October 30, 2023 Council Finance Committee/Investment Review Committee

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[00:00:00] Chair Lisa Matichak: Good afternoon, everyone. Welcome to the Council of Finance and Investment Review Committee. This meeting is called Order at 301. This meeting is being conducted with a virtual component. And when the chair announces the item on which you wish to speak, if you do wish to speak, please click the raise hand feature in Zoom or dial Star 9 on your phone. And the chair recognizes you to provide your comment, click on the unmute feature in Zoom, or dial Star 6 on your phone, and each speaker will have 3 minutes for their comments. Start with a roll call. Mini members, even from you.? Any member, the bread case. Committee member, Lucas.

[00:00:55] Member Lucas Ramirez: Here.

[00:00:58] Chair Lisa Matichak: And Cher, Lisa, Matt. Here. Thank you. I do have a quorum. The 1st item on the agenda is approval of the minutes from October 6th. There's any member that comments or preference to those comments? Are there any members of the public? No, there's no members in a public? None of them are raised. No, no, no. And there's none in person. Okay, so, uh, Send this to move.

[00:01:35] Chair Lisa Matichak: So move.

[00:01:39] Chair Lisa Matichak: Should we do role compote or share a phone? Remember? Winners?

[00:01:46] Chair Lisa Matichak: Yes. Yes. Yes. Yes.

[00:01:51] Chair Lisa Matichak: Thank you. That passes. Uh, the next item is, uh, I have 4 or communications from public. This portion of the meeting is reserved, the person's wishing to address the committee on any matter that is not on the agenda. And speakers are allowed to speak under your topic for up to 3 minutes. State law prohibits a committee from acting on items that are raised during this section. Um, I don't see anybody in person that wishes to speak. Is there any? Okay. Thank you. So we'll leave it to items 6 point nine. Um, and there is not a staff report for this item, but there is a presentation by Carlos. From Chandler Asset Management. And um, this was posted today on the city's website, so they wanted to review it ahead of time. But I assume you're going to go through it here.

[00:02:56] Management): That's cool. Thank you. absolutely. So I wanted to remind you of... Let me jump into the astronauts. I want to remind us all of the context under which people are... We try to... And underneath that, our city specific dishes, which they have driven by the policy. And then from there, I'd like to just kind of walk you through a little with the results of it and answer your questions. Okay. So I want to remind everybody that these are operating funds that are subject to California Go, section 53, 600, specifically 53601, which limits the types of investments that you're able to do. California government code treats these funds as money as you need for your operations and to be able to spend on things like AP runs on salary, on payroll on projects, on bond proceeds that get used for various city uses. So as a result, California government code places very strict limits on what you're able to do. And it actually dictates the goals of the investment program. And those are safety. That means the money has to be safe. Um, you know, sometimes you're able to sell something at a loss as long as you're going to make that pay back eventually by your reposition, but generally it has to be saved. It can't be risky. Number two, it has to be liquid, meaning that it has to be available for the cities used when the city needs it. And after those 2 goals are met, and code actually lays these goals out in order of importance. And those 2 are the most important. And after those come, the return. So within that context, California government limits you to investments in fixed income securities. It means that you are buying and selling bonds. Primarily, in the case of the city staff, which runs a significant component of the city's investment programs, it's generally a buy and hold, and you're collecting your interest. A bond is a loan. You are a lender. You're lending money out and you are collecting rent on that money in the form of interest payments. Okay. Not only that, but the rights to that income stream coming from that income that you've signed up for when you buy that bond, the value of that income stream can go up or down. depending on what other investment opportunities. There are available in the market. Primarily when you look at market interest rates, so rates for treasuries that are out available in the market free to buy or corporates or anything like that. When they go up and down, that changes the fair value of that investment due to you. Okay. Lastly, I'll say that California government code is very restrictive. Um, You're limited to bond investments. You cannot buy stocks, you cannot buy dividend, dividend stocks, you can't buy commodities, you can't buy real estate, you can't buy, uh, private equity or anything like that. You're really limited to fixed income, which are bond markets. Not only that, but you're also limited within the bond markets to very specific sectors of the bond market. And even most of those sectors have a limit to them, a cap on concentration. Um, and and that's Soviet staff follows and tracks very carefully. Um, because they have to report to city council that they're in compliance with the city's investment policy. They have to be able to demonstrate that they follow a lot. It's a very important aspect of the investment program. Not only are you limited in concentration limits, but you also have limits in maturity. Generally, you can't go longer than 5 years. Under certain circumstances, you're allowed to with council approval. Because are very rare for operating funds. Generally we don't see very many cities that do that. When you when we see that, it's usually joint powers, insurance authorities, where their liabilities, the liability of their, the duration of their liability, say, like a worker's comp. Those liabilities tend to be much longer. So they try and do an asset liability match with longer duration investments. Okay? But 5 years are shorter. And then even within that world, you can't just buy any bond. You have to buy, um, there's rules around the corporate bonds that you combine. And there's also rules around, uh, the credit quality of those blocks. Those are single A or higher. Uh, triple B is, those triple A, double A, single A, triple B, and so forth. Triple B is the bottom of the best but great world. Meaning the best quality bonds. California government code actually limits you to single A or higher. And the city's portfolio is even more conservative than that. It actually limits us to double A for higher. So to keep that in mind, that's one of the constraints that we have to work. That's unusual for most cities and especially your neighbors. Most everybody, especially somebody that works with an invested advisor, like us, is doing credit analysis, they don't usually limit us. That's the way the city's always operated. And we, we, we're faithful to that. We try to stay on top of that as does staff. Um, the last thing I'll say is that this is an actively managed portfolio, the component that Chandler manages on your behalf is actively managed, we generally buy all the securities and intend to hold them to the jury. But they don't always happen that way. It doesn't always get held in maturity. We typically rebalance the portfolio to improve credit quality, to go up in liquidity, to rebalance between sectors where we might see less risk and more yield, to walk in some gains. Sometimes we may take a loss and get rid of a lower yielding asset and take a loss by doing that and buy a higher yielding asset, which makes up for that loss at least ahead of the game. So it is an actively managed portfolio where, um, we try to coordinate our activities with what staff is doing, uh, to make sure that they both they support the program to support one another, and of course support the overall goals of the city. Does that does that all make sense? Want to make sure that we're off. I just, yeah, I've been presenting to you guys for a long time, and I've been speaking to you for a long time, and I know you know all of this, and most everybody knows that, but I often get asked questions like. Good to have a refresher. Exactly. My personal investors do better than this. You know, it's like, well, you're not subject to code. Okay.

[00:09:09] Unknown Speaker: What is the impact of having our only doing credit, that's bond buying bonds that are kind of reading AAA or more? It sounds like it's safer, but it's also, are we losing yield on that? Significantly.

[00:09:20] Management): are. Single A securities makeup. If you were to look at the universe of investment grade bonds and if I were to remove triple B, because by law, you're not allowed to buy triple B. If I were to just look at single A or higher, single A probably makes up around a 75 to 80% of the investment grade world. It means that the universe that we have to be able to invest in non-governmental securities. Because there's governmental securities in here, treasuries, agencies. into that in a minute. But basically in the non-governmental world, you cut off about 3 quarters of it. So it's harder to diversify. Can I answer a question? Share related to that.

[00:10:04] Unknown Speaker: So the benchmark has always been helpful to me and I rarely have comments on this body because I hate like, you know, we are adhering to the policy and generally we are within our the policy guardrails around the benchmark. But that question does inspire additional questions about, we don't look at the yields in comparable jurisdictions or neighboring jurisdictions. And is that helpful for us to think about, especially those that allow access

[00:10:33] Management): to that broader human. That's an insightful question. I would say no. And the reason I would say no is because every city has different strategies. City of Sunnyvale runs a program where they could buy out to 7 years. Now, they don't go, that's a very small component of their portfolio, but they do it. And their risk parameters look different. They also have a much larger non-governmental component to their portfolio. They purchase asset-backed securities, pass-through securities, which as I recall, we don't have this investment program. We don't. Sorry, I, This is like my 3rd or 4th meeting of the day.

[00:11:06] Chair Lisa Matichak: It's all hard to remember. Please, please bear away. relate.

[00:11:10] Management): Thank you. But, but, uh, so they're able to purchase those. They're allowed by code, but the city does not allow them because for a number of reasons, historical mostly. Um, which is okay. Every city has its own character. Every city has its own pools. Every city has its own history. Uh, you know, city of Newport Beach, um, back in the in the early 90s got burned in the, in, in, in the, uh, when Orange County, the Orange County Treasury drove the county into bankruptcy, $2000000000 because they were purchasing things that were wild and crazy and that, this was before all the laws they had today. That city, as a result, for the next 30 years, 25 years, um, probably about 25, 30 years, they they held 5 managers. And the managers, as managers, we don't actually hold your cash, that cash typically is held in a custodial bank, a separate bank that holds it in your name. They couldn't even trust that back. They broke it up between three, four, and custodian banks. So they were very nervous. They went way up, they went overboard completely in the opposite direction. They went a little crazy and I know all of this firsthand because I worked with them for about 22 years of my career. And I've been at this for about 28. So, um, uh, But that's driven by their history and by their, by their, by their city council, which reflects the, the, it's supposed to reflect or shepherd the desires of the community. And so every city is different. And the city, the city here, not only is a different city. So it's hard to say, let's look at what Milpitas is doing. We managed Milpitas. It looks different. We managed Sunnyvale. that looks different. South San Francisco looks a little bit different. They have multiple duration strategies that they put in in addition to maybe bond proceeds and also a side liquidity pool. So it just varies. Part of it is just a history with what the city is comfortable. I wouldn't go. I wouldn't rush to judgment. And say, are we is what we're doing bad? No, not by any means. Are there more efficient ways to do it? Absolutely. There always are. It's what you feel comfortable with. I hope that makes sense.

[00:13:17] Unknown Speaker: Would you say that our risk profile is the most conservative?

[00:13:20] Management): It's among the top 10. of conservatism, right? Yeah, yeah, I put you in the top 10. Absolutely.

[00:13:30] Chair Lisa Matichak: And we had the discussion about should we look at doing something different? We have every time I've

[00:13:35] Management): been here, but the desire of a committee has been to stay the course. That why I'm trying to be... Maybe internally.

[00:13:40] Chair Lisa Matichak: Have we had that discussion about, you know, should we change something? Are you waiting for us to bring it to you or would you bring it to us?

[00:13:47] Management): It's whichever way this body is most comfortable and along, of course, we staff is a very important part of this process. We really support staff at the end of the day. in our operations and such, and we want to make sure that staff is comfortable with it as well because they're there to execute the council's policies. So they have to be on board as well.

[00:14:10] Derek: Yeah, I think I think it's something we guys can talk about internally and then bring it back to what the options are that may be a little less conservative, but still within our parameters with safety and liquidity. I think it'd be interesting

[00:14:23] Management): conversation.. Sure amount to check. If I may, if I may add one more comment, it's helpful to revisit it. One of the things, so we're already limited significantly in the corporate sector, because of that double A minimum credit quality, we're also limited a little more because the city has socially responsible investments, which also cut out some double A credits that would be that we would naturally gravitate to. They just don't fit with a character, what the city would like to do from a socially responsible perspective. So we're taking a universe that looks like this and going down to this and then doing a little one. If that makes sense. Kimber's got her handbraised, so thanks.

[00:15:05] Unknown Speaker: Yes, Andrew McCarthy. Thank you. Thank you for your Matt Track. So actually, I was just going to say exactly what was just said that I would want council members to think about what less conservative means because we've placed some restrictions on ourselves with our different social investing policies, um, divesting from certain investments, and we're also limited by what we can invest in. Or the, I guess, the vehicles, uh, just because we're a government entity. So I think, you know, we certainly discuss this every time, at least since I've been here, we have. And I can tell you, this is the same conversation that in other entities I've been involved with have as well. I even have the same discussion with the risk pools that I've been a part of. So I think this is, you're having a conversation that's not unusual. And we're, we're just not able to do certain things that I would say other sectors are, but it's certainly a conversation we can keep having. It's just we're we're a little more limited than others. Thank you. Um, okay. Very good. Let's,

[00:16:22] Chair Lisa Matichak: why don't we go through the presentation and then we'll get to questions, because actually we haven't finished the presentation. We haven't even started it.

