HomeMy WebLinkAboutItem 3b: Revised Statement of Investment PolicyROPER MINA
21192
DATE: March 5, 2013
TO: Honorable Mayor and City Council
STAFF REPORT
Administrative Services Department
FROM: Hue Quach, Administrative Services Director
Shannon Huang, Financial Services Manager /Treasurer
SUBJECT: APPROVE THE REVISED STATEMENT OF INVESTMENT POLICY
Recommendation: Approve
SUMMARY
In the All Day City Council Workshop held on October 31, 2012, staff presented to the
City Council recommended changes to the City's Statement of Investment Policy,
including the addition of Negotiable Certificates of Deposit as allowable investments and
lowering the credit rating requirement for Corporate and Municipal Bonds. In an attempt
to further diversify the City's portfolio and enhance the portfolio's credit quality,
additional language is also included in this revision. The investment in "A" rated
Corporate and Municipal Bonds shall be limited to 5 %; the holding of bonds by any one
issuer is also limited to 5% of the City's portfolio. The investment in "A" rated Corporate
Bonds is further restricted to three (3) years, while the maturity of "AA" rated bonds is
kept at 5 years. Obtaining qualified credit ratings from two Nationally Recognized
Statistical Rating Organizations (NRSROs) instead of a single agency is also required.
It is recommended that the City Council approve the revised Statement of Investment
Policy.
DISCUSSION
Although the investment return of the City's portfolio has outperformed its benchmark, it
has continued to decline as interest rates across the markets continue to fall. The
graph on the following page illustrates the City's net yield as compared to federal
treasury notes over the same period. Additionally, as the Federal Reserve is expected
to keep interest rates low until at least the end of 2014, the return of the City's portfolio
is anticipated to continue to decrease while the older, higher yield securities are
replaced at maturity by the more recently issued investments carrying lower interest
rates.
Revised Investment Policy
March 5, 2013
Page 2 of 6
1.6%
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
CITY OF ARCADIA INVESTMENT PORTFOLIO
Jan 12 Feb 12 Mar 12 April 12 May 12 June 12 July 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12
o TOTAL CITY's PORTFOLIO —a-- 2 YEAR T -NOTE 12 MONTH TRAILING —z— CITY'S AVERAGE RATE OF RETURN
105
U)
C
0
100
95
90
85
80
Simply managing duration of investments is no longer an effective way to increase the
investment return, especially in light of the shorter term securities that make up the
majority of the City's portfolio. It has become apparent that the City needs to invest in
alternative securities and change the way the risk is assessed in order to increase the
investment yield.
The City has in the past adopted a more restricted and conservative investment policy
than what is allowed by the California Government Code in terms of the type of
authorized securities, the credit rating requirement, and the percentage limitations for
each type of securities. For instance, the City's current policy prohibits the purchase of
any Corporate or Municipal Bonds with ratings below "AA +" although the State allows
investment of those bonds with "A" or better rating. The difference of yield is around 30-
50 basis points (equivalent to $30 to $50 for a $10,000 investment) in current market
conditions, and the additional risks associated with the lower credit rating are deemed
justifiable due to the very low default rates. Table A below illustrates the cumulative
default rates from 1970 -2011 for Municipal and Corporate bonds with a maturity of less
than five years. The historical default rate between "AA" and "A" rated Municipal bonds
was approximately 0.01%; the difference ranges from 0.04% to 0.45% for Corporate
Bonds.
