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2004 01 04 IAB Minutes INVESTMENT ADVISORY BOARD Meeting January 14, 2004 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 Lewis, followed by the Pledge of Allegiance. PRESENT: Chairman Lewis; Board Members Moulin, Mahfoud, Olander and Deniel ABSENT: None OTHERS PRESENT: John Falconer, Finance Director; Vianka Orrantia, Secretary II PUBLIC COMMENTS - None III CONFIRMATION OF AGENDA - (This is the time set aside for public comment on any matter not scheduled on the agenda.) Mr. Falconer advised the Board that the handout is the revised chart of interest rates, to be discussed under Business Session, Item A. IV CONSENT CALENDAR Approval of Minutes of Meeting on December 10, 2003 for the Investment Advisory Board. Board Member Moulin advised the Board that on page 4 of the minutes, third paragraph; second to the last sentence should read: which would be the General Fund Ðt:tflå and five other Page 5 second paragraph, thirteenth sentence should read: that this should be mark market to market. Page 7 fifth sentence should read: The disclosure principles principals are that the City Page 10 under Board Member Items, second paragraph did include the commendation to the Director of Finance for his remarkable display of the Investment Advisory Board January 14, 2004 Minutes records, books and financial statements. Also on page 10, second paragraph, first sentence should read: If there were any disagreements with ðf Management Chairman Lewis advised the Board that on page 10, third paragraph, fifth sentence should read: that this will be just for informational purposes that this '.,\'ould be for the purpose of hiring them MOTION - It was moved by Board Members Olander/Deniel to approve the Minutes of December 1O, 2003 as corrected. Motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Report for November 2003 Mr. Falconer advised the Board that the handout is the revised chart of interest rates with no major changes. Chairman Lewis advised the Board that on page 3 of the Treasurer's Report, under U.S. Securities and Federal Government Securities the amounts listed under All Funds Actual Over (Under) are incorrect. For example: Fannie Mae is reflecting under the All Funds Maximum of $7.5 million, $5 million listed under All Funds Actual %, with $0% listed in the All funds Over (Under). Mr. Falconer advised the Board that the $5 million should be $7.5 million, which is the actual amount invested. Chairman Lewis asked Staff if this was the same for Federal Farm Credit. Mr. Falconer replied to the Board that Federal Farm Credit is correct. Chairman Lewis stated that there is an error in the formula listed under the All Funds Over (Under) category: two of the dollar amounts are incorrect. Rather than a percentage amount, this should reflect a dollar amount. General comments were made by the Board regarding the current interest rates. MOTION - It was moved by Board Members Mahfoud/Olander to review, receive and file the Treasurer's Report November 2003. Motion carried unanimously. VI CORRESONDENCE AND WRITTEN MATERIAL 2 Investment Advisory Board January 14, 2004 Minutes A. Month End Cash Report - December 2003 In response to Board Member Deniel, Mr. Falconer stated to the Board that due to the holiday $1.3 million was transferred to LAIF to accumulate interest. The dollar amount was still within the limits of the Investment Portfolio, the total LAIF account is $25 million, with the portfolio at $120. million, which still places us under the 25% limitation. In response to Board Member Moulin, Mr. Falconer advised the Board that on page 10 of the Month End Cash Report that the variance reflects building fees and permits in the Building Department and plan check fees in the Public Works Department. Due to the City's growth the budgeted amount was exceeded. Board Member 1V!0ulin asked Staff why salaries and fringe benefits differed. Mr. Falconer advised the Board that the employees are paid bi-weekly with a possibility of three pay periods in the month of November instead of two. Chairman Lewis informed the Board that there were three pay periods in October instead of November, and part of November could have been shifted, the amount currently reflected is under by 50%. Mr. Falconer stated that he would investigate the variance and report back at the next scheduled board meeting. Noted and Filed B. Pooled Money Investment Board Report - October 2003 General comments were made by the Board regarding the October Pooled Money Report for October 2003. Noted and Filed VII BOARD MEMBER ITEMS Board Member Deniel informed the Board that an invitation was extended to and accepted by Capital Guardian Trust Company, to be present at the next scheduled meeting on February 11 at 4:30 p.m. Board Member Deniel stated that she emphasized to Capital Guardian Trust Company that this was not a sales presentation; they were just showing what they could do for the City and/or what the City could do to diversify to earn more money, with controlled risks. A list was requested of their current clients for Board review. Board Member Deniel informed the Board that she spoke with representatives from Capital Guardian Trust Company, John Dewey, Jim Mullaley, the Fixed Income Portfolio Manager and Michael Locke. 