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1999 02 10 IAB Minutes INVESTMENT ADVISORY BOARD Meeting February 10, 1999 I CALL TO ORDER Regular meeting of the La Quinta Investment Advisory Board was called to order at the hour of §:30 P.M. by Chairperson Irwin, followed by the Pledge of Allegiance. PRESENT: Board Members Brown (6:10), Lewis, Mahfoud (5:35), Moulin, Osborne and Chairperson Irwin ABSENT: Board Member Bulgrin OTHERS PRESENT: John Falconer, Finance Director and Debbie DeRenard, Secretary II PUBLIC COMMENT - None III CONFIRMATION OF AGENDA- Confirmed IV CONSENT CALENDAR · A. Approval of Minutes of Meeting of January 13,~ 1999 for the Investment Advisory Board· MOTION - It was moved by Board Members Lewis/Moulin to approve the minutes. Motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Rep~rt for December 31, 1998 Chairman Irwin commented on the six-month bench mark listed in the Investment Policy. Board Member Osborne advised that he likes how staff has handled the benchmark on the Treasurers Report. Investment Advisory Board February 10, 1 999 Minutes In response to Chairman Irwin, Board Member Lewis advised that when using a benchmark spread it becomes subject to manipulation by whoever is setting the spread. The current spread is a market-driven benchmark. Mr. Falconer advised that on page 3 the annualized earnings have been added with detail and on page 5 there were investments that matured which were yielding more than 5%. When they were reinvested, the yield was much less, showing the decline in interest rates. In response to Board Member Osborne, Mr. Falconer advised that as of February 3, 1999 the LAIF daily rate was 5.20% and their quarter to day was 5.265%. In response to Board Member Lewis, Mr. Falconer advised that the Mutual Fund description should' be Money Market Mutual Fund which is different from Mutual Funds. MOTION - It was moved by Board Members Lewis/Moulin to approve, receive and file the Treasurer's Report for November 30, 1998. Motion carried unanimously. B. Fiscal Year 1999/00 Investment Policy Mr. Falconer advised that typically at this meeting Staff requests Board Member comments on any items that Staff should review and bring back to the next Board meeting. Items that are shaded are changes that were made during the year to be included in the final changes for FY 99/00. In response to Chairman Irwin, Board Member Moulin advised that the items that he suggested in July 1998 were tabled. He advised that if the Board would like to reconsider the items he will bring them back to the Board at the next meeting. He advised that the suggestions that he made were taking a view of evaluating the risk of all the authorized investments and weigh the investment ability in relationship to this. Chairman Irwin advised that this is a different direction then what was previously discussed. Investment Advisory Board February 10, 1999 Minutes to diversify and to gain some strength with regards to that diversification. She further advised that it was her understanding that the investment policy was to try and give guidelines to City Staff. She further advised that the policy is revised annually because of changes. If there are dramatic changes in-between the policy the Board would make a recommendation for a change. Board Member Mahfoud advised that he is neutral. MOTION - It was moved by Board Members Lewis/Mahfoud to continue the Fiscal Year 1999/00 Investment Policy. Motion carried unanimously. C. Fiscal Year 1998/99 Treasurers Conference - Brea, CA Mr. Falconer presented the Staff Report advising that the Annual California Municipal Treasurers Association Conference will be held April 19 - 23 in Brea, California. He advised that last year Board Member Bulgrin and Osborne attended the conference. Board Member Osborne advised that he cannot make it do to a prior commitment. In response to Chairman Irwin, Mr. Falconer advised that he will be attending the conference. Typically this is a 5-day conference. The City does provide for one staff member and two Board Members to attend. He advised that if no Board Members are able to attend, Staff will bring back the Conference materials for the Board to review. Board Members Brown, Mahfoud and Lewis advised that they are unable to attend. Chairman Irwin advised that the morning sessions on Tuesday morning are appealing to him. Mr. Falconer advised that he normally would not attend the pre- conference. However, Staff is researching online banking and the pre- conference offers a session that would be useful for this venture. Chairman Irwin requested that Staff check with Board Member Bulgrin regarding his availability for the conference. Investment Advisory Board February 10, 1999 Minutes Board Member Moulin advised that what he is referring to is listing the investment in order of their safety level. As an example - US Treasuries