HomeMy WebLinkAbout(2000, 03/14) - F-1 - ReaffirmedF -1
STATEMENT OF INVESTMENT POLICY
PURPOSE
To set forth the City's policy concerning the investment of temporarily idle funds. It is
the policy of the City to invest funds not required for immediate expenditures.
Investments will be in compliance with governing provisions of law and the policy
contained herein. Primary investment goals are security of principal, adequate liquidity
maintenance, and yield, in that order. Investments shall be placed only in securities as
outlined below. The balance between various investment instruments may change in
order to provide the City with the best combination of yield, liquidity, and a
consideration for other factors, such as placement of an appropriate percentage of
available investment funds locally. It shall be the main responsibility of the City
Council, in adopting this policy and reviewing the investment holdings on a monthly
basis, to preserve the investment principal.
INVESTMENT AUTHORITY
Under the direction of the City Manager, the investment authority has been delegated
to the Director of Administrative Services, who is responsible for administration of the
City's investment program. This authority shall be renewed annually as part of the
review and update of this Policy. In addition to the monthly investment report that is
submitted to the City Council, the Administrative Services Director shall provide more
detailed investment information to the City Council as requested. The City Council
shall be briefed directly by the City s investment advisors on a quarterly basis
whenever possible.
Sections 53600 -53601 of the California Government Code provide basic investment
limits and guidelines for government entities. In the event an apparent discrepancy is
found between this policy and Sections 53600 - 53601, the more restrictive parameters
will take precedence.
LIQUIDITY
Sufficient funding to accommodate at least two- week's projected cash outflow is to be
maintained in immediately available investments, such as the State Local Agency
Investment Fund, maturing certificates of deposit, or similar liquid instruments. An
analysis of cash flow must be conducted at least weekly to serve as the basis for
determining appropriate maturities for investments. At no time shall the liquid cash on
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hand be less than 5 percent of the City's total investment portfolio. For purposes of this
policy, cash on hand includes all cash and investments accessible within 48 hours.
ACCEPTABLE INVESTMENT INSTRUMENTS
The following are types of investments made by the City and the guidelines for
investing in each. In all cases, investments shall be made in the context of the "Prudent
Man" rule, which states, in part, that:
When investing, reinvesting, purchasing, acquiring, exchanging, selling,
and managing public funds, a trustee shall act with care, skill, prudence,
and diligence under the circumstances then prevailing, that a prudent
person acting in a like capacity and familiarity with those matters would
use in the conduct of funds of a like character and with like aims, to
safeguard the principal and maintain the liquidity needs of the agency.
Within the limitations of this section and considering individual
investments as part to (sic) an overall investment strategy, a trustee is
authorized to acquire investments as authorized by law." •
In this light, the City of Newport Beach does not purchase or sell securities on margin.
Additionally, any institution, which holds either the collateral or the investment
instruments themselves in safekeeping for the City, must maintain at least $500,000,000
in assets.
A. Certificates of Deposit
Only fully collateralized certificates of deposit with FDIC insured institutions
will be utilized in investment of City funds. Government securities having a
market value of 110 percent of the total amount of investment are acceptable as
collateral. 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
Administrative Services 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: .
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1. The institution must maintain at least $1 billion in assets ($100 million for
fully insured CD's of $100,000 or less).
2. The institution must have been in business at least three years.
3. The institution must have a net worth to asset ratio of at least 6 percent.
4. The institution must place and maintain on file with the City an audited
financial statement not more than one year old.
5. Interest shall be paid to the City on a monthly basis.
B. Negotiable Certificates of Deposit
As a matter of policy, the City invests in Negotiable Certificates of Deposit only
with U.S. Banks whose underlying securities are rated A -1 or P -1 by one of the
top two rating agencies and having assets in excess of $10 billion, so as to insure
security and a large, well - established secondary market. Ease of subsequent
marketability is further ascertained prior to initial investment by examining
currently quoted bids by primary dealers and the acceptability of the issuer by
these dealers. No one issuer shall exceed more than 10 percent of the portfolio,
and maturity shall not exceed one year. The California Government Code
Section 53601 limits investment in negotiable certificates of deposit to 30 percent
of the portfolio.
C. Bankers Acceptances
The City may invest only in Bankers Acceptances 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.
D. U.S. Treasury Issues
The City may invest in treasury notes, bills and bonds. Safekeeping
documentation of these instruments in an acceptable and secure account in the
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City's name is required. Maximum maturity of any U.S. Treasury issue shall be
five years.
E. Federal Agency Securities
Securities of this type that are acceptable for the City's investments are Federal
Home Loan Bank notes, Federal National Mortgage Association notes, Federal
Farm Credit Bank notes, or any other U. S. Government Agency security.
Security requirements and maturity limitations are the same as those for U.S.
