TITLE
Recommendation to receive and file Investment Report for Quarter Ending December 31, 2008. (Citywide)
DISCUSSION
The Department of Financial Management, City Treasurer's Office, invests the City's funds in compliance with the California Government Code; Section 53600 et seq., and the City's Investment Policy. As of December 31, 2008, these funds had a market value of approximately $1.7 billion, with approximately $869 million, or 50 percent of funds, maturing within six months, ensuring that sufficient funds are available to meet the City's cash and liquidity needs.
Statutory Compliance
All investment transactions have been executed in conformance with the City's Investment Policy and the California Government Code. According to the California Government Code, the maturity term of all investments is limited to a maximum of five years unless the local agency legislative body gives prior approval to exceed this limitation. The City's Investment Policy currently requires that all funds invested in the City's investment pool not exceed a weighted average maturity of three years. In addition, the Investment Advisory Committee, which consists of the Assistant City Manager, Assistant City Attorney, Assistant City Auditor, Director of Financial Management/CFO, City Treasurer, City Controller, Budget and Performance Management Bureau Manager, and designated representatives from the Harbor, Water and Community Development departments, meets quarterly, or as needed, to review investment policies, strategies and performance.
Investment Pool Rating
As of September 30, 2008, the City's investment portfolio carries the highest credit rating of AAAf/S1 and the lowest volatility rating of S1 by the Standard & Poor's rating agency. This rating confirms the safety of the City's invested funds and qualifies the Investment Pool as an alternative investment for proceeds from bonds issued by the City.
Financial Markets Performance
The financial markets credit crisis following the Lehman bankruptcy filing and felt around the world continued through December 31, 2008. Additionally, the U.S. Treasury added two programs totaling $800 billion to its existing 15 programs bringing the total size of its economic stabilization actions to over $2.7 trillion. The new programs will purchase both asset-backed securities and mortgage-backed securities from financial institutions to provide much needed liquidity in both of these markets. To date, Citigroup, Inc., AIG, Bank of America Corporation, JP Morgan Chase & Co., The Goldman Sachs Group, Inc., and Wells Fargo & Co., have all received assistance from the U.S. Treasury's Troubled Assets Relief Program (TARP).
The City of Long Beach completed its claim filing with the Bankruptcy Court and, in addition, has hired outside counsel to submit a Fraud Complaint against Directors, Officers and other third parties involved with Lehman Holdings Inc. The City, along with a working group of at least 23 other cities, counties and other public entities whose exposure has grown to approximately $789 million, from $650 million, continues to work together through our legislative leaders, seeking assistance from the Federal Bailout plan. Recently the working group reached out to other public entities throughout the United States in order to apply more pressure on the Federal government to provide relief. The information gathered to date, increases the national exposure of public agencies to Lehman Holdings of nearly $1.7 billion in 19 states (see Attachments B, C and D).
Investment Performance - Overall Portfolio
The City Treasurer's Office invests in a variety of fixed-income securities that vary in maturity from one day to five years (excluding the Health SAVRS loan), as authorized by the City's Investment Policy and the California Government Code. The City's adopted 2009 Investment Policy divides the City's investment portfolio into a short-term and a long-term portfolio whose benchmarks are the 3-Month Treasury Bill and the Merrill Lynch One-to-Three Year Treasury/Agency Index, respectively. Both are market indices that change daily, therefore, actual returns can vary depending on book yields and security calls before the final maturity date. The weighted average book yield for the period was 3.03 percent. Book yield represents the actual earnings received on the total Investment Portfolio.
At December 31,2008, the City's investment pool market yield was 2.73 percent compared to 3.19 percent at September 30, 2008. During the quarter, the short-term benchmark fell 123 basis points, while the long-term benchmark indices fell 103 basis points, respectively, due to the overall credit crisis and failing economy. The following table summarizes the Investment Pool market yield performance for the quarter ending December 31,2008:
The following table summarizes the purchase yield of the new investments vs. the average Benchmark Yield in the short-term portfolio by month for the quarter ending December 31, 2008. The purchase yield of new investments generally outperformed the Benchmark yields:
The following table summarizes the purchase yield of the new investments vs. the average Benchmark Yield in the short-term portfolio by month for the quarter ending December 31, 2008. Due to unprecedented market volatility, the maturities of the long-term portfolio were systematically shortened (e.g. from average 18 - 24 month maturities to 6 to 18 months resulting in lower yields.
LAIF's weighted average quarterly yield was 2.35 percent, which is down from 2.78 percent at September 30, 2008. As of December 31, 2008, the City had approximately $160 million invested in the State Treasurer's Local Agency Investment Fund (LAIF) pool.
A complete listing of investment balances, portfolio distribution and performance values can be found in Attachment A.
The City's investment pool consists of all City funds except certain bond and special assessment district proceeds. The non-pooled investments are invested separately in accordance with bond indenture provisions or other legal requirements.
Short-Term Investment Strategy
The City has adopted an investment strategy for the short-term portfolio that maintains sufficient liquidity within a rolling 12-month period to satisfy the City's cash needs.
Long-Term Investment Strategy
Due to the uncertainty and the unprecedented volatility in the capital markets, shorter investment maturities are currently more favorable.
Cash Management Goals
The City's cash management goals are to maintain and preserve the safety of funds in custody and provide adequate liquidity for anticipated expenditure needs.
This matter was reviewed by Budget Management Officer Victoria Bell, Assistant City Attorney Heather A. Mahood and the City's Investment Advisory Committee on January 27, 2009.
TIMING CONSIDERATIONS
This item is not time critical.
FISCAL IMPACT
There is no fiscal impact associated with this action.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
DAVID S. NAKAMOTO
CITY TREASURER
LORI ANN FARRELL
DIRECTOR OF FINANCIAL MANAGEMENT/CFO
NAME |
APPROVED: |
TITLE |
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PATRICK H. WEST |
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CITY MANAGER |