Page | 1
CITY OF RICHMOND
INVESTMENT POLICY
FY2023-24
I.
Mission Statement
It is the policy of the City of Richmond (City) to invest public funds in a manner which will provide the highest investment return with maximum security while meeting the daily cash flow demands of the City and conforming to all state and local statutes governing the investment of public funds.
II. Scope
This investment policy covers the City's pooled funds which include the General Fund, Special Revenue, Debt Service, Capital Projects, Enterprise, Internal service, Trust & Agency, Redevelopment/Successor Agency and any other Funds investment activities under the direction of the City.
The investment of bond and note proceeds will be in accordance with policy contained in the relevant bond documents approved by the City Council at the time of the issuance of the debt. To the extent not inconsistent with such bond documents, bond or note proceeds and in accordance with Government Code, sections 53601(I) and 5922(d), proceeds may be invested in (i) Guaranteed Investment Contracts or other debt issuance proceeds with an investment provider rated in a category of "A" or better and with downgrade protection or (ii) Investment instruments described herein.
The investment policy for the Police and Fi re Pension Fund and the General Pension Fund are contained in the City Charter.
III. Objectives
The City's investment activities are desig ned to accurately monitor and forecast expenditures and revenues to ensure funds are always available when needed. The portfolio will be managed to ta ke advantage of changing ec onomic conditions that can aid in increasing the total return on the City's portfolio. The City will invest up to 100% of all idle funds.
The primary objectives of the investment activities, in priority order shall be:
1.Safety. Safety of principle is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure preservation of capita l in the portfolio. To attain this objective, the City will diversify its investments by investing funds among Page | 2
a variety of securities offering independent returns and financial institutions.
2.Liquidity. An adequate percentage of t he portfolio will remain sufficiently liquid in short-term securi ties to enable the City to meet its cash flow requirements. Since all cost r equirements cannot be anticipated, investment in securities with active secondary or resale markets is highly recommended. Emphasis should be on marketable securities with low sensitivity market risks.
3.Yield. The investment portfolio of the City should be designed with the objective of attaining a market rate of return,also known as the yield, on its investments. Yield should be considered only after safety and liquidity objectives have been met and measured against cash flow needs.
IV. Delegation of Authority
Management responsibility for the investment program is hereby delegated to the Director of Finance, acting in their capacity as Treasurer, or the Accounting Manager as designee who shall be responsible for all transactions undertaken and shall monitor and review all investments for consistency with this investm ent policy. The Director of Finance or their designee shall establish a system of controls to regulate the activities of subordinate officials, and their procedures in the absence of the Director of Finance.
V. Prudence
The standard of prudence to be used in the management of the City’s investment portfolio shall be the “prudent person” standard. The “prudent person” standard states that, “Investments shall be made with judgment and care under circumstances then prevailing, which persons of prudence, discretion, and intelligence ex ercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. “
The City holds to the “prudent investor standar d” as set forth in Section 53600.3 of the Government Code. in that all investments placed shall be made with a degree of judgment and care, The prudent investor standard states, “When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing pub lic 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.”
Page | 3
VI. Ethics and Conflict of Interest
1. All participants in the investment process shall act as custodians of public trust. Investment officials s hall recognize that the investment portfolio is subject to public review and evaluation. The overall program shall be designed and managed with a degree of professionalism that is worthy of the public trust.
3. In a diversified portfolio it must be recognized that occasional measured losses are inevitable and must be c onsidered within the context of the overall portfolio investment return provided that adequate diversification has been implemented. Each issuer s hall be limited in terms of their percentage of the portfolio, to minimize risk exposure.
4. In accordance with California Government Code Sections 89502 and 89503, officers and employees of the Cit y shall refrain from any activity that could conflict with the proper ex ecution of the investment program or that could impair their ability to make impartial investment decisions.
All investment personnel shall comply with the reporting requirements of the Political Reform Act, to include the annual filing of their Statement of Economic Interest.
VII. Authorized Broker/Dealers
The Director of Finance will maintain a list of broker/dealers auth orized to provide investment services. The br oker/dealers will be selected by credit worthiness that is authorized to provide investment services in the State of California. These may include "primary" dealers or "regional" dealers t hat qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule).
VIII. Authorized Investments and Maximum Maturities
With the above objectives and criteria in mi nd, the City of Richmond may invest in the following instruments with a rating of “A” or higher (when applicable) that have maturities of five (5) years or less at the time of purchase, unless otherwise stated below:
1. Government Bonds and Notes- Maximum of 100% invested no longer than 5 years
i. United States Treasury Notes, B onds, Bills, or certificates of indebtedness or those for which the full faith and credit of the United States are pledged for t he payment of principal and interest; and
ii. Treasury notes or bonds of the State of California; and iii. Bonds, Notes, Warrants or ot her evidence of indebtedness of Any local agency within California with a minimum rating threshold of an “A”.
