HomeMy WebLinkAbout13 - Reaffirm Council Investment Policy F-1Q �EvVPpRT
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City Council Staff Report
Agenda Item No. 13
June 28, 2011
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Administrative Services Department
Tracy McCraner, Administrative Services Director /Treasurer
949 - 644 -3123, tmccraner @newportbeachca.gov
PREPARED BY: Dan Matusiewicz, Deputy Administrative Services Director/
Treasurer
APPROVED: � G-
TITLE: Reaffirm Council Investment Policy (F -1)
ABSTRACT:
As required by Council Policy (F -1) the City's Investment policy must be reviewed
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.
RECOMMENDATION:
Reaffirm Council Investment Policy (F -1) as presented.
FUNDING REQUIREMENTS:
There is no fiscal impact related to this item.
DISCUSSION:
Council Investment Policy (F -1) section K. 2. states:
The Treasurer shall render a written Statement of Investment Policy that shall
be reviewed at least annually by Finance Committee and City Council 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. City Council shall consider the annual Statement of
Investment Policy and any changes therein at a public meeting.
Attached is a summary of the authorized investments as prescribed by the City's
Investment Policy as compared to a summary of authorized investments permitted by
the California Government Code (Attachment A). The various highlighted lines identify
Reaffirm Council Investment Policy (F -1)
June 28, 2011
Page 2
where the City's investment policy is more restrictive than the California Government
Code. This is intentional and a general indicator of the conservative nature of the City's
investment policy.
Also attached is the current Investment Policy in its entirety (Attachment B). An
extensive update of the investment policy was performed in 2010 and last adopted by
City Council on September 28, 2010. The policy was recently reviewed again by staff,
three professional investment advisors and the Finance Committee on June 13, 2011.
No policy changes are recommended at this time except for the consistent formatting of
percent references.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action 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, Chapter 3, because it
has no potential for resulting in physical change to the environment, directly or
indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
Submitted by:
Administrative
r /Treasurer
Attachments: A. Summary Comparison of Newport Beach Authorized Investments to
the California Government Code
B. Council Investment Policy (F -1)
ATTACHMENT A
Summary Comparision of Newport Beach Authorized Investments to Cal Government Code
sj m
G.I. a))
U.S. TREASURY OBLIGATIONS
S YEARS MAX MATURITY
5 YEARS MAX MATURITY
NO MAX % OF PORTFOLIO
NO MAX % OF PORTFOLIO
NO MAX % OF ONE ISSUER
NO MAX % OF ONE ISSUER
b)
FEDERAL INSTRUMENTALITY
5 YEARS MAX MATURITY
5 YEARS MAX MATURITY
NO MAX % OF PORTFOLIO
NO MAX % OF PORTFOLIO
NO MAX % OF ONE ISSUER
NO MAX % OF ONE ISSUER
C)
FEDERALAGENCY
OBLIGATIONS
5 YEARS MAX MATURITY
5 YEARS MAX MATURITY
NO MAX % OF PORTFOLIO
NO MAX % OF PORTFOLIO
NO MAX % OF ONE ISSUER
NO MAX % OF ONE ISSUER
d)
MORTAGE PASS - THROUGH
SECURITIES
5 YEARS MAX MATURITY
5 YEARS MAX MATURITY
20% MAX OF PORTFOLIO
20% MAX or PORTFOLIO
NO MAX % OF ONE ISSUER
5% MAX ONE ISSUER
RATED AT LEAST AA
RATED AT LEAST AAA
e)
MEDIUM - TERM NOTES
5 YEARS MAX MATURITY
4 YEARS MAX MATURITY
30% MAX OF PORTFOLIO
30% MAX OF PORTFOLIO
NO MAX % OF ONE ISSUER
5% MAX ONE ISSUER
RATED AT LEAST A
RATED AT LEAST A
f)
LOCAL AGENCY BONDS
5 YEARS MAX MATURITY
3 YEARS MAX MATURITY
NO MAX % OF PORTFOLIO
15% MAX OF PORTFOLIO
NO MAX % OF ONE ISSUER
5% MAX ONE ISSUER
NO MIN CREDIT QUALITY
RATED AT LEAST AA
g)
NON-NEGOTIABLE
CERTIFICATES OF DEPOSIT
5 YEARS MAX MATURITY
2 YEARS MAX MATURITY
NO MAX % OF PORTFOLIO
30% MAX OF PORTFOLIO
NO MAX % OF ONE ISSUER
5% MAX ONE ISSUER
h)
NEGOTIABLE CERTIFICATES
OF DEPOSIT/CD PLACEMENT
SERVICE
5 YEARS MAX MATURITY
2 YEARS MAX MATURITY
30% MAX OF PORTFOLIO
30% MAX OF PORTFOLIO
NO MAX % OF ONE ISSUER
5% MAX ONE ISSUER
NO MIN CREDIT QUALITY
RATED AT LEAST A-1
1)
PRIME COMMERCIAL PAPER
270 DAYS MAX MATURITY
270 DAYS MAX MATURITY
25% MAX OF PORTFOLIO
10% MAX ONE ISSUER
25% MAX OF PORTFOLIO
5% MAX ONE ISSUER
RATED AT LEAST A -1
RATED AT LEAST A-1
J)
BANKERS' ACCEPTANCES
180 DAYS MAX MATURITY
180 DAYS MAX MATURITY
40% MAX OF PORTFOLIO
20% MAX OF PORTFOLIO
30% MAX ONE ISSUER