[00:16:29] Management): I always succeed that call, I promise you. So, um, all right, so I mentioned that we talk about the overall environment in which we introduce between operate. and then within that environment, it's a city's investment policy, we probably spoken about that and some of the limitations that we have. So within that context, remember the strategy is to enhance interesting company. So the structure of the investments is that the city staff actually manages the bulk of the city's investments. They primarily focus on governmental securities. Those are bonds that are issued by the United States Treasury. When they buy a treasury bond. They're lending money to Uncle Sam. And additionally, they purchase bonds issued by the by government enterprises of the United States government, GSEs that they're called, sometimes they're called federal agencies. You know those Fattie Mae and Freddie Mac and Federal Homeown Bank. Um, So, um, staff, staff, you have a story behind yours, but I'm going to let you guys tell it because it's really well spoken well laid out in your memo. What we do is we work in conjunction with staff and we support it by buying the corporate component of the investment program. Um, corporate purchasing non-governmental securities requires, if you're taking on credit risk. And in order to, meaning there's a risk, a much higher risk versus the United States government, that a corporate issuer may not be able to pay you back. So in order to mitigate that, well, code helps you mitigate that by going single layer higher. You mitigate it even further by going double layer higher. And then, of course, we mitigate that because every security that we buy on your behalf is reviewed through a thorough investment, credit assessment process. Indeed, your portfolio manager on Chandler's side, the portfolio manager that regularly manages this, is Bill Denahey, Bill Denahey is one of our co-chief investment officers, and the chair of the credit committee. So we've we're all about risk management. We're not just buying bonds because they look sexy. pretty. We're buying them because there's a place for them in the portfolio from a risk management perspective. We really view ourselves because of your goal, safety liquidity first. We view ourselves as risk managers 1st and foremost. So having said that, um, what I might do is I might skip over the economics and come back to it, that's probably where I'm going to spend most of my time, but I want to highlight what's happened in the portfolio. If you're able to go to page number 15, page number 15 of the slides. I, uh, looks like the right hand side. We'll see what the objectives are, that this is what I'm talking about, safety liquidity followed by return. If you look at page 16 and page 16, this is a summary of the city's investment policy, an hour independent compliance team comments on whether we're in compliance or not. And that's what you see in the column on the right hand side. That's a very important function for us and also for staff. That's something that we, you hang our hat on that because the last thing we want is, is to buy a security that violates the policy or violates California government code, and then you have a stakeholder who, who can hold that against you. And we, we don't want that. We want to follow the laws, right? Of course. If you look at page number 18, What you see here is a breakout of the consolidated portfolio minus the SRPC funds. So you were looking at the pie charts and you're looking at it as of last June, which you detail. I know that the staff details that out in the hall in the memo, but you can see where things were back at the at the fiscal year and a little bit over half percent of the portfolio was in U.S. Treasury securities, that those are loans that the city is making to the United States government. 24 almost 25% of federal agencies. You had a 7.7% component in corporate securities. So this is this is what I mean. We can go up to 30% of the investment program. For anybody that allows us to go up to the max that code allows. And for most clients that allow us to do that, we currently have a position awaiting of somewhere around 25 to 27%. So you only have 7%. It's because our universe is significantly limited. LAF, LAIF, is the state pool, local agency investment fund. It is the state treasurer's pool for local governments. It's a very well-run pool. They do a very good job of collecting liquidity. They're primarily focused on liquidity. They have a weighted average maturity of anywhere from 6 to 9 months. They're great at what they do. I don't know any city or local government that isn't in the state of California. The money market fund is, is, uh, you know, that there's, I don't think you have a separate money fund from your sweep. So as I mentioned, the city, the city holds its funds, not with us as a manager, but rather at a custodial bank. And when we enter into a trade, we transmit that information to the bank. We execute the trade with a counterparty with a broker when we buy it, we transmit that information to the bank. The bank, in turn, settles that trade. They exchange the money for the securities, uh, in a process called, uh, it's a purchase. It's a, uh, something that it'll come back to me. I, I, I, it's late the day. But it's uh, they, they, they exchange it. It's a simultaneous exchange of securities. It'll come in. But when securities mature, um, they come into the portfolio and um, and until staff makes a decision on what they're going to buy. Or Chandler makes a decision on what they're going to buy. The money sits in the portfolio. But we don't want it to sit uninvested. So what it does is it rolls into the money market mutual fund because it has an overnight liquidity, sometimes same day liquidity. And at least it'll earn something while those decisions are being made, same for interest payments. Now, here's a really funny thing. The money market, the money market mutual fund, historically, those pay the lowest of yields, the absolute most because they're very, very short. Right now, we have it and I'm going to get technical here. We have an aversion of the yield curve. I can geek out on this. I'll control myself here. We have an inversion of the yield curt, which means that shorter maturity investments that are available are currently paying significantly higher yield than longer maturity investments. That is an anomaly that has been running for some time, one a year, 4 months. That's very unusual. When that happens, it typically signifies that a contraction is coming down the pike. But, uh, Eventually, that relationship reverses itself into a normally, when I, when I, the yield, the inversion of the yield curve, when I say yield curve, it means that we're charting out the heel of treasury securities from 3 months out to 30 years, and the yields historically for the 3 months and 6 months and one, two, 3 years. Those are lower than longer, 5 10, 30 years. Okay. So those are lower. Right now that emerged, that's that relationship isn't affurative. So for that reason, believe it or not, the money market mutual funds are right now paying the absolute highest yield. And that may be part of what you have almost up to 3.one% in there. Staff has taken advantage of that for the liquidity. Now, the reality is you can't ride that for too long. If interest rates shift in the market. Those money market mutual funds will be the 1st to ride that down and you will see your income disappear. This is why you also diversify the portfolio, not just from a sector perspective, but from a maturity perspective, which is what you see in the chart on the right-hand side, slide number 19. If you go there. So you can see that right now, you have approximately 17% of this portfolio with a duration shorter than 3 months or less. That's on the, you're, the, the, the, the gray is, the gray is last June and the green is, is this past September 30th. You can see that about 17% of it would become coming due around around 3 months or shorter through September 30th. Uh, and then another 4%, uh, 6 months out and then another 11.6 from 6 months out to a year. So let's add that up. 17, 27, 28, 29, uh, +4.4 is 33, 33 and change. So about a 3rd of this portfolio is going to be coming as of September 30th will come due within within a year. Um, all right. Let's let's go to the football, that's a slide number 21. These are total returns. So both staff and Chandler presents these returns on a total return basis. So let's pause for a moment, actually, what I might do is, yes, I apologize. Let's let's link back the phase of a slice of it. There are 3 numbers that I want you to keep in mind. Very, very important. Those numbers are the purchase yield. The market yield, And the return. And those 3 numbers tell you 3 very different stories. The purchase yield is a measure of the interesting income you are expected to earn into the future. on an annualized basis, the annual equivalent, assuming nothing changes in this portfolio. That's not a very good assumption because every day or every so often there's a maturity. Staff sees the maturity. They make a decision on what to buy, the term run and reinvest it, when they reinvest it. They reinvest it at whatever rate levels are available in the market today. Those are higher because rates have been on the rise. So that generally moods, those reinvestments move that average purchase yield higher. So I'm looking at the middle column and the 3rd row from the top. That's where things stood as of September 30th. That yield currently is 2.51. So it says based on the makeup of the portfolio. If I were to freeze that makeup of the portfolio and not have any maturities, if I kind of stay the course for the next year, I will end up earning 2.51% an interest income. Think of driving a car. If I have my foot on the pedal, such that the speedometer is saying I'm driving at 60 miles an hour, it would stand a reason that in an hour I will have covered. 60 miles. It's the same thing. If nothing changes here, and I'm at 251 per year over the next year, I should have earned 251, but as I stated, that changes. Okay. All right. The market yield is that same heel that you would get, had you purchased this portfolio on the date of this report, which is September 30th. Notice is significantly higher, it's 5%. That's because an investor today, rates have risen so much, is that an investor today would have the option of buying new issuance, that if they want to buy investments, it look like yours, like your strategy. They can go and buy new issuance that's going to average around 5%. Or they can buy yours at a discount, meaning they pay you less. Okay, such that their income as a percentage of what they pay you ends up being 5%. So rates have risen in the market when rates rise, the value of your investment falls. And I think you guys know this. We've been talking about this for a long time. That market yield is important because it infers a reinvestment rate for your portfolio. New money when it gets brought into this portfolio is going to get invested like the strategy that the city has. It means that if we do that, we're going to achieve somewhere around a 5%. And when I say we, I mean, staff, and chat work. So, you know, when somebody says, 0 my gosh, you're only earning 251, I can go over here and get five. You're already getting 5 with new investments. That's that's what's happening here. So those are the 2 yields. The top one is the purchase yield. Sometimes it's known as the book yield. The bottom one is the market yield. The program is valued at $909 million. It's a sizable program. You're averaging about double A. When we combine all the components, you're averaging a duration of one. 87 years. And there's a strategy to that, to stay somewhere around one, somewhere around one. 7 to one. 9 years. In fact, the benchmarks are on one. 183. just slightly shorter. This includes our piece of a Tyler, if you're looking it up. That's why they seem a little longer than it. Because I know I know exactly where you're going, where your head's thinking. So it's because of our piece of it. So, so the strategy is generally to maintain investments between 0 and 5 years, such that they average somewhere around one. 7, one. Um, All right, having said that, let's go over to page. Well, I mentioned to the purchase yield, also known as a book yield. And I mentioned to you the market field. That's a Persia reinvestment rate. And those, I liken them to the speedometer in your car. It's a rate at a point in time. What you're looking at here are the returns, which is different. The returns are if I started at point A and I ended at point B. How much did I move the dial? What did I achieve on a percentage basis? And anything longer than a year is expressed in annualized charges? The annual average, the annual equivalent taking compounding into effect, because there's compounding. You are an interest on your interest. So, What's the difference between that and the yield? Well, the yield is a speedometer where it tells you at what rate you're earning if you keep that. So if I press the gas a little more, that average heel is going to go higher. That's what's happening in your portfolio now because we're picking up higher yields. Okay? This is more like the odometer. Right? So if I drove for an hour at 60 miles, I covered 6 60 miles an hour. I cove 60 miles. So the I covered X amount. That's what this is. That's what this says. So it means that we're looking into the past when we were picking up lower yield than what we have today. Indeed, there are bonds in here that were purchased during the pandemic where the yields were less than one%. And most of them were less than half a percent. It was a very painful period. It was very painful to come in here and pat ourselves on the back and say, we got your .25%. But that's all that was, and .25 was fantastic for that time. We were heroes. Both people were getting less than that. So it was very very difficult. The environment has changed significantly. But I said that we present here a total return. So it's not just the interest income that you are collecting that expressed here. It is also, if anything was sold before maturity, and there was a gain or loss realized, that number would have it baked in. But it doesn't end there. or the securities that you hold. If there was a change in value for those securities, even if you did not sell them, meaning just on paper, if they changed in value on paper, that's also factored into those numbers. Now, staff kind of doesn't care about that, because staff's policies, generally to hold the maturity, and those gains, those, we call those unrealized gains and losses. Those unrealized gains and losses, at maturity, they, they go poof, they go away. Okay. Well, that is true. But when we, the reason we present total return is because it gives you a holistic view of what's happened in the portfolio, number one. And number two, your finance director. will at the end of the fiscal year, when he does his financial statements and goes through the audit process, there is a Gasby firm pronouncement, Gasby 31, the governmental accounting standards board, which requires that he look at the change in fair value of all the investments during the course of the year. And he will either, if it was positive, he will augment all the interesting income and make it higher. And if it was negative, he will produce. And that's an accounting entry that he has to do everything. Some cities do it orderly. Some cities do it monthly, some cities don't care about it except for June 30th. Most cities don't care about it except for. But these numbers here have that baked in. So you have a holistic view of what's going on. So what is going on? When you look at the, when you look at the aggregate portfolio, that's the far right hand side excluding the SRPC funds, you can see that for the last month, we had a -13 basis point return, -0.13. How could that be? Because we're earning interest. How do we get negative interest? Well, you did get positive interest. There were hard dollars coming into the portfolio. But during that month, the change and value on paper went negative because rates rose, and it went, and it went negative more. There's a change on paper. You didn't realize any of this, but the change on paper was greater than what you actually collected an interesting come for the period, thus generating a negative return. But I show you that year to date, you're generating about 187, which is competitive. When you compare that versus the benchmark. It's it's uh, the 0 to 5 year government. It's 185, so you're just above it. Um, when you look at when you look at the one year numbers, you ended September 30th at 278, where, where the 0 to 5 year, so I'm looking at the far right hand column and then the 3rd column in from the left, which is the benchmark. That's those are the 2 that are applicable, 278 versus versus 276. When they went negative, we went less negative. The city went less negative. So you're tracking the benchmark pretty closely. Now, there is a component of the overall portfolio, which is the corporates component, which you've tasked us to do, and we have a separate benchmark for that because that's just corporates. So we have that AAA to AA index between one and 5 years, and we generally buy between one and 5 years. That's why your duration got a little longer when you aggravate our program. But you can see that, again, for the last month, it went -40 basis points of negative versus the benchmark, -52, so we did better there. So the 3 months, we're lagging a little bit and the year to date, we're lagging a little bit. And then we're lagging just a tiny bit down the line. And a lot of that. I can, it isn't due to the double A discussion that we're having. Partially, it's due because of the socially responsible, partially but minimally. The reason is because that index contains securities that you're not allowed to purchase. And so that throws it off just a little bit. Okay. But, you know, you're kind of on par. You're kind of on par. Generally, since we've been working these portfolios, you know, you're since 1995, you've been generating 142, um, and a half percent, nobody thinks in, you know, terms since 1995, when I started in this industry, uh, we, uh, we think in annual terms. When you annualize that, well, we're looking at 320 per year. Not bad in a period of interest rates when, for a good 15 year period, interest rates were sub 50 basis points, half a percent. So you've done one. No one. So that 3.2 encompasses most of it will be interesting income, a small portion of it will be changed in fair amount. Um, all right, so what's happening? Why did rates do what they did? Now we're getting into the economic discussion, and I think you're going to have lots of questions. It might be helpful. It might be helpful to, uh, it might be helpful to go to page number 12 and the chart on the right-hand side of page 12. And please check me if I'm going to one more time, okay? I thought about that. Sorry. I just want to be respectful of you. So if you look at the chart on the right hand side. So I think most of you are aware that we live through a whole pandemic. And that pandemic shut the economy down. And the Federal Reserve, the United States Central Bank. One of the things that it did to keep the economy going and people staying solvent is they made it as cheaply as possible. for borrowers to borrow money, meaning putting money in their hands cheaply so they can turn around and go do the things they need to do. Businesses could borrow very cheaply and and then expand their bit or keep keep employees on board, that sort of thing. Uh, They made it very easy to borrow money. And then they turned around and they said, okay, private issuer. So corporate bond issuers. You want Apple. Okay, Google, you want to issue that bond? You know what? Go ahead and issue it. If you have any problems, we'll back the bond holders. So they really pull the stops out to keep things going. Not only that, but in conjunction with that, the federal government, not the federal reserve, but the federal government, separate entity. Federal government did the equivalent of flying over your town. in a helicopter and opening up doors and taking up bales of dollars and just pushing them out of the window. It's known as the Cares Act, about $50000000000 handed out. Those were the PPP loans, which you got to keep. It was the art money that was given to you, then you got to keep. It was the tax breaks, 2 individuals, it was tax breaks to the airlines. I mean, you name it, all those people, there were 5 acts altogether that were related. So, so those things pumping money into the economy was very important at that time because that's what kept things going. Well, at that time, the federal reserve lowered the lending rate between banks. And that's not that's not a proclamation that they make. They set a target for it. And then what they do is they buy and sell securities in the market to, like, they basically manipulate supply and demand for purchases or sales to manipulate where that rate lands. that's where the rate landed. That's the chart on the right-hand side. You can see the gray bars are recessions. Looking at the chart on the right, the skinny bar on the right is the recession created by the pandemic, and then you could see the green line drops like a stone. If this were an EKG, we would have lost the patient here. So they lowered interest rates to 0 and they kept them at 0 until late 2021, about November, December. And then, well, what happened during that time? We're going to come back to this chart. If you flip back to page, You put back to page number 6 is probably the best place to go. So during this time, now people have money to spend. And they didn't take that trip, so they didn't spend money on airline tickets or rental cars or Airbnb for a hotel. They didn't spend on expensive restaurants. They held back, they cutting the belt, they held back buying things. So now all of a sudden the economy opens and you have pent up demand for goods and services. And you have money in people's pockets to burn, burning a hole in their pocket. So what happens? Exactly. Outsize demand on limited supply chains, broken supply chains. So lower aggregate demand, increased, sorry, lower aggregate supply, increased demand. So you have prices going up, and you get inflation. The chart on the left is the consumer price index. It peaked out in June of 2022 at its highest that we've seen in 40 years. The last time we, that was 9.one% year over year inflation. The last time we saw that was in the Carter and Reagan. I think just to give you an idea. So where the Fed was saying, yes, borrow that money. Yes, we'll back you. Yes, borrow it for nothing. It'll cost you nothing. Yes, take it. It's all yours. Yes, yeah, what? You want to refire your house? Yes, yes, you're not going to refight 2.5%, right? You're going to get a new mortgage. You want to buy any new? Oh, fantastic. Less than 3%. Well, let's go back to that, um, that chart on page, uh, on page, uh, 12. Now inflation kicked in and you don't want inflation. because that can do real an economy. Now they turn around and say, wait a minute. too much money out there. We need to reduce the supply. So they raise, they set a target for that rate and then raise that target, I think, 11 to 10 times is what they did. This is the fastest hike. That rate is called the Fed funds rate. And they set a target for, the TED funds target rate. It's the overnight rate lending rate between banks. So they did that and they raised it to 5.5% in the upper bound of the range, I think, that they aimed for. That was a very rapid rise in interest rate. Very, very rapid. And now where they went to the Fed, where banks went to the Fed and said, oh, can I borrow some money? The Fed would say, why are you? And they say, what? No, no, no, no, no. Okay, you want to borrow from us? We going to publish your name everywhere and let everybody know. We're going to shame you. Oh, and we're going to charge you 5.5%. And that mortgage that you want to borrow, now you're going to pay 8%. Which we've all seen in the markets. Okay? So now they're removing consumers from the mix. Now they're reducing the money supply because that increase in money supply has driven inflationary pressures and now they're trying to combat it. You have to combat inflation because if it gets high enough, businesses will not be able to afford their inputs to manufacturing and to providing services, primarily wages, wage inflation can drive things really high. So businesses shut down, they throw people out of work. Now you have spiking unemployment, and high inflation. Well, that's called staglation. You can Google that, that happened last during the card area. They're trying to. So that's where things stand today. So what, why the... Icon 101 plus, that's one of the next page. And if you look at the chart on the left hand side, the net effect of that has been that that rise in interest rate has moved rate across the board for all maturities, most mature for all maturities, they move higher. So what you're looking at on the chart on the left-hand side is the yield of treasury securities from a 2 month yield, excuse me, a 2 year yield, so they yield on a 2 year treasury, a 5 year and a 10 year treasury. So you can see from from the pandemic when they dropped down to almost 0 and then you can see when they started climbing at the end of 2021. And then they hit sometime at the end of 2022 and they got very volatile. Why are they involved? Well, 1st and foremost, because we still have sticky inflation. It's still high. about 4.5%, number one. Number two, because the Federal Reserve has been putting the brakes on the economy. They've been reducing the money supply to slow things down. There's a belief that they may have overdone it and push us into a recession. And if that happens, they're going to have to lower interest rates down, and that's investors making a bet on which way it's going to go. Number three, you have geopolitical concerns that you have to worry about. We've got a blossoming war. There's 2 wars going on right now that we have to worry about that are that are out there that are a draw on attention from there's geopolitical risk. Number four, we have tighter financial conditions which have unintended consequences. You remember Silicon Valley Bank? That was as a direct result of what happened. here. Skyrocketing interest rates, devalued their portfolio just like it did yours, except they were invested up to 30 years. And when they were dumping them to make liquidity for their depositors, they were dumping them at cut rate prices. They couldn't keep up with it. And they had a run on the bank. From a clientele, a very concentrated clientele, which could no longer access stock markets for liquidity. because the stock markets went sideways in 22. And it was harder for them to access market in the bond markets or access liquidity in the bond markets because it was much more expensive to borrow now in the bond markets. So what do they do? Well, they rely on the money they got from their VCs, they're sitting at Silicon Valley Bank and you have a run on the bank. It didn't help that you can now, you know, you can pick up your phone and do this and move money in an instant. I mean, so now electronic run on the back. Having to say all of that. It's been very volatile for all those reasons, and many more that I can probably sit down, I think. So yields have been up and down, up and down. Here's the thing that is good. The thing that is good, that is that even though you've seen a devaluing of the portfolio, which has been booked in your financial statement. Your interest income is significantly higher, which we saw just a little while ago and your reinvestments are going in at an average of 5%. And that was a month ago. Today they're higher. That's the good news. That's the 1st good news. The 2nd good news is that your portfolio is designed for safety and liquidity. This is a safety and liquidity portfolio. There's a reason why staff focuses on governmental securities. They tend to be the most liquid. When you have tighter financial conditions, governmental securities. It isn't just about high credit. You have high credit quality, everything here's high credit quality. It's also having securities that have strong secondary markets behind them. So that if you needed to sell something in an emergency, there will be a counterparty on the other end of it to buy it from you and not going to make you, you know, leave your shoes and socks while you're at it. Okay? So those are good news. Um, The portfolio is is well balanced in that sense. What I will tell you is if you look at the chart on the right hand side, Remember I said the treasury yield curve? There's a treasury yield. So if you look at the the dotted red line is where we were a year ago, September 30th, the dash gray line is where we were 3 months ago, June, June 30th, and the fiscal year, and then the green line is where we are as of September 30th. So you can see that 3 in particularly 6 month securities are paying significantly higher yields on the longer end. Well, that's because the Fed move rates on the shorter end very quickly. And also because investors think that they overdid it. So what they do, they think if they overdid it and things are going to slow down, the Fed will lower interest rates and those shorter investments are going to be the 1st to start coming down and I don't want to have to read best faster at lower rates, I'll lose income. So what do I do? I buy up longer maturity securities to lock in for longer to get something for longer. And when I do that, I generate higher demand for those longer securities, which has the impact of driving the price up. And remember, it's an inverse relationship pushes those longer yield down. That's why you have the inversion. And when investors are doing that is because they anticipate a recession. Now, like I said, that dynamics with us has been with us for about a year and 4 months. It's starting to move. It's starting to, it will come back. The natural shape of the curve is a positively shaped curve, because over the long run, you're, you know, there's more inherent risk that you should get paid for more in buying a 5 year or 10 or 30 year bond, than there isn't a 3 month bond. It just, it's just nature. That's just the way things work. This is just a technical factor because of fed policy and because of inflationary expectation. Those investors are expecting inflation to continue coming down. They expect the Fed to at some point reverse itself, which could very well happen, sometimes in 2020. That's what I have. It's a mouthful. I hope you don't feel like you're drinking water from a fire hose, but this gives you an overview of what's happened. Like I said, the takeaways here are, it's a conjunction of staff and chandler. It's supportive of one another. There's very deliberate moves in this portfolio and strategies. Staff isn't just buying a bond because it looks good. There's a strategy behind it. We work in conjunction with staff. Everything follows the law and follows the city's investment policy. You can stand to loosen up in some things. and you could have that internal discussion. But for the most part, you are well positioned to survive. This, let me rephrase that. This portfolio is designed to survive shots, just like it did during the pandemic. So it's designed for that and so far it is performing as designed. Any questions? Do you have anything? Um, I'll have,

