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HomeMy WebLinkAbout(2001, 05/08) - F-1 - Amended and Reaffirmedr 0 F -1 STATEMENT OF INVESTMENT POLICY PURPOSE To set forth the City's policy concerning the investment of temporarily idle funds. It is the policy of the City to invest funds not required for immediate expenditures. Investments will be in compliance with governing provisions of law and the policy contained herein. Primary investment goals are security of principal, adequate liquidity maintenance, and yield, in that order. Investments shall be placed only in securities as outlined below. The balance between various investment instruments may change in order to provide the City with the best combination of yield, liquidity, and a consideration for other factors, such as placement of an appropriate percentage of available investment funds locally. It shall be the main responsibility of the City Council, in adopting this policy and reviewing the investment holdings on a monthly basis, to preserve the investment principal. INVESTMENT AUTHORITY Under the direction of the City Manager, the investment authority has been delegated to the Director of Administrative Services, who is responsible for administration of the City's investment program. This authority shall be renewed annually as part of the review and update of this Policy. In addition to the monthly investment report that is submitted to the City Council, the Administrative Services Director shall provide more detailed investment information to the City Council as requested. The City Council shall be briefed directly by the City's investment advisors on a quarterly basis whenever possible. Sections 53600 -53601 of the California Government Code provide basic investment limits and guidelines for government entities. In the event an apparent discrepancy is found between this policy and Sections 53600- 53601, the more restrictive parameters will take precedence. LIQUIDITY Sufficient funding to accommodate at least two-week's projected cash outflow is to be maintained in immediately available investments, such as the State Local Agency Investment Fund, maturing certificates of deposit, or similar liquid instruments. An analysis of cash flow must be conducted at least weekly to serve as the basis for determining appropriate maturities for investments. At no time shall the liquid cash on 1 F -1 • hand be less than 5 percent of the City's total investment portfolio. For purposes of this policy, cash on hand includes all cash and investments accessible within 48 hours. ACCEPTABLE INVESTMENT INSTRUMENTS The following are types of investments made by the City and the guidelines for investing in each. In all cases, investments shall be made in the context of the "Prudent Man" rule, which states, in part, that: When investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part to (sic) an overall investment strategy, a trustee is authorized to acquire investments as authorized by law." In this light, the City of Newport Beach does not purchase or sell securities on margin. Additionally, any institution, which holds either the collateral or the investment instruments themselves in safekeeping for the City, must maintain at least one billion dollars ($1,000,000,000) in assets. A. Certificates of Deposit Only fully collateralized certificates of deposit with FDIC insured institutions will be utilized in investment of City funds. Government securities having a market value of 110 percent of the total amount of investment are acceptable as collateral. Noncollateralized CD investments may be made in amounts less than 100,000 so long as they are fully insured by the FDIC. Not more than 10 percent of the City's investment portfolio shall be invested in certificates of deposit with any one institution. CD's will not be placed for a period of longer than one year. Further, an institution must meet the following criteria to be considered by the City: 1. The institution must maintain at least $1 billion in assets ($100 million for fully insured CD's of $100,000 or less). 02 0 F -1 2. The institution must have been in business at least three years. 3. The institution must have a net worth to asset ratio of at least 6 percent. 4. The institution must place and maintain on file with the City an audited financial statement not more than one year old. 5. Interest shall be paid to the City on a monthly basis. B. Negotiable Certificates of Deposit As a matter of policy, the City invests in Negotiable Certificates of Deposit only with U.S. Banks whose underlying securities are rated A -1 or P -1 by one of the top two rating agencies and having assets in excess of $10 billion, so as to insure security and a large, well - established secondary market. Ease of subsequent marketability is further ascertained prior to initial investment by examining currently quoted bids by primary dealers and the acceptability of the issuer by these dealers. No one issuer shall exceed more than 10 percent of the portfolio, and maturity shall not exceed one year. The California Government Code Section 53601 limits investment in negotiable certificates of deposit to 30 percent of the portfolio. C. Bankers Acceptances The City may invest only in Bankers Acceptances issued by the 100 largest banks in the world, which are eligible for purchase by the Federal Reserve System, the