HomeMy WebLinkAbout05-08-2014 IOC Agenda PacketCITY OF SAN LUIS OBISPO
INVESTMENT OVERSIGHT COMMITTEE
REGULAR QUARTERLY AGENDA
May 8, 2014
1:30 PM
Council Hearing Room 2nd Floor, 990 Palm Street
San Luis Obispo, California
MISSION: As set forth in the Investment Management Plan, this committee is responsible for
reviewing the City’s portfolio on an ongoing basis to determine compliance with the City’s
investment policies and for making recommendations to the City Treasurer (Director of Finance
and Information Technology) regarding investment management practices.
CALL TO ORDER: Finance & IT Director/Treasurer Padilla
ROLL CALL: Mayor Marx; City Manager Lichtig; Assistant City Manager Codron;
Finance & IT Director/Treasurer Padilla; Acting Financial Operations
Manager Vilma Warner; Steve Barasch, public member.
OTHERS PRESENT: Al Eschenbach, Independent Auditor and ex-officio member; Jayson
Schmitt, Chandler Investments;
PUBLIC COMMENTS: At this time, the public is invited to address the Committee
concerning items not on the agenda but are of interest to the public and within the subject
matter jurisdiction of the Investment Advisory Committee. Time limit is three minutes. The
Committee may not discuss or take action on issues that are not on the agenda other than
to briefly respond to statements made or questions raised, or to ask staff to follow up on such
issues.
1. Approval of Investment Oversight Committee meeting minutes of February 20, 2014
2. Presentation of the Quarterly Report and Portfolio Performance
a. Review and Confirm Investment Policy Compliance
3. Discussion and presentation of information comparing the City’s portfolio characteristics
to those of other cities
4. Discussion of possible changes to the investment policy to allow additional investments
with higher yields
Investment Oversight Committee Regular Quarterly Agenda for May 8, 2014 Page 2
5. Discussion of possible changes to the investment policy related socially responsible
investments
6. Topics for future consideration
7. Adjournment
_________________________________________________________________________
The City of San Luis Obispo wishes to make all of its public meetings accessible to the
public. Upon request, this agenda will be made available in appropriate alternative formats to
persons with disabilities. Any person with a disability who requires a modification or
accommodation in order to participate in a meeting should direct such request to the City
Clerk’s Office at (805) 781-7100 at least 48 hours before the meeting, if possible.
Telecommunications Device for the Deaf (805) 781 -7107.
Any writings or documents provide to a majority of the Committee regarding any item on this
agenda will be made available for public inspection in the Administration Office located at 990
Palm Street, San Luis Obispo, during normal business hours.
CITY OF SAN LUIS OBISPO
INVESTMENT OVERSIGHT COMMITTEE
MINUTES
Thursday, February 20, 2014
1:30 PM
San Luis Obispo County Library Community Room, 995 Palm Street
San Luis Obispo, California
MISSION: As set forth in the Investment Management Plan, this committee is
responsible for reviewing the City’s portfolio on an ongoing basis to determine
compliance with the City’s investment policies and for making recommendations to the
City Treasurer (Director of Finance and Information Technology) regarding investment
management practices.
CALL TO ORDER
A meeting of the Investment Oversight Committee was called to order on Thursday,
February 20, 2014, at 1:32 p.m. in the San Luis Obispo County Library Community
Room, located at 995 Palm Street, San Luis Obispo, California, by Chair Padilla.
ROLL CALL
Committee Members
Present: Mayor Jan Marx; City Manager Katie Lichtig; Assistant City Manager
Michael Codron, Finance & IT Director/City Treasurer Wayne Padilla;
Finance Operations Manager Mette Richardson; Steve Barasch, public
member
Committee Member
Absent: None
Others Present: Al Eschenbach, Independent Auditor and ex-officio member; Jayson
Schmitt, Chandler Investments (City’s Financial Advisor); Heather
Goodwin, Deputy City Clerk
PUBLIC COMMENT
There were no members of the public desiring to speak.
Investment Oversight Committee Minutes – February 20, 2014 Page 2
1. APPROVAL OF MINUTES
MOTION BY COMMITTEE MEMBER MARX, SECOND BY COMMITTEE
MEMBER BARASCH, CARRIED 6-0, to approve the Investment Oversight
Committee Minutes of November 20, 2013.
2. PRESENTATION OF THE QUARTERLY REPORT AND PORTFOLIO
PERFORMANCE
City Financial Advisor Schmitt summarized the quarterly investment report and
portfolio’s performance over the quarter. In response to Committee inquiry, City
Treasurer Padilla stated that the City’s investment report is based on balances as of
December 31, 2013 and explained the purpose of the Local Agency Investment
Fund (LAIF) deposits.
3. REVIEW AND CONFIRM INVESTMENT POLICY COMPLIANCE
City Treasurer Padilla reviewed the report as presented; asked the committee to
make a finding that the investment strategy and holdings in the portfolio are in
compliance with the City’s Financial Management Manual; responded to inquiries
from the committee.
MOTION BY COMMITTEE MEMBER MARX, SECOND BY COMMITTEE
MEMBER CODRON, CARRIED 6-0, to affirm that the portfolio is in compliance
with the requirements the City’s Financial Management Manual.
4. SET TIME AND DAY FOR FUTURE COMMITTEE MEETINGS
The Committee agreed to schedule its future meetings for the second Thursday of
the second month following the end of a fiscal quarter at 1:30 p.m. The next meeting
will be held on Thursday, May 8, 2014 at 1:30 p.m.
5. ITEMS TO BE CONSIDERED FOR THE NEXT MEETING
Recommendations
Discussion ensued regarding Committee members bringing forward
recommendations for discussion during future meetings.
Following discussion, it was agreed that the Committee Members would agendize
the following for its next meeting.
- Identify different investments that could lead to higher yields while meeting
the Financial Management Manual’s requirements.
- Review of the City’s portfolio to those of comparable cities
Investment Oversight Committee Minutes – February 20, 2014 Page 3
- Evaluation of the City’s investment policy as it relates to fossil fuel companies
Leonard Milstein from the floor opined about the size of comparable cities.
ADJOURNMENT
The meeting adjourned at 2:22 p.m.
Heather Goodwin
Deputy City Clerk
Approved: XX/XX/14
CHANDLER ASSET MANAGEMENT
6225 Lusk Blvd | San Diego, CA 92121 | Phone 800.317.4747 | Fax 858.546.3741 | www.chandlerasset.com
Investment Report
Period Ending
March 31, 2014
City of San Luis Obispo
Attachment 2
Table of Contents
Economic Update
Account Profile
Consolidated Information
Portfolio Holdings
SECTION 1
SECTION 2
SECTION 3
SECTION 4
1
SECTION 1
Economic Update
2
Duringthepastthreemonths,theyieldcurvehasflattenedeven as theFedhas been taperingits
purchases of long-termTreasurybonds.Theshape of theyieldcurve is changing as market
participantsanticipatefuturefedfundsratehikes by theFederalReservewhichhasbegun to put
upwardpressure on shorter-termyields.Meanwhile,overthepastthreemonths,marketparticipants
havereacted to lacklusterdomesticeconomicdata(largelydue to weather),as well as geopolitical
tensionsandfearsaboutemergingmarketcurrencies.Theseworrieshavefueledaflight to quality,
putting downward pressure on longer yields.
Economic Update
TheMarchemploymentreportwasslightlyweakerthanexpected,butoverallthelabormarketseems
to be improvinggradually.Nonfarmpayrolljobsgrew by 192,000 in March,versusexpectations of
200,000.Privatepayrollsgrew by 192,000andgovernmentjobswereflat.Theunemploymentrate
wasunchanged at 6.7%,andwagegrowthwasflat.Forthefirstquarter of2014,payrollsrose by
178,000 per month on average,whichcompares to averagegrowth of 198,000 per monthduringthe
fourthquarter of lastyear.We believethisdeceleration is at leastpartiallyexplained by thesevere
winterweatherthatcontinuedintoMarch.Meanwhilemanufacturing,housing,andconsumerdata
remains mixed.
TheFOMCleftpolicyratesunchanged at itsMarch18-19meeting,andannouncedanother $10
billionreduction in assetpurchasesbeginning in April,as expected.We believetheprocess of
unwinding QE willlikelycontinue at asteadypacethroughout 2014.TheCommitteemadesome
changes to itsforwardguidance on monetarypolicy.Ratherthanpointing to 6.5%unemployment as a
triggerpointforpolicychange,theFed is nowusingmorequalitativelanguageandindicatedthat it
willinstead be focused on targeting“maximumemployment”.TheCommitteewillalsocontinue to
targetalong-runinflation goalof 2%.TheFedslightlylowereditsforecastsforGDPgrowthand
unemployment(comparedwithitsforecastsfromDecember),whileitsinflationoutlookwas
essentiallyunchanged.In herfirstpost-meetingpressconference,ChairwomanYellenrattledthe
financialmarketswhenshesuggestedthatthefirstfedfundsratehikecouldbegin6monthsafterthe
taper is complete(whichimpliesspring of2015 –afewmonthsearlierthanthemarkethad been
forecasting).Overall,manymarketparticipantsviewedYellen’scomments as beingmore“hawkish”
than expected. The next FOMC meeting is scheduled for April 29-30.
3
Employment
Source: U.S. Department of Labor
0
50
100
150
200
250
300
(0
0
0
'
s
)
Non-farm Payroll (000's)
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
Unemployment Rate
TheMarchemploymentreportwasslightlyweakerthanexpected as payrollsrose by 192,000versusthe
200,000consensusestimate.Netrevisionsforjobgrowth in FebruaryandJanuarywere+37,000.Private
payrollsincreased by 192,000 in Marchandgovernmentjobswereflat.Theunemploymentratewas
unchanged at 6.7%, while the consensus projection was 6.6%.
4
Consumer
Source: U.S. Department of Commerce Source: Federal Reserve
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Retail Sales Y-O-Y % Change
0
5
10
15
20
25
D
o
l
l
a
r
(
$
)
B
i
l
l
i
o
n
s
Consumer Credit
In February,RetailSalesrose1.5%on ayear-over-yearbasisversusagain of 1.9%in January.On amonth-
over-monthbasis,RetailSalesexcludingautosand gas rose0.3%in Februarywhichwasahead of the
consensusforecast of +0.1%.Adverseweatherlikelycontinued to hinderretailsalesduringthemonth.
ConsumerCreditrose by $13.7billion in Januaryversusagain of $18.8billion in December.Revolvingcredit
declined by $0.2billion in January,andDecember'sgain in revolvingcreditwasreviseddown to $3.1billion
from$5.0billion.Thenon-revolvingcomponent(primarilyautoandstudentloans)continues to fueloverall
credit expansion and rose by $13.9 billion in January.
5
Broad Measures
Source: US Department of Commerce Source: The Conference Board
0
100
200
300
400
500
600
700
800
(0
0
0
'
s
)
Starts -Single Family Housing
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
Leading Economic Indicators
Single-familyhousingstartsrose0.3%in Februaryafterfalling13.2%in January.Unfavorableweatherhas
likelyaffectedhousingtrends in thepastfewmonths.Theindex of LeadingEconomicIndicators(LEI)rose
0.5%in Februaryfollowinga0.1%gain in January.Overall,theLEIindexcontinues to point to sloweconomic
growth.
