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2001 06 13 IAB MinutesInvestment Advisory Board June 13, 2001 Minutes INVESTMENT ADVISORY BOARD Meeting June 13, 2001 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 Osborne, Lewis, Olander, and Mahfoud ABSENT: Board Member Moulin, and Felice OTHERS PRESENT: Tom Genovese, City Manager, Kathy Jenson, City Attorney, John Falconer, Finance Director and Vianka Orrantia, Secretary. II PUBLIC COMMENT - None III CONFIRMATION OF AGENDA 1. Mr. Falconer distributed an article from Board Member Lewis regarding U.S. Treasury Notes and asked that it be considered under Board Member comment. 2. Mr. Falconer stated that Board Member Moulin has requested that the Board move the July Investment Board Meeting to a later date. Board Member Moulin had an unexpected commitment. Mr. Falconer asked that this item be discussed under Board Member comments. IV CONSENT CALENDAR 1. Minutes of Meeting on May 9, 2001 of the Investment Advisory Board Board Member Lewis stated that there was minor change on Page 12, the paragraph stating "a motion was made by Chairman Osborne", the motion was made by Board ] Investment Advisory Board June 13, 2001 Minutes Member Lewis to continue. Chairman Osborne stated that on page 6, the middle of the paragraph, "Chairman Osborne stated that last year the Board agreed on the LAIF percentage in May at 20% and that it was discussed and changed in June to 15%." Chairman Osborne asked if that was Board Member Lewis, due to the fact he was not in attendance at the particular meeting. Board Member Olander had one other minor change on Page 12, first paragraph, and change the word "strap" to alleviate. Board Members Lewis/Olander moved to approve the Minutes of Meeting on May 9, 2001 of the Investment Advisory Board, as amended, motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Report for April 2001 Mr. Falconer stated that our average daily maturity is getting lower and he has been trying to stay ahead of the yield curve. Mr. Falconer wanted to bring to the Boards attention that due to the drop in rates, it's hard to get a rate of 4% on new investments. Chairman Osborne asked Mr. Falconer if the yield is 5.53%? Mr. Falconer stated that on May 31'tthis was the rate, however, it will be decreasing since half of our portfolio will turn over on May 31 st. Mr. Falconer stated that in those two particular days May 30th and 31st, he had to reinvest $30 million, with the property tax money that was received and with investments that had rolled over. Board Member Lewis asked Mr. Falconer what sort of maturities were the monies being invested in. Mr. Falconer stated that they have been in three months due to the flat yield curve and did not want to invest in two years at 4%. Chairman Osborne stated that he noticed that six month U.S. Treasuries were down to 3.79% from 6.79% a year ago. Chairman Osborne asked Mr. Falconer if we had fully invested in Government Sponsored Enterprises (GSE)? Mr. Falconer stated that he had purchased quite a few GSE's the first part of June. Specifically, Mr. Falconer stated that when he had made his investments in GSE's, Sallie Mae's were not available, but that he had invested in Freddie Mac for the first time. Mr. Falconer also stated that he had invested a little over $2 million in Federal Farm Credit GSE's. Chairman Osborne asked Mr. Falconer if commercial paper rates had dropped? Mr. Falconer stated that these rates were currently at 3.95%-4% for 30-day commercial paper. Investment Advisory Board June 13, 2001 Minutes Board Member Lewis stated that he was not aware that commercial paper rates had dropped so much. Board Member Mahfoud stated that these rates would remain in this range for the next 5 to 6 months. Board Members Lewis/Olander moved to approve the April 30, 2001 Treasury Report, motion carried unanimously. B. Consideration of Fiscal Year 2001/02 Investment Policies Chairman Osborne asked at this time if the City Manager or City Attorney had any comments on the Investment Policy for FY 2001/02. Mr. Genovese, City Manager stated that he had reviewed the policy with Mr. Falconer and did not have any comments. City Attorney, Kathy Jenson stated that she had no comments. Board Member Lewis/Olander moved to approve the FY 2001/02 Investment Policy, motion carried unanimoUsly. Mr. Falconer stated that at past Council Meetings, a representative from the Investment Advisory Board has been present to address any questions that the Council might have with the Policies. The meeting is scheduled for Tuesday, June 19th. Chairman Osborne did not believe he could be at the meeting; however, Vice