HomeMy WebLinkAbout(2009, 08/11) - 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 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, and who shall thereafter provide a monthly report
regarding the status and changes in the City's investment portfolio to the City Council.
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.
FINANCIAL INSTITUTIONS
The City shall not deposit funds with any financial institution not receiving a minimum
overall satisfactory rating for meeting the credit needs of California Communities in its
most recent evaluation ( §53635.2).
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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
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
Investor Standard," spelled out in the California Government Code, Section 53600.3 as
follows:
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. Within the limitations of this section and considering
individual investments as part of an overall strategy, investment may be
acquired 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
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collateral. Noncollateralized CD investments may be made in amounts less than
the FDIC limit, 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 CDs up to the FDIC limit).
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.
Consistent with the requirements for CD investments, funds deposited in savings
accounts must either be FDIC insured or collateralized.
B. Negotiable Certificates of Deposit
As a matter of policy, the City invests in Negotiable Certificates of Deposit (CDs)
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.
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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. The final maturity of any
U.S. Treasury issue shall not exceed five years from the date of trade settlement.
E. Federal Agency or United States Government- Sponsored Enterprise Obligations
Securities of this type that are acceptable for the City's investments are Federal
National Mortgage Association, Federal Home Loan Bank notes, Federal
National Mortgage Association notes, Federal Farm Credit Bank notes, Federal
Home Loan Mortgage Corporation notes, or any other U. S. Government Agency
security.
F. Commercial Paper
The City may only invest in commercial paper of "prime' quality with the
highest ranking or of the highest letter and number rating as provided for by a
nationally recognized statistical- rating organization (NRSRO). The entity that
issues the commercial paper shall meet all of the following conditions in either
paragraph (1) or paragraph (2).
1. The entity meets the following criteria: (A) Is organized and operating in
the United States as a general corporation. (B) Has total assets in excess of
five hundred million dollars ($500,000,000). (C) Has debt other than
commercial paper, if any, that is rated "A" or higher by a NRSRO.
2. The entity meets the following criteria: (A) Is organized within the United
States as a special purpose corporation, trust, or limited liability company.
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B) Has program wide credit enhancements including, but not limited to,
over collateralization, letters of credit, or surety bond. (C) Has
commercial paper that is rated "A -1" or higher, or the equivalent, by a
NRSRO.
Commercial paper shall be used solely as a short -term investment not to exceed
270 days. No more than 25 percent of the City's portfolio may be invested in
commercial paper. 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.
H. Local Agency Investment Fund (LAIF) (State of California)
State Regulation of LAIF is set forth in California Government Code Section
16429.1. The current limits on any one City investment in this fund is $40
million, and the number of transactions (deposits or withdrawals) is limited to 15
per month. The City's participation in LAIF shall conform to State Regulation.
In general, it is the City's intention to use investment in LAIF as a temporary
repository for short -term funds needed for liquidity purposes. The
Administrative Services Director shall maintain on file appropriate information
concerning LAIF'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.
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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 Administrative Services 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.
The City shall not invest funds with the Orange County Pool.
J. Medium Term Corporate Bonds/ Notes
Investments of this type will only be in corporations rated A or better by a
NRSRO. Maximum term to maturity for individual securities shall not exceed
four years. No more than 30 percent of the City's investment funds shall be
placed in securities of this type.
Federal Agency or United States Government- Sponsored Enterprise Obligations
Securities of this type that are acceptable for the City's investments are Federal
National Mortgage Association, Federal Home Loan Bank notes, Federal
National Mortgage Association notes, Federal Farm Credit Bank notes, Federal
Home Loan Mortgage Corporation notes, FDIC Insured notes, or any other U. S.
Government Agency security.
K. Mortgage- backed Securities and Asset - backed Securities
Investments in securities of this type are limited to mortgage- backed pass -
through securities issued by a US government agency; or consumer receivable
pass - through certificates or bonds. Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher rating for the
issuer's debt as provided by Moody's Investor Services and S &P. The security
itself shall be rated in a rating category of "AAA" or its equivalent or better by
Moody's Investor Services and S &P. The maximum final stated maturity of any
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security of this type shall be five years. No more than 20% of the City's
investment funds shall be placed in securities of this type.
L. Municipal Bonds
Municipal bonds rated AAA, or AA and insured, are acceptable investments for
the City. Investments of this type are limited to obligations of the State of
California and local agencies within the State. Not more than 15 percent of the
portfolio shall be in investments of this type.
M. 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 NRSROs.
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 invest only in Money Market Funds that have a policy of
maintaining a constant daily net asset value per share of $1.00.
CONCENTRATION AN DIVERSIFICATION
No more than 5% of the portfolio may be invested in instruments of any one non-
governmental issuer. There are no concentration restrictions for U.S. Treasury, FDIC -
guaranteed, or other federal agency securities, unless otherwise specified herein.
asset/ investment managers (see below) must insure that the portion of the investment
portfolio within their cognizance complies with this constraint on a pro -rata basis.
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 & 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 relatively high net returns with
conservative investment portfolios, while strictly complying with statutory and policy
provisions. 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. 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. They must also provide
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monthly and quarterly reports as specified in the Reporting Requirements section
below, and as otherwise requested by the Administrative Services Director.
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
All cash and securities in the City's portfolio, including those that are being managed
by private sector asset/ investment management companies, shall be held in
safekeeping in the City's name by a third party bank trust department, acting as agent
for the City under the terms of a custody agreement executed by the bank and the City.
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 the City's portfolio. 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 assets must be held in the City's name
completely separate and distinct from the assets of the institution and from all other
portfolios managed by the institution.
All securities will be received and delivered using standard delivery versus payment
DVP) procedures, the City's safekeeping agent will only release payment for a security
after the security has been properly delivered. The only exception to the foregoing shall
be depository accounts and securities purchases made with: (i) local government
investment pools; and, (ii) money market mutual funds, since the purchased securities
are not deliverable.
BOND PROCEEDS
The investment of bond proceeds will be made in accordance with applicable bond
indentures.
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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, 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 and City Manager shall
receive a detailed quarterly listing of all investments in the City portfolio upon request.
The report will show the type of investment, issuer, date of maturity, par and dollar
amount of deposit/ investment, and rate of interest. Fees charged by investment
advisers and custodians under contract to the City will also be provided if requested.
Quarterly reports from outside investment managers, which are regularly reviewed by
the Administrative Services Director, 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 the City 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
Amended & Reaffirmed - April 23, 2002
Amended & Reaffirmed - April 8, 2003
Amended & Reaffirmed - April 13, 2004
Amended & Reaffirmed - September 13, 2005
Amended - August 11, 2009
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