Page | 4
2. Bonds and Notes of Federally Sponsored Agencies - Maximum of 100% invested no longer than 5 years, such as the Federal Farm Credit Bank, Federal Home Loan Bank, Federal National Mortgage Association, Government National Mortgage Associ ation, or any ot her instruments issued by a federal agency, or a United States government sponsored enterprise.
3. Negotiable Certificates of Deposit issued by a Federal and State chartered bank or a Federal and State Savi ngs and Loan Association or by any state licensed branch of a foreign bank. Purchases are not to exceed 30% of invested idle funds.
4. Local Agency Investment Fund (LAIF) - maximum of $75 million The City may invest in the Local Agency Inve stment Fund (LAIF) established by the State Treasurer for the benefit of local agen cies up to the maximum permitted by State law but not to exceed the aggregate limit set by the City of 100%.
5. CalTRUST a Joint Powers Authority created by public agencies to provide a convenient method for public agencies to pool their assets for investment purposes, not to exceed the aggregate limit set by the City of 100%. CalTRUST is governed by a Bo ard of Trustees made up of experienced local agency treasurers and investment officers.
6. Medium Term Notes with a maximum of five years maturity issued by corporations organized and operati ng within the United States. Such securities must be rated in a rating category of "A" or better by a nationally recognized rating service. Purchases may not exceed 30% of invested idle funds in any single institution.
7. Commercial Paper of "prime quality" of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investor Service, Inc., or Standard & Poor's Corporation. Eligible paper is further limited to issuing corporations t hat are organized and oper ating within the United States and have total assets in excess of five hundred million dollars ($500,000,000.00) and having an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by Moody's Investors Service, Inc., or Standard & Poor's. Eligible commercial paper may not exceed 270 days maturity nor repres ent more than 10 percent of the outstanding paper of an issuing corpor ation. Purchases of commercial paper may not exceed 25% of the Cit y’s surplus money that may be invested pursuant to this section.
8. Money Market Funds are eligible for investment if the companies providing the mutual funds invest only in in struments authorized by Government Page | 5
Code, Sections 53601 and 53630. To be an eligible money market investment under this section:
• The money market shall have attained the highest ranking, or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations and shall maintain these ratings for the duration of the investment.
• Retain an investment advisor registered with the Securities and Exchange Commission (SEC) with not less than five (5) years' experience investing in securities and obligations.
• The fund shall have a minimum of $500 million to total asset size of portfolio at time of investment and should not drop below this threshold.
• The purchase price of the share of beneficial interest shall not include any commission that these companies charge.
• Purchases shall not exceed 20 percent of the City's idle funds
Summary of Maximum Percentage Limitations of Investments, by Investment Type
The following summary of maximum percentage limits, by instrument, is established for the City's total pooled fund's portfolio:
Investment Type: Percentage
U.S. Treasury Bills, Notes, and Bonds 0 to 100%
U.S. Government Agency Obligations 0 to 100%
Negotiable Certificates of Deposit Local 0 to 30%
Local Agency Investment Fund (LAIF) 0 to 100% (Max $75 million) CalTRUST(Joint Powers Authority) 0 to 100%
Medium Term Notes 0 to 30%
Commercial Paper 0 to 25%
Money Market Funds 0 to 20%
IX. Reporting and Review of the Investment Portfolio
The Director of Finance shall report monthl y on the City's pooled and Bond funds to the City Manager and City Council and shall report quarterly on other investments, such as pension funds. The following elements will be part of the investment report:
1. Type of investment
2. Institution/Issuer
3. Date of maturity
Page | 6
4. Cost of security (par amount) and dollar amount in all securities
5. Description of the funds, investments and programs managed by contracts
6. Current market value of securities
7. Rate of return
8. Statement of compliance to meet pool expenditure requirements for the next six months
9. If, in any case, pool expenditures are not met, an explanation of why sufficient monies will not be available.
X. Investment Pools
Government sponsored investment pools (P ools) are permitted under California Government Code Section 53601 et seq. and an excellent short-term investment option for cash management facilities. These pools c an provide safety, liquidity and yield in a single diversified investmen t. However, thoughtful invest igation and due diligence are required both initially at the time of purchase and ongoing analysis to determine that the investment pool is being managed in a manner consistent with the objectives of the Policy.
State of California's Local Agency Investment Fund (LAIF) is an example of a Pool. The City may invest in the LAIF established by the State Treasurer fo r the benefit of local agencies up to the maximum permitted by St ate law under California Government Code Section 16429.1, Each agency is limited to an investment of $75 million per account currently, but subject to change.
