HomeMy WebLinkAbout2021-11-02; City Council; ; Revisions to the City’s Investment PolicyMeeting Date: Nov. 2, 2021
To: Mayor and City Council
From: Scott Chadwick, City Manager
Staff Contact: Craig Lindholm, City Treasurer
craig.lindholm@carlsbadca.gov, (760) 602-2473
Subject: Revisions to the City’s Investment Policy
District: All
Recommended Action
Adopt a resolution approving the city’s Investment Policy dated Nov. 2, 2021, which has two
revisions.
Executive Summary/Discussion
The City Council requires the city’s Investment Policy and any modifications to the policy to be
reviewed annually. The City Treasurer reviewed the Investment Policy and proposes two
changes:
1.Altering the city’s definition on medium-term corporate notes to be congruent with
California Government Code Section 53601, subdivision (k)
2.A rewriting of the municipal bond section that did not materially change the policy
On Jan. 12, 2021, the City Council added municipal bonds as an authorized investment in
Section 8.1.2 of the Investment Policy. This section of the Investment Policy has been revised to
clarify the city can purchase municipal bonds available from any local agency within the United
States. This section previously contained contradictory language that was not congruent with
the intent of the original authorization.
Medium-term corporate notes, as outlined in Section 8.1.8 of the Investment Policy, are now
available for investment if they are issued by depository institutions licensed by the United
States or any state and operating within the United States. This revision is congruent with
California Government Code Section 53601, subdivision (k).
Options
The following options have been provided by staff for City Council’s consideration:
1.Approve and adopt the latest revisions to the Investment Policy
Pros
•The city’s investment practices will continue to follow clear and established
guidance
•The city will comply with the Investment Policy annual review requirement
Nov. 2, 2021 Item #2 Page 1 of 49
Cons
•None identified
2.Do not approve the Investment Policy.
Pros
• None identified
Cons
•The city’s current Investment Policy must be reviewed and approved by city
council no later than Jan. 12, 2022
Staff recommend Option 1 for the City Council’s approval: approve and adopt the investment
policy.
Fiscal Analysis
There is no fiscal impact from this action.
Next Steps
The City Treasurer will continue to implement and review the Investment Policy at least once
every year.
Environmental Evaluation
In keeping with California Public Resources Code Section 21065, this action does not constitute
a “project” within the meaning of the California Environmental Quality Act in that it has no
potential to cause either a direct physical change in the environment, or a reasonably
foreseeable indirect physical change in the environment.
Public Notification and Outreach
This item was noticed in accordance with the Ralph M. Brown Act and was available for viewing
at least 72 hours prior to the posting of the agenda.
Exhibits
1. City Council resolution
2. Revisions to the City of Carlsbad Investment Policy
Nov. 2, 2021 Item #2 Page 2 of 49
City of Carlsbad
Investment Policy
November 2, 2021
Craig Lindholm
City Treasurer
1635 Faraday Avenue
Carlsbad, CA 92008
(760) 602-2473www.carlsbadca.gov/cityhall/officials/treasurer.asp
Attachment A
Nov. 2, 2021 Item #2 Page 4 of 49
Table of Contents
1.0 Policy ...................................................................................................................................... 4
2.0 Scope ...................................................................................................................................... 4
2.1 Pooled Investments ........................................................................................................ 4
2.2 Investments Held Separately ......................................................................................... 5
3.0 Prudence ................................................................................................................................ 5
4.0 Objective ................................................................................................................................ 5
4.1 Safety .............................................................................................................................. 5
4.2 Liquidity .......................................................................................................................... 5
4.3 Return on investment..................................................................................................... 6
5.0 Delegation of Authority ......................................................................................................... 6
6.0 Ethics and Conflicts of Interest .............................................................................................. 6
7.0 Authorized Financial Dealers and Institutions ....................................................................... 7
7.1 Financial Institutions ...................................................................................................... 7
7.2 Broker & Dealers ............................................................................................................ 7
7.3 Purchase, Sale, Payment, and Delivery .......................................................................... 7
8.0 Authorized Investments ......................................................................................................... 8
8.1 Pooled Investments ........................................................................................................ 8
8.2 Investments Held Separately ....................................................................................... 11
8.3 New Securities .............................................................................................................. 11
8.4 Housing Loans ............................................................................................................... 11
9.0 Unauthorized Investments .................................................................................................. 11
10.0 Review of Investment Portfolio ........................................................................................... 12
10.1 Exceptions .................................................................................................................... 12
11.0 Investment Pools & Mutual Funds ...................................................................................... 13
12.0 Collateralization, Perfection, Security and Contracts .......................................................... 13
Nov. 2, 2021 Item #2 Page 5 of 49
13.0 Safekeeping and Custody ..................................................................................................... 13
14.0 Diversification ...................................................................................................................... 13
15.0 Maximum Maturities and Maximum Modified Duration .................................................... 14
15.1 Maximum Maturities for Pooled Investments ............................................................. 14
15.2 Maximum Modified Duration ....................................................................................... 15
15.3 Investments Held Separately ....................................................................................... 15
16.0 Internal Controls .................................................................................................................. 15
17.0 Performance Standard for Pooled Investments .................................................................. 15
18.0 Short-term Borrowing .......................................................................................................... 15
18.1 Short-term Loan ........................................................................................................... 16
18.2 Line of Credit ................................................................................................................ 16
19.0 Investment Strategy ............................................................................................................. 16
19.1 Pooled Investments ...................................................................................................... 16
19.2 Investments Held Separately ....................................................................................... 16
20.0 Reporting.............................................................................................................................. 16
20.1 Pooled Investments ...................................................................................................... 17
20.2 Investments Held Separately ....................................................................................... 17
21.0 Investment Policy Adoption ................................................................................................. 18
22.0 Glossary ................................................................................................................................ 18
24.0 Summary of Authorized Investments .................................................................................. 23
Nov. 2, 2021 Item #2 Page 6 of 49
City of Carlsbad
Investment Policy
Nov. 2, 2021
(Supersedes Investment Policy dated Jan. 12, 2021)
The purpose of this document is to identify various policies and procedures that enhance
opportunities for a prudent and systematic investment policy and to organize and formalize
investment-related activities. Related activities which comprise good cash management include
accurate cash projections, the expeditious collection of revenue, the control of disbursements,
cost-effective banking relations, and arranging for a short-term borrowing program which
coordinates working capital requirements and investment opportunities.
1.0 Policy
It is the policy of the City of Carlsbad to invest public funds not required for
immediate day-to-day operations in safe, liquid, and medium-term investments.
These investments shall yield an acceptable return while conforming to all
California statutes and the city's Investment Policy.
2.0 Scope
It is intended that this policy cover the investment activities of all contingency
reserves and inactive cash under the direct authority of the city.
2.1 Pooled Investments
Investments for the city and its component units will be made on a pooled basis
including, but not limited to, the City of Carlsbad, the Housing Authority of the City
of Carlsbad, the City of Carlsbad Public Improvement Corporation, and the
Carlsbad Municipal Water District. The city's Comprehensive Annual Financial
Report identifies the fund types involved as follows:
•General Fund
•Special Revenue Funds
•Debt Service Funds
•Capital Project Funds
•Enterprise Funds
•Internal Service Funds
•Fiduciary Funds
•Miscellaneous Special Funds
•Any new funds created by the City Council, unless specifically exempted
Nov. 2, 2021 Item #2 Page 7 of 49
2.2 Investments Held Separately
Investments of bond proceeds will be held separately when required by the bond
indentures or when necessary to meet arbitrage regulations. If allowed by the
bond indentures, or if the arbitrage regulations do not apply, investments of bond
proceeds will be held as part of the pooled investments.
3.0 Prudence
California Government Code §53600.3 identifies as trustees those persons
authorized to make investment decisions on behalf of a local agency. As a trustee,
the standard of prudence to be used shall be the "Prudent Investor” standard and
shall be applied in the context of managing the overall portfolio. The trustee shall
act with care, skill, prudence, and diligence under the circumstances then
prevailing, including, but not limited to, the general economic conditions and the
anticipated needs of the agency, that a prudent person acting in a like capacity
and familiarity with those matters would use in the conduct of funds of a like
character and with like aims, to safeguard the principal and maintain the liquidity
needs of the agency.
It is the policy of this Council that investment officers acting in accordance with
written procedures and the Investment Policy and exercising due diligence shall
be relieved of personal responsibility for an individual security's credit risk
changes or market price changes, provided deviations from expectations are
reported in a timely manner and appropriate action is taken to control adverse
developments.
4.0 Objective
California Government Code §53600.5 outlines the primary objectives of a trustee
investing public money. The primary objectives, in order of priority, of the city's
investment activities shall be:
4.1 Safety
Safety of principal is the foremost objective of the investment program.
Investments of the city shall be undertaken in a manner that seeks to ensure
preservation of capital in the overall portfolio.
4.2 Liquidity
The city's investment portfolio will remain sufficiently liquid to enable the city to
meet all operating requirements which might be reasonably anticipated.
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4.3 Return on investment
Investment return becomes a consideration only after the basic requirements of
safety and liquidity have been met. The city treasurer shall attempt to realize a
yield on investments consistent with California statutes and the city’s Investment
Policy.
The city treasurer should strive to maintain the level of investment of all
contingency reserves and inactive funds as close to 100% as possible. While the
objectives of safety and liquidity must first be met, it is recognized that portfolio
assets represent a potential source of significant revenues. It is to the benefit of
the city that these assets be managed to realize a yield on investments consistent
with California statutes and the city’s Investment Policy.
