Loading...
2006 09 13 IAB Minutes INVESTMENT ADVISORY BOARD Meeting September 13, 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 Chairperson Deniel, followed by the Pledge of Allegiance. PRESENT: Board Members Moulin, Deniel, Olander, and Rassi ABSENT: OTHERS PRESENT: Board Members Egbert John Falconer, Finance Director, Louise West, Accounting Manager and Vianka Orrantia, Secretary, II PUBLIC COMMENTS - Ted Novascone, La Quinta Resident Mr. Novascone advised the Board of the handout addressing the RFP for money manager. Mr. Falconer suggested thatthis item be discussed under V. Business Session, item B. III CONFIRMATION OF AGENDA - (This is the time set aside for public comment on any matter not scheduled on the agenda.) None. IV CONSENT CALENDAR A. Approval of Minutes of Meeting on July 12, 2006 for the Investment Advisory Board. Board Member Moulin advised of a change to page 3, Item D, fifth sentence and the sentence should read: Board member Moulin advised that the review of the RFP is a delegation of authority by the City Council. MOTION -It was moved by Board Members Olander/Moulin to approve the Minutes of July 12, 2006 as amended. Motion carried unanimously. VI BUSINESS SESSION A. Transmittal of Treasury Report for June and July 2006 Mr. Falconer informed the Board that the City's annual audit was now complete and there were no unrealized gains or losses made in the financial statements based upon the June Treasurer's Report. Investment Advisory Board Minutes September 13, 2006 In response to Chairperson Deniel, Mr. Falconer advised that the management letter from the auditors is distributed to the City Manager and City Council, if the Board wishes to obtain a copy one could be made available. Board Member Moulin commented that the role of the Investment Advisory Board is limited to cash and investments, since there were no comments made towards these items the management letter is not usually distributed to the Board. Mr. Falconer reviewed for the Board the June and July Treasurer's reports, the reports reflect a flattening in yield curve and is therefore keeping the treasuries short. The activity report also reflects reinvestments at a higher yield to maturity. In response to Board Member Olander, Mr. Falconer advised ofthe purchase of commercial paper, $3 million in GE Capital and $3 million in UBS. Mr. Falconer stated that he stays away from purchasing asset backed paper and purchases recognizable names. Board Member Olander commented that LAIF currently has invested heavily in commercial paper. Board Member Moulin commented that page 18 of the July Treasurer's Report reflects new names of commercial paper purchased such as American Honda Finance and Wells Fargo and wanted to know ifthese were purchased because the City was unable to roll over the Farm Credit paper. Mr. Falconer replied that the Farm Credit was rolled over in the month of August and at that time it was hard to purchase Farm Credit paper. The Farm Credit paper that was purchased was kept short term in order to pay the debt service that was due at the end of August. MOTION - It was moved by Board Members Moulin/Olander to approve, receive and file the Treasury Report for June and July 2006. Motion carried unanimously. B. Fiscal Year 2006/07 Work Plan - Review of Investment Policy Chairperson Denial commented that Mr. Falconer was not in favor of having a portion of the portfolio managed by an outside firm. She also commented that due to the growth of the City, the City has grown beyond its original structure of the current investment policy and that the City should gradually introduce an outside money manager. Chairperson Deniel informed the Board of her attendance at the July 18th, 2006 Council Meeting for approval of the 2006/07 Investment Advisory Board work plan. She also informed the Board of the comments made by Council in reference to an outside money manager, their suggestions to relax the policy and authorize the Treasurer 2 Investment Advisory Board Minutes September 13, 2006 to expand its range of investments. The following are suggested areas of discussion to be considered by the Board: . Changing the buy and hold policy . Changing the two year restriction . Allowing for callable GSE's . Changing or eliminating the dollar limitations on GSE's, Commercial Paper and Corporate Notes Chairperson Deniel stated her personal comments in reference to the items of consideration; personally she does not want the internal current buy and hold policy removed. The changing of the two year restriction, she has no problem approving an increase to five years; allowing for callable GSE's, no; changing or eliminating the dollar limitations on GSE's, Commercial Paper and Corporate Notes, eliminating them, no, maybe consider increasing Commercial Paper and Corporate Notes provided the Board create individual limits by issuer. Board Member Moulin advised the Board that the Council vote in favor of a portfolio manager is currently split. General discussion ensued among the Board about educating the City Council in regards to hiring a portfolio manager and the Councils concern over the possibility of losing money and their liability if money is lost. Board Member Rassi advised the Board that he was not in favor of hiring an outside portfolio manager and if the Board considered changing the constraints in the policy for an outsider why not change the constraints for the Treasurer. General discussion ensued among the Board regarding the hiring of a portfolio manager, the investments allowed, possible risks and possible return by the portfOlio manager. Mr. Novascone advised the Board of his 40 years experience in the investment field. He reviewed his handout for the Board and emphasized that if the Board chooses to hire a firm to handle a portion of the City's portfolio that