Revised Investment Policy
March 5, 2013
Page 3 of 6
Table A
Average Cumulative Default Rates, 1970 -2011
Global Corporates
Rati ng
Maturity
Repurchase
1
2
3
4
5
Aa
0.02%
0.06%
0.13%
0.24%
0.35%
A
0.06%
0.19%
0.39%
0.58%
0.80%
All Municipals
Rati ng
Maturity
Repurchase
1
2
3
4
5
Aa
0.00%
0.00%
0.00%
0.00%
0.01%
A
0.00%
0.00%
0.01%
0.01%
0.02%
* information published by Moody's Investors Services
Also recommended is to allow investment in Negotiable Certificates of Deposit that are
guaranteed by the bank and can be sold in a highly liquid secondary market, but they
cannot be cashed -in before maturity, and to limit those investments to the cap that is
fully insured by the FDIC. The FDIC insurance limitation is currently at $250,000 from
each issuer. The total investment in CDs cannot be more than 20% of the City's
portfolio and the increased yield is expected to be 30 -40 basis points more than the
Agency Bonds.
Cutwater Asset Management, the City's investment manager, has a dedicated research
group that will provide the independent analysis and constant monitoring mandated for
investing in privately issued bonds. Nevertheless, as ways to avoid over concentration
and to further diversify the portfolio, additional language has been included to limit the
holdings from any one issuer to 5% of the City's overall portfolio. In addition, at least
two Nationally Recognized Statistical Rating Organizations (NRSROs) will be used
when considering investments in an attempt to enhance the credit quality,
Further refinement of the City's Investment Policy for each authorized securities are as
follows..
Security
Original language
Proposed Changes
Repurchase
Primary Dealers approved as
Remove the language on rating the
Agreement
Repurchase Agreement
counterparties. Primary dealers
counterparties shall have a short-
deal directly with the Federal
term credit rating of at least A -1
Reserve Bank; they have to meet
or the equivalent and a long -term
fairly high liquidity and quality
credit rating of at least A or the
requirements in order to be
Revised Investment Policy
March 5, 2013
Page 4 of 6
Security
Original language
Proposed Changes
equivalent.
accepted into the program. Also,
the 102% collateral required for
eligible repurchase agreements is
adequate to secure any investment
the City may make in this category.
Prime
To invest in Commercial Paper
The policy would require the highest
Commercial
the City is required to work only
credit rating provided by 2 NRSROs.
paper
with investments receiving the
highest letter and number rating
provided by any 1 NRSRO.
Bankers
No more than the lesser of
No more than the lesser of 5% of
Acceptances
10% of the City's total
the City's total portfolio or $3
portfolio or $3 million shall be
million shall be invested in
invested in bankers
bankers acceptances of any 1
acceptances of any 1 bank.
bank.
• Rating of at least "A" or the
Rating of at least "A" or the
equivalent by 1 NRSRO.
equivalent by 2 NRSROs.
Medium
Final maturity shall not
Allow the purchase of "A" rated
Term Notes
exceed 3 years from the date
Corporate Bonds with maturity
of trade settlement, and rated
not exceeding 3 years and limit
at least AA+ or the equivalent
the total percentage holding of
by a NRSRO at the time of
"A" rated Bonds to 5% of the
purchase.
City's portfolio.
• The aggregate investment
Limit the investment of "AA"
shall not exceed 20% of the
rated bonds to 5 years.
City's total portfolio, and no
Credit ratings from 2 NRSROs
more than 5% of the City's
will be required.
total portfolio shall be
Eliminate the FDIC guaranteed
invested in the medium term
corporate bonds from the
notes of any 1 corporation.
authorized securities as this
• AAA rated FDIC - guaranteed
temporary guarantee program
corporate bonds are
established in response to the
authorized.
2008 financial crisis has been
terminated.
Certificate of
Only Non - negotiable Certificates
Add Negotiable Certificate of
Deposit
of Deposit are allowed.
Deposits with "A" rating or higher
as allowable investments. The
credit rating shall be issued by at
least 2 NRSPOs and the final
maturity cannot exceed 5 years.
• The total aggregate investment
shall not exceed 20% of the
City's portfolio and no more than
Revised Investment Policy
March 5, 2013
Page 5 of 6
Security
Original language
Proposed Changes
5% of the portfolio shall be
invested in any 1 issuer.
