FA Resolution 2008-001RESOLUTION NO. FA 2008-001
A RESOLUTION OF THE LA QUINTA FINANCING
AUTHORITY OF THE CITY OF LA QUINTA APPROVING
AND ADOPTING THE AMENDED INVESTMENT POLICY
FOR FISCAL YEAR 2008/2009
WHEREAS, the general purpose of the Investment Policy is to provide the
rules and standards users must follow in investing funds of the City of La Quinta;
and
WHEREAS, the primary objectives, in order of priority, of the City of La
Quinta's investment activity shall be:
Safety of principal is the foremost objective of the investment program.
Investments of the City of La Quinta shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio.
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated.
The investment portfolio shall be designed with the objective of attaining a
market rate of return or yield throughout budgetary and economic cycles,
taking into account the investment risk constraints and liquidity needs.
WHEREAS, authority to manage the City of La Quinta's investment portfolio
is derived from the City Ordinance. Management responsibility for the investment,
program is delegated to the City Treasurer, who shall establish and implement=
written procedures for the operation of the City's investment program consistent
with the Investment Policy for Fiscal Year 2008/2009; and
WHEREAS, the Investment Policy will be adopted before the end of June of
each year and amended as considered necessary; and
NOW, THEREFORE, BE IT RESOLVED by the Financing Authority of the City
of La Quinta to adopt the Fiscal Year Investment Policy (Exhibit A).
Resolution No. FA 2008-001
Amended Investment Policy - 2008/2008
Adopted: June 19, 2008
Page 2
PASSED, APPROVED, and ADOPTED at an adjourned meeting of the La
Quinta Financing Authority, held on thisl9th day of June, 2008 by the following
vote, to wit:
AYES: Members Henderson, Kirk, Osborne, Sniff, Chairman Adolph
NOES: None
ABSENT: None
ABSTAIN: None
DON ADOLWH, Ch man
La Quinta Financing Authority
ATTEST:
La Quinta Financing Authority
(SEAL)
APPROVED AS TO FORM:
N,V KATHERINE JENSONKAuthority Counsel
La Quinta Financing Authority
EXHIBIT "A"
FINAL VERSION
PAGE EXECUTIVE SUMMARY
10 State Treasurer's Local Agency Investment Fund (LAIF):
Increase Investment limit from 25% to 30%.
10 U.S. Government Agency Securities and Federal
Government Securities: Increase maximum Federal Home
Loan Bank Investments from $20 million to $30 million
investments.
11 Professionally Managed Account(s): Allow the City
-Treasurer to place up to 10% of the portfolio with a
professional portfolio management firm (PPMF). The
PPMF will be approved by City Council pursuant to a
Request for Proposal outlined in Appendix G and H.
CITY OF LA QUINTA
Investment Policy
Fiscal Year 2008-09
Table of Contents
lection
Topic
Page
Executive Summary
2
1
General Purpose
4
11
Investment Policy
4
III
Scope
4
IV
Objectives
4
► Safety of Principal
► Provide Liquidity
► Yield A Risk -Based Market Rate Of Return
V
Maximum Maturities
6
VI
Prudence
6
Vil
Authority
7
Vill
Ethics and Conflicts of Interest
7
IX
Authorized Financial Dealers and Institutions
7
► Broker/Dealers
► Financial Institutions
X
Permissible Deposits and Investments
8
XI
Investment Pools
12
XII
Payment and Custody
12
XIII
Interest Earning Distribution Policy
12
XIV
Internal Controls and Independent Auditors
13
XV
Reporting Standards
14
XVI
Financial Assets and Investment Activity Not Subject to this Policy
14
Xvll
Investment of Bond Proceeds
15
XIII
Investment Advisory Board - City of La Quinta
15
XIX
Investment Policy Adoption
15
appendices
Topic
Pam
A
Summary of Permissible Deposits and Investments
17
B
City of La Quinta Municipal Code Ordinance 2.70 - Investment Advisory Board
19
C
City of La Quinta Municipal Code Ordinance 3.08 - Investment of Moneys and Funds20
D
Segregation of Major Investment Responsibilities
22
E
Listing of Approved Financial Institutions
23
F
Broker/Dealer Questionnaire and Certification
24
G
Request for Proposal for Professional Portfolio Management Firm
28
H
Permissible Investment Chart — Professional Portfolio Managen-lent Firm
34
1
Investment Management Process and Risk
35
J
Glossary
36
CITY OF LA QUINTA
Investment Policy
Fiscal Year 2008-09
Executive Summary
The general purpose of this Investment Policy is to provide the rules and standards that must be
followed in administering the City of La Quinta's deposits and investments.
