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2006 03 08 IAB Minutes INVESTMENT ADVISORY BOARD Meeting March 8, 2006 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 Vice Chairman Olander, followed by the Pledge of Allegiance. PRESENT: Board Members Moulin, Rassi, Egbert and Deniel (6:05) ABSENT: None OTHERS PRESENT: John Falconer, Finance Director, Vianka Orrantia, Secretary and Louise West, Accounting Manager 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 there were two additional items to be added to the agenda for discussion; the first item was two articles from the Wall Street Journal received from Board Member Olander and the second item was a request was from Board Member Deniel requesting the Board to consider a written response to CO,uncil Member Osborne's comments from the February meeting. Mr. Falconer introduced Louise West, the City's Accounting Manager. Louise will be attending the May Investment Advisory Board meeting in the absence of Mr. Falconer. IV CONSENT CALENDAR A. Approval of Minutes of Meeting on February 8, 2006 for the Investment Advisory Board. Board Member Egbert advised that on page 1 of the Minutes, first sentence should read: Council Member Lee Osborne attended the Board meeting and voiced his concern as an interested party regarding the City's current investment returns, Investment Advisory Board Minutes March 8, 2006 Board Member Egbert asked Board Member Deniel to clarify the following sentences and Board Member Deniel advised that page 2 of the minutes; second paragraph third sentence should read: Board Member Deniel stated that managcmcnt a city employee dedicated to investments does not have the tools that a professional money manager has. leaving t'v\'O choiccs, thc bcst choicc '"",ould be hiring a profcssional moncy managcr has strict access to. to managc a portion of thc portfolio. With thc constraints and a third party custodian this would climinatc fraud. To increase the yield there are only two choices, the best choice would be hiring an outside professional money manager to actively manage a portion of the portfolio with the constraints of a third party custodian, which would eliminate fraud. The other choice is to have city staff a profcssional moncy managcr that 'y·y'ill purchasc only directly invest in fixed income mutual funds, such as rimco. MOTION - It was moved by Board Members Moulin/Deniel to approve the Minutes of February 8, 2006 as amended. Motion carried unanimously. VI BUSINESS SESSION A. Transmittal of Treasury Report for January 2006 Mr. Falconer reviewed for the Board the Treasurer's Report for the month ofJanuary~ page 3 reflects an increase inyield, but the benchmark continues to lag. Page 6 reflects the purchase of commercial paper, General Electric, Nestle and Citibank, which were purchased for a months period for additional yield until the pass-through and debt service payments were made the latter part of February. Page 8 reflects the property tax increment received in the amount of $18 million, which pushed the balance toward the end of the month over by $ 2 million. A debt service payment of approximately $ 6 million was paid as well as a pass-through payment in the amount of $4 million; the February Treasurer's report will reflect the decrease due to these payments. In response to Board Member Olander, Mr. Falconer reviewed for the Board the exception to the January's Treasurer's report which is reflected on page 2, is a summary report and page 1 2 through 1 6 is the documentation to the exception. This exception was a result of a 2 Investment Advisory Board Minutes March 8, 2006 transaction that transpired on January 1 8, the intent was to rollover a maturing investment Freddie Mac in the amount of $7.5 million for an additional year. The actual trade was made in a Federal Home Loan Bank, the investment was different than the one requested with the same credit rating, and therefore causing the City to exceed the City imposed $10 million limitation on GSE's for Federal Home Loan Banks. (Page 3 of the Treasurer's Report reflects the overage by $ 7 . 5 million.) Mr. Falconer stated that one of the remedies to resolve this error could have been to sell the investment but due to the guidelines in the policy it does not allow the sale of the investment for a loss. Management's intent at this time is to hold on to the investment until January of 2007 and the City will expect to be in compliance in December of 2006 when other Federal Home Loan Bank investments mature, which will place the City under the $10 million dollar limitation. Upon discovering the error, Staff compiled a memo to the City Manager in which he concurred with Staff's recommendation. Mr. Falconer described the process of purchasing investments between the Treasurer and the Broker and concluded that he took responsibility for the misunderstanding between the Treasurer and the broker. General discussion was ensued by the Board regarding the transaction and the Board was satisfied with the actions taken by the Treasurer. MOTION - It was moved by Board Members Moulin/Egbert to approve, receive and file the Treasury Report for January 2006. Motion carried unanimously. B. Consideration of Fiscal Year 2006/07 Investment Policies & Work Plan Items Board Member Moulin stated to the Board that due to Councilman Osborne's concern for higher yield, it would not be a good idea to use an internal money manager (city staff). The Board should recommend, to City Council the use of a money manager. Board Member Moulin stated that the use of a money manager already exists within the policy, other than trying to implement a money manager he felt there were no changes needed to the existing policy. General discussion ensued among the Board members