HomeMy WebLinkAbout2024-21 - Amending City Council Policy F-1 (Statement of Investment Policy) Deleting Language Regarding Investment in the Los Angeles County Investment Pool, and Deleting Redundant Language Regarding Adoption DateRESOLUTION NO. 2024-21
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF NEWPORT BEACH, CALIFORNIA, AMENDING CITY
COUNCIL POLICY F-1 (STATEMENT OF INVESTMENT
POLICY) DELETING LANGUAGE REGARDING
INVESTMENT IN THE LOS ANGELES COUNTY
INVESTMENT POOL, AND DELETING REDUNDANT
LANGUAGE REGARDING ADOPTION DATE
WHEREAS, the City Council of the City of Newport Beach ("City") through City
Council Policy F-1 (Statement of Investment Policy) ("Council Policy F-1 ") has adopted a
Statement of Investment Policy ("Investment Policy");
WHEREAS, Council Policy F-1 requires the Finance Director/City Treasurer to
review the Investment Policy with the City's Finance Committee at least annually to
ensure its consistency with overall objectives of preservation of principal, liquidity and
return, and its relevance to current law and financial and economic trends;
WHEREAS, the City's Finance Committee reviewed changes to the Investment
Policy at its March 14, 2024, meeting and found consistency with the stated objectives;
WHEREAS, Council Policy F-1 requires the Finance Director/City Treasurer to
review the Investment Policy with the City Council at a public meeting if there are
recommended revisions to the Investment Policy;
WHEREAS, the Finance Director/City Treasurer has reviewed the Investment
Policy and recommends revisions to better align the policy with current operations by
deleting the provision regarding short term investment of surplus funds in the County of
Los Angeles investment pool, and deleting redundant language regarding the operative
date;
WHEREAS, pursuant to Government Code Section 53607, the authority of the
legislative body to invest or to reinvest funds of a local agency, or to sell or exchange
securities so purchased, may be delegated for a one-year period by the legislative body
to the treasurer of the local agency, who shall thereafter assume full responsibility for
those transactions until the delegation of authority is revoked or expires; and
WHEREAS, the City Manager has reviewed the recommended revisions
suggested by the Finance Director/City Treasurer and recommend the City Council
amend Council Policy F-1 as provided in this resolution.
Resolution No. 2024-21
Page 2 of 3
NOW, THEREFORE, the City Council of the City of Newport Beach resolves as
follows:
Section 1: The City Council does hereby amend Council Policy F-1 and
replaces it with the version attached hereto as Exhibit "A" and incorporated herein by this
reference.
Section 2: All prior versions of Council Policy F-1 that conflict with the revisions
adopted by this resolution are hereby repealed.
Section 3: The City Council delegates authority to invest or to reinvest the City's
funds, or to sell or exchange securities so purchased, to the City Treasurer for a one-year
period. The City Treasurer shall assume full responsibility for those transactions until the
delegation of authority is revoked or expires.
Section 4: If any section, subsection, sentence, clause or phrase of this
resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not
affect the validity or constitutionality of the remaining portions of this resolution. The City
Council hereby declares that it would have passed this resolution, and each section,
subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or
more sections, subsections, sentences, clauses or phrases be declared invalid or
unconstitutional.
Section 5: The recitals provided in this resolution are true and correct and are
incorporated into the substantive portion of this resolution.
Section 6: Except as expressly modified in this resolution, all other City Council
policies, sections, subsections, terms, clauses and phrases set forth in the Council Policy
Manual shall remain unchanged and shall be in full force and effect.
Section 7: The City Council finds the adoption of this resolution is not subject to
the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the
activity will not result in a direct or reasonably foreseeable indirect physical change in the
environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378)
of the CEQA Guidelines, California Code of Regulations, Title 14, Division 6, Chapter 3,
because it has no potential for resulting in physical change to the environment, directly or
indirectly.
Resolution No. 2024-21
Page 3 of 3
Section 8: This resolution shall take effect immediately upon its adoption by the
City Council, and the City Clerk shall certify the vote adopting the resolution.
ADOPTED this 9th day of April, 2024.
Will O'Neill
Mayor
ATTEST:
MAA�i�
Leilani I. Brown �a
City Clerk
APPROVED AS TO FORM:
CITY ATTORNEY'S OFFICE
C.
�.�
Aaron C. Harp
City Attorney
Attachment: Exhibit A — Council Policy F-1
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STATEMENT OF INVESTMENT POLICY
Purpose
The City Council has adopted this Investment Policy (the Policy) in order to establish the scope of the
investment policy, investment objectives, standards of care, authorized investments, investment parameters,
reporting, investment policy compliance and adoption, and the safekeeping and custody of assets.
This Policy is organized in the following sections:
A. Scope of Investment Policy
1. Pooling of Funds
2. Funds Included in the Policy
3. Funds Excluded from the Policy
B. Investment Objectives
1. Safety
2. Liquidity
3. Yield
C. Standards of Care
1. Prudence
2. Ethics and Conflicts of Interest
3. Delegation of Authority
4. Internal Controls
D. Banking Services
E. Broker/Dealers
F. Safekeeping and Custody of Assets
G. Authorized Investments
1. Investments Specifically Permitted
2. Investments Specifically Not Permitted
3. Exceptions to Prohibited and Restricted Investments
H. Investment Parameters
1. Diversification
2. Maximum Maturities
3. Credit Quality
4. Competitive Transactions
I. Portfolio Performance
J. Reporting
K. Investment Policy Compliance and Adoption
1. Compliance
2. Adoption
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A. SCOPE OF INVESTMENT POLICY
Pooling of Funds
All cash shall be pooled for investment purposes. The investment income derived from the
pooled investment shall be allocated to the contributing funds, net of all banking and
investing expenses, based upon the proportion of the respective average balances relative to
the total pooled balance. Investment income shall be distributed to the individual funds not
less than annually.