[00:48:32] Tyler: I mean, I'll have a, um, at the next point I'll, I'm sure a couple things about the city's portfolio stuff. Okay.

[00:48:36] Chair Lisa Matichak: Any questions?

[00:48:40] Unknown Speaker: For my part, I've always really appreciated your presentations. There's a lot of material, but it's always covered, I think, purely concisely for the amount of material that you're covering as quickly as you are, and I consider myself a novice, you know, at best in a lot of this material, but you always make it very accessible and I'm very grateful for people more than should in the city. I don't really, I don't think I have questions for this side, but I have questions. Probably more for 6.2, uh, to the extent that she's a distinction to do. Um, but I'll share just, you know, especially after hearing the presentations. I think risk aversion has been a good thing for the city. I feel pretty good about it. historically, leading us to a path that... I think I've served as well and she doesn't cause this any problems. But I do think, um, it would be interesting to have a longer term discussion about, you know, appreciating that the, like you described, the the risk profiles and goals of other cities are different. Nevertheless, 4 cities that were maybe a little bit more risk tolerant. You know, did they weather the storm, pretty well. It was, they have greater return. you know, because of maybe some additional latitude and the kinds of investments that they could to me. Um, that maybe that's not actually a question that you could answer, but I would be. I kind of can't. I'd be interested. understanding that. Generally

[00:50:12] Carlos: yes. And yes, you had 2 questions. Did they fare the storm well? And did they generate more revenue? Generally speaking, yes. The bigger driver of return in this instance is going to be your duration positioning. You, in this, in this period of, of, of seesawing race where rates fell like a stone. Well, when race started climbing, shorter investments actually outperform longer investments as we saw there because they're able to capture those higher yields moving in the back market faster. So the distinction was less about how much higher credit quality are they versus you. It was more about, are they a longer duration or a shorter duration? What I will tell you is that cities that have a longer duration position like you over the long run outperform shorter duration positions. But from a credit standpoint. Well, it Opening up a sector. where in a in a world where we still feel it's you're able to mitigate that risk because you are adding risk to the portfolio, you have to be able to mitigate it. Opening it up only adds to the to the diversification of the portfolio and we love the location. Fair enough. Thank you. Yeah,

[00:51:21] Unknown Speaker: I mean, those before. I think it actually has more to do with 6.3 though. So it's all kind of blend together. which is fascinating, but thank you so much. This is my 1st time getting this report and watching things on the news and seeing how it kind of connects to this and, um, if in my fun time kind of thing. I usually like all a lot of the Reddit investment top kind of thing. just imagining all the different memes that represent each of the, uh, critical items that you have covered. If

[00:51:57] Carlos: I may make a prediction about you, you're going to be driving to work one morning and listening to like a radio station and they're going to say the Federal Reserve is doing this and you're going to know exactly what they're saying. It

[00:52:08] Unknown Speaker: says there's talking about like, oh, and the, they, they raised another basis point and then everyone's upset because that's just raising the interest rate. Just fascinating. I guess, um, I

[00:52:23] Chair Lisa Matichak: would echo the puppets that Luke's made. I always enjoy this presentation. Um, I like the more I hear this, the more I understand it. So it helps to have it not only in my professional life, but in my personal life. So thank you. Um, but I was wondering, um, You know, there, given all of the restrictions, I guess, that we have. Um, I don't know, it's like, it seems like we're limited in terms of what we can do. So, We talked about all these things that influence, uh, rates, but we're so limited. Unless we expanded are available Investments. I feel like are we, just to me, it just feels like we're so limited. Can we really take advantage of some of these things?