5.0 Delegation of Authority
By the annual adoption of this policy, the management of inactive cash and the
investment of funds identified in §2.0 Scope is the responsibility of the city
treasurer as directed by the City Council. Under the authority granted by the City
Council, no person may engage in an investment transaction covered by the terms
of this policy unless directed by the city treasurer.
In the execution of this delegated authority, the city treasurer may establish
accounts with qualified financial institutions and brokers/dealers for the purpose
of effecting investment transactions in accordance with this policy. The criteria
used to select qualified financial institutions and brokers/dealers are identified in
§7.0 Authorized Financial Dealers and Institutions.
The city treasurer may designate in writing an assistant to the city treasurer who,
in the absence of the city treasurer, will assume the city treasurer's duties and
responsibilities. The city treasurer shall retain full responsibility for all transactions
undertaken under the terms of this policy.
In the endeavor to have all inactive cash invested all the time, the city’s deputy
city manager of administrative services will assist the city treasurer in the
gathering of information to create cash flow estimates.
6.0 Ethics and Conflicts of Interest
All participants in the city's investment process shall seek to act responsibly as
custodians of the public trust. Officers and employees involved in the investment
process shall refrain from personal business activity that could conflict with proper
execution of the investment program, or which could impair their ability to make
impartial investment recommendations and decisions. Investment officials and
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employees shall make all disclosures appropriate under the Fair Political Practices
Act and may seek the advice of the city attorney and the Fair Political Practices
Commission whenever there is a question of personal financial or investment
positions that could represent potential conflicts of interest.
7.0 Authorized Financial Dealers and Institutions
Investments shall be purchased only through well established, financially sound
institutions. The city treasurer may maintain a list of financial institutions and
broker/dealers who are approved to provide the city with investment services.
This list should be updated annually by the city treasurer to ensure compliance
with this Investment Policy. All financial institutions and broker/dealers who
desire to become qualified bidders for investment transactions will be given a
copy of the city's Investment Policy, and a return cover letter which they must sign
indicating that the Investment Policy has been read, understood and that their
investment offers will comply with this policy. Qualified financial institutions and
broker/dealers must supply the city treasurer with the documents below.
7.1 Financial Institutions
• Current audited financial statements
• Depository contracts, as appropriate
• A copy of the latest Federal Deposit Insurance Corporation call report, and
• Proof that commercial banks, savings banks, or savings and loan associations are
state or federally chartered
7.2 Broker & Dealers
• Current audited financial statements
• Proof that brokerage firms are members in good standing of a national securities
exchange, or
• A designation as a primary government dealer by the Federal Reserve Bank
Commercial banks, savings banks, and savings and loan associations must
maintain a minimum net worth to asset ratio as provided by law (total regulatory
net worth divided by total assets) and must have had positive net earnings for the
last reporting period.
7.3 Purchase, Sale, Payment, and Delivery
A competitive bid process, when deemed practical by the city treasurer, will be
used to place all investment transactions. It is recommended that the city
treasurer obtain two or more bids from broker/dealers before purchasing an
investment, and three or more quotes when selling an investment. When two or
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more investment opportunities offer essentially the same maturity, liquidity,
yield, and quality, the city treasurer may give considerations to financial
institutions based in the City of Carlsbad, the State of California, and within the
United States. Payment for securities will be done on a Delivery Versus Payment
(DVP) basis via the city's custodian. Delivery of securities will be made to the city
in accordance with the third-party custodial agreement.
8.0 Authorized Investments
Except for Certificates of Deposit, investments will be made only in readily
marketable securities actively traded in the secondary market.
8.1 Pooled Investments
The city treasurer may invest city funds in the following instruments as specified
in the California Government Code §53601 and as further limited in this policy.
Obligations of the US Government
Government Sponsored Enterprise (GSE) debt and its agencies.
Municipal Bonds
Bonds of any local agency within the United States, including bonds payable solely
out of the revenues from a revenue-producing property owned, controlled, or
operated by the local agency, or by a department, board, agency, or authority of
the local agency.
Municipal Bonds with a maximum remaining maturity of five years or less, issued
by municipalities organized and operating within the United States shall not
exceed 15% of the investment portfolio. The municipal bonds shall carry a
combined rating of at least "AA” by one and “A” by another of the three Nationally
Recognized Statistical Rating Organization (NRSRO) rating agencies, Moody's
Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc.
Bankers Acceptances
Bankers Acceptances drawn on and accepted by a commercial bank. Bankers
Acceptances may neither exceed 180 days maturity nor 25% of the portfolio.
Furthermore, no more than 10% of the portfolio may be invested in any one
issuer.
Certificates of Deposit
Certificates of Deposit shall not exceed five years to maturity. Investments in
Certificates of Deposit and checking accounts shall be fully insured up to the
amount allowed per account by the Federal Deposit Insurance Corporation or the
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National Credit Union Administration. Furthermore, the investments in
Certificates of Deposit, if a private sector entity is used, shall not exceed more than
30% of the portfolio. The city may use a private sector entity that assists in the
placement of Certificates of Deposit. Furthermore, no more than 10% of the
portfolio may be invested in any one issuer.
Negotiable Certificates of Deposit
Negotiable Certificates of Deposit issued by a nationally or state-chartered bank
may neither exceed five years to maturity nor exceed 30% of the portfolio.
Furthermore, no more than 10% of the portfolio may be invested in any one
issuer.
Commercial Paper
Prime Commercial Paper of the highest numerical rating of Moody's Investors
Service, Inc. or S&P Global Ratings. Further, eligible paper is limited to issuing
General Corporations that are organized and operating within the United States
and having total assets in excess of $500 million. If the issuer has other existing
debt, it must have a “AA” or higher credit rating from both Moody’s Investors
Service, Inc. and S&P Global Ratings. Prime Commercial Paper may neither exceed
270 days maturity nor 10% of the portfolio, nor shall it represent more than 5% of
the outstanding paper of an issuing corporation.
Repurchase Agreements
Repurchase Agreements with a maximum maturity of one year. Repurchase
Agreements may not exceed 5% of the portfolio. The market value of securities
that underlay a Repurchase Agreement shall be valued at 102% or greater of the
funds borrowed against those securities.
Corporate Notes
Corporate Notes with a maximum remaining maturity of five years or less, issued
by corporations organized and operating within the United States or by depository
institutions licensed by the United States or any state and operating within the
United States shall not exceed 30% of the investment portfolio. The Corporate
Notes shall carry a rating of "AA” and a second rating of “A” as combination of
ratings by the three NRSRO rating agencies.
New investments made directly into corporations involved in the business of
exploration, extraction, or further processing of oil and gas are not eligible for
investment.
Nov. 2, 2021 Item #2 Page 12 of 49
Money Market Funds
Money market funds whose portfolio consists of one or more of the foregoing
lawful investments.
Sweep Accounts
Sweep accounts for the investment of overnight funds when the funds are swept
into investments allowed by this policy.
Local Agency Investment Fund (LAIF)
LAIF of the State of California Investments will be made in accordance with the
laws and regulations governing those Funds.
California Asset Management Program (CAMP)
CAMP investments will be made in accordance with the laws and regulations
governing those funds.
Supranational Securities
Supranational securities are defined as United States dollar denominated senior
unsecured, unsubordinated obligations issued or unconditionally guaranteed by
the International Bank for Reconstruction and Development (IBRD or World Bank),
International Finance Corporation (IFC), or Inter-American Development Bank
(IADB). These organizations were established by international treaties, are
headquartered in Washington D.C., and incorporated into U.S. Federal Law by
Congressional Acts.
California Government Code §53601(q) permits the securities of these three
organizations to be incorporated into local agency investment portfolios.
Securities eligible for investment shall have a maximum remaining maturity of five
years or less and be eligible for purchase and sale within the United States.
Supranational securities eligible for investment shall be rated "AA" or better from
at least two NRSROs. Investments in supranational securities shall not exceed 10%
of the City of Carlsbad’s investment portfolio.
Agency Backed Mortgage Passthrough Securities
An agency-backed mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment lease-backed
certificate, consumer receivable passthrough certificate, or consumer receivable-
backed bond. Securities eligible for investment under this subdivision shall be
rated in a rating category of “AA” or its equivalent or better by an NRSRO and have
Nov. 2, 2021 Item #2 Page 13 of 49
a maximum remaining maturity of five years or less. Purchase of securities
authorized by this subdivision shall not exceed 20% of the city’s portfolio.
Non-agency Backed Mortgage Passthrough Securities
Non-agency-backed mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment lease-backed
certificate, consumer receivable passthrough certificate, or consumer receivable-
backed bond. Securities eligible for investment under this subdivision shall be
rated in a rating category of “AA” or its equivalent or better by an NRSRO and have
a maximum remaining maturity of five years or less. Purchase of securities
authorized by this subdivision shall not exceed 5% of the city’s portfolio.
8.2 Investments Held Separately
Investments of bond funds will be made in conformance with the trust indenture
for each issue. Such investments will be held separately when required.
8.3 New Securities
New types of securities authorized by California law, but which are not currently
allowed by the city’s Investment Policy, must first be approved by the City Council.
8.4 Housing Loans
Housing loans approved by the City Council to private developers and
homeowners as part of the city housing program shall comply with California
statutes, but need not meet the investment objectives and the risk management
requirements of this Investment Policy. The City Council will manage these loans
directly. As assets of the city, individual loans will be reported by the city treasurer
and any changes will be explained. Collections and conformance with the
requirements of each individual housing loan will be reported as an addendum to
the city treasurer’s investment report each quarter.