2. Funds Included in the Policy
The provisions of this Policy shall apply to all financial assets of the City as accounted for
in the City's Comprehensive Annual Financial Report, including;
a) General Fund
b) Special Revenue Funds
c) Capital Project Funds
d) Enterprise Funds
e) Internal Service Funds
f) Trust and Agency Funds
g) Permanent Endowment Funds
h) Any new fund created unless specifically exempted
If the City invests funds on behalf of another agency and, if that agency does not have its
own investment policy, this Policy shall govern the agency's investments.
Funds Excluded from the Policy
Bond Proceeds — Investment of bond proceeds will be made in accordance with applicable
bond indentures.
B. INVESTMENT OBJECTIVES
The City's funds shall be invested in accordance with all applicable City policies and codes, State
statutes, and Federal regulations, and in a manner designed to accomplish the following objectives,
which are listed in priority order:
Safety
Preservation of principal is the foremost objective of the investment program. Investments
of the City shall be undertaken in a manner that seeks to ensure the preservation of capital
in the overall portfolio. The objective shall be to mitigate credit risk and interest rate risk.
To attain this objective, the City shall diversify its investments by investing funds among
several financial institutions and a variety of securities offering independent returns.
a) Credit Risk
The City shall minimize credit risk, the risk of loss due to the failure of the security
issuer or backer, by:
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• Limiting investments in securities that have higher credit risks, pre -qualifying
the financial institutions, broker/dealers, intermediaries, and advisors with
which the City will do business
• Diversifying the investment portfolio so as to minimize the impact any one
industry/investment class can have on the portfolio
b) Interest Rate Risk
To minimize the negative impact of material changes in the market value of securities
in the portfolio, the City shall:
• Structure the investment portfolio so that securities mature concurrent with
cash needs to meet anticipated demands, thereby avoiding the need to sell
securities on the open market prior to maturity
• Invest in securities of varying maturities
2. Liquidity
The City's investment portfolio shall remain sufficiently liquid to enable the City to meet all
operating requirements which might be reasonably anticipated without requiring a sale of
securities. Since all possible cash demands cannot be anticipated, the portfolio should consist
largely of securities with active secondary or resale markets. A portion of the portfolio also
may be placed in money market mutual funds or LAIF which offer same -day liquidity for
short-term funds.
3. Yield
The City's investment portfolio shall be designed with the objective of attaining a benchmark
rate of return throughout budgetary and economic cycles, commensurate with the City's
investment risk constraints and the liquidity characteristics of the portfolio. Return on
investment is of secondary importance compared to the safety and liquidity objectives
described above. The core of investments is limited to relatively low risk securities in
anticipation of earning a fair return relative to the risk being assumed.
C. STANDARDS OF CARE
1. Prudence
The standard of prudence to be used for managing the City's investment program is
California Government Code Section 53600.3, the prudent investor standard, which states
that "when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing
public funds, a trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general economic conditions
and the anticipated needs of the agency, 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."
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The City's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The City recognizes that no investment is
totally without risk and that the investment activities of the City are a matter of public record.
Accordingly, the City recognizes that occasional measured losses may occur in a diversified
portfolio and shall be considered within the context of the overall portfolio's return, provided
that adequate diversification has been implemented and that the sale of a security is in the
best long-term interest of the City.
The Finance Director and authorized investment personnel acting in accordance with
established procedures and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes, provided that
deviations from expectations are reported in a timely fashion to the City Council and
appropriate action is taken to control adverse developments.
2. Ethics and Conflicts of Interest
Elected officials and employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the City's investment
program or could impair or create the appearance of an impairment of their ability to make
impartial investment decisions. Employees and investment officials shall subordinate their
personal investment transactions to those of the City. In addition, City Council members, the
City Manager, and the Finance Director shall file a Statement of Economic Interests each
year as required by California Government Code Section 87203 and regulations of the Fair
Political Practices Commission.
3. Delegation of Authority
Authority to manage the City's investment program is derived from the Charter of the City
of Newport Beach section 605 0). The Finance Director shall assume the title of and act as
City Treasurer and with the approval of the City Manager appoint deputies annually as
necessary to act under the provisions of any law requiring or permitting action by the City
Treasurer. The Finance Director may then delegate the authority to conduct investment
transactions and to manage the operation of the investment portfolio to other specifically
authorized staff members. No person may engage in an investment transaction except as
expressly provided under the terms of this Policy.
