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Brevard County School DistrictInvestment Review and Market Update
Investment AdvisorsSteven Alexander, CTP, CGFO, Managing DirectorMel Hamilton, Senior Managing ConsultantDavid Jang, Senior Managing ConsultantGregg Manjerovic, CFA, Portfolio ManagerRebecca Dole, Consultant
PFM Asset Management LLC300 South Orange Avenue
Suite 1170Orlando, FL 32801
(407) 648-2208(407) 648-1323
www.pfm.com
PFMIntroduction to the PFM Group*
Investment Consulting and Discretionary Management
Asset Management
Financial Advisors
PFM’s primary businesses
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Consulting and discretionary management to pension plans, non-profits, endowments, and OPEB trusts
Investment Consulting Manages over $39 billion
of funds for government, health care, higher education and insurance organizations
Asset
Management
Advised on over $43 billion of debt issuance in 2008
Financial Advisors Provide budget and
operations advice to troubled state and local governments and non-profits
Strategic Consulting
Financial Advisors
Strategic Consulting
* The PFM Group is comprised of Public Financial Management, Inc., a national financial advisory firm and its affiliate PFM Asset Management LLC, an Investment Advisor registered under the Investment Advisers Act of 1940.
PFM
Mel HamiltonSenior Managing
Consultant
Steven AlexanderCTP, CGFO
Managing Director/Partner
Orlando office
23 years investment and financial management experience
Former County Treasurer
Investment Advisor to numerous cities, counties, authorities, hospitals, universities, airports and school districts throughout Florida
Authored Florida’s Investment Policy Statute
Serves on the Association of Public Treasurer’s Investment Policy Certification Committee
Worked for the Florida Governor’s Office
Orlando office
24 years institutional investment experience
Provides credit reviews on money market funds and certificates of deposit for public funds
Oversees PFM’s short term money market operations in the southeast
Provides banking analysis and specialized investment, cash management, arbitrage rebate and OPEB consulting services to public sector clients across the country
Brevard County School District’s Team
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Gregg ManjerovicCFA
Sr. Portfolio Manager
Rebecca DoleConsultant
Harrisburg office
Provides technical, analytical, and investment expertise
Specializes in one to ten year spectrum of portfolio securities
Responsible for $8 billion in client assets
Member of PFM’s Credit Committee
Orlando office; provides technical and analytical support
Prepares customized performance reports, cash flow modeling portfolio structuring and restructuring, swap analysis; works with Portfolio Managers on reinvestment strategies
Reviews investment policies and practices for compliance with state statutes
David JangSenior Managing
Consultant
Orlando office
23 years financial and investment experience
Provides investment advisory services to states, counties, cities, school districts, hospital districts, water districts and higher education
Analyzes investment policies and treasury management policies
Specializes in analyzing individual fixed income securities, financial health of banks and broker/dealers
© 2009 PFM Asset Management LLC
PFMThe PFM Group ServesPublic Entities on a National Basis
• PFM Asset Management LLC (“PFMAM”) and Public Financial Management, Inc., collectively the PFM Group, is a leading provider of independent financial and investment advisory services with 33 offices throughout the United States.
• PFMAM specializes in managing fixed-income portfolios and providing
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multi-asset class service for public sector and not-for-profit organizations.
– $39 billion in discretionary funds under management as of June 30, 2009.
– Investment consulting services are also provided with respect to $8 billion non-discretionary funds.