The City's Investment Policy conforms to all state and local statutes and applies to all deposits
and investments of the City of La Quinta, City of La Quinta Redevelopment Agency, and the
City of La Quinta Financing Authority (the"City" ).
It is the City's policy to deposit and invest public funds in a manner that shall provide:
Safety of principal;
Liquidity to meet all of the City's obligations and requirements that may be reasonably
anticipated;
A risk -based market rate of return,
It is the City's policy to hold securities and other investments until maturity. This buy -and -hold
policy shall not prevent the sale of a security to minimize loss of principal when an issuer or
backer suffers declining credit worthiness or when the liquidity needs of the portfolio require
that a security be sold.
Authority to manage the City's investment portfolio is derived from the City Ordinance.
Management responsibility for the investment program is delegated to the City Treasurer, who
shall establish and implement written procedures for the operation of the City's investment
program consistent with the Investment Policy. The Treasurer shall establish and implement a
system of internal controls to accomplish the following objectives:
► Safeguard assets;
► The orderly and efficient conduct of its business, including adherence to all City
management policies;
► Prevention or detection of errors and fraud;
► The accuracy and completeness of accounting records;
► Timely preparation of reliable financial information.
The System of Internal Controls developed by the City Treasurer shall be reviewed annually by the
independent auditors in connection with the annual audit of the City's Financial Statements.
The City Manager, Assistant City Managers, City Treasurer and city employees involved in the
City's banking and investment process shall conduct the City's business in an ethical manner and
refrain from any activity or relationship that may be, or have the appearance of, a conflict of
interest.
The City Treasurer maintains a listing of financial institutions which are approved for investment
purposes. All Broker/Dealers and financial institutions that provide investment services will be
subject to City Council approval.
The Treasurer will be permitted to invest only in the permissible deposits and investments
described in Section X and Appendix A up to the specified maximum allowable percentages
2
and/or dollar limitations and, where applicable, through the bid process requirements. Permissible
deposits and investments include, in general:
► FDIC -Insured Checking, Savings, and Sweep Accounts;
► Certificates of Deposit;
► U.S. Government Agency Securities and Federal Government Securities;
► Prime Commercial Paper;
► Local Agency Investment Fund (LAIF);
► Money Market Mutual Funds;
I. Corporate Notes;
► Professionally Managed Accounts.
The City's deposits and investments are generally limited to three years' maximum maturity.
However, the projected amount of funds not expected to be disbursed within five years may be
invested in U.S. Treasury bills, notes and bonds maturing between three and five years.
The City's Investment Policy does not specify a single benchmark as a goal or target yield for a
rate of return on its investment portfolio. As a basis for comparison only, the Treasurer's
monthly report will display the rates of return on the three-month, six-month, and one-year U.S.
Treasury Bill, comparable -period rates for commercial paper, and the yield for the State
Treasurer's Local Agency Investment Fund (LAIF).
The Investment Policy shall be adopted by resolution of the La Quinta City Council on an annual
basis. The Investment Policy will be adopted before the end of June of each year.
This Executive Summary is only an overview of the City's Investment Policy. Reading this
summary does not constitute a complete review, which can only be accomplished by reviewing all
of the pages herein.
3
City of La Quinta
Statement of Investment Policy
July 1, 2008 through June 30, 2009
Adopted by the City Council on June 19, 2008
GENERAL PURPOSE
The general purpose of this document is to provide the rules and standards that must be followed
in administering the City of La Quinta's deposits and investments.
II INVESTMENT POLICY
It is the policy of the City of La Quinta to deposit and invest public funds in a manner that shall
provide:
➢ Safety of principal;
➢ Liquidity to meet all of the City's obligations and requirements that may be reasonably
anticipated;
➢ A risk -based market rate of return.
The Investment Policy conforms to all State and local statutes governing the investment of public
funds and sets forth the permissible deposits and investments of the City's funds and the
limitations thereon.
