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HomeMy WebLinkAbout97.PPP Investment PerformanceCHANDLER ASSET MANAGEMENT, INC. | 800.317.4747 | www.chandlerasset.com INVESTMENT REPORT Period Ending December 31, 2018 Orange County Sanitation District 2 SECTION 1 Firm Overview SECTION 2 Economic Update SECTION 3 Account Profile Table of Contents As of December 31, 2018 SECTION |Section 1 |Firm Overview 4 Specializing in Investment Management for Public Agencies Assets Under Management $16.6 Billion Chandler Asset Management Assets as of December 31, 2018. California Based, Independent & Employee-Owned •Fixed income specialist since 1988 •Founded by public investment professionals •Headquartered in San Diego Custom Investment Programs •Investment solutions built upon California Government Code; Safety, Liquidity, Return •Investment solutions that incorporate our Client’s risk profile and return goals •Strategies for operating and project funds, bond- proceeds and reserves, and OPEB trusts •Proprietary investment analysis Stable Team of Investment Professionals •Team of investment professionals average over 21 years portfolio management experience •Disciplined investment philosophy and repeatable process •Direct contact with investment management team “We believe if we do what is right for our clients, our own success will follow.” Corporate <1% Hospital 17% Non-Profit <1% Sub-Advisory 2% Public Agency 80% 5 Lasting Partnerships with Neighbors and Peers Local Water District, Sanitation District, and Utilities Clients Client Name Managed Since East Orange County Water District 2016 Elsinore Valley Municipal Water District 2017 Moulton Niguel Water District 1995 Orange County Sanitation District 2014 Rancho California Water District 1996 San Bernardino Municipal Water Department 2013 South Coast Water District 2015 San Diego County Water Authority 2014 Temescal Valley Water District 2016 Three Valleys Municipal Water District 2009 Upper San Gabriel Valley Municipal Water District 2014 Vallecitos Water District 2018 Walnut Valley Water District 2009 Western Municipal Water District 2001 Neighboring Public Agency Clients Client Name Managed Since City of Brea 1996 City of Buena Park 2005 City of Costa Mesa 2013 East Orange County Water District 2016 City of Fountain Valley 2015 City of Irvine EBT 2018 City of La Habra 1999 Moulton Niguel Water District 1995 City of Newport Beach 1991 Orange County Sanitation District 2014 Orange County Transportation Authority 2018 City of San Clemente 2013 City of San Juan Capistrano 2018 South Coast Water District 2015 Transportation Corridor Agencies 2014 City of Westminster 2015 Chandler’s water agency clients and sampleInland Empire area clients as of December 31,2018.Both lists only include clientsthat have given permission tobe listed.It is not known whether the clients listed approve or disapprove of Chandler Asset Management and the advisory services provided.Includes discretionary and non-discretionary relationships. 6 Our Experienced Team is a Resource for the District Investment Professionals Responsibility Industry Experience Firm Tenure Martin Cassell, CFA CEO, Chief Investment Officer Leads the investment team, firm oversight 1987 1991 Jayson Schmitt, CFA EVP,Portfolio Manager Implements portfolio strategies, credit analysis and head of Quantitative Analysis Committee and Economic and Market Analysis Committee 1994 1995 Ted Piorkowski, CFA SVP, Portfolio Manager Implements portfolio strategies, credit analysis and head of Sector Committee 1987 1999 William Dennehy II, CFA EVP,Portfolio Manager Implements portfolio strategies, credit analysis and head of Credit Committee 1992 2011 Scott Prickett, CTP EVP, Portfolio Strategist Implements portfolio strategies, monitors alignment with client objectives and policies and head of Portfolio Strategy 1987 2014 Jeff Probst, CFA VP, Portfolio Manager Implements portfolio strategies and credit analysis 2010 2012 Genny Lynkiewicz, CFA VP, Portfolio