• All deposits shall be fully insured
by the FDIC with a
corresponding FDIC certificate
number.
Municipal
General and Revenue obligations
. Allow investment in Municipal
and State
of any state in the United States
Bonds with "A" rating or higher.
Obligation
or any political subdivision,
Although the aggregate total in
institution, or authority of such a
Municipal Bonds is limited to
governmental entity. Municipal
20 %, with "A" rated Municipal
bonds must be rated at least AA+
Bonds not to exceed 5% of the
or the equivalent by 2 NRSROs
City's portfolio.
with maturities not exceeding 5
. Eliminate the specific verbiage
years.
for the obligation issued by the
Arcadia Redevelopment Agency
that has been dissolved as of
February 1, 2011.
Language has also been added to describe the appropriate response to a credit
downgrade of a security held by the City. The subject investment may be sold or held
at the City's discretion, and the portfolio will be brought back into compliance as soon as
it is practical. Other changes to the Statement of Investment Policy contain clarification
of technical terms and fine tuning of the policy language to make it easier to understand.
A redlined version of the revised Statement of Investment Policy is shown as
Attachment A.
FISCAL IMPACT
Adoption of the Statement of Investment Policy with the recommended changes is
expected to increase the investment yield without significantly impacting risk. As the
higher yield (and potentially riskier) securities are limited to a small portion of the City's
portfolio, it is expected that only a slight improvement in the overall yield will be
achieved, especially in the current market.
Revised Investment Policy
March 5, 2013
Page 6 of 6
RECOMMENDATION
It is recommended the City Council approve the revised Statement of Investment Policy.
Approved:
Dominic Lazzar
City Manager
Attachments: Proposed Statement of Investment Policy
Attachment A
City of Arcadia
Statement of Investment Policy
Fiscal Year 2012 -2013
The City of Arcadia (the "City "), incorporated in 1903 is located approximately 20 miles
northeast of downtown Los Angeles in the San Gabriel Valley, at the base of the San
Gabriel Mountains. it is the siteofWithin the City's corporate limits are tThe Santa Anita
Park racetrack and home tc .the Los Angeles County Arboretum and Botanic Garden
the Westfield Santa Anita regional shopping center. The City is a charter city and operates
under a council /manager form of government (Charter Section 300). The City is governed by
a city council (the "Council ") of five members elected at -large (Charter Section 400),
selects the City Manager (Charter Section 600). The . Arcadia Redevelopment
Agency a component unit of the City, whic-h— that was established in 1968 and
governed by the same Council and City Manager. The State of California eliminated
redevelopment in the state in 2011; the City Council currently acts as the Successor Agency
to the Redevelopment Agency and has fiduciary responsibility for its dissolution. Hereinafter
the City and Agency are collectively referenced as the "the City ".
The CityCouncil has adopted this Investment Policy in order to establish the investment
scope, objectives, delegation of authority, standards of prudence, reporting requirements,
internal controls, eligible investments and transactions, diversification requirements, risk
tolerance, and safekeeping and custodial procedures for the investment of funds ef_for
the City. All City funds will be invested in accordance with this Investment Policy and with
applicable sections of the California Government Code.
This Investment Policy was endorsed and adopted by the Arcadia City Council of the Gity of
AFGadia on March 5, 2013. It replaces any previous investment policy or investment
procedures of the City, unless otherwise directed by the City Council.
SCOPE
The provisions of this Investment Policy shall apply to all financial assets of the City as
accounted for in the City's Comprehensive Annual Financial Report.
All cash shall be pooled for investment purposes. The investment income derived from the
pooled investment account shall be allocated to the contributing funds based upon the
proportion of the respective balances relative to the total pooled balance in the investment
portfolio. Investment income shall be distributed to the individual funds on a monthly basis.
