Annual Treasury And Investment Portfolio Update for 2015

Transcription

1 Item No.: 7d_Supp Meeting Date: March 8, 2016 Annual Treasury And Investment Portfolio Update for 2015 Commission Briefing Presented by Diane Campbell March 8, 2016

2 Treasury Management Update Background Portfolio Composition and Performance Appendix Investment Policy Highlights 2

3 Treasury Functions Manage banking activities Cash and liquidity management & investing funds Execute and fund payments Coordinates processes and controls with Accounting & Financial Reporting and Information & Communications Technology departments complying with statute What we (Treasury) do 3

4 Background Authorized investments are made in accordance with and subject to restrictions of the Revised Code of Washington (RCW) Commission resolution approved Port investment policy, adopted as of June 11, The investment policy is reviewed periodically, and amended as appropriate to follow best practices. Last amendment: June 5, No changes requested at this time. State laws limits who the Port can bank with and what the portfolio can invest in. Highlights of the Port s investment policy in appendix. 4

5 Investments Update 5

6 Portfolio Composition 12/31/2015 MORTGAGE- BACKED SECURITIES - HIGH GRADE 7.4% REPURCHASE AGREEMENTS 1.3% FEDERAL AGENCIES 40.4% TREASURY NOTES 37.4% MUNICIPAL BONDS 0.4% FEDERAL AGENCIES DISCOUNT NOTES 13.1% High quality and diversified portfolio. 6

7 Interest Rates Trends By year-end 2015 interest rates across the yield curve were higher than the previous year. The Federal Reserve increased the federal funds target rate upper bound by 0.25% to 0.50% in December 2015, the first increase since 2010, and may make additional increases during Staff monitors market conditions, but does not time the market. Rising interest rate environment. 7

8 Treasury Yield Curve /31/ /31/ % 3.02% 2.5% 2.09% 2.27% 2.75% 2.0% 1.5% 1.0% 0.5% 0.13% 0.17% 0.48% 0.60% 1.05% 0.67% 1.31% 1.07% 1.76% 1.65% 1.97% 2.17% 0.0% 0.5% 0.22% 0.02% 0.04% 0.12% 1 Month 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years 7 Years 10 Years 30 Years Source: Bloomberg Interest rates were higher than the previous year by the end of

9 2015 Select Interest Rates Yr Agencies 5 Yr Agencies Fed Funds Target Rate maximum Yield (%) Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Sources: Bloomberg; Federal Reserve Interest rates trended upwards throughout the year. 9

10 2015 Yield Comparison Benchmark Port s Pool Q % 0.81% Q % 0.79% Q % 0.98% Q % 1.10% Annual 0.73% 0.94% Port s Pool outperformed the Benchmark by 0.21%. 10

11 Portfolio Earnings % $9,995, % $8,241,675 Y e a r % $6,555, % $9,547, % $15,069,955 Interest Earnings - % Yield and $ The annual earnings rate is increasing. 11

12 Yield History Year(s) Benchmark Port s Pool % 3.69% % 3.08% % 1.02% % 0.69% % 0.86% % 0.94% 14 years 1.87% 2.67% Port s Pool has outperformed the Benchmark by 0.80% over the long term. During certain time periods, e.g., a rising interest rate environment, the Port s Pool may underperform. 12

13 Yield History Benchmark Port's Pool 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 4.45% 4.08% 4.07% 5.00% 4.78% 4.04% 3.72% 4.33% 2.64% 2.76% 2.50% 3.57% 2.50% 2.17% 1.67% 1.58% 2.01% 1.02% 0.86% 0.94% 0.69% 1.12% 0.72% 0.48% 0.31% 0.35% 0.55% 0.73% Port s Pool outperforms, on aggregate, over the long term, but may underperform during a rising interest rate environment. 13

14 Investment Portfolio Size Fluctuates $1.25 billion as of 12/31/2015 versus $900 million at prior year s end Over the most recent 5 years, the size has ranged from $879 million to $1.27 billion Fluctuations are mostly tied to capital funding and spending: bond issues to fund projects increase the portfolio capital project spending reduces the portfolio size More than half of the portfolio represents funds for special and restricted uses. 14

15 Examples: Investment Pool Participating Funds Reserves & Security 16% Special Use 16% Bond Funds 18% as of 12/31/2015 Minimum Operating Fund Balance 21% Operating Cash Programmed for Capital 29% Minimum Operating Fund Balance: General & Airport Development = 9 months O&M expense Operating Funds for Capital: General, Airport, Tax Levy funds programmed to be spent over the next few years. Bond Funds: Capital projects Reserves & Security: Bond reserves, customer lease security Special Use (primarily for capital projects): Passenger & Customer Facility Charges, Transportation & Infrastructure More than half of the pool s funds are for special and restricted uses. 15

16 Appendix: Investment Policy Highlights The complete Investment Policy is attached. 16

17 Investment Policy Highlights Emphasis on preservation of principal Priority of policy objectives 1) Safety 2) Liquidity 3) Yield Covers all capital and operating funds Does not cover funds held separately in trust, e.g. deferred compensation plans and pension trusts 17

18 Investment Policy Highlights To meet the policy s primary investment objectives, additional risk controls are included that impose further restrictions on the types of securities. These include: limit maturity date - no more than 10 years from settlement date, and portfolio target modified duration of 2.0 years, plus or minus ½ year. Benchmark Bank of America Merrill Lynch Treasury/Agency 1-3 Years Index Long term strategy: do not forecast interest rates; balance RETURN and RISK over cycles this strategy outperforms the market when rates are falling and underperforms when rates are rising State laws limits what the portfolio can invest in. 18

19 Investment Policy Highlights Establishes prudence, ethics, conflict of interest and disclosure requirements for investment officials Port s CFO and appointed Treasurer is responsible for managing the Port s investment program Authorizes Treasurer to delegate day-to-day duties and responsibilities related to investment program Provides for safekeeping and custody of portfolio securities 19

20 Investment Policy Highlights Establishes criteria for eligible depositories and broker/dealers Sets out allowed investment instruments; subject to State law Establishes portfolio diversification parameters Establishes maturity restrictions 20

21 Investment Policy Highlights Sets portfolio performance standards Allows for independent review of the investment program State Auditor External Auditors Internal Auditor Establishes reporting standards 21