Public Trust Advisors Blog

An Insider's Perspective on Public Trust Advisors, LLC

Posted on Wed, Sep 13, 2017

We are pleased to feature a Q&A interview by Emmie Madison, Content Writer for Public Trust Advisors, LLC (Public Trust), with Portfolio Managers Neil Waud and Randy Palomba. We discussed their experience, the economic landscape, and managing local government funds.

Neil Randy Blog.pngQ: How long have you been with Public Trust, and overall how long have you been managing portfolios?

Neil Waud: I have been with Public Trust since the very beginning, and I have been investing cash since 2000.

Randy Palomba: I’m also fortunate enough to have been with Public Trust since inception, and I’ve been investing cash in the public sector for over 30 years now. Time flies!

Q: You’ve been working together for a while now, right? How long? What’s the team like?

Neil: Randy and I have worked together since July of 1995. For the past twenty plus years, Randy has been a mentor for me, always willing to share his thoughts and observations while helping me hone my craft. As the Public Trust team continues to grow, Randy’s guidance has fostered a culture that shares institutional knowledge while encouraging new ideas. By design, our trading desk is a lively environment where the team openly debates our investment strategy as we discuss the prudent management of our clients’ investable funds.

Randy: Neil and I have been working together for over twenty years if I remember correctly. We both started in Client Service roles and progressed to Portfolio Managers. We have a solid team that allows us to share ideas and execute trades that are the best ones for the clients we serve.

Q: You both are CFA® charterholders, so what does that mean?  Who else on your team is a current CFA® charterholder?

Neil: The Chartered Financial Analyst (CFA) credential is offered to investment professionals through the CFA Institute. To earn the CFA credential, candidates must demonstrate a firm grasp of portfolio management, various investment tools, and the ethical standards required as a professional. To become a CFA charterholder, you must pass three levels of exams that rigorously test your investment related knowledge. Once earned, you are encouraged to continue your professional development while holding yourself to the highest ethical standards.Neil Quote Blog.png

Randy: To build on what Neil said, Public Trust encourages everyone on the team to go through the program. We have three members of the team that have completed the requirements for CFA designation and have an additional four members of the team currently enrolled in the program working toward their designation.

Q: What is your overall strategy on investing on behalf of governmental entities?

Neil: The safety of public funds is always the primary objective when developing our investment strategy. An emphasis on high quality securities, diversification, and the minimization of volatility helps ensure our clients’ portfolios maintain an appropriate balance of safety and liquidity throughout market cycles.

Randy: Safety! Safety of principal and liquidity of funds. These are taxpayer dollars we are investing. It is extremely important to ensure these funds are invested safely and in compliance with governing legislation as well as the clients’ investment policies.

Q: Do you have anything you want Public Trust clients to know about how their investments are being managed?

Neil: Prudent investment management mandates a thorough credit analysis of the counterparties we lend to and strict adherence to our clients’ liquidity needs. Having met these requirements, we then focus on maximizing investment returns. While we work in a competitive landscape, at the end of the day we need to be mindful of the old axiom: “it is the return of your principal not the return on your principal that matters most to our Participants.”

Randy: I’m proud of the team we have assembled and the comradery we have in doing the best job we can for our clients. It’s a real team effort with everyone working together to produce a superior product for our clients.

Q: We’ve seen some changes in the market this past year. What is your take on the current market?

Neil: Since the November election, we have seen a shift in market sentiment. The initial optimism of deregulation, tax reform, and fiscal stimulus in Washington driving growth and inflation metrics higher has given way to the reality of a polarized political process that will take some time to unravel. For the past eight years, the U.S. economy has experienced relatively steady but unspectacular growth. While sufficient enough to tighten the labor market to pre-crisis levels, the growth has not translated into rising inflation. While the stock market continues to press towards new highs, inflation will likely need to rise for interest rates to push higher.

Randy: I’m happy to see the Federal Reserve begin to raise interest rates. I’m not convinced that the Fed will be as aggressive as its dot plot suggests. I’ve been doing this long enough to see interest rates go from double digits in the 1980s to practically zero for most of the last ten years. I hope we can see interest rates at levels that make sense for the earnings to once again become a budget item for local governments. The earnings on excess cash can be important to providing additional resources for governmental entities ultimately benefiting the taxpayers.


Q: So, what are your expectations for the next Federal Open Market Committee (FOMC) meeting in September?