OBJECTIVES
The City's funds shall be invested in accordance with the City Municipal Code, all applicable
City resolutions, California statutes, and Federal regulations, and in a manner designed to
accomplish the following objectives, which are listed in priority order:
The nrinnipal investment objectives of the City are•
City of Arcadia Investment Policy 1 FY2012 -13
Preservation of capital and protection of investment principal.
2. Maintenance of sufficient liquidity to meet anticipated cash flows.
3. Attainment of a market rate of return.
4. Diversification to avoid incurring unreasonable market risks.
DELEGATION OF AUTHORITY
The management responsibility for the City's investment program is delegated annually by
the City Council to the City Treasurer pursuant to California Government Code Section
53607. The City's Financial Services Manager serves as the City Treasurer, who is
appointed and supervised by the Administrative Services Director. The Administrative
Services Director is delegated by the City Manager to oversee the City's investment and
finance operation and has ultimate responsibility of the investment operation. The
Administrative Services Director and City Treasurer may delegate the authority to conduct
investment transactions and to manage the operation of the investment portfolio to other
specifically authorized staff members. No person may engage in an investment transaction
except as expressly provided under the terms of this Investment Policy.
The City Treasurer shall maintain a system of internal controls, consistent with this
Investment Policy, for the operation of the City's investment program. Such system shall be
designed to prevent losses of public funds arising from fraud, employee error,
misrepresentation by third parties, or imprudent actions by employees of the City.
The City may engage the support services of outside investment advisors in regard to its
investment program, so long as it can be clearly demonstrated that these services produce
a net financial advantage or necessary financial protection of the City's financial resources.
PRUDENCE
The standard of prudence to be used for managing the City's investments shall be California
Government Code Section 53600.3, the prudent investor standard 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
agency."
City of Arcadia Investment Policy 2 FY2012 -13
The City's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The City recognizes that no investment is
totally riskless without risk and that the investment activities of the City are a matter of public
record. Accordingly, the City recognizes that occasional measured losses may be desirable
acceptable in a diversified portfolio and shall be considered within the context of the overall
portfolio's return, provided that adequate diversification has been implemented and that the
sale of a security is in the best long -term interest of the City.
The City Treasurer and authorized investment personnel acting in accordance with written
procedures and exercising due diligence shall be relieved of personal responsibility for an
individual security's credit risk or market price changes.
City of Arcadia Investment Policy 3 FY2012 -13
ETHICS AND CONFLICTS OF INTEREST
Elected officials and employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the City's investment
program or could impair or create the appearance of an impairment of their ability to make
impartial investment decisions. Also, elected officials and employees involved in the
investment process shall not participate in any decision on behalf of the City in which they
have a financial interest as set forth in the Political Reform Act of the State of California and
related regulations. The City Manager, the Administrative Services Director, City Treasurer
and any other staff authorized to engage in investment operation shall file a Statement of
Economic Interests each year pursuant to California Government Code Section 87203 and
regulations of the Fair Political Practices Commission.
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the City shall be made in accordance with California
Government Code Sections 16429.1, 53600 -53609 and 53630- 53686, except that,
pursuant to California Government Code Section 5903(e), proceeds of bonds and any
moneys set aside or pledged to secure payment of the bonds may be invested in securities
or obligations described in the ordinance, resolution, indenture, agreement, or other
instrument providing for the issuance of the bonds. Any revisions or extensions of these
code sections will be assumed to be part of this Investment Policy immediately upon being
enacted.
The City has further restricted the eligible types of securities and transactions as follows:
1. United States Treasury bills, notes or bonds with a final maturity not exceeding five
years from the date of trade settlement.
2. Federal Instrumentality (government sponsored enterprise) debentures, discount notes,
callable and step -up securities, with a final maturity not exceeding five years from
the date of trade settlement, issued by the following only: Federal Home Loan Banks
(FHLB), Federal National Mortgage Association (FNMA), Federal Farm Credit Banks
(FFCB) and Federal Home Loan Mortgage Corporation (FHLMC).