The City may engage the support services of outside investment advisors with respect to its
investment program, so long as it can be demonstrated that these services produce a net
financial advantage or necessary financial protection of the City's financial resources. Such
companies must be registered under the Investment Advisors Act of 1940, be well -
established and exceptionally reputable. Members of the staff 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. These firms must insure that the portion of the
portfolio under their management complies with various concentration and other constraints
specified herein, and contractually agree to conform to all provisions of governing law and
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the collateralization and other requirements of this Policy. Selection and retention of
broker/dealers by investment advisors shall be at their sole discretion and dependent upon
selection and retention criteria as stated in the Uniform Application for Investment Advisor
Registration and related Amendments (SEC Form ADV 2A).
4. Internal Controls
The Finance Director is responsible for establishing and maintaining a system of internal
controls. The internal controls shall be designed to prevent losses of public funds arising
from fraud, employee error, and misrepresentation by third parties, unanticipated changes in
financial markets, or imprudent action by City employees and officers. The internal structure
shall be designed to provide reasonable assurance that these objectives are met. The concept
of reasonable assurance recognizes that (1) the cost of a control should not exceed the
benefits likely to be derived, and (2) the valuation of costs and benefits requires estimates
and judgments by management.
D. BANKING SERVICES
Banking services for the City shall be provided by FDIC insured banks approved to provide
depository and other banking services. To be eligible, a bank shall qualify as a depository of public
funds in the State of California as defined in California Government Code Section 53630.5 and shall
secure deposits in excess of FDIC insurance coverage in accordance with California Government
Code Section 53652.
E. BROKER/DEALERS
In the event that an investment advisor is not used to purchase securities, the City will select
broker/dealers on the basis of their expertise in public cash management and their ability to provide
service to the City's account.
Each approved broker/dealer must possess an authorizing certificate from the California
Commissioner of Corporations as required by Section 25210 of the California Corporations Code.
To be eligible, a firm must meet at least one of the following criteria:
1. Be recognized as Primary Dealers by the Federal Reserve Bank of New York or have a
primary dealer within their holding company structure, or
2. Report voluntarily to the Federal Reserve Bank of New York, or
3. Qualify under Securities and Exchange Commission (SEC) Rule 15c3-1 (Uniform Net
Capital Rule).
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F. SAFEKEEPING AND CUSTODY OF ASSETS
The Finance Director shall select one or more banks to provide safekeeping and custodial services
for the City. A Safekeeping Agreement approved by the City shall be executed with each custodian
bank prior to utilizing that bank's safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services for the City's account
and the competitive pricing of their safekeeping related services.
The purchase and sale of securities and repurchase agreement transactions shall be settled on a
delivery versus payment basis. All securities shall be perfected in the name of the City. Sufficient
evidence to title shall be consistent with modern investment, banking and commercial practices.
All investment securities, except non-negotiable Certificates of Deposit, Money Market Funds and
local government investment pools, purchased by the City will be delivered by book entry and will
be held in third -party safekeeping by a City approved custodian bank, its correspondent bank or its
Depository Trust Company (DTC) participant account.
All Fed wireable book entry securities owned by the City shall be held in the Federal Reserve system
in a customer account for the custodian bank which will name the City as "customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant account and the
custodian bank shall provide evidence that the securities are held for the City as "customer."
G. AUTHORIZED INVESTMENTS
All investments and deposits of the City shall be made in accordance with California Government
Code Sections 16429.1, 53600-53609 and 53630-53686. Any revisions or extensions of these code
sections will be assumed to be part of this Policy immediately upon being enacted. The City has
further restricted the eligible types of securities and transactions. The foregoing list of authorized
securities and transactions shall be strictly interpreted. Any deviation from this list must be pre -
approved by resolution of the City Council. In the event an apparent discrepancy is found between
this Policy and the Government Code, the more restrictive parameter(s) will take precedence.
Where this section specifies a percentage limitation or minimum credit rating for a particular
security type, that percentage or credit rating minimum is applicable only at the date of purchase.
Investments Specifically Permitted
a) United States Treasury bills, notes, or bonds with a final maturity not exceeding five
years from the date of trade settlement. There is no limitation as to the percentage of
the City's portfolio that may be invested in this category.
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b) Federal Instrumentality (government -sponsored enterprise) debentures, discount
notes, callable and step-up securities, with a final maturity not exceeding five years
from the date of trade settlement. There is no limitation as to the percentage of the
portfolio that can be invested in this category. No more than thirty percent (30%) of
the portfolio may be invested in any single Federal Instrumentality/GSE issuer. The
maximum percentage of callable Federal Instrumentality/GSE securities in the
portfolio will be twenty percent (20%.)
c) Federal Agency Obligations for which the full faith and credit of the United States
are pledged for the payment of principal and interest and which have a final maturity
not exceeding five years from the date of trade settlement. There is no limitation as
to the percentage of the portfolio that can be invested in this category.
d) Mortgage -backed Securities, Collateralized Mortgage Obligation (CMO) and Asset -
backed Securities from issuers not defined sections a, b and c of the Investments
Specifically Permitted section of this investment policy are limited to bonds with a
final maturity not exceeding five years from the date of trade settlement. The security
itself shall be rated at least "AAA" or the equivalent by an NRSRO. No more than
five percent (5%) of the City's total portfolio shall be invested in any one issuer of
mortgage -backed and asset -backed securities listed above, and the aggregate
investment in mortgage -backed and asset -backed securities shall not exceed twenty
percent (20%) of the City's total portfolio.
e) Medium -Term Notes issued by corporations organized and operating within the
United States or by depository institutions licensed by the United States or any state
and operating within the United States, with a final maturity not exceeding five years
from the date of trade settlement, and rated in at least the "A" category or the
equivalent by an NRSRO. No more than five percent (5%) of the City's total portfolio
shall be invested in any one issuer of medium- term notes, and the aggregate
investment in medium -term notes shall not exceed thirty percent (30%) of the City's
total portfolio.
f) Municipal Bonds including bonds issued by the City of Newport Beach, including
bonds payable solely out of the revenues from a revenue -producing property owned,
controlled, or operated by the City or by a department, board, agency, or authority of
the City.