Chairman Mahfoud, and Board Members Moulin and Olander stated that they would be at the meeting. C. Work Plan for Fiscal Year 2001/02. Board Member Lewis, referenced the U.S. Treasury handout he had distributed earlier in the meeting and stated that based on the first paragraph of the hand out, Mr. Greenspan states that there is a possibility, that the U.S. Treasuries could become non-existent. With this in mind, Board Member Lewis stated that we have in the Investment Policy a safety net of 100% in U.S. Treasuries, which could mean that that if Mr. Greenspan is correct there may someday be no realistic market in U.S. Treasuries for the City to invest in. Board Member Lewis stated that the U.S. Government could go back into deficit spending and require U.S. Treasuries. Board Member Olander suggested that we should look into a contingency plan. Board Member Lewis suggested that we start considering alternative safe investments for the City looking at the possibility that U.S. Treasuries may become scarce in the future. Board Member Mafoud asked the Board if we had just increased the investment in U.S. treasuries to 3 Investment Advisory Board June 13, 2001 Minutes 100%. Board Member Lewis stated that 100% is the investment percentage even if U.S. Treasuries are non-existent, and that we would not have a Problem. Board Member Olander recommended and Board Member Lewis agreed that this item should be on the Investment Board's Work Plan for FY 2001/02. Chairman Osborne asked if there were any other items to add to the FY 2001/02 Work Plan and suggested that the Board continue Item C to the July Board meeting. Mr. Falconer stated that a Staff Report is needed for the City Council to report what the Work Plans are for each of the Commissions and the Board for FY 2001/02. Mr. Falconer requested that this U.S. Treasury item and any other items be included in the Work Plan for FY 2001/02. A motion was made by Board Member Olander/Lewis to add the U.S. Treasury buy back program and its effects on the City investment limit in U.S. Treasuries to the FY 2001/02 Work Plan, motion carried unanimously. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - May 2001 Board Member Olander referenced the T-Bill at 3.6% and the discount rate at 3.5%, which are usually 50 basis points of each other. If the T-Bill rate gets higher than the discount rate, the banks will go to the bond window and start buying the yield on the Treasuries, which will have the an affect on the liquidity of the country. Mr. Falconer questioned, for his own understanding, instead of banks using money that the banks have for loans, will they invest in U.S. Treasuries? Board Member Olander stated that was correct, the money would be used to invest in risk free U.S. treasuries and not in loans. Currently, the spread is 10 basis points; however, if the Fed lowers the discount rate the spread might go up to 25, 30, 40 or 50 basis points with no exposure. Board Member Lewis asked Board member Olander if the market has priced in a Fed rate cut? Board Member Olander responded that it was currently assuming at least a quarter point. B. Pooled Money Investment Board Reports - March 2001 Board Member Lewis referencing the year to year comparison LAIF performance 4 Investment Advisory Board June 13, 2001 Minutes report, states that LAIF yield was dropping drastically and they were also shortening their maturity dramatically. They shortened their maturity through March 2001 and May 2001, by almost 20 days. And while the rate has been fairly stable it dropped from 5.97% to 5.19%. Chairman Osborne stated that if you look at the difference at the 5.19% for LAIF versus the 3.5% or 3.56% for U.S. Treasuries and that the 'difference is growing, and is greater than the last meeting. Board Member Olander concurred that the LAIF rate looked very attractive compared to U.S. Treasuries. Mr. Falconer stated that he wanted to note total portfolio in March was $42 billion and the end of May it's $49.6 billion, so it has gone up 20% in two months. Chairman Osborne stated that looking at the investments made by LAIF, they have consistently remained at 85% of the types of investments made by the City. VII BOARD MEMBER ITEMS Board Member Olander stated that the July meeting needed to be rescheduled. The Board agreed to move the meeting on from July 11= to July 19~. Chairman Osborne and Board Member Lewis stated wanted to publicly acknowledge the contributions made by Joe Irwin while serving on the Board. VIII ADJOURNMENT MOTION - It was moved by Chairman Osborne to adjourn the meeting at 6:00 p.m. Motion carried unanimously. Submitted by, Vianka Orrantia Secretary