Treasury issues.
F. Commercial Paper
The City may only invest in commercial paper issued by large, exceptionally
well - established firms with the highest Moody's or Standard & Poor's ratings
Al /Pl). Commercial paper shall be used solely as a short -term investment not
to exceed 180 days. Additionally, not more than 15% of the portfolio shall be
invested in commercial paper with a maturity beyond 30 days. Another 15% •
may be invested in commercial paper with a maturity of less than 30 days.
Security requirements are the same as those listed above. Investment in
commercial paper of any one issuer shall not exceed 10 percent of the portfolio.
G. Repurchase Agreements ( Repos) and Reverse Repurchase Agreements
Repos and reverse repos shall be used solely as a short -term investment not to
exceed 30 days. The institution from which the City purchases a Repo must
deliver adequate collateral to the City's safekeeping account (either directly or
through a third party safekeeping agent), consisting of U.S. Treasury or Agency
securities at the rate of 102 percent of the face value of the repo. The amount of
this collateral must be sufficient to compensate for fluctuating market conditions.
Repos will only be purchased from Primary Dealers.
Assets must be owned by the City for more than 30 days before they can be used
as collateral for a reverse repurchase agreement. No more than 10% of the
portfolio can be involved in reverse repos.
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H. Passbook Savings Accounts
Savings accounts may be used as a repository for customer deposits, or for
similar purposes. Consistent with the requirements for CD investments, funds
deposited in savings accounts must either be FDIC insured or collateralized.
I. Local Agency Investment Fund (LAIF) (State of California)
State Regulation 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 with the exception that 25 percent of the portfolio may be placed in the Pool
for a period not to exceed 30 days.
J. County Investment Funds
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.
K. 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 not more than 150 of the portfolio shall be invested in medium
term notes of maturity greater than 2 years. No more than 30 percent of the
City's investment funds shall be placed in securities of this type.
L. Asset - backed Securities
Investment in asset - backed securities is limited to those collateralized with
consumer receivables, rated "AAA," or the equivalent, by Moody's Investor
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Services or Standard & Poor's, Inc., and which have a final, stated maturity of
five years or less from the date of purchase.
M. Municipal Bonds
Municipal bonds rated AAA, or AA and insured, are acceptable investments for
the City. Not more than 15% of the portfolio shall be in investments of this type.
ASSET/ INVESTMENT MANAGEMENT AGREEMENTS
The City may employ the services of asset/ investment management companies. Such
companies must have a history of producing no losses and relatively high net returns.
They must also be well established and exceptionally reputable. Members of the staffs
of such companies who will have primary responsibility for managing the City's
investments must have a working familiarity with the special requirements and
constraints of investing municipal funds in general and this City's funds in particular.
They must contractually agree to conform to all provisions of governing law and the
collateralization and other requirements contained herein. At no time shall more than •
35 percent of the City's total investment portfolio be placed in any investment
management account. It is the intent of this policy, for diversification purposes, that no
more than 20 percent of the City's total investments will be placed in any investment
manager's account. In order to implement this requirement, the City's portfolio assets
will be reallocated annually to its investment managers.
SAFEKEEPING/ THIRD PARTY CUSTODIANS
Cash and securities in the City's portfolio, which are being managed by private sector
asset/ investment management companies, will not be in the custody of those
companies. The City will contract separately with major banks or other well -
established, reputable financial institutions, which provide custodial services to
maintain custody of cash and securities in this category. In the case of a major financial
institution, the City may have an asset/ investment management relationship, and a
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.
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RATING AGENCY CHANGES
In the event a security held by the City is the subject of a rate drop which brings it
below accepted minimums specified herein, the investment advisor who purchased the
security will immediately notify the Administrative Services Director or Deputy
Director of that fact. The course of action to be followed will then be decided on a case
by case basis, considering such factors as the reason for the rate drop, prognosis for
recovery or further drop, and market price of the security. The City Council will be
advised of the situation and intended course of action by e-mail or fax.
REPORTING REQUIREMENTS
In addition to the Monthly Investment Report, the City Council shall receive a detailed
quarterly listing of all investments in the City portfolio. The report must show the type
of investment, issuer, date of maturity, par and dollar amount of deposit/ investment,
and rate of interest. Quarterly reports from outside investment managers must also
include market valuation of assets under their management and the source of that
valuation, and shall also include a statement of compliance with investment policy.
Current ratings of non - government securities, either Moody's or Standard & Poor's,
will be included.
In his report to Council, the Director of Administrative Services shall include a
statement denoting the ability of the City to meet its expenditures for the next six
months, and shall also include a statement of compliance with investment policy for
assets under his direct management. In addition, the City Council shall be notified
whenever 5 percent or more of the total portfolio is invested, withdrawn, or moved
from one Investment Advisor or Pool to another.
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
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