6
Manufacturing
Source: Institute for Supply Management Source: Federal Reserve
45.0
47.5
50.0
52.5
55.0
57.5
60.0
Institute of Supply Management
Purchasing Manager Index
Expanding
Contracting
76.0%
76.5%
77.0%
77.5%
78.0%
78.5%
79.0%
Capacity Utilization
DuringMarch,theISMManufacturingIndexincreased to 53.7from53.2 in February,signalingaslight
uptick in themanufacturingsector.February'sreadingwasslightlybelowexpectationsandwas
probablyhelddown by ongoingweather-relatedfactors.Nevertheless,areadingabove50.0 is
viewed as expansionary in themanufacturingsector,whileareadingbelow50.0suggestscontraction
in themanufacturingsector.CapacityUtilization,which is productiondivided by capacity,rose in
February to 78.8%from78.5%in January.TheCapacityUtilizationrateremainsbelowthelong-run
average of 80.2% (1972-2012).
7
Inflation
Source: US Department of Labor
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
CPI Y-O-Y % Change
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Core CPI Y-O-Y % Change
In February,overallCPIinflationfell to 1.1%on ayear-over-yearbasisfrom1.6%in January.Theyear-over-
yearCoreCPI(CPIlessfoodandenergy)wasunchanged at 1.6%in February.Thecoreinflationrate is still
trending below the Fed’s long-term goal of 2.0% and remains below the trigger rate for policy action of 2.5%.
8
GDP
Source: U.S. Department of Commerce
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
GDP Qtrly % Change
Theeconomygrewmoreslowlythanpreviouslyestimatedduringthefourthquarter.RealannualizedGDP
growthforthefourthquarter of2013 was2.4%,downfromtheadvanceestimate of 3.2%.Therewere
downwardrevisions to personalconsumption,inventoryinvestment,netexports,andgovernmentpurchases.
This follows third quarter GDP growth of 4.1%.
9
Theyield on thetwo-yearTreasurynoteincreased in March,driven by in part by theongoingunwinding of
quantitativeeasing by theFederalReservealongwithincreasedanxietythattheFedcouldbeginhikingthe
fedfundsratesoonerthanmarketparticipantshave been expecting.We believethesefactorshave been
somewhat offset by a moderate flight to quality due to geopolitical tensions.
Interest Rates
Source: Bloomberg
Yield on the Two-Year Note
March 2012 through March 2014
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
0.40%
0.45%
10
Duringthepastthreemonths,theyieldcurvehasflattenedeven as theFedhas been taperingitspurchases of
long-termTreasurybonds.Theshape of theyieldcurve is changing as marketparticipantsanticipatefuture
fedfundsratehikes by theFederalReservewhichhasbegun to putupwardpressure on shorter-termyields.
Meanwhile,overthepastthreemonths,marketparticipantshavereacted to lacklusterdomesticeconomic
data(largelydue to weather),as well as geopoliticaltensionsandfearsaboutemergingmarketcurrencies.
These worries have fueled a flight to quality, putting downward pressure on longer yields.
Yield Curves
Source: Bloomberg
December 31, 2013andMarch 31, 2014
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
12/31/13 3/31/14
11
SECTION 2
Account Profile
12
Chandler Asset Management
Performance Objectives
Strategy
Investment Objectives
Objectives
The investment objectives of the City of San Luis Obispo are first, to provide
safety of principal to ensure the preservation of capital in the overall portfolio;
second, to provide sufficient liquidity to meet all operating requirements; and
third, to earn a commensurate rate of return consistent with the constraints
imposed by the safety and liquidity objectives.
The performance objective for the portfolio is to earn a total rate of return over a
market cycle that equals or exceeds the market index, the BofA Merrill Lynch
Index of 0-5 Treasury securities.
In order to achieve this objective, the portfolio invests in high-quality money
market instruments, US Tre asury securities, Agency securities, and high-grade
corporate securities, with a maximum maturity of five years.
13
Compliance
Category Standard Comment
Treasury Bills and Notes No Limitations Complies
Gov't. Sponsored EnterprisesAAA rated GSEs only Complies
Commercial Paper ≥ A-1/P1/F1 rated; 25% maximum; 5% per
issuer; <270 days maturity
Complies
Corporate Obligations ≥ Aa3/AA- by one rating organization; 30%
maximum; 5% per issuer
Complies
Banker’s Acceptances 40% maximum; 5% per issuer; <180 days
maturity
Complies
Repurchase Agreements Not used by investment adviser Complies
Local Gov't. Investment Pools Not used by investment adviser Complies
Neogtiable CDs 30% maximum; 5% per issuer Complies
Time Deposits Not used by investment adviser Complies
Money Market Funds AAA/Aaa rated; no-load funds only; 20%
maximum; 10% per issuer
Complies
Inverse floaters, range notes Prohibited Complies
Interest only strips Prohibited Complies
Zero interest accruals Prohibited Complies
% maturing less than 90 days 5% minimum Complies
Maximum maturity of corporate 5 years Complies
Maximum maturity 10 years; 10% maximum of portfolio in Treasury
and GSE obligations with maturity > 5 years
Complies
City of San Luis Obispo
March 31, 2014
COMPLIANCE WITH INVESTMENT POLICY
Assets managed by Chandler Asset Management are in full compliance with California State law and with
the City's investment management plan.
14
Account Profile
Total Market Value 45,139,965 46,680,571
Modified Duration 2.16 1.84 2.01
Average Quality**AAA AA+/Aaa AA+/Aaa
Average Market Yield 0.64 %0.56 %0.59 %
Average Purchase Yield n/a 1.19 %1.22 %
Benchmark*Portfolio Portfolio
Average Maturity (yrs)2.23 1.88 2.05
* 0-5 yr Treasury
** Benchmark is a blended rating of S&P, Moody's, and Fitch. Portfolio is S&P and Moody's respectively.
City of San Luis Obispo
03/31/2014 12/31/2013
Portfolio Characteristics
During the last three months, portfolio activity consisted of maturing securities and interest payments that totaled approximately
$1.65 million which were subsequently withdrawn and moved to LAIF to support the ongoing operations of the City.
15
15
Sector Distribution
City of San Luis Obispo
March 31, 2014 December 31, 2013
The portfolio sector allocation changed modestly as we increased the holdings of the portfolio in the money market funds by 1.0%
and Corporate securities by 0.6%. Treasuries decreased by 1.7%.
16
16
Issuers
17
17
Quality Distribution
City of San Luis Obispo
12/31/13 4.5 %95.5 %0.0 %0.0 %0.0 %
3/31/14 5.7 %94.3 %0.0 %0.0 %0.0 %
Source: S&P Ratings
AAA AA A <A NR
March 31, 2014 vs. December 31, 2013
12/31/133/31/14
18
18
Duration Distribution
City of San Luis Obispo
Portfolio Compared to the Benchmark as of March 31, 2014
Benchmark*6.9 %5.7 %12.3 %23.5 %22.8 %16.8 %12.1 %0.0 %
Portfolio 5.0 %7.6 %10.8 %30.6 %28.1 %17.9 %0.0 %0.0 %
0 - 0.25 0.25 - 0.50 0.50 - 1 1 - 2 2 - 3 3 - 4 4 - 5 5+
* 0-5 yr Treasury
The duration of the portfolio was below the benchmark’s duration during the recent quarter. The market continues to expect the
Federal Reserve to taper the amount of its bond purchases throughout 2014, likely increasing interest rate volatility during the year.
Offsetting the expected increase in volatility is the unchanged forecast for the federal funds rate (currently 0-0.25%). We expect to
increase the duration of the portfolio close to the City’s 0-5 Year Treasury benchmark in the near term.
19
19
Investment Performance
0-5 yr Treasury 0.21 %-0.04 %0.50 %1.16 %1.36 %N/A 2.09 %
City of San Luis Obispo 0.24 %0.26 %0.66 %1.29 %1.80 %N/A 2.51 %
Annualized
3 months 12 months 2 years 3 years 5 years 10 years Since Inception
Total rate of return: A measure of a portfolio's performance over time. It is the internal rate of return, which equates the beginning value of the portfolio with the ending value; it
includes interest earnings, realized and unrealized gains and losses in the portfolio.
City of San Luis Obispo
Period Ending
March 31, 2014
Total Rate of Return
Annualized Since Inception
May 31, 2008
20
20
Account Profile
Total Market Value 45,533,579 37,290,147
Modified Duration 0.06 0.09
Average QualityAA+/Aaa AA+/Aaa
Average Market Yield 0.19 %0.21 %
Average Purchase Yield 0.39 %0.44 %
Portfolio Portfolio
Average Maturity (yrs)0.06 0.10
City of San Luis Obispo Internal
03/31/2014 12/31/2013
Portfolio Characteristics
21
21
Sector Distribution
City of San Luis Obispo Internal
March 31, 2014 December 31, 2013
22
22
Issuers
23
23
SECTION 3
Consolidated Information
24
24
Compliance
Category Standard Comment
Treasury Bills and Notes No Limitations Complies
Gov't. Sponsored EnterprisesAAA rated GSEs only Complies
Commercial Paper ≥ A-1/P1/F1 rated; 25% maximum; 5% per issuer; <270
days maturity
Complies
Corporate Obligations ≥ Aa3/AA- by one rating organization; 30% maximum; 5%
per issuer
Complies
Banker’s Acceptances 40% maximum; 5% per issuer; <180 days maturity Complies
Repurchase Agreements Not used by investment adviser Complies
Local Gov't. Investment Pools Not used by investment adviser Complies
Negotiable CDs 30% maximum; 5% per issuer Complies
Time Deposits Not used by investment adviser Complies
Money Market Funds AAA/Aaa rated; no-load funds only; 20% maximum; 10%
per issuer
Complies
Inverse floaters, range notes Prohibited Complies
Interest only strips Prohibited Complies
Zero interest accruals Prohibited Complies
One-Year Liquidity Constraint Minimum of 20% of the portfolio must be invested in
securities maturing in one year
Complies
Operating Budget Constraint Minimum 25% of budgeted operating expenditures
($21.4 Million) in short-term investments (90 days or less)
Complies
Maximum maturity of corporate 5 years Complies
Maximum maturity 10 years; 10% maximum of portfolio in Treasury and GSE
obligations with maturity > 5 years
Complies
Objectives Safety, Liquidity & Yield Complies
City of San Luis Obispo Consolidated
March 31, 2014
COMPLIANCE WITH INVESTMENT POLICY
This portfolio is a consolidation of assets managed by Chandler Asset Management and assets managed internally by Client.
Chandler relies on Client to provide accurate information for reporting assets and producing this compliance statement.
