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2005 02 09 IAB MinutesREPORT/INFORMATIONAL ITEM: INVESTMENT ADVISORY BOARD Meeting February 9, 2005 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 Mahfoud, followed by the Pledge of Allegiance. PRESENT: Board Members Mahfoud Olander, Moulin and Deniel, Chairman Lewis (5:55) ABSENT: None OTHERS PRESENT: John Falconer, Finance Director; Vianka Orrantia, Secretary 11 PUBLIC COMMENTS - None III CONFIRMATION OF AGENDA — (This is the time set aside for public comment on any matter not scheduled on the agenda.) IV CONSENT CALENDAR A. Approval of Minutes of Meeting on January 12, 2005 for the Investment Advisory Board. Board Member Moulin stated to the Board that the following correction should be made to page 1, last paragraph, third sentence: Guidelines stated by the Attorney General's opinion are followed, there vvM need to be a change in the ordinance; Board Member Moulin asked the .Board and Staff to clarify "2003 taxable"mentioned on page 2, last paragraph, third sentence. Mr. Falconer clarified for the Board that this was in reference to a bond. Board Member Moulin stated to the Board that on page 5, under Board Member Items, first sentence should be clarified as to what was said and should read: and feels Fannie Mae is a sueees.Sfi. 1 11 RF c %ApeFstill an MOTION - Itwas moved by Board Members Moulin/Olander to approve the Minutes of January 12, 2005 as amended. Motion carried unanimously. Investment Advisory Board February 9, 2005 Minutes V BUSINESS SESSION A. Transmittal of Treasury Report for December 2004 Mr. Falconer commented to the Board that on page 3, upon reviewing the annualized earning rates that the fiscal agent investment rates were slightly higher than the pooled cash rates, with the reinvestments of a large portion of the portfolio in the months of January and February the pooled cash dollar amount should begin to rise. Mr. Falconer stated that he previously reported the City would meet the six month Treasury bill but due to the continued rise in Treasury bill rates, this might not be possible at this time. General comments were made by the Board regarding the current rise in the interest rates. MOTION — It was moved by Board Members Olander/Moulin to review, receive and file the Treasurer's Report December 2004. Motion carried unanimously. B. Request for Proposal for Portfolio Manager Mr. Falconer stated to the Board that the items shaded in the RFP needed the Board's input and the bullet points also will need to be addressed. In response to Board Member Deniel Mr. Falconer advised the Board that the template used for the draft RFP was the one received from California Debt Investment Advisory Committee. The Board suggested the following changes be made to the Draft Request for proposal, Page 1, Item I. Criteria for Evaluation and Selection: Remove percentages that are listed. This section defines how the proposal, will be judged. Sample criteria and weightings includes the following: List the criteria as follows: 1. Experience of the firm in providing services to public sector entities of similar size and with similar investment objectives. 2. Professional experience and qualifications of the individuals assigned to the account. 2 IJ 3 Investment Advisory Board Minutes February 9, 2005 3. Portfolio management resources, investment philosophy and approach. 4. Responsiveness to the RFP, communicating an understanding of the overall program and services required. 5. Reporting capabilities, 6. Fees Board Member Deniel stated to the Board that the portfolio manager will need to be given a potential size of the portfolio and a designated time frame, as example: six months or a year. Board Member Mahfoud stated to the Board that this will need to be decided by the Treasurer and the Treasurer will need to research the amount given to the portfolio manager. In response to Board Member Mahfoud, Board Member Deniel stated to the Board that this should be set up as a discretionary account. Board Member Moulin advised the Board that a consensus was taken at the previous. meeting and it was agreed that the account should be a discretionary account. The Board discussed the length of maturity. Board Member Moulin suggested to the Board that the maturity be over two years not more than five years. Board Member Moulin asked the Board if the City could invest beyond five years. Mr. Falconer stated that the state code is five years and if the City decided to go beyond five years this would need Council approval. Board Member Deniel stated that LAIF goes beyond five years. Chairman Lewis stated that LAIF is not a City. Board continued to discuss how long the portfolio would be allowed to be invested. Chairman Lewis advised the Board that the length of maturity should be up to five years. The next issue discussed by the Board was the types .of investments. Chairman Lewis stated to the Board that the investments should be somewhere between the investment policy and government code, the government code would make more sense. The Board could pull out the ones that are not allowed under City policy, thus making a two tier policy listing allowable and unallowable investments. Mr. Falconer advised the Board as an example page three of the Treasurer's Report list the different investments and credit quality, which are some standards of the government codes. Board Member Deniel suggested starting out with those investments allowed under the government code and cross out the ones that the Board does not want listed. Chairman Lewis concurred. 