Manager Implements portfolio strategies and credit analysis 2000 2015 Julie Hughes SVP, Portfolio Strategist Implements portfolio strategies and monitors alignment with client objectives and policies 1993 2014 Carlos Oblites SVP, Portfolio Strategist Implements portfolio strategies and monitors alignment with client objectives and policies 1995 2017 Shelly Henbest, CFA VP, Credit Analyst Research and credit analysis 2000 2009 Devin Weinstein Portfolio Management Associate Assists with implementation of portfolio strategies 2015 2018 Client Service and Operations Responsibility Industry Experience Firm Tenure Kay Chandler, CFA Chair of the Board,Founder Strategic planning and client service 1975 1988 Don Penner EVP, Director of Business Development Leads the client service, marketing and relationship management team 2001 2010 Mia Corral Brown SVP, Relationship Manager Client service and relationship management 1997 2004 Jeannie Palmero VP, Client Service Client service manager 1994 2007 Nicole Dragoo, IACCP COO, Chief Compliance Officer Responsible for regulatory compliance, directly manages investment operations and oversees firm’s administrative functions 2000 2001 Section 2|SECTION |Section 2 |Economic Update 8 U.S.payrolls rose by 312,000 in December,well above the consensus forecast of 184,000.October and November payrolls were revised up by a total of 58,000.On a trailing 3-month and 6-month basis payrolls increased by an average of 254,000 and 222,000 per month,respectively,more than enough to absorb new entrants into the labor market.The unemployment rate increased to 3.9%in December from 3.7%in November as the labor participation rate increased to 63.1%from 62.9%.A broader measure of unemployment called the U-6,which includes those who are marginally attached to the labor force and employed part time for economic reasons,was unchanged at 7.6%.Wages jumped 0.4%in December on a month-over-month basis,exceeding expectations of 0.3%.Wages were up 3.2%on a year-over-year basis in December,versus up 3.1% year-over-year in November. The average workweek increased to 34.5 hours in December from 34.4 hours in November. Source: US Department of Labor Source: US Department of Labor 0 50 100 150 200 250 300 350 MO M C h a n g e I n ( 0 0 0 ' s ) Nonfarm Payroll (000's) 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% Unemployment Rate Underemployment Rate (U6) Unemployment Rate (U3) Ra t e ( % ) Employment 9 The Consumer Price Index (CPI)was up just 1.9%year-over-year in December,versus up 2.2%year-over-year in November,as energy prices pulled down the index month-over-month.Core CPI (CPI less food and energy)was up 2.2%year-over-year in December,unchanged on a year- over-year basis from November.The Personal Consumption Expenditures (PCE)index was up 1.8%year-over-year in November,versus up 2.0% year-over-year in October.Core PCE (excluding food and energy)was up 1.9%on a year-over-year basis in November,versus up 1.8%in October. Core PCE inflation, which is the Fed's primary inflation gauge remains below the Fed’s 2.0% target. Source: US Department of Labor Source: US Department of Commerce 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Consumer Price Index (CPI) CPI YOY % Change Core CPI YOY % Change YO Y ( % ) C h a n g e 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Personal Consumption Expenditures (PCE) PCE Price Deflator YOY % Change PCE Core Deflator YOY % Change YO Y ( % ) C h a n g e Inflation 10 Third quarter GDP grew at an annualized rate of 3.4%(revised down slightly from the second estimate of 3.5%).This follows growth of 4.2%in the second quarter.Inventories and consumer spending drove growth in the third quarter,while net exports were a drag.The consensus forecast calls for GDP growth of 2.6% in the fourth quarter of 2018, 2.1% in the current quarter, and 2.5% for the full year 2019. Source: US Department of Commerce Source: US Department of Commerce 12/17 3/18 6/18 9/18 2.6%0.4%2.6%2.4% 