25
25
Account Profile
Total Market Value 90,673,544 83,970,718
Modified Duration 0.95 1.16
Average QualityAA+/Aaa AA+/Aaa
Average Market Yield 0.37 %0.42 %
Average Purchase Yield 0.79 %0.88 %
Portfolio Portfolio
Average Maturity (yrs)0.97 1.18
City of San Luis Obispo Consolidated
03/31/2014 12/31/2013
Portfolio Characteristics
26
26
Sector Distribution
City of San Luis Obispo Consolidated
March 31, 2014 December 31, 2013
27
27
Issuers
28
SECTION 3
Portfolio Holdings
29
Chandler Asset Management - CONFIDENTIAL Execution Time: 4/25/2014 4:26:54 PM
3133EADW5 FFCB Note
0.55% Due 8/17/2015
1,000,000.00 04/27/2012
0.60 %
998,511.00
998,511.00
100.40
0.26 %
1,003,981.00
672.22
1.11 %
5,470.00
Aaa
AA+
1.38
1.37
3135G0NV1 FNMA Note
0.5% Due 9/28/2015
650,000.00 06/27/2013
0.50 %
650,026.00
650,026.00
100.36
0.26 %
652,327.00
27.08
0.72 %
2,301.00
Aaa
AA+
1.50
1.49
31331J2S1 FFCB Note
1.5% Due 11/16/2015
402,000.00 03/25/2011
2.20 %
389,640.91
389,640.91
101.97
0.28 %
409,928.24
2,261.25
0.45 %
20,287.33
Aaa
AA+
1.63
1.60
3135G0KM4 FNMA Note
0.5% Due 5/27/2015
1,300,000.00 08/24/2012
0.43 %
1,302,392.00
1,302,392.00
100.35
0.20 %
1,304,540.90
2,238.89
1.44 %
2,148.90
Aaa
AA+
1.16
1.15
880591DY5 Tennessee Valley Authority Note
4.375% Due 6/15/2015
1,050,000.00 06/14/2011
1.46 %
1,168,386.45
1,168,386.45
104.80
0.38 %
1,100,428.35
13,526.04
1.23 %
(67,958.10)
Aaa
AA+
1.21
1.17
313372XB5 FHLB Note
2.125% Due 6/30/2015
900,000.00 05/26/2011
1.49 %
922,752.00
922,752.00
102.18
0.38 %
919,618.20
4,834.38
1.02 %
(3,133.80)
Aaa
AA+
1.25
1.23
3133EAJU3 FFCB Note
1.05% Due 3/28/2016
924,000.00 09/14/2012
0.53 %
940,879.28
940,879.28
101.27
0.41 %
935,756.06
80.86
1.03 %
(5,123.22)
Aaa
AA+
1.99
1.97
313380L96 FHLB Note
0.5% Due 11/20/2015
700,000.00 06/27/2013
0.53 %
699,447.00
699,447.00
100.19
0.38 %
701,313.90
1,273.61
0.77 %
1,866.90
Aaa
AA+
1.64
1.63
31331J6C2 FFCB Note
2.35% Due 12/22/2015
580,000.00 03/28/2011
2.27 %
582,099.60
582,099.60
103.30
0.43 %
599,163.78
3,748.25
0.66 %
17,064.18
Aaa
AA+
1.73
1.69
3133XXP43 FHLB Note
3.125% Due 3/11/2016
965,000.00 08/10/2011
1.11 %
1,051,449.53
1,051,449.53
104.94
0.57 %
1,012,659.42
1,675.35
1.12 %
(38,790.11)
Aaa
AA+
1.95
1.89
3137EACV9 FHLMC Note
1% Due 8/27/2014
1,050,000.00 07/19/2011
0.89 %
1,053,522.75
1,053,522.75
100.30
0.27 %
1,053,122.70
991.67
1.16 %
(400.05)
Aaa
AA+
0.41
0.41
31331GL80 FFCB Note
3% Due 9/22/2014
1,100,000.00 Various
2.57 %
1,121,054.30
1,121,054.30
101.38
0.10 %
1,115,162.40
825.00
1.23 %
(5,891.90)
Aaa
AA+
0.48
0.47
3137EACD9 FHLMC Note
3% Due 7/28/2014
1,250,000.00 03/18/2010
2.38 %
1,282,096.25
1,282,096.25
100.92
0.17 %
1,261,486.25
6,562.50
1.40 %
(20,610.00)
Aaa
AA+
0.33
0.32
31331KLE8 FFCB Note
1.6% Due 5/18/2015
230,000.00 07/20/2011
1.28 %
232,702.50
232,702.50
101.58
0.20 %
233,625.49
1,359.56
0.26 %
922.99
Aaa
AA+
1.13
1.12
3137EACB3 FHLMC Note
2.5% Due 4/23/2014
375,000.00 07/28/2009
2.81 %
369,842.25
369,842.25
100.15
0.07 %
375,555.75
4,114.58
0.42 %
5,713.50
Aaa
AA+
0.06
0.06
31331KCR9 FFCB Note
2.05% Due 2/18/2015
400,000.00 07/26/2011
1.23 %
411,440.00
411,440.00
101.68
0.14 %
406,706.00
979.44
0.45 %
(4,734.00)
Aaa
AA+
0.89
0.87
31331KFS4 FFCB Note
1.67% Due 3/24/2015
1,000,000.00 07/21/2011
1.18 %
1,017,410.00
1,017,410.00
101.48
0.16 %
1,014,802.00
324.72
1.12 %
(2,608.00)
Aaa
AA+
0.98
0.98
3137EACH0 FHLMC Note
2.875% Due 2/9/2015
1,225,000.00 03/09/2010
2.63 %
1,238,784.93
1,238,784.93
102.24
0.25 %
1,252,436.33
5,087.15
1.39 %
13,651.40
Aaa
AA+
0.86
0.85
31398AZV7 FNMA Note
2.625% Due 11/20/2014
950,000.00 11/20/2009
2.43 %
958,573.75
958,573.75
101.58
0.14 %
965,006.20
9,074.48
1.07 %
6,432.45
Aaa
AA+
0.64
0.63
3133XVNU1 FHLB Note
2.75% Due 12/12/2014
1,200,000.00 03/09/2010
2.57 %
1,209,304.80
1,209,304.80
101.83
0.12 %
1,221,982.80
9,991.67
1.36 %
12,678.00
Aaa
AA+
0.70
0.69
AGENCY
Holdings Report
As of 3/31/14
City of San Luis Obispo Consolidated
Account #10032
CUSIP Security Description Par Value/Units
Purchase Date
Book Yield
Cost Value
Book Value
Mkt Price
Mkt YTM
Market Value
Accrued Int.
% of Port.
Gain/Loss
Moody
S&P
Maturity
Duration
30
Chandler Asset Management - CONFIDENTIAL Execution Time: 4/25/2014 4:26:54 PM
90CASH$00 Cash Custodial Cash Account 8,166,126.22 Various
0.00 %
8,166,126.22
8,166,126.22
1.00
0.00 %
8,166,126.22
0.00
9.01 %
0.00
NR
NR
0.00
0.00
Total Cash 8,166,126.22 N/A
8,166,126.22
8,166,126.22 0.00 %
8,166,126.22
0.00
9.01 %
0.00
NR
NR
0.00
0.00
CASH
3137EADJ5 FHLMC Note
1% Due 7/28/2017
900,000.00 11/26/2012
0.80 %
908,316.00
908,316.00
99.55
1.14 %
895,952.70
1,575.00
0.99 %
(12,363.30)
Aaa
AA+
3.33
3.25
3137EADL0 FHLMC Note
1% Due 9/29/2017
950,000.00 01/04/2013
0.89 %
954,788.00
954,788.00
99.20
1.24 %
942,355.35
52.78
1.04 %
(12,432.65)
Aaa
AA+
3.50
3.42
3137EADH9 FHLMC Note
1% Due 6/29/2017
910,000.00 Various
0.83 %
917,260.60
917,260.60
99.64
1.11 %
906,694.88
2,325.56
1.00 %
(10,565.72)
Aaa
AA+
3.25
3.17
3135G0ES8 FNMA Note
1.375% Due 11/15/2016
985,000.00 03/14/2012
1.21 %
992,545.10
992,545.10
101.56
0.77 %
1,000,326.60
5,116.53
1.11 %
7,781.50
Aaa
AA+
2.63
2.56
3135G0GY3 FNMA Note
1.25% Due 1/30/2017
800,000.00 02/27/2012
1.07 %
807,016.00
807,016.00
101.11
0.85 %
808,879.20
1,694.44
0.89 %
1,863.20
Aaa
AA+
2.84
2.78
31331KBX7 FFCB Note
2.875% Due 2/10/2017
865,000.00 07/25/2012
0.74 %
947,477.75
947,477.75
105.16
1.04 %
909,591.62
3,523.07
1.01 %
(37,886.13)
Aaa
AA+
2.87
2.74
313370TW8 FHLB Note
2% Due 9/9/2016
280,000.00 10/24/2013
0.67 %
290,550.40
290,550.40
103.24
0.66 %
289,082.08
342.22
0.32 %
(1,468.32)
Aaa
AA+
2.45
2.38
3135G0VA8 FNMA Note
0.5% Due 3/30/2016
950,000.00 03/27/2013
0.45 %
951,434.50
951,434.50
100.07
0.47 %
950,637.45
13.19
1.05 %
(797.05)
Aaa
AA+
2.00
1.99
313373SZ6 FHLB Note
2.125% Due 6/10/2016
1,000,000.00 06/20/2011
1.84 %
1,013,460.00
1,013,460.00
103.33
0.59 %
1,033,263.00
6,552.08
1.15 %
19,803.00
Aaa
AA+
2.20
2.13
3133834R9 FHLB Note
0.375% Due 6/24/2016
700,000.00 06/27/2013
0.77 %
691,817.00
691,817.00
99.59
0.56 %
697,141.20
707.29
0.77 %
5,324.20
Aaa
AA+
2.24
2.21
313379DD8 FHLB Note
1% Due 6/21/2017
700,000.00 11/26/2012
0.70 %
709,478.00
709,478.00
99.76
1.08 %
698,318.60
1,944.44
0.77 %
(11,159.40)
Aaa
AA+
3.23
3.15
3136FPYB7 FNMA Callable Note 1X 5/23/2011
2.05% Due 5/23/2017
365,000.00 08/07/2012
0.89 %
384,739.20
384,739.20
103.00
1.08 %
375,946.72
2,660.44
0.42 %
(8,792.48)
Aaa
AA+
3.15
3.03
3137EADF3 FHLMC Note
1.25% Due 5/12/2017
500,000.00 10/17/2012
0.82 %
509,635.00
509,635.00
100.77
1.00 %
503,870.00
2,413.19
0.56 %
(5,765.00)
Aaa
AA+
3.12
3.03
3135G0UY7 FNMA Callable Note 1X 2/27/15
1% Due 2/27/2017
500,000.00 04/24/2013
0.75 %
504,750.00
504,750.00
100.06
0.94 %
500,275.00
472.22
0.55 %
(4,475.00)
Aaa
AA+
2.92
2.44
3137EADC0 FHLMC Note
1% Due 3/8/2017
1,000,000.00 03/14/2012
1.29 %
986,050.00
986,050.00
100.25
0.92 %
1,002,452.00
638.89
1.11 %
16,402.00
Aaa
AA+
2.94
2.89
Total Agency 28,656,000.00 1.32 %
29,169,632.85
29,169,632.85 0.51 %
29,054,389.17
99,680.04
32.15 %
(115,243.68)
Aaa
AA+
1.76
1.72
AGENCY
Holdings Report
As of 3/31/14
City of San Luis Obispo Consolidated
Account #10032
CUSIP Security Description Par Value/Units
Purchase Date
Book Yield
Cost Value
Book Value
Mkt Price
Mkt YTM
Market Value
Accrued Int.
% of Port.