would be listed first as the safest. He advised that in previous discussions with the Board, ' diversification seemed to be a significant element. He gave as an exar~ple that there would be an allowable 100 percent investment in US Treasuries because they are least risky. He further advised that he feels that the Investment Policy could be simplified. Board Member Osborne advised that Board Member Moulin brought up some good points and the reason that they were tabled was so that they could be brought up during the review of the policy. He further advised that he would be interested in Board Member Moulin's thoughts as they relate to the policy at the next Board meeting. Chairman Irwin advised that the Board agreed to some technical changes in regards to government agencies. Board Member Moulin advised that he doesn't feel the policy clearly distinguishes between what is backed by the full faith of the federal government and what is not. He advised that he has done some research and has learned that the only agency that has a guarantee is GNMA investments. Mr. Falconer advised that he has received collateral material from past conferences that lists the different investments by level of safety. He advised that he will bring this to the Board at the next meeting. In response to Board Member Moulin, Board Member Lewis advised that Bankers Acceptances are a more risky investment and the Board decided to eliminate that type of investment. Board Member Moulin advised that he doesn't feel they are more risky then some of the investments. Mr. Falconer advised that when this was discussed there were problems with foreign banks. Investment Advisory Board February 10, 1999 Minutes Board Member Lewis stated that in regards to the simplification 'of the investment policy. He advised that he would like to stay away from this simply because he was here when the Board first came into effect and · one of the reasons for the Board is because of how simple the Investment Policy was in the past. No one in this room is going to be here forever and if the Board starts going toward simplification there will be loss of the focus that is there. Yes - the Policy tends to be a little wordy at times, and probably more details than there needs to be, but some of the words are there for a reason. A part of it is continuing education for new Board Members and new Treasurers. Board Member Moulin advised that it's important to have the background, but for example on page 9 of the policy it has the State of California limitations and it lists Bankers Acceptances that are not allowed by the City. On page 10 Negotiable CD's are listed and they are not allowed by the City. We should only list what we allow and what we disallow we can list in a different place. Board Member Lewis advised that he has no problem with reorganizing the policy. Mr. Falconer advised that on page 17 it lists the unauthorized investments with those items listed. The Board could delete those paragraphs. Board Member Mahfoud advised that he would keep the information in the policy. Board Member Lewis advised that getting the definition of what the investments are and in the event that someone would like to invest in an unauthorized investment it would be clear that type of investment is .not allowed. Board Member Mahfoud suggested adding unauthorized investment descriptions in the glossary · Chairman Irwin questioned if the State Law distinguishes between US Government Securities and Agency Securities. Investment Advisory Board February 10, 1999 Minutes Mr. Falconer advised that he will check the code to see how it's written. He advised that it might nbed to be changed to US Treasury and Government Agency issued to make the distinction. Mr. Falconer advised that the Board created an Executive Summary for those that did not want to read the entire document. Board Member Moulin advised that the other area that he was troubled by was the mission statement. He advised that he would like to see Section XlX be more indicative to the Board's actual function. In response to Chairman Irwin, Board Member Moulin advised that he could bring back to the next Investment Advisory Board meeting draft verbiage for Section XlX. ' After further discussion the Board concurred on changing Section XlX- number' one to read '"to ensure accurate reporting as they relate to an investment activity." Mr. Falconer advised that the City Manager and City Attorney will be present at the June 1999 Investment Advisory Board meeting. Chairman Irwin advised that he interprets the policy that the Board meets every month unless the Board opts it's not necessary to meet after the concurrence of the City Council. Board Member Lewis advised that this could also be interpreted that the Board elects to meets monthly unless Council gives other direction. Chairman Irwin suggested that the ordinance wording be changed