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Home My WebLink About1992-08-18; City Council; 11857; ANNUAL REPORT OF INVESTMENT PORTFOLIO* ClpY OF CARLSBAD - AGEW BILL AB # 14 857 DEPT. TRS ANNUAL REPORT OF INVESTMENT PORTFOLIO MTG. 8/18/92 TITLE: 1 I I ____~ RECOMMENDED ACTION: Accept and file report. ITEM EXPLANATION: City policy requires the City Treasurer to render an annual report of the Ciws investment portfolio. This report is for the fiscal year ended June 30, 1992 (FY 91-92). Assets in the investment portfolio averaged $96.6 million in FY 91-92, an increase of $21.1 million from the FY 90-91 average. Short-term and long-term market interest rates moved substantially lower in FY 91-92. This caused the average yield of the portfolio to decrease to 7.37% in FY 91-92 from 8.23% the year before. Interest income was $7.2 million in Ey 91-92, up from $6.0 million in FY 90-91. Interest income to the General fund was $1.7 million in FY 91-92. EXHIBIT. 1, City Treasurer's Annual Report of Investment Portfolio dated June 30, 1992, u N 0 a al k aJ 5 a u al a al 0 c) (d d -d L) 5 0 V z 0 i= 0 a J z 3 0 0 b . 0 0 CITY TREASURER ANNUAL REPORT OF INVESTMENT PORTFOLIO FOR THE FISCAL YEAR ENDED JUNE 30, 1992 The City Treasurer is charged with the responsibility of cash management, which includes, among other duties, the investing, accounting, and reporting of all inactive cash. Cash is invested in accordance with the policy adopted by City Council. Emphasis is first placed on safety and liquidity, and then on yield. The investment portfolio is designed to attain a market-average rate of return throughout budgetary and economic cycles. A buy and hold investment strategy is generally followed. The investment portfolio is a pool of assets representing inactive cash from the various funds of the City. A fund is an accounting mechanism to distinguish the purpose for which cash was received and expended. Cash received into the pool is invested without maintained, however, that identify the amount of cash each fund has contributed to the investment pool. All inactive cash is promptly invested by the City Treasurer. Intensive analysis of all cash receipts and expenditures is used to determine exactly how much is available for investment. Forecasts of future cash flows and forecasts of interest rates are made to determine how far on the yield curve investments could or should be made. These activities result in maximum earnings consistent with prudent management. This report summarizes the activities of the investment portfolio for the fiscal year ended June 30, 1992 (FY91-92). Amount of assets, source of assets, yield achieved, and cash income generated are presented. To give perspective to these measurements, comparisons are made with the preceding four fiscal years where data are available. Finally, a statement is offered regarding the regard to the fund from which it originated. Accounts are prospects for the fiscal year commencing July 1, 1992 (FY92-93). 0 0 FY91-92 SUMMARY Assets in the investment I I pool averaged $96.6 INVESTMENT PORTFOLIO million in FY91-92. This represented an increase of Dollar Amount of Assets * I $21.1 million from the FY90-91 average of $75.5 I 'I million. This increase I came primarily from the I ,,I " ............................................................................... City TGeasurer- assuming on I July 1, 1991 the cash management of the Carlsbad so ...= Water District. At that 0 inactive cash that became 10 had $10.9 million of time, the Water District :i. 20 I '30 Millions Bo ................................................................................................................ 8o ................................................................................ ." eoC ......................... ..... ....... ...... .......... , , Y 87-88 I FY 88-89 1 FY 89-90 I FY 90-91 I FY Ql-92 I _. "" . ." . ;48 : g.. District inactive cash ' part of the investment pool. By the end of the fiscal year# Water /Ii~ i 56.11 80.512 67~586 I 75.5l6 I Q6.6 * FIMaI mar Anra - totaled $17.8 million. Over the past five fiscal years, average assets managed in the investment pool increased by 75%, from $55.1 million to $96.6 million. c Source of Pool Assets The investment pool totaled $105.5 million at the close of the fiscal As Of June 30, 1992 year, June 30, 1992. Inactive cash from the Capital Projects fund and the Enterprise fund together represented over 62% of the pool. The Enterprise fund includes funds of the Water District, !Sewer, and Golf Course. assets