Gain/Loss
Moody
S&P
Maturity
Duration
31
Chandler Asset Management - CONFIDENTIAL Execution Time: 4/25/2014 4:26:54 PM
037833AH3 Apple Inc Note
0.45% Due 5/3/2016
700,000.00 05/13/2013
0.55 %
698,005.00
698,005.00
99.67
0.61 %
697,683.70
1,295.00
0.77 %
(321.30)
Aa1
AA+
2.09
2.07
478160AY0 Johnson & Johnson Note
2.15% Due 5/15/2016
675,000.00 01/15/2013
0.58 %
709,870.50
709,870.50
103.19
0.63 %
696,536.55
5,482.50
0.77 %
(13,333.95)
Aaa
AAA
2.13
2.06
931142DE0 Wal-Mart Stores Note
0.6% Due 4/11/2016
700,000.00 06/27/2013
0.81 %
696,017.00
696,017.00
99.96
0.62 %
699,717.90
1,983.33
0.77 %
3,700.90
Aa2
AA
2.03
2.01
594918AB0 Microsoft Note
2.95% Due 6/1/2014
1,230,000.00 Various
1.68 %
1,286,778.00
1,286,778.00
100.42
0.44 %
1,235,142.63
12,095.00
1.38 %
(51,635.37)
Aaa
AAA
0.17
0.17
369604BE2 General Electric Co Note
0.85% Due 10/9/2015
700,000.00 04/24/2013
0.58 %
704,515.00
704,515.00
100.45
0.55 %
703,166.80
2,842.78
0.78 %
(1,348.20)
Aa3
AA+
1.53
1.51
38259PAC6 Google Inc Note
2.125% Due 5/19/2016
523,000.00 04/23/2012
0.91 %
548,360.27
548,360.27
103.26
0.58 %
540,060.78
4,075.04
0.60 %
(8,299.49)
Aa2
AA
2.14
2.08
084664BS9 Berkshire Hathaway Note
1.6% Due 5/15/2017
700,000.00 04/24/2013
1.00 %
716,765.00
716,765.00
101.22
1.20 %
708,561.70
4,231.11
0.79 %
(8,203.30)
Aa2
AA
3.13
3.02
742718DV8 Procter & Gamble Co Note
1.45% Due 8/15/2016
915,000.00 08/03/2012
0.82 %
937,893.30
937,893.30
101.45
0.83 %
928,263.84
1,695.29
1.03 %
(9,629.46)
Aa3
AA-
2.38
2.33
US CORPORATE
PP1MCB$02 Heritage Oaks Bank Yankee CD
0.27% Due 12/20/2014
1,000,000.00 12/20/2013
0.27 %
1,000,000.00
1,000,000.00
100.00
0.27 %
1,000,000.00
765.00
1.10 %
0.00
NR
NR
0.72
0.72
Total Negotiable CD 1,000,000.00 0.27 %
1,000,000.00
1,000,000.00 0.27 %
1,000,000.00
765.00
1.10 %
0.00
NR
NR
0.72
0.72
NEGOTIABLE CD
90CASH$01 Cash Heritage Oaks Bank MMKT Fund 1,005,229.52 Various
0.21 %
1,005,229.52
1,005,229.52
1.00
0.21 %
1,005,229.52
0.00
1.11 %
0.00
NR
NR
0.00
0.00
261941108 Dreyfus Treas PR Cash Mgt Inst Money
Market Fund
637,797.90 Various
0.00 %
637,797.90
637,797.90
1.00
0.00 %
637,797.90
0.00
0.70 %
0.00
Aaa
AAA
0.00
0.00
Total Money Market Fund FI 1,643,027.42 0.13 %
1,643,027.42
1,643,027.42 0.13 %
1,643,027.42
0.00
1.81 %
0.00
Aaa
AAA
0.00
0.00
MONEY MARKET FUND FI
90LAIF$00 Local Agency Investment Fund State
Pool
34,165,990.78 Various
0.23 %
34,165,990.78
34,165,990.78
1.00
0.23 %
34,165,990.78
18,968.68
37.70 %
0.00
NR
NR
0.00
0.00
Total LAIF 34,165,990.78 0.23 %
34,165,990.78
34,165,990.78 0.23 %
34,165,990.78
18,968.68
37.70 %
0.00
NR
NR
0.00
0.00
LAIF
Holdings Report
As of 3/31/14
City of San Luis Obispo Consolidated
Account #10032
CUSIP Security Description Par Value/Units
Purchase Date
Book Yield
Cost Value
Book Value
Mkt Price
Mkt YTM
Market Value
Accrued Int.
% of Port.
Gain/Loss
Moody
S&P
Maturity
Duration
32
Chandler Asset Management - CONFIDENTIAL Execution Time: 4/25/2014 4:26:54 PM
912828VC1 US Treasury Note
0.25% Due 5/15/2016
700,000.00 09/26/2013
0.54 %
694,697.66
694,697.66
99.48
0.50 %
696,336.20
662.29
0.77 %
1,638.54
Aaa
AA+
2.13
2.11
912828VL1 US Treasury Note
0.625% Due 7/15/2016
750,000.00 10/07/2013
0.57 %
751,145.09
751,145.09
100.13
0.57 %
750,937.50
984.12
0.83 %
(207.59)
Aaa
AA+
2.29
2.27
912810DV7 US Treasury Bond
9.25% Due 2/15/2016
1,000,000.00 04/30/2008
9.25 %
1,000,000.00
1,000,000.00
116.50
0.42 %
1,165,000.00
11,498.62
1.30 %
165,000.00
Aaa
AA+
1.88
1.76
912828QJ2 US Treasury Note
2.125% Due 2/29/2016
1,050,000.00 Various
1.20 %
1,092,548.44
1,092,548.44
103.30
0.39 %
1,084,658.40
1,940.22
1.20 %
(7,890.04)
Aaa
AA+
1.92
1.88
912828RU6 US Treasury Note
0.875% Due 11/30/2016
500,000.00 12/15/2011
0.84 %
500,782.93
500,782.93
100.34
0.74 %
501,719.00
1,466.35
0.55 %
936.07
Aaa
AA+
2.67
2.63
912828TG5 US Treasury Note
0.5% Due 7/31/2017
500,000.00 Various
0.70 %
495,462.61
495,462.61
98.09
1.09 %
490,429.50
414.37
0.54 %
(5,033.11)
Aaa
AA+
3.34
3.29
912828UE8 US Treasury Note
0.75% Due 12/31/2017
625,000.00 08/13/2013
1.28 %
611,061.66
611,061.66
98.05
1.28 %
612,841.88
1,178.35
0.68 %
1,780.22
Aaa
AA+
3.76
3.68
912828SY7 US Treasury Note
0.625% Due 5/31/2017
650,000.00 05/13/2013
0.62 %
650,027.57
650,027.57
98.84
1.00 %
642,484.70
1,361.61
0.71 %
(7,542.87)
Aaa
AA+
3.17
3.12
912828TB6 US Treasury Note
0.75% Due 6/30/2017
575,000.00 09/17/2013
1.18 %
565,882.79
565,882.79
99.06
1.04 %
569,609.38
1,084.08
0.63 %
3,726.59
Aaa
AA+
3.25
3.20
912828UW8 US Treasury Note
0.25% Due 4/15/2016
900,000.00 04/24/2013
0.34 %
897,647.55
897,647.55
99.59
0.45 %
896,273.10
1,038.46
0.99 %
(1,374.45)
Aaa
AA+
2.04
2.03
912828NP1 US Treasury Note
1.75% Due 7/31/2015
1,050,000.00 04/12/2011
1.91 %
1,042,948.83
1,042,948.83
102.08
0.19 %
1,071,861.00
3,045.58
1.19 %
28,912.17
Aaa
AA+
1.33
1.32
912828PJ3 US Treasury Note
1.375% Due 11/30/2015
1,055,000.00 05/16/2011
1.63 %
1,043,217.21
1,043,217.21
101.77
0.31 %
1,073,709.37
4,861.98
1.19 %
30,492.16
Aaa
AA+
1.67
1.64
Total US Treasury 9,355,000.00 1.93 %
9,345,422.34
9,345,422.34 0.58 %
9,555,860.03
29,536.03
10.57 %
210,437.69
Aaa
AA+
2.27
2.23
US TREASURY
166764AA8 Chevron Corp. Callable Note Cont
11/5/17
1.104% Due 12/5/2017
700,000.00 01/10/2013
1.03 %
702,422.00
702,422.00
99.13
1.35 %
693,876.40
2,490.13
0.77 %
(8,545.60)
Aa1
AA
3.68
3.58
Total US Corporate 6,843,000.00 0.95 %
7,000,626.07
7,000,626.07 0.74 %
6,903,010.30
36,190.18
7.65 %
(97,615.77)
Aa1
AA+
1.99
1.95
US CORPORATE
TOTAL PORTFOLIO 89,829,144.42 0.79 %
90,490,825.68
90,490,825.68 0.37 %
90,488,403.92
185,139.93
100.00 %
(2,421.76)
Aaa
AA+
0.97
0.95
TOTAL MARKET VALUE PLUS ACCRUED 90,673,543.85
Holdings Report
As of 3/31/14
City of San Luis Obispo Consolidated
Account #10032
CUSIP Security Description Par Value/Units
Purchase Date
Book Yield
Cost Value
Book Value
Mkt Price
Mkt YTM
Market Value
Accrued Int.
% of Port.
Gain/Loss
Moody
S&P
Maturity
Duration
33
Specific Lot Purchase Dates As Of 3/31/2014
CUSIPPurchase DateSecurity DecriptionAmount
31331GL80 12/21/2009FFCB 3.000% 9/22/20141,000,000.00
31331GL80 2/4/2010FFCB 3.000% 9/22/2014100,000.00
3137EADH9 7/27/2012FHLMC 1.000% 6/29/2017775,000.00
3137EADH9 12/13/2012FHLMC 1.000% 6/29/2017135,000.00
594918AB0 7/8/2010Microsoft 2.950% 6/1/20141,050,000.00
594918AB0 3/25/2011Microsoft 2.950% 6/1/2014180,000.00
912828QJ2 5/16/2011US Treasury 2.125% 2/29/2016450,000.00
912828QJ2 8/29/2011US Treasury 2.125% 2/29/2016600,000.00
912828TG5 9/28/2012US Treasury 0.500% 7/31/2017200,000.00
912828TG5 1/28/2013US Treasury 0.500% 7/31/2017300,000.00
34
Attachment #3
The following item provides a comparison of the City’s portfolio characteristics and those of other cities. With the exception of Ventura, the
other cities have been used in the City’s benchmark reporting.
The City’s investment advisor will discuss the results shown during the meeting.
Peer Review Summary
■Investment Policy Review
■Although the permitted investment vary amongst the survey participants, most allow
corporate securities in the “A” or better ratings category.
■Mortgage backed and Asset backed securities are allowed in less than half of the
participants surveyed.
■The City of San Luis Obispo investment policy does not allow the purchase of Mortgage
backed or Asset backed securities at this time.
■Holdings Review
■The yields on the portfolios vary dramatically. We believe this is mainly due to the various
calculation methods used by cities. Our belief is the yield to maturity is the appropriate
calculation for comparing fixed income portfolios.
■US agency securities are held in all of the portfolios surveyed.
