HomeMy WebLinkAbout(2001, 05/08) - F-1 - Amended and Reaffirmedr
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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 one billion
dollars ($1,000,000,000) in assets.
A. Certificates of Deposit
Only fully collateralized certificates of deposit with FDIC insured institutions
will be utilized in investment of City funds. Government securities having a
market value of 110 percent of the total amount of investment are acceptable as
collateral. Noncollateralized CD investments may be made in amounts less than
100,000 so long as they are fully insured by the FDIC.
Not more than 10 percent of the City's investment portfolio shall be invested in
certificates of deposit with any one institution. CD's will not be placed for a
period of longer than one year. Further, an institution must meet the following
criteria to be considered by the City:
1. The institution must maintain at least $1 billion in assets ($100 million for
fully insured CD's of $100,000 or less).
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2. The institution must have been in business at least three years.
3. The institution must have a net worth to asset ratio of at least 6 percent.
4. The institution must place and maintain on file with the City an audited
financial statement not more than one year old.
5. Interest shall be paid to the City on a monthly basis.
B. Negotiable Certificates of Deposit
As a matter of policy, the City invests in Negotiable Certificates of Deposit only
with U.S. Banks whose underlying securities are rated A -1 or P -1 by one of the
top two rating agencies and having assets in excess of $10 billion, so as to insure
security and a large, well - established secondary market. Ease of subsequent
marketability is further ascertained prior to initial investment by examining
currently quoted bids by primary dealers and the acceptability of the issuer by
these dealers. No one issuer shall exceed more than 10 percent of the portfolio,
and maturity shall not exceed one year. The California Government Code
Section 53601 limits investment in negotiable certificates of deposit to 30 percent
of the portfolio.
C. Bankers Acceptances
The City may invest only in Bankers Acceptances issued by the 100 largest banks
in the world, which are eligible for purchase by the Federal Reserve System, the
short term paper of which is rated at the highest category by Moody's and
Standard & Poor's. In the case of foreign banks, the Bankers Acceptances must
be written by their U.S. branches. Maximum maturity shall be 180 days. No
more than 30 percent of the City's overall investment portfolio shall be placed in
Bankers Acceptances, with no more than 10 percent of the City's portfolio
invested in the banker's acceptances of any one commercial bank.
D. U.S. Treasury Issues
The City may invest in treasury notes, bills and bonds. Safekeeping
documentation of these instruments in an acceptable and secure account in the
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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 (firms with assets greater than $1 billion and their
subsidiaries) organized and operating in the United States with the highest
Moody's or Standard & Poor's ratings (Al /Pl). Commercial paper shall be used
solely as a short -term investment not to exceed 180 days. Additionally, not more
than 15 percent of the portfolio shall be invested in commercial paper with a
maturity beyond 30 days. Another 15 percent may be invested in commercial
paper if the entire amount invested in commercial paper has a weighted dollar
average maturity of less than 31 days. Security requirements are the same as
those listed above. Investment in commercial paper of any one issuer shall not
exceed 10 percent of the portfolio.
G. Repurchase Agreements ( Repos) and Reverse Repurchase Agreements
Repos and reverse repos shall be used solely as a short -term investment not to
exceed 30 days. The institution from which the City purchases a Repo must
deliver adequate collateral to the City's safekeeping account (either directly or
through a third party safekeeping agent), consisting of U.S. Treasury or Agency
securities at the rate of 102 percent of the face value of the repo. The amount of
this collateral must be sufficient to compensate for fluctuating market conditions.
Repos will only be purchased from Primary Dealers.
The City must own assets for more than 30 days before they can be used as
collateral for a reverse repurchase agreement. No more than 10 percent of the
portfolio can be involved in reverse repos..
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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 currently limits any one City's investment in this fund to $30
million at any one time, and prohibits more than 15 transactions (deposits or
withdrawals) per month. Investment in this Pool is intended to be used as a
temporary repository for short -term funds used for liquidity purposes.
J. County Investment Funds
Los Angeles County provides a service similar to LAIF for municipal and other
government entities. This Fund is available to certain cities outside of Los
Angeles County, including Newport Beach. Investment in this pool is intended
to be used as a temporary repository for short -term funds used for liquidity
purposes. At no time shall more than 5 percent of the City's total investment
portfolio be placed in this Pool.
The City shall not invest funds with the Orange County Pool.
K. Medium Term Corporate Bonds /Notes
Investments of this type will normally only be in corporations rated in the top
three note categories by two of the three largest nationally recognized rating
services. Maximum term to maturity for individual securities shall not exceed
five years, and not more than 25 percent of the portfolio shall be invested in
medium term notes of maturity greater than 2 years. No more than 30 percent of
the City's investment funds shall be placed in securities of this type. As an
additional restriction, not more than 10 percent can be invested in "A," rated
securities, and none of those investments shall exceed two years to maturity.