State of California registered warrants or treasury notes or bonds, including bonds
payable solely out of the revenues from a revenue- producing property owned,
controlled, or operated by the state or by a department, board, agency, or authority
of the state.
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Registered treasury notes or bonds of any of the other 49 states in addition to
California, including bonds payable solely out of the revenues from a revenue
producing property owned, controlled, or operated by a state or by a department,
board, agency, or authority of any of the other 49 states, in addition to California.
Bonds, notes, warrants, or other evidences of indebtedness of a local agency within
California, including bonds payable solely out of the revenues from a revenue -
producing property owned, controlled, or operated by the local agency, or by a
department, board, agency, or authority of the local agency.
In addition, these securities must be rated in at least the "A" category or the
equivalent by a NRSRO with maturities not exceeding five years from the date of
trade settlement. No more than five percent (5%) of the City's total portfolio shall be
invested in any one municipal issuer. In addition, the aggregate investment in
municipal bonds may not exceed thirty percent (30%) of the portfolio.
g) Non-negotiable Certificates of Deposit and savings deposits with a maturity not
exceeding two years from the date of trade settlement, in FDIC insured state or
nationally chartered banks or savings banks that qualify as a depository of public
funds in the State of California as defined in California Government Code Section
53630.5. Deposits exceeding the FDIC insured amount shall be secured pursuant to
California Government Code Section 53652. No one issuer shall exceed more than
five percent (5%) of the portfolio, and investment in negotiable and nonnegotiable
certificates of deposit shall be limited to thirty percent (30%) of the portfolio
combined.
h) Negotiable Certificates of Deposit only with a nationally or state- chartered bank, a
savings association or a federal association (as defined by Section 5102 of the
Financial Code), a state or federal credit union, or by a federally licensed or state -
licensed branch of a foreign bank whose senior long-term debt is rated in at least the
"A" category, or the equivalent, or short-term debt is rated at least "A-1" or the
equivalent by an NRSRO and having assets in excess of $10 billion, so as to ensure
security and a large, well -established secondary market. Ease of subsequent
marketability should be 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 five percent (5%) of the portfolio, and
maturity shall not exceed two years. Investment in negotiable and non- negotiable
certificates of deposit shall be limited to thirty percent (30%) of the portfolio
combined.
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i) Prime Commercial Paper with a maturity not exceeding 270 days from the date of
trade settlement that is rated "A-1 ", or the equivalent, by an NRSRO. The entity that
issues the commercial paper shall meet all of the following conditions in either
sub- paragraph i. or sub -paragraph ii. below:
i. The entity shall (1) be organized and operating in the United States as a
general corporation, (2) have total assets in excess of $500,000,000 and (3)
have debt other than commercial paper, if any, that is rated in at least the "A"
category or the equivalent by an NRSRO.
ii. The entity shall (1) be organized within the United States as a special purpose
corporation, trust, or limited liability company, (2) have program wide credit
enhancements, including, but not limited to, over collateralization, letters of
credit or surety bond and (3) have commercial paper that is rated at least "A-
1" or the equivalent, by an NRSRO.
iii. No more than five percent (5%) of the City's total portfolio shall be invested
in the commercial paper of any one issuer, and the aggregate investment in
commercial paper shall not exceed twenty-five percent (25%) of the City's
total portfolio. Under a provision sunsetting on January 1, 2026, no more than
forty percent (40%) of the portfolio may be invested in commercial paper if
the City's assets under management are greater than $100,000,000.
j) Eligible Banker's Acceptances with a maturity not exceeding 180 days from the date
of trade settlement, drawn on and accepted by a commercial bank whose senior long-
term debt is rated in at least the "A" category or the equivalent by an NRSRO at the
time of purchase. Banker's Acceptances shall be rated at least "A-1", or the
equivalent at the time of purchase by an NRSRO. If the bank has senior debt
outstanding, it must be rated in at least the "A" category or the equivalent by an
NRSRO. The aggregate investment in banker's acceptances shall not exceed forty
percent (40%) of the City's total portfolio, and no more than five percent (5%) of the
City's total portfolio shall be invested in banker's acceptances of any one bank.
k) Repurchase Agreements and Reverse Repurchase Agreements with a final
termination date not exceeding 30 days collateralized by U.S. Treasury obligations
or Federal Instrumentality securities listed in items 1 and 2 above with the maturity
of the collateral not exceeding ten years. For the purpose of this section, the term
collateral shall mean purchased securities under the terms of the City's approved
Master Repurchase Agreement. The purchased securities shall have a minimum
market value including accrued interest of one hundred and two percent (102%) of
the dollar value of the funds borrowed. Collateral shall be held in the City's custodian
bank, as safekeeping agent, and the market value of the collateral securities shall be
marked -to -the -market daily.
