To:
FROM:
DATE:
SUBJECT:
CITY OF LAGUNA NIGUEL
CITY COUNCIL AGENDA ITEM
Honorable Mayor and Council Members
Trevor Agrelius, Finance Director
September 16, 2025
Annual Investment Report for Fiscal Year 2024-2025
RECOMMENDATION
Staff recommends that the City Council receive and file the City's Annual Investment Report for Fiscal Year 2024-2025.
BACKGROUND
The City of Laguna Niguel prepares an annual investment report at the conclusion of every fiscal year. The report (Attachment A) details investment activity from July 1, 2024, through June 30, 2025. This report includes:
- Portfolio performance and comparison to benchmarks
- Review of trends regarding the size of the portfolio
- Investment risk in the portfolio
- Composition of the portfolio
- Investment income
- Investment policy compliance certification
The Investment, Banking, and Audit Committee reviewed the contents of the report on July 30, 2025. After completion of its review, the Committee unanimously recommended approving the Annual Investment Report with no revisions.
Highlights from the Fiscal Year 2024-2025 Annual Investment Report include:
- An average yield of 3.10% for the year, in line with the prior year investment returns.
- The City's total cash and investments balance at June 30, 2025, is $66.4 million. - Investment income was $1.9 million in Fiscal Year 2024-2025. - The City has $15.0 million invested in 10-year Treasury Notes at June 30, 2025. - The portfolio has a weighted average maturity of 1,251 days, or nearly 3.5 years.
FISCAL REVIEW
There is no fiscal impact resulting from this recommendation .
LEGAL REVIEW
No legal review is required for this report.
CONCLUSION
Page2
Staff recommends that the City Council receive and file the City's Annual Investment Report for Fiscal Year 2024-2025 .
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City Manager
Attachments :
Trevor Agrelius
Finance Director
A. City of Laguna Niguel Annual Investment Report for Fiscal Year 2024-2025
ATTACHMENT A
Annual Investment Report for Fiscal Year Ended June 30, 2025
CITY OF LAGUNA NIGUEL
ANNUAL INVESTMENT REPORT
Fiscal Year Ended
June 30, 2025
Prepared by:
Trevor Agrelius
Finance Director/City Treasurer
Annual Investment Report
Table of Contents
Portfolio Performance and Comparison to Benchmarks
Review of Trends Regarding the Size of the Portfolio
Investment Risk in the Portfolio
Composition of the Portfolio
Investment Income
Investment Policy Compliance Certification
1-3
4-5
6-8
9-10
11 12
Annual Investment Report- FY 24-25
PORTFOLIO PERFORMANCE AND
COMPARISON TO BENCHMARKS
The City's average weighted yield on its portfolio during FY 2024-25 (calculated by summing the total investment earnings divided by the total portfolio at cost, excluding cash in bank, for each period and dividing by 12) was 3 .10%, in line with the prior fiscal year's yield of 3 .09%.
The average weighted yield on the City's portfolio at June 30, 2025, was 3.27%, on a cash and investment balance of $66,434,745. The portfolio had an average days-to-maturity (the sum of days left until maturity of each investment multiplied by the cost of each investment divided by the total portfolio at cost) of 931 days. The fiscal year average weighted days to maturity of the portfolio increased from 664 days in FY 2023-24 to 931 days in FY 2024-25, reflecting a focus on longer-term securities to take advantage of the higher yields available.
I Cip_ o[.Laf;!!,na Nip;uel's Porrf2/io ~ Benchmark Comp(,lrisons Average
Weighted Average
Days to Weighted 5-Year I-Year 6-Month
Cost/Book Value Maturity Yield Treasury Treasury Treasury LAIF Jul-24 $ 65,139,406 732 3.16% 3.97% 4.73% 5.14% 4.516%
Aug-24 $ 59,550,609 667 3.07% 3.71% 4.38% 4.89% 4.579%
Sep-24 $ 59,092,243 647 3.00% 3.58% 3.98% 4.38% 4.575%
Oct-24 $ 56,019,199 749 2.87% 4.15% 4.27% 4.43% 4.518%
Nov-24 $ 58,277,925 783 2.90% 4.05% 4.30% 4.42% 4.477%
Dec-24 $ 61,137,884 842 2.94% 4.38% 4.16% 4.24% 4.434%
Jan-25 $ 64,995,357 918 3.02% 4.36% 4.17% 4.28% 4.37%
Feb-25 $ 61,527,906 943 3.22% 4.03% 4.08% 4.25% 4.33%
Mar-25 $ 61,577,250 1146 3.22% 3.96% 4.03% 4.23% 4.31%
Apr-25 $ 65,436,454 1259 3.26% 3.72% 3.85% 4.19% 4.28%
I
May-25 $ 68,766,305 1235 3.31% 3.96% 4.11% 4.36% 4.27%
I Jun-25 $ 66,434,745 1251 3.27% 3.79% 3.96% 4.29% 4.27% ]IFY A,-erage $ 62,329,607 931 3.10% II 3.97% 4.17% 4.43% 4.41% Pagel
Annual Investment Report - FY 24-25
PORTFOLIO PERFORMANCE AND
COMPARISON TO BENCHMARKS
The following chart compares the City's portfolio perfonnance with monthly benchmarks including 5-year, I-year, and 6-month treasuries, and the Local Agency Investment Fund (LAIF).