short term paper of which is rated at the highest category by Moody's and Standard & Poor's. In the case of foreign banks, the Bankers Acceptances must be written by their U.S. branches. Maximum maturity shall be 180 days. No more than 30 percent of the City's overall investment portfolio shall be placed in Bankers Acceptances, with no more than 10 percent of the City's portfolio invested in the banker's acceptances of any one commercial bank. D. U.S. Treasury Issues The City may invest in treasury notes, bills and bonds. Safekeeping documentation of these instruments in an acceptable and secure account in the 3 F -1 • City's name is required. Maximum maturity of any U.S. Treasury issue shall be five years. E. Federal Agency Securities Securities of this type that are acceptable for the City's investments are Federal Home Loan Bank notes, Federal National Mortgage Association notes, Federal Farm Credit Bank notes, or any other U. S. Government Agency security. Security requirements and maturity limitations are the same as those for U.S. Treasury issues. F. Commercial Paper The City may only invest in commercial paper issued by large, exceptionally well - established firms (firms with assets greater than $1 billion and their subsidiaries) organized and operating in the United States with the highest Moody's or Standard & Poor's ratings (Al /Pl). Commercial paper shall be used solely as a short -term investment not to exceed 180 days. Additionally, not more than 15 percent of the portfolio shall be invested in commercial paper with a maturity beyond 30 days. Another 15 percent may be invested in commercial paper if the entire amount invested in commercial paper has a weighted dollar average maturity of less than 31 days. Security requirements are the same as those listed above. Investment in commercial paper of any one issuer shall not exceed 10 percent of the portfolio. G. Repurchase Agreements ( Repos) and Reverse Repurchase Agreements Repos and reverse repos shall be used solely as a short -term investment not to exceed 30 days. The institution from which the City purchases a Repo must deliver adequate collateral to the City's safekeeping account (either directly or through a third party safekeeping agent), consisting of U.S. Treasury or Agency securities at the rate of 102 percent of the face value of the repo. The amount of this collateral must be sufficient to compensate for fluctuating market conditions. Repos will only be purchased from Primary Dealers. The City must own assets for more than 30 days before they can be used as collateral for a reverse repurchase agreement. No more than 10 percent of the portfolio can be involved in reverse repos.. 4 0 J F -1 H. Passbook Savings Accounts Savings accounts may be used as a repository for customer deposits, or for similar purposes. Consistent with the requirements for CD investments, funds deposited in savings accounts must either be FDIC insured or collateralized. I. Local Agency Investment Fund (LAIF) (State of California) State Regulation currently limits any one City's investment in this fund to $30 million at any one time, and prohibits more than 15 transactions (deposits or withdrawals) per month. Investment in this Pool is intended to be used as a temporary repository for short -term funds used for liquidity purposes. J. County Investment Funds Los Angeles County provides a service similar to LAIF for municipal and other government entities. This Fund is available to certain cities outside of Los Angeles County, including Newport Beach. Investment in this pool is intended to be used as a temporary repository for short -term funds used for liquidity purposes. At no time shall more than 5 percent of the City's total investment portfolio be placed in this Pool. The City shall not invest funds with the Orange County Pool. K. Medium Term Corporate Bonds /Notes Investments of this type will normally only be in corporations rated in the top three note categories by two of the three largest nationally recognized rating services. Maximum term to maturity for individual securities shall not exceed five years, and not more than 25 percent of the portfolio shall be invested in medium term notes of maturity greater than 2 years. No more than 30 percent of the City's investment funds shall be placed in securities of this type. As an additional restriction, not more than 10 percent can be invested in "A," rated securities, and none of those investments shall exceed two years to maturity. L. Asset - backed Securities Investment in asset - backed securities is limited to those collateralized with consumer receivables, rated "AAA," or the equivalent, by Moody's Investor 5 F -1 • Services or Standard & Poor's, Inc., and which have a final, stated maturity of five years or less from the date of purchase. No more than 10 percent of the City's investment funds shall be placed in securities of this type. M. Municipal Bonds Municipal bonds rated AAA, or AA and insured, are acceptable investments for the City. Not more than 15 percent of the portfolio shall be in investments of this type. N. Money Market Funds The City may invest in Money Market Funds subject to the following constraints. Investment in these funds is primarily intended for short -term "sweep account" purposes, not for longer -term investments. 1. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. • 80a -1.) 