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2000 10 11 IAB Minutes INVESTMENT ADVISORY BOARD Meeting October 11, 2000 I CALL TO ORDER Regular meeting of the La Quinta Investment Advisory Board was called to order at the hour of 5:30 P.M. by Chairman Osborne followed by the Pledge of Allegiance. PRESENT: Board Members Filice, Irwin, Lewis, Moulin, Olander and Chairman Osborne ABSENT: Board Member Mahfoud OTHERS PRESENT: John Falconer, Finance Director and Debbie DeRenard, Secretary II PUBLIC COMMENT- None III CONFIRMATION OF AGENDA Mr. Falconer advised that pages 3 and 6 of Business Session Item A are replacement pages and will be discussed with that item. IV CONSENT CALENDAR 1. Approval of Minutes of Meeting on September 13, 2000 for the Investment Advisory Board. MOTION - It was moved by Board Members Lewis/Olander to approve the Minutes of September 13, 2000. Motion carried unanimously. Investment Advisory Board October 11, 2000 Minutes V BUSINESS SESSION A. Transmittal of Treasury Report for August 2000 Mr. Falconer advised that Board Member Moulin had changes to page 3 and 6 of the Treasurers Report. The corrected pages have been distributed. The totals did not change. On page 3 the "Other" column under mutual funds the amount in the column was $21,000, it should have been zero. On Page 6 Mutual Funds showed as Farm Credit and should have been US Treasuries. He further explained that the Finance Department had a Staff change during the month of September. In response to Board Member Irwin, Mr. Falconer advised that the City reports the Mark to Market in the Treasury Report, however, it is not reported in the official books. He further advised that Staff could add the 2 million per name restriction in Commercial Paper in the report. It currently is stated in the Investment Policy. In response to Board Member Moulin, Mr. Falconer advised that in reference to Mark to Market the auditors did not book any adjustments at year end. MOTION - It was moved by Board Members Irwin/Lewis to review, receive and file the Treasurers Reports for August. Motion carried unanimously. B. Review of Investment Policy Invests in GSE's Board Member Olander advised that his feelings are that the financial reports were a little disconcerting. Comments on Page 7 regarding notes to the shareholders, listing the accomplishments appear to be the company patting themselves on the back. He further advised his concern is you have basically a government-sponsored agency and shareholders that are unlike shareholders of GE or anyone else and Management is quite ambitious. As the Board has mentioned before what concerns him more than anything is - if these agencies get out of hand, problems will be generated long before they are captured and the people who audit these groups are the first to admit they cannot Investment Advisory Board October 11, 2000 Minutes possibly keep their hands on the situation. The Board has had numerous discussions but again as good as they appear and as good as they perform and everything looks to be fine, but they are reaching for marginal credits and trying to get the return on capital and equity the shareholders seem to enjoy, they begin to push it a little bit. It's his feeling that you need closer scrutiny all the time. He further advised that he has seen this type of reasoning and this type of behavior going back to the dark ages of the Savings and Loan crisis. Where you see the same pattern beginning to develop and it may not hit this year or in the next few years but sooner or later there is going to be a day of reckoning. Board Member Irwin advised that his comments are similar to Board Member Olander. One impression he had from the Freddie Mac annual was the report was similar to the reports that were generated back in the mid to late 80's just before the real estate and S&L crisis. They are doing a lot of derivatives. In 1999 their net interest income raised by 45-50% - a huge increase in the interest income. Board Member Olander advised that according to the report they are getting more aggressive and they are dropping their percentages. They are reaching for marginal credits. Mr. Falconer advised that the City has not invested in Freddie Mac, further advising that the City has invested in Farm Credit. Chairman Osborne advised that when the Board reviews the Investment Policy the requirements for GSE's could be tightened. Board Member Irwin advised that it's his feeling that the Investment Policy allows for more investments in GSE's than should be allowed. Chairman Osborne advised that the Policy allows for investments of 75%, however, fundamentally Staff does not invest that percentage, currently the percentage is approximately 20%. Board Member Moulin advised that there are inconsistencies in the investment policy regarding commercial paper, GSE's and others that Investment Advisory Board October 11, 2000 Minutes can be addressed when the policy is reviewed for 2001/2002. He advised that in the meantime, Staff should continue to diversify among the GSE's. Board concurred. MOTION - It was moved by Board Members Lewis/Olander to table the discuSsion of GSE's until the annual review of the Investment Policy. Motion Carried unanimously. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report- September 2000 Noted and Filed. B. Pooled Money Investment Board Reports - July 2000 Noted and Filed VII BOARD MEMBER ITEMS -None VIII ADJOURNMENT MOTION - It was moved by Board Members Lewis/Irwin to adjourn the meeting at 6:05 p.m. Motion carried unanimously. Submitted by, Debbie DeRenard Secretary