1
Peer Review Permitted Investments Comparison
California
State Code
City of
San Luis Obispo
City of
Davis
City of
Palm Springs
City of
Paso Robles
City of
Santa Barbara
City of
Santa Cruz
City of
Santa Maria
City of
Ventura
Treasury
Max Exposure 100%100%100%100%100%100%100%100%100%
Max Maturity 5 years unless
authorized by the
governing body
5 Years; up to 10% may
mature longer than 5
years
5 Years 5 Years 5 Years 5 Years 5 Years 5 Years 5 Years
Min Rating n/a n/a n/a n/a n/a n/a n/a n/a n/a
Agency
Max Exposure 100%100%100%60%100%100%100%100%100%
Max Maturity 5 years unless
authorized by the
governing body
5 Years; up to 10% may
mature longer than 5
years
5 years 5 years 5 years; 15% may
be invested 5 to 7
years
5 years 5 years 5 years 5 years
Min Rating n/a "AAA" or better n/a n/a n/a n/a n/a n/a n/a
Municipal Approval by the City
Council is required
Not permitted Not permitted Not permitted
Max Exposure 100%n/a n/a 100%n/a 100%100%30%n/a
Max Maturity n/a n/a n/a 5 years n/a 5 years 5 years 5 years n/a
Min Rating n/a n/a n/a n/a n/a "A" or better n/a "A" or better n/a
Corporate Not permitted
Max Exposure 30%30%30%20%20%30%n/a 30%20%
Max Maturity 5 years 5 years 5 years 5 years 5 years 5 years n/a 5 years 5 Years
Min Rating "A" or better "AA" or better "AA" or better "A" or better "A+" or better "A" or better n/a "A" or better "A" or better
Mortgage and Asset
Backed Securities
Not permitted Not permitted Not permitted Not permitted Not permitted Not permitted
Max Exposure 20%n/a 20%10%n/a n/a n/a n/a n/a
Max Maturity 5 years n/a 5 years 5 years n/a n/a n/a n/a n/a
Min Rating "AA" or better n/a "AA" or better "AA" or better n/a n/a n/a n/a n/a
Commercial Paper Not permitted
Max Exposure 25%25%15%15%10%25%n/a 25%15%
Max Maturity 270 days 270 days 270 days 180 days 180 days 270 days n/a 270 days 270 days
Min Rating A-1 or better or
equivalent credit
rating
A-1 or better or
equivalent credit rating
A-1 or better or
equivalent credit
rating
A-1 or better or
equivalent credit
rating
A-1 or better or
equivalent credit
rating
A-1 or better or
equivalent credit
rating
n/a A-1 or better or
equivalent credit
rating
A-1 or better or
equivalent credit
rating
2
Peer Review Portfolio Characteristics
City of San Luis
Obispo
City of
Davis
City of
Monterey
City of Palm
Springs
City of Paso
Robles
City of Santa
Barbara
City of Santa
Cruz
City of Santa
Maria
City of
Ventura
Report Date 1/31/2014 6/30/2013 1/31/2014 1/31/2014 1/31/2014 1/31/2014 1/31/2014 1/31/2014 6/30/2013
FY 12/13 Revenues
(Millions)62 106 72 101 40 148 85 73 96
Reported Portfolio
Value (Millions)88 124 68 105 68 180 109 185 150
Average Maturity
(Years)1.09 0.16 1.61 0.09 2.95 0.61 2.29 n/a 3.78
Portfolio Yield 1 0.36%0.31%0.53%Data not
available 0.76%1.26%0.80%0.77%0.97%
Policy Benchmark
BofA/Merrill
Lynch 0-5 Year
US Treasury
Yield of the
3 month US
Treasury bill
BofA/Merrill Lynch
1-3 Year US
Treasury and
Agency
None
mentioned
None
mentioned
None
mentioned
None
mentioned
None
mentioned
12-month
average of the
2 Year US
Treasury yield
Investment Reporting
Frequency Monthly FY Year-end Monthly Monthly Monthly Monthly Monthly Monthly FY Year-end
Treasury 11%na 20%na na 6%44%27%na
Agency 34%7%40%43%68%61%34%21%81%
Municipal na na na na na 3%na na na
Corporate 8%na 22%1%9%8%3%21%2%
Commercial Paper na na 3%na na na na na na
Mortgage and ABS na na na na na na na na na
Other 2 47%93%15%56%23%22%18%31%17%
1 Yields may not be comparable due to differences in the calculation method.
Sector Distribution
2 Other - includes LAIF, CD and Money Markets
3
Investment Policy Recommendations
■Lower the Required Credit Rating on Corporate Securities
■Earnings from the portfolio may increase due to higher yields on “A” rated securities.
■The yield to maturity of the BofA Merrill Lynch 1-5 index “A” rated index is 31 basis points
higher than that of the 1-5 “AAA-AA” index of corporate securities.
■A higher level of diversification can be achieved by increasing the universe of industries and
corporate issuers available for purchase.
■The BofA Merrill Lynch 1-5 index “A” is represented by 16 industries while the 1-5 “AAA-AA”
index of has just 12.
■The BofA Merrill Lynch 1-5 index “A” has approximately 3 times the constituent issuers than
the 1-5 “AAA-AA” index.
■Permit Municipal Securities without requiring prior approval by the Council
■Earnings from the portfolio may rise due to higher yields on these securities.
■Provides an opportunity to diversify into another sector of the bond market as other
government issuers reduce their issuance such as the GSEs (example FNMA and FHLMC).
■Allow the portfolio to be more diversified by incorporating other issuers not available under
the current investment policy language.
4
Attachment #4
The City’s Investment Management Plan serves as the investment policy for the City. After reviewing
the policy and considering changes that would provide opportunities to make investments that are
allowable under the Government Code and provide a higher yield but are not currently allowed under
the existing policy, the document has been revised to reflect suggested changes, which have been noted
as comments and highlighted changes to the text.
INVESTMENT MANAGEMENT PLAN
April 2014
INVESTMENT MANAGEMENT PLAN
Katie Lichtig, City Manager
Prepared by the Department of Finance & Information Technology
Wayne Padilla, Finance Director/City Treasurer
INVESTMENT MANAGEMENT PLAN
Table of Contents
Introduction
Purpose .................................................................................................................................................... 1
Primary Investment Objective ................................................................................................................ 1
Scope of Investment Management Plan ................................................................................................. 3
Use of State Guidelines ........................................................................................................................ 34
Preparation and Administration of the Plan ........................................................................................... 4
Investment Authority and Responsibilities
Authorized Investment Officers ............................................................................................................. 5
Internal Controls ..................................................................................................................................... 5
Investment Management Resources ....................................................................................................... 5
Evaluation of Investment Officer Actions .............................................................................................. 6
Use of an Investment Advisor ................................................................................................................ 7
Capital Preservation and Risk
Overview ................................................................................................................................................. 9
Portfolio Diversification Practices .......................................................................................................... 9
Eligible Financial Institutions
Portfolio Diversification and Credit-Worthiness Standards ................................................................. 10
Certification and Reporting Requirements ........................................................................................... 10
Individual Placement of Investments ................................................................................................... 10
Individual Placement of Deposits ......................................................................................................... 11
Investment Vehicles
State of California Limitations ........................................................................................................... 112
Suitable and Authorized
Investments………………………………………………………………112
City Policies ........................................................................................................................................ 143
Authorized Investment Summary ......................................................................................................... 15
Investment Maturity ........................................................................................................................................ 16
Cash Management ............................................................................................................................................ 17
Evaluation of Investment Performance ......................................................................................................... 18
Investment Reporting ...................................................................................................................................... 19
Investment Management Plan Review ........................................................................................................... 20
Appendix
Investment Policy ................................................................................................................................. 21
Resolution No. 8477 Appointing the Director of Finance as City Treasurer ....................................... 23
Resolution No. 8523 Approving the Investment Management Plan ................................................... 24
INTRODUCTION
PURPOSE
The purpose of the investment management plan is to establish strategies, practices and procedures
to be used in administering the City's portfolio in accordance with the City's Statement of
Investment Policy. Included in the Appendix is a copy of the City's Investment Policy, which was
adopted by the Council in conjunction with their approval of the Financial Plan.
PRIMARY INVESTMENT OBJECTIVE
The City's primary investment objective is to achieve a reasonable rate of return on public funds
while minimizing the potential for capital losses arising from market changes or issuer default.
Although the generation of revenues through interest earnings on investments is an appropriate City
goal, the primary consideration in the investment of City funds is capital preservation in the overall
portfolio. As such, the City's yield objective is to achieve a reasonable rate of return on City
investments rather than the maximum generation of income, which could expose the City to
unacceptable levels of risk.
In determining individual investment placements, the following factors shall be considered in
priority order:
1. Safety
2. Liquidity
3. Yield.
Safety
Safety of principal is the foremost objective of the investment program. Investments shall be
undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To
attain this objective, the City will diversify its investments so that the impact of potential losses
from any one type of security or from any one individual issuer will be minimized. The objective
is to mitigate credit risk and interest rate risk summarized as follows:
Credit Risk. Credit risk is the risk that a security or a portfolio will lose some or all of its value
due to a real or perceived change in the ability of the issuer to repay its debt. The City shall
mitigate credit risk by adopting the following strategies:
1. Limiting investments to the safest types of securities.
2. Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which
the City will do business.
3. It is the intent of the City to diversify the investments within the portfolio to avoid incurring
unreasonable risks inherent in over-investing in specific instruments, individual financial
institutions or maturities. The asset allocation in the portfolio should, however, be flexible
depending upon the outlook for the economy, the securities market, and the City’s
anticipated cash flow needs.
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INTRODUCTION
4. No more than 5% of the total portfolio may be invested in securities of any single issuer,
other than the US Government, its agencies and instrumentalities, approved local agency
investment pools and money market funds.
5. The City may elect to sell a security prior to its maturity and record a capital gain or loss in
order to improve the quality, liquidity or yield of the portfolio in response to market
conditions or the City’s risk preferences.
6. If securities owned by the City are downgraded by either Moody’s or S&P to a level below
the quality required by this Investment Management Plan, it shall be the City’s policy to
review the credit situation and make a determination as to whether to sell or retain such
securities in the portfolio.
a. If a security is downgraded below the level required by this policy, the City Treasurer
determine whether to sell or hold the security based on its current maturity, the economic
outlook for the issuer, and other relevant factors.
b. If a decision is made to retain a downgraded security in the portfolio, it will be monitored
and reported monthly to the City Council.
Interest Rate Risk. Interest rate risk is the risk that the portfolio will decline in value (or will not
optimize its value) due to changes in the general level of interest rates. The City recognizes that,
over time, longer-term portfolios achieve higher returns. On the other hand, longer-term
portfolios have higher volatility of return.
The City will mitigate interest rate risk by providing adequate liquidity for short-term cash
needs, and by making some longer-term investments only with funds that are not needed for
current cash flow purposes. The City further recognizes that certain types of securities, including
variable rate securities, securities with principal pay downs prior to maturity, and securities with
embedded options, will affect the market risk profile of the portfolio differently in different
interest rate environments. The City, therefore, adopts the following strategies to control and
mitigate its exposure to interest rate risk:
1. The maximum stated final maturity of individual securities in the portfolio shall be five
years, except as otherwise stated in this Investment Management Plan.
2. The City shall maintain a minimum of three months of budgeted operating expenditures in
short term investments.
3. The duration of that part of the portfolio that is not needed for liquidity purposes shall
typically at all times be approximately equal to the duration of an index of US Treasury and
Federal Agency Securities with maturities which meet the Authority’s needs for cashflow
and level of risk tolerance (the Benchmark Index) plus or minus 10%.
Comment [JS1]: Included two new security
types for purpose of temporary liquidity needs.
Comment [JS2]: Softened the language to allow
for flexiblity when needed.
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INTRODUCTION
Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may
be reasonably anticipated. This is accomplished by structuring the portfolio so that securities
mature concurrent with cash needs to meet anticipated demands (static liquidity). Alternatively, a
portion of the portfolio may be placed in money market mutual funds or local government
investment pools which offer same-day liquidity for short-term funds. Furthermore, since all
possible cash demands cannot be anticipated, the portfolio should consist largely of securities with
active secondary or resale markets (dynamic liquidity).
Yield: Return on Investments
The City’s investment portfolio shall be designed with the objective of attaining a market
benchmark rate of return throughout budgetary and economic cycles, commensurate with the City’s
investment risk constraints and the cash flow characteristics of the portfolio. Return on investment
is of least importance compared to the safety and liquidity objectives described above. The core of
investments is limited to relatively low risk securities in anticipation of earning a reasonable return
relative to the risk being assumed. Securities shall not be sold before maturity with the following
exceptions:
A declining credit security could be sold early to minimize loss of principal.
A security swap would improve the quality, yield or target duration in the portfolio.
Liquidity needs of the portfolio require that the security be sold.
A capital gain would be realized that better positions the overall portfolio in achieving Investment
Policy goals.
SCOPE OF INVESTMENT MANAGEMENT PLAN
Included in the scope of the City's investment management plan are the following major guidelines
and practices to be used in achieving the City's primary investment objective:
1. Investment authority and responsibilities
2. Capital preservation and risk
3. Eligible financial institutions
4. Allowable investment vehicles
5. Investment maturity
6. Cash management
7. Evaluation of investment performance
8. Investment reporting
9. Investment management plan review
These guidelines apply to all cash-related assets included within the scope of the City's audited
financial statements and held either directly by the City or held and invested by trustees or fiscal
agents. The only exception is funds invested in the City's deferred compensation plan, which are
Comment [JS3]: I don't think the language
regarding the sale of securities is needed. This will
allow more flexiblity when managing the portfolio.
