TITLE
Recommendation to receive and file Investment Report for Quarter Ending March 31, 2008. (Citywide)
DISCUSSION
The Department of Financial Management, City Treasurer's Office, invests City funds in compliance with the California Government Code, Section 53600 et seq., and the City's Investment Policy. As of March 31, 2008, these funds had a market value of approximately $1.87 billion, with approximately $707.9 million, or approximately 37.5 percent of funds, maturing within six months, ensuring that sufficient funds are available to meet the City's cash and liquidity needs.
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 Auditor, Assistant City Attorney, Director of Financial Management, City Treasurer, City Controller, and the Financial Officers of the Harbor, Water and Community Development departments, meets quarterly, or as needed, to review investment policies, strategies and performance.
Ratinq Section
As of the date of this report, we are pleased to report the City's investment holdings carry the highest credit rating of AAA and the lowest volatility rating of S1 by the Standard & Poor's rating agency (Attachment A). This rating confirms the safety and soundness of the City's invested funds and qualifies the City's own Investment Pool as a viable alternative investment for the proceeds of bonds issued by the City.
Investment Performance
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 2008 Investment Policy divides the City's investment portfolio into a short-term and a long-term portfolio whose benchmarks are the Three-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 4.45 percent. Book yield represents the actual earnings received on the total Investment Portfolio.
At March 31, 2008, the City's investment pool market yield was 3.86 percent compared to 4.44 percent at December 31, 2007. It is important to note that the Federal Open Market Committee ("FOMC") reduced interest rates by 1.50 percentage points during this time period, thereby driving down interest rates on fixed income securities across the board. The following table summarizes Investment Pool market yield performance for the quarter ending March 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 March 31, 2008.
We are pleased to report that the purchase yield of new investments significantly outperformed the benchmark yields:
The following table summarizes the purchase yield of the City's new investments vs. the weighted average Benchmark Yield in the long-term portfolio by month for the quarter ending March 31, 2008. We are pleased to report that the purchase yield of new investments significantly outperformed the benchmark yields:
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 Subsidence, certain bond proceeds, 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
The City will continue to weigh new instruments at the 14-month to 24-month part of the yield curve to meet or exceed the benchmark yield and duration.
Treasury Bureau staff continues to monitor market conditions and market spreads daily in order to take advantage of opportunities to enhance earnings, while at the same time maintaining safety of principal and adequate liquidity.
Cash Manaqement Goals
The City's cash management goals are to maintain and preserve the safety of funds in custody and provide liquidity for anticipated expenditure needs.
Assistant City Attorney Heather A. Mahood, Budget Management Officer Victoria Bell and the City's Investment Advisory Committee reviewed this matter on April 29, 2008.
TIMING CONSIDERATIONS
This item is not time critical.
FISCAL IMPACT
There is no fiscal impact associated with this action. However, please note that recent and projected interest rate cuts by the Federal Open Market Committee (FOMC) may impact the City's budgeted revenue estimate for portfolio interest earnings. The Treasurer's Office will continue to monitor market conditions accordingly.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
Lori Ann Farrell
Director of Financial Management/CFO
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PATRICK H. WEST |
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CITY MANAGER |