Q Earnings Call - PDF Free Download

Q4 2017 Earnings Call 2017 Reflections, 2018 Insights F e b r u a r y 1 3, 2 0 1 8 C i t y T r e a s u r e r K u r t S u m m e r s

AGENDA 01 12:00-12:05 PM Welcome and Purpose of Call 05 12:20-12:25 PM CTO Investment Portfolio Update 02 12:05-12:10 PM National Economy 06 12:25-12:35 PM Market Insights for 2018 03 04 12:10-12:15 PM Local Economy 12:15-12:20 PM Introducing Jabari Porter as the City's New Chief Investment Officer 07 08 12:35-12:45 PM CTO Investment Opportunities for 2018 12:45 1:00 PM Q&A 2

WELCOME Audio Participants can hear the call through the computer or over the phone; you don t have to be on both to hear the presentation. You do need to be registered online to view the webcast. Need Help? If at any time during the call you need assistance, please call (312) 742-1852 or email Asher.Mayerson@cityofchicago.org. Questions Have a question? At any time during the presentation, type in your question by clicking Q&A. There will be time allotted for Q&A at the end of the call. 3

PURPOSE OF CALL Transparency This is the 12th Quarterly Earnings Call since Treasurer Summers took office. It is open to the public, the City Council, and anyone interested in Chicago s investment portfolio performance. Outreach & Advocacy During the Treasurer s 77 visits to Chicago s 77 neighborhoods, residents voiced their need to be regularly engaged in our outreach and advocacy efforts. This is an opportunity to learn about our CTO initiatives. Best Practices As the primary investment manager for the City of Chicago, the Treasurer seeks to be held as accountable as any other investment management firm is to their investors. This call is shaped after reporting done by the nation s largest investment managers and public companies. Information & Action The call will provide an overview of the national economy and Chicago's current fiscal landscape, as well as outline the economic impact of investing in our communities. 4

NATIONAL ECONOMY University of Michigan: Consumer Sentiment (Monthly) Oct. 2017 Nov. 2017 Dec. 2017 100.7 98.5 95.9 Real GDP (% Change, Annualized) Q1 2017 Q2 2017 Q3 2017 Q4 2017 1.2% 3.1% 3.2% 2.6% International Monetary Fund Expected Growth Rates (Annual) Previous 2017 Forecast Updated 2017 Forecast Global Economy 3.6% 3.7% U.S. Economy 2.2% 2.3% Advanced Econ. 2.2% 2.3% Emerging/ Developing Econ. 4.6% 4.7% Sources: University of Michigan, International Monetary Fund, Bureau of Economic Analysis, Bureau of Labor Statistics 5.0 4.8 4.6 4.4 4.2 4.0 3.8 3.6 Unemployment Rate (Seasonally Adjusted, Monthly) 4.8 4.7 4.5 4.4 4.3 4.3 4.3 4.4 4.2 4.1 4.1 4.1 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 6

NATIONAL ECONOMY U.S. Treasury Interest Rates U.S. Core Inflation (Urban Consumers, Annualized) 2.5 2.3 2.2 2 2 1.9 1.7 1.7 1.7 1.7 1.7 1.8 1.7 1.8 1.5 1 0.5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 7 Sources: Bloomberg Finance LP, Bureau of Labor Statistics

LOCAL ECONOMY Unemployment Rate (Not Seasonally Adjusted) Oct. 2017 Nov. 2017 Dec. 2017 4.7% 4.7% 4.7% Consumer Price Index Inflation (% Change, Annualized) Oct. 2017 Nov. 2017 Dec. 2017 Chicago Area 1.6% 1.8% 1.7% United States 2.0% 2.2% 2.1% 9 Sources: Bureau of Labor Statistics, World Business Chicago

LOCAL ECONOMY In a year with near-record growth in total market capitalization, Chicago-area Fortune 500 companies outpaced the S&P 500 by 6 percentage points Total Market Capitalization S&P 500 vs. Chicago-Area Fortune 500s ($Bn) Chicago-Area Fortune 500s Jan. 3, 2017 Dec. 29, 2017 962.7 1188.9 S&P 500 20177.6 23705.6 Overall Change (% Change) +226.1 (+23.5%) +3528.0 (+17.5%) Total Market Capitalization S&P 500 vs. Chicago-Area Fortune 500s (Normalized to Jan. 3, 2017) 1.5 1.4 1.3 1.2 1.1 1 Chicago-Area Fortune 500 Companies S&P 500 10 Sources: Bloomberg Finance LP, Independent CTO Analysis

LOCAL ECONOMY Where Chicagoans Are Spending Their Money Total Average Annual Expenditure: $61,545 Healthcare 8% Other 18% Insurance/ Pensions 11.4% Food 13% Housing 35% Transit 15% Average Hourly Wages for Selected Occupations Occupation Chicago MSA United States Total, All Occupations $25.63 $23.86 Lawyers $64.70 $67.25 Accountants and Auditors $38.02 $36.89 Registered Nurses $35.86 $34.70 Construction Laborers $28.24 $18.22 Customer Service Reps $18.52 $16.91 Retail Salespersons $13.39 $13.07 Cooks, Fast Food $10.05 $9.89 Consumer Price Index (CPI-U, All Items) Dec. 2017 Chicago Area 234.293 United States 246.524 11 Sources: Bureau of Labor Statistics, World Business Chicago