Formatted: Indent: Left: 0", Tab stops: Not at
0"
Formatted: Indent: Left: 0", Tab stops: Not at
0"
Formatted: Indent: Left: 0", Tab stops: Not at
0"
- 3 -
INTRODUCTION
controlled by federal law, specific provisions of the City's adopted plan and individual employee
decisions.
USE OF STATE GUIDELINES
Government Code Sections 16429.1-16429.4, 16481.2, 53601, and 53630-53686 of the State of
California regulate the investment practices. It is the policy of the City of San Luis Obispo to use
the State's provisions for local government investments in the developing and implementing the
City's investment policies and practices.
PREPARATION AND ADMINISTRATION OF THE PLAN
As set forth in the Statement of Investment Policy, the City Treasurer is responsible for developing
and monitoring the Investment Management Plan. Under this direction, the City's first Investment
Management Plan was prepared and issued by the City Treasurer in December of 1989.
As it was originally viewed as an administrative “companion” to the Council adopted Investment
Policy, the Council did not formally approve the Investment Management Plan at that time,
although it was distributed to them. However, given legitimate public concerns regarding the
stewardship of funds arising from the unprecedented losses recently experienced by the Orange
County investment pool, formal approval of the Investment Management Plan by the Council is
now recommended in order to provide a broader awareness and understanding of the strategic
framework, policy guidelines and administrative practices followed in managing the City's
investments.
As required under Government Code Sections 16481.2 and 53646, the Council will review the
Statement of Investment Policy annually. The Council will only formally review the Investment
Management Plan when significant changes in strategies, practices or procedures are proposed. In
the interim, the City Treasurer is responsible for keeping the Investment Management Plan up-to-
date to reflect changes in legislation, organizational structure, and other policies and administrative
procedures approved by the Council.
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INVESTMENT AUTHORITY AND RESPONSIBILITIES
AUTHORIZED INVESTMENT OFFICERS
Authority to manage the investment portfolio is granted to the Director of Finance & Information
Technology (Director/City Treasurer) pursuant to Resolution No. 8477. Responsibility for the day-
to-day operation of the investment program is delegated to the Finance Manager, who is responsible
for carrying-out established written procedures and internal controls for the operation of the
investment program consistent with this plan. Procedures should include references to:
safekeeping, delivery vs payment, investment accounting, repurchase agreements, wire transfer
agreements, collateral/depository agreements and banking services contracts.
Transactions Directed by City Staff. No person may engage in an investment transaction except
as provided under the terms of this plan and the procedures established by the Director/City
Treasurer. Although the Director/City Treasurer may delegate these duties to another official in the
Department of Finance & Information Technology, every investment transaction must be reviewed
and approved by the Director/City Treasurer. Additionally, the Director/City Treasurer shall be
responsible for all transactions undertaken and shall establish a system of controls to regulate the
activities of subordinate officials.
Transaction Directed by an Investment Advisor. The City may engage the services of an
external investment adviser to assist in the management of the City’s investment portfolio in a
manner consistent with the City’s objectives. The external investment adviser may be granted
discretion to purchase and sell investment securities in accordance with the City’s Investment Policy
and this Investment Management Plan. The investment adviser must be registered under the
Investment Advisers Act of 1940.
INTERNAL CONTROLS
The Director/City Treasurer is responsible for ensuring compliance with the City's Investment
Policy as well as for establishing systems of internal control designed to prevent losses due to fraud,
employee error, misrepresentation by third parties, unanticipated changes in financial markets, or
imprudent actions by City officers and employees. Additionally, the Director/City Treasurer is
responsible for the physical security of City investments and shall use custodial safekeeping for
negotiable and bearer instruments whenever possible.
INVESTMENT MANAGEMENT RESOURCES
The concept of reasonable assurance recognizes that the:
1. Cost of a control procedure should not exceed the benefits likely to be derived.
2. Valuation of costs and benefits requires estimates and judgments by management. Accordingly,
the Director/City Treasurer shall establish a process for annual independent review by an
external auditor to assure compliance with policies and procedures.
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INVESTMENT AUTHORITY AND RESPONSIBILITIES
Internal controls shall address the following points:
1. Separating transaction authority from accounting and record keeping. By separating the
person who authorizes or performs the transaction from the people who record or otherwise
account for the transaction, a separation of duties is achieved.
2. Custodial safekeeping. Securities purchased from any bank or dealer including appropriate
collateral (as defined by State Law) shall be placed with an independent third party for custodial
safekeeping as evidenced by safekeeping receipts in the City of San Luis Obispo’s name.
3. Avoiding physical delivery securities. Book entry securities are much easier to transfer and
account for since actual delivery of a document never takes place. Delivered securities must be
properly safeguarded against loss or destruction. The potential for fraud and loss increases with
physically delivered securities.
4. Delivery versus payment. All trades where applicable will be executed by delivery vs
payment (DVP). This ensures that securities are deposited in the eligible financial institution
before the release of funds. Securities will be held by a third party custodian as evidenced by
safekeeping receipts.
5. Clearly delegating authority to subordinate staff members. Subordinate staff members must
have a clear understanding of their authority and responsibilities to avoid improper actions.
Clear delegation of authority also preserves the internal control structure that is contingent on
the various staff positions and their respective responsibilities.
6. Confirming telephone transactions for investments and wire transfers in writing. Due to
the potential for error and improprieties arising from telephone transactions, all telephone
transactions should be supported by written communications and approved by the appropriate
person. Written communications may be via fax if on letterhead and the safekeeping institution
has a list of authorized signatures.
7. Developing wire transfer agreements with the lead bank or third party custodian. This
agreement should outline the various controls, security provisions, and delineate responsibilities
of each party making and receiving wire transfers.
EVALUATION OF INVESTMENT OFFICER ACTIONS
The standard of prudence to be applied by the Director of Finance/City Treasurer shall be the
"prudent investor" standard, as defined under Government Code Section 53600.3 which states:
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 City. Within the limitations of this section
and considering individual investments as part of an overall strategy, investments may be
acquired as authorized by law.
- 6 -
INVESTMENT AUTHORITY AND RESPONSIBILITIES
Investment officers acting in accordance with written procedures and this Investment Management
Plan, and exercising due diligence shall be relieved of personal responsibility for an individual
security's credit risk or market price changes, provided deviations from expectations are reported in
a timely fashion and the liquidity and the sale of securities are carried out in accordance with the
terms of this plan.
Officers and employees involved in the investment process shall refrain from personal business
activity that could conflict with the proper execution and management of the investment program,
or that could impair their ability to make impartial decisions. Employees and investment officials
shall disclose any material interests in financial institutions with which they conduct business. They
shall further disclose any personal financial/investment positions that could be related to the
performance of the investment portfolio. Employees and officers shall refrain from undertaking
personal investment transactions with the same individual with whom business is conducted on
behalf of the City.
USE OF AN INVESTMENT ADVISOR
Background
In September 2007, the Council approved the use of an investment advisor in more effectively
managing the City’s portfolio. As noted at that time, there are three primary reasons for contracting
with an investment advisor:
1. Expertise. By contracting for portfolio management services, the City benefits from
specialized professional expertise, risk management and continuity in the investment
function. With today's volatile market and complex investment instruments, a professional
investment manager is best suited to achieving the City's investment goals while minimizing
portfolio risk. The investment advisor's knowledge of securities and access to the market
should also result in enhanced investment earnings.
2. Portfolio Diversification. Prior to contracting with an investment, the City's portfolio was
primarily invested in the State of California Local Agency Investment Fund (LAIF). Over the
past couple of years, because of staffing resource limitations and competing priorities, as
portfolio investments matured, the proceeds were largely placed in LA1F rather than
reinvested in other instruments. While LAIF is a secure investment that was yielding market
earnings at the time that met the City's investment yield objective, a concentration of the
City's portfolio in LAIF did not meet the diversification objective of the Investment
Management Plan. Turning to the expertise of an outside professional allows the City to
better diversity its portfolio, using various investment strategies and instruments as
appropriate.
3. More Effective Use of Staff Resources. Contracting with an investment advisor frees-up City
staff to perform functions where they can better use their expertise and add value.
Additionally, in times of staffing turnover, continuity in the investment function is better
assured.
- 7 -
INVESTMENT AUTHORITY AND RESPONSIBILITIES
The Council approved issuing a comprehensive request for proposals (RFP) to a broad range of
qualified investment advisors and authorized the City Administrative Officer (CAO) to award the
contract most qualified proposer. Following a detailed review of the ten proposals received response
to the City’s RFP, the CAO awarded the contract to Chandler Asset Management in December 2007.
Investment Advisor Authority
As set forth in the RFP approved by the Council, the Investment Advisor has discretionary authority
over the portfolio that it manages on behalf of the City, subject to the following restrictions:
1. Compliance with the Investment Management Plan. As set forth above under “Authorized
Investment Officers,” the investment advisor must act in accordance with the City’s primary
investment objectives and within the guidelines set forth in the Investment Management Plan.
2. Transition Plan. Based on detailed analysis of cash flow needs, the City will retain about
15% of its portfolio in LAIF and other short-term investments. The City will also retain
control over investments for debt service reserve requirements, certificates of deposit and the
U.S. Treasury Bond maturing in 2016 (market value of $1.4 million). The balance of the
City’s portfolio (about $50 million in April 2008) will be managed by the Investment
Advisor. The initial configuration of the portfolio will be approved by the Director/City
Treasurer before placement.
3. Sale of Investments with a Capital Loss. The investment advisor will consult with the
Director/City Treasurer before selling investments at a capital loss, which may be appropriate
in repositioning the portfolio for better gains in the future in meeting the City’s performance
goals.
- 8 -
CAPITAL PRESERVATION AND RISK
OVERVIEW
Some level of risk is inherent in any investment transaction. Losses may be incurred due to issuer
default, market price changes or technical cash flow complications such as investments in non-
marketable certificates of deposit. Diversification of the City's portfolio by institution, investment
vehicle and maturity term is the primary tool available to the City in minimizing investment risk and
capital losses by safeguarding the overall portfolio from any individual loss.
PORTFOLIO DIVERSIFICATION PRACTICES
The following sections summarize the City's major portfolio diversification practices and guidelines
in determining:
1. Eligible financial institutions
2. Investment vehicles
3. Investment maturity
Portfolio limitations included in these guidelines are to be based on the portfolio composition and
Investment Management Plan policies in effect at the time of placement; the actual composition of
the City's investments may vary over time from plan limitations due to overall portfolio changes
from when the individual placement was made as well as changes in the City's Investment
Management Plan.
- 9 -
INVESTMENT VEHICLES
PORTFOLIO DIVERSIFICATION AND CREDIT-WORTHINESS STANDARDS
The following general criteria relating to portfolio diversification and credit-worthiness will be used
in selecting depositories and broker/dealers (financial institutions) in the placement of City
investments:
1. The financial capacity and credit-worthiness of the financial institution shall be considered
before the placement of City investments.
2. Current financial statements shall be maintained for each institution in which or through which
cash is invested.
3. No more than 5% of the City's portfolio (exclusive of government agency issues, or LAIF and
money market funds) shall be placed with any financial institution.
4. No more than 25% of the City's portfolio shall be invested in collateralized certificates of
deposit issued by savings and loan institutions.
5. Certificates of deposit (negotiable and collateralized) placed by the City shall not constitute
more than 15% of the total assets of the institution; and negotiable certificates of deposit will
only be placed with institutions with total assets in excess of $200 million and that maintain a
ratio of equity to total assets of at least 5%.