9.0 Unauthorized Investments
California Government Code §53601.6 disallows the following investments
acquired after January 1, 1996:
• Inverse floaters
• Range notes
• Interest-only strips that are derived from a pool of mortgages
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In addition, and more generally, investments are further restricted as follows:
• No investment will be made in any security that could result in zero interest
accrual if held to maturity
• No investment will be made that could cause the portfolio to be leveraged
• Purchases of investments on margin will not be made
10.0 Review of Investment Portfolio
An Investment Review Committee is hereby established to conduct reviews of the
city's investment portfolio, the strategy being utilized for the investment of city
funds, and the city's Investment Policy. This committee will be composed of the
city treasurer (acting as the chair), the city manager, the city attorney, the deputy
city manager of administrative services, and the assistant to the city treasurer or
delegate from each such department. Additionally, the city treasurer may appoint
other city residents as advisors to the committee. The committee will convene
periodically as necessary or desirable but, not less frequently than once each
quarter.
10.1 Exceptions
The securities held must be in compliance with Section 8.0 Authorized
Investments at the time of purchase. Occasionally, exceptions to some of the
requirements specified in this Investment Policy may occur for pooled
investments because of events subsequent to the purchase of investment
instruments, e.g., the rating of a corporate note held in the portfolio has been
downgraded by an NRSRO or the total value of the portfolio has declined causing
the percentage invested in corporate notes to rise above 30%, or an unforeseen
expenditure causes investments maturing within one year to fall below two-thirds
of the approved operating budget of the current fiscal year. California
Government Code §53601 specifies a percentage limitation for a particular
category of investment. That percentage is applicable only at the date of purchase.
Exceptions may be temporary or more lasting; they may be self-correcting or
require specific action. If specific action is required, the city treasurer will
determine the course of action that will correct exceptions to move the portfolio
into compliance with state and city requirements. Decisions to correct exceptions
will not expose the assets of the portfolio to undue risk and will not impair the
meeting of financial obligations as they fall due. Any subsequent investments will
not extend existing exceptions. Exceptions, and the decisions to correct the
exceptions, will be reviewed with the Investment Review Committee referred to
in the §10.0 Review of Investment Portfolio.
Nov. 2, 2021 Item #2 Page 15 of 49
11.0 Investment Pools & Mutual Funds
An investigation will be conducted before investing in any investment pool or
mutual fund. The city treasurer shall review at a minimum:
• The investment policy and objectives
• Interest calculations and distributions
• Safeguard and settlement processes
• A description of the program including legal investors and the minimums
and maximum transactions allowable
• Schedule for receiving statements
• How reserves and retained earnings are treated
• The fee schedule
12.0 Collateralization, Perfection, Security and Contracts
When required by California statute or this Investment Policy, any investment
capable of being collateralized, shall be collateralized by the required amounts
imposed by law. To give greater security to the city’s investments, when an
investment is collateralized and not perfected under existing law, an attempt to
perfect the collateralization should be made.
California Government Code §53652 requires that the depository secure active or
inactive deposits with eligible securities having a fair market value of at least 10%
more than the total amount of all deposits, and 50% in excess of the deposit when
secured with mortgage pools. California Government Code §53649 specifies that
the city treasurer is responsible for entering into deposit contracts with each
depository.
13.0 Safekeeping and Custody
All security transactions, including collateral for repurchase agreements, entered
into by the city shall be conducted on a delivery-vs.-payment basis. All securities
owned by the city will be held by a third-party custodian designated by the city
treasurer and evidenced by a monthly statement from the custodian. All securities
will be held in the nominee name of the custodian unless the counterparty bank’s
trust department is used for the delivery of the security, in which case the security
will be held in the city’s name. Collateral for time deposits in banks will be held in
the city's name in the bank's Trust Department or in the Federal Reserve Bank.
14.0 Diversification
The portfolio will be diversified to avoid incurring unreasonable and avoidable
risks regarding specific security types or individual financial institutions. In
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addition to the limitations on specific security types indicated in §8.0 Authorized
Investments, and with the exception of U.S. Treasury/federal agency securities
and authorized pools, no more than 5% of the city's portfolio will be placed with
any single issuer.
15.0 Maximum Maturities and Maximum Modified Duration
15.1 Maximum Maturities for Pooled Investments
A policy of laddered maturities will generally be followed for pooled investments.
The following maturity requirements will apply as of the month end of each
reporting period.
Two-Thirds Within One Year
Investments maturing within one year, measured at par value, must be no less
than two-thirds of the approved operating budget of the current year. This
requirement should be met within three months following adoption of the current
operating budget. Remaining investments of the portfolio shall not have a
maturity greater than five years from the date of investment except as provided
in §15.1.3 Five Year Exception.
Three Years Average
The average portfolio investment maturity shall be three years or less. A dollar-
weighted average will be used in computing the average maturity of the portfolio.
Five-Year Exception
Before an investment, which is allowed by California statute, is made in securities
that mature more than five years from the date of purchase, the city treasurer and
the deputy city manager of administrative services will review the city's long-term
cash needs. Both must concur before such an investment is made. A resolution
authorizing such investment must first be approved by the City Council.
Investments beyond five years will not be greater than 10% of the portfolio and
will be counted in the percentage of the portfolio that may mature beyond one
year.
Ten-Year Limit
No investments will be made that mature beyond 10 years from the date of
investment.
Callable Investments
Callable investments will be recorded at their maturity dates.
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15.2 Maximum Modified Duration
The investment restrictions identified in paragraphs §8.0 Authorized Investments
and §9.0 Unauthorized Investments, and the maturity requirements identified in
§15.1 Maximum Maturities for Pooled Investments, imply that the value of city
investments should not change more than 2.2% for every 1% change in market
interest rates. To ensure that this is the case, a maximum modified duration is
established at 2.2. This states that the unrealized gains and losses of the portfolio
are not expected to exceed 2.2% for every 1% change in market interest rates. A
modified duration in excess of 2.2 would indicate that the portfolio is exposed to
more market risk than is desired by this policy. If the modified duration of 2.2 is
exceeded, an explanation will be made in the first monthly report following the
occurrence.
15.3 Investments Held Separately
Maturities for investments held separately will conform to the trust indenture for
each issue.
16.0 Internal Controls
This policy and the strategy for and conduct of the investment of city funds will be
reviewed by an Investment Review Committee as set forth below and by the city's
auditors in the conduct of their annual audit of the city.
17.0 Performance Standard for Pooled Investments
Laddered maturities and a buy and hold strategy for pooled investments will cause
the investment portfolio to attain a market-average rate of return throughout
budgetary and economic cycles, commensurate with the investment risk
constraints and the city’s cash flow needs. Since the amount maturing within one
year must be at least equal to two-thirds of the currently approved operating
budget, the rate of return will be more closely related to, but lag behind, changes
in short-term market rates. The rate of return of the investment portfolio will be
based on the maturity value of the investments. A dollar-weighted average of
yields to maturity will be used in calculating the rate of return of the entire
portfolio. The city’s performance benchmarks may change from year to year but
should strive to mirror the assets held in the city’s portfolio.
18.0 Short-term Borrowing
The city is permitted by law to borrow money to meet current short-term cash
flow needs. These needs may arise either because projected cash disbursements
exceed projected cash receipts, or because the city's cash accounts may be
temporarily overdrawn due to the efforts to invest 100% of inactive funds at all
Nov. 2, 2021 Item #2 Page 18 of 49
times. To provide for these contingencies the city treasurer is authorized to take
the following actions:
18.1 Short-term Loan
When there is a shortfall between projected cash revenues and projected cash
disbursements, the city treasurer may secure a loan in the amount that would
equal the cash deficit plus projected cash disbursements for one month. Any such
loan will be repaid within one year.
18.2 Line of Credit
The city treasurer may maintain a line of credit with the city's bank in an amount
to cover sums temporarily overdrawn because of efforts to invest all inactive funds
at all times.
19.0 Investment Strategy
19.1 Pooled Investments
A buy and hold strategy will be followed; that is, investments once made will be
held until maturity. A buy and hold strategy will result in unrealized gains or losses
as market interest rates fall or rise from the coupon rate of the investment.
Unrealized gains or losses, however, will diminish as the maturity dates of the
investments are approached or as market interest rates move closer to the
coupon rate of the investment. A buy and hold strategy requires that the portfolio
be kept sufficiently liquid to preclude the undesired sale of investments prior to
maturity. Occasionally, the city treasurer may find it advantageous to sell an
investment prior to maturity, but this should only be on an exception basis and
only when it is in the best interest of the city.
19.2 Investments Held Separately
Investments held separately for bond proceeds will follow the trust indenture for
each issue.
20.0 Reporting
California Government Codes §53600 require reports meeting the standards set
forth in these sections to be presented to City Council, as well as any additional
information desired. Therefore, it is the policy of the city that the investments and
transactions described in these sections, and as outlined in 20.1 below be given to
the City Council, city manager, and internal auditor (or the deputy city manager of
administrative services in the absence of an internal auditor).
Nov. 2, 2021 Item #2 Page 19 of 49
20.1 Pooled Investments
The investment report will be submitted monthly by the city treasurer within 60
days following the end of the month covered by the report. The monthly report
will be published to the City Treasurer webpage after reporting to City Council.