5% MAX ONE ISSUER
NO MIN CREDIT QUALITY
RATED AT LEAST A-1
k)
REPURCHASE AGREEMENTS
I YEAR MAX MATURITY
30 DAYS MAX MATURITY
NO MAX %OF PORTFOLIO
10% MAX OF PORTFOLIO
NO MAX % OF ONE ISSUER
5% MAX ONE ISSUER
NO MIN CREDIT QUALITY
SHORT TERM AT LEAST A-1
NO MIN CREDITQUALITY
LONG TERM AT LEAST A
REVERSE REPURCHASE
AGREEMENTS
92 DAYS MAX MATURITY
30 DAYS MAX MATURITY
20% MAX OF PORTFOLIO
20% MAX OF PORTFOLIO
NO MAX % OF ONE ISSUER
5% MAX ONE ISSUER
LOCAL AGENCY INVESTMENT
FUND (LAIF)
N/A
N/A
NO MAX % OF PORTFOLIO
NO MAX % OF PORTFOLIO
N/A
N/A
M)
LA COUNTY POOLED
INVESTMENT FUNDS
N/A
SHORT TERM
NO MAX % OF PORTFOLIO
5% MAX OF PORTFOLIO
N/A
N/A
OC COUNTY POOLED
INVESTMENT FUNDS
N/A
N/A
NO MAX % OF PORTFOLIO
PROHIBITED
N/A
N/A
MUTUAL FUNDS AND
MONEY MARKET MUTUAL
FUNDS
N/A
N/A
20% MAX OF PORTFOLIO
20% MAX OF PORTFOLIO
N/A
N/A
RATED AAA
RATED AAA
F -1
ATTACHMENT B
F -1
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
F -1
A. SCOPE OF INVESTMENT POLICY
1. 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 listed
below.
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.
3. Funds Excluded from this 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:
1. 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:
F -1
• Limiting investments in securities that have higher credit
risks, pre - qualifying the financial institutions,
broker /dealers, intermediaries, and advisers 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."
F -1
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 Director of Finance 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 Director of Finance 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 Director of Finance
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 Director of Finance 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 well
established and exceptionally reputable. Members of the staff of such
companies who will have primary responsibility for managing the City's
F -1
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 the collateralization and other requirements of this Policy.
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
Broker /Dealers will be selected 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 156-1.
(Uniform Net Capital Rule).
F. SAFEKEEPING AND CUSTODY OF ASSETS
The Director of Finance 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.
F -1
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 either book entry or physical delivery 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.
1. 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.
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.
c) Federal Agency - mortgage- backed securities and debentures with a final
maturity not exceeding five years from the date of trade settlement.
d) Mortgage- backed Securities and Asset - backed Securities limited to
mortgage- backed pass- through securities issued by a US government
F -1
agency, or consumer receivable pass- through certificates or bonds with a
final maturity not exceeding five years from the date of trade settlement.
Securities eligible for investment under this subdivision shall be issued by
an issuer whose debt is rated at least A or the equivalent by a Nationally
Recognized Statistical Rating Organization ( NRSRO). The security itself
shall be rated at least AAA or the equivalent by a 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 twee ercent _(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 four years from the date of trade settlement,
and rated at least A or the equivalent by a NRSRO. No more than fve
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_tllirtyperceizt (30 %) of the City's total portfolio. In
addition, AAA rated FDIC - guaranteed corporate bonds are herein
authorized, within the aforementioned diversification and maturity
requirements.
f) Municipal Bonds: General and Revenue obligations of the State of
California and local agencies within the State. Municipal bonds must be
rated at least AA by two NRSROs with maturities not exceeding three
years. No more than. five percent (5 %) of the City's total portfolio shall be
invested in any one issuer and the aggregate investment in municipal
bonds shall not exceed fifteen_pencent (15 %) of the City's total 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_percenf
(5 %) of the portfolio, and investment in negotiable and nonnegotiable
certificates of deposit shall be limited to_ thirty..p_rcent (30 %) of the
portfolio combined.
