HomeMy WebLinkAbout(1998, 05/26) - F-1 - AmendedE
STATEMENT 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 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 provides 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.
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:
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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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.
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 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.
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 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.
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Commercial Paper
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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.
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.
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 with the exception that 25 percent of
the portfolio may be placed in the Pool for a period not to exceed 30 days.
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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 not
more than 15% 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.
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 Services or Standard
Poor's, Inc., and which have a final, stated maturity of five years or less from the date
of purchase.
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
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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.
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 •
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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 9,1951
Amended - October 27,1956
Rewritten - October 22,1990
Amended - January 25,1991
Amended - January 24,1994
Amended - January 9,1995
Amended - April 22,1996
Corrected - January 27,1997
Amended - February 24,1997
Amended - May 26,1995
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