Each report will include the following elements:
• Itemized listing of portfolio investments by type, yield to maturity, and issuer
• Par value, dollar amount invested, amortized cost, and current market value as of
the date of the report will be given for the total of all securities, investments, and
moneys held by the city and its component units. The source of the market values
will be cited
• Credit ratings of corporate notes
• Accrued income
• Weighted average yield of the portfolio
• Weighted average days to maturity of the portfolio from the date of the report
• Weighted average modified duration of the portfolio
• Dollar amount and percentage of portfolio maturing within one year
• Dollar amount and percentage of portfolio maturing between one and 5 years
• Percent that each type of investment represents in the portfolio
• Investment transactions for the reporting period excluding due dates
• Fund source of investments when available
• Statement that the investment portfolio has the ability to meet the city's cash flow
demands for the next six (6) months
• Statement of compliance of the portfolio with the city’s Investment Policy. When
applicable, any material exceptions will be noted
An annual report for pooled investments will also be made to the City Council
following the close of the fiscal year. Among other items, the annual report will
include an analysis of the composition of the portfolio with regard to fund source;
a review of trends regarding the size of the fund, portfolio yields, and cash income;
and a statement regarding anticipated fund activity in the next fiscal year.
20.2 Investments Held Separately
A report of investments held separately will be made quarterly. Within 30 days
following the end of the quarter the report will be submitted as an exhibit in the
city treasurer’s monthly report. The quarterly report will contain the information
required by California Government Code §53646 when available.
Nov. 2, 2021 Item #2 Page 20 of 49
21.0 Investment Policy Adoption
California Government Code §53646(a)(2) allows the city treasurer to render to
the City Council and the Investment Review Committee a statement of Investment
Policy and recommends that one be presented each year. Therefore, the city’s
Investment Policy and any modifications to it shall be considered no less often
than annually at a public meeting. Adoption of the Investment Policy and any
changes must be made by resolution of the City Council.
22.0 Glossary
Amortized Cost
The cost of investments adjusted for amortized premiums and discounts.
Amortized cost is used to maintain comparability with market value.
Arbitrage Regulation
Laws to control the use of profit making by purchasing securities on one market
for immediate resale on another to profit from a price difference.
Bankers Acceptances
An investment vehicle created to facilitate international commercial trade
transactions. The bank accepts responsibility to repay a loan to the holder of the
investment vehicle created in a commercial transaction. The credit worthiness of
Bankers Acceptances are enhanced because they are secured by the issuing bank,
the goods themselves, and the importer. Bankers Acceptances are sold on a
discounted basis.
Bond Indenture
A written agreement specifying the terms and conditions for issuing bonds, stating
the form of the bond being offered for sale, interest to be paid, the maturity date,
call provisions and protective covenants, if any, collateral pledged, the repayment
schedule, and other terms. It describes the legal obligations of a bond issuer and
the powers of the bond trustee, who has the responsibility for ensuring that
interest payments are made to registered bondholders.
Book Value
A term synonymous with amortized cost.
Buy and Hold Strategy
Investments in which management has the positive intent and ability to hold each
issue until maturity.
Nov. 2, 2021 Item #2 Page 21 of 49
California Asset Management Program (CAMP)
A California Joint Powers Authority (JPA) established in 1989 to provide California
public agencies with professional investment services. The CAMP Pool is a
permitted investment for all local agencies under California Government Code
§53601(p). CAMP is directed by a Board of Trustees, which is made up of
experienced local government finance directors and treasurers.
Certificate of Deposit
A deposit account paying interest for a fixed term, with the understanding that
funds cannot be withdrawn before maturity without giving notice.
Collateralization
An asset used to secure a debt in part or in full by pledge of collateral. The
collateral is used as security to help ensure payment or performance of an
obligation.
Commercial Paper
A short-term IOU, or unsecured money market obligation, issued by prime rated
commercial firms and financial companies, with maturities from 2 days up to 270
days. A promissory note of the issuer used to finance current obligations and is a
negotiable instrument.
Delivery Versus Payment
A securities industry term indicating payment is due when the buyer has securities
in hand or a book entry receipt.
Embedded Option
A statement within the bond structure that would alter the interest rate earned
by the bond.
Interest-Only Strips
Mortgage backed instrument where investor receives only the interest, no
principal, from a pool of mortgages. Issues are highly interest rate sensitive. Cash
flows vary between interest periods. As well, the maturity date may occur earlier
than that stated if all loans within the pool are pre-paid. High prepayments on
underlying mortgages can return less to the holder that the dollar amount
invested.
Inverse Floater
A bond or note that does not earn a fixed rate of interest. Rather, the interest rate
that is earned is tied to a specific interest-rate index identified in the bond/note
Nov. 2, 2021 Item #2 Page 22 of 49
structure. The interest rate earned by the bond/note will move in the opposite
direction of the index, e.g., if market interest rates as measured by the selected
index rises, the interest rate earned by the bond/note will decline. An inverse
floater increases the market rate risk and modified duration of the investment.
Laddered Portfolio
A bond investment portfolio with securities in each maturity range (e.g. monthly)
over a specified period (e.g. five years).
Leverage
Investing with borrowed money with the expectation that the interest earned on
the investment will exceed the interest paid on the borrowed money.
Local Agency Investment Fund (LAIF)
A voluntary investment program offering participating agencies the opportunity
to participate in a major portfolio which daily invests hundreds of millions of
dollars, using the investment expertise of the State Treasurer’s Office investment
staff at no additional cost to the taxpayer. Investment in LAIF, considered a short-
term investment, is readily available for cash withdrawal daily.
Market Risk
The risk that market interest rates will rise causing a loss of value in investments
held. All investments made by the city involve a degree of market risk. See also
“Unrealized Gains (Losses).
Modified Duration
A measure of the sensitivity that the value of a fixed-income security has to
changes in market rates of interest. Modified duration is the best single measure
of a portfolio’s or security’s exposure to market risk. Modified duration identifies
the potential gain/loss in value before the gain/loss actually occurs. It is a
prospective measurement, e.g., a modified duration of 1.5 indicates that when
and if a 1% change in market interest rates occurs, a 1.5% change in the value of
a security will result. Investments with modified durations of one to three are
considered to be relatively conservative.
Negotiable Certificates of Deposit
A large denomination ($100,000 or more) interest bearing time deposits, paying
the holder a fixed amount of interest at maturity. Issues can be sold to a new
owner before maturity.
Nov. 2, 2021 Item #2 Page 23 of 49
Municipal Bonds
Municipal bonds are debt securities issued by states, cities, counties and other
governmental entities to fund day-to-day obligations and to finance capital
projects such as building schools, highways or sewer systems.
Nominee Name
The registered owner of a stock or bond if different from the beneficial owner,
who acts as holder of record for securities and other assets. Typically, this
arrangement is done to facilitate the transfer of securities when it is inconvenient
to obtain the signature of the real owner, or the actual owner may not wish to be
identified. Nominee ownership simplifies the registration and transfer of
securities.
Nationally Recognized Statistical Rating Organization (NRSRO)
A Nationally Recognized Statistical Rating Organization (NRSRO) is a credit rating
agency that issues credit ratings that the U.S. Securities and Exchange Commission
permits other financial firms to use for certain regulatory purposes. Three of the
primary recognized rating agencies are Moody’s Investors Service, Inc., S&P Global
Ratings, and Fitch Ratings, Inc.
Pooled Investment
A grouping of resources for the common advantage of the participants.
Range Note
An investment whose coupon payment varies (e.g. either 7% or 3%) and is
dependent on whether the current benchmark (e.g. 30-year Treasury) falls within
a pre-determined range (e.g. between 6.75% and 7.25%).
Repurchase Agreement
A contract to purchase and subsequently sell securities at a specified date and
price.
Supranational Organization
A supranational organization is formed by a group of countries through an
international treaty. Member states transcend national boundaries or interests to
share in the decision-making process to promote economic development in the
member countries.
Nov. 2, 2021 Item #2 Page 24 of 49
Supranational Securities
Supranational securities are United States dollar denominated senior unsecured,
unsubordinated obligations issued or unconditionally guaranteed by the
International Bank for Reconstruction and Development (IBRD or World Bank),
International Finance Corporation (IFC), or Inter-American Development Bank
(IADB). These organizations were established by international treaties, are
headquartered in Washington D.C and incorporated into U.S. Federal Law by
Congressional Acts. The California Government Code §53601(q) permits the
securities of these three organizations to be incorporated into local agency
investment portfolios.
Sweep Account
A short-term income fund into which all uninvested cash balances from the non-
interest-bearing checking account are automatically transferred daily.
Third-Party Custodian
A corporate agent, usually a commercial bank, who, acting as trustee, holds
securities under a written agreement for a corporate client and buys and sells
securities when instructed. Custody services include securities safekeeping, and
collection of dividends and interest. The bank acts only as a transfer agent and
makes no buy-sell recommendations.
Unrealized Gains (Losses)
An increase (decrease) in the value of investments representing the difference
between the amortized cost of the investments and their current market value.
Increases (decreases) in value are caused primarily by changes in market interest
rates subsequent to purchasing the investments. Increases (decreases) in value
indicate two things: 1. The portfolio has a potential gain (loss) in principal if the
securities are sold, and 2. The portfolio is over performing (underperforming) the
current market for similar investments. An increase in value indicates the portfolio
is earning relatively more interest than current market conditions, and a decrease
in value indicates that the portfolio is earning relatively less interest than current
market conditions.
Zero Accrual Periods
A period in which an investment accumulates no interest.