The average weighted yield of the City's portfolio remained relatively flat this fiscal year, but is currently trending in an upward trajectory while the other benchmarks are trending downwards.
The reason for this is that some of the longer tenn securities purchased by the City during the low interest rate environment are maturing, and the City is able to reinvest those funds at higher yields. As you may recall, the City adjusted its investment strategy in March 2023. If this comparison were only looking at purchases made since that time, the weighted average yield for that $45.5 million is 4.27%, with an average weighted maturity of 1,881 days. That yield is in line with the LAIF yield, and is outpacing the 5-year, 1-year, and 6-month U.S. Treasury yields at June 30, 2025. This demonstrates the tremendous success the City's portfolio has experienced since that change was made.
5.50%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Compu •ison to Benchmarks - FY 2024-25
----
~
-....._· ~ . - -
/ ~
-
- .-
Jul-24 Aug-24 Sep-24 Oct-24 :'\o.--24 Dec-24 Jan-25 Feb-25 :\Iar-25 Apr-25 :\Ia~·-25 Jun-25 - erty Portfolio - 5-Year Treasury - 1-YearTreasury
- 6- Month Treasury - LAIF
Annual Investment Report- FY 24-25
PORTFOLIO PERFORMANCE AND
COMPARISON TO BENCHMARKS
The following chart provides a 5-year history of the City's average weighted yield on its portfolio from fiscal year 2020-21 through fiscal year 2024-25 compared to a 5-year history of the LAIF yield. The City's average weighted yield on its portfolio consistently performed on par with LAIF during the periods when interest rates were declining. However, the City's portfolio fell behind the LAIF yield in Ql of FY 22-23, when interest rates began to rise. Since approximately 1/3 of the City's portfolio was purchased prior to that time, the overall portfolio has continued to fall behind the LAIF yield. However, as was noted in the previous section, the City's yield is on an upward trend, while LAIF is on a downward trend. And, since March 2023, all purchases since that time are yielding an average of 4.27%, which is right in line with the LAIF yield at June 30, 2025.
City & L4IF Portfolio Yields - 5 Year History
~00% -,----- ------- ------- ------ -----
~50% -t---- ------- ------- ----:::;;;;;...--- -;;;;;;;;;~ ~00% +---- ------- ------- -----, ,:=.,"""""-- ------3.50% +---- ------- ------- ~ ,c:__ ________ _
3.00% +------- ---- --------=:.;....---~~--_..~=-
250% -l----- ------- --- ,.,c;.~ - ------ -----
200% +----- ------- ------,,,-- -------------1.50% -1--------------,,~ r::.___ _____________ _
1. 00% +±==~~:=~~~;~~;;;;~;~~~~=~~======:==:======================~
0.50%
0.00%
Ql Q2 Q3 Q4 Ql
20-21 21-22
Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4
22-23 23-24 24-25
- Ch)' - LAIF
Annual Investment Report- FY 24-25
REVIEW OF TRENDS REGARDING THE SIZE OF
THE PORTFOLIO
The size of the City's portfolio fluctuates over the course of the fiscal year due to timing differences between cash receipts and disbursements. The City's portfolio balance typically decreases until November/December and April/May when the City receives the majority of its property tax allocations. Consequently, the City's portfolio spikes in December/January and April/May because of significant property tax allocations. The portfolio balance at June 30, 2025, was $66.4 million, which is $2.5 million, or approximately 3.6% lower than at June 30, 2025. The primary reason for the decrease in cash during the year was the full spend down of the $8.8 million American Rescue Plan Act Funds on one-time capital projects. 63,000,000
61,000,,000
59,000,000
57,000,000
Size of Portfolio - Monthly Trend
CJuly ■ Aug □ Sept □ Oct ■ Nov CDec ■ Jan □ Feb ■ :\far 111 . .\pr □ May III June
Annual Investment Report - FY 24-25
REVIEW OF TRENDS REGARDING THE SIZE OF
THE PORTFOLIO
The City ended the fiscal year with a lower cash and investment balance compared to the previous fiscal year. Fiscal Year 2024-25 ended the year at $66.4 million, just $2.5 million lower than the prior year. However, since the construction of the Crown Valley Community Center was completed in 2020, the City's cash and investments balance has increased by 30% to the current $66.4 million total.