3 Investment Advisory Board Minutes February 9, 2005 Board Member Deniel suggested the following wording on page two, item A-5: Board Member Deniel suggested that item A-4, that the ending should read: litigation involving your organization, any officer, or employee at any timer��sl�ars. Board concurred. Board Member Deniel asked the Board on page three, Item B-4, which reads: Describe your firm's compensation policies for investment professionals, what is the City asking? General discussion ensued by the Board regarding Item B-4 and the Board agreed to add the following: Describe your firm's compensation policies for investment p rofessionalsoffil .4 Chairman Lewis suggested that the table that was going to be placed in item A-5 be removed and merged with Section C-1 & C2. Board Member Deniel asked Staff to clarify the columns listed on page 3 Item C-3, operating funds and other funds. Mr. Falconer stated that a good example is pooled cash; these are operating funds vs. the physical agent cash, which are bond funds. Board Member Denial stated that a Portfolio Manager would not break down the funds this way. Mr. Falconer stated that the Portfolio Manager will need to comply with the bond indenture. Board Member Deniel suggested they be called indenture funds or restricted funds. Chairman Lewis advised the Board that the people that will be submitting proposals to the RFP will be familiar with fund accounting for cities. Chairman Lewis also advised the Board that bond funds are very restrictive. Board Member Deniel suggested that the columns be labeled: Operating Funds and Other Restrictive Funds, omitting the word specify. N Investment Advisory Board Minutes February 9, 2005 Mr. Falconer asked the Board if item C-3 would be for government clients or for everyone, due to the different risks for each individual client. The Board suggested the following wording for Item C-3 read: List in the following table the percentage by market value of aggregate assets under W. under management for your latest reporting period: It was suggested by the Board that page five, item C-5, read: Provide data on account/asset growth over the past three 0, years. Indicate the number of 00" accounts gained and the number of aoverrrriM accounts lost. Also item C-6 should read: List your five largest clients. Board Member Moulin asked if the Board thought this might be too restrictive, there might be some firms that have few governmental clients. Chairman Lewis stated that they would like to see those firms that deal with governmental agencies. Board Member Moulin asked the Board to clarify ADV listed in item seven. Chairman Lewis replied that this is basically a firms "report card." Board Member Deniel added that this is a registration with the State of California. Chairman Lewis stated that this is filed with the FCC. Mr. Falconer asked the Board on C-9, if they wanted to add the word discretionary. Board felt that this was not needed. Mr. Falconer also asked the Board if they wanted the firms to answer the questions in the space provided. The Board suggested that the firms be given a list of questions and answer each question with the number and question titled on a separate piece of paper following with their answer. Board Member Deniel stated to the Board that page four, item D-3, she felt that firms might not answer this question. The Board suggested eliminating the examples from the question. The Board felt that question D-5 was not necessary and this question could be deleted from the RFP. 5 0 Investment Advisory Board Minutes February 9, 2005 Chairman Lewis suggested to the Board that item D-9, second sentence read: What types of teehnieel analysis do you use? The Board also suggested that the first sentence in item D-9 be changed to read: Describe your research capabilities as they would pertain to the governmental accounts . Board Member Deniel stated that the same change would need to be made to item D-6 and should read: Monitor credits on an ongoing basis, and report credit to governmental accounts Gity of La euinta, GA. The Board discussed if item E-1 needed to specify who would be responsible for portfolio and it was concluded by Board that item E-1 stay as is. Board Member Deniel asked the Board to clarify item F-4. Mr. Falconer replied that F-4 does not apply and can be eliminated. It was the Board's conclusion that item F-5 could also be eliminated. Mr. Falconer advised the Board that the only other