• Nearly 30 years of experience
© 2009 PFM Asset Management LLC
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5,500
11,000
16,500
22,000
27,500
Sep 99 Mar 01 Sep 02 Mar 04 Sep 05 Mar 07 Sep 08
1-5 yr 1-3 yr Enhanced Cash Cash
Growth in PFM’s Assets Under Management(Composite Growth Past 10 years)
PFM
• We specialize in providing discretionary and non-discretionary management of fixed-income assets and providing independent investment advice to public and not-for-profit institutions
• Over $39 billion of assets under management in the following strategies:
– Cash: Local Government Investment Pools and Money Market Funds– Enhanced Cash– 1-10 Year fixed-income strategies
Public Funds - Fixed-Income Focus
Top 25 managers of active domestic fixed income
4© 2009 PFM Asset Management LLC
fixed incomeU.S. institutional, tax-exempt assets managed internally, in millions, as of Dec. 31, 2008
Manager Assets Manager Assets
PIMCO $175,292 BNY Mellon Asset Mgmt. $30,661
Legg Mason $149,983 Payden & Rygel $30,045
BlackRock $120,326 Neuberger Berman $27,054
TIAA-CREF $116,330 AllianceBernstein $23,614
Loomis, Sayles $59,159 Metropolitan West Asset $22,372
Prudential Financial $58,190 ING $19,894
JPMorgan Asset Mgmt. $49,620 Wells Capital $19,487
Dodge & Cox $47,011 New York Life Inv. Mgmt. $19,395
Fidelity Investments $45,687 PFM Asset Mgmt. $18,472
Wellington Mgmt. $45,627 Aberdeen Asset Mgmt. $17,201
Goldman Sachs Group $39,038 Principal Global Investors $16,768
NISA Investment $38,202 RidgeWorth Capital $15,955
TCW Group $31,313 TOTAL $1,236,696
Top 25 chart from Pensions & Investments, May 2009
PFMOur Philosophy and Approach to Managing Public Funds
Philosophy
• Safety: Preserve capital with high-quality investments
• Liquidity: Provide needed liquidity through cash-flow analysis and careful planning
• Return: Optimize earnings using low-risk management techniques
Approach
• Use low-risk, disciplined investment strategies that produce consistent results
5© 2009 PFM Asset Management LLC
• Carefully manage market and credit risk
• Manage volatility of returns
Results
• Consistent and strong historical performance with low volatility
• Steady growth in clients and assets under management
– Currently manage over $39 billion in discretionary assets, most of which is for public
and not-for-profit entities, including over $6 billion in the Southeast
PFM
PFM’s Florida Local Government Experience
Marion CountySt. Johns County Monroe CountyHillsborough CountyAlachua CountyBrevard CountyCitrus CountyFlagler CountyHighlands CountySt. Lucie CountyNassau County
City of Palm Beach GardensCity of Winter SpringsCity of North PortCity of Fort LauderdaleCity of Hallandale BeachCity of Daytona BeachCity of Port OrangeCity of MelbourneCity of Palm BayCity of OcalaCity of Palm Coast
Municipalities Counties
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Nassau CountyEscambia County
Atlanta-Fulton County Recreation AuthorityOrlando-Orange County Expressway AuthorityBonita Springs Utilities, Inc.Jacksonville Aviation AuthorityJacksonville Port AuthorityOrange County Housing Finance AuthorityTohopekaliga Water AuthorityTampa Port AuthorityGreater Orlando Aviation AuthorityTampa Bay Water Authority
Lower Florida Keys Hospital DistrictSouth Broward Hospital DistrictSt. Johns River Water Management DistrictFlorida Housing Finance CorporationFlorida Hospital Association Management CorporationMunroe Regional Medical CenterMemorial Employees Federal Credit Union
City of Palm CoastCity of Winter GardenCity of ClermontCity of West Palm BeachVillage of Royal Palm BeachCity of Key WestTown of Longboat KeyCity of TitusvilleVillage of WellingtonCity of South PasadenaVillage of North Palm BeachTown of Palm Beach
Authorities
Districts/ Others
Florida State at JacksonvilleEdison State CollegeUniversity of North Florida
Higher Education
© 2009 PFM Asset Management LLC
PFMPFM’s Florida School District Experience
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Palm Beach County SchoolsBroward County SchoolsManatee County SchoolsSeminole County SchoolsBrevard County SchoolsLake County SchoolsMartin County SchoolsVolusia County SchoolsMarion County SchoolsHernando County Schools
© 2009 PFM Asset Management LLC
PFM
• Active management of the Brevard County School District’s funds
• Investment Policy and Internal Controls Development
• Cash Flow Analysis
• Investment training for the Brevard County School District’s staff
• Notified the Brevard County School District about the SBA prior to the national press
PFM Provides the following Services to the Brevard County School District
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• Notified the Brevard County School District about the SBA prior to the national press
• On-going credit research on all investment types
• Accounting Support
• On-going Investment Reports
PFMPFM Out Performs Benchmarks
Quarterly Return Annualized Last Last Since InceptionAccount Name June 30, 2009 Quarter January 12, 1900 24 Months March 31, 2007
Self Insurance Fund 0.39% 1.55% 5.24% 6.18% 5.84%
Health Insurance Fund 0.57% 2.31% 5.36% N/A 5.69%
BenchmarkMerrill Lynch 1-3 Year U.S. Treasury Note Index -0.11% -0.43% 4.39% 5.83% 5.50%
• PFM out performs nationally recognized benchmarks.
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Merrill Lynch 1-3 Year U.S. Treasury Note Index -0.11% -0.43% 4.39% 5.83% 5.50%
Quarterly Average Quarterly AverageYield to Maturity Yield to Maturity
on Cost on CostAccount Name June 30, 2009 March 31, 2009Capital Short Term Fund 0.70% 1.33%Operating Short Term Fund 0.97% 0.78%
Average Weighted Yield 0.83% 1.08%
Benchmark June 30, 2009 March 31, 20093 Month U.S. Treasury Bill Index 0.12% 0.18%
PFM
4%
5%
Yield Curve Still Exceptionally Steep
• Investors are now demanding higher yields for longer maturities because of the perceived risk to longer-term investments associated with increased Treasury supply.