[00:53:14] Carlos: That's the natural one to look at. The 1st one that I would look at for you would be to revisit a single lay posture and see if it's appropriate for you. That's an, as your investment advisor. Because of the credit work that we do to mitigate that risk, we feel comfortable in taking that additional risk on. And we do that every day for 100s of cities across California and the country. And JPAs and counties, we run county money and special districts, you know, that's the 1st thing that I would look at. That's a natural next, if you wanted to, oh, can we be doing something else? That's that's an easy one to tackle. That's that's maybe the little hanging free. The next one would be to consider past due securities. Pastor securities are better known as mortgage backed securities and asset backed securities. They are pools of receivables. That you, I would have to explain the structure. I'm gonna try and keep it as simple as possible. Toyota Motor Credit of North America. made a 100 loans for somebody to, for people to buy to their cars. The Toyota Motor Credit doesn't want to wait 4 or 5 years to get its money back. They want their money now because they can turn it around and do the same thing again and make more money. So what do they do? They create a 3rd party trust separate from their balance sheet, separate from their entities. And that trust will borrow money from investors. They take that money and pay Toyota motor credit off. So now Toyota Motor Credit got the money for those receivables for those loans. They got money up front, the present value, and those receivables got transferred to the trust. So the trust basically bought the receivables from them, the trust borrowed money from the capital markets and paid Toyota off. Toyota could now take that money and go to ticket all over again. And they love doing all over again is really good in the business world if it's making money. Okay? Now what happens? The borrowed the lenders to this trust need to get paid back. What's in here, the assets that are in here are receivables. There are debts that people owe for buying their vehicle. So as they make combined principle and interest payments to this trust, or to the service or the loans, which passes it on to this trust. This trust pays the bondholders, the lenders, off through these payments. They're called pass through payments. That's why they're called pastor securities. So, Now this, what's in here, we do a number of things to protect you. The 1st thing they do is they get credit enhancements on them. So, a form of credit enhancement might be, well, if we have a bunch of loans that are non-performing, people that are delayed and paying back, will get a line of credit with a bank to tap into that if we need to. The next thing we'll do is we might only borrow money on a certain percentage of the assets. There are more assets in the pool than there are liabilities, which means that if you have non-performing loans, you have more assets to cover that. That's an credit enhancement. Or they might, uh, I mean, there's a number of them. I can get you. This is like financial engineering. People in investment banks, that's what they do for a living. They do these things. Another thing that they'll do is they'll trunch these loans, meaning that they'll divide them into categories. Since people like to pre-pay their debt because no one likes to be open to their to their to their lender. Okay, some of us prepay our mortgage, some of us prepay our cars. So there's always going to be extra money coming in. So what they'll do is they'll they'll sell the rights. They'll put you in categories. Trunch A, Trunch A, one, A, two, A, 3, A, 4. So, the top trunches get the rights to the 1st pre-payment, so they get paid down faster. The bond that those borrowers bought from might be a 4 year bond, but they're likely going to, it's more likely they're going to get their money back in like 2 to 3 years. So you pay into those, when you buy those, those categories, those trunches, the yield is different, but so is the risk because the lower trunches have to wait longer, right? They're the last to get paid. And you know, in this good business and what you do, you don't want to be the last to get paid. You won't be the 1st to get paid. Okay. So there's a number of things that they do. The mortgage backed securities work similarly, but they get even more creative with the Tronchi. They'll do the A through ZTron in terms of who gets paid first. They'll take the principal component of the loans and the income component or the interest components, and they'll sell the rights to the income, like the present value of the income, uh, the the interest payments, the present value of the lump sum payments of the principal. They'll split those out. They will split it out amongst different FICO score borrowers. So like the alte loans, the ones that aren't prime, those are different trunches that you could buy into, right? So we're buying like the most liquid and most high credit quality crunches and we're doing our, our, it, you can't just do credit work on this. You can't say, oh, it's for Toyota, and Toyota's a good credit. You can't do that. You actually have to understand the structure of this deal and which trunch you are buying. We do that. That's part of what we do. And we buy them for almost every city we've worked with. So that would be after revisiting the credit quality. That might be the next direction. But that's something, again, you need somebody who can do the analysis behind it to understand the risk because, again, you're adding risk to the portfolio, you have to have a way to mitigate that. Um, So

[00:59:03] Chair Lisa Matichak: I'd open it up for public comment, but there are no members of the public in person. It's actually required. I don't know. No members of the public. Okay, so, um, are there any other topics? That was sort of comments and questions won't get it here. But thank you. Okay, so, um, we'll close the I, then, as we've got, I have a 6.2. Which is a report from. So this is the draft report. Correct.

[00:59:48] Derek: Yeah, I'll start off. I'll start off. Thank you, chair. Um, Eric Clamp home. I just wanted to point out that this is what we normally do that this meeting is go through this memo. And so this is the annual part of the process. Tyler's going to walk us through some of the highlights of this memo and this is a draft and draft format and taking feedback.. So I'm going to pull it up on the screen too. So it's easy to for everybody to follow them. Okay. So

[01:00:32] Tyler: a lot, uh, what I would have to share, um, Carlos shared already, but I just want to go through some of that. A couple of the charts and, um, Sure, understand what's, what's being, you guys are trapped, um, for the, uh, for the household. So 1st if we look at page 3 of the report. We'll have hard copies too, we can look at it. Yeah,

[01:01:03] Derek: let me, yeah, let me keep working on this here. Okay. So

[01:01:06] Tyler: if you look at 3 page 3 of the draft report, um, we'll talk a little bit about duration, uh, the city's investment policy requires as, as a measure to manage interest, interest rate risk, um, to manage the duration within the certain bounds of a benchmark. So the city has to stay within 15% of the benchmark duration. throughout the whole entire fiscal year. And then it has to be remeasured within 3% of the benchmark at least once each quarter. Okay, so, you know, the city was within 50% the entire year. And it was within 3%, at least one month each quarter, um, and a number of quarters, I think, to the quarters was all 3 months. Was it with 33%? Um, if not, but uh, 3 months were within 3%, if not 2, the months were within 3%. So, um, looking at this chart here, we kind of took an average of the duration, uh, looking at all the months throughout the fiscal year. Benchmark was at 185, one.85 years duration. Cities average duration throughout the fiscal year is one. 188. So, just kind of really close within there. And, uh, following that benchmark. Um, and again, just to get as a reminder, the benchmark is uh, 10%, 3 month treasuries, 10%, 6 month treasuries, and 80%, one to 5 year government, uh, treasuries and agencies. So it's kind of what the benchmark is made up of that the city follows. Also on this chart, you can see the total rate of return. The city's portfolio. It was .62% against a benchmark of .59%. So, again, tracking really closely to the benchmark of beating it by just a few basis points. And then Carlos talked a lot about the corporate side. As of June 30, 2023, the city's corporate total rate of return is one. 61% against the benchmark of 0.48%. So, doing well there. And again, just a reminder, this is a total return, right? So it's interest income, plus the unrealized gains or losses, right? All right. So let's go to the next page. We have a chart here on page four. Um, showing kind of an average earnings rate that the city earned throughout the fiscal year, um, ending June 30th, 2023, and a portfolio of the size of the of the portfolio on average was 974.2 million. That's cost value. Um, and then the interest earned on that money over the fiscal year was 23.8 million. So that equates to about 2.45% of like an average earnings rate. So of course, we can see a really big bump from the prior fiscal year. And again, it's just like Carlos says, as things roll off our balance sheet, then we repurchase at higher rates. So it's going to kind of continue to grow as that continues to happen throughout each month. And this chart also shows, I mean, the size of the city's portfolio of 10 years ago, 343.700000 Now it's just bumping up against a 1000000000 dollars. So pretty sizable portfolio at city dollars. All right, so let's go to page five. It's just so the diverse vacation component of the city's portfolio. Again, everything measured against what the policy requires on the right hand side, all of our investments are within within the policy limitations. I know Carlos mentioned, I think, California government code allows corporates to up to. Did you say 30% or 30%? Yeah, so the city's policy is 15%. So it's another limitation, more conservative approach for the city. Um, so right now, for example, corporate notes make up about 7.7% of the portfolio. Uh, and a by issuer, uh, the limit is 5%. So we're all within within those bounds as well. Supernationals is another sector that we invest in, a smaller portion of the portfolio, 45.300000 makes up about 4.4% of the city's portfolio. 10% being allowed by the policy. So. Um, and then I guess just go one more page there, you know, just on page number six. We'll see the, uh, total, um, total portfolio broken up by, by fund, um, just see, the general fund holds about 20.8% of the entire portfolio, capital projects, 34.3%. You can see the other ones there mentioned as well. So that's just taking a look at the entire portfolio broken up by each fund that the city holds. Happy to say there are no violations of the investment policy, right? We stay within our duration requirements, within our diversification requirements, and within the quality requirements of the policy. So. Things are, are going well.

[01:06:07] Unknown Speaker: I would just add that this is the year that we hit the $1000000000 mark. city. Yep.

[01:06:19] Tyler: Um, so again, this is a draft report. We'll add any comments or any adjustments that the committee feels necessary before goes to council, obviously. Any questions? Questions.

[01:06:28] Unknown Speaker: I have some questions. Um, and several of these, I think, will be the Drake, extraordinary ignorance more than anything else. But I have, um, Yes, I've gotten to understand this material over the years, but one thing that, um, uh, may not be intuitive to everybody is, this isn't a magic pot of a $1000000000 that lays outside that would be, simply, you know, cash and, and on discretionary projects, but, um, but understanding how, the sources of the funding used for investment, uh, how they are used, I think, can be helpful. So for instance, interest generated from a restricted fund must be used for that restricted purpose, right? That's not money that goes into the general thought. So I am curious to understand whether, um, whether we are, maybe this is a question more for the folks who are actively managing this. how we choose which investments, whether we choose which investments to make based on So the restrictions on particular sources of funding. So for instance, you know, general operating funds are very valuable because they're totally unrestricted. you know, something used for, you know, a special purpose fund or utility enterprise fund or whatever. Maybe we can afford to you. I don't know if it's more conservative or, you know, more risk tolerant or something with those funds. I guess what I'm asking is, does the source of that funding, um, is that taken into consideration when investing in a particular asset?

[01:08:21] Management): So, so I would agree with status shaking your head. There had no idea which is which is what I would agree with. Most cities, like the city, will pool all of its funds for the different, let me rephrase that. will fool all of its investment monies for its different accounting funds. So everything will be pooled and every fund will own a slice of that pool. The only time that you might see funds segregated like this is that the city issues bonds and borrows money from the cat, you issue your own bonds, which by the way, you could subsequently buy in this investment portfolio per code. But they issue their bonds. And they receive proceeds from those bonds. Those bond proceeds are governed less so by the investor policy and more by the bond covenant in the official statement. And it may restrict what you can do with them. Normally, most cities will segregate those funds. That's the old about the only time that I would see funds do that. The only other funds that I could think of that a city might do that would be with funds that have been segregated into a, uh, uh, an irritable goal, section 115, IRS, section 115, irvocable trust for pension rate mitigation. So, like, uh, you set up a little side fund that that is managed outside of Calper's, so that if, if, you know, if, if what Calper says you owe that year was above what you budgeted, you could pull out of that pool, or if it's below what you budgeted, you could pull back and claw back into that, that little side pool, and that side pool would be the best at the pension fund, stock spot, you need it. So, but it's an irritable trust. Same with an OPEP trust, a post-retirement medical trust. The city offers a medical benefit for pirees. And sometimes the way that those are accounted for look a lot like a penchant. So cities are allowed to set up a pension-like investment on a side deal. Apart from those 2 instances and bond proceeds, everything is cool. Okay.

[01:10:20] Unknown Speaker: So then I would interpret that to mean that the interest generated goes to each fund proportionally. Right. Okay. And which is which is because everything is safe, it's probably not too big of a deal. But if the city were to move into. I don't know what risk tolerance looks like at the maximum level for jurisdiction, given the restrictions under the law, but you were to have, for instance, a more risk tolerant approach. Is there a value then, and not necessarily pooling those funds, but thinking about where we would have levels of comfort with how to, which Investments were making based on the value of the source of the thought.

[01:11:06] Management): Not necessarily, unless, and I'd like to refer to staff here because you guys know your budget and what you do better than anybody else, but from my experience, not necessarily, it's more for the use of the funds. Let's say, for example, that you have a self-insured retainer, as part of your risk management. So maybe you, you, you belong to a risk pool, a JPA, joint powers insurance authority. You pool with other cities to basically pay for your insurance and generate your insurance. Sometimes there are certain levels that you have to cover like a deductible. Some cities will set that aside. And because it's a longer term purpose, it may sit there for longer. That might look any different strategy for that. Another instance is less applicable to cities and more to special districts, especially water and wastewater. They may have projects that go longer or monies that are tied up by statute longer so they can go longer with those money. Those are the kind of people that go up beyond 5 years. Unless you have an instance like that. Generally, there's not a lot of like that, but I defer to you guys because you know your structure best.

[01:12:15] Derek: Yeah, I agree totally with what Carlos said that we pull our money together. There's no color of money difference as far as how to invest, even if we were to have a less conservative policy. I don't think that would change. We do have separate bond funds that Carlos mentioned that are have different requirements that are held separately and invested in different things. So, but I don't think we would change anything depending on the policy. I don't know other cities that do that either. change our approach on what to purchase.