Neil: The July FOMC meeting didn’t really tip its hand regarding another rate hike this year simply noting that inflation was still below its 2% target rate. However, the post-meeting statement did say the normalization of its balance sheet will begin “relatively” soon. I agree with most, interpreting this to mean that the Fed’s longer-term holdings will be addressed at the September meeting. As far as the next rate hike is concerned, inflation will likely need to rise for this to occur this year. If it happens at all, the December meeting makes the most sense at this point.

Randy: I believe the FOMC will announce the start of the balance sheet normalization process. I also think that it will keep the Fed funds target rate unchanged until we see some indication that inflation is heading back toward 2%. The FOMC has accomplished one objective by raising rates from the nearly zero level we experienced for several years. I’m not convinced the U.S. economy is ready for a two-year Treasury yielding 5%. However, I know that finance managers and savers would welcome that investment return.

Q: Anything else you’d like Public Trust clients to know?

Neil: I would like to thank everyone for their continued support of Public Trust and encourage Participants to reach out to the Portfolio Management Team with any questions you may have regarding the program. Having placed your trust in us, we want to always be available for you.

Randy: I have had a great career working with some very talented individuals in the public sector. I look forward to continuing to work hard with those individuals as well as the opportunity to work with some of the younger folks that are now entering the public sector. I’m thankful for all the great people I have met and have had the pleasure to work with over the years.

 

 

 

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. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

Tags: Local Government Investment Pools, Portfolio Management, FOMC, investment advisor, local government investment pool administration, Investing Public Funds, Managing Public Funds, Public Funds Investment, Public Trust Advisors

Celebrating Five Years

Posted on Wed, Feb 22, 2017

Public Trust Celebrates Five Years of Service

Public Trust Advisors™ (Public Trust) investment management services for the public sector is celebrating five wonderful years of service and operation with the help of loyal Participants within eight (8) local government investment pools (LGIP)! Since 2012, Public Trust has been meeting the investment and/or administration needs of various local government entities, now totaling over 3,600 Participants nationally.*

We are growing together! It is thanks to the vision of the governing boards and the loyal and growing participants of the Public Trust-managed LGIPs that we have experienced exponential growth since 2012. As of January 31, 2017, Public Trust manages and/or administers LGIP assets totaling approximately $18 billion* across the eight LGIPs, comprised of eleven funds. Year-over-year, the firm has grown from just over $10 billion in LGIP assets under management and administration (January 2016) to $18 billion (January 2017), a total growth of 78%.

Returns vs SP Chart 12-31-16-1.png

The number of Public Trust-managed LGIP Participants continues to grow each year, contributing to the success of all. As of January 31, 2017, total Participants for Public Trust-managed LGIPs reached 3,645!* That’s a growth of approximately 8% within the last year alone. Whether you’ve recently joined or have been a long-term Participant, your continued participation is what makes us all grow together.

For the past five years, Public Trust Advisors has made it a priority to offer high quality, cost-efficient LGIP investment management services that rely on
people, technology, and proven processesThe Public Trust LGIP Administration System, a new generation, LGIP specific back-office system, allows us to operate effectively and efficiently. Our LGIP Investment Advisory services are LGIP-specific, with credit and portfolio management working together to safely manage the public’s funds while finding value. The result? Higher investment returns for Public Trust-managed LGIPs. See Figure One for our performance against Standard & Poor's rating.

As yields continue to rise, 2017 is shaping up to be a year of continued growth for our Participants. Look for new services and enhancements as we all grow together. In the meantime, we would like to hear from you and invite you to learn more about Public Trust.

Pool Breakdown 2017-2.png 

 Need more information? Contact Us!

*Participants comprised of both funded and non-funded accounts. Of the $18 billion, $1.4 billion is administration only for one LGIP comprised of one fund. Data as of January 31, 2017. All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information above 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. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses. A 'AAAm' rating by Standard and Poor's is obtained after S&P evaluates a number of factors, including credit quality, market price exposure, and management. Ratings are subject to change and do not remove market risk. **The benchmark, the S&P US AAA & AA Rated GIP All 30 Day Net Yield (LGIP30D), is a performance indicator of rated GIPs that maintain a stable net asset value of $1.00 per share and is an unmanaged market index representative of the LGIP universe. The S&P benchmark utilized in this comparison is a composite of all rated stable net asset value pools. GIPs in the index include only those rated based on Standard & Poor’s money market criteria. Pools rated ‘AAAm’ provide excellent safety and a superior capacity to maintain principal value while those rated ‘AAm’ offer very good safety and a strong capacity to maintain principal value (source: Standard and Poor’s website). The comparison between this index and the portfolio may differ in holdings, duration, and percentage composition of each holding. Such differences may account for variances in yield.