• Short-term rates, which are generally tied to the Federal Funds target rate, remain near record lows.
12/31/08 9/17/09 Change
3 month 0.08% 0.09% + 0.01%
U.S. Treasury Yield CurveDecember 31, 2008 versus September 17, 2009
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0%
1%
2%
3%
3m
1y
2y
3y
5y
10y
30y
Yie
ld
Maturity
September 17, 2009
December 31, 2008
6 month 0.26% 0.19% - 0.07%
1 year 0.34% 0.35% + 0.01%
2 year 0.77% 0.94% + 0.17%
3 year 0.97% 1.48% + 0.51%
5 year 1.55% 2.36% + 0.82%
10 year 2.20% 3.39% + 1.18%
30 year 2.66% 4.17% + 1.50%
Source: Bloomberg
PFM
5%
6%
High Forecast
Median Forecast
Two-Year Treasury Forecasts – September 2009
2-Year U.S. Treasury Note Yield ForecastsSeptember 2009 – First Quarter 2011
3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11High 1.40% 2.75% 3.10% 3.30% 3.80% 4.20% 4.80%Median 1.00% 1.20% 1.40% 1.60% 1.85% 2.15% 2.50%Low 0.75% 0.75% 0.75% 1.00% 1.10% 1.24% 1.36%
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0%
1%
2%
3%
4%
9/11/2009 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11
Low Forecast
Source: September 2009 Bloomberg Survey of Economists
PFM
1.00%
1.25%
1.50%
Fed Funds Forecasts – September 2009
Credit Suisse FBWells FargoMorgan StanleyFed Funds Futures
Federal Funds Target Rate ForecastsSeptember 2009 – Fourth Quarter 2010
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0.00%
0.25%
0.50%
0.75%
1.00%
9/11/2009 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10
Source: September 2009 Bloomberg Survey of Economists
Barclay’s /Goldman Sachs / JPMorgan Chase
PFMRecent Fed Action
• Results of the August 11-12 meeting of the FOMC:– Markets responded favorably to the FOMC’s language shift in its August statement, which suggested
that economic activity is “leveling out.” Previous FOMC statements had only gone so far as to say that “the pace of economic contraction is slowing.”
– The target rate will be kept at 0%-0.25% for “an extended period.”– The Fed will purchase up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion
of agency debt by the end of the year.– The Fed will continue the process of buying $300 billion of Treasury debt.
• Term Asset-Backed Securities Loan Facility Program (TALF) Extended on August 17:– The TALF committed $200 billion from the Federal Reserve Bank of New York to underwrite some of
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– The TALF committed $200 billion from the Federal Reserve Bank of New York to underwrite some of the toxic Asset-backed Securities held by banks in order to increase lending capacity and unfreeze the credit markets.
– Types of debt that can be underwritten with money from the TALF include:• Student loans• Car loans• Credit card loans• Small business loans guaranteed by the Small Business Administration
– For newly issued commercial mortgage-backed securities, the program will expire on June 30, 2010 instead of December 31, 2009. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.
PFM
4%
5%
6%
7%
Fed Not Concerned With Inflation
• In the month of July, consumer prices declined 1.5% due to lower energy prices, compared with August 2008.
• Consumer prices excluding food and energy rose 1.4%, indicating that expected inflation may be slow to arrive.
Year-Over-Year Consumer Price IndexAugust 2004 – August 2009
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-3%
-2%
-1%
0%
1%
2%
3%
4%
Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09
Core Consumer Price Index
Consumer Price Index
Source: Bloomberg
• Core values exclude food and energy, while non-core values include food and energy.
• Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation.
Fed’s Comfort Zone for Core CPI
PFM
6%
8%
10%
Fed Not Concerned With Inflation
• In the month of July, producer prices declined 4.3% due to lower energy prices, compared with August 2008.
• Producer prices excluding food and energy rose 2.3%, indicating that expected inflation may be slow to arrive.
Year-Over-Year Producer Price IndexAugust 2004 – August 2009
15
-8%
-6%
-4%
-2%
0%
2%
4%
Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09
PPI Core PPI
Source: Bloomberg
• Core values exclude food and energy, while non-core values include food and energy.
• Producer Price Index (PPI) is a measure of the average price level of a fixed basket of goods and services purchased by producers.
PFM
4%
6%
Recession Worse than Prior Estimates
• The U.S. economy shrank at a better than forecasted 1.0% annual rate in the second quarter, as a narrower trade deficit and government spending masked a deeper decline by consumers.