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Repurchase Agreements and Reverse Repurchase Agreements shall be entered into
only with broker/dealers and who are recognized as Primary Dealers with the Federal
Reserve Bank of New York, or with firms that have a Primary Dealer within their
holding company structure. Primary Dealers approved as Repurchase Agreement
counterparties shall have a short-term credit rating of at least "A- I" or the equivalent
and a long-term credit rating of at least "A" or the equivalent. Repurchase agreement
counterparties shall execute a City approved Master Repurchase Agreement with the
City. The Finance Director shall maintain a copy of the City's approved Master
Repurchase Agreement and a list of the broker/dealers who have executed same.
In addition, 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 ten percent (10%) of
the portfolio can be involved in reverse repurchase agreements.
1) State of California's Local Agency Investment Fund (LAIF), pursuant to California
Government Code Section 16429.1.
m) California Asset Management Trust Cash Reserve Portfolio (CAMP): Investments
in CAMP shall not exceed the same maximum limit established for LAIF.
n) Mutual Funds and Money Market Mutual Funds registered under the Investment
Company Act of 1940, provided that:
MUTUAL FUNDS that invest in the securities and obligations as authorized
under California Government Code, Section 53601 (a) to (k) and (m) to (q)
inclusive and that meet either of the following criteria:
1) Attained the highest ranking or the highest letter and numerical rating
provided by not less than two (2) NRSROs; or
2) Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by California Government Code, Section
53601 and with assets under management in excess of $500 million.
3) No more than 10% of the total portfolio may be invested in shares of
any one mutual fund.
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ii. MONEY MARKET MUTUAL FUNDS registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 and
issued by diversified management companies and meet either of the
following criteria:
1) Have attained the highest ranking or the highest letter and numerical
rating provided by not less than two (2) NRSROs; or
2) Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual
funds with assets under management in excess of $500 million.
3) No more than 20% of the total portfolio may be invested in Money
Market Mutual Funds.
iii. No more than 20% of the total portfolio may be invested in these securities.
o) Supranationals which are United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the International
Bank for Reconstruction and Development (IBRD), International Finance
Corporation (IFC), or Inter -American Development Bank (IADB), with a maximum
remaining maturity of five years or less from the date of trade settlement, and eligible
for purchase and sale within the United States. Investments under this paragraph shall
be rated in the "AA" category, its equivalent, or better by at least one NRSRO.
No more than ten percent (10%) of the City's total portfolio shall be invested in any
one issuer of supranational obligations. Purchases of supranational obligations shall
not exceed twenty percent (20%) of the investment portfolio of the City.
2. Investments Specifically Not Permitted
Any security type or structure not specifically approved by this policy is hereby prohibited.
Security types, which are thereby prohibited include, but are not limited to: "exotic"
derivative structures such as range notes, dual index notes, inverse floating rate notes,
leveraged or de -leveraged floating rate notes, interest only strips that are derived from a pool
of mortgages and any security that could result in zero interest accrual if held to maturity, or
any other complex variable or structured note with an unusually high degree of volatility
risk.
Under a provision sunsetting on January 1, 2026, securities backed by the U.S. Government
that could result in a zero or negative interest accrual if held to maturity are permitted.
The City shall not invest funds with the Orange County Pool.
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The purchase of a security with a forward settlement date exceeding 45 days from the time
of the investment is prohibited.
3. Exceptions to Prohibited and Restricted Investments
The City shall not be required to sell securities prohibited or restricted in this policy, or any
future policies, or prohibited or restricted by new State regulations, if purchased prior to their
prohibition and/or restriction. Insofar as these securities provided no notable credit risk to
the City, holding of these securities until maturity is approved. At maturity or liquidation,
such monies shall be reinvested as provided by this policy.
H. INVESTMENT PARAMETERS
1. Diversification
The City shall diversify its investments to avoid incurring unreasonable risks inherent in
over -investing in specific instruments, individual financial institutions or maturities. As
such, no more than five percent (5%) of the City's portfolio may be invested in the
instruments of any one issuer, except governmental issuers, supranationals, investment
pools, mutual funds and money market funds, or unless otherwise specified in this
investment policy. This restriction does not apply to any type of Federal Instrumentality or
Federal Agency Security listed in Sections Gl b and G1 c above. Nevertheless, the asset
allocation in the investment portfolio should be flexible depending upon the outlook for the
economy, the securities markets and the City's anticipated cash flow needs.
2. Maximum Maturities
To the extent possible, investments shall be matched with anticipated cash flow requirements
and known future liabilities. The City will not invest in securities maturing more than five
years from the date of trade settlement, unless the City Council has by resolution granted
authority to make such an investment at least three months prior to the date of investment.
3. Credit Quality
Each investment manager will monitor the credit quality of the securities in their respective
portfolio. In the event a security held by the City is downgraded to a level below the
requirements of this policy, making the security ineligible for additional purchases, the
following steps will be taken:
• Any actions taken related to the downgrade by the investment manager will be
communicated to the Finance Director in a timely manner.
• If a decision is made to retain the security, the credit quality will be monitored and
reported to the City Council.
