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Home My WebLink AboutPresentation 11/21/2005i i i i i i i i i i i i i City of Petaluma City Council Update and Market Conditions November 21, 2005 presented by PFM Asset Management 50 California Street, Suite 2300 San Francisco, CA 94111 Client Service Nsesa Ka.zadi (415 - 982 -5544) Portfolio Manager Bob Cheddar (717- 232 -2723) jlh 111��111111 F I I liq �'r r 61 III 1 71, ■ PFM has managed portfolios for public agencies for 25 years. ■ PFM provides investment advice on $30 billion of assets — $7 billion in California ■ No other firm can match our experience in managing assets for California public agencies 1989 -2004 rinlinrc in millinnc $6,960 Other Public Agencies • Contra Costa Community College District • Golden Gate Bridge Transportation District • Marin County • San Joaquin Transportation Authority • Sonoma County • Yolo County CF 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 �ALU jH58 Representative California Clients Cities • City of Alameda • City of Antioch • City of Brentwood • City of Camarillo • City of Fairfield • City of Lafayette • City of Manteca • City of Modesto • City of Napa • City of Petaluma • City of Pittsburg • City of Roseville • City of St. Helena • City of Tracy • City of Ukiah Other Public Agencies • Contra Costa Community College District • Golden Gate Bridge Transportation District • Marin County • San Joaquin Transportation Authority • Sonoma County • Yolo County CF 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 M M M M M M M M M M M M M M M r M M T ® Bond proceeds investment management since 1991 — Ensure needed liquidity — Design and implement investment strategies — Arbitrage rebate compliance services ® Operating funds management since 2001 — Safely diversify the portfolio — Design and implement investment strategies — Competitively shop for securities — Coordinate trade execution and settlement — Prepare comprehensive portfolio reports TM �vn WF �2 M M M M M M M M M ® ® ® ® M M M M - MKII • Build a high - quality, well- diversified portfolio • Focus on AAA -rated U.S. Treasury and Federal Agency notes • Reduce liquidity and concentrate bulk of investments in 1 -3 year area • Manage portfolio to the Merrill Lynch 1 -3 Year U.S. Treasury Index lip • Use a gradual, low -risk approach • Target a portion of the portfolio to investments in the 1 -3 year area to capture higher yields in that area Q om' 9 • Maintain some of the funds shorter to preserve the City's ability to capture higher investment yields as rates trend upward over the 6 -12 months W1.3 M ® ® ® ® = = M = = ® ® ® ® ® M = M ® The City's portfolio is focused in government securities. ® The Agency investments are diversified by issuer. U.S. Trea Ps 27% CAMP Cash Reserve Portfolio 4% FN - 16% As of September 30, 2005 FHLMC 15% FHLB 38% eau - 1 �s a PFM . A M M M ® M M ® M M ® ® ® ® ® ® ® ® ® M M , ® 100% of the City's portfolio, excluding LAIF, is rated in the highest credit categories. Treasury 26% AAA m (CAMP Cash Reserve Portfolio ) 4% Standard and Poor's Ratings As of September 30, 2005 AAA 70% t • � i`, � yes$ PFM C WF M M M M M M M M M ® ® ® M M M M M M M Bess • The City's portfolio is focused in the 1 -2 year area to capture higher yields but maintain flexibility in the current environment. I A As of Septemb 30, 2005 w 6 = = = = = ® M w ® = = M M = M M M = M Portfolio Performance L° 1 85'8 ® The portfolio has generated returns that produced earnings of approximately $440,000 more than the Merrill Lynch benchmark and $1,070,000 more than LAIF on a $30 million portfolio. Source: Bloombetg and LAIF website --q `7 M ® ® M M M M M M M M M Current Interest Rate Conditions l$B$ Intermediate -term interest rates have risen over 1 % since the beginning of the year. Rates declined sharply at the end of August, but have since rebounded to achieve new four -year highs. 