Long Beach, CA
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File #: 22-1050    Version: 1 Name: FM - Investment Report
Type: Agenda Item Status: Approved
File created: 8/18/2022 In control: City Council
On agenda: 9/6/2022 Final action: 9/6/2022
Title: Recommendation to receive and file the Investment Report for Quarter Ending June 30, 2022. (Citywide)
Sponsors: Financial Management
Attachments: 1. 090622-C-8sr&att

TITLE

Recommendation to receive and file the Investment Report for Quarter Ending June 30, 2022.  (Citywide)

 

DISCUSSION

The City of Long Beach (City) Treasurer's Office in the Financial Management Department invests the funds in compliance with the California Government Code, Section 53600 et. seq., and the City's Investment Policy. As of June 30, 2022, these funds had a book value of approximately $2.034 billion. 

 

Statutory Compliance

 

All investment transactions have been executed in conformance with the City of Long Beach's (City) Investment Policy and the California Government Code. The Investment Advisory Committee, composed of the Assistant City Auditor, Deputy City Attorney, City Treasurer, City Controller, and designated representatives from the Harbor and Water Departments, meets quarterly, or as needed, to review investment policies, strategies, and performance. All portfolio transactions as of June 30, 2022, can be found in the Investment Trading Activity (Attachment A).

 

Investment Strategies

 

The Investment Policy divides the City's investment portfolio into short-maturity, intermediate-maturity, and long-maturity portfolios. Their respective benchmarks are the Three-Month Treasury Bill Index, the ICE Bank of America Merrill Lynch (BAML) One-to-Three Year US Treasury/Agency, and the ICE Bank of America Merrill Lynch (BAML) One-to-Five Year US Treasury/Agency.

 

The short-maturity portfolio maintains a weighted average maturity of three to six months and provides sufficient liquidity to satisfy the City's short-term cash needs. The intermediate-maturity portfolio maintains a weighted average maturity of approximately one to three years and provides for the cash needs with maturities greater than six months. The long-maturity portfolio maintains a weighted average maturity of one to five years to satisfy the City's longer-term cash needs.

 

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. Approximately $571.5 million of the total investment pool, or approximately 28.58 percent of the funds, will mature in the next six months, ensuring that sufficient funds are available to meet the City's liquidity needs.

 

Investment Position and Performance

 

The following table summarizes the City's investment pool position and performance for the quarter ending June 30, 2022:

 

 

1)                     Book value is the initial value/outlay for an investment at the time of purchase (as much as five years ago) and still held in the portfolios, while market value represents the value at a point in time based on current market conditions.

2)                     Unrealized Gain/(Loss) is the difference between book and market value. It is inversely related to the change in interest rates. As interest rates rise or fall, the value of fixed-income assets moves in the opposite direction. Typically, investments are held to maturity, and therefore, gains/losses are rarely realized.

3)                     Total return is a performance measurement metric that reflects the portfolio's overall value for this three-month period, if liquidated, including income and realized and unrealized gains and losses.

4)                     Investment Performance - Portfolio Total Return numbers are calculated as a weighted average.

5)                     Last 12 months Portfolio Total Return is a performance measurement metric that reflects a rolling 12-month return, which includes income and both realized and unrealized gains/(losses)

6)                     Interest Earnings is the amount of interest earned from investments over a 3-month period, net of investment-related expenses.

 

The quarter ending June 30, 2022 continued to experience rising market interest rates after a prolonged period of stable and historically low levels, which caused the investment value to decline on a mark-to-market basis. This resulted in an unrealized loss of approximately $50.1 million from the prior quarter's unrealized loss of approximately $36.0 million, for securities purchased in the last five years and still held. Generally, there will be minimal actual realized loss since most securities are held to maturity. For the three months ended June 30, 2022, the quarterly total return was -0.47 percent, which was 1 basis point (0.01 percent) better than the benchmark. Over the preceding 12 months, the investment portfolio generated an annualized total return of -2.47 percent, which was 54 basis points (0.54 percent) better than the benchmark.

 

Another view of investment performance considers actual interest earnings, irrespective of changes in market value of the portfolio that are unlikely ever to be realized. As shown in the bottom-right portion of the table above, interest earnings totaled approximately $4.29 million for the quarter ending June 30, 2022. Using average cash balances for each of the three months of the quarter, the actual interest earned yielded an annualized interest earnings rate of 0.83 percent over the full quarter.

 

Investment portfolio holdings as of June 30, 2022, are included in Attachment B.

This matter was reviewed by Principal Deputy City Attorney Richard F. Anthony and by Revenue Management Officer Geraldine Alejo on August 9, 2022.

 

TIMING CONSIDERATIONS

City Council action on this item is not time critical.

 

FISCAL IMPACT

This recommendation has no staffing impact beyond the normal budgeted scope of duties and is consistent with existing City Council priorities. There is no fiscal or local job impact associated with this recommendation.

 

SUGGESTED ACTION

Approve recommendation.

 

Respectfully Submitted,

KEVIN RIPER

DIRECTOR OF FINANCIAL MANAGEMENT

 

 

 

APPROVED:

 

THOMAS B. MODICA

CITY MANAGER