representing inactive cash of the General fund were $10.4 At the end of the fiscal year, nternai Service million, or about 10% of the pool. Special Revenue 5.3 Market interest rates moved - with short rates declining more substantially lower in FY91-92, 1991 and June 1992, five-year treasury notes moved from 7.80% to than long rates. Between July year treasury bills declined 221 basis points, moving from 6.26% to 6.28%, a decline of 152 basis points. In this same period, one- 4.05%. The yield curve - the spread between short and long rates - portfolio committed to maturities of one year or less, the yield of steepened considerably as a result. With at least 50% of the the portfolio reacted to the downward market pressures of short- term rates. Millions of Dollars Page 2 0 0 The portfolio averaged a 7.37% yield for FY91-92, year before. Reaction a decline from 8.23% the PORTFOLIO YIELDS * Percent to short-term market With LAIF & One-Year T-Bill Yields * a ........ ............................................. pronounced rates was for the more Local _ ......._............ ...... 5 .......... ??..:.: ._.- ....... 85 .................... 7.5 a- - ..,... 7 ~ 4.5 ............................................... ..._ ........................................................... 5 -. 5.5 - 8 ............................................................................... , Agency Investment Fund (LAIF) , which declined from an average of 8.11% in FY90-91 to 6.32% in FY91-92 LAIF is an investment pool managed by the State Treasurer. It is used as a performance benchmark -Portfolio .-+- LAIF A T-Bill since assets in LAIF are -invested using the same general parameters as those followed by the City Treasurer. ..................................................................................... .............. 8 5 _ ......................................................................................................... % .................. .+ ......................................................................................................... ............................................................................................................................... I FY 87-88 FY 91-92 FY 90-91 FY 69-90 FY 88-89 Portfolio 7.37 8.23 8.07 8.51 7.8 LAIF 4.77 7.01 8.13 a75 7.28 T-Bill 6.32 8.11 8.7 8.59 7.88 * FIacal mar amragan - I I Cash income from the PORTFOLlO CASH INCOME * I portfolio was $7.2 million in FY91-92. Of this Million8 I I amount, the General fund -1 I " FY 89-90 1 FY 90-91 1 FY 91-92 FY 88-89 FY 87-88 1 5.779 I 5.995 1 7163 II 1 I ~~ * Unavallabla tor FY 87-88, 88-89 received $1.7 million. The General fund receives interest income to a share of the pool assets because interest not required to be held by other funds goes to the General 'fund. Cash income is a function of the dollar amount of the assets in the portfolio, the market rates at the time of the investments, greater degree than its I ' and the interest payment schedules of the issues. FY92-93 FORECAST At best , total revenues for the General fund will remain at the same levels as those in FY91-92. . With a balanced City budget, this cash in the pool. Moreover, with the economy continuing to show slow growth, it is not anticipated that inactive cash from other funds will increase. Total assets in the portfolio, therefore, are expected to remain at approximately the same level as they were at Page 3 should result in about the same amount of General fund inactive e e the end of FY91-92, i.e, $105 million. The yield curve should flatten somewhat in FY92-9 3 a Short-term interest rates are expected to rise slightly as the economy starts its anticipated slow recovery. At the same time, long-term interest rates will probably move to lower levels, provided the news and perceptions of inflation remain favorable. This should cause prices of long-term, fixed-income investments to increase and their interest rates to decrease. With some $48 million in State and County pools, the portfolio is in a good position to take advantage of any increase in short-term rates. It is also well insulated from lower long-term interest rates since only $6 million of investments will mature in FY92-93. Nevertheless, the yield of the portfolio will decline when the proceeds from these maturities are reinvested and the lower long- term rates are reflected in the yields of the State and County pools. At the start of this fiscal year, the portfolio was earning 6.86%. It is estimated that the yield for FY92-93 will average about 6.5%. Page 4