Quarterly Review of Investment Strategy

September 30, 2019

Bernalillo County, NM

Chris DeBow, Managing Director

Sheila Duffy, DirectorAsh Mehta, Vice PresidentNeil Waud, CFA, CIO

Bernalillo County Investment CommitteeOctober 17, 2019, 10:00amBernalillo County Board of FinanceNovember 12, 2019, 4:30pm

Investment Priorities

Investment Strategy: Operating Funds PortfolioCurrent PortfolioStrategy

Investment Strategy: Bond Proceeds PortfolioCurrent PortfolioStrategy

Fiduciary Standard

Table of Contents

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Investment Priorities

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Our investment objectives and philosophy are consistent with all of our clients:

Safety is primary objective

Transparency

Compliance

Liquidity

Yield

Investment Priorities

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Investment Strategy – Operating Funds Portfolio

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Bernalillo County Operating Funds Portfolios Sept 30, 2019

Source: Public Trust Advisors Monthly Investment Statement, September 30, 2019 6

Bernalillo County Operating Funds - Aggregate (ex. Highly Liquid Portfolio and Bank Products)

Index: See Risk Comparison or Performance Comparison for index information.

1: * Pivoted by: Account. 2: * Weighted by: Ending Market Value + Accrued. 3: * Grouped by: Risk Metric.

Source: Public Trust Advisors September 30, 2019 7

Quarterly Strategy Update – Operating Funds Portfolio

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The “Three Bucket” strategy is in place:

Bucket #1: “15% Rule”- Must Mature Within 30 DaysIncludes the 15% Liquidity requirement as defined in the investment policyAmount updated per FY20 budget, now $76,562,261, which will be rounded up to $77 millionAdd two benchmarks for this portfolio: Standard & Poor’s Gov’t LGIP and the One Month Treasury

Bucket #2: Liquidity LadderBenchmark – 1 year T-bill Add commercial paper in this portfolio once it is included in policyThe Investment Working Group recommends a smooth ladder of $5mm monthly maturities through 12 months to meet the policy requirement of a minimum total $60 million for the first 12 months

Bucket #3: Core Operating FundsBenchmark – 1-3 year Treasury/Agency and Supranational paper Made up of funds not immediately needed for operations

Strategy approval for the operating funds portfolios will happen on a quarterly basis.

The Bernalillo County Treasurer manages Bucket #1. Public Trust manages Buckets #2 and #3 on a non-discretionary basis.

Annual Investment Policy updates were approved at the September 10, 2019 meeting of the Board of Finance.

Policy updates included changes in legislation from the 2019 regular session of the NM Legislature that allow for expanded allowable investments. The 2019 investment policy update includes the addition of commercial paper and supranational issuers within the constraints set in statute.

Public Trust Advisors is provided a training on implementation of these newly allowable securities on October 17.

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Investment Strategy: Three Buckets

Strategy approval for the operating funds portfolios will happen on a quarterly basis.

Public Trust manages the Laddered Liquidity and Core portfolios on a non-discretionary basis.

Bernalillo County manages the Highly Liquid 30 Day portfolio.

Investment Policy updates presented for approval last quarter.

BucketPolicy Parameter

($)

Current Position($ 9/30/19) Target ($) Strategy Comments

30 Day* $77 million$114.4 million

$77 millionFY20 target amount is $77million

Liquidity Balance of Funds$134.2 million

Balance of funds

$60mm must mature w/in 12 months

Core Undefined$108.8 million

$140million

Is there opportunity to move funds to the core portfolio out of the highly liquid portfolio to lock in yield in anticipation of further rate cuts?

* Defined as 15% of budget per Investment Policy

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Inverted Yield Curve

Source: Bloomberg as of October 10, 2019

Purple: US Treasuries Blue: Municipal Securities Green: CP

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Operating Funds Liquidity Portfolio Strategy

The liquidity portfolio is a laddered portfolio built to ensure there is enough money available to meet the operating cash needs of the County.

As of October 8, 2019, the ladder of maturities in this portfolio reaches out to April 30, 2021.

The policy requirement that $60 million matures within 12 months has been met.

The investment working group recommends that at least $5 million per month mature in each of the first 12 months (rolling) – this hurdle has also been met or exceeded.

The Treasurer’s team is working with local banks to establish deposit and/or ICS accounts in order to best serve the local community (Highly Liquid Portfolio – Local Community Investment Initiative).

The amount of funds required in the highly liquid bucket per the FY20 budget is $77 million and the balance in this bucket as of September 30, 2019 is $114.4 million.

The Bernalillo County Investment Policy was updated to incorporate statutory changes that expand the list of allowable investments. The Board of Finance voted to approve the updated policy on September 10, 2019.

Public Trust is hosting a four hour training for County staff and other NM clients on October 17th. One session will cover the newly allowed investments, commercial paper and supranational issuers, and will be presented by Public Trust’s chief investment officer and senior credit research analyst.

