TITLE
Recommendation to receive and file Investment Report for Quarter Ending March 31, 2009. (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 March 31, 2009, these funds had a market value of approximately $1.76 billion, with approximately $850 million, or approximately 48 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, composed of the Assistant City Manager, Assistant City Auditor, Assistant City Attorney, Director of Financial ManagementlCFO, City Treasurer, City Controller, Budget and Performance Management Bureau Manager and designated representatives from the Harbor, Water and Community Development departments, meets monthly, or as needed, to review investment policies, strategies and performance.
I nvestment Pool Rating
As of September 30, 2008, the City's investment portfolio carries the highest credit rating of AAA 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 Federal Reserve is providing a massive amount of liquidity to the markets since the collapse and bankruptcy of Lehman Holdings, Inc., in September 2008. There are now 20 active programs totaling over $9.6 trillion such as the Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) Conservatorship and multiple direct securities purchase programs, coupled with various guarantee programs. The Troubled Asset Relief Program ("T ARP") totaling $700 billion has expended or made commitments to spend approximately $573 billion to date, including investments of over $346 billion in the form of Preferred Stock and loan guarantees with 562 qualified corporations and financial institutions.
The City, along with a working group of at least 23 other cities, counties and other public entities located in California, whose exposure has grown to approximately $789 million, continues to seek assistance from the T ARP legislation enacted by Congress. The working group has reached out to other public entities throughout the United States and has identified to date 20 states, including California, Florida, Texas, New York, Oregon, New Jersey, Arizona and Delaware, to name a few that have public entities with exposure to Lehman exceeding $1.7 billion (see Attachment A). We are proud to announce that the combined efforts of the working group, the California delegation of the United States House of Representatives, Senator Diane Feinstein, and Congresswoman Anna Eshoo have led Congressman Barney Frank, Chairman of the House Financial Services Committee, to conduct a hearing on May 5, 2009 on the Lehman Holdings, Inc., bankruptcy and the impact on local governments. Staff will be providing Council with the details of this hearing with a separate memo.
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 1.84 percent. Book yield represents the actual earnings received on the total Investment Portfolio.
At March 31, 2009, the City's investment pool market yield was 2.22 percent compared to 2.73 percent at December 31, 2008. During the quarter, the short-term benchmark increased 13 basis points, while the long-term benchmark index increased 20 basis points, respectively. The following table summarizes the Investment Pool market yield performance for the quarter ending March 31, 2009:
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 March 31, 2009.
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 March 31, 2009.
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 12 month maturities) resulting in lower yields when compared to the benchmark, which has longer durations of 12-36 months on average.
LAIF's weighted average quarterly yield is approximately 1.91 percent, which is down from 2.54 percent at December 31, 2008. As of March 31, 2009, the City had approximately $80 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 B.
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.
Lonq-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 Assistant City Attorney Heather A. Mahood, Budget and Performance Management Bureau Manager David Wodynski and the City's Investment Advisory Committee on April 28, 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,
LORI ANN FARRELL
DIRECTOR OF FINANCIAL MANAGEMENT/CFO
NAME |
APPROVED: |
TITLE |
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PATRICK H. WEST |
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CITY MANAGER |