they hire a reputable firm and if the Board chooses not to hire a firm he recommended that the City do a laddered approach to investments. Chairperson Deniel suggested that they ask some firms to make presentations as to what their historic performance has been for the six month T-BiII. She also suggested that PIMCO make this presentation to the 3 Investment Advisory Board Minutes September 13,2006 City. Mr. Novascone stated that this information could be obtained through the Nelson Market Place without having to go through an actual presentation. He suggested obtaining the top ten firms from the Nelson Market Place and writing each firm and obtaining their information relative to the benchmark. Board Member Moulin stated that there is a preconceived notion that exists with Council regarding a portfolio manager and a presentation might help the Council feel more comfortable. It was agreed upon by the Board to table the portfolio manager until next year. Chairperson Deniel suggested that each individual item listed on the work plan be discussed and voted upon by the Board. Mr. Falconer asked that he clarify his response based upon the direct question of the Mayor which was "John what do you want to do?" Mr. Falconer replied that a portfolio manager would in his estimation earn more yield but did not recommend a portfolio manager at this time because of the inverted yield curve. Mr. Falconer stated that based upon the time and allowable investment restrictions in the State Code this would not be the best time to utilize a portfolio manager. Mr. Falconer stated that if a portfolio manager were to be used they would follow a total return strategy which may result in investment losses, a result in City Council notoriety and will result in a shift of responsibility from the Treasurer to City Council. Mr. Falconer asked the Board if they wanted to look at the six month benchmark to see if it was the appropriate one to use. He continued that for the last year he has exceeded the benchmark however, the benchmark has continued to increase jumping from 1 % to 5%. He suggested an annualized benchmark. Mr. Falconer advised the Board that the items listed in the work plan were for discussion purposes and he would also like to have the Board consider the City's current six month benchmark. Mr. Falconer advised the Board that this is more than just investment funding it also affects cash flow projections. In response to Board Member Moulin, Mr. Falconer advised that when the Board decides to move forward on hiring a portfolio manager than the City will determine the money at that time for the manager to invest. 4 Investment Advisory Board Minutes September 13, 2006 The Board voted on the items of discussion listed on the work plan; . Changing the buy and hold policy: 4 noes o ayes . Changing the two year restriction: 2 possible 1 noes 1 ayes . Allowing for callable GSE's: 4 noes o ayes General discussion ensued among the Board in regard to callables. . Changing or eliminating the dollar limitations on GSE's,: It was agreed by the Board to continue to the next scheduled Board meeting. Commercial Paper and Corporate Notes: $5 million per issuer with the understanding that the City can invest in the same issuer of commercial paper and corporate notes. o noes 4 ayes Mr. Falconer commented that under the current investment policy he is restricted to U.S. Treasuries. In response to Chairperson Deniel, Mr. Falconer advised that the Board discuss these items at the next scheduled Board meeting and than present to Council at the scheduled meeting on October 24th. He also advised that he felt Council did not want to table the RFP for portfolio manager for a year and that Council might consider amending the investment policy mid year. General discussion ensued among the Board in regards to GSE's. Mr. Falconer stated that as a practical matter the City has not invested in Fannie Mae due to their lack of an audit, if the policy stated $10 million or $20 million Staff would not invest in Fannie Mae until this is resolved. Mr. Falconer also stated that he would like to have the Board's comments at the next meeting in regards to this issue. Chairperson Deniel requested that GSE's be discussed at the October Investment Advisory Board meeting which the Board agreed upon. MOTION - It was moved by Board Members Rassi/Olander to continue the discussion of the 2006/07 Investment Policy to the October meeting. Motion carried unanimously. 5 Investment Advisory Board Minutes September 13, 2006 VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - August 2006 Noted and Filed B . Pooled Money Investment Board Reports - May and June 2006 Noted and Filed C. Minutes of City Council Investment Advisory Board Work Plan Noted and Filed. D. Joint Meeting with Investment Advisory Board and City Council Board Member Moulin informed the Board that he will not be in attendance at the scheduled joint meeting with the City Council. VII BOARD MEMBER ITEMS General discussion ensued among the Board regarding the investing of City funds in the editorials in the months of July and August. Chairperson asked if the Board received a letter from the City regarding mandatory ethics training. Board Member Rassi clarified that the training is mandatory but how the test is taken is optional. Mr. Falconer advised the Board that there is a $50 fee for the training and this fee is reimbursable. If the test is taken through the California League of Cities. Board Member Moulin advised that the next scheduled training is on October 2 from 6:30 to 9:30 p.m. VIII Adjournment MOTION - It was moved by Board Members Moulin/Rassi to adjourn the meeting at 6:55 p.m. Motion carried unanimously. 6 Investment Advisory Board Minutes September 13,2006 Submitted bC:;' 'f" . l . / . 'P(C~'tl{L' A;{/:;p.~ Vianka Orrantia, Secretary 7