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Operating Funds Core Portfolio Strategy

Strategy for the Core portfolio was revised at the beginning of 2019 as the yield curve flattened and began to invert.

Active management and swap trades were discontinued in January 2019 per the request of the County, which has led to underperformance in this portfolio.

Active management was discontinued because the County does not want to realize losses in swap trades that can’t be paid back with higher incremental interest earnings due to the negative slope to the yield curve.

The County’s portfolio duration remains short of the selected 1-3 year benchmark. The County portfolio has a duration of 1.275 years vs. 1.863 years for the benchmark. By comparison, the core portfolio benchmark was 0.994 years last quarter (June 30, 2019).

Neil Waud, Public Trust’s chief investment officer will present different strategy options to the investment committee on October 17th .

Bernalillo County Op Funds Core Portfolio - Performance

Source: Public Trust Advisors Monthly Investment Statement, September 30, 2019

Index: ICE BofAML 1-3 Year Treasury/Agency Index 13

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Historic Benchmark Returns

Source: Bloomberg. ICE BAML Benchmarks are provided for illustrative purposes only. Comparisons to benchmarks have limitations because benchmarks have volatility and other material characteristics that may differ from the portfolio. Also, performance results for benchmarks do not reflect payment of investment management/incentive fees and other fund expenses. Because of these differences, benchmarks should not be relied upon as an accurate measure of comparison

Investment Strategy – Bond Proceeds Portfolio

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Bernalillo County Bond Proceeds Portfolio

Index: ICE BofAML 1-Year US Treasury Bill Index.

1: * Pivoted by: Account. 2: * Weighted by: Ending Market Value + Accrued. 3: * Grouped by: Risk Metric.

Source: Public Trust Advisors Monthly Investment Statement, September 30, 2019 16

Stable Strategy: Bond Proceeds Portfolio, Manage to Project Draws

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This portfolio strategy remains the same quarter to quarter.

The bond proceeds portfolio maturities are laddered monthly to fund project draws. Any funds not needed for capital project draws will be reinvested at the per the anticipated projects draws cash flow discussion at the investment working group meeting.

The working group actively discusses cash flows for both GO Bond Proceeds and the GRT funded projects at their regular monthly meeting.

Trade authorization will be required for each trade for the bond proceeds investments.

Registered Investment Advisor – Standard of Care

Per Public Trust Advisors’ current scope of work for Bernalillo County, we are required to prepare a quarterly investment review and present it to the Investment Committee and the Board of Finance. As a Registered Investment Advisor (RIA) under the Securities Exchange Act of 1940, we act in a fiduciary capacity for the County.

A fiduciary relationship is generally viewed as the highest standard of customer care available under law. Fiduciary duty includes both a duty of care and a duty of loyalty. Collectively, and generally speaking, these duties require a fiduciary to act in the best interest of the customer, and to provide full and fair disclosure of material facts and conflicts of interest.~ Securities Industry and Financial Markets Association (SIFMA)

SIFMA Fiduciary Standard Resource Center, https://www.sifma.org/issues/private-client/fiduciary-standard/overview/

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Disclosures

This presentation is for informational purposes only. All information is assumed to be correct but the accuracy has not been confirmed and therefore is not guaranteed to be correct. Information is obtained from third party sources that may or may not be verified. The information presented should not be used in making any investment decisions and is not a recommendation to buy, sell, implement or change any securities or investment strategy, function or process. Any financial and/or investment decision should be made only after considerable research, consideration and involvement with an experienced professional engaged for the specific purpose. All comments and discussion presented are purely based on opinion and assumptions, not fact, and these assumptions may or may not be correct based on foreseen and unforeseen events. All calculations and results presented are for discussion purposes only and should not be used for making calculations and/or decisions. The data in this presentation is unaudited.

Performance comparisons will be affected by changes in interest rates. Many factors affect performance including changes in market conditions and interest rates and in response to other economic, political or financial developments.. Investment involves risk, including the possible loss of principal. No assurance can be given that the performance objectives of a given strategy will be achieved. Past performance is not an indicator of future performance or results. Any financial and/or investment decision may incur losses.

The investment advisor providing these services is Public Trust Advisors, LLC, an investment adviser registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940, as amended. Registration with the SEC does not imply a certain level of skill or training. Public Trust is required to maintain a written disclosure brochure of our background and business experience. If you would like to receive a copy of our current disclosure brochure, privacy policy, or code of ethics please contact us.

Benchmarks are provided for illustrative purposes only. Comparisons to benchmarks have limitations because benchmarks have volatility and other material characteristics that may differ from the portfolio. Performance results for benchmarks do not reflect payment of investment management/incentive fees and other fund expenses. Because of these differences, benchmarks should not be relied uponas an accurate measure of comparison.

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