additional expenses that might be incurred by the City, if the City had to use an additional Trustee, the existing Trustee could still be used. Some of the investments might go from one account into the other and there might be a minimal amount charged by the second Trustee. Board Member Deniel informed the Board that item G-2, where it has (AMIR) standards, this has been renamed from AMIR to CFA (Charted Financial Analysis) Institute, and this should be included as well. Board Member Moulin stated to the Board that he was not sure what was being asked in item G-3. The state of California should be specified in item G-3 therefore should read: Do your reports conform to California State reporting standards? Board Member Mahfoud suggested the following change to G-2: '� 4��' � Please provide11101. for the past five years for current accounts lei Investment Advisory Board Minutes February 9, 2005 comprised of securities with maturities quualfty Und seetdaub* i agen�#i�n�snitic� similar to those of City of La Quinta, CA. Mr. Falconer proposed to the Board that a redline draft be drafted and brought back to the next scheduled meeting for Board's review. MOTION -. It was moved by Board Members Moulin/Deniel to continue the review of the request for proposal for portfolio manager. Motion carried unanimously. C. Consideration of Fiscal Year 2005/06 Investment Policies Chairman Lewis asked the Board if they had any major changes that needed to be addressed to the upcoming year's Investment Policy, (i.e. investment criteria changes, maturity changes, portfolio changes, etc...) In response to Board Member Mahfoud, Chairman Lewis clarified for the Board other alternative investments. Board Member Moulin stated to the Board that the only change that might be made to the Investment Policy for the upcoming fiscal year would be the addition of a portfolio manager. General discussion ensued among the Board as to whether or not Council has authorized the use of a portfolio manager. Chairman Lewis advised the Board that they will need to work on the wording and language and the process needed so that it can be added into the policy. Chairman Lewis advised the Board that the other items that might need to be addressed are the maturity limits and the ongoing monitoring of GSE's. Board Member Deniel suggested to the Board that each individual Board Member take the Investment Policy and review it, at the next scheduled meeting address any changes and/or suggestions to the policy. Chairman Lewis advised the Board that in the past the Board reviews the policy page by paged during the Board meeting. Chairman Lewis proceeded to review the investment policy. Chairman Lewis advised the Board that Item V. Maximum Maturities, the language for the Portfolio Manager will need to be added. Board 7 Investment Advisory Board Minutes February 9, 2005 Member Moulin suggested to the Board that a summary page in reference to the Portfolio Manager be included in a separate section of the Investment Policy, with the suggested wording, "this is the policy and if the City engages a Portfolio Manager the following changes and limitations are in place. Chairman Lewis added, "or following the exception to the policy." Chairman Lewis concurred with Board Member Moulin by adding a summary section within the policy rather than incorporate into the language at this time. Chairman Lewis advised the Board with this being said there is one exception, Section VII. Delegation of Authority, the Portfolio Manager will need to be mentioned. Board Member Moulin asked the Board to review the handout he felt that this could be the basis for section VII. Chairman Lewis advised the Board of the three areas that should be reviewed, section VII, (suggested handout from Board Member), section V, Maximum Maturities and Section X, Authorized Investments, these areas of the existing policy that will need to be discussed, with a change to new section IXX. Chairman Lewis suggested the following changes: +XX- XX. Investment Advisory Board — City of La Quinta X-X XXI. Investment Policy Adoption There will be a new section IXX in reference to the Professional Portfolio Manager. Mr. Falconer advised the Board that Staff will draft a new section IXX and include items previously discussed. Chairman Lewis advised the Board that benchmark should be reviewed every year to make sure it's relevant to what the Board is trying to do. MOTION - It was moved by Board Members Moulin/Olander to continue the review of the Fiscal 2005/06 Investment Policies. Motion carried unanimously. VI CORRESONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - December 2004 Noted and Filed B. Pooled Money Investment Board Report — October 2004 Noted and Filed Investment Advisory Board Minutes February 9, 2005 V11 BOARD MEMBER ITEMS VIII ADJOURNMENT MOTION - It was moved by Board Members Olander/Moulin to adjourn the meeting at 7:08 p.m. Motion carried unanimously. Subm' ed by, Vianka Orrantia Secretary NEXT MEETING MARCH 9, 2005 9 '4 -1 L z,