Nov. 2, 2021 Item #2 Page 25 of 49
24.0 Summary of Authorized Investments
Investment Type
Maximum
Maturity1
Maximum
% Portfolio
Maximum
% Issuer
NRSRO
Minimum2
Obligations of the US Government 5 years - - -
Certificates of Deposit 5 years 30% 10% -
Negotiable Certificates of Deposit 5 years 30% 10% -
Corporate Notes 5 years 30% 5% AA/A
Municipal Bonds 5 years 15% 5% AA/A
Supranational Securities 5 years 10% 5% AA/AA
Agency Backed Mortgage Passthrough Securities 5 years 20% 5% AA
Non-agency Backed Mortgage Passthrough Securities 5 years 5% 5% AA
Repurchase Agreements 1 year 5% 5% -
Commercial Paper 270 days 10% (3) AA/AA
Bankers Acceptances 180 days 25% 10% -
Money Market Funds N/A - - -
LAIF N/A - - -
CAMP N/A - - -
Sweep Accounts N/A - - -
1 Exceptions are addressed in §15.0 Maximum Maturities and Maximum Modified Duration. Total portfolio Modified
Duration shall be 2.2 or less.
2 NSRSOs used by the city are limited to Moody’s Investors Service, Inc., S&P Global Ratings., and Fitch Ratings, Inc.
If two ratings are listed for an investment type, then at least two of the three agencies must have ratings compliant with this Investment Policy. Credit rating minimums include rating modifiers (+/-).
3 Commercial Paper shall not represent more than 5% of the outstanding paper of an issuing company.
Nov. 2, 2021 Item #2 Page 26 of 49
City of Carlsbad
Investment Policy
January November 12, 2021
Craig Lindholm
City Treasurer
1635 Faraday Avenue
Carlsbad, CA 92008
(760) 602-2473 www.carlsbadca.gov/cityhall/officials/treasurer.asp
Exhibit 2
Nov. 2, 2021 Item #2 Page 27 of 49
Table of Contents
1.0 Policy ...................................................................................................................................... 4
2.0 Scope ...................................................................................................................................... 4
2.1 Pooled Investments ........................................................................................................ 4
2.2 Investments Held Separately ......................................................................................... 5
3.0 Prudence ................................................................................................................................ 5
4.0 Objective ................................................................................................................................ 5
4.1 Safety .............................................................................................................................. 5
4.2 Liquidity .......................................................................................................................... 5
4.3 Return on investment..................................................................................................... 6
5.0 Delegation of Authority ......................................................................................................... 6
6.0 Ethics and Conflicts of Interest .............................................................................................. 6
7.0 Authorized Financial Dealers and Institutions ....................................................................... 7
7.1 Financial Institutions ...................................................................................................... 7
7.2 Broker & Dealers ............................................................................................................ 7
7.3 Purchase, Sale, Payment, and Delivery .......................................................................... 7
8.0 Authorized Investments ......................................................................................................... 8
8.1 Pooled Investments ........................................................................................................ 8
8.2 Investments Held Separately ....................................................................................... 11
8.3 New Securities .............................................................................................................. 11
8.4 Housing Loans ............................................................................................................... 11
9.0 Unauthorized Investments .................................................................................................. 11
10.0 Review of Investment Portfolio ........................................................................................... 12
10.1 Exceptions .................................................................................................................... 12
11.0 Investment Pools & Mutual Funds ...................................................................................... 13
12.0 Collateralization, Perfection, Security and Contracts .......................................................... 13
Nov. 2, 2021 Item #2 Page 28 of 49
13.0 Safekeeping and Custody ..................................................................................................... 13
14.0 Diversification ...................................................................................................................... 13
15.0 Maximum Maturities and Maximum Modified Duration .................................................... 14
15.1 Maximum Maturities for Pooled Investments ............................................................. 14
15.2 Maximum Modified Duration ....................................................................................... 15
15.3 Investments Held Separately ....................................................................................... 15
16.0 Internal Controls .................................................................................................................. 15
17.0 Performance Standard for Pooled Investments .................................................................. 15
18.0 Short-term Borrowing .......................................................................................................... 15
18.1 Short-term Loan ........................................................................................................... 16
18.2 Line of Credit ................................................................................................................ 16
19.0 Investment Strategy ............................................................................................................. 16
19.1 Pooled Investments ...................................................................................................... 16
19.2 Investments Held Separately ....................................................................................... 16
20.0 Reporting.............................................................................................................................. 16
20.1 Pooled Investments ...................................................................................................... 17
20.2 Investments Held Separately ....................................................................................... 17
21.0 Investment Policy Adoption ................................................................................................. 18
22.0 Glossary ................................................................................................................................ 18
24.0 Summary of Authorized Investments .................................................................................. 23
Nov. 2, 2021 Item #2 Page 29 of 49
City of Carlsbad
Investment Policy
JanNov. 12, 2021
(Supersedes Investment Policy dated DecJan. 127, 202119)
The purpose of this document is to identify various policies and procedures that enhance
opportunities for a prudent and systematic investment policy and to organize and formalize
investment-related activities. Related activities which comprise good cash management include
accurate cash projections, the expeditious collection of revenue, the control of disbursements,
cost-effective banking relations, and arranging for a short-term borrowing program which
coordinates working capital requirements and investment opportunities.
1.0 Policy
It is the policy of the City of Carlsbad to invest public funds not required for
immediate day-to-day operations in safe, liquid, and medium-term investments.
These investments shall yield an acceptable return while conforming to all
California statutes and the city's Investment Policy.
2.0 Scope
It is intended that this policy cover the investment activities of all contingency
reserves and inactive cash under the direct authority of the city.
2.1 Pooled Investments
Investments for the city and its component units will be made on a pooled basis
including, but not limited to, the City of Carlsbad, the Housing Authority of the City
of Carlsbad, the City of Carlsbad Public Improvement Corporation, and the
Carlsbad Municipal Water District. The city's Comprehensive Annual Financial
Report identifies the fund types involved as follows:
•General Fund
•Special Revenue Funds
•Debt Service Funds
•Capital Project Funds
•Enterprise Funds
•Internal Service Funds
•Fiduciary Redevelopment Funds
•Trust Funds
•Miscellaneous Special Funds
Any new funds created by the City Council, unless specifically exempted
•
Formatted: Left
Formatted: Indent: Left: 1", No bullets or numbering
Nov. 2, 2021 Item #2 Page 30 of 49
2.2 Investments Held Separately
Investments of bond proceeds will be held separately when required by the bond
indentures or when necessary to meet arbitrage regulations. If allowed by the
bond indentures, or if the arbitrage regulations do not apply, investments of bond
proceeds will be held as part of the pooled investments.
3.0 Prudence
California Government Code §53600.3 identifies as trustees those persons
authorized to make investment decisions on behalf of a local agency. As a trustee,
the standard of prudence to be used shall be the "Prudent Investor” standard and
shall be applied in the context of managing the overall portfolio. The trustee shall
act with care, skill, prudence, and diligence under the circumstances then
prevailing, including, but not limited to, the general economic conditions and the
anticipated needs of the agency, that a prudent person acting in a like capacity
and familiarity with those matters would use in the conduct of funds of a like
character and with like aims, to safeguard the principal and maintain the liquidity
needs of the agency.
It is the policy of this Council that investment officers acting in accordance with
written procedures and the Investment Policy and exercising due diligence shall
be relieved of personal responsibility for an individual security's credit risk
changes or market price changes, provided deviations from expectations are
reported in a timely manner and appropriate action is taken to control adverse
developments.
4.0 Objective
California Government Code §53600.5 outlines the primary objectives of a trustee
investing public money. The primary objectives, in order of priority, of the city's
investment activities shall be:
4.1 Safety
Safety of principal is the foremost objective of the investment program.
Investments of the city shall be undertaken in a manner that seeks to ensure
preservation of capital in the overall portfolio.
4.2 Liquidity
The city's investment portfolio will remain sufficiently liquid to enable the city to
meet all operating requirements which might be reasonably anticipated.
Formatted: Indent: Left: 1"
Nov. 2, 2021 Item #2 Page 31 of 49
4.3 Return on investment
Investment return becomes a consideration only after the basic requirements of
safety and liquidity have been met. The city treasurer shall attempt to realize a
yield on investments consistent with California statutes and the city’s Investment
Policy.
The city treasurer should strive to maintain the level of investment of all
contingency reserves and inactive funds as close to 100% as possible. While the
objectives of safety and liquidity must first be met, it is recognized that portfolio
assets represent a potential source of significant revenues. It is to the benefit of
the city that these assets be managed to realize a yield on investments consistent
with California statutes and the city’s Investment Policy.
5.0 Delegation of Authority
By the annual adoption of this policy, the management of inactive cash and the
investment of funds identified in §2.0 Scope is the responsibility of the city
treasurer as directed by the City Council. Under the authority granted by the City
Council, no person may engage in an investment transaction covered by the terms
of this policy unless directed by the city treasurer.
In the execution of this delegated authority, the city treasurer may establish
accounts with qualified financial institutions and brokers/dealers for the purpose
of effecting investment transactions in accordance with this policy. The criteria
used to select qualified financial institutions and brokers/dealers are identified in
§7.0 Authorized Financial Dealers and Institutions.
The city treasurer may designate in writing an assistant to the city treasurer who,
in the absence of the city treasurer, will assume the city treasurer's duties and
responsibilities. The city treasurer shall retain full responsibility for all transactions
undertaken under the terms of this policy.
In the endeavor to have all inactive cash invested all the time, the city’s deputy
city manager of administrative services will assist the city treasurer in the
gathering of information to create cash flow estimates.
6.0 Ethics and Conflicts of Interest
All participants in the city's investment process shall seek to act responsibly as
custodians of the public trust. Officers and employees involved in the investment
process shall refrain from personal business activity that could conflict with proper
execution of the investment program, or which could impair their ability to make
impartial investment recommendations and decisions. Investment officials and
Nov. 2, 2021 Item #2 Page 32 of 49
employees shall make all disclosures appropriate under the Fair Political Practices
Act and may seek the advice of the city attorney and the Fair Political Practices
Commission whenever there is a question of personal financial or investment
positions that could represent potential conflicts of interest.
