Audit & Finance Committee Meeting
October 16, 2023
Investment Management
and
Investment Policy
Discussion
Peninsula Clean Energy
Context and Current Status
Cash and Investment Management
oCash Balances have grown significantly
o In response to financial turmoil in early 2023, the A&F Committee directed that Staff quickly diversify to other institutions o Added Fidelity - Institutional Money Market Fund
o Added Schwab - Institutional Money Market Funds
oCurrent holdings of more than 20% of assets held in money market funds are out of compliance with:
o Investment Policy #19
o California Government Code
Peninsula Clean Energy
Cash/Investment Balances – Current Summary
As of August 31, 2023
7 Institution Amount Investment Mix
Fidelity $71.1 million Fidelity Institutional Money Market Government Portfolio
First Republic (Operating) $30.8 million Cash
Schwab $57.2 million Schwab Treasury Obligations Money Fund US Bank (as Custodian) $125.2 million Cash and Fixed Income Portfolio • PFM - $64.7 million
• FRB - $60.4 million
Total $284.3 million
Peninsula Clean Energy
Areas to Discuss/Evaluate
o Revisions to Investment Policy
o Reduction in number of institutions
o Limitations on amounts in each institution
o Implementation of investment management with other money managers o At the end of this presentation, we will be looking for direction on:
o Investment management structure
o Allocation of funds
o Limitations on funds managed by any investment manager o Continue ESG?
o Direction on Board resolution
o Board action?
o If so, consent or regular agenda?
Investment Policy #19
(ACTION)
Peninsula Clean Energy
Revisions to Investment Policy #19
Resolution:
The Audit and Finance Committee recommends that the Board approve and adopt the revised Investment Policy.
10 Peninsula Clean Energy
Summary of Proposed Revisions to Investment Policy #19
Senate Bill 1489, effective on January 1, 2023, made changes to the California Government Code • In response to the new Code language, changes are proposed related to the Policy’s Acceptable Investment Instruments section to address changes related to forward settlement. • In response to the new Code language, changes are proposed related to the Policy’s Maturity Limit section to address changes related to calculating a security’s term to maturity. • In response to the new Code language, changes are proposed related to the Policy’s Reporting section Based on the recommendation of multiple investment managers, it is proposed that two additional investment types be added to the Policy’s Acceptable Investment Instruments section to improve diversification and provide return enhancement
• Allow for investment in supranationals (Code §53601(q)), and • Allow for investment in asset-backed securities (Code §53601(o)).
For the above 2 types of instruments, the proposed language in the Policy matches Code language, except - there is a 5% issuer limit on these investment types - Code has no issuer limit.
11 Peninsula Clean Energy
Revisions to Investment Policy #19
Resolution:
The Audit and Finance Committee recommends that the Board approve and adopt the revised Investment Policy.
12 Potential Revisions to
Cash and Investment
Management Structure
(Discussion)
Peninsula Clean Energy
Areas to Discuss/Evaluate
oRevisions to Investment Policy
oReduction in number of institutions
o Limitations on amounts in each institution
o Implementation of investment management with other money managers
Peninsula Clean Energy
Organizations
• Current
o Fidelity
o First Republic Investment (JP Morgan Asset Management) o PFM Asset Management
o Schwab
• New Potential Options
o CAMP
o Chandler Asset Management
15 Peninsula Clean Energy
Fidelity
• Current
o $71.1 million in Institutional MMF Government Portfolio • Status:
o Not registered to offer investment management to government entities o Current MMF holdings exceed policy and Code thresholds • Recommendation:
o Eliminate from consideration and transfer funds elsewhere 16 Peninsula Clean Energy
First Republic Investment Management
• Current Investment Manager
o $60.4 million in actively managed fixed income portfolio o Recently acquired by JP Morgan Chase
o Soon to be JP Morgan Asset Management
o JPMorgan’s fees are significantly higher
o Have agreed to honor FRB’s fees to PCE
o At $75 million – fees are $117,000 per year
o Current structure does not enable ESG overlay management and analysis, but they try to comply with PCE’s expectations
17 Peninsula Clean Energy
PFM Asset Management
18 • Current Investment Manager
o $64.7 million in actively managed fixed income portfolio o Acquired by US Bank in 2022
o At $75 million – fees are $62,500 per year
o Currently managing portfolio subject to ESG Addendum using Sustainalytics for extra fee of 0.015% per year - $11,250 on $75 million portfolio Peninsula Clean Energy
Schwab
• Schwab has proposed participation in Wasmer Schroeder Strategies o Schwab Asset Management provides portfolio management o Fund descriptions – can’t guarantee that investments will always comply with Code
o Fees are very high compared to others
o In excess of $250,000 for $75 million portfolio
19 Peninsula Clean Energy
Chandler
• Potential Investment Manager
o 2nd place when PCE evaluated managers in early 2020
o Primarily focused on cash management for public agencies and municipal governments o $33.5 billion under management
o At $75 million – fees would be $60,000 per year
o Representative clients
o Marin Clean Energy
o City of San Mateo (reference provided)
o City of South San Francisco (reference provided)
o Santa Clara County
o ESG
o Prepared to also manage with ESG overlay using S&P Metrics and Analysis - 0.01% per year o At $75,000, that is an additional $7,500/year
o Would need to create addendum specific to Chandler’s ESG management 20 Peninsula Clean Energy
CAMP – California Asset Management Program
21 Portfolio Statistics
Weighted Avg Maturity 33 days
Current Seven-Day Yield 5.54%
Pool Highlights
• AAAm rated (by Standard & Poor’s)
• Same-day liquidity (11:00 a.m. PST cut-off)
• Unlimited transactions via wire, ACH, or
check
• Online account management
CAMP’S OBJECTIVE:
To earn a competitive rate of return while
preserving principal, providing liquidity, and
seeking a stable net asset value (NAV) of $1.00.