to read "that the Investment Advisory Board normally meets monthly." Mr. Falconer advised that you should also add that the Board meets at least quarterly because the ordinance requires the Board to meet quarterly. Investment Advisory Board February 10, 1999 Minutes Board Member Osborne advised that based on projections that Staff has completed, the investment limits seem to work at this time subject to changes in the rates. Because of the limitations, if the rates become 100 basis points below LAIF then our limitations would be a problem. He further advised that the investments have stayed within 60 basis points of LAIF. Chairman Irwin advised that he is happy that Staff has kept the LAIF investment under twenty five percent of the portfolio. Board Member Osborne advised that he doesn't feel the LAIF investment percentage will be able to continue at twenty five percent and he doesn't have a problem with it going as high as thirty-five percent. Mr. Falconer advised that from Staff's perspective the only issue of meeting the percentages has to do with the Agency Paper. Federal Home Loans, Fannie Mae,' etc. are fairly available whenever an investment is rolled over and we are able to invest in those types of investments. He further advised that the investment will bump up against the 25 percent of the portfolio for the Fannie Mae and Federal Home Loan Bank investments. Board Member Osborne questioned if the investment should be moved up to 35 percent. Mr. Falconer advised that he does not have a recommendation regarding changing the percentage. In response to Board Member Osborne, Mr. Falconer advised that the twenty-five percent is listed on Page 17, Bid Process No. 3. Chairman Irwin advised that he agrees with Board Member Moulin on Treasury Notes and Bonds as a safe haven and having the percentage be 100 percent. Board Member Osborne advised that he has a problem with the US Treasuries percentage being 100 percent because of the issue of liquidity. He explained that if the City needed to cash in the notes or bonds there would be a loss. He advised that the goals of the policy are safety, liquidity and yield. Investment Advisory Board February 10, 1 999 Minutes Chairman Irwin advised.that he would agree with any other investment except US Treasuries. He explained that even in times of stress the most liquid security you will find in a fixed income market is short term Treasury Bill. Board Member Lewis stated that. he feels the most liquid investments would be the money market'mutual funds because with treasuries you are going to be faced with interest rate risk associated with it and the potential of having to sell them at a loss whereas with Money Market Mutual Funds it theoretically is dollar in dollar out. Chairman Irwin stated that he doesn't recommend that we have 100 percent invested in US Treasuries, but in times of financial stress this will give Staff the safe haven in the case that they need to invest for a short period of time it will be available. Board Member Moulin advised that he agrees with Chairman Irwin. Board Member Lewis advised that he disagrees. If you are not going to use it, why have the tool. Chairman Irwin stated that staff might need it in times of financial stress. Board Member Moulin advised that the Federal Government backs US Treasuries. Board Member Lewis advised that he has a fundamental problem with any investment vehicle that is ,100 percent because it implies that 100 percent is okay. The Board deliberately set up the percentages. The Board did not apply a lower limitation on US Treasuries because of a safety issue, the Board agreed on the lower percentage because of diversification. Chairman Irwin advised that in context of diversification he doesn't have a problem with the limit, but in times of financial stress the City cannot afford diversification. Board Member Lewis advised that if the financial stress is that bad the City shouldn't be investing at all. Investment Advisory Board February 10, 1999 Minutes Board Member Moulin advised that he is available to attend the conference. Ms. DeRenard advised that reservations are needed as soon as possible in order to obtain the early registration fee. She advised that the cost for the second and third people attending is $160.00. MOTION - It was moved by Board Members Moulin/Brown to have two Investment Advisory Board Members attend the CMTA Conference in Brea, CA. Motion carried unanimously. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report- January 1999 Noted and Filed. B. Pooled Money Investment Board Reports - November 1998 Noted and Filed. C. Annual Pooled Money Investment Board Report Noted and Filed VII BOARD MEMBER ITEMS - None VIII' ADJOURNMENT MOTION - It was moved by Board Members Lewis/Moulin to adjourn the meeting at 6:45 P.M.. Motion carried unanimously. Submitted by: Debbie DeRenard Finance Secretary 10