L. Asset - backed Securities
Investment in asset - backed securities is limited to those collateralized with
consumer receivables, rated "AAA," or the equivalent, by Moody's Investor
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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. No more than 10 percent of the
City's investment funds shall be placed in securities of this type.
M. Municipal Bonds
Municipal bonds rated AAA, or AA and insured, are acceptable investments for
the City. Not more than 15 percent of the portfolio shall be in investments of this
type.
N. Money Market Funds
The City may invest in Money Market Funds subject to the following constraints.
Investment in these funds is primarily intended for short -term "sweep account"
purposes, not for longer -term investments.
1. Shares of beneficial interest issued by diversified management companies
that are money market funds registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. •
80a -1.)
2. The company shall have met either of the following criteria:
a. Attained the highest ranking or the highest letter and numerical
rating provided by not less than two nationally recognized
statistical rating organizations.
b. Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than ten years' experience managing money market mutual
funds with assets under management in excess of one billion
dollars ($1,000,000,000).
3. The purchase price of shares of beneficial interest purchased shall not
include any commission that the companies may charge.
4. No more than 20 percent of the City's investment portfolio shall be
invested in money market funds.
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5. The City shall not invest in funds the market value of which is or has been
less than $1 per share.
PROHIBITED INVESTMENTS
Consistent with California Government Code 53601.6, inverse floaters, range notes,
mortgage derived interest -only strips, or any security that could result in zero interest
accrual if held to maturity are specifically prohibited, except to the extent that they are
shares of diversified management companies registered under the Investment
Company Act of 1940.
The City shall not purchase any security rated Al and or A+ or below if that security
has been placed on "credit watch" for a possible downgrade by either Moody's Investor
Services or Standard and Poor's.
Investments not specifically approved by this policy are prohibited.
ASSET/ INVESTMENT MANAGEMENT AGREEMENTS
The City may employ the services of asset/ investment management companies. Such
companies must have a history of producing no losses and relatively high net returns.
They must also be well established and exceptionally reputable. Members of the staffs
of such companies who will have primary responsibility for managing the City's
investments must have a working familiarity with the special requirements and
constraints of investing municipal funds in general and this City's funds in particular.
They must contractually agree to conform to all provisions of governing law and the
collateralization and other requirements contained herein. At no time shall more than
30 percent of the City's total investment portfolio be placed in any one investment
management account. In order to implement this requirement, the City's portfolio
assets will be reallocated annually among its investment managers.
SAFEKEEPING /THIRD PARTY CUSTODIANS
Cash and securities in the City's portfolio, which are being managed by private sector
asset/ investment management companies, will not be in the custody of those
companies. The City will contract separately with major banks or other well -
established, reputable financial institutions, which provide custodial services to
maintain custody of cash and securities in this category. In the case of a major financial
institution, the City may have an asset/ investment management relationship, and a
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custodial relationship, with the same entity. However, the services must be provided by
separately managed departments within that entity, and the City's portfolio must be
completely separate and distinct from the assets of the institution and from all other
portfolios managed by the institution.
RATING AGENCY CHANGES
In the event a security held by the City is the subject of a rate drop which brings it
below accepted minimums specified herein, or the security is placed on negative credit
watch, where downgrade could result in a rate drop below acceptable levels, the
investment advisor who purchased the security will immediately notify the
Administrative Services Director or Deputy Director of that fact. The course of action to
be followed will then be decided on a case by case basis, considering such factors as the
reason for the rate drop, prognosis for recovery or further drop, and market price of the
security. The City Council will be advised of the situation and intended course of
action by e -mail or fax.
REPORTING REQUIREMENTS
In addition to the Monthly Investment Report, the City Council shall receive a detailed •
quarterly listing of all investments in the City portfolio. The report must show the type
of investment, issuer, date of maturity, par and dollar amount of deposit/ investment,
and rate of interest. Quarterly reports from outside investment managers must also
include market valuation of assets under their management and the source of that
valuation, and shall also include a statement of compliance with investment policy.
Current ratings of non - government securities, either Moody's or Standard & Poor's,
will be included.
In his report to Council, the Director of Administrative Services shall include a
statement denoting the ability of the City to meet its expenditures for the next six
months, and shall also include a statement of compliance with investment policy for
assets under his direct management. In addition, the City Council shall be notified
whenever 5 percent or more of the total portfolio is invested, withdrawn, or moved
from one Investment Advisor or Pool to another.
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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
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