3. Repurchase Agreements with a final termination date not exceeding 30 days
collateralized by U.S. Treasury obligations or Federal Instrumentality securities listed in
items 1 and 2 above with the maturity of the collateral not exceeding five years. For
the purpose of this section, the term collateral shall mean purchased securities under
the terms of the City's approved Master Repurchase Agreement. The purchased
securities shall have a minimum market value including accrued interest of 102% of the
dollar value of the funds borrowed. Collateral shall be held in the City's custodian bank,
as safekeeping agent, and the market value of the collateral securities shall be marked -
to- the - market daily.
Repurchase Agreements shall be entered into only with broker /dealers who are
recognized as Primary Dealers with the Federal Reserve Bank of New York, or with
firms that have a Primary Dealer within their holding company structure. Primarjf
Dealers approved as RepUFGhase Agreement GOunterparties shall have a shert term
City of Arcadia Investment Policy 4 FY2012 -13
Gredit rating of at least A 1 er the equivalent and a long teffn Gredit rating of at least A G-r
the equivalent. Repurchase agreement counterparties shall execute a City approved
Master Repurchase Agreement with the City. The City Treasurer shall maintain a copy
of the City's approved Master Repurchase Agreement and a list of the broker /dealers
who have executed same.
4. Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade
settlement with the highest ranking or of the highest letter and number rating as
provided for by a---two Nationally Recognized Statistical Rating Organizations
(NRSROs). The entity that issues the commercial paper shall meet all of the following
conditions in either sub - paragraph A. or sub - paragraph B. below:
A. The entity shall (1) be organized and operating in the United States as a
general corporation, (2) have total assets in excess of five hundred million
dollars ($500,000,000) and (3) have debt other than commercial paper, if any,
that is rated "A or higherat least "A" or the equivalent by a-two NRSROs.
B. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have program wide
credit enhancements, including, but not limited to, over collateral ization,
letters of credit or surety bond, and (3) have commercial paper that is rated at
least "A -1" "A 1" or higher or the equivalent, by a -two NRSROs.
Purchases of eligible commercial paper may not represent more than 10% of the
outstanding commercial paper of any single corporate issuer. No more than 5% of the
City's total portfolio shall be invested in the commercial paper of any one issuer, and
the aggregate investment in commercial paper shall not exceed 25% of the City's total
portfolio.
5. Eligible Bankers Acceptances with a maturity not exceeding 180 days from the date of
trade settlement, issued by a national bank with combined capital and surplus of at
least $250 million, whose deposits are insured by the FDIC, and whose senior long-
term debt is rated at least "A" or the equivalent by a--two NRSROs at the time of
purchase. The aggregate investment in banker's acceptances shall not exceed 15% of
the City's total portfolio, and no more than the lesser of 40-%5% of the City's total
portfolio or $3 million shall be invested in banker's acceptances of any one bank.
6. Medium Term Notes issued by corporations organized and operating within the United
States or by depository institutions licensed by the United States or any state and
operating within the United States, —. Medium Term Notes with a final maturity not
exceeding three years from the date of trade settlement, and must be rated at least
"AA-+A" or the equivalent by a -two NRSROs at the time of purchase and may not �#e
aggregate in�mctment in media rn term notes shall not exceed 2 0,45% of the City's total
portfolio. Medium Term Notes with a final maturity not exceeding five (5) years from the
date of trade settlement must be rated at least "AX or the equivalent by two NRSROs
at the time of purchase and may not exceed 20% of the City's total portfolio. —In
addition, a_R -ne-no more than 5% of the City's total portfolio shall be invested in the
medium term notes of any one GGeperafieecorporation, and the aggregate investment in
medium term notes may not exceed 20% of the City's portfolio. in addition AAA o rated
FDIC guaranteed GE)rperate bends are hereon autherized, within the aferernention
doyercifinatmen and maturity y re`ri iirementc
City of Arcadia Investment Policy 5 FY2012 -13
7. Certificates of Deposit with a final maturity not exceeding five (5) years from the date of
trade settlement. The aggregate investment in certificates of deposit shall not exceed
-320% of the City's portfolio, and no more than 5% of the portfolio shall be held in any
one deposit or allocated to any one issuer. Certificates of Deposit shall be issued by a
nationally or state - chartered bank or a state or federal savings and loan association or
by a state - licensed branch of a foreign bank or by a federally licensed branch of a
foreign bank provided that the senior debt obligations of the issuing institution are rated
at least "A" or the equivalent by two NRSROs.