[01:12:52] Chair Lisa Matichak: Those are my questions. Any questions? Yes,

[01:12:58] Unknown Speaker: one of the interesting things. The realization that 2008 happened so long ago so it doesn't really show up. How did that, like, affect the way we, based on the, My, my estimation is that we've always been pretty conservative with how we do it. How did like a complete market meltdown like that affect this? I guess we had COVID, but that feels different. With different kinds of meltdowns. Yeah.

[01:13:27] Management): Another... I can tell you from a structural perspective what happened. So back in 2008, the city, I think at that point because we started helping with the corporate component of the portfolio in 2013, I think it was. So back in 2008, the city was solely invested in governmental securities. So at that time, so treasuries and agencies. The treasuries. So remember that unrealized game loss, which are now at a loss because interest rates are prison. The treasuries, their values skyrocketed. Because they're considered the safest investments. So the treasury component of the city's investment program went up significantly in value in 2008. The federal agency, not as much, because as I mentioned, they're not, they don't have the full faith and credit of the United States government like the U.S. Treasury bond does. But they have an applied backing. They are actually most most of the agencies that you invest in, they're government sponsored enterprises. They're private enterprises that have a government charter and are overseen by the government and they're so important to the functioning of the economy that it is kind of understood or expected that the federal government will bail about. Well, the federal government, what happened with federal agencies. Remember? might help to know what federal agencies do, but I'm going to try and just keep it very simple. Those federal agencies were issuing mortgage backed securities, which contained types of mortgages called alt A or subprime, which were less than stellar, and they were selling them. This is in conjunction with everything else. If you ever seen, uh, The big short, if you watch the movie, they'll make sure it's all, we were in the midst of that. Everybody was, it was crazy. It was froth. So, so as a result, there was a concern that the federal agencies made default on those mortgage backed securities. They did not. But because they're private enterprises, investors who own stock in those enterprises dumped their stock because they were running for cover. Every everything suffered. The stock market, there was no place to hide. Except for US Treasury bonds. Which you held. Well, they were that you held treasuries. I'm assuming, because I don't know, I wasn't here back then. You held treasuries probably and federal agencies. So the federal agency component didn't do as well. What ended up happening is the federal government did step in and did take them over and did back them. So you had about the safest portfolio that you, I'm assuming, that you could have in under the circumstances. Now, had that happened today with today's portfolio, the corporate component would be under pressure. Right. And then that's, then you'd have to start looking and seeing, well, how many of those corporations are going to survive. And it's less driven by credit quality or the credit quality has something to do with it. It's more by the diversification of their income streams. Where can they draw money from, how much cash flow could they produce to be able to pay their debt? Um, what are the liquidity ratios? How quickly can they turn over inventory? That's where we get into the credit analysis. But that's not specific. I wasn't here back in 2008. questions. No. Go ahead, now, sir.

[01:16:57] Chair Lisa Matichak: So, um. One gesture. That is on each side. I happen to look at... My memory. And she'll be the process, this contribution, their last year is with and versus future funds, US, make them. Did we change something or was that just not going out by a church?

[01:17:20] Tyler: No, so that was, um, uh, strategy that we decided to move some money into the mutual funds because of the interest rates being so high. Um, in fact, the mutual funds are, are getting higher than life. So we essentially kind of took some of the money out of life and moved it into our mutual fund, um, just to get an additional yield. Okay. Those are those money market mutual funds

[01:17:46] Management): that we were looking at. Yeah, that's what those are. Oh, got it. Okay. This staff trying to capture higher evil than a very liquid investment.

[01:17:58] Tyler: And Those are those funds are on demand, just like late mark, right? You can call it down the same day. Yep. Yep. Got it.

[01:18:06] Chair Lisa Matichak: Use different terminology. I didn't quite put to it, too. Oh, sorry. So thank you. Um, That's the only question I have. Well, actually, I think I do have a question. Sorry, going back to your presentation. On page, um, 23. Yeah, 12 years later. Steve said, oh. It's got investments in 1248. And how would I know that? How would I know that?

[01:18:42] Management): Would not. And the reason is because 144 A is not an asset class, but rather it is a market, a separate market for which we can buy. They still, they still fall under the medium-term corporate node as describing California governing. So the only way you would know is, I mean, we can we can let that out. We just know. I can tell you what they are by. But I'm going to have to pull my glasses on and clear right. So, uh, let's see, um, I apologize. The New York Life Global Funding, that's a AAA rated security. The Northwestern Mutual, the Guardian Life. It's the it's the insurance companies. Except for the Berkshire Hathaway. The MetLife, I think is also. So the MetLife, The Guardian, the Northwestern Mutual, And the New York Life.

[01:19:43] Chair Lisa Matichak: And then I have comments, but just open it up for public. Oh, did you have any question?

[01:19:48] Unknown Speaker: I'm curious about that. From a policy making standpoint? Is there value and value in understanding that classification?

[01:19:59] Management): There is value from a management standpoint. From a policymaker standpoint, I don't know. I could go either way on that one. Um, let's back up and say what it is. I think not everyone understands what that is. So these are securities that under the rules of the SEC. So the investment, investment in the Securities Act in 1930. Is that what it is? So basically, These corporations, What they're allowed to do is they're allowed to issue these bonds. Um, with less information than what you would have with all the other securities in here. Now, we still have access to their financial statements. We still have access to continuing disclosures as part of any bond deal. It's just that when they file with the SEC, the requirement to provide all of that is not as immediate. So there's less information available. In order to protect investors, what the SEC does is they say, we're going to allow you to issue those under section 144 A of this law. That's why they're called 144 A securities, which, in essence, makes the private placements. Well, the SEC says we'll let you issue it. We don't want you to sell it to grandma and grandpa and mom and pop. We want you to sell it to sophisticated investors because there's less information like you. Now, here's the trick. You are not a sophisticated investor up until you've always been a sophisticated investor in my eyes. You're not legally a sophisticated investor up until December of 2020. So those are called qualified institutional buyers, QIP or quib. Local governments. So the way that the SEC did it is they built rules around. You had to have minimum $100000000 of festival assets. And then they provided a list that you needed to fall in and local governments were deliberately excluded from that list. So there was a period of reflection and commentary and time and lobbying through 2018 through 2020 when the SEC opened up a com, like a comments period. And at the end of 2020, 19, 2020, they made a decision that as of December 2020 and going forward, they would include, they included others. I think there were tribal tribal portfolios, tribal investors, of various other categories. So basically they included local governments, as long as they had assets of investor assets of $100000000 or more. So through that act, through that change in the definition, you became a QIB. Now it means that you can access these private placements. They would not, you would not have been able to buy them under SEC rules because you weren't on the list, but now you are, especially since you, your size, you fit the definition, and you also have an invested advisor who's helping you navigate it. Now, the key things are about that market. Is it because it's smaller? It's less liquid. It's there are less buyers in that market than there are for, say, um, an Apple or Proctor Gamble or Amazon or so forth. There's less buyers. So they tend to have a little bit less liquidity, but but in, you know, on top of that, because of less liquidity, they pay you a little bit of a higher yield profit. Really, it's a diversification move because there are like Apple, so there's commercial paper, short-term debt. Apple does not issue any commercial paper in the private market. So, excuse me, in the public markets. It's all in the private place to market. So there's there's some issues that don't even touch the private places or the public markets because it's too expensive. The act of having to put all that together in that bond deal costs the money. It costs the money with their advisor, with their underwrite. It just costs more money. So is this a savings thing from a borrower's perspective? So this is why when you look at these, well, New York Live makes a, Just a tiny bit over half a percent of the entire $1000000000 time. And Guardian makes up less than half a percent, 0.4%. We whittle it down. So we don't have a lot of exposure, but we like it because it's a diversifier, and because it provides us oftentimes a little bit of a higher yield. And in the case of the New York Life, it's triple A rated, and they're also double A rated, they're very well rated. They're very strong. Um,

[01:24:22] Unknown Speaker: that's, that's helpful. What I'm not hearing, because it meets our policy criteria. Um, there's really no need to. For to further distinguish or self-regulate our investment. You could

[01:24:40] Carlos: make it a requirement. It's within the purview of the of the council to demand that that just highlight it. Let us know which ones they are and we would do it for you. So that maybe that's

[01:24:52] Unknown Speaker: a question for staff, about the value. staff would like enough

[01:24:54] Carlos: to do that, we can, absolutely. Well,

[01:24:56] Unknown Speaker: I mean, I, it, it, it, I guess I'm, I'm having that column could be, it's informative, but it's valuable from a, from a policy making standpoint to know what per the, maybe the total percentage of investment in that class. Probably not. Yeah. So I don't need to invent worth. But thank you for explaining that. So, um, she lost track, sure. Um, we

[01:25:23] Chair Lisa Matichak: need to open it up before the comment, right? All right. And I'm still nobody in person. Um, she had something to say. Oh, and there's nobody else on my eye. Okay. Would I be able to see them if there was somebody online? Yes,

[01:25:42] Unknown Speaker: I will. No, I

[01:25:44] Chair Lisa Matichak: mean, would I, can I see the cue? Like right now. No. I don't think so, right? Okay. Okay. Okay, so there's no public comment. So now we're back to comments on the letter and any other things. We want to talk about here. Do you have any comments? Specifically on the letter or? I'm sorry, it's not really a letter. Uh-huh. I was comfortable with what's that I'm prepared. I don't really have anything insightful or valuable to add, um, other than, uh,

[01:26:18] Unknown Speaker: I think maybe as a separate. When do you want to talk about whether we should explore something? Maybe is that the next item?

[01:26:24] Chair Lisa Matichak: I think, um, either the next item or address, uh, 7. Okay. Deal,

[01:26:34] Unknown Speaker: there might be some value for you to counsel that there's interest in exploring, sort of allowing access to a broader universe of, uh, things to invest in. Yeah,

[01:26:50] Chair Lisa Matichak: so there is that section under recommendations, I think.

[01:26:53] Unknown Speaker: So that would be enough. So the next item will then inform this. Okay. That's right. I wasn't. It's a relationship with me. Nothing else to, to suggest, I'm happy to, unless there are other changes. No,

[01:27:12] Unknown Speaker: I mean, there's, there's some, like, I understood why, um, When it came to the social responsibility investment, it seems like we, we have kind of shrunken ourselves to do very, to to allow us to, to expand to do a lot of the the ESG investments because some of them hold, they could hold oil money or they could hold, uh, things that even though it's socially responsible, it's, It's a little weird. Um, And then it was mentioned in the sacraphorical like that. Um, Sorry, I'm not clear. Sorry. Okay, so, at some point, I'm assuming last year, uh, someone brought up that they wanted the city to be more investing in the social responsibility, social responsible funds. Um, which, uh, I think based on the staff report and then what I read in. in the other investment courts, I believe it was the water district that had like a section, along with the, so in our policy, we have, um, like we're not going to do oil money, we're not going to do cigarette money and we're not going to do fire our money. Those were the 3 things that, that I grasp, but there, there are, trunches of funds. in the market that are known as ESG funds. Um, And that that is, that actually has been a growing trend. I don't even know how long has been a growing trend, but it's, I, that, that is some, um, and I just imagined that at some point last year someone was saying we should do that and the staff reports recommending. Yeah,

[01:29:05] Derek: I was going to dress that in 6.3, but I was in the minute,

[01:29:07] Unknown Speaker: which I got really confused about too. Yeah,

[01:29:10] Derek: we can talk about it now for like, okay, sure. So this is the... The, um, Suggestion or this came about about six, 8 months ago when the mayor actually had reached out to Christina Gilmore and myself about there was legislature for Cal Perth to be more socially responsible. And so we looked at it internally. We reached out to Dane at Renee Public policy group, talked to him about what we, you know, as a city can do. Um, and decided that we were not going to be on board with the cow purrs one. I don't think that was something we were ready to recommend. And so we said, let's look at it just internally. Let's just look at it, just do our due diligence and look at it from a staff perspective. And so that's how this came about. So it was just kind of us looking, it had been brought up and we wanted to look at it internally.