Tags: LGIP, yield, safety, investment advisor, LGIP Administration, Investing Public Funds, local government investment pool administration, investment managment for the public sector

5 Things to Consider When Investing Bond Proceeds

Posted on Mon, May 16, 2016

By Chris DeBow, Managing Director, Public Trust Advisors LLC

You need to invest bond proceeds. Sounds simple right?

At Public Trust Advisors we take a thoughtful approach built over years of experience investing bond proceeds and will happily work with you based on your specific situation.

There is no one size fits all for investing bond proceeds – like any other investment it needs to be guided by both the needs of the underlying public entity and the complexities of the investment marketplace.  

The only thing that is true for all situations is that one wrong move and you could violate the public trust that is bestowed upon you.  Public Trust Advisors implements a comprehensive investment solution for managing bond proceeds that is anchored in the key tenants of public funds investing:  Safety, Liquidity and Yield.

Investing Bond Proceeds

5 things you should consider when investing bond proceeds:

1.) Waiting for a draw schedule from the construction manager may reduce interest income.

a. While having an accurate draw schedule is important, entities may begin investing a portion of their construction funds utilizing the “completion date” method and working backwards to build a ladder with a portion of the funds.

b. Once the construction manager provides the official draw schedule, one can put remaining funds to work along the investment ladder accordingly.

c. Even when you receive a copy of the official draw schedule, rest assured, it will change.  Large construction projects are too complex to predict. Amongst other factors, they are attempting to predict weather, material costs, soil samples and future presidents; hence, they are not always correct. 

2.) Too much liquidity can be inefficient.

a. Many entities tend to keep too much liquidity on hand. 

b. This problem only compounds when securities mature from the investment ladder and are not needed to fund current expenses.

c. It can be beneficial to pay construction expenses twice monthly.  This will allow the entity to better time and plan for checks leaving the building for the construction project.  If you are constantly paying expenses, things can get complicated.

Investing Bond Proceeds

3.) Do not just focus on today; focus on maximizing interest income over the life of the construction program. 

a. Many entities focus on today’s “best rate” and fail to adequately search for the best rates over the life of the construction program.

b. This is especially important when securities mature and the proceeds are not needed.  Often times, folks let the fund sit in cash, earning nearly zero, when the funds could be redeployed further out in maturity structure potentially earning additional yield. 

4.) Should I hire an investment advisor to help invest the proceeds?

a. A registered investment advisor can bring a lot to the table when it comes to managing bond proceeds.  Because the construction program is dynamic and constantly changing, an advisor can be continually scouring the investment marketplace for investment opportunities that may fit into the investment program. 

b. If an entity has a full-time staff professional dedicated exclusively to investing, the entity can certainly invest the bond proceeds without an investment advisor. Sometimes, public entities use both internal professionals and external experts, especially on large sophisticated projects. 

5.) What happens after I invest the bond proceeds?

a. I have often joked that investing is the easiest thing to do when investing bond proceeds.   It can be more important to develop accurate and in depth reports that can be shared with the School Board or governing body.  

If you would like to learn more about creating a customized investment solution for bond proceeds, please click the link below to work directly with Mr. DeBow.

Contact Chris DeBow, Managing Director

 

Tags: investment advisor, investing bond proceeds

Short-term Interest Rates: The Dot Plot Explained

Posted on Wed, May 27, 2015

By Joe Carroll, Vice President, Sales and Marketing

 

Short-term Interest Rates: The Dot Plot Explained

The Federal Open Market Committee (FOMC) is a twelve member committee consisting of members of the Federal Reserve Board and regional Reserve Bank presidents. The FOMC has eight regularly scheduled meetings throughout the year to discuss and assess economic and financial conditions, monetary policy, and risks to its long-run goals of price stability and sustainable economic growth.

One aspect of these meetings which garners a lot of attention is the dot plot. The dot plot is a visual representation of where each member of the FOMC thinks the federal funds rate should be at the end of each of the next three years and into the future (long run). While the dot plot is not an official tool of the FOMC, it does provide some insight as to what various members of the FOMC are thinking in regards to the federal funds rate.

