This report examines the performance of the public funds currently invested by the Will County Treasurer’s Office. This narrative covers investment activity and performance in September 2014.

Total Investment Portfolio

The county’s total holdings at the end of September had a market value of $259.0-million. The Treasurer’s Office has invested $207.9-million (80.3%) across a variety of fixed income security types (excluding cash). The total portfolio (including cash) has a Yield-to-Maturity of 96.2 basis points with an average maturity of 1,570 days (4.3 years).

As we discussed in last month’s report, the Treasurer’s Office sold $5-million worth of long-term investments during September. The sale was necessary to fund payables that included bond service, real estate acquisitions, and expenditures of RTA tax revenue by the Highway department.

The sale means that our office holds more short-term investments than we have during the past 12 months. Overall performance of the Investment Portfolio dipped below our benchmark against the 3-year U.S. Treasury Note for the first time in four years.

We should note, however, that overall portfolio performance remains near 1%, a strong return on investments considering the weak bond market of the past five years.

As you can see in the chart below, the maturity range of the investments shifted from a range greater than 10 years to a maturity between 3-6 and 6-9 months. It is commonly understood that short-term investments have lower yields than long-term investments. This shift explains the fundamental reason why the Investment Portfolio has weaker performance in the past quarter.

Reallocation of Treasurer’s Class C Fund Assets

In July, our staff met with the Finance Director and her team to discuss the way we invest funds that are part of the Treasurer’s Class C Fund managed by William Blair & Company. Collectively our goal was to adjust or end long-term investment for county agencies and departments with small budgets. Examples of these departments include Child Support, County Clerk Automation, and Workforce Development.

The total investment for this pool was approximately $15-million of the $90-million managed by William Blair. Beginning in October, William Blair will redeem $15-million. Our office will reinvest those funds in shorter-term instruments or a Local Government Investment Pool, which behaves like a cash money market account. The result of this reallocation means that total return of our investment portfolio will continue to weaken. We anticipate a total return target of 70 to 80 basis points by end of the FY2014.

Benchmark Performance

For the past 18 months, the Will County Treasurer’s Investment Policy sets two benchmarks against which we compare the performance of our investments.

  1. The 90-Day Average of the 1-Year Jumbo Deposit National Rate as quoted by the FDIC
  2. The 90-Day Average of the 3-Year Treasury Note as quoted by the U.S. Treasury Department

We use these two benchmarks because they closely relate to the length of time we hold an investment.

The table indicates two things. First, monetary policy of the Federal Reserve has led to an improvement in the 3-year U.S. Treasury bond yield. In the last six months, the 3-year UST has strengthened by an average of 20 basis points. Second, yield in County Funds over the same six month period are flat, having only improved 2 basis points. The spike in June, as we have previously explained, is the result of a rally in the corporate bond market at the beginning of the summer.

Corporate Class C Fund

The Corporate Class C Fund is the principal operating account for the county. The Treasurer’s Office uses this fund to pay employees, vendors, and other operating liabilities.

As of September 30, 2014, the market value of the Corporate Class C Fund was $132.9-million. Yield in the Corporate Class C Fund, was 65.6 basis points. Our cash position remains high as we continue to place real estate tax revenue into fixed income securities.

Treasurer’s Class C Fund

The Treasurer’s Class C Fund is the county’s capital improvements fund. The Treasurer’s Office holds proceeds from the county and township motor fuel tax, automation funds, and other revenue.

As of September 30, 2014, the market value of the Treasurer’s Class C Fund was $105.9-million. Yield in the Treasurer’s Class C Fund, including cash and money markets, was 1.384%. Performance was stable during the period as the Treasurer’s office took no distribution or made no investment in the fund.

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