0.1%1.6%-0.1%2.5% -0.9%0.0%1.2%-2.0% 0.3%0.2%0.2%0.2% 0.2%0.1%0.2%0.2% 2.3%2.2%4.2%3.4% Net Exports and Imports Personal Consumption Expenditures Gross Private Domestic Investment Federal Government Expenditures State and Local (Consumption and Gross Investment) Components of GDP Total -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Gross Domestic Product (GDP) GDP QOQ % Change GDP YOY % Change Gross Domestic Product (GDP) 11 Source: Bloomberg On a year-over-year basis,Treasury yields have increased and the Treasury yield curve has flattened.The spread between 2-Year and 10-year Treasury yields narrowed from 52 basis points to 20 basis points in 2018.Rate hikes by the Federal Reserve have put upward pressure on rates, while supply and demand imbalances,technical factors,weakening global economic growth,and subdued inflation expectations have contributed to the curve flattening. Source: Bloomberg 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% US Treasury Note Yields 2-Year 5-Year 10-Year Yi e l d ( % ) 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% US Treasury Yield Curve Dec-18 Sep-18 Dec-17 Yi e l d ( % ) Bond Yields SECTION |Section 3 |Account Profile 13 Objectives Chandler Asset Management Performance Objective Liquid Operating Monies –will be compared to the 3-month T-Bill rate and operate with a maximum maturity of one year. Long-Term Operating Monies –will be compared to the ICE BAML 1-5 Year Corporate Government Rated AAA –A Index. Investment Objectives The investment objectives of the Orange County Sanitation District are first,to provide safety of principal to ensure the preservation of capital in the overall portfolio;second,to provide sufficient liquidity to meet all operating requirements;and third,to earn a commensurate rate of return consistent with the constraints imposed by the safety and liquidity objectives. Strategy In order to achieve these objectives,the portfolio invests in high quality fixed income securities consistent with the investment policy and California Government Code. As of December 31, 2018 14 Category Standard Comment Treasury Issues 5 years maxmaturity; Minimum allocation of 10%Complies* U.S. Agencies 20% max issuer; 5 years max maturity Complies Supranational "AA" rated or better by a NRSRO; 30% maximum; 5 years max maturity; USD denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by IBRD, IFC, or IADB Complies Corporate (MTNs)"A" rated or better long term debt by a NRSRO; 30% maximum; 5% max issuer; 5 years max maturity; Issued by corporations organized and operating within the U.S. or issued by depository institutions licensed by the U.S.Complied at time of purchase** Municipal Securities "A" rated or higher by a NRSRO; 10% maximum; 5% max issuer; 5 years max maturity Complies Asset Backed/ CMOs/ Mortgage-backed "AA" rated or better by a NRSRO; "A" or higher issuer rating by a NRSRO; 20% maximum; 5% max issuer (excluding govt agency/mbs); 5 years max maturity Complies* Negotiable CDs "A" rated or better long term debt by a NRSRO; or "A-1"/ highest short term rating by a NRSRO; 30% maximum; 5% max issuer; 5 years max maturity Complies Certificates of Deposit 5% max issuer; 5 years max maturity; Secured/ collateralized Complies Banker’s Acceptances A-1 rated or equivalent short term rating by a NRSRO; 40% maximum; 5% max issuer; 180 days max maturity Complies Commercial Paper A-1 rated or equivalent short term rating by a NRSRO; "A" or better long term debt issuer by a NRSRO; Issued by a domestic corporation organized and operating in the US with AUM > $500million; 25% maximum; 5% max issuer; 270 days max maturity Complies Mutual Fund & Money Market Mutual Fund Highest rating or "AAA" rated by two NRSROs; SEC registered adviser with AUM >$500 million and experience greater than 5 years; 10% per one Mutual Fund; 20% max per issuer on Money Market Mutual Funds; 20% max of the District's surplus money Complies Repurchase Agreements 102% collateralization Complies Reverse