Here is a picture of the March 18th FOMC meeting dot plot chart.

Dot Plot Blog 1

Each dot represents where individual members of the FOMC think the federal funds rate should be at the end of the year given current economic information. As seen above, the views on where the federal funds rate will be in the future varies quite a bit within the FOMC. For example, in 2016 the majority of the FOMC believes that the federal funds rate should be between 1.5% and 2.0%. There are a few members who think the rate should be much higher or lower than the consensus at the end of 2016.

Further examination of the dot plot provides even more insight into the thought process of the FOMC. The chart below shows the past three dot plot assessments along with the respective Fed Funds Futures contracts. The Fed Funds Futures contracts (seen in red) represent how the market is pricing the federal funds rate in the future. Noticeably, the market is not quite as optimistic as the FOMC. In addition to lower market expectations of the federal funds rate, it is clear that all the members of the FOMC have reduced their outlook for future interest rate levels.

Dot Plot Blog 2

The dot plot can be an insightful and useful tool when examining the federal funds rate and future projections. With recent changes in the FOMC language, we are expecting an increase in the federal funds rate sometime in 2015. Short-term interest rates have been at record lows for years. An increase in interest rates, and therefore interest income can mean a significant change for many local governments. The time for budgeting zero interest income may be coming to an end! Be sure to keep an eye out for the next dot plot and what it means to you.

 

Charts Sourced from Bloomberg

Tags: public funds investing, investment advisor, Short-term interest rates, fixed-income asset management, yield, public funds investor, Public Funds Investment, Local Government Investment Pools, safety, Investing Public Funds, LGIP Administration

What the Fed Said - And the Implications to Investing Public Funds

Posted on Thu, Jun 20, 2013

By Randy Palomba, CFA, Chief Financial Officer

At the conclusion of yesterday’s meeting it was stated that the FOMC will maintain its bond buying at the pace of $85 billion a month ($40 billion of mortgage-backed securities and $45 billion of Treasury securities) and they also said that risks to the economy have decreased. The Fed will continue to reinvest proceeds from maturing securities in its portfolio which has now expanded to over $3.4 trillion.

What does this mean for those investing public funds? We think it means plenty:

  1. While the Fed will maintain its current pace of bond buying, the markets believe that Chairman Bernanke's post-meeting press conference was decidedly hawkish in tone.

  2. With the diminished downside risks to the Fed's economic forecast, the "tapering" of quantitative easing may begin within the next few meetings and wind down altogether at some point next year.

  3. The markets are beginning to re-price risk in a world where the Fed may begin to pull back on its massive liquidity provisions.

investing public funds, public trust advisors

The FOMC also stated that they will keep the federal funds target rate at 0 to 0.25 percent and that it “expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends.”

The “Committee also sees the downside risks to the outlook for the economy as well as the labor market which has diminished since the fall.” As a result, Mr. Bernanke suggested that the FOMC may begin reducing bond purchases later this year and end them in 2014 if the economy continues to improve as forecasted. Mr. Bernanke reiterated that the bond “purchases are tied to what happens in the economy” and “if the economy does not improve along the lines that we expect, we will provide additional support.” The majority of policymakers expect the federal funds rate to increase in 2015 or later.

While everyone else is waiting around for the economy to get back on its feet, Public Trust believes there are some small, but effective steps we can take to keep your funds moving forward at a safe, but rigorous pace.

  1. Remember that the Fed's policies are still highly dependent on the progress made in the labor markets and therefore current market volatility may provide investment opportunities.

  2. Remain mindful of the market distortions that are a result of the Fed's highly accomodative monetary policy.

  3. As always, focus on safety, liquidity and then yield.

investing public funds, public trust advisors

The FOMC updated its forecast for growth, unemployment and inflation. The FOMC is forecasting slightly higher growth with lower unemployment and inflation.  

This forecast  “Partly reflects transitory influences, as inflation has been running below the committee’s longer-run objective, but longer term inflation expectations have remained stable.”

As an investment advisor focused on investing public funds, Public Trust has worked through every type of market condition to ensure that our clients funds are safe and sheltered, regardless of forecasts of rain and sleet. 

We have a big umbrella.

 

 

Tags: investment advisor, Investing Public Funds

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