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HomeMy WebLinkAbout06 QUARTLERY INVESTMENT REPORT FOR THE TUSTIN REDEVELOPMENT AGENCYr, AGENDA REPORT MEETING DATE TO FROM FEBRUARY 19, 2019 MATTHEW S. WEST, ACTING CITY MANAGER Agenda Item 6 Reviewed: City Manager AQ Finance Director JOHN A. BUCHANAN, FINANCE DIRECTOR JENNY LEISZ, DEPUTY DIRECTOR - FINANCIAL SERVICES SUBJECT: QUARTERLY INVESTMENT REPORT FOR THE CITY OF TUSTIN AND THE SUCCESSOR AGENCY FOR THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY SUMMARY: Government Code Section 53646 requires that the Treasurer make an Investment Report to the City Council at least quarterly showing balances by authorized investment and certifying its compliance with the adopted Investment Policy. RECOMMENDATION: Receive and file. FISCAL IMPACT: None. CORRELATION TO THE STRATEGIC PLAN: Correlates with the City's Strategic Plan Goal C: Financial Strength, Item 3. This investment report provides evidence of the City's commitment to ensuring that investments are in compliance with the adopted Investment Policy. DISCUSSION: In compliance with Government Code Section 53646, the attached Investment Report reporting cash and investments for the City of Tustin and the Successor Agency for the Tustin Community Redevelopment Agency for the quarter ending December 31, 2018 is rendered. The City's total cash and investments as of December 31, 2018 were $218.9 million, a decrease of $3.9 million from September 30, 2018 total cash and investments of $222.8 million. The decrease QUARTERLY INVESTMENT REPORT FOR THE CITY OF TUSTIN AND THE SUCCESSOR AGENCY FOR THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY Page 2 of 3 in cash and investments of $3.9 million is primarily due to the significant outflows for various budgeted construction projects which were offset by property taxes received in December. Also contributing to the decrease in cash was the purchase of the two properties adjacent to the Simon Ranch reservoir ($3.7 million) to facilitate water operations. The weighted average portfolio yield as of December 31, 2018 was 2.15%, 13 basis points higher than the weighted average portfolio yield of 2.02% as of September 30, 2018. The primary reason for the slight increase in the weighted average portfolio yield is due to the continuing rise in California Asset Management Program (CAMP) rates from 2.14% in September 2018 to 2.46% in December 2018. Also contributing to the increase in overall earnings, were $5.5 million in maturities of investments which were earning between 0.875% and 1.65%, which were reinvested at higher rates in CAMP. The weighted average days to maturity were 554 days as of September 30, 2018, a decrease from 602 days as of September 30, 2018. The decrease in the weighted average days to maturity is due to the decision to invest in highly liquid (overnight availability) funds in order to allow for possible additional outflows within the next year related to unfunded liabilities for pension and other post - employment benefits. On an ongoing basis, we are monitoring the City's projected cash flows so that appropriate liquidity is maintained along with fair investment returns. In June 2018, $6.6 million was contributed to the Public Agency Retirement Services (PARS) trust to fund outstanding pension and other post -employment benefits (OPEB) liabilities. The PARS statement and quarterly report are attached showing the balances as of December 31, 2018 and the performance of the trust for the 3rd quarter of calendar year 2018. The trust decreased from a balance of $6.8 million as of September 30, 2018, to $6.3 million at December 31, 2018, a decrease of $0.5 million. Investment return for the last quarter ending December 31, 2018, was -6.5%. The portfolio is invested in approximately half equities and half fixed income, with the objective of long- term earnings. With this type of asset mix, the volatility in earnings is to be expected. The balances as of January 23rd were $6.5 million, with some recovery of the short-term losses. Per our quarterly review with the investment advisor at PARS, the portfolio was