Repurchase Agreements 5% maximum, 90 days max maturity Complies LAIF Not used by investment adviser Complies OCIP Not used by investment adviser Complies Avg Duration Not to exceed 60 months - (80% to 120% of the benchmark)Complies Max Per Issuer 5% of portfolio (except Supranationals, U.S. Government, Agencies, Mutual Fund)Complies Maximum Maturity 5 years maximum maturity Complies* Orange County Sanitation District Long Term Assets managed by Chandler Asset Management are in full compliance with state law and with the investment policy *The portfolio has twenty-one (21) securities with maturities greater than 5 years including four (4) CMOs, sixteen (16) MBS and one (1) treasury. All securities were inherited from the previous manager and complied at time of purchase. **GE (36962G7M0) was downgraded by Moody's (Baa1) and S&P (BBB+) in October 2018 and by Fitch (BBB+) in November 2018; complied at time of purchase. Compliance As of December 31, 2018 15 Portfolio Characteristics Orange County Sanitation District Long Term 12/31/2018 9/30/2018 Benchmark*Portfolio Portfolio Average Maturity (yrs)2.68 2.60 2.74 Average Modified Duration 2.53 2.27 2.37 Average Purchase Yield n/a 2.27%2.18% Average Market Yield 2.69%2.70%2.85% Average Quality**AAA AA/Aa2 AA/Aa1 Total Market Value 498,783,575 462,099,738 *ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index **Benchmark is a blended rating of S&P, Moody’s, and Fitch. Portfolio is S&P and Moody’s respectively. A diversified mix of securities were purchased during the quarter across the Treasury, Agency, Supranational, Asset Backed, Commercial Paper and Corporate sectors of the market to keep the asset allocation of the strategy consistent with Chandler objectives. The purchased securities ranged in maturity from January 2019 to December 2023. A $30.4 million contribution into the portfolio late in the year was partially invested in short maturity notes to await more liquid markets in the beginning of the year. As of December 31, 2018 16 Orange County Sanitation District Long Term Sector Distribution ABS8.0% Agency23.0% CMO 0.4% Commercial Paper 1.8% Foreign Corporate 0.9% Money Market Fund FI2.3% Mortgage Pass Thru 0.3%Municipal Bonds 0.9% Supranational 8.5% US Corporate 22.6% US Treasury 31.3% December 31, 2018 September 30, 2018 ABS 9.0% Agency23.5% CMO 0.5% Commercial Paper2.0% Foreign Corporate1.0% Money Market Fund FI 2.1%Mortgage Pass Thru 0.3%Municipal Bonds 1.0% Supranational 6.9% US Corporate 21.6% US Treasury32.3% As of December 31, 2018 The sector allocation was relatively stable. Some of the modest changes include increases in the Corporate and Supranational allocations offset by declines in the Treasury and Asset Backed allocations. 17 Issue Name Investment Type % Portfolio Government of United States US Treasury 31.29%Federal National Mortgage Association Agency 8.53% Federal Home Loan Bank Agency 8.41% Federal Home Loan Mortgage Corp Agency 6.02% Intl Bank Recon and Development Supranational 3.99%Inter-American Dev Bank Supranational 3.46%First American Govt Obligation Fund Class-Z Money Market Fund FI 2.29% Honda ABS ABS 2.28% John Deere ABS ABS 2.02% MUFG Bank Ltd/NY Commercial Paper 1.80%Nissan ABS ABS 1.68%Wells Fargo Corp US Corporate 1.59% Honda Motor Corporation US Corporate 1.38% Berkshire Hathaway US Corporate 1.30% Deere & Company US Corporate 1.26%American Express ABS ABS 1.24%Chubb Corporation US Corporate 1.23% Bank of New York US Corporate 1.22% PNC Financial Services Group US Corporate 1.20% ChevronTexaco Corp US Corporate 1.19%JP Morgan Chase & Co US Corporate 1.17%IBM Corp US Corporate 1.13% International Finance Corp Supranational 1.08% General Electric Co US Corporate 1.00% US Bancorp US Corporate 1.00%Qualcomm Inc US Corporate 0.99%HSBC Holdings PLC Foreign Corporate 0.89% Eli Lilly & Co US Corporate 0.80% Apple Inc US Corporate 0.80% Toyota ABS ABS 0.79%Wal-Mart Stores US Corporate 0.79%Occidental Petroleum Corporation US Corporate 0.66% General