TITLE
Recommendation to receive and file Investment Report for Quarter Ending September 30, 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 September 30, 2009, these funds had a market value of approximately $1.7 billion, with approximately $975 million, or approximately 57 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, the Deputy 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 Development Services departments, meets monthly, or as needed, to review investment policies, strategies and performance.
Investment Pool Rating
As of September 30, 2009, Standard and Poor's reaffirmed the City's investment portfolio rating of AAAf and one of the lowest volatility ratings of S1. 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 City, along with a working group of other cities, counties and states having exposure to Lehman exceeding $1.7 billion, continue to work with representatives in Congress to encourage the Treasury Department to allocate funds under the Troubled Asset Relief Program (TARP) and the Emergency Economic Stabilization Act (HR 1424), which instructs the Secretary of the Treasury to take into consideration "the need to ensure stability for United States public instrumentalities." On October 28, 2009, representatives from the working group, along with various members of Congress, met with the Treasury Secretary to discuss TARP and HR 1424. The Treasury Secretary stated he would review his previous position of not using TARP or funds under the Stabilization Act for this purpose. The City is still actively pursuing reimbursement through bankruptcy proceedings and the fraud lawsuit.
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 0.49 percent. Book yield represents the actual earnings received on the total Investment Portfolio.
On September 30, 2009, the City's investment pool market yield was 1.23 percent compared to 1.64 percent on June 30, 2009. During the quarter, the short-term benchmark decreased 5 basis points, while the long-term benchmark index decreased 22 basis points. The following table summarizes the Investment Pool market yield performance for the quarter ending September 30,2009:
Quarter End Values
Portfolio Funds Amount of Funds Benchmark Weighted
Return Avg Yield**
Maturity*
Short-Term Investment Pool $ 603,446,364 0.15 percent 0.33 years 0.75 percent
Long-Term Investment Pool $ 1,099,889,667 1. 1 0 percent 0.53 years 1 .49 percent
Total Investment Pool $ 1,703,336,030 0.78 percent 0.46 years 1.23 percent
* Weighted Average Maturity assumes securities are not called or sold prior to the actual maturity date. ** Market Yield of Portfolio at quarter end.
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 September 30, 2009:
SHORT-TERM PORTFOLIO
Amount of Benchmark vs. Purchase Yield Analysis
Month Funds Invested Benchmark Purchase Over/(Under)
Return* Yield** Benchmark*
July 2009 $ 55,000,000 0.17 percent 0.15 percent (0.02) percentage points
August 2009 $ 87,000,000 0.17 percent 0.21 percent 0.04 percentage points
September 2009 $ 140,000,000 0.12 percent 0.23 percent 0.12 percentage points
Total Invested $ 282,000,000 0.15 percent 0.21 percent 0.06 percentage points
Funds *
* 91-Day T-Bill and other retums Itsted are weighted averages for the penod. **Purchase Yields stated to matunty assume the securities are not called or sold prior to the maturity date.
The following table summarizes the purchase yield of the new investments vs. the average benchmark yield in the long-term portfolio by month for the quarter ending September 30, 2009. Due to unprecedented market volatility, the maturities of the long-term portfolio were systematically shortened (e.g. from average 18 to 24 month maturities to 6 to 12 month maturities) resulting in lower yields when compared to the benchmark, which has longer durations of 12 to 36 months on average.
LONG-TERM PORTFOLIO
Amount of Benchmark vs. Purchase Yield Analysis
Month Funds Invested Benchmark Purchase Over/(Under)
Return* Yield** Benchmark*
July 2009 $ 103,000,000 1.20 percent 0.26 percent (0.62) percentage points
August 2009 $ 140,000,000 1.13 percent 0.44 percent (0.69) percentage points
September 2009 $ 35,000,000 0.98 percent 0.15 percent (0.83) percentage points
Total Invested $ 278,000,000 1.14 percent 0.34 percent (0.80) percentage points
Funds *
* Merrill Lynch One-to- Three Year Treasury/Agency Index and other retums listed are weighted averages for the penod. Excludes ovemight and shari-term investments under 30 days. **Yields are stated to maturity and assume the securities are not called or sold prior to the maturity date.
As of September 30,2009, the City had no investments 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 and Intermediate Term 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
Chandler Asset Management began reviewing and recommending a strategy for the longterm investment portfolio with the Investment Advisory Committee in October 2009.
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 October 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
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APPROVED: |
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PATRICK H. WEST |
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CITY MANAGER |