• First quarter numbers were revised lower to reflect a decline of 6.4%, the worst quarter in27 years.
Change in Gross Domestic ProductSecond Quarter 2004 – Second Quarter 2009
16
-8%
-6%
-4%
-2%
0%
2%
2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10
September 2009Bloomberg
Survey MedianForecasts
Source: U.S. Department of Commerce – Bureau of Economic Analysis and Bloomberg Survey of Economists median forecasts
PFM
9%
10%
600
800
Unemployment Headed for Ten Percent
• August marked the 20th consecutive month of net job losses.
• In total, the economy has shed 6.9 million jobs since the recession began in December 2007.
Far
m P
ayro
lls
Change in Non-Farm Payrolls vs. Unemployment RateAugust 2003 – August 2009
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4%
5%
6%
7%
8%
-800
-600
-400
-200
0
200
400
Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09
Ch
ang
e in
No
n-F
arm
Pay
rolls
Th
ou
san
ds
Un
emp
loym
ent R
ate
Source: U.S. Department of Labor – Bureau of Labor Statistics
PFM
16%
18%
U-6 Unemployment Rate
U-3 Unemployment Rate
What Is the True Unemployment Rate?
• While U-3, the most widely reported measure of unemployment, rose to 9.7% in August, the U-6 rate of unemployment reached an incredible 16.8%.
• U-6 includes the total unemployed (U-3), plus “all marginally attached workers, plus total employed part time for economic reasons.”
U-3 vs. U-6 Unemployment RateJuly 2003 – July 2009
18
4%
6%
8%
10%
12%
14%
Aug 03 Aug 04 Aug 05 Aug 06 Aug 07 Aug 08 Aug 09
Source: U.S. Department of Labor – Bureau of Labor Statistics
PFM
125
150
Consumer Confidence Remains Shaken
• Although significantly improved since February’s record low reading, consumer confidence remains well below levels seen in recent years.
Consumer ConfidenceAugust 1999 – August 2009
19
0
25
50
75
100
Aug 99 Aug 01 Aug 03 Aug 05 Aug 07 Aug 09
Source: Conference Board
PFM
6%
8%
Weak Retail Sales Continue
• Low consumer confidence has translated into weak retail sales, signaling further trouble for the consumption-driven U.S. economy.
Year-over-Year Same-Store Sales GrowthSeptember 7, 2004 – September 15, 2009
20
-6%
-4%
-2%
0%
2%
4%
Sep 04 Sep 05 Sep 06 Sep 07 Sep 08 Sep 09
Source: International Council of Shopping Centers –and Goldman Sachs
PFM
8%
10%
A Penny Saved Is a Penny Not Spent
• As consumer spending continues to decline, Americans are saving more of their earnings.
• Year-to-date, Americans saved an average 4.4% of their disposable income, the highest level since 1998.
Personal Savings as a Percent of Disposable IncomeJanuary 1989 – May 2009
21
0%
2%
4%
6%
8%
1989 1994 1999 2004 2009
Source: Bloomberg
PFM
7.0
7.5
1,300
1,500
Housing Market Shows Signs of Life
• Home sales, while still down more than 30% from the height of the bubble, have rebounded considerably in the past four months.
• Sales of new and existing homes jumped dramatically in July, due in part to an increase in distressed sales and a tax credit extended to first-time home buyers.
Existing Home SalesJuly 2004 – July 2009
New Homes SalesJuly 2004 – July 2009
22
4.0
4.5
5.0
5.5
6.0
6.5
Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09
Mill
ion
s
300
500
700
900
1,100
Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09
Th
ou
san
ds
Source: National Association of Realtors Source: National Association of Realtors
PFM
9%
10%
4%
5%
Foreclosures, Delinquencies at Record Highs
• As of June 2009, 13.5% of mortgages were either delinquent or in foreclosure.
• The rising rate of mortgage delinquencies points to continued weakness in the housing sector.
U.S. Mortgage Delinquencies2nd Quarter 1999 – 2nd Quarter 2009
Quarterly Foreclosure Percentages2nd Quarter 1999 – 2nd Quarter 2009
23
3%
4%
5%
6%
7%
8%
Jun 99 Jun 01 Jun 03 Jun 05 Jun 07 Jun 09
0%
1%
2%
3%
4%
Jun 99 Jun 01 Jun 03 Jun 05 Jun 07 Jun 09
Source: Mortgage Bankers Association Source: Mortgage Bankers Association
PFM
Disclaimer
This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM AssetManagement LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is notintended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances arebased on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual eventsoccur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Pastperformance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer topurchase or sell any securities.
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