[01:30:08] Unknown Speaker: Chair, if I may, I have, I have some comments about that too. Um, so the committee members may recall that, um, in the former committee, And I can't remember if it came up on this committee or the council finance committee. Um, but former council member, labor, also had requested and the council had agreed to just look at um, the ESG policies. And at that point, there was a suggestion that, uh, the city, look at our policies and look at whether we wanted to advocate to calcities. And to purse, to divest from certain investments um, that were related to, uh, you know, ESG policies. And so what staff did at that time was, and and like I said, I may have been through the council finance committee, which I know is the same makeup as this committee. Um, at that time, the city wrote a letter, just essentially saying, here's what the city of mountain views policy is on our ESG investments. And we didn't really advocate for or against, and I will say, certainly there is not a willingness, at least on the part of Cal cities at this point, to really dive too deep into ESG policies. So, this topic has come up through various council members at various times, through both, um, the finance committee and then, um, questions in regards to how this policy may relate to the legislative platform, as Derek just stated. So really, you know, you all can discuss this and decide if you want to bring this to the full council, if you want to make changes, if you're okay with the current policy. I will say this though. Going too far down a rabbit hole with ESU policies makes it very difficult for our investment portfolio, and that's where I believe staff was not totally recommending too many changes, just because if we're already conservative now, um, having to divest fully from so many other things is going to make it even way more conservative and way more narrow. So if that just provides further information, this topic has been discussed more than once in the past. Yeah,

[01:32:39] Chair Lisa Matichak: I mean, I can enter that since I think I've been on this committee since I was elected. Um, so this is my 7th year. And in 2018, we talked about ESG specifically. Um, and in 2019 is when actually I was the one who came up, the wording for this and drove the change, um, about, um, restricting investment investments in the direct, in companies that are involved in the direct, uh, expiration production, refining and marketing, uh, fossil fuel energy. Um, and we decided at that time, yeah, not to, um, follow, adopt whatever a traditional ESG approach. Um, Carlos provided a lot of information on the different options at the time, and we decided to kind of do our own thing. And we did also recommend that we did best. We had a couple of whole things, Chevron. Exon and Chevron. That's correct. Um, which we did. But that is the next topic, sort of. So maybe we could hold a further discussion of that. Um, I

[01:33:44] Unknown Speaker: actually would feel more comfortable because I feel like whatever recommendations come out of 6.3 will in the motion for 6.2. Yeah. Um, so, and I'd love to hear the staff report on some of it. So,

[01:33:56] Chair Lisa Matichak: um, for me, getting back to 6.2. Um, on the 1st page. I don't know why I feel strongly about this, but I do. I feel like while I appreciate the food and, uh, dub, artiples, uh, I'm disappointed that they're not at this meeting. Um, I think they both had a great deal of value. Um, Steve has been on this forever. And so somehow I, I want the, Our colleagues to know that unfortunately they weren't able to participate in this meeting. Um, Because I think maybe some other things would have come up or, you know, other direction provided, if we had benefit with our experience and knowledge of this area. So if we can somehow work that in that, yes, they're part of this, but unfortunately, it is the meeting. I would appreciate that. Um, And then. I do, I think I'm okay with the rest of us. Um, but obviously, 6.3 would be then folded into this, um, Findings of observations, a pretty discussion and the rest of wishes. So, uh, There's nothing else at 6.2. I think we just jumped into 6.3 and talked about it. Okay. Thank you. Okay,

[01:35:24] Derek: so 6.3. So 6.3, I was going to give a little bit of background on how we, how we got where we are today, but we were just talking about that. So I'll let Carlos kind of walk us through, uh, item, which is basically, you know, our recommendations for, um, changes to the investment policy. We look at this every year. Um, obviously make any changes for legislative items and then obviously any best practices and uh, we work together as a team with our asset management uh, firm and go from that. I'll hand it over to Carlos and you can, you know, walk through some of the high level changes. Absolutely.

[01:36:02] Carlos: So there are some cleanups where, where you have highlights, uh, clients of the minister, service director, use that language, like, for that, to make sure that there's continuity from staff to be able to, like, Um, there are some places where you just kind of, you know, you, you, you, you, It's all, it's all just set up a cleanup, but the real significant change is that the city will now allow for joint power authority investor pools. Those are allowed under California government code section 53601 paragraph P and what they are. I know the code. I'm pressing now. And the reason that those exist is because there are, um, there are other cities or other local governments that have banded together and similarly to the way that they have created risk pools to handle your your risk management, your insurance. Some of them have banded together to create joint powers authorities, to sponsor an investment pool. There are 2 that I know of that are private. You have to be part of a joint powers insurance authority, which sponsors it. You won't have access to those. But there are 3 that I can think of in the state of California. which are, uh, what they do is they'll, they'll be a, uh, they'll form a, a board, made up of various cities, representatives or various local governments, that board will, uh, hire a custodian to hold the cash. They'll hire a manager, someone like that, to manage the assets, and then they'll have an administrator to sort of run the program, and they may have a client service aspect to be able to answer phones for people that need liquidity and that sort of thing. So, um, most not all. But most of the joint powers authorities that, so they're called LJFs, local government investment pools, that's the term, that's in the industry, LJF, local government investment pool. So most local government investment pools in the state of California are run similarly to a money market mutual fund. One of the reasons that local governments like to use them is because when you need that ultimate liquidity, you can put in a money market neutral fund or enlay. The problem is that life is limited to 75 million, which in your $1000000000 portfolio is not a lot of money. And the money market mutual funds are limited to 20% by code. So you can run up against some of these balances. So apart from setting up a size portfolio shows for liquidity purposes, to have money peeling off very quickly. You don't have a lot of choices. So one of the things that staff can do is they can explore these JPA pools, these L-Jips, and invest in them, especially the more difficult ones. So, code, paragraph P has no limitations on the, on the percentage, generally because they're professionally driven, they're run by local government officials, just, just like Derek, uh, just, just like, just, like, Grace. Um, so they, they're people that, you know, they have a foot well grounded in the local government space and understand the pressures that policymakers are under that staff is under. So generally, not, you know, I can't say they're all equal, but generally they're well run. And it's an opportunity for the city to manage its shortest, most liquid investments. The other nice thing about it is that, especially if they're being managed similar to a landmark, which is fun, right now, because of that inversion that you look at in yield trip, they're paying the highest yields. And not all are run like a money. Some of them are one longer, which means that the, so money funds, it's dollar in dollar out. You don't take a loss on the dollars. All you're doing is just collecting income. The longer ones, your shares of your pool because you're buying like a mutual fund. You buying shares of a fund. Those shares can go up and down in valley. So it's just something to keep it. And unlike your portfolio where you can, your portfolio also goes up and down in valley, but you can always hold the maturity and you mainly do. In the pool, that gets priced every day and you, you book that loss as a real life loss. immediately. So you have to be careful. So,

[01:40:11] Unknown Speaker: when it came to the, the, the, the card. So this is my 1st meeting with with this thing. So I kind of went down a rabbit hole, a lot of these different policies, and I found that the only other city than example that you gave us that had joint power authority pulled with San Jose. Uh,

[01:40:30] Management): let's see. Um, South San Francisco has camp, California asset management program, that's one of them. Sometimes they won't name it as a JPA pool. They'll just name it by the name of the pool itself. Camp, California asset management program, about 13rd of two-thirds of the cities in the state of California, whole Cal trust. That's another one. That's a big one. There's a brand new one called Class, but they're brand new. And so we don't know a lot about them yet. We don't know. They're managed by a manager from out of state. So that's still developing. You know, that's not a negative or a positive. it's just brand new Um, but those 2 are the ones that I, that I could think of that are real obvious. Um, uh, you know, there's a, there's a, there is a JPA, there's a joint powers insurance authority out of Kern County called Sisk. They're they're sizable. They run a pool. It's a little bit longer. And I think they might open it up to other people, but it's a lot less liquid. It's a little bit harder, a little more cuppersome deal with. The nice thing about these is that they, they generally, if it's running like a money fund, they provide same-day availability usually up to 11, 10 or 11 o'clock. And then most of them are rated. They go out and get a credit rating.

[01:41:37] Unknown Speaker: No, that's maybe a really dumb question. No dumb questions. I could test that. But so would we have to be part of that joint power? That's

[01:41:49] Management): not a dumb question. That's actually a very intuitive question. So most of these because you're asking the right question. They're organizers join powers authorities. So most of them, as far as I understand, most of them, at least the 2 that I mentioned, the 1st two, they will either let you join as a participant, which means that you become a signatory to the trust. The assets are governed by an investment policy and they're held in a trust. And you formally join the JPA, which means that there's a resolution that has to go to the city council. And city council members have to prove it. That can be cumbersome. It's a process, right? Some of them will allow you to join as an investor, which simply means you're just allowed to invest in there. You just open, you know, you kind of leave it to the purview of staff.

[01:42:34] Unknown Speaker: Is there advantage to being as part of the JPA or?

[01:42:37] Management): The advantages that you get if you get voting rights to who gets to get to be on that on that board. Basically. And if you're part of the pool, you could ostensibly put your name into the hat to be like on the board. But I can tell you that there's, it's a sticky wicked. How people make it to those boards? Catch me offline and I'll explain it. I'm not doing a good job of explaining my phone is. It's no, no, the answer is that there's no, no immediate advantage other than that in one, your informal member of the pool and you have voting wise. They're the one you're just an investor and you put your money in when you want. your money out when you want.

[01:43:17] Unknown Speaker: How common is it for different JPs to be like? We're, we're, for the kids at the table, but we'll take your money. Is that more common than not or do most JPAs? Uh, want you to be. For the table in order.

[01:43:34] Management): These particular L gips were set up with the intent to gather assets. If you really want to know, the way that it works is you have a money manager, someone like us, who wants to figure out a quick and efficient way to gather assets, so they may work with some local governments to set up a pool. And that's their on and then they go market it and they bring, they want your assets. They want to manage assets. That's how they make money. But it's, they also serve a purpose. It isn't just mercenary or capitalist. It's also an opportunity to invest in a well-regulated environment with other local government, which provide liquidity, as long as it's a well-run pool.

[01:44:11] Chair Lisa Matichak: You ever start our own pool? Uh, you, gosh,

[01:44:16] Management): you could. I mean, but would you want to? I mean, that's, that means that you, you'd have to set aside budget dollars to set up time for staff to be able to, to organize it. You have to pay an advisor. That's the biggest cost. You have to pay a lawyer, you have to pay a transfer agent, you have to pay a custodian. You have to pay uh, some sort of record keeper. Somebody has to keep track of who owns what shares and and then the ins and outs and then batch all those transactions to take to the custodian and it's it's complex. There's an expense involved in this. It's not really the business that cities get into. Um, where I've seen it formed outside of, of just a money manager that gathers some some local governments to set it up. I've seen it in the joint powers, insurance authorities, and they'll just limit it to their participants in their JPA. Siskis is a joint powers insurance authority. So they went to their participants to say, we can open up a pool. There's another one. It's called CSJVRMA, Central Valley. I don't remember, but it's known that they have a pool of their own, and it's just open to their participants.

[01:45:21] Unknown Speaker: These are my questions. Stay out of the politics is what I'm hearing. which I'm totally fine. Um, I have some clarifying questions. I think I know the answer intuitively, but just to instruct fully understand. So we're combining this in the diversification requirements for combining this GPA investment pool with life because the practice will never actually hit 20% late. And so there's capacity there.

[01:45:47] Unknown Speaker: 1000000 and it's limited at 75. We're only at 5%

[01:45:52] Unknown Speaker: Yeah, but we have a 20% policy limit. So, and because of that 75000000 limit, it's just, it's pretend, it's phantom capacity.

[01:45:59] Management): Yes, and you and 20%, you never want to be invested too invested in one. I mean, 20% is a 5th of your money, a 5th of a $10000000 a lot. It's a lot of money, right? Um, so, so,

[01:46:09] Unknown Speaker: I think I understand why you then combine it with life. The policy limitations. Um, This was triviality, but is there a reason for the reporting and reviews that has has the monthly investment report always been submitted by the investment officer and not the Fazby, uh, director or.

[01:46:32] Unknown Speaker: Since I've been here, it's been, uh, since I've been here, it's been. Okay, so best. I mean, for me, it was Susie, who was the assistant? So changing the policy to match the practice. Exactly.

[01:46:45] Unknown Speaker: I think it's the current practice is on this form, the memo, there was like 3 titles. So we were just trying to simplify it truly is really confirmed the investment officer. Okay.

[01:46:56] Unknown Speaker: That's helpful. Thank you. Um, And so everything, sorry, we're still in question. I'm done with my question. Okay.

[01:47:07] Chair Lisa Matichak: I don't have any questions. So, um, we'll open that for public contact. Okay. Nobody on mine, right? Okay, so what goes that? And then comments. Or additional questions.

[01:47:22] Unknown Speaker: No, no. questions. Maybe

[01:47:25] Chair Lisa Matichak: we should take these, maybe one by one. So, should we start with, which is... Let's start with the JPK. Oh, really? The

[01:47:40] Unknown Speaker: recommendations and their totality at that word are strong. I have no comments, I'm happy to support them. I think I was, what I was trying to understand procedurally is, we wanted to provide directions to explore. I mean, the universe, right?

[01:47:56] Chair Lisa Matichak: Sorry, that was on my list. So I was just gonna go through them one by one, but we can do all of them. So what's on my list that we might consider here is, um, Obviously the JPA, looking at broadening, the investments that we might consider. And then, um, the social responsibility, if we want to revisit that already, staff recommended. We just keep what we have. Um, so to me, those were sort of the 3 things are there more. Um, I also wrote down, um, Why did I write this? Increasing percentage of performing with various investment vehicles.

[01:48:36] Tyler: So was that was that related to the 30% California limit? Corporate corporates. Yeah, you were 15%.

[01:48:42] Management): Yes, that was it.

[01:48:43] Chair Lisa Matichak: Yeah, was it? Thank you. Um, and then also, um, last year, um, Steve recommended that we at least have a discussion about, do we want any sort of policy limits on the 144 A, but I think I've come to the, oh, I know, who should I have to?

[01:49:05] Unknown Speaker: I'm serious about that too. And I'm not hearing that there's a policy implication that we really need to be concerned about. Yeah, yeah. Um,

[01:49:13] Chair Lisa Matichak: Were there any other things we want to talk about? So I was just going to go through it one by one, but if you want to do all of it at the same time. I misunderstood what you were saying.