rebalanced twice during the last quarter to restructure the sectors in which our portfolio is invested. Given that this is a long-term investment (3-4 years until planned withdrawal), we have sufficient liquidity and budget for the required CalPERS and OPEB payments. Our recommendation, which was reviewed with the investment sub -committee, is to stay with the existing investment strategy (50% equities and 50% fixed income). We will continue to monitor the PARS trust, with planned quarterly reviews with our investment advisor. QUARTERLY INVESTMENT REPORT FOR THE CITY OF TUSTIN AND THE SUCCESSOR AGENCY FOR THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY Page 3of3 The investment portfolio is currently laddered to reflect the projected cash flow needs of the City for the completion of various capital projects primarily within the Legacy and for funding of the new Tustin Unified School District (TUSD) school building project. In January 2019, the City paid TUSD $15 million for additional funding for the new school. In addition, the portfolio is more liquid than would normally be managed to allow for possible additional outflows within the next year related to unfunded liabilities for pension and other post -employment benefits. 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N c2 0 N m 0 N m 0 N m 0 N A y 0 W N O N N O [O N O W N N O2 O2 N N d d W N W W W O N 0 N N N N N N N a i F- o 0 o cu 0 0 0 0 0 0 0 0 0 0 0 0 �V 0 O O ❑ O 0 0 ❑ N c A c y Cy y O d O N m O in d y i° Z p aL40i ~ U C U r & N E d ~ 0 U U U U C O IL N E d E d E d E N E N E U s U _p 5 O U ,Q U C 12 G C U C U C a X a K N H 0 X X X iz iL Z LL Z LL LL LL m O y Y 0 r p ? N W N 0 O d p co O W N N N N Q ❑ U N m n rn U _ a dca a0 c N ¢ W C N N 1 N_ '3 w O O E N C N U Z p Z W O E � Q M C O CO tNO. 4] N C N N U N O W O^ N L pa e. > K ], ,O C T i U T 0] ❑ D W a O H ❑ G V L N O O C O U N m N N NO 0 yO p C O L D) E2 0 7 O m Y O C z 0< 0 H a co o - cN- H V) v N a PUBLIC AGENCY RETIREMENT SERVICES PARS CITY OF TUSTIN PARS Post Employment Benefits Trust Jeffrey Parker City Manager City of Tustin 300 Centennial Way Tustin, CA 92780 Account Report for the Period 12/1/2018 to 12/31/2018 Account Summary Beginning Balance as Ending of Balance as of Source 12/1/2018 Contributions Earnings Expenses Distributions Transfers 12/31/2018 OPER $996,550.66 $0.00 -$36,868.54 $472.19 $0.00 $0.00 $959,209.93 PENSION $5,559,165.35 $0.00 -$204,244.83 $2,634.27 $0.00 $0.00 $5,352,286.25 Totals $6,555,716.01 $0.00 -$241,113.37 $3,106.46 $0.00 $0.00 $6,311,496.18 Investment Selection Source OPEB City of Tustin.- OPEB PENSION City of Tustin - Pension Investment Objective Source Individual account based on Moderate Index PLUS. The dual goals of the Moderate Strategy are growth of principal and income. It is expected OPEB that dividend and interest income will comprise a significant portion of total return, although growth through capital appreciation is equally important. The portfolio will be allocated between equity and fixed income investments. Individual account based on Moderate Index PLUS. The dual goals of the Moderate Strategy are growth of principal and income. It is expected PENSION that dividend and interest income will comprise a significant portion of total return, although growth through capital appreciation is equally important. The portfolio will be allocated between equity and fixed income investments. Investment Return Annualized Return Source 1 -Month 3 -Months 1 -Year 3 -Years 5 -Years 10 -Years Plan's Inception Date OPEB -3.70% -6.51% 6/26/2018 PENSION -3.67% -6.47% - 6/26/2018 Information as provided by US Bank, Trustee for PARS; Not FDIC Insured; No Bank Guarantee; May Lose Value Past performance does not guarantee future results. Performance returns may not reflect the deduction of applicable fees, which could reduce returns. Information is deemed reliable but maybe subject to change. Investment Return: Annualized rate of retum is the return on an investment over a period other than one year multiplied or divided to give a comparable one-year return. Account balances are inclusive of Trust Administration, Trustee