XI. Collateralization
Collateral for Certificates of Deposit (CD) and N egotiated Certificates of Deposit (NCD) must comply with Government Code, Chapter 4, Bank Deposit law Section 16500 et seq. and the Savings and Loan and Credit Union Deposit Law Government Code Section 16600 et seq. In addition, if the CD is not FDIC insured or goes over the FDIC $250,000 limit, collateral is required to equal 100 percent of the principal of either U.S. Treasury securities or Federal Agency securities.
Collateral will always be held by an indep endent third party with whom the City has a current custodial agreement. A clearly ma rked evidence of ownership (safekeeping receipt) must be supplied to the City and retai ned. The right of collateral substitution is granted, within the parameters and constraints of the Policy.
XII. Safekeeping and Custody
Securities purchased from broker/dealers shall be held in third party safekeeping by the trust department of the City's bank or other designated third party, in the City's name and control. The basic premise underlying th e City's investment philosophy is and will Page | 7
continue to be to ensure that money is always safe and available when needed. All trades executed by a dealer will settle deliver vs. payment (DVP) through the City's safekeeping agent. Securities held in custody for the City shall be independently audited on an annual basis to verify investment holdings.
XIII. Diversification and Risk Tolerance
The City of Richmond recognizes diversification is an investment strategy that will mitigate risk in the investment portfolio. Portfolio dive rsification is employed as a way to control risk. The City's investment portfolio shall be diversified to avoid incurring unreasonable and avoidable risks regarding specific investment types. Within investment types, the City shall also maintain a mix of securities to avoid concentrations with individual financial institutions, geographic areas, industry types and maturities. No individual investment transaction shall be undertaken that jeopardizes the total capital position of the overall portfolio. The Treasurer shall periodically est ablish guidelines and strategies to control risks of default, market price changes, and illiquidity.
XIV. Internal Control
The Treasurer or designee shall maintain a system of internal controls designed to ensure compliance with the Investment Policy and to prevent losses due to fraud, employee error, and misrepresentations by third parties or unanticipated changes in financial markets.
All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Dir ector of Finance with the following: audited financial statements, pr oof of FINRA certification, and proof of state registration, completed broker/dealer questionnaire, and ce rtification of having read the City's investment policy.
A bi-annual review of the financial condition and registrations of qualified bidders will be conducted by the Director of Finance. The bidding process shall be conducted every four years. The current audited financial statement is required to be on file for each financial institution and broker/dealer in which the City invests.
XV. Performance Standards
A. The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs.
B. The investment performance objective for the portfolio shall be to earn a total rate of return over a market cycle which is approximately equal to the return on a market benchmark Index of similar securities, as determined by the Director of Finance.
Page | 8
XVI. Investment Policy Adoption
The investment policy shall be adopted by resolution of the City Council. The policy shall be reviewed annually by the Council and any modification made thereto must be approved by the City Council.
XVII. Interest Earnings
All moneys earned and collected from investm ents authorized in this policy shall be allocated quarterly to pooled funds based on t he daily cash balance in each fund as a percentage of the entire pooled portfolio. Should any fund not have a daily cash balance at the end of a quarter, it will receive none of the moneys earned and collected from the pooled investments. Furthermore, should any fund have a temporary negative daily cash balance at the end of a quarte r, the negative amounts will be reallocated to provide earnings to the funds with a positive daily cash balance.
XVIII. Restrictions
1. The City will not invest any funds in in verse floaters, range notes, or interest- only STRIPS (Separate Trading of Regist ered Interest and Principal of Securities) that are derived from a pool of mortgages.
2. The City will not invest any funds in any security that could result in zero interest accrual if held to maturity. This limitation does not apply to investments in shares of beneficial interest (m oney market mutual funds) that are authorized elsewhere in the Investment Policy.
3. It is the City's policy not to invest in companies involved in the manufacturing of tobacco and tobacco-related products such as cigarettes, cigars, pipe tobacco, chewing tobacco, etc.
4. In accordance with the Slavery Era Insurance Ordinance 14-05 N.S. Section
2.29.030 Social Disclosure on Gains from Slavery effective July 1, 2005, the City will not invest any funds in intern ational financial instruments that benefited from slavery. The City Council prohibits, by social investment policy, such investments and reserves the abs olute right to divest from such investments with the cost of divest ment being borne by the contracting institution.
5. In accordance with Resolution 38-13 effective May 7, 2013 the City declared it a policy of the City of Richmond to not invest in Fossil Fuel companies and urges the Board and Management of the City’s Pension funds to divest from publicly-traded Fossil Fuel Companies.