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4. Competitive Transactions
Investment advisors shall make best effort to price investment transactions on a competitive
basis with broker/dealers selected consistent with their practices disclosed in form ADV 2A
filed with the SEC. Where possible, at least three broker/dealers shall be contacted for each
transaction and their bid or offering prices shall be recorded. If there is no other readily
available competitive offering, the investment advisor shall make their best efforts to
document quotations for comparable or alternative securities. If qualitative characteristics of
a transaction, including, but not limited to, complexity of the transaction, or sector expertise
of the broker, prevent a competitive selection process, investment advisors shall use
brokerage selection practices as described above.
I. PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout budgetary
and economic cycles, taking into account prevailing market conditions, risk constraints for eligible
securities, and cash flow requirements. The performance of the City's investments shall be
compared to the total return of a benchmark that most closely corresponds to the portfolio's duration,
universe of allowable securities, risk profile, and other relevant characteristics. When comparing
the performance of the City's portfolio, its rate of return will be computed consistent with Global
Investment Performance Standards (GIPS).
J. REPORTING
Monthly, the Finance Director shall produce a treasury report of the investment portfolio balances,
transactions, risk characteristics, earnings, and performance results of the City's investment
portfolio available to City Council and the public on the City's Website. The report shall include
the following information:
1. Investment type, issuer, date of maturity, par value and dollar amount invested in all
securities, and investments and monies held by the City;
2. A description of the funds, investments and programs;
3. A market value as of the date of the report (or the most recent valuation as to assets not
valued monthly) and the source of the valuation;
4. A statement of compliance with this Policy or an explanation for non-compliance
K. INVESTMENT POLICY COMPLIANCE AND ADOPTION
1. Compliance
Any deviation from the policy shall be reported to Finance Committee as soon as practical,
but no later than the next scheduled Finance Committee meeting. Upon recommendation of
the Finance Committee, the Finance Director shall review deviations from policy with the
City Council.
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2. Adoption
The Finance Director shall review the Investment Policy with the Finance Committee at least
annually to ensure its consistency with the overall objectives of preservation of principal,
liquidity and return, and its relevance to current law and financial and economic trends.
The Finance Director shall review the Investment Policy with City Council at a public
meeting if there are changes recommended to the Investment Policy.
History
Adopted F-1-4-6-1959
Reaffirmed F-1-
8-15-1966
Reaffirmed F-1-11-12-1968
Reaffirmed F-1-
3-9-1970
Amended F-1-11-9-1970
Reaffirmed F-1-
2-8-1971
Reaffirmed F-1-
2-14-1972
Reaffirmed F-1-12-10-1973
Amended F-1-2-11-1974
Amended F-1-2-9-1981
Amended F-1-10-27-1986
Rewritten F-1-10-22-1990
Amended F-1-1-28-1991
Amended F-1-1-24-1994
Amended F-1-1-9-1995
Amended F-1 -
4-22-1996
Corrected F-1-1-27-1997
Amended F-1 -
2-24-1997
Amended F-1 -
5-26-1998
Reaffirmed F-1-
3-22-1999
Reaffirmed F-1-
3-14-2000
14
F-1
Amended and Reaffirmed F-1
— 5-8-2001
Amended and Reaffirmed F-1
— 4-23-2002
Amended and Reaffirmed F-1
— 4-8-2003
Amended and Reaffirmed F-1
— 4-13-2004
Amended and Reaffirmed F-1
— 9-13-2005
Amended F-1 — 8-11-2009
Amended and Reaffirmed F-1
— 8-10-2010
Amended and Reaffirmed F-1
— 9-28-2010
Reaffirmed F-1 — 6-28-2011
Amended and Reaffirmed F-1
—10-9-2012
Amended F-1 — 8-13-2013
Amended F-1 — 9-8-2015
Amended F-1 — 3-28-2017
Amended F-1 — 1-28-2020
Amended F-1 — 9-28-2021
Amended F-1 — 10-10-2023
Amended F-1 — 4-9-2024
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GLOSSARY OF INVESTMENT TERMS
AGENCIES. Shorthand market terminology for any obligation issued by a government -sponsored entity
(GSE), or a federally related institution. Most obligations of GSEs are not guaranteed by the full
faith and credit of the US government. Examples are:
FFCB. The Federal Farm Credit Bank System provides credit and liquidity in the agricultural
industry. FFCB issues discount notes and bonds.
FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market. FHLB
issues discount notes and bonds.
FHLMC. Like FHLB, the Federal Home Loan Mortgage Corporation provides credit and
liquidity in the housing market. FHLMC, also called "FreddieMac" issues discount notes,
bonds and mortgage pass -through securities.
FNMA. Like FHLB and FreddieMac, the Federal National Mortgage Association was established
to provide credit and liquidity in the housing market. FNMA, also known as "FannieMae,"
issues discount notes, bonds and mortgage pass -through securities.
GNMA. The Government National Mortgage Association, known as "GinnieMae," issues
mortgage pass -through securities, which are guaranteed by the full faith and credit of the
US Government.
PEFCO. The Private Export Funding Corporation assists exporters. Obligations of PEFCO are not
guaranteed by the full faith and credit of the US government.
TVA. The Tennessee Valley Authority provides flood control and power and promotes development
in portions of the Tennessee, Ohio, and Mississippi River valleys. TVA currently issues
discount notes and bonds.
ASKED. The price at which a seller offers to sell a security.
ASSET BACKED SECURITIES. Securities supported by pools of installment loans or leases or by pools
of revolving lines of credit.