h) Negotiable Certificates of Deposit only with U.S. Banks whose underlying
securities are rated A -1 or the equivalent by a NRSRO and having assets
in excess of $10 billion, so as to insure security and a large, well -
established secondary market. Ease of subsequent marketability is further
ascertained prior to initial investment by examining currently quoted bids
by primary dealers and the acceptability of the issuer by these dealers. No
F -1
one issuer shall exceed more than five$ percent (5%) of the portfolio, and
maturity shall not exceed two years. Investment in negotiable and
nonnegotiable certificates of deposit shall be limited to thirty30 percent
(30 %) of the portfolio combined.
i) Prime Commercial Paper with a maturity not exceeding 270 days from the
date of trade settlement with the highest letter and number rating as
provided for by a 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 at
least A or the equivalent by a 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 a
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.
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 at least A or the equivalent by a
NRSRO at the time of purchase. Banker's Acceptances shall be rated at
least A -1, P -1 or the equivalent at the time of purchase by a NRSRO. If the
bank has senior debt outstanding, it must be rated at least A or the
equivalent by a NRSRO. The aggregate investment in banker's
acceptances shall not exceed_twenty_ percent (20 %) 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
F -1
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.
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 -1 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_per_cent (10 %) of the portfolio can be involved in reverse repos.
1) State of California's Local Agency Investment Fund (LAIF), pursuant to
California Government Code Section 16429.1.
m) County Investment Funds: Los Angeles County provides a service similar
to LAIF for municipal and other government entities outside of Los
Angeles County, including the City. Investment in this pool is intended to
be used as a temporary repository for short -term funds used for liquidity
purposes. The Finance Director shall maintain on file appropriate
information concerning the county pool's current investment policies,
practices, and performance, as well as its requirements for participation,
including, but not limited to, limitations on deposits or withdrawals and
the composition of the portfolio. At no time shall more than_fiveper_cent
(5 %) of the City's total investment portfolio be placed in this pool.
n) Money Market Funds registered under the Investment Company Act of
1940 that (1) are "no- load" (meaning no commission or fee shall be
charged on purchases or sales of shares); (2) have a constant net asset
value per share of $1.00; (3) invest only in the securities and obligations
authorized in the applicable California statutes and (4) have a rating of at
least AAA or the equivalent by at least two NRSROs. The aggregate
investment in money market funds shall not exceed twenty _perce_n_t (20 %)
of the City's total portfolio.
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
F -1
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.
The City shall not invest funds with the Orange County Pool.
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 on as provided by this policy.
H. INVESTMENT PARAMETERS
1. Diversification
4. 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_perceint (5 %). of the City's portfolio may be
invested in the instruments of any one non - governmental issuer.
This restriction does not apply to any type of Federal
Instrumentality or Federal Agency Security listed in Sections G1 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.
5.
6.
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
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 a
NRSRO.
F -1
In the event a security held by the City is the subject of a rating downgrade
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 Director of Finance. The City shall not be required to
immediately sell such securities. 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.
4. Competitive Transactions
All investment transactions shall be conducted competitively with authorized
broker /dealers. 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, quotations for comparable or alternative
securities will be documented.
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 average yield on the U.S. Treasury security that most closely corresponds to
the portfolio's weighted average effective maturity. When comparing the
performance of the City's portfolio, its rate of return will be computed net of all
fees and expenses.
J. REPORTING
Monthly, the Director of Finance shall submit to the City Council a report of the
investment earnings and performance results of the City's investment portfolio.
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 at the
next scheduled meeting and to City Council as part of the monthly review of
the portfolio. The Director of Finance shall promptly notify Finance
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Committee and City Council of any material change in the policy and any
modifications to the policy must be approved by Finance Committee and City
Council.
2. Adoption
The Treasurer shall render a written Statement of Investment Policy that shall
be reviewed at least annually by Finance Committee and City Council 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. City Council shall consider the annual Statement of
Investment Policy and any changes therein at a public meeting.
This Policy was endorsed and adopted by the City Council of the City of
Newport Beach on September 28, 2010. It replaces any previous investment
policy or investment procedures of the City.
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
Amended & Reaffirmed - April 23, 2002
Amended & Reaffirmed - April 8, 2003
Amended & Reaffirmed - April 13, 2004
Amended & Reaffirmed - September 13, 2005
Amended - August 11, 2009
Amended & Reaffirmed August 10, 2010
Amended & Reaffirmed - September 28, 2010
Reaffirmed - June 28, 2011