LAKEPORT >> Lake County’s investment program comprises a diversified portfolio, focused on objectives of liquidity, safety and return, because the county relies upon this income, in order to meet day-to-day expenditures.
A presentation by a portfolio manager of the Chandler Asset Management firm filled in the Board of Supervisors November 14, with no action required. Chandler has 30 years’ experience assisting financial planning for public agencies, schools and health care services which offers to customize clients’ investment strategy to reduce risk and promote predictability.
But deciphering the portfolio can be a challenging, as District 4 Supervisor Michael Green spoke for many when expressing his awe of the thoroughness of the presentation.
“It gets as complicated as can be,” Green confided.
And in a sense, the pool of investment funds basically represents the county’s budget. “Yet there’s some investment plans we participate in that are county monies allocated during our budgeting process for any number of valid government purposes,” said Green. “But we are not spending it each and every day. So, the county (as some constituents believe) is not rolling in disposable income. And were just looking for investment tools to make some interest, which is part and parcel of how municipal government works.”
Carlos Oblites, is a Chandler senior portfolio strategist and deconstructed the financial moving parts that operate in synchronization. The entire investment program as of September 30, comprised $486 million. That $486 million does belong to Lake County he noted, but not the entire total sum, as it also belongs to the school district, participants in the county pool of side funds, the community college district and those residents who rely upon county services. “It’s not that the county is sitting on money they don’t want to spend, but it is similar to a checking account,” Oblites said. “The money comes in through tax collection and gets paid down (to meet county obligations) and gradually moves up and down for these reasons.”
All of the fund is monitored monthly and reported on by the county treasurer/tax collector in compliance with the California Government and county policy codes. “We look at your investment program (6 months ago) divide it into three parts deliberately, to capture some higher yields in the market for specific reasons,” he said. This long-term portfolio, the largest component, is now at $363 million. The funds here tend to be steady,” Oblites said. “You’re earning 2.54% right now. “But soon, it will be re-invested with yields of 5.37 %.”
He further explained the reason the interest income rose was because investments purchased during the Pandemic had yields of under 1 % and are now being replaced with investments earning 4.5 or 4.75 %.
The portfolio’s second component includes longer maturity assets, and was devised as a tactical move, done in collaboration with the County Treasurer/tax collector Patrick Sullivan. Because Sullivan must concern himself with liquidity (ease which an asset or security can be converted into ready cash) he maintains a significant amount in the cash sweep, transferring uninvested cash balances into FDIC-insured accounts, money market mutual funds, or other investment vehicles. At some point, these funds can grow into significant sums noted Oblites.
“You might be overweighted in these asset classes, so we identify certain opportunities where you can pick up higher yields in shorter maturities,” he said. “Treasurer Sullivan and I collaborated to build side portfolios, and today that portfolio is valued at $51 million where the average yield of 5.39 % is significantly higher.
The third component of the investment program is a local government investment pool, CAMP (capital asset pricing model) are investment options offered to public agencies through CAMP, which offers securities with maturities ranging from 60 days to one year. Sullivan can collect a higher interest rate with what is called Local Agency Funds (LAIF). LAIF is a voluntary program created by statute, began in 1977 as an investment alternative for California’s local governments and special districts and it continues today, conceived for safety and liquidity.
Since October 2021, the Investment Program took significant strides as the county deposited $3.6 million recalled Sullivan for the board. “We expect it to trend upwards over the next year, if interest rates stabilize, probably about a year or so, you’ll see these numbers level off,” he said. “You’ll see this potential growth over the next year, if all conditions remain the same.”
Rates remained low through the middle of the Pandemic Oblites noted, but then rates had a big swing. And when rates rise in rapid succession that is volatility he pointed out. “It means investors get jittery as to whether the government can act to pass fiscal measures,” (i.e. the stopgap spending bill of Nov. 15) Oblites said.
“If the economy slows down, we’ll see a recession and the Fed. may have to reverse its path and start lowering interest rates,” said Oblites. “If you are too short, your maturities come quicker, and your money comes back faster. You’re forced to re-invest those at dropping rates, which means your income goes down and you want to avoid that.”
This is typically associated with economic contraction down the line he pointed out. “This is the reason the side portfolio was set up- more short- term maturities, which was to capture that dislocation in the market and pick up those higher yields.”