Negotiable certificates of deposit issued by a nationally or state - chartered bank, or by a
federally licensed or state - licensed branch of a foreign bank. Purchases of negotiable
certificates of deposits are subject to the limitations of Section 53601(1), shall be fully
insured by the FDIC with a corresponding FDIC certification number, and shall be
delivered through the Depository Trust Company.
Non - Negotiable certificates of deposit issued by a nationally or state - chartered bank, or
by a federally licensed or state - licensed branch of a foreign bank. Purchases of non-
negotiable certificates of deposits are subject to the limitations of Sections 53601(n)
and 53638 and shall be fully insured by the FDIC with a corresponding FDIC
certification number.
Private sector entities may be used to place certificates of deposit subject to the
limitations of Sections 53601.8.
8. State of California's Local Agency Investment Fund (LAIF), pursuant to California
Government Code Section 16429.1.
9. Money Market Funds registered under the Investment Company Act of 1940 that (1) are
"no -load" (meaning no commission or fee shall be charged on purchases or sales of
shares); (2) have a constant net asset value per share of $1.00; (3) invest only in the
securities and obligations authorized by state statute; and (4) have a rating of at least
AAA or the equivalent by at least NRSROs. The aggregate investment in money
market funds shall not exceed 20% of the City's total portfolio.
10. Municiaal & State Obliaations:
A. Municiaal bonds includina reaistered notes or bonds of anv of the 50 states
including bonds payable solely out of the revenues from a revenue - producing
property owned, controlled, or operated by a state or by a department, board,
agency, or authority of any of the 50 states.
City of Arcadia Investment Policy 6 FY2012 -13
B. In addition, bonds, notes, warrants, or other evidences of indebtedness of any
local agency in California, including bonds payable solely out of the revenues
from a revenue - producing property owned, controlled, or operated by the local
agency, or by a department, board, agency, or authority of the local agency.
A Obligations of the ity of FGadia California: General tion s-
Tax allenatien bonds or other debt conUrities issued by or guaranteed wholly
0
partially or morally by the City of Amodio or Amodio Redevelop ment Aoenny
with maturities not evneedino ten years
Municipal bonds must be rated at least "A" or the equivalent by two NRSROs with
maturities not exceeding #weefive (5) years from the date of trade settlement. No
more than 5% of the City's total portfolio shall be invested in "A" ratedsbonds or
in the bonds of anv one municiaality.
In addition. the aaareaate investment in municipal bonds may not exceed 20% of the
portfolio.
Munininal bends must he rated aatTleast "A Ai" er the equivalent by twe AIRSRQS
with maturities not exGeediinng fives y arc from the date of trade settlement. The
City shall not invest mere than F0/ of the it y's total pertfelie in the M inininal
vyzy -�rT y-�z opal
Bonds of any one entity.
The foregoing list of authorized securities and transactions shall be strictly interpreted. Any
deviation from this list must be preapproved by resolution of the City Council.
Securities that have been downgraded to a level that is below the minimum ratings
described herein may be sold or held at the City's discretion. The portfolio will be brought
back into compliance with Investment Policy guidelines as soon as is practical.