III SCOPE
Except as further detailed in Section XVII, this Investment Policy applies to all deposits and
investments of the City of La Quints, City of La Quints Redevelopment Agency and the City of La
Quints Financing Authority (hereafter referred to in this document as the "City"). These funds are
reported in the City's Comprehensive Annual Financial Report (CAFR) and include all funds within
the following fund types:
► General
► Special Revenue
► Capital Projects
► Debt Service
► Enterprise
► Internal Service
► Trust and Agency
► Any new fund types and fund(s) that may be created.
IV OBJECTIVES
The objectives of the City's investment activity, in order of priority and importance, are:
1. Safety of Principal
Safety of principal is the foremost objective of the City's investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of
principal of the overall portfolio in accordance with the permissible deposits and
investments.
The City shall endeavor to preserve its investment principal by making only permissible
deposits and investments, undertaken in a controlled manner to minimize the possibility of
loss or misappropriation through malfeasance or otherwise. Investments not backed by
the full faith and credit of the United States Government shall be diversified by allocating
assets between different types of permissible investments, maturities, and issuers as a
means to mitigate credit risk and interest rate risk.
A. Credit Risk is the risk of loss from the failure of the security issuer or backer.
Credit risk may be mitigated by;
► Limiting investments to investment grade securities as permitted in Section X;
► Diversifying the issuers of the securities in the investment portfolio so that
potential losses due to issuer failure or individual securities downgrades may be
minimized.
B. Interest Rate Risk is the risk that market values of securities in the portfolio will
decline due to changes in general interest rates, Interest rate risk may be mitigated
by:
► Structuring the investment portfolio so that securities mature to meet cash
requirements for ongoing operations, thereby avoiding the need to sell securities
on the open market prior to maturity; and
► Investing operating funds primarily in shorter -term securities.
C. Liquidity Risk is the risk that a security cannot be liquidated because of its unique
features or structure or because it is thinly traded. Liquidity risk is not a material
issue for the City's portfolio because of the permissible deposits and investments
(see Section X) and because the City maintains a buy -and -hold policy and holds
securities and other investments to maturity. A discussion of the City's investment
process and risk is presented in Appendix I.
2. Provide Liquidity
The investment portfolio shall remain sufficiently liquid to meet ail of the City's cash needs
that may be reasonably anticipated. This is accomplished by structuring the portfolio so
that sufficient liquid funds are available to meet anticipated demands. Furthermore, since
all possible cash needs cannot be anticipated the portfolio should be diversified and
consist of securities with active secondary or resale markets.
The City's policy is to hold securities and other investments to maturity. Accordingly,
securities shall not be sold prior to maturity with the following exceptions:
► A security with declining credit quality can be sold early to minimize loss of
principal;
► Unanticipated liquidity needs of the portfolio require that one or more securities be
sold.
3. Yield A Risk -Based Market Rate Of Return
The City's investment portfolio shall be structured with the objective of yielding a risk -
based market rate of return throughout budgetary and economic cycles. Return on
investment is less important than the safety and liquidity objectives described above.
The City's Investment Policy does not specify a single benchmark as a goal or target yield
for a rate of return on its investment portfolio, The portfolio's rates of return will be
influenced by several factors, including actions by the Federal Reserve Board, the
marketplace, and overall economic perceptions and conditions. These factors will not
affect yield during the securities' holding period because the City's buy -and -hold policy
fixes the securities' yield at the time of purchase.
As a basis for comparison only, the Treasurer's monthly report will display the rates of
return on the three-month, six-month, and one-year U.S. Treasury Bill, comparable -period
rates for commercial paper, and the yield for the State Treasurer's Local Agency
Investment Fund (LAIF). The Treasurer may use these or any other published rates of
return that the Treasurer deems appropriate for comparison to the return on the City's
investment portfolio.
V MAXIMUM MATURITIES
It is the City's policy to hold securities and other investments until maturity, thus avoiding the risk
of market value fluctuations with overall market interest rates. This buy -and -hold policy shall not
prevent the sale of a security to minimize loss of principal when an issuer or backer suffers
declining credit worthiness or when the liquidity needs of the City require that a security be sold.