AVERAGE LIFE. In mortgage -related investments, including CMOs, the average time to expected receipt
of principal payments, weighted by the amount of principal expected.
BANKER'S ACCEPTANCE. A money market instrument created to facilitate international trade
transactions. It is highly liquid and safe because the risk of the trade transaction is transferred to the
bank which "accepts" the obligation to pay the investor.
BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index,
which reflects the mix of securities allowed under a specific investment policy.
BID. The price at which a buyer offers to buy a security.
BROKER. A broker brings buyers and sellers together for a transaction for which the broker receives a
commission. A broker does not sell securities from his own position.
CALLABLE. A callable security gives the issuer the option to call it from the investor prior to its maturity.
The main cause of a call is a decline in interest rates. If interest rates decline since an issuer issues
securities, it will likely call its current securities and reissue them at a lower rate of interest. Callable
securities have reinvestment risk as the investor may receive its principal back when interest rates
are lower than when the investment was initially made.
CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate.
Large denomination CDs may be marketable.
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CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SYSTEM (CDARS). A private placement
service that allows local agencies to purchase more than $250,000 in CDs from a single financial
institution (must be a participating institution of CDARS) while still maintaining FDIC insurance
coverage. CDARS is currently the only entity providing this service. CDARS facilitates the trading
of deposits between the California institution and other participating institutions in amounts that are
less than $250,000 each, so that FDIC coverage is maintained.
COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase
agreement. Also, securities pledged by a financial institution to secure deposits of public monies.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the
cash flows of mortgage securities (and whole loans) to create securities that have different levels of
prepayment risk, as compared to the underlying mortgage securities.
COMMERCIAL PAPER. The short-term unsecured debt of corporations.
COST YIELD. The annual income from an investment divided by the purchase cost. Because it does not
give effect to premiums and discounts which may have been included in the purchase cost, it is an
incomplete measure of return.
COUPON. The rate of return at which interest is paid on a bond.
CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner
due to changes in the condition of the issuer.
CURRENT YIELD. The annual income from an investment divided by the current market value. Since
the mathematical calculation relies on the current market value rather than the investor's cost,
current yield is unrelated to the actual return the investor will earn if the security is held to maturity.
DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities
for his own position.
DEBENTURE. A bond secured only by the general credit of the issuer.
DELIVERY VS. PAYMENT (DVP). A securities industry procedure whereby payment for a security
must be made at the time the security is delivered to the purchaser's agent.
DERIVATIVE. Any security that has principal and/or interest payments which are subject to uncertainty
(but not for reasons of default or credit risk) as to timing and/or amount, or any security which
represents a component of another security which has been separated from other components
("Stripped" coupons and principal). A derivative is also defined as a financial instrument the value
of which is totally or partially derived from the value of another instrument, interest rate, or index.
DISCOUNT. The difference between the par value of a bond and the cost of the bond, when the cost is
below par. Some short-term securities, such as T-bills and banker's acceptances, are known as
discount securities. They sell at a discount from par, and return the par value to the investor at
maturity without additional interest. Other securities, which have fixed coupons, trade at a discount
when the coupon rate is lower than the current market rate for securities of that maturity and/or
quality.
DIVERSIFICATION. Dividing investment funds among a variety of investments to avoid excessive
exposure to any one source of risk.
DURATION. The weighted average time to maturity of a bond where the weights are the present values
of the future cash flows. Duration measures the price sensitivity of a bond to changes in interest
rates. (See Modified Duration).
FEDERAL FUNDS RATE. The rate of interest charged by banks for short-term loans to other banks. The
Federal Reserve Bank through open -market operations establishes it.
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FEDERAL OPEN MARKET COMMITTEE. A committee of the Federal Reserve Board that establishes
monetary policy and executes it through temporary and permanent changes to the supply of bank
reserves.
LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay earnings at a
rate higher than the cost of borrowing.
LIQUIDITY. The speed and ease with which an asset can be converted to cash.
LOCAL AGENCY INVESTMENT FUND (LAIF). A voluntary investment fund open to government
entities and certain non-profit organizations in California that is managed by the State Treasurer's
Office.
LOCAL GOVERNMENT INVESTMENT POOL. Investment pools that range from the State
Treasurer's Office Local Agency Investment Fund (LAIF) to county pools, to Joint Powers
Authorities (JPAs). These funds are not subject to the same SEC rules applicable to money market
mutual funds.
MAKE WHOLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining
debt early. Unlike a call option, with a make whole call provision, the issuer makes a lump sum
payment that equals the net present value (NPV) of future coupon payments that will not be paid
because of the call. With this type of call, an investor is compensated, or "made whole."
MARGIN. The difference between the market value of a security and the loan a broker makes using that
security as collateral.
MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market
conditions or interest rates.
MARKET VALUE. The price at which a security can be traded.
MARKING TO MARKET. The process of posting current market values for securities in a portfolio.
MATURITY. The final date upon which the principal of a security becomes due and payable.
MEDIUM TERM NOTES. Unsecured, investment -grade senior debt securities of major corporations
which are sold in relatively small amounts on either a continuous or an intermittent basis. MTNs are
highly flexible debt instruments that can be structured to respond to market opportunities or to
investor preferences.
MODIFIED DURATION. The percent change in price for a 100 basis point change in yields. Modified
duration is the best single measure of a portfolio's or security's exposure to market risk.
