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Home My WebLink About1993-08-03; City Council; 12346; ANNUAL REPORT OF INVESTMENT PORTFOLIOi MTG.8/3/93~ DEPT. TRS RECOMMENDED ACTION: Accept and file report. u k 0 a a, k Q) 5 -3 4-l a, PI d) U Cd d Ti 0 r: 0 g U .. z 0 F 0 U ITEM EXPLANATION: city policy requires the City Treasurer to render an annual report of the City's investment portfolio. This report is for the fiscal year ended June 30, 1993 (FY92-93). Assets in the investment portfolio averaged $111.5 million in FY92-93, an increase of $14.9 million from the FY91-92 average. Short-term and long-term market interest rates continued to move to lower levels. This caused the average yield of the portfolio to decrease to 6.55% in FY92-93 from 7.37% the year before. Interest income was $7.0 million in FY92-93, down from $7.2 million in FY91-92. Interest income to the General fund decreased from $1.7 million in FY92-93 to $1.6 million in FY92-93. EXHIBIT: 1. City Treasurer's Annual Report of Investment Portfolio ~ dated June 30, 1993. ~ $ z 3 0 0 z @ 0 CITY TREASURER ANNUAL REPORT OF INVESTMENT PORTFOLIO FOR THE FISCAL YEAR ENDED JUNE 30,1993 The City Treasurer is charged with the responsibility of cash management, which includes, among other activities, 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 used to distinguish the purpose for which cash was received and expended. Cash received into the pool is invested without regard to the fund from which it originated. Accounts are 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 cash 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 the investment policy and prudent management. This report summarizes and analyzes the activities of the investment portfolio for the fiscal year ended June 30, 1993 (FY92-93). 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 prospects for the fiscal year commencing July 1 , 1993 (FY93-94). 1 0 0 x FY92-93 SUMMARY Assets in the investment pool averaged $107.9 million in fiscal year 92-93 (FY92- 93). This represented an increase of $1 1.3 million from the FY91-92 average of $96.6 million. Most of this average increase occurred in the inactive cash of the Capital Projects fund and the Water District fund. Over the past five fiscal years, average assets managed in the investment pool increased by 78%, from $60.5 million to $107.9 million. I I INVESTMENT PORTFOLIO Dollar Amount of Assets * I 120 , Millions 1 100 __ - - - - - - . - - . - - . - - - . ~ - . . - 80" - - - - - - ~ - - . - - - - - - . v FY 88-89 FY 89-90 FY 90-91 FY 91-92 FY 92-93 I 60.5 I 67.6 I 75.5 I 96.6 I 107.9 I I Fiscal Year Averages I - - I Source of Pool Assets As Of June 30, 1993 General $1 0.9 Capital Projects $35.2 Other $4.7 $6.9 Enterprise $33.9 $1 11.5 Million The investment pool totaled $1 11.5 million at the close of the fiscal year, June 30, 1993. Inactive cash from ~ the Capital Projects fund and the Enterprise fund together represented ~ over 62% of the pool. At the end of this fiscal year, assets representing inactive cash of the General fund were $10.9 million, or about 9.8% of the pool. This represented little change from the year before (June 1 30, 1992) when General fund inactive cash was $10.4 million, or about of 10% the pool. I I 2 3 e 0 For the fourth consecutive year market interest rates continued their cyclical decline. From FY88-89 through FY92-93 five-year treasury nofes moved from 8.96 to 5.55, a decline of 341 basis points. During the same period, one-year treasury bills declined even more, a total of 527 basis points. This cyclical swing in four years, together with the requirement to keep at least 50% of the portfolio I COMPARATIVE INTEREST RATES* One, Three, & Five-Year Rates Market Rates :: ""_""._ <a+ 7 - - -. - - - - . "?*. -. -. -. - 6 __._____._._ \- -+*-L - - - ". *;c- - 51 - - - - - - - . . . . - - .\ - " 3L 4 """"....""". \rn- . 