7.0 Authorized Financial Dealers and Institutions
Investments shall be purchased only through well established, financially sound
institutions. The city treasurer may maintain a list of financial institutions and
broker/dealers who are approved to provide the city with investment services.
This list should be updated annually by the city treasurer to ensure compliance
with this Investment Policy. All financial institutions and broker/dealers who
desire to become qualified bidders for investment transactions will be given a
copy of the city's Investment Policy, and a return cover letter which they must sign
indicating that the Investment Policy has been read, understood and that their
investment offers will comply with this policy. Qualified financial institutions and
broker/dealers must supply the city treasurer with the documents below.
7.1 Financial Institutions
• Current audited financial statements
• Depository contracts, as appropriate
• A copy of the latest Federal Deposit Insurance Corporation call report, and
• Proof that commercial banks, savings banks, or savings and loan associations are
state or federally chartered
7.2 Broker & Dealers
• Current audited financial statements
• Proof that brokerage firms are members in good standing of a national securities
exchange, or
• A designation as a primary government dealer by the Federal Reserve Bank
Commercial banks, savings banks, and savings and loan associations must
maintain a minimum net worth to asset ratio as provided by law (total regulatory
net worth divided by total assets) and must have had positive net earnings for the
last reporting period.
7.3 Purchase, Sale, Payment, and Delivery
A competitive bid process, when deemed practical by the city treasurer, will be
used to place all investment transactions. It is recommended that the city
treasurer obtain two or more bids from broker/dealers before purchasing an
investment, and three or more quotes when selling an investment. When two or
Nov. 2, 2021 Item #2 Page 33 of 49
more investment opportunities offer essentially the same maturity, liquidity,
yield, and quality, the city treasurer may give considerations to financial
institutions based in the City of Carlsbad, the State of California, and within the
United States. Payment for securities will be done on a Delivery Versus Payment
(DVP) basis via the city's custodian. Delivery of securities will be made to the city
in accordance with the third-party custodial agreement.
8.0 Authorized Investments
Except for Certificates of Deposit, investments will be made only in readily
marketable securities actively traded in the secondary market.
8.1 Pooled Investments
The city treasurer may invest city funds in the following instruments as specified
in the California Government Code §53601 and as further limited in this policy.
Obligations of the US Government
Government Sponsored Enterprise (GSE) debt and its agencies.
Municipal Bonds
Bonds of any local agency within the United Stateshis state, including bonds
payable solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency, or by a department, board, agency, or
authority of the local agency.
Municipal Bonds with a maximum remaining maturity of five years or less, issued
by municipalities organized and operating within the United States shall not
exceed 15% of the investment portfolio. The municipal bonds shall carry a
combined rating of at least "AA” by one and “A” by another of the three Nationally
Recognized Statistical Rating Organization (NRSRO) rating agencies, Moody's
Investors Service, Inc., S&P Global Ratings, and Fitch Ratings, Inc.
Bankers Acceptances
Bankers Acceptances drawn on and accepted by a commercial bank. Bankers
Acceptances may neither exceed 180 days maturity nor 25% of the portfolio.
Furthermore, no more than 10% of the portfolio may be invested in any one
issuer.
Certificates of Deposit
Certificates of Deposit shall not exceed five years to maturity. Investments in
Certificates of Deposit and checking accounts shall be fully insured up to the
amount allowed per account by the Federal Deposit Insurance Corporation or the
Nov. 2, 2021 Item #2 Page 34 of 49
National Credit Union Administration. Furthermore, the investments in
Certificates of Deposit, if a private sector entity is used, shall not exceed more than
30% of the portfolio. The city may use a private sector entity that assists in the
placement of Certificates of Deposit. Furthermore, no more than 10% of the
portfolio may be invested in any one issuer.
Negotiable Certificates of Deposit
Negotiable Certificates of Deposit issued by a nationally or state-chartered bank
may neither exceed five years to maturity nor exceed 30% of the portfolio.
Furthermore, no more than 10% of the portfolio may be invested in any one
issuer.
Commercial Paper
Prime Commercial Paper of the highest numerical rating of Moody's Investors
Service, Inc. or S&P Global Ratings. Further, eligible paper is limited to issuing
General Corporations that are organized and operating within the United States
and having total assets in excess of $500 million. If the issuer has other existing
debt, it must have a “AA” or higher credit rating from both Moody’s Investors
Service, Inc. and S&P Global Ratings. Prime Commercial Paper may neither exceed
270 days maturity nor 10% of the portfolio, nor shall it represent more than 5% of
the outstanding paper of an issuing corporation.
Repurchase Agreements
Repurchase Agreements with a maximum maturity of one year. Repurchase
Agreements may not exceed 5% of the portfolio. The market value of securities
that underlay a Repurchase Agreement shall be valued at 102% or greater of the
funds borrowed against those securities.
Corporate Notes
Corporate Notes with a maximum remaining maturity of five years or less, issued
by corporations organized and operating within the United States or by depository
institutions licensed by the United States or any state and operating within the
United States shall not exceed 30% of the investment portfolio. The Corporate
Notes shall carry a rating of "AA” and a second rating of “A” as combination of
ratings by the three NRSRO rating agencies.
New investments made directly into corporations involved in the business of
exploration, extraction, or further processing of oil and gas are not eligible for
investment.
Formatted: Justified, Indent: Left: 1"
Nov. 2, 2021 Item #2 Page 35 of 49
Money Market Funds
Money market funds whose portfolio consists of one or more of the foregoing
lawful investments.
Sweep Accounts
Sweep accounts for the investment of overnight funds when the funds are swept
into investments allowed by this policy.
Local Agency Investment Fund (LAIF)
LAIF of the State of California Investments will be made in accordance with the
laws and regulations governing those Funds.
California Asset Management Program (CAMP)
CAMP investments will be made in accordance with the laws and regulations
governing those funds.
Supranational Securities
Supranational securities are defined as United States dollar denominated senior
unsecured, unsubordinated obligations issued or unconditionally guaranteed by
the International Bank for Reconstruction and Development (IBRD or World Bank),
International Finance Corporation (IFC), or Inter-American Development Bank
(IADB). These organizations were established by international treaties, are
headquartered in Washington D.C., and incorporated into U.S. Federal Law by
Congressional Acts.
California Government Code §53601(q) permits the securities of these three
organizations to be incorporated into local agency investment portfolios.
Securities eligible for investment shall have a maximum remaining maturity of five
years or less and be eligible for purchase and sale within the United States.
Supranational securities eligible for investment shall be rated "AA" or better from
at least two NRSROs. Investments in supranational securities shall not exceed 10%
of the City of Carlsbad’s investment portfolio.
Agency Backed Mortgage Passthrough Securities
An agency-backed mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment lease-backed
certificate, consumer receivable passthrough certificate, or consumer receivable-
backed bond. Securities eligible for investment under this subdivision shall be
rated in a rating category of “AA” or its equivalent or better by an NRSRO and have
Nov. 2, 2021 Item #2 Page 36 of 49
a maximum remaining maturity of five years or less. Purchase of securities
authorized by this subdivision shall not exceed 20% of the city’s portfolio.
Non-agency Backed Mortgage Passthrough Securities
Non-agency-backed mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment lease-backed
certificate, consumer receivable passthrough certificate, or consumer receivable-
backed bond. Securities eligible for investment under this subdivision shall be
rated in a rating category of “AA” or its equivalent or better by an NRSRO and have
a maximum remaining maturity of five years or less. Purchase of securities
authorized by this subdivision shall not exceed 5% of the city’s portfolio.
8.2 Investments Held Separately
Investments of bond funds will be made in conformance with the trust indenture
for each issue. Such investments will be held separately when required.
8.3 New Securities
New types of securities authorized by California law, but which are not currently
allowed by the city’s Investment Policy, must first be approved by the City Council.
8.4 Housing Loans
Housing loans approved by the City Council to private developers and
homeowners as part of the city housing program shall comply with California
statutes, but need not meet the investment objectives and the risk management
requirements of this Investment Policy. The City Council will manage these loans
directly. As assets of the city, individual loans will be reported by the city treasurer
and any changes will be explained. Collections and conformance with the
requirements of each individual housing loan will be reported as an addendum to
the city treasurer’s investment report each quarter.
9.0 Unauthorized Investments
California Government Code §53601.6 disallows the following investments
acquired after January 1, 1996:
• Inverse floaters
• Range notes
• Interest-only strips that are derived from a pool of mortgages
Nov. 2, 2021 Item #2 Page 37 of 49
In addition, and more generally, investments are further restricted as follows:
• No investment will be made in any security that could result in zero interest
accrual if held to maturity
• No investment will be made that could cause the portfolio to be leveraged
• Purchases of investments on margin will not be made
10.0 Review of Investment Portfolio
An Investment Review Committee is hereby established to conduct reviews of the
city's investment portfolio, the strategy being utilized for the investment of city
funds, and the city's Investment Policy. This committee will be composed of the
city treasurer (acting as the chair), the city manager, the city attorney, the deputy
city manager of administrative services, and the assistant to the city treasurer or
delegate from each such department. Additionally, the city treasurer may appoint
other city residents as advisors to the committee. The committee will convene
periodically as necessary or desirable but, not less frequently than once each
quarter.