2 -Year U.S. 'Treasury Note January 1, 2004 — November 21, 2005 I I I I I I 1 1 1 1 1 1 I 1 1 I I 1 1 I I I I I I I I I 1 1 I I I I I 1 1 I I 1 I I I I 1 I I 1 I I 1 1 I I 1 1 I I 1 I I 1 I I I 1 1 I I I I 1 1 I I 1 1 1 I I 1 I I 1 I I 1 I 1 I I 1 1 1 1 I 1 I 1 1 I I 1 I 1 1 I t 1 I 1 I I 1 1 1 1 I I I I 1 I I 1 1 1 1 I I I I 1 I I 1 1 I 1 I I I I 1 I I 1 I I I I I I I ____ y____ y_____ F . y - ____I_ { ____y_____ ~__ y - - - - y - - - - - F____ 1 1 1 1 I I 1 I I I I 1 I I I t I 1 I I 1 1 1 I I 1 I I 1 I I I I 1 1 I 1 I I 1 1 I I I 1 I I 1 I I 1 1 I I I 1 1 I 1 I I 1 I I I 1 1 1 I I I 1 1 I I 1 1 1 1 1 I I 1 I I I 1 1 1 I 1 I I 1 1 I I 1 1 1 I 1 I 1 I I 1 1 I 1 1 I 1 1 I 1 1 I 1 1 1 1 1 1 I 1 I 1 I 1 I 1 1 1 1 I 1 I I 1 1 1 I 1 1 1 I 1 I I 1 I 1 1 1 1 I I I I I 1 1 1 1 1 1 1 I I I I I 1 1 I 1 1 I I I I 1 I I 1 1 I I I t 1 1 I 1 1 I I I I 1 I I I 1 I I I 1 I 1 I I 1 1 1 1 I 1 I I I I I 1 I 1 1 I 1 I I 1 I I 1 I I 1 1 I I I 1 I 1 I I 1 1 I 1 1 I I I I 1 I I I I I I I I I I I 1 I I I 0 1 I I I 1 I I I 1 I 1 I I I 1 I I I I I I I 1 I 1 I 1 I I I I I I 1 I 1 I 1 I I I I I 1 t 1 I I I I I _____I I I 1 I I I I I I .000 I I 1 I 1 Aki 1 1 I I I I I I 1 I 1 I I I I I 1 I 1 I I I I I 1 I I I 1 I I I I 1 I I I 3. 500 I I 1 I I I 1 1 I 1 I I I I I I 1 1 1 I I I I I I I I 1 1 I I 1 1 I I I 1 I 1 I I I 1 1 I I I I I I I 1 I I I I 3.000 1 I 1 I 1 I I I I I I 1 I 1 I 1 I 1 I I 1 I 1 I 1 I I I 1 I I 1 I 1 I 1 I 1 I 1 I I I 1 --------------------- I I 1 1 1 I 1 I I I 1 2.500 I 1 I 1 1 I I I I I 1 I 1 I I I I I 1 I I 1 I 1 I I 1 1 I 1 I I 1 I 1 I I 1 1 I 1 1 I I I 1 I I 1 1 I 1 1 I I ......f..._-~----y___'__I_____F-...y__.__I_____y_____f__._H____4- 2.000 1 I I I 1 1 I 1 t 1 1 I I I I 1 I I I 1 I I I I 1 I 1 I I I 1 1 I 1 I I I 1 I 1 I 1 1 I 1 I I I I I I I I I I _____1 I 1 I 1 I 1 I I I 1 ------ �1.500 I I 1 1 1 I I 1 I I I I I 1 1 1 I I I I I 1 I I I I 1 I I 1 I I I I 1 I I 1 1 I 1 1 I I Ian IFeb I Source: Bloomberg PFhr 8 M M M M M M M ® M M M ® M ® M M M ® M . -XIMI-iAM • The Fed raised the overnight target rate again on November 1 st to 4.00 %. • The market anticipates that the Fed will hike the target rate at the last Federal Reserve meeting this year. 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Federal Funds Target Rate January 31, 2000 — June 30, 2006 -- As of 11/09/2005 0.0% Jan- Jul- Jan- Jul- Jan- Jul Jan- Jul- Jan- Jul- Jan- Jul- Jan - 00 00 01 01 02 02 03 03 04 04 05 05 06 Source: Bloomberg ,SAL�j �$5 S tes PFM (1 M ® ® M M ® M M M M M M M M M M M M E conomy o and Gr �irNHx ^' l95$ GDP Growth Strong ® For the past 12 months, GDP growth averaged 3.5 %, which is considered to be solid. Employment Market ® The labor market continues to be strong. The unemployment rate has steadily declined for the past two years, with the exception of September 2005 when a slight up -tick occurred after Hurricane Katrina. Manufacturing ® Costs of raw materials and energy have risen sharply. Economists are concerned that these rising costs are inflationary and will eventually flow through to th consumer. Spending ® Retail sales have been strong. Recent volatility is the result of strong car sales in June, July and August when auto manufacturers offered sales incentives. Inflationary Pressures ® Inflationary pressures, on the whole, have begun to grow. For example, in September, prices paid by U.S. consumers increased by 1.2% from the previous month —the largest jump since 1980. This jump was largely due to increases in food and energy prices. As--- A M M M M M M M M M ® M M M M M M M M M 10 M SUM ® Maintain our conservative strategy • Continue to invest in high - quality instruments Execute trades that will keep the portfolio in line with the benchmark and ensure consistent performance over time when appropriate. '�rV i7 ® Continue to look for opportunities to add value by trading between sectors to capture higher yields or greater return potential. �' 11