3 FY88-89 -89-90 FYQO-91 FY91-92 FY92-93 Five-Year - 3.48 4.77 7.01 8.13 8.75 One-Year * 4.72 5.98 7.6 8.28 8.93 Three-Year + 5.55 6.7 7.98 8.31 8.96 - committed to maturities of one *Fiscal Year Averages year or less, caused the yield of the portfolio to react to the downward market pressures. Investments made several years ago when market rates were relatively high matured. Proceeds were then reinvested at lower prevailing market rates. Additionally, investments in short-term securities resulted in increasingly lower yields. The portfolio yield averaged 6.55% for FY92-93, a decline from 7.37% the year before. Reaction to the lower cyclical and short-term rates was more pronounced for the PORTFOLIO YIELDS * Local Agency investment With LAIF & One-Year T-Bill Yields * Fund (LAIF), which declined from an average of 6.32% in FVQ2-93. LAlF is an investment pool managed by the State Treasurer. It is used as a performance benchmark since assets invested using the same followed by the City Percent FY91-92 to 4.76% in 87-88 88-89 89-90 90-91 91-92 92-93 deposited in LAlF are Portfolio general parameters as those 3.48 4.77 7.07 8.13 8.75 7.28 T Bill 4.76 6.32 8.1 1 8.7 8.59 7.88 LAIF 6.55 7.37 8.23 8.87 8.51 7.8 e Portfolio + LAlF *T-Bill * Fhcsl year werages Treasurer. I I ~~ 3 1) 0 1 Cash income from the r I portfolio was $7.0 million in FY92-93. Of this amount, 1 PORTFOLIO CASH INCOME * 1 the General fund received $1.6 million. The General I 81 Millions I fund receives interest income to a greater degree assets because interest not required to be held by other funds reverts to the General fund. Cash income is a function of the assets in the than its share of the pool 7""""""""" 6 - - . - . . - 3 - - - - - . - 4 - - . . . . . 5 """. - "" ~ 2" - - - - - 1" - - - - - n 1 portfolio, the market rates at the time of the investments, * Unavailable lor FY 88-89 and the interest payment 1 schedules of the issues. FY 88-89 FY 89-90 FY 90-91 M 91-92 FY 92-93 I 5.8 I 6 1 7.2 I 7 I - FY93-94 FORECAST At best, inactive cash from the General fund should remain at approximately the same level as that in FY92-93. The budget resolution in Sacramento is expected to reduce General fund revenues by $500,000 to $600,000. This should be offset, however, by an increase in sales tax revenues. As a result, inactive cash in the pool from the General fund should remain at current levels, i.e., $10.9 million. With the economy continuing to show slow growth, it is not anticipated that inactive cash from other funds will experience much of an increase either. Total assets in the portfolio, therefore, are expected to remain at approximately the same level as they were at the end of FY92-93, i.e., $1 1 I .5 million. 4 b x 0 Q In the past ho years, the yield curve - the spread between short and long rates on a given day - has remained relatively steep. 1 I However, the curve should flatten in FY93-94 because it is unlikely that YIELD CURVE* 6/30/91, 6130192, & 6130i93 inflation will be perceived twelve months. Our 8.5 XI as a threat in the next Market Rates partners, who purchase 5.5 "- _""."" &""" "" 8.5 . - - . . - ."" - . - - - - - .*/-e - - - - major foreign trading 7.5 - - . . - . . - - . - _,". .. : -- - - - - - 3*5 "+"" _""" -.---"-" about 20% of our 4.5 - . . - - . - 4- - - manufactured output, are still in recession. Their interest rates are down or 6/30/93 ++$ 2.58 3.48 4.39 5.04 5.8 trending down. Domestic '3 Mth Money Market & US Treas consumer spending has been disappointing and consumer confidence has been uncertain. California, with the largest economy of any state, has yet to emerge from the recession. It appears that long-term rates will continue to trend down. At the same time short-term rates will probably remain the same, with a chance that they might actually rise toward the end of the fiscal year. Approximately $12 million, or 10% of the portfolio will mature in FY93-94. These investments were made when market rates were substantially higher. Proceeds from these maturities will be reinvested, but at much lower current rates. The yield of the portfolio will decline as a consequence. While the portfolio achieved an average yield of 6.55% in FY92-93, it is expected that this will drop to 5.6% in FY93-94. ,." ______._". 2.5 3 Mth 1 Yr 3 Yr 5 Yr 10 Yr 6/30/91 -* 8.45 7.96 7.45 6.44 5.77 6/30/92 + 7.1 6.28 5.46 4.05 3.59 5