[01:49:21] Unknown Speaker: I support the process that you're using to get through this. So I support the staff recommendations. Um, and I also support the, the 2nd direction that the chair was just described. It's never precisely how we wanted to articulate that direction. I think. Did you, there's, there's more definition to that.

[01:49:46] Chair Lisa Matichak: Absolutely.

[01:49:47] Unknown Speaker: So I... I wrote down.

[01:49:50] Chair Lisa Matichak: This is on the expansion. So I wrote down looking at single A investments and pass through securities. And Those were the 2 major ones. Sorry.

[01:50:05] Management): So with, with, I might say, It's always good to take baby steps. I would focus on the single A. and bumping it up from 15 to 30. I would recommend that. We can revisit pass throughs down the line. Okay. Unless staff feels different.

[01:50:21] Tyler: Now, well, one thing I just want to mention is the policy does allow for mortgage backed securities right now. It's just, I don't know if they're the same as what you were describing or not. Yeah, but the ABS, I think is excluded. Yeah, the asset backs or not. Yeah, the ABS works down. So...

[01:50:37] Management): And the mortgage backed security is that I think I think I can look at it. I think we call it on federal agency more. Yes, it's agencies of the US government. Right. So so so those can be purchased, but they would be treated as a federal agency because the ultimate backing is that federal agency. Um, So code allows more. And the paragraph that allows the more also allows the asset backed securities. The primary more asset back securities in the markets right now are going to be credit card structures, auto loan structures, we're seeing auto leases. Uh, You know, back in the 90s, David Bowie, if you remember David Bowie, you know, David Bowie, people, people, people got, he issued along, borrowed the money, and and he paid people back from, you know, the trust, the trust basically sold bonds, which were rights, his royalties of his records. He got the money up front. He got cashed out and lived like a king. And then as the royalties came through from radio stations paying them, they would get paid to the bondholders. So we would not advocate by any David volleyball.

[01:51:43] Unknown Speaker: You know, it would be kind of cool.

[01:51:45] Management): But I'm just trying to give you an idea. I mean, there's various types of structures. The biggest ones you'll see right now are auto loans and card structures. Those are the most liquid, the most travel, the most analyzed right now. I've seen airplane leases, seen manufactured ones.

[01:52:03] Unknown Speaker: I guess what I would be curious to under. I'm actually supportive of exploring all of these. But it would be helpful to understand the staff capacity implication. Is this a lot of work? I don't I have no sense of the amount of time stabbed with them doing this research and coming back with recommendations. But if it's, if it's really functionally equivalent to to explore all of these and not just, you know, limit ourselves to one or 2 of the concepts, um, then why not? Give ourselves that light.

[01:52:37] Chair Lisa Matichak: And is it come back to a city here? At the next meeting? IRC meets, right?

[01:52:42] Derek: when you're ready. I mean, it's going to take a little bit of time to go through and compare and look at others with help products.

[01:52:48] Unknown Speaker: I think I want to clarify it's one thing, I think we need counsel directions. I think in the past, we really conservative poach was because the council direction was the main purpose of investment is the investment. Not, not, you know, it's more how you prioritize it. Are you protecting the asset, keep it the cost value as similar to the market value, or are you using our market, our asset to generate more income? So it's a priority decisions that which way you guys prefer 1st. If you are, so that's why we really conserve the poach in the past is because the main focus was really protecting the assets to prevent it, you know, below the cost space. So are you saying, I think the council should weigh on that way. Right. Right. So is it that if that is the direction that you guys want us to think about, oh, we should open up to say, oh, maybe we should, um, based on our asset portfolio, we should look at the way to increase our returns, then yes, then we can look at the options of, you know, how how we should open up.

[01:53:48] Chair Lisa Matichak: So I guess I thought this body was the one who did the analysis and then recommended it to cancel.

[01:53:54] Unknown Speaker: Yeah, referring to the council's committee, correct? Right. Yeah, yeah, yeah, yeah. Oh, the whole count.

[01:54:01] Unknown Speaker: That's what I meant. Sorry. Got it.

[01:54:04] Unknown Speaker: Quick question. Because, um, we're looking at expanding from for the corporate notes for 15 to 30. We're not even, we barely hit half of that 15%. Is there, if we do expand in the 30, if the staff, take that as like, oh, okay, we are allowed to go more. Are you trying to make sure that you always hit under that, like just be more conservative on that? Like, what does that mean? Like? Like what we currently have is half of 15%, practically, 7.7%. But if we expand it to three, does that mean that you're gonna really go to 15%, like, what does that mean?

[01:54:40] Tyler: Well, then, I think Carlos, I mean, he's the guy, Chandler manages the corporate side of our portfolio, so you could probably speak more of the, to the 7%, but, um, you know, if this body wanted to open it up to single A, I think that would probably allow Chandler to bring that percentage higher.

[01:54:57] Carlos: That's exactly right. That's exactly right. You're not... Exactly. You can mump it up to 30%. If you keep it at double A, you're never going to reach 30%. And right now we don't want you at 30%. We may want you between 25 and 28. Uh, there are periods when we brought it down to 20%. It just depends on what our analysis is showing what sort of return we're getting for the risk being taken. Remember the safety like race was talking about. a very conservative investment program, and that has to come first. But, but, but yes, it, They both kind of go hand in hand.

[01:55:27] Unknown Speaker: So is it the reason why it's at 7.7 is because of...

[01:55:31] Carlos: There's not enough double layout there so we like to bring it up.

[01:55:34] Unknown Speaker: Okay. Ah, okay. That makes more sense now. I

[01:55:37] Unknown Speaker: have opinions about this. So that's what your question is helping me realize is that our policy limits are, they're silly because, you know, our approach is so conservative that it really renders the policy limitations. There's not a lot of guidance there, right? In practice, we're not even gonna come close to those policy limits. And so what what the direction that we're potentially providing is. allowing us to, to be more adventurous, getting us closer to where the policy limits actually serve as real guardrails when we're making decisions about the amphest. They

[01:56:22] Carlos: are. That's exactly what they are. By expanding it, yes, we're looking to always enhance income and return. Um, But it's really about diversification. There is less correlation. There can be less correlation between the asset classes when you introduce plastic classes. Um, The correlation doesn't go away between single A and AA. It's just a matter of being able to diversify across more names. If you're in the, if you're in the credit world, the non-governmental world, and you allow for corporate securities, uh, the corporate component that you have is tiny. You've lived with it for years. Are you okay living with it because you still maintain safety and liquidity? If the answer is yes, You're you're golden. There's nothing wrong with that. But if you're looking to diversify the portfolio. So we're not just diversifying amongst credits, we're diversifying amongst industries. So there's subcategories within that world. There's banks which are the most prolific issuers in the corporate world. We're looking at industrials, we're looking at um, consumer services. You'll notice that there's some tech companies in there. There's, uh, uh, it just depends. I mean, we can buy Home Depot bond, but that might, you know, it just depends on what we're able to, what you're able to give us, and we have less playing room when we limit it in the zone. You know, the other the other one that I I don't even want to throw it out there because it's additional. You have supras at 10%, I think it is. Okay. Code a lot of the 30, those are AAA. It will make a difference because there aren't that many available and they're harder to buy, so it doesn't, I've just been silent about it. But that's an example of being tighter than you need to be. It's a triple a rated secure. Let's put it this way, the US government is not no longer rated AAA, except 4 by Fitch. No, by Moody's. Fetch downgraded in the double A, S and P downgraded in the double A. Um, so

[01:58:22] Unknown Speaker: to the extent, um, and the opinion is important in this matter, I'm, I would support exploring the, uh, the options that the chair has described, retaining the objectives of the policy. So, I think a conservative risk profile is defensible. I think it has served as well, as we were talking about earlier. Um, and what I would be interested in is, um, a, uh, an evaluation of staff that would broaden this universe, uh, affect our, uh, ability to meet the objectives that were describing the policy, right? So does introduce, it doesn't sound like it would, but when introducing, you know, um, you know, this broader universe of securities, for instance, mean that we are deviating substantially from a safe investment pool, right? If it doesn't deviate substantially if it's very a minor adjustment in our security, uh, in our, uh, risk, uh, what am I trying to say? Like risk tolerance? Yes, yeah. If it if it if it's still fundamentally sick. It adheres to the policy objective, uh, then, you know, I would be, I'd be interested in, in allowing us to to take advantage of some additional options. Is that? I don't know if I heard that as well as like, but I

[01:59:59] Carlos: think what you're saying is, would adding single lay credits significantly deviate from a safety standpoint and I would look at that from a relative standpoint and from a city standpoint. And if so, does that help us diversify the portfolio and add return?

[02:00:14] Unknown Speaker: But part of the part of the problem is I'm, a lot of this is very subjective. You know, there's, there's, you could provide a, like, it's going to be more risky than just, you know, preserving the policy as it exists. But I don't really have a good sense of how much more risky and to what extent we have, you know, whether staff appreciates the risk aversion that we have or, you know, like how does that shift that? It

[02:00:45] Carlos: would. Yes, yes, yes. I see what you're saying. I guess I would have to speak up as to how they feel about this. is important because your opinion is important here, but I can tell you that. relative to your neighbors and to the average city in the state of California. You're more conservative, right? Double A or higher. From a credit standpoint is very concerned. The average city, the average city allows single A. The adverse city working with an advisor allows single A. There are some that don't have a credit. They're too, you know, I know some pools that won't, like, county pools, they won't do it because they, they're more about liquidity and they don't get too long to buy those. So it doesn't impact them as much. They stay very, very short. Uh, so there's, there's, you know, these are longer bonds. They're one beyond one year, basically. Um, so they won't touch them because they don't have a credit, uh, analysis process built into their staff or they're, they don't have the budget for it. Um, But most cities that work with an advisor who's doing the credit work. Usually that's the easy place to start diversifying. So I, uh, think what I'm, what

[02:02:01] Unknown Speaker: I'm comfortable with then is that assessment and to what extent, uh, it helps us achieve our objectives. I'm not interested in changing the policy objectives. I think they're solved. Um, and if anything, um, it might be helpful to just get a, uh, to understand what type of benchmark may be useful for us and evaluating whether these are changes that we do want to make, one staff comes back with that, because I don't have a good sense of,

[02:02:32] Chair Lisa Matichak: Yeah, I'm thinking, what does an analysis of this look like?

[02:02:35] Unknown Speaker: Right. Yeah. She was very subjective. Is it?

[02:02:39] Chair Lisa Matichak: Plus, minus, I will safety. What

[02:02:42] Carlos: does it look like? We will work with staff to do this, but in a sense, what you would do is you would look at an index comprising credits that you're allowed to buy. And you would look at what their returns have looked like over the past 10, 20 years. And you would compare that to an index that just looks at treasuries and agencies. And then you would look at the volatility. So this is actually quantifiable. Okay, okay. I don't know. Okay,

[02:03:08] Chair Lisa Matichak: so, uh, I, uh, I agree with adding. Sorry, read it. Oh,

[02:03:13] Unknown Speaker: on the, um, what's the, uh, ESG? I always was. Yeah, ESG. I'm comfortable with what exists and I'm not terribly interested in doing additional work on that right now.

[02:03:25] Unknown Speaker: My one question when it comes to the ESG is, my understanding is that the, the status of funds making it ESG rated or whatever they compliant. Uh, that was supposed to help, like, investors now, like, these are good funds, but even by those standards, they don't actually meet the standards of our own thing, so. It does it. Would it make it easier for stuff or is it just going to make it harder for me to eat? So