The buy -and -hold policy requires that the City's investment portfolio be structured so that
sufficient liquid funds are available from maturing investments and other sources to meet all
reasonably -anticipated cash needs. To meet anticipated cash needs, it is essential that the
Treasurer have reliable, diligently prepared cash flow projections.
Annually, the Treasurer shall project the amount of funds not expected to be disbursed within five
years. For FY 2008/09, the amount of such funds is projected to be $8 million. Funds up to that
amount may be invested in U.S. Treasury bills, notes and bonds maturing between 3 and 5 years.
For all other funds, investments are limited to three years maximum maturity, with no more than
25% of surplus funds invested in maturities exceeding two years and less than three years.
VI PRUDENCE
The City shall follow the Uniform Prudent Investor Act as adopted by the State of California in
Probate Code Sections 16045 through 16054.
Section 16053 sets forth the terms of a prudent person which are as follows: "Investments shall
be made with judgment and care - under circumstances then prevailing - which persons of
prudence, discretion, and intelligence exercise in the professional management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital as
well as the probable income to be derived".
G
VII AUTHORITY
Authority to manage the City's investment portfolio is derived from sections 35607 and 35608 of
City Ordinance 3.08.010, Management responsibility for the investment program is delegated to
the City Treasurer for a period of one year pursuant to the City Council's annual adoption of the
Investment Policy.
The City Treasurer shall establish written procedures for the operation of the investment program
consistent with the Investment Policy. Procedures should include reference to safekeeping, wire
transfer agreements, banking service contracts, and collateral/depository agreements. Such
procedures shall include explicit delegation of authority to persons responsible for investment
transactions. No person may engage in an investment transaction except as provided under the
terms of this Investment Policy and the procedures established by the City Treasurer, The City
Treasurer shall be responsible for all transactions undertaken and shall establish a system of
controls to regulate the activities of subordinate officials. The City Manager or an Assistant City
Manager shall acknowledge in writing all purchases and sales of investments prior to their
execution by the City Treasurer.
VIII ETHICS AND CONFLICTS OF INTEREST
The City Manager, Assistant City Managers, City Treasurer and city employees involved in the
City's banking and investment process shall conduct the City's business in an ethical manner and
refrain from any activity or relationship that may be, or have the appearance of, a conflict of
interest. Any questionable activity or relationship shall be reported immediately and in compliance
with the procedures set forth in Section 1.40 - Conflicts of Interest and Acceptance of Gifts and
other Gratuities of the City of La Quinta Personnel Manual. Reporting must be made in
accordance with the personnel policies of the City and, until resolved, the officer or employee
shall refrain from participating in the City's business related to the matter.
The City Manager, Assistant City Managers, City Treasurer and city employees may conduct
personal business with banks, brokers, and other financial institutions that are authorized to
conduct business with the City provided that the terms of the activity to the accountholder with
the City are the same as those that are available to the public in general.
IX AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
The City Treasurer maintains a listing of financial institutions which are approved for direct
investment purposes. In addition a list will also be maintained of approved broker/dealers selected
by credit worthiness, who maintain an office in the State of California.
Broker/Dealers who desire to become bidders for direct investment transactions must
supply the City with the following:
► Current audited financial statements;
► Proof of Financial Industry Regulatory Authority (FINRA) Certification;
► Trading resolution;
► Proof of California registration;
► Resume of Financial broker; and
► Completion of the City of La Quinta Broker/Dealer questionnaire (see Appendix F)
which contains a certification of having read the City's Investment Policy.
VA
The City Treasurer shall evaluate the documentation submitted by the broker/dealer and.
Independently verify existing reports on file for any firm and individual conducting
investment related business.
The City Treasurer will also contact the following agencies during the verification process:
► Financial Industry Regulatory Authority (FINRA) Public Disclosure Report File (1-
800.289-99991.
► State of California Department of Corporations (1-916-445-3062)•
The City Treasurer maintains a listing of financial institutions which are approved for
investment purposes. All Broker/Dealers and financial institutions that provide investment
services will be subject to City Council approval.
Each securities dealer shall provide monthly and quarterly reports filed pursuant to U.S. Treasury
Department regulations. Each mutual fund shall provide a prospectus and statement of additional
information.