• Option to open multiple sub-accounts
• No minimum investment
• Interest paid monthly
• Zero out-of-pocket expenses
• Specialized services for bond proceeds
22 Pooled Investment Comparison
Features of each pool vary depending on the type of investments selected and should be carefully reviewed before investing.
1. Source: CAMP website. As of July 31, 2023. Please see important disclosures at the end of this presentation.
2. Source: LAIF website. Weighted average maturity is as of July 31, 2023.
CAMP 1
Established in 1989
Daily
AAAm
33 Days
Monthly
10% of the beneficial
interest in the Pool
Valuation of NAV
S&P Rating
Weighted Average Maturity
Interest Payment Frequency
Investment Limit
LAIF 2
Established in 1977
Monthly
Not Rated
251 Days
Quarterly
$75 million per account
23 Total Fund Net Assets1
Current 7-Day Yield2
CAMP Cash Reserve Portfolio Characteristics as of July 31, 2023
1. Total fund net assets, portfolio holdings valued at amortized cost, trade date based.
2. The current seven-day yield, also known as the current annualized yield, represents the net change, exclusive of capital changes and income other than investment income, in the value of a hypothetical account with a balance of one share (normally $1.00 per share) over a seven-day base period expressed as a percentage of the value of one share at the beginning of the seven-day period. This resulting net change in account value is then annualized by multiplying it by 365 and dividing the result by 7. Past performance is no guarantee of future results.
Yields will fluctuate as market conditions change. The current fund performance may be higher or lower than that cited. Updated monthly.
3. Ratings by Standard & Poor’s.
Percentages may not total to 100% due to rounding.
Sector Composition
Repurchase Agreements, 38%
Commercial Paper, 32%
Negotiable Certificates of Deposit, 30%
Corporate Notes, 1%
Money Market Funds, <1%
Credit Quality3
A-1, 67%
A-1+, 32%
A+, 1%
AAAm, <1%
Weighted Average Maturity 33 Days
Net Asset Value per Share $1.00
$14,112,603,477
5.43%
Peninsula Clean Energy
Investment Management Options
A. Keep PFM and FRB (now JP Morgan/Chase), add CAMP
B. Keep PFM, add Chandler, add CAMP
C. Expand PFM, add CAMP
24 Peninsula Clean Energy
Investment Management Allocation Proposals
25 Option Entity Initial Allocation Notes
A PFM $80 million
FRB $80 million
CAMP $100 million Will be reduced by Surplus Funds Decisions Operating Account $30 million +/- Target approximately 1 month of expenses Approximate Total $290 million
Ongoing CAMP target of $50 million, then 50/50 PFM
and FRB
Peninsula Clean Energy
Investment Management Allocation Proposals
26 Option Entity Initial
Allocation
Notes
B PFM $80 million
Chandler $80 million
CAMP $100 million Will be reduced by Surplus Funds Decisions Operating Account $30 million +/- Target approximately 1 month of expenses Approximate Total $290 million
Ongoing CAMP target of $50 million, then 50/50 PFM and
Chandler
Peninsula Clean Energy
Investment Management Allocation Proposals
27 Option Entity Initial Allocation Notes
C PFM $160 million
CAMP $100 million Will be reduced by Surplus Funds Decisions Operating Account $30 million +/- Target approximately 1 month of expenses Approximate Total $290 million
Ongoing CAMP target of $50 million, then to PFM
Peninsula Clean Energy
A&F Committee Direction
o Investment management structure
oAllocation of funds
o Limitations on funds managed by any investment manager oContinue ESG?
o PFM - $11,250 per year (at $75 million)
o Chandler - $7,500 per year (at $75 million)
oDirection on Board resolution
o Board action?
o If so, consent or regular agenda?
28 Audited Financial
Statements
FY2022-2023
(ACTION)
Audited Financial Statements – FY2022-2023
Resolution :
The Audit and Finance Committee recommends that the Board approve the audited financial statements for Fiscal Year 2022-2023
30 Audited Financial Statements – FY2022-2023
Resolution :
The Audit and Finance Committee recommends that the Board approve the audited financial statements for Fiscal Year 2022-2023
31 Committee Members’ Reports
Adjournment