[02:04:01] Carlos: the city's desire was to be socially responsible in its investment. And the one obvious one that came to the city was, uh, what Cher Magic was, was, was talking about was the oil. And, and this body did a lot of work around that, a lot of good work. And that approach is generally considered exclusionary, where you're basically saying, we're not going to invest our money in places where we don't feel they fit our mission. And we feel like those pollute the environment, that's not part of it. We're already part of that. We're going to withhold our money. That's an exclusionary approach. And that's a very effective approach because that approach, in essence, is very easy to implement. It's very visible. It's very effective to tell your constituents that you're, look, we don't invest on that. Our hands are clean. So it's very, very effective. The approach that you're describing here, which staff, I thought, did a really good job of writing this, this, it explains it very, very well. That approach is more proactive, right? Which is, I think, what you're getting at, which is where you're looking to different issuers who are getting what's called an ESG rating, ESG cents for environmental social and governance concerns. So these issuers are going to a service and basically getting rated on environmental, social, and governance factors, and they're looking at factors known as key performance indicators to sort of help them do that. And then by by doing that, they can go to investors and say, look, we're a good corporate player because our ESG score is this. Kind of the way that you might go to a credit score and say, look at our credit score. It looks, we're highly rated bias. We're a good investment. Sounds fantastic. Here's the problem. We were talking about fifth, 3rd bank. Fifth third bank is a bank in the Midwest. Uh, they're they're big in Illinois. Chicago, Ohio. They're Big Bank. Uh, if you go, so so there are services that provide this ESG rating. Um, if you go to MSCI, one of the bigger ones and they're global, they're a huge company. MSCI will tell you 5th 3rd bank, fantastic corporate player, from a government standpoint, they're not cheaters. They don't cheat their client, from a socially responsible standpoint, you know, they help women get ahead, they help minorities do this or do that from an environmental standpoint. They limit their investments to oil or things like that. So they give it a fantastic rating. If you go to sustain analytics, which is one that people go to, sustain a Linux looks at the exact same issue, it says, these people are villain. We rate them low for these factors. And part of the reason for that. I can't ascertain this, but the general belief is that politics is flowing into this process. I'll give you the example of unilever. Unilever is a huge conglomerate, coal, you can't buy it. They're based on the Netherlands, but they're a huge conglomerate. They happen to own Ben and Jerry's. Ben and Jerry's made a decision about 2 years ago to pull all their Ben and Jerry's stores out of the West Bank. So now all of a sudden, you had camps that believe that Ben and Jerry's were anti-Semitic. And you had other camps that felt that Ben and Jerry's were, were the vanguard of a new social movement. So Unilever took a lot of heat for this, and Unilever basically, they came down on Ben and Jerry's because it was just too much. It becomes political at this stage. So, number one, these agencies, these, they're not agencies, but these services, when they provide this rating, it is the Wild West. The key performance indicators are all over the, what, what, one criteria for, for one of these ratings for one of these raiders is different than the other. So there's no, there's no uniform. It's perfectly uniform with credit ratings, but there's a monicum of uniformity. That's the 1st problem. The 2nd problem is, I just think ahead, this is my own personal, I'm not saying that this is where you're headed, but my personal opinion is, If this is getting political. Do you want to expose the city to possible political fallout? Because they take this action or that action, that it just, it's such a moving tide. It moves and it's, it's fluid. It's it's kind of hard to tie your horses to that, to be able to simply say, we're socially responsible. It's much more effective to say, we don't support these industries and we're out of them. And this committee did really good job of addressing that. You've got good language in there already. So that's why we're, we're a little bit, hesitant about the, about following an ESG fund that, or some sort of, uh, issuer that seeks those ESG ratings for that reason. It's not uniform yet. still a little bit of the Wild West. Um, the other reason is because when you do those things, none of it comes for free. You actually, the issuers don't pay. You actually pay for those services. So that's additional cost to your investment program to be able to get those ESG ratings. Having said that, sending San Luiso does it with sustainalytics, there's a few others. Uh, I'm not sure how useful it is, but in, I don't know. I just think what you have is pretty effective. Yeah,

[02:09:23] Unknown Speaker: it's interesting because, like, I imagine that it's just too either dynamic or volatile right now. Do you think that over time, ESG ratings will become more. Like, more like how we do our credit ratings, whereas it just, stabilizes

[02:09:43] Carlos: essentially. It can, it can, there may be more uniformity amongst the raiders. But here you still have another problem. I'm going to compare you to the city of Bakersfield. The city of Bakersfield gets royalty, so all the oil gets gets pumped out of there. They don't want somebody with an ESG rating real high for environmental. Okay? The city assembly. I used to work with the city of San Luis Obispos, their investment advisor. The city of San Luis Obispo had lawsuits out against Chevron. They did not want even, you know, they, even though Chevron does a ton of things on the environmental side of things, they didn't care. It boils down to what are the values of the city. What are what are your values? Because you're unique. The exclusionary approach is very effective at being able to communicate that, that unique need. The ESG is a little more gray area. So,

[02:10:37] Unknown Speaker: like, we do have 6.3 in our policy is the prohibition investments, which are great. Like, no backups, no guns, and the fossil field. But we also do have kind of like a 6.one and 6.2 are more. Like, They're great as a policy, but do we have any kind of markers to determine that's what we do? That's, that's what we end up investing in. Like investments that encourage entities that support equality of rights, regardless of sex, race, age, disability, or sexual orientation. How do we know that?

[02:11:16] Management): Again, another intuitive question. You do in an indirect manner. Um, you don't have a criteria where where you set it up and sort of filter people through that, but you do from us because we take into account these factors as a financial risk. So we look at issuers who may have problems with these in the capital markets, in as much as it is impacting their ability to pay you back because a perfect example, which was happened years ago. Wells Fargo got caught robbing its clients. Okay. So that that was poor governance. Uh, so they were poor. they had just from a from a governance standpoint. So we, we look for these things in as much as they will impact the bottom line. So there is a filter that's already happening from our credit analysis and we try and pay attention to these. We don't want to buy a credit that's going to be like the poster child for like, you know, uh, age discrimination or sexual orientation or race. People are going to dump them very quickly and we don't want to be holding that on behalf of the city. So we look for these things. So how do we do that? well We, we, we, we meet with our best relations. We ask, what did questions? We read the releases from their, um, from the street analysts that cover that. There's various ways to do it. Is it hard and set? No, but it is definitely factored in.

[02:12:52] Unknown Speaker: That's, that's, oh, my questions.

[02:12:56] Chair Lisa Matichak: Did you want to comment on

[02:12:57] Unknown Speaker: what you do support? Oh, so yes, I support us when we talked about the ESG. I'm support of staff recommendation to not make any changes regarding social responsibility now that we really kind of flesh that out. I actually like our policy better than ESG and if we want to be aligned with something like calipers or anything, so that we should actually advocate 2 calipers to adopt more of a position like ours. Um, I support the JPA investment pool that seems, we have so much room there in that 20%. It seems easier to do that than, uh, try to mess with our percentages, uh, in that way. And I also support the, uh, evaluating the, um, credit rating. The expanded unit. We're going in a full cinematic Marvel cinematic universe of, of this, um, and expanding it from the 15th of 30%, uh, based on how you feel is better. And all of the...

[02:14:10] Chair Lisa Matichak: Yeah, so, um, I am also support the staff recommendation on social responsibility. I feel like kind of going down and looked at it again because I feel like we had a very robust analysis done in 2018 19 and decided on the approach we took. And I'm very happy with it. That I had a major hand in it. So, um, maybe that's why. Um, Um, but I am interested in exploring, um, expansion of our options to presentation and, uh, the limits that we have placed on certain things and if it's just easy to, you know, do several. I'm fine with that or if you want to prioritize them. 1st single A, um, I guess I could go either way. I don't know what volume of work to do that. Is on 3 just as easy as one?

[02:15:11] Management): I'd rather tuck them all. I mean, I, I, we can do that. We can do that. It's really the flavor of the council, if you think that people in the council or maybe it's just because they might be overstaffed. If you think it's just too much, too fast, we'd like to know, we could tackle.

[02:15:25] Chair Lisa Matichak: Well, I guess so for me, I'm not interested in changing our priorities of safety and liquidity and then the return. That is very important to me. Um, we have been a conservative community and it served us well, I think. Um, I think the city's finances in comparison to lots of cities are in great shape. I always tell people how fortunate they are to live about because of, well managed we are, including our finances. Um, but I, I am a little bit concerned that we've had this discussion now, and our colleagues haven't been part of it. Um, and so maybe they're not as open to exploring as much as we are. So I think, you know, some education and some just hearing it a few times. Um, has made me more open to changing things. So, you know, I don't know if they're going to, you know, write off that, be right there with us. Um, but I feel like I'm ready to explore these. and Yeah. And then I guess I would just have to say, but here's what we recommend of the ones we've explored. And maybe it's it's like short term, medium term, long term, or options or something. So that, you know, they could have flavor for the different things we could be doing. Um, But yeah, I think we should expire. So it sounds like we're pretty much in agreement about, um, and I, and I do support the other minor changes to this. Um, so we probably need a function on. That's only. Or I guess we could do all that.

[02:17:10] Unknown Speaker: Well, there's inter-related. So that's Yeah, unless staff would like us to. differentiate the 2 So

[02:17:19] Derek: I think I'm fine. I'm clear. between the 2 6.2 and 6.3. So do we need to make most? So

[02:17:26] Tyler: yeah, I guess that's the question, right? If they're not, if we're not gonna, if the body's not gonna make a decision on this version right now, that... Oh, I think we can make it.

[02:17:36] Unknown Speaker: Oh, okay, so on this, okay, got it. Okay. I'll attempt emotion. So I'll move to approve the staff recommendation with the modification that the chair we told us about identifying or clear that there were some key absences in this meeting. Um, and then incorporate, um, the modifications proposed in 6.3 with additional direction, to explore this, uh, allowing access to some additional options for investment, um, and then, uh, to incorporate that direction in the report, uh, to ensure that the council is, um, informed that we're exploring these and that staff will come back with recommendations, um, either at the next IRC meeting or next year. You know, whenever, whenever.

[02:18:37] Chair Lisa Matichak: We can have one.

[02:18:38] Unknown Speaker: We have one off turned off. Yeah, off cycle. So

[02:18:41] Chair Lisa Matichak: I guess what I would add to that is, aren't we also looking at potentially changing the limitations like 20% of your portfolio, 50%?

[02:18:49] Unknown Speaker: Uh, yes. So I wouldn't, yes. So

[02:18:52] Chair Lisa Matichak: to me, expansion meant the vehicles as opposed to the policy limitations, yeah. So we look at both. Yes. Yeah. Is there anything we missed? No,

[02:19:03] Management): you've got it. The asset, the additional asset classes, the expansion down to single A, and then the minimum, the, the, the concentration limit for corporates. those are the 3 super nationals, right? If you want to look at them, yeah, it won't have an impact, but it is good to have it. Yeah, I would, might as well. Yeah,

[02:19:18] Unknown Speaker: as well. It doesn't hurt. Yeah Okay. Yeah, we increase the total corpus for 15% to 30. Yeah, to take that percentage of somewhere and we can't go up a 4.4% for the supernatural. We could take the 5% from there, stuff like that. It has to come from somewhere. Oh.

[02:19:42] Chair Lisa Matichak: Okay, emotion. I've got some catchbooks. That's where there's 2nd bye, Counselor Puamos, um, Oh, do you remember?

[02:19:58] Unknown Speaker: Yes.

[02:19:58] Chair Lisa Matichak: Can I be like a Ramo?

[02:20:00] Unknown Speaker: Yeah.

[02:20:00] Chair Lisa Matichak: Shared manager?

[02:20:01] Chair Lisa Matichak: Yes.

[02:20:03] Chair Lisa Matichak: Great, that's unanimous. Okay. I think that was a really good discussion. Um, so thank you. You're very welcome. Thank you

[02:20:16] Unknown Speaker: very much. Thank you. Um,

[02:20:20] Chair Lisa Matichak: okay, number one item set.

[02:20:26] Unknown Speaker: Some really nitpicky stuff. I want to take too much time on this, but I, um, in reviewing materials from previous meetings. I 1st learned on the CS. You have to look at the CFC register page to find IRC material. And, um, that's that's, it's not too big a deal, right? It's just not intuitive. and I feel, like I said, thought about it. They really are different bodies, right? The IRC has 2 full voting members. Um, and, uh, if 2 of the CFC members were absent, but you had the citizen members, the body would still be able to meet, I think. And still, you know, review, uh, the, uh, the report and then make a recommendation to the council. Um, I do feel like it is important to to differentiate the 2 on the legist our page or to find some way to make it a little clearer that they are catching for different bodies. Um, and make it easier for us to find materials that are relevant to each of the bodies when, um, members of the public or members of the council are searching for them. Um, So unless staff had a chance to delve a little 14th.

[02:21:44] Derek: No, I did talk to the city clerk just about how it typically has been set up that way, but we're going to look into, to moving those, uh, separate them. So yeah, be up on the ledger stuff page. So it'll show you can search separately. Yeah, you're right. It's all under CFC right now.

[02:22:00] Unknown Speaker: Which, which, which it's not too big a deal. It's just, um, a little confusing because I, you know, I, I, the C, the IRC is not the C, you know, and I guess like, I really looked out of that. Um, so that was my one relief. Minor epic. So...

[02:22:16] Chair Lisa Matichak: So it isn't just not legistered. It's on the website, I'm saying as well, right? You would want 2 pages. I,

[02:22:24] Unknown Speaker: um, I'm a little more, I'm a little more agnostic, I think, on the website. It's probably a little more, it's easier to distinguish between the two. You could have like a CFC page or I'm I'm agnostic on how we approach it, as long as we're making it clear that they are different bodies and that the materials for each are. sound easily by members of the company. Yeah,

[02:22:51] Chair Lisa Matichak: and the problem I ran into this weekend is actually you have to go to laser fish. Uh, and not register for last year's material. Um, And I had the same issue, Lucas had where sometimes when I clicked on something, it would come up and it would just say agenda and seal. And that was not just on, um, a CFC IRC. But I was looking at some other material over the weekend. I thought, why am I just getting a seal and agenda? It was so bizarre. And somehow I also became an admin of the website over my current website migration. People look into terrible communications. And then, um, we already talked about, um, input on the material for the meetings, if you guys have any. Feel free to reach out to Kimberhood, Derek, if you want. Okay. Yeah,

[02:23:53] Derek: we talked about just real quick, a staff report for each item, I think, would make it and some referencing between the two, which documents go with which item? Okay, we'll update that for the next meeting.

[02:24:03] Chair Lisa Matichak: And having a nosis presentation in advance. Because when I looked at last year's, I thought, I had so many notes on that thing like that. I know I didn't take these in the meeting. I'm sure I wrote all of these ahead of time, questions, thoughts. So it's very helpful to be able to read it ahead of time. Yeah. What else? Other than thank you all. I really appreciate it. I do really think this was a great discussion. Yeah, very productive. Thank you.

[02:24:33] Unknown Speaker: Thank you, yeah. Yeah. Are you just for everything? Okay,

[02:24:37] Chair Lisa Matichak: return at 526.

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