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ACCEPT BY MOTION THE QUARTERLY INVESTMENT REPORT FOR QUARTER ENDED DECEMBER 31, 2016
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RECOMMENDATION
It is recommended that the City Council accept by motion the Quarterly Investment Report for the quarter ended December 31, 2016.
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Summary
Pursuant to California Government Code section 53646 and the City’s Investment Policy (Policy No. 700-7), a quarterly report and certification shall be provided to the City Council, City Manager, and City Auditor. The Quarterly Investment Report shall include a complete description of the portfolio, the type of investments, the issuers, maturity dates, par value and dollar amounts invested in all securities. The certification must provide assurances that investments were made consistent with the City’s Investment Policy and that the City will meet its expenditure obligations for the next six months.
The Quarterly Investment Report for the quarter ending December 31, 2016, is provided as Attachment A. The report has also been posted on the City’s website and may be accessed at:
<http://www.stocktongov.com/government/departments/adminServices/finInv.html>
This report is presented as required and will bring the City current on its reporting requirements.
The City’s total investment portfolio (market value) was $417 million as of December 31, 2016. Returns for the most recent quarter were -$2,747,615, or -0.69% percent, which includes changes in fair market value caused by market rates that increased after the November elections (Attachment A page 26). This decline does not reflect actual losses, but instead means that the fixed rate securities held in the City’s portfolio would yield less in the current rate environment should they be liquidated. The City manages a liquid portion of the overall portfolio to cover its short-term cash needs, which permits a large portion of its holdings to be invested longer-term and yield greater returns.
DISCUSSION
Background
To comply with state law and city policy, the City is required to present quarterly investment reports detailing the City’s investment portfolio to the City Council, City Manager, and City Auditor. The City also posts monthly transaction reports on the City’s website. The authority of the Council to invest or reinvest funds, or to sell or exchange securities, is delegated to the City’s Chief Financial Officer, who also serves as City Treasurer (Resolution #2016-06-21-1605). Pursuant to the City’s Investment Policy, the City Treasurer may and does delegate some of his/her fiduciary responsibility to an outside investment management firm. An investment managers’ fiduciary responsibility is a legal requirement related to registration with the Securities and Exchange Commission under the Investment Advisor Act of 1940. Due to the specialized services and expertise required to assist the City in the varied investment options available, the City has contracted with an experienced investment manager, Chandler Asset Management (Chandler). City Council Resolution #07-0247 grants the authority to contract for investment portfolio management services. The contract is for a five-year period that began July 1, 2007, with an option for up to five annual renewals that the City has exercised. The contract ends June 30, 2017, and the City will conduct a procurement this spring for an outside investment management firm.
Present Situation
The attached report details the activities of the quarter ended December 31, 2016, and includes detailed information on the holdings of the City’s portfolio on that date. It includes a certification that the holdings are in compliance with the requirements of State law and City policy and that there is sufficient liquidity to cover the subsequent six months of budgeted activities.
The attached quarterly investment report was published online along with monthly reports.
Portfolio Balances and Performance
The City’s investment portfolio (market value) totaled $417 million as of December 31, 2016, and includes approximately $21 million in property tax receipts received on December 30, 2016. The portfolio reported a total of $396 million in the prior quarter. The investment portfolio is divided into Liquid and Reserve portions. The Reserve portion represents the long-term assets managed by Chandler, while the Liquid portion represents funds invested in the State of California’s Local Agency Investment Fund and money market funds. Total returns on the consolidated portfolio for the fourth quarter of calendar year 2016 were -$2,747,615 or -0.69% (Attachment A page 26). However, over the past 12 months, the consolidated portfolio returned a total of $4.2 million or 1.02%. This valuation includes funds from all activities, restricted and unrestricted, and includes changes in fair market value (unrealized gains/losses), but is not netted with the expenses of the pool.
Chandler has provided investment portfolio management services for the City since 2007. City staff works closely with Chandler to monitor the status of the City’s investment portfolio and its returns. The performance of the Reserve portion of the portfolio managed by Chandler is benchmarked against the Bank of America Merrill Lynch index of 1-5 year government securities. Over the last year, the Reserve portion of the City's portfolio outperformed the benchmark by 0.21%. The result was an annual return of 1.30% versus the 1.09% achieved by the benchmark (Attachment A page 21). Annualized quarterly returns for the portion of the portfolio managed by Chandler, shown below for the latest quarter, one year, and two year periods are affected by changes in fair market value.
|
Reserve Portfolio |
Annualized (Benchmarked) Returns |
|
Period Ended December 31, 2016 |
Benchmark |
City of Stockton Reserve Portfolio |
Reference |
|
Quarter |
-1.07% |
-0.87% |
(Attachment A, page 21) |
|
12 months |
1.09% |
1.30% |
(Attachment A, page 21) |
|
Two Years |
1.03% |
1.26% |
(Attachment A, page 21) |
FINANCIAL SUMMARY
There is no financial impact associated with the presentation of these reports.
Attachment A - Quarterly Investment Report for Quarter ended December 31, 2016