2. The company shall have met either of the following criteria: a. Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. b. Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than ten years' experience managing money market mutual funds with assets under management in excess of one billion dollars ($1,000,000,000). 3. The purchase price of shares of beneficial interest purchased shall not include any commission that the companies may charge. 4. No more than 20 percent of the City's investment portfolio shall be invested in money market funds. 6 • F -1 5. The City shall not invest in funds the market value of which is or has been less than $1 per share. PROHIBITED INVESTMENTS Consistent with California Government Code 53601.6, inverse floaters, range notes, mortgage derived interest -only strips, or any security that could result in zero interest accrual if held to maturity are specifically prohibited, except to the extent that they are shares of diversified management companies registered under the Investment Company Act of 1940. The City shall not purchase any security rated Al and or A+ or below if that security has been placed on "credit watch" for a possible downgrade by either Moody's Investor Services or Standard and Poor's. Investments not specifically approved by this policy are prohibited. ASSET/ INVESTMENT MANAGEMENT AGREEMENTS The City may employ the services of asset/ investment management companies. Such companies must have a history of producing no losses and relatively high net returns. They must also be well established and exceptionally reputable. Members of the staffs of such companies who will have primary responsibility for managing the City's investments must have a working familiarity with the special requirements and constraints of investing municipal funds in general and this City's funds in particular. They must contractually agree to conform to all provisions of governing law and the collateralization and other requirements contained herein. At no time shall more than 30 percent of the City's total investment portfolio be placed in any one investment management account. In order to implement this requirement, the City's portfolio assets will be reallocated annually among its investment managers. SAFEKEEPING /THIRD PARTY CUSTODIANS Cash and securities in the City's portfolio, which are being managed by private sector asset/ investment management companies, will not be in the custody of those companies. The City will contract separately with major banks or other well - established, reputable financial institutions, which provide custodial services to maintain custody of cash and securities in this category. In the case of a major financial institution, the City may have an asset/ investment management relationship, and a 7 F -1 0 custodial relationship, with the same entity. However, the services must be provided by separately managed departments within that entity, and the City's portfolio must be completely separate and distinct from the assets of the institution and from all other portfolios managed by the institution. RATING AGENCY CHANGES In the event a security held by the City is the subject of a rate drop which brings it below accepted minimums specified herein, or the security is placed on negative credit watch, where downgrade could result in a rate drop below acceptable levels, the investment advisor who purchased the security will immediately notify the Administrative Services Director or Deputy Director of that fact. The course of action to be followed will then be decided on a case by case basis, considering such factors as the reason for the rate drop, prognosis for recovery or further drop, and market price of the security. The City Council will be advised of the situation and intended course of action by e -mail or fax. REPORTING REQUIREMENTS In addition to the Monthly Investment Report, the City Council shall receive a detailed • quarterly listing of all investments in the City portfolio. The report must show the type of investment, issuer, date of maturity, par and dollar amount of deposit/ investment, and rate of interest. Quarterly reports from outside investment managers must also include market valuation of assets under their management and the source of that valuation, and shall also include a statement of compliance with investment policy. Current ratings of non - government securities, either Moody's or Standard & Poor's, will be included. In his report to Council, the Director of Administrative Services shall include a statement denoting the ability of the City to meet its expenditures for the next six months, and shall also include a statement of compliance with investment policy for assets under his direct management. In addition, the City Council shall be notified whenever 5 percent or more of the total portfolio is invested, withdrawn, or moved from one Investment Advisor or Pool to another. W] 0 Adopted - April 6,1959 Amended - November 9,1970 Amended - February 11, 1974 Amended - February 9,1981 Amended - October 27,1986 Rewritten - October 22,1990 Amended - January 28,1991 Amended - January 24,1994 Amended - January 9,1995 Amended - April 22,1996 Corrected - January 27,1997 Amended - February 24,1997 Amended - May 26,1998 Reaffirmed - March 22,1999 Reaffirmed - March 14, 2000 Amended & Reaffirmed - May 8, 2001 F -1 0