Investment Policy Update
AUGUST 22, 2023
VERONICA CONNER
BUDGET & FINANCIAL ANALYSIS MANAGER
MONIQUE SPYKE
MANAGING DIRECTOR, PFM
Background
• The City of Santa Rosa Statement of Investment Policy No. 000-26 was adopted in January 1985. It was last updated by Council on April 9, 2013.
• In May 2023, PFM Asset Management met with the Finance Department to discuss proposed changes to update and
enhance the Investment Policy.
2 Background
• Stakeholders in the Parks & Recreation Department,
Water Department and the Housing Authority have been
consulted and reviewed the proposed changes.
• While the current policy is comprehensive and in
compliance with current California Government Code
regulating the investments of public funds, the consensus and recommendation of staff is to move forward with all updates to the Investment Policy proposed by PFMAM.
3 Investment Universe
4 Source: California Government Code
Section 53601
1 Day 180 Days 270 Days 1 Year 5 Years Over 5 Years
U.S. Treasuries Permitted Requires Approval
Federal Agencies Permitted Requires Approval
Municipal Securities Permitted Requires Approval
Negotiable Certificates of Deposit Permitted Requires Approval Commercial Paper Permitted Prohibited
Bankers’ Acceptances Permitted Prohibited
Medium-Term Corporate Notes Permitted Prohibited
Asset-Backed Securities (ABS) Permitted Prohibited
Supranationals Permitted Prohibited
Public Bank Debt Permitted Requires Approval
Repurchase Agreements Permitted Prohibited
Money Market Funds/Bond Mutual Funds Permitted Prohibited Local Government Investment Pools Permitted Prohibited
Foreign Sovereign Prohibited
Fixed-Income ETFs Prohibited
High-Yield Bonds Prohibited
Private Placements Prohibited
Convertibles Prohibited
Non-U.S. Dollar Investment Grade Prohibited
Emerging Markets Debt Prohibited
Bank Loans Prohibited
Domestic Equities (Large-, Mid-, Small Cap) Prohibited
International Equities (Large-, Mid-, Small Cap) Prohibited Emerging Markets Prohibited
Preferred Stock Prohibited
Equity Mutual Funds and ETFs Prohibited
Commodities Prohibited
Real Estate Prohibited
Hedge Funds Prohibited
Private Equity Prohibited
Venture Capital Prohibited
Tangible Assets Prohibited
Complex Derivatives, Futures, and Options Prohibited
Conventional Fixed
Income
Broader
Fixed Income
Equities
Expand City’s List of Authorized
Investments
5 California Code
Allowed Investments City’s 2013 Policy 2023 PFMAM Recommendations Overnight
Money Market Funds Permitted -
Local Government Investment Pools Permitted -
Government
U.S. Treasuries Permitted -
Federal Agencies Permitted -
Municipal Obligations Permitted; “AA” minimum rating
requirement “A” minimum rating requirement
Supranational Obligations Not permitted 5 years, “AA” rated, 30% of portfolio, 10% per issuer
Credit
Commercial Paper Permitted; 25% of portfolio 40% of portfolio Negotiable Certificates of Deposit Permitted -
Asset-Backed Securities Not permitted 5 years, “AAA” rated, 20% of portfolio, 5% per issuer
Medium Term Notes Permitted -
Proposed Changes
• Section VI. Introduction paragraphs:
• Modify to reflect new language in the California Government Code effective January 1, 2023, stating that a security purchased shall not have a forward settlement date
exceeding 45 days from the time the investment is
purchased.
6 Proposed Changes
• Section VI.3 California Municipal Investments and Section VI.4 State Municipal Investments:
• Added language to lower the minimum credit rating on
municipal obligations from “AA” to “A” rating. Code places no minimum rating requirement on municipal obligations.
7 • Section VI.6 Commercial Paper:
• In 2021, Code was modified to allow public agencies with more than $100 million of assets to invest up to 40% in commercial paper. The previous limit was 25% for all
agencies, other than a county or a city and county which already had a 40% maximum. Language has been added to
adopt this Code change to allow for additional opportunities should it fit the City’s investment strategy.
8 Proposed Changes
• Sections VI.15 Supranationals:
• Added language to allow for investment in select
supranational organizations, with a maximum maturity of five years, as allowed by Code Section 53601(q). The language added to the Policy matches Code language, allowing for purchases of bonds issued by the International Bank for Reconstruction and Development, International Finance
Corporation, or Inter-American Development Bank, with a minimum rating of “AA” and a maximum sector allocation of 30%. While Code does not have an issuer limit, added
language to the Policy to include a 10% issuer limit.
9 Proposed Changes
• Section VI.16 Asset-Backed Securities:
• Added language to allow for investment in asset-backed securities, with a maximum maturity of five years, as allowed by Code Section 53601(o). The language added to the Policy matches the Code language, except added a minimum rating requirement of “AAA,” while Code’s minimum rating
requirement is “AA,” and added a per issuer limit of 5%, while Code has no issuer limit. The sector limit suggested is 20%, matching the maximum allowed by Code.
10 Proposed Changes
• Section VIII Introductory Paragraphs - Maximum Maturities:
• Effective January 1, 2023 Code language was updated to include an investment’s term or remaining maturity shall be measured from the settlement date to final maturity. Added language to match the City’s Policy.
11 Proposed Changes
• Section VIII Introductory Paragraphs - Socially
Responsible Investing (SRI):
• Added language from the City’s resolution prohibiting investment in the fossil fuel industry. Also added language describing the methodology used to determine which issuers to exclude based on the City’s parameters. The methodology described in the Policy is the methodology that is currently used by the City’s investment manager, PFM Asset
Management.
12 Proposed Changes
• Section IX Collateralization: added a section on
collateralization to describe which security types require collateral and the details of the requirement, as required by Code.
• Section XII Investment Policy Adoption: added a section describing the Policy review procedure.
13 Proposed Changes
Recommendation
The Finance Department recommends approving, by
resolution, the proposed changes to the Investment Policy that have been made to the Authorized and Suitable Investment and the Investment Parameters sections as well as adding a Collateralization and Investment Policy Adoption section. 14 15
Questions?