CERTIFICATION AND REPORTING REQUIREMENTS
The City shall establish a list of qualified securities dealers based on a certification submitted by all
financial institutions with which the City has an investment relationship. The certification shall
state that the institution has reviewed the City's Investment Management Plan and that it will:
1. Exercise due diligence in monitoring the activities of its officers and employees engaged in
transactions with the City.
2. Ensure that all of its officers and employees offering investments to the City are trained in the
precautions appropriate to public sector investments.
3. Submit audited financial statements prepared by an independent certified public accountant to
the City on an annual basis within 180 days after the end of the institution's fiscal year.
INDIVIDUAL PLACEMENT OF INVESTMENTS
A list will be maintained of financial institutions and depositories authorized to provide
investment services. In addition, a list will be maintained of approved security broker/dealers
selected by creditworthiness (e.g., a minimum capital requirement of $10,000,000 and at least
five years of operation). These may include "primary" dealers or regional dealers that qualify
under Securities and Exchange Commission (SEC) Rule 15C3-1 (uniform net capital rule).
Comment [JS4]: Increases flexibility with regard
to temporary liquidity needs.
- 10 -
INVESTMENT VEHICLES
All financial institutions and broker/dealers who desire to become qualified for investment
transactions must supply the following as appropriate:
1. Audited financial statements demonstrating compliance with state and federal capital
adequacy guidelines
2. Proof of National Association of Securities Dealers (NASD) certification (not applicable
to Certificate of Deposit counterparties)
3. Proof of state registration
4. Certification of having read and understood and agreeing to comply with the California
Government Code Section 53600 et seq. and the City’s Investment Policy and that all
securities recommended shall be suitable for the City of San Luis Obispo.
The investment advisor (or City staff if applicable) will strive to obtain competitive bids from at
least three brokers or financial institutions on all purchases and sales of investment instruments
whenever possible.
INDIVIDUAL PLACEMENT OF DEPOSITS
Individual placement of negotiable, collateralized and other time certificates of deposit with eligible
financial institutions shall be based on the following practices and procedures:
1. Deposits shall only be placed with financial institutions maintaining offices within the City of
San Luis Obispo.
2. Unless collateralized by eligible securities as provided in Sections 53651 and 53652 of the
Government Code, the maximum amount of Certificates of Deposit to be placed with any single
institution is the amount up to the Federal Deposit Insurance Corporation (FDIC) limit$100,000.
3. Reasonable efforts will be made to place deposits of less than the FDIC limit $100,000 with
each eligible institution. Any deposits in excess of this amount shall be awarded based on
competitive bids. Documentation relating to rate quotes shall be maintained by Finance for
six months.
4. Within the context of the City's policies regarding competitive bidding and portfolio limitations,
deposits shall be distributed as evenly as possible between financial institutions.
STATE OF CALIFORNIA LIMITATIONS
As provided in Sections 53601, 53635, and 16429.1 of the Government Code, the State of
California limits the investment vehicles available to local agencies.
SUITABLE AND AUTHORIZED INVESTMENTS
City funds may be invested in the following:
Comment [JS5]: FDIC insured amount is
currently $250,000.
Comment [JS6]: FDIC insured amount is
currently $250,000.
- 11 -
INVESTMENT VEHICLES
1. Treasury Obligations: Treasury bills, Treasury notes, Treasury bonds and Treasury
STRIPS with maturities not exceeding five years from the date of purchase.
2. Government Sponsored Enterprise (GSE) Securities: Debentures, discount notes, global
securities, callable securities and stripped principal or coupons with maturities not exceeding
five years from the date of purchase issued by the following: Federal National Mortgage
Association (FNMA), Federal Farm Credit Banks (FFCB), Federal Home Loan Banks
(FHLB), and Federal Home Loan Mortgage Corporation (FHLMC). For the purposes of this
paragraph, a "weighted average life" will not constitute a stated final maturity. To be
approved, GSE securities must be rated AAA by either Moody’s or Standard & Poor’s.
2.3.Municipal Securities: include obligations of the City, the State of California, any of the
other 49 states, and any local agency within the State of California, provided that the
securities are rated “A” or higher by at least one nationally recognized statistical rating
organization. No more than 30% of the portfolio may be invested in these securities and no
more than 5% of the portfolio may be invested in any issuer. The maximum maturity does
not exceed five years.
3.4.Commercial Paper: Issued by a corporation organized and operating in the U.S. and having
assets in excess of $500,000,000. The paper must be denominated in U.S. currency with a
maturity not exceeding 270 days from the date of purchase. It must be rated at least A-1/P-
1/F-1 by one or more nationally recognized statistical-rating organizations (NRSRO). If the
commercial paper issuer has issued long-term debt it must be rated “A”. At the time of
purchase, no more than 25% of the City’s surplus funds may be invested in commercial paper
and no more than 5% of the City’s surplus funds may be invested in any one issuer.
4.5.Medium Term Notes: Issued by corporations organized and operating in the U.S. or by
depository institutions licensed by the U.S. or any state and operating within the U.S. At the
time of purchase, the notes must mature within five years and must be rated in the “AA”
category or better by one or more nationally recognized statistical-rating organizations
(NRSRO). At the time of purchase, no more than 30% of the City’s surplus funds may be
invested in medium term notes and no more than 5% of the City’s surplus funds may be
invested in any one issuer.
5.6.Bankers’ Acceptances: Not exceeding 180 days to maturity. At the time of purchase, no
more than 40% of the City’s surplus funds may be invested in bankers’ acceptances and no
more than 5% of the City’s surplus funds may be invested in bankers’ acceptances from any
one bank.
6.7.Repurchase Agreements: With a term of the agreement not exceeding one year,
collateralized by U.S. Treasury and agency securities listed in items 1 and 2 above. The
value of the collateral underlying the agreement shall be 102%. The market value of the
collateral shall be marked-to-the-market at least weekly based on the bid price and
adjustments made when the value falls below 102%. Collateral shall be held in the City’s
custodial bank as safekeeping agent. Repurchase Agreements shall be entered into only with
dealers who have executed a Master Repurchase Agreement with the City and who are
recognized as Primary Dealers with the Market Reports Division of the Federal Reserve
Comment [JS7]: Included language to allow
municipal securities.
Comment [JS8]: The investable universe of
corporate securities will expand by reducing the
rating requirement to "A". This in turn may increase
the yield and diversification of the City's portfolio.
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INVESTMENT VEHICLES
Bank of New York. There are no limitations on the amount that can be invested in
repurchase agreements. No more than 25% of the portfolio can be invested with any one
financial institution.
7. Local Agency Investment Fund (LAIF): A local government investment pool established
by the State Treasurer of California for the benefit of California local agencies. City funds
can be invested in LAIF up to the maximum permitted by State Law.
8. Negotiable Certificates of Deposit: Issued by a nationally or state-chartered bank, a savings
association or a federal association (as defined by Section 5102 of the Financial Code), a
state or federal credit union, or by a state-licensed branch of a foreign bank. At the time of
purchase, the maturity of the certificate may not exceed five years, no more than 30% of the
City’s surplus funds may be invested in certificates of deposit and no more than 5% of the
City’s surplus funds may be invested in certificates from any one bank.
9. Collateralized Bank Deposits: Shall be evaluated in term of Federal Deposit Insurance
Corporation (FDIC) coverage. For deposits in excess of the FDIC insured limitmaximum of
$100,000, approved collateral at the percentage above market value as specified by
California Government Code, Sections 53651 et seq. and Sections 53652 et seq. shall be
required. No more than 25% of the portfolio can be placed with any one financial institution.
10. Money Market Mutual Funds: registered under the Investment Company Act of 1940
which:
a. Are “no-load” (no commission fee shall be charged on purchases or sales of shares)
b. Have a policy to strive to maintain a constant daily net asset value per share
c. Limit assets of the fund to those securities authorized in this Investment Management
Plan
d. Have a maximum stated maturity and weighted average maturity in accordance with
Federal Securities Regulation 2A-7
e. Are rated in the highest ranking or the highest letter and numerical rating provided by not
less than two NRSRO’s.
At the time of purchase, no more than 20% of the City’s surplus funds may be invested in
money market mutual funds and no more than 10% of the City’s surplus funds may be
invested in any one fund.
CITY POLICIES
Comment [JS9]: Current FDIC limit is $250,000.
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INVESTMENT VEHICLES
Debt Reserve Funds
Reserve funds from the proceeds of debt issues may be invested by the Director/City Treasurer in
government agency securities with terms exceeding five (5) years if the maturity of such
investments arematurity of such investments is made to coincide as nearly as practicable with the
life of the debt issue. In all other cases, Council approval to make investments with terms in excess
of 5 years is required on a case-by-case basis.
Deferred Compensation
These policies do not apply to deferred compensation plans. Individual investment policies are
adopted by each deferred compensation plan and approved independently by Council. Further,
individual investments are directed solely by the employee.
Allowed Investments But Use Unlikely
The City is allowed to invest in state and local government bonds or other indebtedness.
However, given their tax exempt status (which is not of economic value to the City), their use in
meeting the City’s investment objectives is unlikely. However, there may be policy
circumstances where their use may be warranted. In these cases, Council approval is required.
Prohibited Investment Vehicles and Practices
1. State law notwithstanding, any investments not specifically described herein are prohibited,
including, but not limited to, mutual funds (other than government money market funds as
described above in No. 10), unregulated and/or unrated investment pools or trusts,
collateralized mortgage obligations and futures and options.
2. In accordance with Government Code Section 53601.6, investment in inverse floaters, range
notes or mortgage derived interest-only strips is prohibited.
3. Investment in any security that could result in a zero interest accrual if held to maturity is
prohibited.
4. Trading securities for the sole purpose of speculating on the future direction of interest rates
is prohibited.
5. Purchasing or selling securities on margin is prohibited.
6. The use of reverse repurchase agreements, securities lending or any other form of borrowing
or leverage is prohibited without Council approval.
7. IWhile the City is allowed to invest in financial futures or option contracts, these are
excluded in accordance with the City's overall objective of achieving reasonable yields on
public funds while minimizing risk and capital losses. Although the potential exists for
greater interest yields with these vehicles, their potential level of risk exceeds their benefits
Comment [JS10]: Changed for the purpose of
grammar.
Comment [JS11]: The investable universes will
increase by removing the language prohibiting the
purchase of municiple securities except if approved
by the City Council. This in turn may increase the
yield and diversification of the City's portfolio.
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INVESTMENT VEHICLES
except in very limited circumstances. Accordingly, Council approval is required on a case-
by-case for any investments in financial futures or option contracts.
8. 7. The City is allowed to invest in mortgage pass-through and asset-backed securities,
provided that such securities have a maximum stated final maturity of five years and are rated
AA by Standard & Poor’s or Aa by Moody’s; and that purchase of such securities does not
exceed 20% of the portfolio. However, given the “melt-down” in these types of securities in
2007 – even when rated “AAA/Aaa” by NRSRO’s – the City will not invest in these securities
until such time as the Director/City Treasurer is confident that adequate regulatory reform has
taken place that would make these securities consistent with the City’s primary investment
objective.
8.