MONEY MARKET. The market in which short-term debt instruments (T-bills, discount notes,
commercial paper, and banker's acceptances) are issued and traded.
MORTGAGE PASS -THROUGH SECURITIES. A securitized participation in the interest and principal
cash flows from a specified pool of mortgages. Principal and interest payments made on the
mortgages are passed through to the holder of the security.
MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital and operating
expenses.
MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a set of securities
which is specifically defined in the fund's prospectus. Mutual funds can be invested in various types
of domestic and/or international stocks, bonds, and money market instruments, as set forth in the
individual fund's prospectus. For most large, institutional investors, the costs associated with
investing in mutual funds are higher than the investor can obtain through an individually managed
portfolio.
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NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO). A credit
rating agency that the Securities and Exchange Commission in the United States uses for regulatory
purposes. Credit rating agencies provide assessments of an investment's risk. The issuers of
investments, especially debt securities, pay credit rating agencies to provide them with ratings. The
three most prominent NRSROs are Fitch, S&P, and Moody's.
NEGOTIABLE CD. A short-term debt instrument that pays interest and is issued by a bank, savings or
federal association, state or federal credit union, or state -licensed branch of a foreign bank.
Negotiable CDs are traded in a secondary market.
PREMIUM. The difference between the par value of a bond and the cost of the bond, when the cost is
above par.
PREPAYMENT SPEED. A measure of how quickly principal is repaid to investors in mortgage securities.
PREPAYMENT WINDOW. The time period over which principal repayments will be received on
mortgage securities at a specified prepayment speed.
PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve in
its execution of market operations to carry out U.S. monetary policy, and (2) that participates for
statistical reporting purposes in compiling data on activity in the U.S. Government securities market.
PRUDENT PERSON (PRUDENT INVESTOR) RULE. A standard of responsibility which applies to
fiduciaries. In California, the rule is stated as "Investments shall be managed with the care, skill,
prudence and diligence, under the circumstances then prevailing, that a prudent person, acting in a
like capacity and familiar with such matters, would use in the conduct of an enterprise of like
character and with like aims to accomplish similar purposes."
REALIZED YIELD. The change in value of the portfolio due to interest received and interest earned and
realized gains and losses. It does not give effect to changes in market value on securities, which
have not been sold from the portfolio.
REGIONAL DEALER. A financial intermediary that buys and sells securities for the benefit of its
customers without maintaining substantial inventories of securities and that is not a primary dealer.
REPURCHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement to sell
the securities back at a higher price. From the seller's point of view, the same transaction is a reverse
repurchase agreement.
SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the customer's
name.
STRUCTURED NOTE. A complex, fixed income instrument, which pays interest, based on a formula
tied to other interest rates, commodities or indices. Examples include inverse floating rate notes
which have coupons that increase when other interest rates are falling, and which fall when other
interest rates are rising, and "dual index floaters," which pay interest based on the relationship
between two other interest rates - for example, the yield on the ten-year Treasury note minus the
Libor rate. Issuers of such notes lock in a reduced cost of borrowing by purchasing interest rate swap
agreements.
SUPRANATIONAL. A Supranational is a multi -national organization whereby member states transcend
national boundaries or interests to share in the decision making to promote economic development
in the member countries.
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TOTAL RATE OF RETURN. A measure of a portfolio's performance over time. It is the internal rate of
return, which equates the beginning value of the portfolio with the ending value; it includes interest
earnings, realized and unrealized gains, and losses in the portfolio.
U.S. TREASURY OBLIGATIONS. Securities issued by the U.S. Treasury and backed by the full faith
and credit of the United States. Treasuries are considered to have no credit risk, and are the
benchmark for interest rates on all other securities in the US and overseas. The Treasury issues both
discounted securities and fixed coupon notes and bonds.
TREASURY BILLS. All securities issued with initial maturities of one year or less are issued as discounted
instruments, and are called Treasury bills. The Treasury currently issues three- and six-month T-
bills at regular weekly auctions. It also issues "cash management" bills as needed to smooth out cash
flows.
TREASURY NOTES. All securities issued with initial maturities of two to ten years are called Treasury
notes, and pay interest semi-annually.
TREASURY BONDS. All securities issued with initial maturities greater than ten years are called Treasury
bonds. Like Treasury notes, they pay interest semi-annually.
VOLATILITY. The rate at which security prices change with changes in general economic conditions or
the general level of interest rates.
YIELD TO MATURITY. The annualized internal rate of return on an investment which equates the
expected cash flows from the investment to its cost.
20
STATE OF CALIFORNIA }
COUNTY OF ORANGE } ss.
CITY OF NEWPORT BEACH }
I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the
whole number of members of the City Council is seven; the foregoing resolution, being Resolution
No. 2024-21 was duly introduced before and adopted by the City Council of said City at a regular meeting
of said Council held on the 9th day of April, 2024; and the same was so passed and adopted by the
following vote, to wit:
AYES: Mayor Will O'Neill, Mayor Pro Tern Joe Stapleton, Councilmember Brad Avery,
Councilmember Noah Blom, Councilmember Robyn Grant, Councilmember
Lauren Kleiman
NAYS: None
ABSENT: Councilmember Erik Weigand
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of
said City this 101h day of April, 2024.
""- 4,
Leilani I. rown
City Clerk
Newport Beach, California
L,,