Size of Portfolio -10 Year Historical Tre11d
75,000,000
65,000,000
55,000,000
45,000,000
J11neJ0
m2016 ■ 2011 m201s ■ 2019 1.12020 ■ 2021 m2022 □ 2023 m2024 1112025
Annual Investment Report - FY 24-25
INVESTMENT RISK IN THE PORTFOLIO
Although all investments contain an element of risk, the City's Investment Policy, procedures, and investment strategies are designed to limit exposure to risk. The different types of risk are discussed below, as they pertain to the portfolio .
Credit Risk
Credit risk is defined as the risk to an investor that an issuer will default in the payment of interest and/or principal on a security. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. It is the policy of the City of Laguna Niguel to invest public funds in a manner which will provide the maximum security of principal consistent with a market rate of return while meeting the cash flow needs of the City and conforming to all applicable State and City statutes governing the investment of public funds.
The City's Investment Policy limits credit risk by:
► Limiting investments to the safest types of securities and highest quality issuers. ► Specifically excluding investments in equities, corporate bonds, derivatives, reverse re purchase agreements and financial futures or options.
► Pre-qualifying financial institutions and broker/dealers for competitive bidding of investments.
► Diversifying investments so that potential losses on individual securities can be minimized .
► Monitoring the pooled investments of the Local Agency Investment Fund and Orange County Investment Pool each month.
► Safekeeping investments by separate agreement with US Bank's Trust Department.
Annual Investment Report- FY 24-25
INVESTMENT RISK IN THE PORTFOLIO
Market Risk
Market risk is defined as the risk that the value of a security may fall as a result of changes in the financial markets, such as increases in interest rates. In periods of rapidly rising interest rates, the market value of a security can fall below the amount of principal invested. If an investor sells the security before maturity, part of the principal may be lost. The City reduces market risk by matching investments and maturities with cash flow needs so that investments will not need to be sold prematurely.
The City had no occurrences during FY 2024-25 where investments needed to be sold prior to maturity in order to meet cash flow needs.
Interest Rate Risk
Interest rate risk is defined as the risk that an investor will under-perform the market, as a result of holding investments with lower yields than the current market rate. Generally, the longer the maturity of an investment, the greater is its sensitivity to changes in interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter-term and longer-term investments, and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The City employs a disciplined investment strategy with the goal of holding all securities until maturity.
The City's portfolio reflected an average weighted maturity of 931 days during the fiscal year, representing a significant increase from 664 days in Fiscal Year 2023-24. This increase in weighted average is the result of focusing on longer-term inve ·Jment given the elevated yields seen in the market over the past two years. In general, as interest rates decline, the City's portfolio is exposed to minimal interest rate risk. When interest rates are rising, the City's exposure increases. The current economic environment is a flat or declining environment.
Annual Investment Report- FY 24-25
INVESTMENT RISK IN THE PORTFOLIO
Liquidity Risk
Liquidity risk involves the ability to sell an investment before maturity. Some short-term investments are fairly illiquid. For example, a non-negotiable certificate of deposit is an illiquid asset that carries an interest penalty for early redemption. The City minimizes liquidity risk by maintaining a significant portion of its portfolio in very liquid instruments, such as money market mutual funds, and LAIF, where funds are immediately available.
Annual Investment Report- FY 24-25
COMPOSITION OF THE PORTFOLIO
Authorized Investments
The City's Investment Policy lists the types of securities allowable for investment. Subject to stipulated restrictions, these include United States Treasury Bills, Notes, and Bonds; Federal Agency Securities; collateralized or insured money market accounts and demand deposits with City's primary banks; insured certificates of deposit; money market mutual funds; and LAIF.
The City's portfolio only included those investments authorized in the Investment Policy in FY 2024-25.
