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CONSENT CALENDAR
City of San Bernardino
Request for Council Action
Date: November 5, 2025
To: Honorable Mayor and City Council Members
From: C. Jeannie Fortune, Interim Director of Finance and Management Services
Department: Finance & Management Services
Subject: Investment Policy Statement Update (All Wards) Recommendation:
It is recommended that the Mayor and City Council of the City of San Bernardino, California, receive and file the updated Investment Policy Statement for FY 2025/26.
City Manager's Comments
The City Manager recommends approval of the recommended changes in the City of San Bernardino investment policy. The changes primarily are changes in allowing limited mortgage backed and asset backed securities and remaining within the limits allowed for by the State of California recommendations. These changes are recommended by Shuster Advisory Group, LLC.
Executive Summary
This action is to review and approve an updated Investment Policy Statement (IPS) for FY 2025/26 to incorporate recommendations from the City’s new Investment Fiduciary.
The proposed recommendations include diversifying the City’s approved investment tools to include medium term notes, asset-backed securities, mortgage-backed securities and collateralized mortgage obligations (CMO) securities.
The addition of these types of investments, while still maintaining the City’s IPS goals of safety (preservation of principal), liquidity (portfolio allows for timely access to cash to met expected and unexpected obligations), and yield (to earn a market rate without taking on excessive risk), are designed to enhance yield potential, streamline portfolio structure, and ensure the City remains well-positioned in a dynamic interest rate environment.
Background
The City’s Investment Policy sets forth the City’s investment objectives, risk preferences, authorized investments, and other investment-related priorities. A 3 0
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thoughtful and comprehensive investment policy not only provides accountability for investment officials but also promotes public trust in investment decisions. Developing, reviewing, and monitoring the City’s Investment Policy serves as an important tool of communication between the investment official, City management, and the City Council.
The Investment Policy was last approved on June 4, 2025, along with the City’s 2025- 26 Operating and Capital Improvement Projects (CIP) budget. Since then, the City has retained Shuster Advisory Group, LLC (“Shuster”) to serve as the City’s Fiduciary for Investment Management Services. Given Shuster’s experience in California Code 53601(“CA 53601”) and management of public agency investment funds, it has been recommended to the City to allow investments in both Federal Agency and non-Agency Mortgage-Backed Securities and Asset-Backed Securities as described in CA 53601.
Discussion
Mark Shuster, Founder and Managing Partner at Shuster Advisory Group, LLC, along with members of the Shuster team, has worked closely with City staff through regular meetings to review and evaluate the City's investment portfolio, including discussion on updating the City’s Policy and any recommended changes to the Policy.
Shuster Advisory Group, LLC (“Shuster”) is an independent SEC-Registered Investment Advisor with over $10 billion in assets under management. As a fiduciary, Shuster specializes in serving the unique investment needs of governmental agencies, special districts, and institutional clients, including more than 100 cities and public entities. Shuster provides comprehensive retirement plan consulting and fiduciary investment management services, including investment selection, monitoring, and oversight. In addition, Shuster offers expertise in managing Section 115 Trusts and operating cash assets, helping public agencies optimize liquidity, preserve capital, and enhance yields across reserve and long-term funds. The firm also serves private wealth clients through tailored portfolio management and planning services.
The current Investment Policy Statement remains compliant with California Government Code Section 53601. However, updates to the Code in recent years have expanded investment flexibility for local agencies while preserving the core principles of safety, liquidity, and return.
Shuster has recommended targeted updates to the City’s IPS to align with current statutory allowances and incorporate best practices in public fund management. These changes are designed to enhance yield potential, streamline portfolio structure, and ensure the City remains well-positioned in a dynamic interest rate environment.
Proposed updates include:
1. Authorizing mortgage-backed and asset-backed securities with maturities measured by Weighted-Average-Life not to exceed 5 years, minimum credit category rating of “AA”, and maximum non-Agency limit of 20% of the total portfolio, pursuant to CA Code § 3 0
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53601(o);
2. Authorizing Agency mortgage-backed and asset-backed securities with maturities measured by Weighted-Average-Life (WAL) not to exceed 5 years, pursuant to CA Code § 53601
3. Increasing issuer concentration limits for medium-term notes, mortgage-backed securities, and asset-backed securities to 10%, pursuant to CA Code § 53601(k) and 53601(o).
The inclusion of Agency and Non-Agency Mortgage-Backed (MBS) and Asset-Backed Securities (ABS) increases the investment universe for the City to capture additional yield from high-quality instruments with investment grade credit ratings. The increased regulations and credit monitoring of such securitized products has greatly improved the accessibility of investment managers to underwrite MBS and ABS securities. With the support of Shuster, the Investment Fiduciary, MBS and ABS securities can be examined at a granular level to understand underlying FICO scores, loan leverage, geographical distribution, and other details material to prudently measuring risk.
In addition, due to the self-amortizing nature of both Agency and Non-Agency mortgage- backed and asset-backed securities, measuring these securities by Weighted-Average- Life (WAL) is more informative from a risk-management perspective than measuring by a final maturity. As such, institutional fixed income portfolio managers use WAL as a commonly accepted measure of maturity.
Lastly, Shuster will closely monitor the underlying WAL for each securitized investment, whether Agency or Non-Agency-related, to ensure that the recommended limit of 5 years or less WAL is respected. Inclusive of this monitoring, Shuster will have regular meetings with the City as part of its ongoing Fiduciary duties to review the City’s overall liquidity and investment goals.
2021-2025 Strategic Targets and Goals
The acceptance and filing of the attached Investment Portfolio Report aligns with Key Target No. 1: Improved Operational & Financial Capacity by implementing, maintaining, and updating a fiscal accountability plan.
Fiscal Impact
There is no direct fiscal impact associated with updating the City’s Investment Policy Statement. However, the proposed policy enhancements will provide the City with expanded investment flexibility within the parameters of CA Code § 53601.
With the updated IPS in place, Shuster has identified opportunities to reallocate assets within the City’s General Portfolio in a manner that is projected to generate approximately $750,000 and $850,000 in additional annual interest earnings and fee savings, depending on final allocation decisions. These improvements are based on optimizing asset mix and leveraging institutional bond management with competitive pricing and enhanced credit research.
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Conclusion
It is recommended that the Mayor and City Council of the City of San Bernardino, California, receive and file the updated Investment Policy Statement for FY 2025/26.
Attachments
Attachment 1 FY2025-26 Investment Policy Statement (red-lined) Attachment 2 FY2025-26 Investment Policy Statement (final) Ward:
All Wards
Synopsis of Previous Council Actions:
N/A
CC: Eric Levitt, City Manager