Leesburg’s OPEB Trust Finance Board on Nov. 15 received a quarterly market briefing from PFM and discussed governance options for managing the trust, including continuing with an outsourced chief investment officer (OCIO).

The presentation by PFM described broad Q3 market gains across equities and fixed income and attributed much of the quarter’s improvement to the Federal Reserve’s interest-rate cuts. Allison (PFM) told trustees the quarter showed a “broadening of the market” beyond the largest growth companies, with small-cap and value segments performing better in Q3. Scott Fleming of PFM added that core inflation measures were approaching the Fed’s target range and summarized recent policy action: a 50-basis-point Fed cut in September followed by a 25-basis-point cut at the most recent meeting, bringing short-term policy rates down about 75 basis points over the period.

Why this matters: The trust funds post-employment health benefits for retired town employees, so investment returns and the board’s asset-allocation decisions affect long-term funding and the town’s budget choices.

PFM’s remarks and trustee discussion

PFM presenters highlighted several drivers behind recent returns: U.S. gross domestic product rose about 2.8% in Q3, personal consumption remained strong, and federal spending provided an unusually large lift in the quarter (PFM cited a roughly 9.7% increase for the federal government, with defense outlays a notable contributor). On inflation, PFM reported PCE inflation near 2.1% for September and a core PCE reading around 2.7%.

On portfolio positioning, PFM said the trust remains largely in passive equity exposures and has taken modest steps in fixed income to extend duration to capture current yields. Allison (PFM) summarized the posture as neutral on equities and cautious on large-cap U.S. exposure, while noting opportunities in international markets and real estate investment trusts (REITs) now that rate pressures have eased.

“Allison said we’re staying very neutral,” a trustee noted during discussion. Fleming characterized the labor market as moderating and said the unemployment rate is, “quote, unquote, in a good place,” language he used to summarize the Fed’s dual-mandate considerations.

Governance and fiduciary responsibilities

PFM walked trustees through three models for oversight: in-house management, traditional (non-discretionary) consulting, and an OCIO arrangement in which an outside provider has discretionary authority to implement the board’s investment policy. PFM described its OCIO model as the hybrid it currently provides to Leesburg, in which PFM recommends and implements portfolio decisions under the trust’s investment policy statement (IPS).

The board reviewed core fiduciary duties—care, loyalty and obedience—and PFM recommended regular training for new and continuing committee members so trustees can fulfill those duties. PFM suggested trustees review the IPS annually (or roughly every 12–15 months) and maintain an investment committee charter to define roles and responsibilities.

Other items discussed

- Contributions: Trustees discussed the annual contribution to the trust; PFM reported that no new contribution is budgeted for this fiscal year (amount not specified in the meeting).
- Plan status: Trustees said the OPEB benefit was closed to new hires as of about April 2016; attendees estimated roughly 100 retirees currently receive benefits (exact participant count not specified). PFM confirmed that if all participants were paid and no beneficiaries remained, leftover trust assets could revert to the town consistent with the plan’s restrictions.
- Reporting and training: PFM said it will provide ongoing market commentary and offered short monthly training sessions and periodic longer “power hour” seminars for trustees.

Votes at a glance

- Approval of minutes from Aug. 16, 2024: motion and second recorded; outcome approved (vote tally not specified).
- Motion to adjourn: motion and second recorded; outcome approved (vote tally not specified).

The board agreed to place an IPS review and additional fiduciary training on future agendas. With those items noted, trustees closed the meeting following the adjournment vote.