Dynamics Corp US Corporate 0.64% Morgan Stanley US Corporate 0.60% Exxon Mobil Corp US Corporate 0.60%Microsoft US Corporate 0.60%Oracle Corp US Corporate 0.59% Port Authority of New York and New Jersey Municipal Bonds 0.50% Issuers Orange County Sanitation District Long Term –Account #10268 As of December 31, 2018 18 Issue Name Investment Type % Portfolio HSBC Holdings PLC US Corporate 0.50%Merck & Company US Corporate 0.40% Federal Home Loan Mortgage Corp CMO 0.36% New York City Transitional Finance Authority Municipal Bonds 0.29% Federal National Mortgage Association Mortgage Pass Thru 0.24%University of California Municipal Bonds 0.08%Federal National Mortgage Association CMO 0.04% GNMA Mortgage Pass Thru 0.03% AMRESCO Residental Securities Corp CMO 0.03% SLM Corp ABS 0.01%Small Business Administration ABS 0.00%Federal Home Loan Mortgage Corp Mortgage Pass Thru 0.00% TOTAL 100.00% Issuers Orange County Sanitation District Long Term –Account #10268 As of December 31, 2018 19 AAA AA A <A NR 12/31/18 12.8%62.8%13.9%1.6%9.0% 09/30/18 11.6%63.8%14.5%0.6%9.5% Source: S&P Ratings December 31, 2018 vs. September 30, 2018 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% AAA AA A <A NR 12/31/2018 9/30/2018 Quality Distribution Orange County Sanitation District Long Term As of December 31, 2018 20 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 0 - 0.25 0.25 - 0.50 0.50 - 1 1 - 2 2 - 3 3 - 4 4 - 5 5+ Orange County Sanitation District Long Term ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index Portfolio Compared to the Benchmark as of December 31, 2018 0 -0.25 0.25 -0.50 0.50 -1 1 -2 2 -3 3 -4 4 -5 5+ Portfolio 13.9% 2.3% 9.4% 15.7% 24.8% 19.8% 11.9% 2.2% Benchmark*0.2% 0.0% 1.5% 33.5% 29.9% 22.3% 12.6% 0.0% *ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index Duration Distribution Orange County Sanitation District Long Term As of December 31, 2018 The duration of the portfolio contracted during the quarter, predominately due to the aforementioned investment late in the year, which the Chandler team chose to tactically invest in shorter maturity notes. The overall duration of the portfolio will be moving closer to the benchmark in Q1, although the bias is still to remain modestly below the index duration. 21 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 12 months 2 years 3 years 5 years 10 years Since Inception Orange County Sanitation District Long Term ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index Total Rate of Return Annualized Since Inception 11/30/2014 Annualized TOTAL RATE OF RETURN 3 months 12 months 2 years 3 years 5 years 10 years Since Inception Orange County Sanitation District Long Term 1.32%1.51%1.34%1.38%N/A N/A 1.17% ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index 1.57%1.49%1.25%1.27%N/A N/A 1.11% Total rate ofreturn:A measure of a portfolio’s performance over time.It isthe internalrate of return,which equates the beginningvalue of the portfoliowith the ending value;it includes interest earnings,realizedand unrealized gains and lossesin the portfolio. Investment Performance Orange County Sanitation District Long Term As of December 31, 2018 22 Category Standard Comment Treasury Issues 1 year max maturity; Minimum allocation of 10%Complies U.S. Agencies 20% max issuer; 1 year max maturity Complies Supranational "AA" rated or better by a NRSRO; 30% maximum; 1 year max maturity; USD denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by IBRD, IFC, or IADB Complies Corporate (MTNs)"A" rated or better long term debt by a NRSRO; 30% maximum; 5% max issuer; 1 year max maturity; Issued by corporations organized and operating within the U.S. or issued by depository institutions licensed by the U.S.Complies Asset Backed/ CMOs "AA" rated or better by a NRSRO; "A" or higher issuer rating by a NRSRO; 20% maximum; 5% max issuer; 1 year max maturity Complies Negotiable CDs "A" rated or better long term debt by a NRSRO; or "A-1"/ highest short term rating by a NRSRO; 