CITY COUNCIL STAFF REPORT
Meeting: June 7, 2022
Subject
Consider the Monthly Treasurer's Investment Report for April 2022
Recommended Action
Accept the Monthly Treasurer's Investment Report for April 2022
Discussion
Background
On May 19, 2022, the City Council approved t he City Investment Policy. Per the City 's Investment Policy , the Treasurer shall submit monthly transaction reports to the City Council within 30 days of the end of the reporting period per California Government Code Section 53607. In addition to the monthly transaction reports, quarterly investment reports are submitted to the City Council approximately 45 days following the end of the quarter.
The quarterly investment report offers a more extensive discussion of the City's economy, cash flow, and investments.
The City's Municipal Code Section 2.24.050 Investment Authority states that the Treasurer shall make a monthly report of all investment transactions to the City Council. Lastly, the City's Municipal Code Section 2.88.100 Duties -Powers-Responsibilities lists one of the powers and functions of the Audit Committee is "to review the monthly Treasurer 's report."
Per the referenced code provisions, a Treasurer's Investment Report shall be submitted to the Audit Committee and City Council every month.
Treasurer's Investment Report
The report provides an update on the C ity's investment portfolio for the month ending April 30, 2022. The attached statements include balances and transactions of the City 's investments with the Local Agency Investment Fund (LAIF) and Chandler Asset Management.
While not governed by the City's Investment Policy, statements for the City's Wells Fargo cash accounts and Public Agency Retirement Services (PARS) Section 115 Trusts are also attached per a request from the Treasurer's Report sub-committee.
Local Agency Investment Fund (LAIF)
LAIF is an investment pool administered by the State of California Treasurer and governed by California Government Code. The City can withdraw funds from LAIF at any time. As a result, the City uses LAIF for short-term investment, liquidity, and yield.
As of April 30, 2022, the City's LAIF account had a balance of $21.1 million, an increase of $16,583 from the prior month due to a quarterly interest deposit. The City did not make any deposits or withdrawals in April 2022.
Investment Portfolio
In FY 2018-19, the City selected Chandler Asset Management for investment management services through a Request for Proposal (RFP). Under the City's Treasurer's direction, Chandler Asset Management manages the City's investment portfolio in accordance with the City's investment objectives. The City's investment objectives, in order of priority, are to provide:
• Safety to ensure the preservation of capital in the overall portfolio • Sufficient liquidity for cash needs
• A market rate of return consistent with the investment program
The performance objective is to earn a total rate of return through a market cycle equal to or above the return on the benchmark index. Chandler Asset Management invests in high- quality fixed-income securities consistent with the City's Investment Policy and California Government Code to achieve the objective.
As of April 30, 2022, the portfolio's market value was $148.9 million, compared to $150.2 million at the end of the pr evious month. The portfolio's book value was $154.8 million, compared to $154.7 million at the end of the prior month. The average maturity was 2.83 years, and the average modified duration was 2.50 . The rate of return was -0.88% net of fees for the month.
The portfolio's market value fluctuates depending on interest rates. When interest rates decrease after an investment is purchased , the market value of the investment increases.
In contrast, when interest rates increase after an investment is purchased, the market value of the investment decreases. At the time of purchase, the City intends to hold all investments until maturity, so changes in market price do not affect the City's investment principal. The market values were provided by Chandler Asset Management.
Section 115 Trust Investment Portfolio
The City established Section 115 Trusts to reduce pension rate volatility , and pre-fund Other Post- Employment Benefits (OPEB) costs. A Section 115 Trust is a tax -exempt investment tool that allows local governments to pre-fund pe nsion and retiree health costs. Once contributions are placed into the trust, assets from the trust can only be used to fund retirement plans.
The Section 115 Trusts are not governed by the City's Investment Policy but by separate investment policies. On December 7, 2021, City Council approved the Pension Trust Investment Policy and OPEB Trust Investment Policy. Public Agency Retirement Services (PARS) administers the trust, and US Bank manages the investments per the investment policies.
Both Section 115 Trusts are invested in " balanced" portfolios. The investment objective is designed to provide a moderate amount of current income with moderate growth of capital. It is recommended for investors with a long-term time horizon. The strategic asset allocation ranges for this objective are:
Asset Class Range Target
Equities 50-70% 63%
Fixed Income 20-40% 29%
Real Estate 0-15% 5%
Commodities 0-10% 2%
Cash 0-10% 1%
As of April 30, 2022, t he Section 115 Pension Trust had a balance of $16.4 million, a decrease of $1.2 million from the prior month. The Section 115 OPEB Trust had a balance of $33.7 million, a decrease of $2.4 million from the prior month. The investment returns for the Section 115 Trusts w ere -6.64% net of fees for the month. The City did not make any contributions or receive any distributions in April 2022.
Compliance
All of the City's investments comply with state law and the City 's Investment Policy. In compliance with California Government Code 53646 (b)(3), the City maintains the ability to meet its expenditure requirements for the next six months.
Sustainability Impact
No sustainability impact.
Fiscal Impact
No fiscal impact.
_____________________________________
Prepared by: __________________
Thomas Leung
Acting Finance Manager
Reviewed by: __________________
Kristina Alfaro
Director of Administrative Services and City Treasurer
Approved for Submission by: __________________
Dianne Thompson
Assistant City Manager
Attachments:
A – Chandler Investment Report April 2022
B – Chandler Custodial Statement April 2022
C – PARS Pension and OPEB Statement April 2022
D – LAIF Statement April 2022
E – Wells Fargo Operating Checking Account Statement April 2022 F – Wells Fargo Payroll Checking Account Statement April 2022 G – Wells Fargo Workers' Compensation Checking Account Statement April 2022 H – Wells Fargo Employee Benefits Checking Account Statement April 2022 I – BNY Mellon Statement April 2022