10.1 Exceptions
The securities held must be in compliance with Section 8.0 Authorized
Investments at the time of purchase. Occasionally, exceptions to some of the
requirements specified in this Investment Policy may occur for pooled
investments because of events subsequent to the purchase of investment
instruments, e.g., the rating of a corporate note held in the portfolio has been
downgraded by an NRSRO or the total value of the portfolio has declined causing
the percentage invested in corporate notes to rise above 30%, or an unforeseen
expenditure causes investments maturing within one year to fall below two-thirds
of the approved operating budget of the current fiscal year. California
Government Code §53601 specifies a percentage limitation for a particular
category of investment. That percentage is applicable only at the date of purchase.
Exceptions may be temporary or more lasting; they may be self-correcting or
require specific action. If specific action is required, the city treasurer will
determine the course of action that will correct exceptions to move the portfolio
into compliance with state and city requirements. Decisions to correct exceptions
will not expose the assets of the portfolio to undue risk and will not impair the
meeting of financial obligations as they fall due. Any subsequent investments will
not extend existing exceptions. Exceptions, and the decisions to correct the
exceptions, will be reviewed with the Investment Review Committee referred to
in the §10.0 Review of Investment Portfolio.
Nov. 2, 2021 Item #2 Page 38 of 49
11.0 Investment Pools & Mutual Funds
An investigation will be conducted before investing in any investment pool or
mutual fund. The city treasurer shall review at a minimum:
• The investment policy and objectives
• Interest calculations and distributions
• Safeguard and settlement processes
• A description of the program including legal investors and the minimums
and maximum transactions allowable
• Schedule for receiving statements
• How reserves and retained earnings are treated
• The fee schedule
12.0 Collateralization, Perfection, Security and Contracts
When required by California statute or this Investment Policy, any investment
capable of being collateralized, shall be collateralized by the required amounts
imposed by law. To give greater security to the city’s investments, when an
investment is collateralized and not perfected under existing law, an attempt to
perfect the collateralization should be made.
California Government Code §53652 requires that the depository secure active or
inactive deposits with eligible securities having a fair market value of at least 10%
more than the total amount of all deposits, and 50% in excess of the deposit when
secured with mortgage pools. California Government Code §53649 specifies that
the city treasurer is responsible for entering into deposit contracts with each
depository.
13.0 Safekeeping and Custody
All security transactions, including collateral for repurchase agreements, entered
into by the city shall be conducted on a delivery-vs.-payment basis. All securities
owned by the city will be held by a third-party custodian designated by the city
treasurer and evidenced by a monthly statement from the custodian. All securities
will be held in the nominee name of the custodian unless the counterparty bank’s
trust department is used for the delivery of the security, in which case the security
will be held in the city’s name. Collateral for time deposits in banks will be held in
the city's name in the bank's Trust Department or in the Federal Reserve Bank.
14.0 Diversification
The portfolio will be diversified to avoid incurring unreasonable and avoidable
risks regarding specific security types or individual financial institutions. In
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addition to the limitations on specific security types indicated in §8.0 Authorized
Investments, and with the exception of U.S. Treasury/federal agency securities
and authorized pools, no more than 5% of the city's portfolio will be placed with
any single issuer.
15.0 Maximum Maturities and Maximum Modified Duration
15.1 Maximum Maturities for Pooled Investments
A policy of laddered maturities will generally be followed for pooled investments.
The following maturity requirements will apply as of the month end of each
reporting period.
Two-Thirds Within One Year
Investments maturing within one year, measured at par value, must be no less
than two-thirds of the approved operating budget of the current year. This
requirement should be met within three months following adoption of the current
operating budget. Remaining investments of the portfolio shall not have a
maturity greater than five years from the date of investment except as provided
in §15.1.3 Five Year Exception.
Three Years Average
The average portfolio investment maturity shall be three years or less. A dollar-
weighted average will be used in computing the average maturity of the portfolio.
Five-Year Exception
Before an investment, which is allowed by California statute, is made in securities
that mature more than five years from the date of purchase, the city treasurer and
the deputy city manager of administrative services will review the city's long-term
cash needs. Both must concur before such an investment is made. A resolution
authorizing such investment must first be approved by the City Council.
Investments beyond five years will not be greater than 10% of the portfolio and
will be counted in the percentage of the portfolio that may mature beyond one
year.
Ten-Year Limit
No investments will be made that mature beyond 10 years from the date of
investment.
Callable Investments
Callable investments will be recorded at their maturity dates.
Nov. 2, 2021 Item #2 Page 40 of 49
15.2 Maximum Modified Duration
The investment restrictions identified in paragraphs §8.0 Authorized Investments
and §9.0 Unauthorized Investments, and the maturity requirements identified in
§15.1 Maximum Maturities for Pooled Investments, imply that the value of city
investments should not change more than 2.2% for every 1% change in market
interest rates. To ensure that this is the case, a maximum modified duration is
established at 2.2. This states that the unrealized gains and losses of the portfolio
are not expected to exceed 2.2% for every 1% change in market interest rates. A
modified duration in excess of 2.2 would indicate that the portfolio is exposed to
more market risk than is desired by this policy. If the modified duration of 2.2 is
exceeded, an explanation will be made in the first monthly report following the
occurrence.
15.3 Investments Held Separately
Maturities for investments held separately will conform to the trust indenture for
each issue.
16.0 Internal Controls
This policy and the strategy for and conduct of the investment of city funds will be
reviewed by an Investment Review Committee as set forth below and by the city's
auditors in the conduct of their annual audit of the city.
17.0 Performance Standard for Pooled Investments
Laddered maturities and a buy and hold strategy for pooled investments will cause
the investment portfolio to attain a market-average rate of return throughout
budgetary and economic cycles, commensurate with the investment risk
constraints and the city’s cash flow needs. Since the amount maturing within one
year must be at least equal to two-thirds of the currently approved operating
budget, the rate of return will be more closely related to, but lag behind, changes
in short-term market rates. The rate of return of the investment portfolio will be
based on the maturity value of the investments. A dollar-weighted average of
yields to maturity will be used in calculating the rate of return of the entire
portfolio. The city’s performance benchmarks may change from year to year but
should strive to mirror the assets held in the city’s portfolio.
18.0 Short-term Borrowing
The city is permitted by law to borrow money to meet current short-term cash
flow needs. These needs may arise either because projected cash disbursements
exceed projected cash receipts, or because the city's cash accounts may be
temporarily overdrawn due to the efforts to invest 100% of inactive funds at all
Nov. 2, 2021 Item #2 Page 41 of 49
times. To provide for these contingencies the city treasurer is authorized to take
the following actions:
18.1 Short-term Loan
When there is a shortfall between projected cash revenues and projected cash
disbursements, the city treasurer may secure a loan in the amount that would
equal the cash deficit plus projected cash disbursements for one month. Any such
loan will be repaid within one year.
18.2 Line of Credit
The city treasurer may maintain a line of credit with the city's bank in an amount
to cover sums temporarily overdrawn because of efforts to invest all inactive funds
at all times.
19.0 Investment Strategy
19.1 Pooled Investments
A buy and hold strategy will be followed; that is, investments once made will be
held until maturity. A buy and hold strategy will result in unrealized gains or losses
as market interest rates fall or rise from the coupon rate of the investment.
Unrealized gains or losses, however, will diminish as the maturity dates of the
investments are approached or as market interest rates move closer to the
coupon rate of the investment. A buy and hold strategy requires that the portfolio
be kept sufficiently liquid to preclude the undesired sale of investments prior to
maturity. Occasionally, the city treasurer may find it advantageous to sell an
investment prior to maturity, but this should only be on an exception basis and
only when it is in the best interest of the city.
19.2 Investments Held Separately
Investments held separately for bond proceeds will follow the trust indenture for
each issue.
20.0 Reporting
California Government Codes §53600 require reports meeting the standards set
forth in these sections to be presented to City Council, as well as any additional
information desired. Therefore, it is the policy of the city that the investments and
transactions described in these sections, and as outlined in 20.1 below be given to
the City Council, city manager, and internal auditor (or the deputy city manager of
administrative services in the absence of an internal auditor).
Nov. 2, 2021 Item #2 Page 42 of 49
20.1 Pooled Investments
The investment report will be submitted monthly by the city treasurer within 60
days following the end of the month covered by the report. The monthly report
will be published to the City Treasurer webpage after reporting to City Council.
Each report will include the following elements:
• Itemized listing of portfolio investments by type, yield to maturity, and issuer
• Par value, dollar amount invested, amortized cost, and current market value as of
the date of the report will be given for the total of all securities, investments, and
moneys held by the city and its component units. The source of the market values
will be cited
• Credit ratings of corporate notes
• Accrued income
• Weighted average yield of the portfolio
• Weighted average days to maturity of the portfolio from the date of the report
• Weighted average modified duration of the portfolio
• Dollar amount and percentage of portfolio maturing within one year
• Dollar amount and percentage of portfolio maturing between one and 5 years
• Percent that each type of investment represents in the portfolio
• Investment transactions for the reporting period excluding due dates
• Fund source of investments when available
• Statement that the investment portfolio has the ability to meet the city's cash flow
demands for the next six (6) months
• Statement of compliance of the portfolio with the city’s Investment Policy. When
applicable, any material exceptions will be noted
An annual report for pooled investments will also be made to the City Council
following the close of the fiscal year. Among other items, the annual report will
include an analysis of the composition of the portfolio with regard to fund source;
a review of trends regarding the size of the fund, portfolio yields, and cash income;
and a statement regarding anticipated fund activity in the next fiscal year.
20.2 Investments Held Separately
A report of investments held separately will be made quarterly. Within 30 days
following the end of the quarter the report will be submitted as an exhibit in the
city treasurer’s monthly report. The quarterly report will contain the information
required by California Government Code §53646 when available.