Portfolio Diversification
It is the policy of the City to diversify its investment portfolio. Invested funds shall be diversified to minimize the risk of loss resulting from over concentration of assets in a specific maturity, specific user, specific financial institution, or specific class of securities. Investment of City funds shall be governed by Government Code Sections 53600 and 53630 et. seq. The following table identifies the investment types that are authorized by the California Government Code, or the City's investment policy, where more restrictive.
Authorized Investment Type
U.S. Treasury Obligations
Federal Agency Securities or U.S. Government
Sponsored Enterprise Securities
State Local Agency Investment Fund (LAIF)
Insured Certificates of Deposits
Insured Money Market A=unts
Money Market Mutual Funds
Orange County Investment Pool (OCIP)
Section 115 Pension Trust
* IO years for $15.0 million Economic Uncertainty Reserve
Maximum
Maturity
5 Years*
5 Years
NIA
5Years
NIA
NIA
NIA
NIA
Maximum Maximum
Percentage Investments in
Allowed One Issuer
None None
60% 25%
55% $40Million
30% $250,000
None None
20% 10%
55% $40Million
20% None
Annual Investment Report- FY 24-25
COMPOSITION OF THE PORTFOLIO
Portfolio Diversification
This chart provides the portfolio distribution across the investments permissible under the City's Investment Policy and provides the Fiscal Year average for each security type.
FHLB FFCB FNMA FHLMC Total Agency U.S. Treasury Certificates of Agency Agency Agency Agency LAIF OCJP Money Market Securities Securities Sectrrities Securities Securities Bills/Notes Deposit Ma.rimum 25% 25% 25% 25% 60% No Limit 55% 55% 30% 20%
J11(11 17% 17% 13% 6% 54% 28% 0% 0% 7% 11%
A11gusr 19% 18% 15% 7% 59% 17% 0% 0% 8% 16%
September 19% 19% 15% 7% 59% 15% 0% 0% 8% 18%
October 20% 20% 15% 7% 63% 19% 0% 0% 8% 10%
N{)i'l!mber 19% 19% 15% 7% 60% 21% 0% 0% 8% 10%
December 18% 18% 14% 7% 57% 27% 0% 0% 7% 8%
January 17% 17% 13% 6% 54% 31% 0% 0% 7% 8%
February 18% 18% 14% 0% 50% 32% 0% 0% 7% 10%
/Ila rel, 18% 18% 14% 0% 50% 35% 0% 0% 7% 7%
April 17% 17% 13% 0% 47% 40% 0% 0% 6% 7%
May 16% 16% 13% 0% 45% 41% 0% 0% 6% 8%
June 16% 17% 13% 0% 45% 42% 0% 0% 6% 7%
FY Average 18% 18% 14% 4% 54% 29% 0% 0% 7% 10%
*lft/re City's portfolio di1•ersijicalio11fulls out of co111plia11ce, tlte Cl(v has 90 days to correct it. Tire Ca. Govert1111enl Code srates that tire "sectio11 /that/ specifies a percelllage limitatio11for a particular category of investment, that percentage is applicable 011ly at tlte date of purchase. Based on this information, the APe11c11 Securities were ill comoliance wit/, tl,e Ca. Government Code a11d Cifv lnl'estment Pollcv dur/11!! the montft of October 2024.
Annual Investment Report - FY 24-25
INVESTMENT INCOME
Investment income in FY 2024-25 amounted to $1,923,292 compared to $2,079,753 in FY 2023- 24, a decrease of $156,461. This decrease was mostly due to a reduction in the overall portfolio, along with a reduction in the money market and short-term rates.
Investment income includes interest earned and realized gains and losses on all demand deposit accounts and investments. The Governmental Accounting Standards Board Statement 31, "Accounting and Financial Reporting for Certain Investments and for External Investment Pools", establishes rules for reporting investment valuation. The Statement generally requires governmental entities to report investments at fair value in the City's external financial statements and to reflect the related unrealized gains and losses as a component on investment income. Investments reported in the Annual Investment Report are reported at cost and therefore, investment income for this report does not include unrealized gains and losses; however, unrealized gains and losses are included in the City's Annual Comprehensive Financial Report (ACFR) in compliance with United States Generally Accepted Accounting Principles (GAAP).
Annual Investment Report - FY 24-25
INVESTMENT POLICY COMPLIANCE CERTIFICATION
As City Manager and Finance Director/City Treasurer of the City of Laguna Niguel, we certify that we have complied with the annual Investment Policy adopted by the City Council effective June 4, 2024.
Tamara S. Lelourneau
City Manager
Trevor Agre/ius
Finance Director/City Treasurer
Date l
Date