30% maximum; 5% max issuer; 1 year max maturity Complies Certificates of Deposit 5% max issuer; 1 year max maturity; Secured/collateralized Complies Banker’s Acceptances A-1 rated or equivalent short term rating by a NRSRO; 40% maximum; 5% max issuer; 180 days max maturity Complies Commercial Paper A-1 rated or equivalent short term rating by a NRSRO; "A" or better long term debt issuer by a NRSRO; Issued by a domestic corporation organized and operating in the US with AUM > $500million; 25% maximum; 5% max issuer; 270 days max maturity Complies Mutual Fund & Money Market Mutual Fund Highest rating or "AAA" rated by two NRSROs; SEC registered adviser with AUM >$500 million and experience greater than 5 years; 10% per one Mutual Fund; 20% max per issuer on Money Market Mutual Funds; 20% max of the District's surplus money Complies Repurchase Agreements 102% collateralization Complies Reverse Repurchase Agreements 5% maximum, 90 days max maturity Complies LAIF Not used by investment adviser Complies OCIP Not used by investment adviser Complies Prohibited Municipal Securities Complies Prohibited Mortgage Securities Complies Avg Duration Not to exceed 180 days; Max duration of 1/2 year Complies Max Per Issuer 5% of portfolio (except Supranationals, U.S. Government, Agencies, Mutual Fund)Complies Maximum Maturity 1 year maximum maturity Complies Orange County Sanitation District Liquid Assets managed by Chandler Asset Management are in full compliance with state law and with the investment policy Compliance As of December 31, 2018 23 Portfolio Characteristics Orange County Sanitation District Liquid 12/31/2018 9/30/2018 Benchmark*Portfolio Portfolio Average Maturity (yrs)0.17 0.19 0.22 Average Modified Duration 0.16 0.19 0.22 Average Purchase Yield n/a 2.43%2.23% Average Market Yield 2.37%2.42%2.25% Average Quality**AAA AAA/Aaa AA+/Aa1 Total Market Value 176,671,592 75,177,285 *ICE BAML 3-Month US Treasury Bill Index **Benchmark is a blended rating of S&P, Moody’s, and Fitch. Portfolio is S&P and Moody’s respectively. Many securities were purchased across the Treasury, Agency, Certificate of Deposit, Commercial Paper and Corporate sectors of the market to keep the portfolio fully invested. The heavy transactional activity was driven by both the large number of maturing notes, totaling $43.3 million, as well as the large contribution late in the quarter totaling $101.0 million. As of December 31, 2018 24 Orange County Sanitation District Liquid Sector Distribution Agency 5.9%Commercial Paper 2.8%Money Market Fund FI2.3% Negotiable CD 3.1% Supranational 2.8% US Corporate 5.2% US Treasury 77.9% December 31, 2018 September 30, 2018 Agency 8.0%Commercial Paper 4.1% Money Market Fund FI 1.8% Negotiable CD 12.1% Supranational 2.7% US Corporate 8.3% US Treasury 63.1% As of December 31, 2018 The sector allocation evolved with the large contribution into the portfolio late in the quarter. Notably the Treasury allocation remains higher than the historical experience due to the increased issuance of the Treasury sector, improving valuations, offset by the light funding needs of both Fannie Mae and Freddie Mac, which is leading to unattractive valuations in the Agency sector. 25 Issue Name Investment Type % Portfolio Government of United States US Treasury 77.89%Federal Home Loan Bank Agency 5.41% Intl Bank Recon and Development Supranational 2.83% First American Govt Obligation Fund Class-Z Money Market Fund FI 2.30% PNC Financial Services Group US Corporate 1.66%Toronto Dominion Holdings Negotiable CD 1.15%Bank of Montreal Chicago Negotiable CD 1.13% Rabobank Nederland NV NY Commercial Paper 1.11% Bank of America Corp US Corporate 0.85% Westpac Banking Corp NY Negotiable CD 0.85%Wells Fargo Corp US Corporate 0.85%Toyota Motor Corp Commercial Paper 0.85% MUFG Bank Ltd/NY Commercial Paper 0.85% Walt Disney Company US Corporate 0.64% Paccar Financial US Corporate 0.61%JP Morgan Chase & Co US Corporate 0.57%Federal Home Loan Mortgage Corp Agency 