Chesterton Tribune

 

 

County investment fund earns 8 percent return in first year

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By JEFF SCHULTZ

The first year for Porter County Government’s investment of its hospital sale proceeds into its own nonprofit charitable foundation proved largely successful as it saw a return rate of eight percent.

“We are no doubt thrilled with the results to date, especially with the interest rates we were getting before the Foundation,” said County Council President Mike Jessen, R-4th.

The Foundation board, made up of all members of the County Council and the Board of Commissioners, met Tuesday for its quarterly meeting to hear the results of its portfolio performance from investment advisor Capital Cities, LLC.

The market value of the Foundation’s portfolio was $156,442,784 for the period ending March 31, compared to the initial investment of about $140 million, said Amanda Black, CEO of Capital Cities. The Foundation’s first period started on April 1, 2016.

For the last quarter, returns were 3.2 percent, exceeding the benchmark of 2.8 percent, and boosted the year total to 8 percent. The investment gain for the period was $4.6 million.

“It’s a really strong performance,” Black said.

Black said there were positive returns in the equity markets during the first quarter of the year, while fixed income returns were much more muted because of considerable volatility in interest rates there. However, the County’s fixed income investments grew more than most in the market.

The Foundation portfolio has about 41 percent in equities and 59 percent in fixed income. County Attorney Scott McClure said the statute creating the Foundation limits the amount it can invest in equity.

Black and Capital Cities senior consultant Corey Waddell presented a fee monitor study that is done after a year from the investment. The Foundation pays three different layers of fees -- an investment management fee of $644,372, a $620 custodian fee and a $65,000 consultant fee to Capital Cities -- totaling $709,992, Waddell said.

That overall fee total during the past 12 months is “quite reasonable” given the Foundation’s size and portfolio in its peer group, Waddell said.

McClure said with Capital Cities getting paid a flat fee of $65,000 with no additional compensation based on the performance of the investment, the independent nature of it is working very well.

The “magic date”

During the presentation, Commissioner Laura Shurr Blaney, D-South, said she realizes that the return is eight percent now but that might be different by Dec. 31. That is the “magic date” in the Foundation’s investment policy that McClure said is the yearly cutoff for whatever interest is made. The interest amount then resets on Jan. 1.

“I keep hearing a lot buzz about the money we have now, but we can’t count on it until Dec. 31,” Blaney said.

The earliest date that interest could be available to transfer into the County’s coffers is sometime in February, McClure said, because Capital Cities is expected to take six to eight weeks for the money to become liquid and able to be transferred in a way that won’t involve fees or penalties.

Rainy Day fund

Speaking on the concerns addressed by several Council members earlier, McClure said one issue to explore is the idea of having a rainy day fund for a year with a negative performance.

He asked Black to next time give the Foundation scenarios of what a bad or devastating year would look like. “That way we can start to formulate how much money we need to set aside for the investments moving forward.”

Black said she can model different levels of probability based on the Foundation’s spending expectation.

“We know that these returns will not continue forever and we want to be prepared for that as a Foundation so we can weather that storm when it passes,” added Jessen.

Commissioner President Jeff Good, R-Center, said Porter County Government is operating on a $3.8 million deficit per year and has had to rely on other funding sources to balance its budgets.

“When we are talking about a rainy day fund, that is what that’s for. It’s for that money to be in there to run County Government up to two or three years if the market flatlines,” he said.

The gains from the hospital sale have staved off tax increases and reductions in County services, McClure said.

Council member Jeff Larson, R-at large, asked Black if there is an amount of the returns she could suggest that can be invested back into the investment principal and still have money left to bridge funding gaps.

Black said according to statute, any interest above five percent is automatically reinvested. Larson asked if five percent would be enough interest to cover shortages.

McClure said there is a mechanism to allocate out of the principal which is a unanimous vote by the Foundation.

Independent auditor

The Foundation received proposals from five companies competing to be its independent auditor.

The companies were ATS CPA Consulting Service, Katz Sapper and Miller, Kruggel Lawton CPAs, Sherman Barber and Mullikan, and Kemper CPA Group, LLC.

The proposals will be evaluated by a committee of Foundation members, McClure and County Auditor Vicki Urbanik. Jessen said the top contenders would be invited to talk to the Foundation which will then choose the firm.

An audit by an independent firm is required by the state, Good said.

 

 

Posted 6/29/2017

 

 
 
 
 

 

 

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