Page | 9
6. In accordance with the Sanctuar y City Ordinance 12-18 N.S. Section 4 Prohibition on Investments effective June 5, 2018, the City shall not make any investments in stocks, bonds, securities , or other obligations issued by any provider of Data Broker or Extrem e Vetting services to United States Immigration and Customs Enforcement (ICE).
Page | 10
GLOSSARY
Agencies: Federal agency securities and/or Government-sponsored enterprises.
Bankers' Acceptance (BA): A draft or bill of exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer.
Benchmark: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio's investments.
Bid: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer.
Broker: A broker brings buyers and sellers together for a commission.
Certificate of deposit (CD): A time deposit with a specific maturity evidenced by a Certificate.
Large-denomination CD's are typically negotiable.
Collateral: Securities, evidence of deposit or ot her property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
Annual Comprehensive Financial Report (ACFR): The official annual report for the government agency. It includes five combi ned statements for eac h individual fund and account group prepared in conf ormity with GAAP. It also includes supporting schedules necessary to demonstrate compliance wit h finance-related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section.
Data Broker: Means either 1) the collection of information, including personal information about consumers, from a wide variety of sources for the purpose of reselling such information to their customers, which in clude both private-sector businesses and government agencies; 2) the aggregation of data that was collected for another purpose from that for which it is ultimately used.
Dealer: A dealer, as opposed to a broker, acts as a principal in all tr ansactions, buying and selling for his own account.
Delivery versus Payment (DVP): There are two methods of delivery of securities:
delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is Page | 11
delivery of securities with an exchange of a signed receipt for the securities.
Diversification: Investment contained withi n the portfolio will be diversified by security type, institution and maturity.
Extreme Vetting: Data mining, threat modeling, predictive risk analysis, or other similar services.
Federal Deposit Insuran ce Corporation (FDIC): A federal agency that insures bank deposits, currently up to $250,000 per deposit.
Federal Home Loan Banks (FHLB): Government sponsored wholesale banks (currently 12 regional banks), which lend funds and pr ovide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to li quefy the housing related assets of its members who must purchase stock in their district Bank.
Federal National Mortgage Association (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Associat ion Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single pr ovider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases in clude a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guaran tees that all security holders will receive timely payment of principal and interest.
Federal Reserve System: The central bank of the Unit ed States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system.
Fossil Fuel: A fuel formed by natural processes, such as anaerobic decomposition of buried dead organisms, cont aining organic molecules originating in ancient photosynthesis that release energy in combustion such as: coal, oil, and gas reserves as measured by the gigatons of carbon dioxide that would be emitted if those reserves were extracted and burned.
Government National Mortgage A ssociation (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, sa vings and loan associations, and other institutions. The security holder is protected by full faith an d credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FHA mortgages. The term "pass-through" is often used to describe Ginnie Maes.
Page | 12
Liquidity: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes.
Local Government Investment Pool (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Tr easurer for investment and reinvestment.
Market Value: The price at which a security is trading and could presumably be purchased or sold.
Maturity: The date upon which the principal or st ated value of an investment becomes due and payable.
Money Market: The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and traded.
Offer: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Bid.
Portfolio: Collection of securities held by an investor.
Primary Dealer: A group of government securities de alers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC)-registered securities broker-dealers, banks, and a few unregulated firms.
Prudent Person Rule: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state-the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital.
Rate of Return: The yield obtainable on a security based on its purchase price or its current market price. This interest may be amortized yiel d to maturity on a bond or the current income return.
Sanctuary City: A municipal jurisdicti on that limits its cooper ation with the national government's effort to enforce immigration law.
Safekeeping: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection.
Secondary Market: A market made for the purchas e and sale of outstanding issues following the initial distribution.
Page | 13
Securities & Exchange Commission: Agency created by Congress to protect investors in securities transactions by administering securities legislation.
Securities and Exchange Co mmission (SEC) Rule 15C3-1: See Uniform Net Capital Rule.
Treasury Bills: A non-interest bearing discount securi ty issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year.
Treasury Notes: Medium-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years.
Uniform Net Capital Rule: Securities and Exchange Commission requirement that member firms as well as nonmember broker- dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one r eason new public issues are spread among members of underwriting syndica tes. Liquid capital includes cash and assets easily converted into cash.
United States Immigration a nd Customs Enforcement (ICE): A federal law enforcement agency under the U.S. Department of Homeland Security. ICE's stated mission is to protect Americ a from the cross-bor der crime and illegal immigration that threaten national security and public safety.
Yield: The rate of annual income return on an investment, expressed as a percentage. (a) Income Yield is obtained by dividing the current dollar in come by the current market price for the security. (b) Net Yield or Yield to Maturity is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.