Nov. 2, 2021 Item #2 Page 43 of 49
21.0 Investment Policy Adoption
California Government Code §53646(a)(2) allows the city treasurer to render to
the City Council and the Investment Review Committee a statement of Investment
Policy and recommends that one be presented each year. Therefore, the city’s
Investment Policy and any modifications to it shall be considered no less often
than annually at a public meeting. Adoption of the Investment Policy and any
changes must be made by resolution of the City Council.
22.0 Glossary
Amortized Cost
The cost of investments adjusted for amortized premiums and discounts.
Amortized cost is used to maintain comparability with market value.
Arbitrage Regulation
Laws to control the use of profit making by purchasing securities on one market
for immediate resale on another to profit from a price difference.
Bankers Acceptances
An investment vehicle created to facilitate international commercial trade
transactions. The bank accepts responsibility to repay a loan to the holder of the
investment vehicle created in a commercial transaction. The credit worthiness of
Bankers Acceptances are enhanced because they are secured by the issuing bank,
the goods themselves, and the importer. Bankers Acceptances are sold on a
discounted basis.
Bond Indenture
A written agreement specifying the terms and conditions for issuing bonds, stating
the form of the bond being offered for sale, interest to be paid, the maturity date,
call provisions and protective covenants, if any, collateral pledged, the repayment
schedule, and other terms. It describes the legal obligations of a bond issuer and
the powers of the bond trustee, who has the responsibility for ensuring that
interest payments are made to registered bondholders.
Book Value
A term synonymous with amortized cost.
Buy and Hold Strategy
Investments in which management has the positive intent and ability to hold each
issue until maturity.
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California Asset Management Program (CAMP)
A California Joint Powers Authority (JPA) established in 1989 to provide California
public agencies with professional investment services. The CAMP Pool is a
permitted investment for all local agencies under California Government Code
§53601(p). CAMP is directed by a Board of Trustees, which is made up of
experienced local government finance directors and treasurers.
Certificate of Deposit
A deposit account paying interest for a fixed term, with the understanding that
funds cannot be withdrawn before maturity without giving notice.
Collateralization
An asset used to secure a debt in part or in full by pledge of collateral. The
collateral is used as security to help ensure payment or performance of an
obligation.
Commercial Paper
A short-term IOU, or unsecured money market obligation, issued by prime rated
commercial firms and financial companies, with maturities from 2 days up to 270
days. A promissory note of the issuer used to finance current obligations and is a
negotiable instrument.
Delivery Versus Payment
A securities industry term indicating payment is due when the buyer has securities
in hand or a book entry receipt.
Embedded Option
A statement within the bond structure that would alter the interest rate earned
by the bond.
Interest-Only Strips
Mortgage backed instrument where investor receives only the interest, no
principal, from a pool of mortgages. Issues are highly interest rate sensitive. Cash
flows vary between interest periods. As well, the maturity date may occur earlier
than that stated if all loans within the pool are pre-paid. High prepayments on
underlying mortgages can return less to the holder that the dollar amount
invested.
Inverse Floater
A bond or note that does not earn a fixed rate of interest. Rather, the interest rate
that is earned is tied to a specific interest-rate index identified in the bond/note
Nov. 2, 2021 Item #2 Page 45 of 49
structure. The interest rate earned by the bond/note will move in the opposite
direction of the index, e.g., if market interest rates as measured by the selected
index rises, the interest rate earned by the bond/note will decline. An inverse
floater increases the market rate risk and modified duration of the investment.
Laddered Portfolio
A bond investment portfolio with securities in each maturity range (e.g. monthly)
over a specified period (e.g. five years).
Leverage
Investing with borrowed money with the expectation that the interest earned on
the investment will exceed the interest paid on the borrowed money.
Local Agency Investment Fund (LAIF)
A voluntary investment program offering participating agencies the opportunity
to participate in a major portfolio which daily invests hundreds of millions of
dollars, using the investment expertise of the State Treasurer’s Office investment
staff at no additional cost to the taxpayer. Investment in LAIF, considered a short-
term investment, is readily available for cash withdrawal daily.
Market Risk
The risk that market interest rates will rise causing a loss of value in investments
held. All investments made by the city involve a degree of market risk. See also
“Unrealized Gains (Losses).
Modified Duration
A measure of the sensitivity that the value of a fixed-income security has to
changes in market rates of interest. Modified duration is the best single measure
of a portfolio’s or security’s exposure to market risk. Modified duration identifies
the potential gain/loss in value before the gain/loss actually occurs. It is a
prospective measurement, e.g., a modified duration of 1.5 indicates that when
and if a 1% change in market interest rates occurs, a 1.5% change in the value of
a security will result. Investments with modified durations of one to three are
considered to be relatively conservative.
Negotiable Certificates of Deposit
A large denomination ($100,000 or more) interest bearing time deposits, paying
the holder a fixed amount of interest at maturity. Issues can be sold to a new
owner before maturity.
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Municipal Bonds
Municipal bonds are debt securities issued by states, cities, counties and other
governmental entities to fund day-to-day obligations and to finance capital
projects such as building schools, highways or sewer systems.
Nominee Name
The registered owner of a stock or bond if different from the beneficial owner,
who acts as holder of record for securities and other assets. Typically, this
arrangement is done to facilitate the transfer of securities when it is inconvenient
to obtain the signature of the real owner, or the actual owner may not wish to be
identified. Nominee ownership simplifies the registration and transfer of
securities.
Nationally Recognized Statistical Rating Organization (NRSRO)
A Nationally Recognized Statistical Rating Organization (NRSRO) is a credit rating
agency that issues credit ratings that the U.S. Securities and Exchange Commission
permits other financial firms to use for certain regulatory purposes. Three of the
primary recognized rating agencies are Moody’s Investors Service, Inc., S&P Global
Ratings, and Fitch Ratings, Inc.
Pooled Investment
A grouping of resources for the common advantage of the participants.
Range Note
An investment whose coupon payment varies (e.g. either 7% or 3%) and is
dependent on whether the current benchmark (e.g. 30-year Treasury) falls within
a pre-determined range (e.g. between 6.75% and 7.25%).
Repurchase Agreement
A contract to purchase and subsequently sell securities at a specified date and
price.
Supranational Organization
A supranational organization is formed by a group of countries through an
international treaty. Member states transcend national boundaries or interests to
share in the decision-making process to promote economic development in the
member countries.
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Supranational Securities
Supranational securities are United States dollar denominated senior unsecured,
unsubordinated obligations issued or unconditionally guaranteed by the
International Bank for Reconstruction and Development (IBRD or World Bank),
International Finance Corporation (IFC), or Inter-American Development Bank
(IADB). These organizations were established by international treaties, are
headquartered in Washington D.C and incorporated into U.S. Federal Law by
Congressional Acts. The California Government Code §53601(q) permits the
securities of these three organizations to be incorporated into local agency
investment portfolios.
Sweep Account
A short-term income fund into which all uninvested cash balances from the non-
interest-bearing checking account are automatically transferred daily.
Third-Party Custodian
A corporate agent, usually a commercial bank, who, acting as trustee, holds
securities under a written agreement for a corporate client and buys and sells
securities when instructed. Custody services include securities safekeeping, and
collection of dividends and interest. The bank acts only as a transfer agent and
makes no buy-sell recommendations.
Unrealized Gains (Losses)
An increase (decrease) in the value of investments representing the difference
between the amortized cost of the investments and their current market value.
Increases (decreases) in value are caused primarily by changes in market interest
rates subsequent to purchasing the investments. Increases (decreases) in value
indicate two things: 1. The portfolio has a potential gain (loss) in principal if the
securities are sold, and 2. The portfolio is over performing (underperforming) the
current market for similar investments. An increase in value indicates the portfolio
is earning relatively more interest than current market conditions, and a decrease
in value indicates that the portfolio is earning relatively less interest than current
market conditions.
Zero Accrual Periods
A period in which an investment accumulates no interest.
Nov. 2, 2021 Item #2 Page 48 of 49
24.0 Summary of Authorized Investments
Investment Type Maximum
Maturity1
Maximum
% Portfolio
Maximum
% Issuer
NRSRO
Minimum2
Obligations of the US Government 5 years - - -
Certificates of Deposit 5 years 30% 10% -
Negotiable Certificates of Deposit 5 years 30% 10% - Corporate Notes 5 years 30% 5% AA/A Municipal Bonds 5 years 15% 5% AA/A
Supranational Securities 5 years 10% 5% AA/AA
Agency Backed Mortgage Passthrough Securities 5 years 20% 5% AA Non-agency Backed Mortgage Passthrough Securities 5 years 5% 5% AA Repurchase Agreements 1 year 5% 5% -
Commercial Paper 270 days 10% (3) AA/AA
Bankers Acceptances 180 days 25% 10% - Money Market Funds N/A - - - LAIF N/A - - -
CAMP N/A - - -
Sweep Accounts N/A - - -
1 Exceptions are addressed in §15.0 Maximum Maturities and Maximum Modified Duration. Total portfolio Modified Duration shall be 2.2 or less. 2 NSRSOs used by the city are limited to Moody’s Investors Service, Inc., S&P Global Ratings., and Fitch Ratings, Inc.
If two ratings are listed for an investment type, then at least two of the three agencies must have ratings compliant
with this Investment Policy. Credit rating minimums include rating modifiers (+/-). 3 Commercial Paper shall not represent more than 5% of the outstanding paper of an issuing company.
Nov. 2, 2021 Item #2 Page 49 of 49