3 Investment Advisory Board January 14, 2004 Minutes Currently Capital Guardian Trust Company manages the portfolio for the cities of Los Angeles, San Francisco, New York, and several Fire departments, which includes the County of San Bernardino. Once again, a list will be provided for Board review. The company is comprised of Capital Guardian Group, Capital Group Asset Management Company and Capital Group Companies. They are broken out into two separate companies by SEC regulations, one is Capital Group Research and the other Management, which manages the American Funds; this group is retail oriented and manage compliance for the retail customer. Capital Guardian Trust Company manages institutional funds, such as management of foundations, corporate pension plans, city pension plans and city's funds. The company's headquarters is based out of Los Angeles with offices based all over the country. Not only do they have operations based country wide, they also have research analysts throughout the world. There is an index called the EFA Index, which represents the Morgan Stanley Capital EFA Index. Capital Group does the research for this index on a regular basis. Chairman Lewis advised the Board that there has only been one confirmation for the presentation. Chairman Lewis reiterated that these presentations were for informational purposes only. The presentations would help the Board to consider amending the policy to allow this type of managing company. Board Member Deniel suggested to the Board that at the very least, the Board have two presentations she could extend an invitation to North Trust Company if there was not another confirmed presentation. Chairman Lewis will notify Board Member Deniel as to whether or not he was able to confirm the invitation extended to another company. Mr. Falconer advised the Board of an email he received from California Municipal Treasurers Association. The email was sent to notify members regarding their serious concerns about CAL TRUST. This fund was setup by the League of California Cities, and is an investment pool similar to LAIF but is not dollar denominated and has changes in the value. The CMT A is notifying its member not to participate. CAL TRUST was set up originally by some of the central valley counties, extending participation to cities. Mr. Falconer informed the Board that after reviewing their net asset values there happened to be many losses. In response to Board Member Olander, Mr. Falconer informed the Board that he felt that the League was sometime used by private individuals or private institutions to market their product; in this case, the League was used to set up an investment program. Chairman Lewis stated to the Board that he felt some of their members were trying to wean themselves from LAIF, and there were previous concerns regarding LAIF in the past by some of the Investment Board Members. 4 Investment Advisory Board January 14, 2004 Minutes Board Member Deniel advised the Board of her concern regarding LAIF. Stating LAIF currently writes tickets and builds buildings with slide rules. The current process is that of the late 1950's with very experienced personnel. The average LAIF personnel's age is 50 years or above. When they do retire who will manage this with the current tools in place. General discussion ensued by the Board regarding the concerns of LAIF. Board Member Moulin suggested to the Board that they cover the Investment Advisory Board work plan items from time to time. The Board currently discussed LAIF and there might be other items to discuss such as commercial paper or GSE's. There has been continued publicity and scrutiny of Freddie Mac and Fannie Mae and continual change taking place. This could possibly be due to a new regulator. Board Member Deniel stated to the Board that Freddie Mac's issue was never doubting the solidity of the investments, but that management was violating accounting rules by hiding inco~e. General discussion ensued by the Board regarding Freddie Mac and Fannie Mae. Board Member Mahfoud asked the Board their consensus on the current interest rates. General discussion and comments were made by the Board regarding interest rates. Chairman Lewis asked the Board to meet at 4:00 p.m., due to the scheduled presentations for February's board meeting. He suggested starting with basic housekeeping items and follow with the presentations at 4:30 p.m. to 5:30 p.m. The Board would then be able to continue the bulk of the session items. It was the consensus of the Board to convene the next scheduled meeting at 4:00 p.m. VIII ADJOURNMENT MOTION - It was moved by Board Members Moulin/Olander to adjourn the meeting at 6:10 p.m. Motion carried unanimously. a~ Vianka Orrantia Secretary 5