AUTHORIZED INVESTMENTS SUMMARY
Investment Type
Government Code
Maximum Maturity
Maximum % of Portfolio
Quality Requirements
San Luis Obispo
Maximum Maturity
Maximum % of Portfolio
Quality Requirements
1. Treasury Obligations 5 Years
None
None
5 Yearsa
None
None
2. GSE Securities 5 Years
None
None
5 Yearsa
None
None
3. Municipal Securities 5 years
None
None
5 years
30% per type; 5% per issuer
“A” or better
3.4. Commercial Paper 270 Days
25% per type; 10% per issuer
A-1/P-1/F-1; Long-term “A”
270 Days
25% per type; 5% per issuer
A-1/P-1/F-1; Long-term “A”
4.5. Medium Term Notes 5 Years
30% per type; none per issuer
“A”
5 Years
30% per type; 5% per issuer
“AA” or better
5.6. Bankers’ Acceptances 180 Days
40% per type; 30% per issuer
None
180 Days
40% per type; 5% per issuer
None
6.7. Repurchase Agreement 1 Year
None
None
1 Year
None per type; 25% per
counterparty
Primary Dealers/ Collateralization
requirements
7.8. LAIF N/A
None
None
N/A
None
None
8.9. Negotiable CDs 5 Years
30% per type; none per issuer
None
5 Years
30% per type; 5% per issuer
None
9.10.Collateralized Bank Deposits 5 Years 5 Years
Comment [JS12]: This will prohibit the use of
futures and options in the portfolio.
Formatted: Justified, Indent: Left: 0.25"
Formatted: Normal, No bullets or numbering
Formatted: List Paragraph, Indent: Left: 0.25"
Comment [JS13]: Added municipal securities to
the table.
Comment [JS14]: Included the or better
language for clarity.
- 15 -
INVESTMENT VEHICLES
None
None
Non per type; 25% per institution
None
10.11.Money Market Mutual
Funds
N/A
20% per type; 10% per issuer
Highest rating of at least two
NRSRO
N/A
20% per type; 10% per issuer
Highest rating of at least two
NRSRO
11.12.Mortgage Pass-Throughs 5 Years
20% per type; none per issuer
“AA” for issue; “A” for issuer
Not authorized unless market
reforms confirmed by Treasurer.
a. Up to 10% of the portfolio can be invested in Treasury and GSE securities maturing over 5 years.
- 16 -
INVESTMENT MATURITY
In addition to the risks associated with the credit-worthiness of the financial institution and the
security of the investment vehicle, the maturity period of investments is also a significant
consideration in the management of the City's portfolio.
In order to minimize the impact of market risk, it is intended that all investments will be held until
maturity. Under this practice, a minimum of 20% of the portfolio will be invested in securities
maturing in one year or less. Up to 80% of the portfolio can be invested in securities with a
maturity over one year with no more than 10% of the portfolio invested in securities with a maturity
over five years. In implementing this policy, the following guidelines will be used:
1. Projected cash flow requirements are the primary factor to be used in determining investment
maturity terms.
2. After cash flow needs have been met, investments may be structured in longer-term securities
within a disciplined investment program and process that is based on long-term expectations
and is not speculative.
3. Investments may be sold before maturity for cash flow purposes or to rebalance the risk
profile of the portfolio.
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CASH MANAGEMENT
To achieve a reasonable return on public funds, the following cash management practices will be
followed:
1. Maintain maximum investment of all City funds not required to meet immediate cash flow
needs while maintaining adequate compensating balances as required under the City's banking
services agreement.
2. Pool resources available for investment from all City-administered funds, with interest earnings
allocated to each of the funds in accordance with generally accepted accounting principles.
3. Maximize the City's cash flow through the immediate deposit of all cash receipts, use of direct
deposits and wire transfers when available, and appropriate timing of payments to vendors.
4. Maximize the cash flow information available by using only one operating bank account.
- 18 -
EVALUATION OF INVESTMENT PERFORMANCE
As indicated in the Introduction section of this document, it is the City’s primary investment
objective to achieve a reasonable rate of return on public funds while minimizing risks and
preserving capital. In evaluating the performance of the City’s overall portfolio in achieving this
objective, it is expected that yields on City investments will regularly meet or exceed the average
return on three month U. S. Treasury Bills. It is also expected that the portfolio managed by the
investment advisor will meet or exceed the BofA Merrill Lynch 0-to-5 year U.S. Treasury Bond
Index.
Comment [JS15]: Updated the name of the
benchmark.
- 19 -
INVESTMENT REPORTING
Consistent with Sections 16481.2 and 53646 of the Government Code, the Director/City Treasurer
shall submit an annual Statement of Investment Policy to the Council for consideration at a public
meeting. This statement will generally be reviewed by the Council in conjunction with the
Financial Plan review and approval process. In accordance with this Statement of Investment
Policy, the City Treasurer is responsible for developing and maintaining this Investment
Management Plan.
In addition to the submittal of an annual Statement of Investment Policy and the preparation of an
Investment Management Plan, the Director/City Treasurer shall provide the Council and Investment
Oversight Committee with a monthly investment report providing the following information for
each investment or security:
1. Issuer or broker/dealer (financial institution)
2. Type of investment
3. Certificate or other reference number if applicable
4. Percentage yield on an annualized basis
5. Purchase date
6. Maturity date for each investment and the weighted average maturity of all the investments
within the portfolio
7. Current book value
8. Current market value
9. Total cost and market value, including source of this valuation, of the City's portfolio
10. A description of the compliance with the Statement of Investment Policy
11. Information demonstrating that the City's expenditure requirements can be met in the following
six months
12. Other information regarding the City's portfolio as appropriate
The Monthly Investment Report shall include all investments as of the end of the month from all
funds held in the City's portfolio, including funds held and invested by trustees exclusive of deferred
compensation plan funds; and shall be issued within 30 days after the end of the monthly reporting
period.
- 20 -
INVESTMENT MANAGEMENT PLAN REVIEW
The Director/City Treasurer shall review the City's Statement of Investment Policy and Investment
Management Plan on an ongoing basis to ensure its continued value in administering the City's
portfolio. Additionally, the City shall form an Investment Oversight Committee whose membership
shall consist of the City Administrative Officer, Assistant City Administrative Officer, Director/City
Treasurer, Finance Manager and the City's Independent Certified Public Accountant. The
Investment Oversight Committee is responsible for:
1. Reviewing the City's portfolio at least quarterly to determine compliance with the Investment
Management Plan; and
2. Reviewing and making recommendations as appropriate regarding the City's investment policies
and practices at least annually.
It is important to note the distinction between the committee's oversight responsibility in ensuring
compliance with the policies and overall framework established in this plan, and the responsibility
of the Director/City Treasurer in managing the City's investment portfolio in accordance with this
plan.
This distinction between management and oversight is especially important to make as it applies to
the role of the City's independent auditors on this committee. The committee's oversight function is
consistent with the scope of the auditor's engagement duties, which includes reviewing for
compliance with City financial policies and procedures, and for making recommendations for
improvements in the City's fiscal operations. However, in this oversight context, they retain their
independence from responsibility for managing any aspects of the City's operations; this
responsibility lies solely with the City's elected leadership and staff.
- 21 -
APPENDIX
APPENDIX
INVESTMENT POLICY
Excerpt from the 2007-09 Financial Plan
A. Responsibility. Investments and cash
management is the responsibility of the City
Treasurer or designee.
B. Investment Objective. The City's primary
investment objective is to achieve a
reasonable rate of return while minimizing
the potential for capital losses arising from
market changes or issuer default.
Accordingly, the following factors will be
considered in priority order in determining
individual investment placements:
1. Safety
2. Liquidity
3. Yield
C. Tax and Revenue Anticipation Notes: Not
for Investment Purposes. There is an
appropriate role for tax and revenue
anticipation notes (TRANS) in meeting
legitimate short-term cash needs within the
fiscal year. However, many agencies issue
TRANS as a routine business practice, not
solely for cash flow purposes, but to
capitalize on the favorable difference
between the interest cost of issuing TRANS
as a tax-preferred security and the interest
yields on them if re-invested at full market
rates.
As part of its cash flow management and
investment strategy, the City will only issue
TRANS or other forms of short-term debt if
necessary to meet demonstrated cash flow
needs; TRANS or any other form of short-
term debt financing will not be issued for
investment purposes. As long as the City
maintains its current policy of maintaining
fund/working capital balances that are 20%
of operating expenditures, it is unlikely that
the City would need to issue TRANS for
cash flow purposes except in very unusual
circumstances.
D. Selecting Maturity Dates. The City will
strive to keep all idle cash balances fully
invested through daily projections of cash
flow requirements. To avoid forced
liquidations and losses of investment
earnings, cash flow and future requirements
will be the primary consideration when
selecting maturities.
E. Diversification. As the market and the
City's investment portfolio change, care will
be taken to maintain a healthy balance of
investment types and maturities.
F. Authorized Investments. The City will
invest only in those instruments authorized
by the California Government Code Section
53601.
The City will not invest in stock, will not
speculate and will not deal in futures or
options. The investment market is highly
volatile and continually offers new and
creative opportunities for enhancing interest
earnings. Accordingly, the City will
thoroughly investigate any new investment
vehicles before committing City funds to
them.
G. Authorized Institutions. Current financial
statements will be maintained for each
institution in which cash is invested.
Investments will be limited to 20 percent of
the total net worth of any institution and
may be reduced further or refused altogether
if an institution's financial situation becomes
unhealthy.
- 21 -
APPENDIX
H. Consolidated Portfolio. In order to
maximize yields from its overall portfolio,
the City will consolidate cash balances from
all funds for investment purposes, and will
allocate investment earnings to each fund in
accordance with generally accepted
accounting principles.
I. Safekeeping. Ownership of the City's
investment securities will be protected
through third-party custodial safekeeping.
J. Investment Management Plan. The City
Treasurer will develop and maintain an
Investment Management Plan that addresses
the City's administration of its portfolio,
including investment strategies, practices
and procedures.
K. Investment Oversight Committee. As set
forth in the Investment Management Plan,
this committee is responsible for reviewing
the City’s portfolio on an ongoing basis to
determine compliance with the City’s
investment policies and for making
recommendations regarding investment
management practices.
Members include the City Administrative
Officer, Assistant CAO, Director of
Finance/City Treasurer, Revenue Manager
and the City’s independent auditor.
L. Reporting. The City Treasurer will develop
and maintain a comprehensive, well-
documented investment reporting system,
which will comply with Government Code
Section 53607. This reporting system will
provide the Council and the Investment
Oversight Committee with appropriate
investment performance information.
- 22 -
APPENDIX
Formatted: Left
- 23 -
APPENDIX
- 24 -
Attachment #5
The following item is being presented in order to initiate a discussion about possible changes to the current investment policy that would
address what has come to be known as socially responsible investing.
The text of the document describes areas of concern that should be considered when modifying an existing investment policy to account for
socially responsible investment characteristics. There are two options presented as possible policy language for consideration.
Socially Responsible Investing (SRI)
■Socially responsible investing (SRI), also known as sustainable, socially conscious,
"green" or ethical investing, is any investment strategy which seeks to consider both
financial return and social good.
■The areas of concern recognized by the SRI investors are sometimes summarized as
ESG issues: environment, social justice, and corporate governance.
■Although SRI may be a desired goal, like all investment strategies there are both
positive and negative outcomes.
■SRI seeks to invest in firms that promote the ideals and beliefs of the investor or
community.
■SRI is in the eye of the beholder, what is a socially responsible enterprise to one
person may not be to another.
■SRI limits the investable universe of permitted securities.
■SRI is best done by using a structured approach when evaluating an enterprise
for social responsibility and potential investment.
1
SRI Investment Policy Language Options
■Option #1
■“In the event all objectives mandated by state law are met, investments in
corporate securities and depository institutions will be evaluated for social and
environmental concerns. Investments are encouraged in entities that support
equality of rights regardless of sex, race, age, disability, or sexual orientation, as
well as those entities that practice environmentally sound and fair labor practices.
Investments are discouraged in entities that receive a significant portion of their
revenues from the manufacturer of tobacco products, firearms, or nuclear
weapons not used in our national defense.”
■Option #2
■“In addition to and subordinate to the primary objectives of safety, liquidity and
yield, investment of funds are encouraged in entities that support community
well-being through safe and environmentally sound practices. Investments are
discouraged in entities that receive a significant portion of their revenue from the
manufacture and production of …”
2