0.46% TOTAL 100.00% Issuers Orange County Sanitation District Liquid –Account #10282 As of December 31, 2018 26 AAA AA A <A NR 12/31/18 38.6%55.6%5.2%0.0%0.6% 09/30/18 45.7%44.6%8.3%0.0%1.3% Source: S&P Ratings December 31, 2018 vs. September 30, 2018 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% AAA AA A <A NR 12/31/2018 9/30/2018 Quality Distribution Orange County Sanitation District Liquid As of December 31, 2018 27 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 0 - 0.25 0.25 - 0.50 0.50 - 1 1 - 1.5 1.5 - 2 2 - 2.5 2.5 - 3 3+ Orange County Sanitation District Liquid ICE BAML 3-Month US Treasury Bill Index Portfolio Compared to the Benchmark as of December 31, 2018 0 -0.25 0.25 -0.50 0.50 -1 1 -1.5 1.5 -2 2 -2.5 2.5 -3 3+ Portfolio 81.9% 2.6% 15.6% 0.0% 0.0% 0.0% 0.0% 0.0% Benchmark*100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% *ICE BAML 3-Month US Treasury Bill Index Duration Distribution Orange County Sanitation District Liquid As of December 31, 2018 The duration of the portfolio was little changed, currently 0.19 versus 0.22 at the end of the prior reporting period. 28 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80% 2.00% 12 months 2 years 3 years 5 years 10 years Since Inception Orange County Sanitation District Liquid ICE BAML 3-Month US Treasury Bill Index Total Rate of Return Annualized Since Inception 11/30/2014 Annualized TOTAL RATE OF RETURN 3 months 12 months 2 years 3 years 5 years 10 years Since Inception Orange County Sanitation District Liquid 0.57%1.90%1.40%1.09%N/A N/A 0.86% ICE BAML 3-Month US Treasury Bill Index 0.56%1.87%1.36%1.02%N/A N/A 0.76% Total rate ofreturn:A measure of a portfolio’s performance over time.It isthe internalrate of return,which equates the beginningvalue of the portfoliowith the ending value;it includes interest earnings,realizedand unrealized gains and lossesin the portfolio. Investment Performance Orange County Sanitation District Liquid As of December 31, 2018 29 Important Disclosures 2018Chandler Asset Management,Inc,An Independent Registered Investment Adviser. Information contained herein is confidential.Prices are provided by IDC,an independent pricing source.In the event IDC does not provide a price or if the price provided is not reflective of fair marketvalue,Chandler will obtain pricing from an alternative approved third party pricing source in accordance with our written valuation policy and procedures.Our valuation procedures are also disclosed inItem5ofourFormADVPart2A. Performance results are presented gross-of-advisory fees and represent the client’s Total Return.The deduction of advisory fees lowers performance results.These results include the reinvestment of dividends and other earnings.Past performance may not be indicative of future results.Therefore,clients should not assume that future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.All investment strategies have the potential for profit or loss.Economic factors,market conditions or changes in investment strategies,contributions orwithdrawals may materially alter the performance and results of your portfolio. Index returns assume reinvestment of all distributions.Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or thedeductionofaninvestmentmanagementfee,the incurrence of which would have the effect of decreasing historical performance results.It is not possible to invest directly in an index. Source ice Data Indices,LLC ("ICE"),used with permission.ICE permits use of the ICE indices and related data on an "as is"basis;ICE,its affiliates and their respective third party suppliers disclaim any and all warranties and representations,express and/or implied,including any warranties of merchantability or fitness for a particular purpose or use,including the indices,index data and any data included in,related to,or derived therefrom.Neither ICE data,its affiliates or their respective third party providers guarantee the quality,adequacy,accuracy,timeliness or completeness of the