INTRODUCING JABARI PORTER Experienced finance and investment banking professional Northern Trust Corporation (2007-2017) Bank of New York (2005-2007) AllState Investments (2004-2005) Recipient of numerous awards and distinctions Northern Trust Diversity and Inclusion Award Community Reinvestment Act Program Award Northern Trust Chairman s Award Engaged in mentorship and community service Board Member for McGaw YMCA Volunteer with AIM Mentor Part-Time Basketball Coach Jabari Porter Chief Investment Officer City of Chicago 13

CTO INVESTMENT PORTFOLIO UDPDATE $8,000,000,000 $7,000,000,000 $6,000,000,000 $5,000,000,000 $4,000,000,000 $3,000,000,000 $2,000,000,000 $1,000,000,000 Portfolio Asset Allocation By Par Value 2017 (Q4) 2016 (Q4) 2015 (Q4) US Treasury Agency Bonds Municipal Bonds Corporate Bonds Commercial Paper Money Market Cash $0 2015 (Q4) 2016 (Q4) 2017 (Q4) US Treasury $19,837,800 0.3% $20,000,000 0.3% $197,500,000 2.7% Agency Bonds $2,024,921,442 34.0% $1,706,630,000 28.6% $1,379,015,000 18.7% Municipal Bonds $467,450,534 7.8% $1,181,329,000 19.8% $1,132,756,337 15.4% Corporate Bonds $948,343,351 15.9% $1,509,346,000 25.3% $1,474,795,000 20.0% Commercial Paper $319,724,623 5.4% $633,810,000 10.6% $1,258,389,000 17.1% Money Market $1,525,285,002 25.6% $1,499,261,960 25.2% $1,051,076,008 14.3% Cash $652,729,413 11.0% $252,725,808 4.2% $ 870,953,961 11.8% 15

CTO INVESTMENT PORTFOLIO UDPDATE Overall Rating AA Average Modified Duration (Years) Average Effective Duration (Years) 2.67* 2.51* Values Portfolio Statistics (Market Value Weighted) Bond Proceeds Operating Reserves Operations Long-Term Reserves Whole Portfolio Unique Position Count 400 92 39 46 568 Avg. Current Yield 1.51 2.64 1.49 3.07 1.71 Portfolio Holdings $2,921,504,548 $1,383,187,569 $1,738,906,792 $641,456,825 $7,364,485,307* Total Earnings $39,348,230 $35,044,260 $17,152,308 $25,534,892 $117,079,691 *These numbers include cash and money market holdings (not inclusive of money in depository institutions). 16

MARKET INSIGHTS FOR 2018 Overall State of the Markets Spread products at historical tights, while volatility has been at historic lows Recent market sell-off not a cause for longterm concern, since assets are nowhere near peak values at previous turning points 140 120 100 80 60 40 20 0 TIME SERIES OF SPREAD PRODUCTS 140 120 100 80 60 40 20 0 Auto (Prime) Fixed 3 Year Spread/Swap CORP Financials 1-3 Portfolio Spread/Libor Studen Loans (FFELP) 3 Year Spread to Libor Agency CMOs 5Y Spread 18 Sources: Bloomberg Finance LP, BlackRock Investment Institute Global Investment Outlook 2018

MARKET INSIGHTS FOR 2018 Persistent Economic Inequality Marginal propensity to consume has an inverse relationship with income/wealth Persistent and growing inequality can result in unsustainable borrowing for low- and moderate-income families 19 Sources: CIA Factbook

MARKET INSIGHTS FOR 2018 Monetary Policy Transition from Janet Yellen to Jerome Powell as Chair (February 5, 2018) Poised to increase interest rates over the next year Fiscal Policy Passage of the Tax Cuts and Jobs Act in December 2017 U.S. Consumer (Wages Unemployment ) Jerome Powell Chairman Federal Reserve 20

CTO INVESTMENT OPPORTUNITIES FOR 18 Strategy: Stay Short Duration Invest in floating rate and short duration credits Treasury balance sheet reduction Waiting for spreads to break out Agency MBS risk and opportunities Credit market view 22

CTO INVESTMENT OPPORTUNITIES FOR 18 Strategy: Expand Local Economic Investment Chicago Community Catalyst Fund First board meeting held in early January 2018 Seeded with $100 million from the City of Chicago Raising $200-$300 million in additional capital from investors Ginnie Mae project loans, SBA loans, and other products that generate returns and support economic development in our neighborhoods Board of Directors & Advisors David L. Reifman Chicago s Commissioner of Planning & Development Kurt Summers Chicago s City Treasurer Board Chairman Carole L. Brown Chicago s Chief Financial Officer Juan C. Avila Michelle Collins Stuart A. Taylor II Richard Price Managing Partner President CEO Chairman & CEO Toroso Investments Cambium LLC Taylor Group Mesirow Financial Limited Partner Advisory Board (6 seats) 23

QUESTIONS? 25

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DISCLAIMER PLEASE NOTE: This presentation has not been prepared to give information for making decisions on buying or selling securities and should not be relied upon by investors in making investment decisions. With respect to any bonds, notes, or other debt issued by the City of Chicago, please refer for information only to the City s disclosure documents and continuing disclosure filings for such bonds, notes, or other debt obligations. 28