regarding the implementation of a money manager, discussing with City Council their 3 Investment Advisory Board Minutes March 8, 2006 concerns for the use of a money manager and possible modifications to the investment policy. Board Member Rassi suggested to the Board a possible modification to the buy/hold to maturity within the policy. Board Member Deniel stated that she would not like this restriction removed from monies managed by the City, but would like the buy/hold restriction removed from the portion of the portfolio given to the outside manager. MOTION - It was moved by Board Members Egbert/Moulin to continue the review of the Fiscal 2006/07 Investment Policies. Motion carried unanimously. C. California Municipal Treasurer's Conference - Monterey, California April 26 - 28, 2006 Mr. Falconer informed the Board that it was approved by Council for two Investment Board Members to attend the CMT A Conference in Monterey and Staff will need to be notified by Friday, March 10th of those two Board Members who will be attending. Board Members Deniel and Rassi will be attending the upcoming CMT A Conference. MOTION - It was moved by Board Members Moulin/Olander to appoint Board Members Deniel and Rassi to attend the CMT A Conference in Monterey, California on April 26 - 28, 2006. Motion carried unanimously. D. Desert Sun Investment Advisory Board Notice MOTION - It was moved by Board Members Olander/Moulin to continue to the next scheduled meeting. Motion carried unanimously. VII CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - February 2006 Noted and Filed B . Pooled Money Investment Board Reports - December 2005 Noted and Filed 4 Investment Advisory Board Minutes March 8, 2006 VIII BOARD MEMBER ITEMS Board Member Egbert announced to the Board that he is affiliated with Windmere Real Estate and asked for permission from the Board to announce his affiliation and if the Board had any comments for a press release that Windmere will be releasing regarding his appointment to the Investment Advisory Board. Mr. Falconer advised Board Member Egbert that if there is any conflict that he might want to abstain from a voting on that particular item. Board Member Egbert suggested to the Board possibly changing the meeting time from 5:00 p.m. to an earlier time in the day. Board Member Moulin informed the Board that in previous years an earlier meeting time was a conflict for past Board members due to the fact they were still employed and were unable to attend the Board meetings until after 5:00 p.m. Board Member Deniel stated that any time earlier than 5:00 p.m. would be a conflict for her. Mr. Falconer suggested to the Board that he will research this issue with Staff and follow up with the Board at the next scheduled meeting. Board Member Olander presented to the Board for informational purposes only two articles from the Wall Street Journal dealing with FNMA and stated that these articles are issues that the Board needs to be aware of. Board Member Deniel asked Staff if they felt Councilman Osborne and/or the Council needed a response by the following suggestions; 1) by attending a City Council hearing 2) create a written memo for City Council 3) create a written memo for Councilman Osborne 4) invite Councilman Osborne back so that the Board can respond to his concerns 5) do nothing. Board Member Moulin supported option 4. Board member Olander and Rassi supported option 5. Chairperson Deniel supported some form of response to Council Member Osborne. Board Member Egbert supported either option 4 or 5 and commented about making a courtesy call to Council Member Osborne about the rate environment w~ich would ~xplain the lag in the yield. Board Member Moulin supported Chairperson Deniel on recommending an outside portfolio manager. Board Member Egbert commented that the City investment yield is performing as it should due to market conditions and the portfolio manager is a different issue. Board Member Egbert believed that Councilman Osborne has an 5 Investment Advisory Board Minutes March 8, 2006 unreasonable objective that cannot be achieved based upon the current investment policy. Discussion ensued between Board Member Moulin, Egbert and Chairperson Deniel about the benefits of a portfolio manager. Board Member Egbert again believed that Councilman Osborne has an unreasonable objective about the amount of interest earnings that can be realized based upon the current market conditions and the current investment policy six month benchmark. Chairperson Deniel concurred and believed that this should be communicated. Board Member Olander spoke regarding the educational aspects that need to be done regarding a portfolio manager. Board Member Egbert and Board Member Moulin stated that the Treasurer is appropriately reacting to market conditions by shortening the average maturity as rates go up. Board Member Moulin spoke about the need to communicate the Board's belief that the investment portfolio is being managed in accordance with market conditions and the investment policy and that the yield could be increased by using a portfolio manager who could trade since the Treasurer does not have the expertise. Board member Moulin asked staff if they could write a letter to Council Member Osborne in which Mr. Falconer responded that if Staff was directed to write such a letter that he recommend it be addressed to all Council Members. Board Member Moulin stated if Council is interested in raising rates than this would be a mechanism by using a portfolio manager. Board Members at this time proceeded to discuss the prior meeting minutes. IX Adjournment MOTION - It was moved by Board Members Moulin/Olander to adjourn the meeting at 6:55 p.m. Motion carried unanimously. ~ Vianka Orrantia Secretary 6