SELECTION OF BROKER /DEALERS
The City Treasurer, after review and approval by the Administrative Services Director and
City Manager, shall maintain a list of broker /dealers approved for investment purposes, and
it shall be the policy of the City to purchase securities only from those authorized firms. To
be eligible, a firm must be licensed by the State of California as a broker /dealer as defined in
Section 25004 of the California Corporations Code.
Broker /dealers will be selected on the basis of their expertise in public cash management
and their ability to provide service to the City's account.
In the event that an external investment advisor is not used in the process of recommending
a particular transaction in the City's portfolio, authorized broker /dealers shall attest in writing
that they have received and reviewed a copy of this Policy.
City of Arcadia Investment Policy 7 FY2012 -13
The City may purchase commercial paper from direct issuers even though they are not on
the approved broker /dealer list as long as they meet the criteria outlined in Item 4 of the
Authorized Securities and Transactions section of this Investment Policy.
PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow
requirements and known future liabilities. The City will not invest in securities maturing more
than five years from the date of PUFGh trade settlement, except for the m niGi
e.—iningtornaturityuptete I the date of trade settlerneq!PUFGhase.
COMPETITIVE TRANSACTIONS
All investment transactions shall be conducted competitively with authorized broker /dealers.
At least three broker /dealers shall be contacted for each transaction and their bid or
offering prices shall be recorded.
If the City is offered a security for which there is no other readily available competitive
offering, then City Treasurer will document quotations for comparable or alternative
securities.
SAFEKEEPING AND CUSTODY
The City Treasurer, after review and approval by the Administrative Services Director and
City Manager, shall select one or more banks to provide safekeeping and custodial services
for the City, in accordance with the provisions of Section 53608 of the California
Government Code. A Safekeeping Agreement approved by the City shall be executed with
each custodian bank prior to utilizing that bank's safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services for the City's
account and the competitive pricing of their safekeeping related services.
The purchase and sale of securities and repurchase agreement transactions shall be settled
on a delivery versus payment basis. All securities shall be perfected in the name of the City.
Sufficient evidence to title shall be consistent with modern investment, banking and
commercial practices.
All investment securities_, eXGept nen negotiable GeFt�Gates fpep„ sit Money Market
Funds and LAIFpurchased by the City will be delivered by either book entry or physical
delivery and will be held in third -party safekeeping by a City approved custodian bank, its
correspondent bank or its Depository Trust Company (DTC) participant account.
All Fed wireable book entry securities owned by the City shall be held in the Federal
Reserve system in a customer account for the custodian bank which will name the City as
"customer."
City of Arcadia Investment Policy 8 FY2012 -13
All DTC eligible securities shall be held in the custodian bank's DTC participant account and
the custodian bank shall provide evidence that the securities are held for the City as
"customer."
PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout
budgetary and economic cycles, taking into account prevailing market conditions, risk
constraints for eligible securities, and cash flow requirements. The performance of the City's
investments shall be compared to the average yield on the U.S. Treasury security that most
closely corresponds to the portfolio's weighted average effective maturity.
REPORTING
Monthly, the City Treasurer shall submit to the Administrative Services Director, the City
Manager and the City Council a report of the investment earnings including weighted
average rate of return and performance results of the City's investment portfolio. The report
shall include the following information:
Investment type, issuer, date of maturity, par value and dollar amount invested in all
securities, and investments and monies held by the City;
A description of the funds, investments and programs;
A market value as of the date of the report (or the most recent valuation as to assets not
valued monthly) and the source of the valuation;
A statement of compliance with the investment policy or an explanation for
compliance; and
A statement of the ability to meet expenditure requirements for six months, and
an explanation of why money will not be available if that is the case.
POLICY REVIEW
This Investment Policy shall be adopted annually by the City Council. It shall be reviewed at
least annually to ensure its consistency with the overall objectives of preservation of
principal, liquidity, yield and diversification and its relevance to current law and economic
trends. Amendments to this Investment Policy shall be approved by the Council.
City of Arcadia Investment Policy 9 FY2012 -13