and Investment Management fees Headquarters - 4350 Von Karman Ave., Suite 100, Newport Beach, CA 92660 800.540.6369 Fac 949.250.1250 www.pars.org HIGH MA.RK CAPITAL MANAGEMENT WHY THE PARS DIVERSIFIED MODERATE PORTFOLIO? Comprehensive Investment Solution HighMark® Capital Management, Inc.'s (HighMark) diversified investment portfolios are designed to balance return expectations with risk tolerance. Key features include: sophisticated asset allocation and optimization techniques, four layers of diversification (asset class, style, manager, and security), access to rigorously screened, top tier money managers, flexible investment options, and experienced investment management. Rigorous Manager Due Diligence Our manager review committee utilizes a rigorous screening process that searches for investment managers and styles that have not only produced above-average returns within acceptable risk parameters, but have the resources and commitment to continue to deliver these results. We have set high standards for our investment managers and funds. This is a highly specialized, time consuming approach dedicated to one goal: competitive and consistent performance. Flexible Investment Options In order to meet the unique needs of our clients, we offer access to flexible implementation strategies: HighMark Plus utilizes actively managed mutual funds while Index Plus utilizes index -based securities, including exchange -traded funds. Both investment options leverage HighMark's active asset allocation approach. Risk Management The portfolio is constructed to control risk through four layers of diversification - asset classes (cash, fixed income, equity), investment styles (large cap, small cap, international, value, growth), managers and securities. Disciplined mutual fund selection and monitoring process helps to drive return potential while reducing portfolio risk. INVESTMENT OBJECTIVE Efficient Frontier To provide growth of principal Index Plus Composite (Passive) E and income. It is expected that 2 �Capl,,.p..iahon dividend and interest income willo Balanced comprise a significant portion of Moderate total return, although growth '2 Moderately Conservative through capital appreciation is 3 2.87% equally important. WConservahve 2.59%e -- ---- ----- - - _- __ __ __ -- Risk (Standard (Standard Deviation) ASSET ALLOCATION - MODERATE PORTFOLIO Strategic Range Policy Tactical Equity 40-60% 50% 51% Fixed Income 40-60% 45% 46% Cash 0-20% 5% 3%d ANNUALIZED TOTAL RETURNS (Gross of Investment Management Fees, but Net of Embedded Fund Feesl HighMark Plus Composite (Active) Index Plus Composite (Passive) Current Quarter* 2.59% Current Quarter* 2.50% Blended Benchmark*,** 2.70% Blended Benchmark*,** 2.70% Year To Date* 2.87% Year To Date* 2.59%e Blended Benchmark* 3.32% Blended Benchmark` 3.32% 1 Year 5.93% 1 Year 5.53% Blended Benchmark 6.37% Blended Benchmark 6.37% 3 Year 8.21% 3 Year 7.82% Blended Benchmark 8.30% Blended Benchmark 8.30% 5 Year 6.30% 5 Year 6.16% Blended Benchmark 6.64% Blended Benchmark 6.64% 10 Year 7.15% 10 Year 6.81% Blended Benchmark 6.99% Blended Benchmark 6.99% ` Returns less than 1 -year are not annualized. "Breakdown for Blended Benchmark, 26.5%S&P500. 5% Russell Mid Cap, 7.5% Russell 2000.3.25% MSCI EM (net). 6% MSCI EAFE (net), 33.50% BBG Barclays US Agg. 10% ICE BofAML 1-3 Yr US Corp/Gov't, 1.50% ICE BofAML US High Yield Master II. 1.75% Wilshire REIT, and 5% FTSE 1 Mth-r-Bill, Prior to October 2012, the blended benchmarks were 43% S&P 500:2% Russell 2000, 5% MSCI EAFE (net), 15% ICE BofAML 1-3 Year Corp./Govt, 30% BBG Barclays US Agg, 5% FTSE 1 Mth T -Bill. Prior to April 2007, the blended benchmarks were 50% S&P 500.15% ICE BofAML 1-3Yr Corp/Gov, 30% BBG Barclays US Agg, and 5% FTSE 1 Mth T -Bill, ANNUAL RETURNS HighMark Plus Composite (Active) Index Plus Composite (Passive) 2008 -22.88% 2008 -18.14% 2009 21.47% 2009 16.05% 2010 12.42% 2010 11.77% 2011 0.55% 2011 2.29% 2012 12.25% 2012 10.91% 2013 13.06% 2013 12.79% 2014 4.84% 2014 5.72% 2015 0.14% 2015 -0.52% 2016 6.45% 2016 7.23% 2017 13.19% 2017 11.59% PORTFOLIO FACTS HighMark Plus (Active) Index Plus (Passive) Composite Inception Date 10/2004 Composite Inception Date 05/2006 No of Holdings in Portfolio 18 No of Holdings in Portfolio 12 HOLDINGS HighMark Plus (Active) Columbia Contrarian Core 13 Vanguard Growth & Income Adm Dodge & Cox Stock Fund Harbor Capital Appreciation - Retirement T. Rowe Price Growth Stock - I iShares Russell Mid -Cap ETF Vanguard Real Estate ETF Undiscovered Managers Behavioral Value T. Rowe Price New Horizons - I Nationwide Bailard International Equities Dodge & Cox International Stock MFS International Growth — R6 Hartford Schroders Emerging Markets Eq Vanguard Short -Term Invest -Grade Adm PIMCO Total Return Fund - Inst PGIM Total Return Bond — R6 Doublet-ine Core Fixed Income - I First American Government Obligations Z STYLE Intl St 10.0 Mid 4.( Large Cap Grov 5.1 Large C 15. Index Plus (Passive) iShares Core S&P 500 ETF iShares S&P 500 Value iShares S&P 500 Growth iShares Russell Mid -Cap ETF Vanguard Real Estate ETF iShares Russell 2000 Value iShares Russell 2000 Growth iShares MSCI EAFE ETF Vanguard FTSE Emerging Markets ETF Vanguard Short -Term Invest -Grade Adm iShares Core U.S. Aggregate First American Government Obligations Z Holdings are subject to change at the discretion of the investment manager. Real Estate I — r:an VaII 1 d:/ Short -Term Bond 7.8 Interm-Term Bond 38.3 The performance records shown represent size -weighted composites of tax exempt accounts that meet the following criteria: Composites are managed by HighMark's HighMark Capital Advisors (HCA) with full investment authority according to the PARS Moderate active and passive objectives and do not have equity concentration of 25% or more in one common stock security. The adviser to the PARS portfolios is US Bank, and HighMark serves as sub -adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. As of September 30, 2018 the blended rate is 0.58%. US Bank pays HighMark 60% of the annual management fee for assets sub -advised by HighMark under its sub -advisory agreement with US Bank. The 36 basis points paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio returns. Assuming an investment for five years, a 5 annual total return, and an annual sub -advisory fee rate of 0.36% deducted from the assets at market at the end of each year. a 10 million initial value would grow to $12.54 million after fees (Net -of -Fees) and $12.76 million before fees (Gross -of -Fees). Gross returns are presented before management and custodial fees but after all trading expenses and reflect the reinvestment of dividends and other income. Client's return will be reduced by the advisory fees and other expenses it may incur as a client. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request. In Q1 2010, the PARS Composite definition was changed from $750,000 minimum to no minimum. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade - date accounting. Blended benchmarks represent HighMark's strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the U.S. stock market. The MSCI EAFE Index is a free float - adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Free Index is a free float -adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid -cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small -cap segment of the U.S. equity universe. The US High Yield Master II Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays Capital (BC) U.S. Aggregate Bond Index is generally representative of the U.S. taxable bond market as a whole. The Merrill Lynch (ML) 1-3 Year U.S. Corporate & Government Index tracks the bond performance of The ML U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged FTSE 1 -Month Treasury Bill Index tracks the yield of the 1 -month U.S. Treasury Bill. HighMark Capital Management, Inc. (HighMark), an SEC -registered investment adviser, is a wholly owned subsidiary of MUFG Union Bank, N.A. (MUB). HighMark manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, and public and private retirement plans. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing HighMark strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, including possible loss of principal.