indices or theindexdataoranycomponentthereof,and the indices and index data and all components thereof are provided on an "as is"basis and licensee's use it at licensee's own risk.ICE data,its affiliates and theirrespectivethirdpartydonotsponsor,endorse,or recommend chandler asset management,or any of its products orservices. This report is provided for informational purposes only and should not be construed as a specific investment or legal advice.The information contained herein was obtained from sources believed to be reliable as of the date of publication,but may become outdated or superseded at any time without notice.Any opinions or views expressed are based on current market conditions and are subject to change.This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as indicator of future results.Past performance is not indicative of future results.This report is not intended to constitute an offer,solicitation,recommendation or advice regarding any securities or investment strategy and should not be regarded by recipients as asubstitutefortheexerciseoftheirownjudgment. Fixed income investments are subject to interest,credit and market risk.Interest rate risk:the value of fixed income investments will decline as interest rates rise.Credit risk:the possibility that the borrower may not be able to repay interest and principal.Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk.Market risk:the bond market in general could decline due to economic conditions,especially during periods of rising interest rates. Ratings information have been provided by Moody’s,S&P and Fitch through data feeds we believe to be reliable as of the date of this statement,however we cannot guarantee its accuracy. Security level ratings for U.S.Agency issued mortgage-backed securities (“MBS”)reflect the issuer rating because the securities themselves are not rated.The issuing U.S.Agency guarantees the full andtimelypaymentofbothprincipalandinterestandcarriesaAA+/Aaa/AAA by S&P,Moody’s and Fitch respectively. As of December 31, 2018 30 Benchmark Disclosures ICE BAML 3-Month US Treasury Bill Index The ICE BAML US 3-Month Treasury Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month.At the end of the month that issue is sold and rolled into anewlyselectedissue.The issue selected at each month-end rebalancing is the outstanding Treasury Bill that matures closest to,but not beyond,three months from the rebalancing date.(Index:G0O1.Pleasevisit www.mlindex.ml.com for more information) ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index The ICE BAML US Issuers 1-5 Year AAA-A US Corporate &Government Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market,including US Treasury,US agency,foreign government,supranational and corporate securities.Qualifying securities must issued from US issuers and be rated AAA through A3 (based on an average of Moody’s,S&PandFitch).In addition,qualifying securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity,at least 18 months to final maturity atpointofissuance,a fixed coupon schedule and a minimum amount outstanding of $1 billion for US Treasuries and $250 million for all other securities.(Index:BV10.Please visit www.mlindex.ml.com for more information) ICE BAML US 1-5 Yr US Corp/Govt Rated AAA-BBB Indx The ICE BAML 1-5 Year US Corporate &Government Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market,including US Treasury,USagency,foreign government,supranational and corporate securities.Qualifying securities must have an investment grade rating (based on an average of Moody’s,S&P and Fitch).In addition,qualifyingsecuritiesmusthaveatleastoneyearremainingtermtofinalmaturityandlessthanfiveyearsremainingtermtofinalmaturity,at least 18 months to final maturity at point of issuance,a fixed coupon schedule and a minimum amount outstanding of $1 billion for US Treasuriesand$250million for all other securities.(Index:BVA0.Please visit www.mlindex.ml.com for more information) As of December 31, 2018