-income markets are based upon current opinion as of the date if issue, and are also subject to change. Opinions and data presented are not necessarily indicative of future events or expected performance. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. No representation is made as to its accuracy or completeness PFM Asset Management LLC 19