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PFM presents conservative portfolio; committee discusses cadence for future briefings
Summary
PFM Asset Management presented the city’s portfolio through March 31, 2025, noting a high allocation to Treasuries, short duration and recent yield volatility tied to trade and Fed uncertainty. Committee discussed meeting cadence and the possibility of adding commercial paper for modest additional yield.
Angie Hughes and Chris Harris of PFM Asset Management briefed the Audit & Finance Committee on the city’s investment performance through March 31, 2025, and provided a supplemental market update covering economic and policy developments through April and May 2025.
Chris Harris characterized the major market theme as heightened uncertainty from trade policy and Federal Reserve decisions. He described how effective tariff rates rose sharply earlier in spring 2025, elevated inventories distorted first‑quarter GDP components and markets were pricing in two quarter‑point cuts by the Fed later in the year. He noted the labor market remained relatively firm but warned tariffs could produce temporary price pressure as inventories run down.
Angie Hughes reviewed the city portfolio: roughly $121 million invested, about 99% rated very high quality and heavily weighted toward U.S. Treasury securities, with an effective duration around 2.1 years. Hughes said the portfolio held more cash in September 2024 than in December 2024 because prior staff had not invested some proceeds; PFM invested that cash later, which explains some timing differences in market‑value changes. She reported interest earnings of roughly $770,000 over three months and $16 million in interest since inception of the management arrangement. Total return was slightly below the benchmark at three months largely because prior cash holdings had no market‑value gains, but the portfolio outperformed the benchmark over three‑ and five‑year horizons and since inception.
Harris described commercial paper as a short, unsecured corporate instrument rated A‑1 or A‑1+ that can add roughly 15–25 basis points of incremental yield versus Treasuries. He said PFM uses a formal credit review and issuer diversification limits when including commercial paper.
Committee members asked about legal limits on municipal investments; PFM and staff confirmed state law restricts purchase of equities and riskier instruments for operating funds, which is why the portfolio emphasizes government securities. The committee discussed meeting frequency with PFM; city staff suggested annual or semiannual briefings, and some members favored semiannual or quarterly briefings given market volatility.
PFM will coordinate future presentations with staff; committee members requested a schedule that allows review after fiscal‑year close and suggested a return presentation in late winter or summer 2026 depending on the committee’s cadence decision.
