HomeMy WebLinkAbout(1995, 01/09) - F-1 - AmendedSTATEMENT OF INVESTMENT POLICY
PURPOSE:
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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 high yield, in that order.
Investments shall be placed in securities as outlined below. The balance
between various investment instruments may change in order to provide the
City with the best combination of high 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 principle.
INVESTMENT AUTHORITY:
Under the direction of the City Manager, the investment authority has been
delegated to the Director of Finance, who is responsible for administration of the
City's investment program. In addition to the monthly investment report that is
submitted to the City Council, the Finance Director shall provide a more detailed
report to the Finance Committee on a monthly basis. This report shall provide
an itemized listing of portfolio holdings and a summary of significant changes in
the portfolio since the last reporting period.
Section 53601 of the California Government Code provides basic investment
limits and guidelines for government entities. In the event an apparent
discrepancy is found between this policy and section 53601, the more restrictive
parameters will take precedence.
LIQUIDITY:
Sufficient funding to accommodate at least an average of two week's warrants 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 hand be less than 5 percent of the City's total
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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:
investments shall be made with judgment and care, under
circumstances then prevailing, which persons of prudence, discretion, and
intelligence exercise in the management of their own affairs, not for
speculation, but for investment, considering the probable safety of their
capital as well as the probable income to be derived."
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 $500,000,000 in assets. •
Certificates of Deposit
City funds will be invested only in fully collateralized certificates of deposit with
FDIC insured institutions. Government securities having a market value of 110
percent of the total amount of investment are acceptable as collateral. As an
alternative, first trust deeds having a value of 150 percent of the total amount of
investment are acceptable as collateral if approved by the Finance Director on a
case by case basis. 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:
The institution must maintain at least $1 Billion in assets ($100 million for
fully insured CD's of $100,000 or less).
The institution must have been in business at least three years. •
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The institution must have a net worth to asset ratio of at least 6 percent
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The institution must place and maintain on file with the City an audited
financial statement not more than one year old.
Interest shall be paid to the City on a monthly basis.
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.
Bankers Acceptances
The City shall invest only in Bankers Acceptances written by the 100 largest
banks in the world. In the case of foreign banks, the Bankers Acceptances must
be written by their U.S. branches. Maximum maturity shall be nine months. No
more than 30 percent of the City's overall investment portfolio shall be placed in
Bankers Acceptances.
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
City's name is required. Maximum maturity of any U.S. Treasury issue shall be
five years.
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
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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.
Commercial Paper
The City shall only invest in commercial paper issued by large, exceptionally
well- established firms with the highest Moody's or Standard & Poofs ratings
A1 /P1). Commercial paper shall be used solely as a short -term investment not
to exceed 180 days. Security requirements are the same as those listed above.
No more than 15 percent of the total portfolio shall be invested in commercial
paper. Investment in commercial paper of any one issuer shall not exceed 10
percent of the portfolio.
Repurchase Agreements ( Repos)
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 the 10 largest banks in the United States WITH A NET
WORTH TO ASSET RATIO OF 6 %, or from A rated top tier securities FIRMS.
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.
Local Agency Investment Fund (LAIF) (State of California)
State Regulation limits any one City's investment in this fund to $20 Million at
any one time, and prohibits more than 10 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. At no time shall
more than 10 percent of the City's total investment portfolio be placed in this
Pool. •
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County Investment Funds
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Both Orange and Los Angeles Counties provide a service similar to LAIF for
municipal and other government entities. Both of these Funds are available to
Newport Beach. Investment in these pools is intended to be used as a temporary
repository for short term funds used for liquidity purposes. At no time shall
more than 10 percent of the City's total investment portfolio be placed in either
of these Pools.
Medium Term 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 the maximum average maturity of Medium Term Notes held in
the portfolio shall not exceed two years. No more than 30 percent of the City's
investment funds shall be placed in securities of this type.
AsseyInvestment 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 25 percent of the City's total
investment portfolio be placed in any investment management account,
however, it is the intent of this policy, for diversification purposes, as
investments mature no more than 20 percent of the City's total investment
portfolio be placed in any investment management account.
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
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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 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.
REPORTING REQUIREMENTS:
The City Council shall receive a detailed monthly listing of all investments in the
City portfolio. The report must show the type of investment, institution, date of
maturity, amount of deposit/ investment, and rate of interest. In addition, the
Finance Committee shall be notified whenever 3 percent or more of the total
portfolio is invested, withdrawn, or moved from one Investment Advisor or Pool
to another.
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
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