2. Financial Institutions will be required to meet the following criteria in order to receive City
funds for deposit or investment (see Appendix E, "Listing of Approved Financial
Institutions"):
A. Insurance - Public Funds shall be deposited only in financial institutions having
accounts insured by the Federal Deposit Insurance Corporation (FDIC).
B. Collateral - The amount of the City's deposits or investments not insured by the
FDIC —shall be collateralized by securities with market values of 110%, or by
mortgages with market values 150%, of the amount of invested funds plus unpaid
interest earnings.
C. Disclosure • Each financial institution maintaining invested funds in excess of the
FDIC insured amount shall furnish the City a copy of the most recent Call Report.
The City shall not invest in excess of the FDIC insured amount in banking
institutions which do not disclose to the city a current listing of securities pledged
for collateralization in public monies.
X PERMISSIBLE DEPOSITS AND INVESTMENTS
Permissible deposits and investments are summarized below. A more comprehensive list is
included in Appendix A.
Permissible Investments and Limitations
(See Appendix A for Additional Information)
Maximum
Allocation
Maximum
Maturity
Restrictions
Curren[/
Sweep Account:
Checking & Savings Accounts FDIC Insured & Sweep Accounts
86% Portfolio
on Demand
U.S. Treasuries
andlor GSE's
<=$99.000 per
Certificates of Deposit
60% Portfolio
3 Years
institution
El
Permissible Investments and Limitations
Maximum
Maximum
Restrictions
(See Appendix A for Additional Information)
Allocation
Maturity
U S Treasury Bills, Notes and Bonds, and Government National
100% Portfolio
3 Years
<=$5,0000,000
maturing 3.5 Yrs
Mortgage Association (GNMA) Securities
U S. Government Agency Securities and Federal Government Securities
(except collateralized mortgage obligations (CMO's) or structured notes
which contain embedded rate options):
• Federal National Mortgage Association (FNMA)
$20,000,000
3 Years
- Federal Home Loan Bank Notes & Bonds (FHLB)
$25,000,000
3 Years
- Federal Farm Credit Bank (FFCS)
$30,000,000
3 Years
- Federal Home Loan Mortgage Corporation (FHLMC)
$20,000,000
3 years
Prime Commercial Paper
15% Portfolio
90 Days
$5,000,000 per
Issuer maximum.
Local Agency Investment Fund (LAIF)
30% Portfolio
Current/
On Demand
$40 million
per account.
Money market mutual funds regulated by the SEC that consist only of US
20% Portfolio
Current /
Maintain $1 per
Treasury Securities or GSE's and maintain a par value of $1 per share
On Demand
share par value
$5,000,000 max
Corporate Notes
100/0
3 Years
per issuer, AA
rated or better.
Requires
Professionally Managed Account
10%
3Years
City Council -
Approved RFP
Checking, Savings, and Sweep Accounts — The City will only maintain checking, savings,
and sweep accounts with FDIC insured financial institutions. As authorized by the City
Council, a U.S. Treasury and/or U.S. Agency Securities Money Market Sweep Account
with a $60,000 target balance may be maintained in conjunction with the checking
account.
2. Certificates of Deposit - As authorized in Government Code Section 53649, Certificates of
Deposit are fixed term investments which are required to be collateralized from 110% to
150% depending on the specific security pledged as collateral in accordance with
Government Code Section 53652. There are no portfolio limits on the amount or maturity
for this investment vehicle.
Collateralization will be required for Certificates of Deposits in excess of the FDIC insured
amount. The type of collateral is limited to City authorized investments. Collateral will
always be held by an independent third party from the institution that sells the Certificates
of Deposit to the City. Evidence of compliance with State Collateral ization policies must
be supplied to the City and retained by the City Treasurer as follows:
A. Certificates of Deposits Insured by the FDIC: The City Treasurer may waive
collateralization of a deposit that is federally insured.
B- Certificates of Deposit in excess of FDIC Limits: The amount not federally insured
shall be 110% collateralized securities or 150% mortgages market value of that
amount of invested funds plus unpaid interest earnings.
The City's Investment Policy limits the percentage of Certificates of Deposit to 60% of the
portfolio.
9
➢ The City does not allow investments in CDAR's or negotiable (secondary market)
certificates of deposit.
3. U.S. Treasury Bills Notes and Bonds and Government National Mortgage Associations
(GNMA) securities - The City may invest in U.S. Treasury bills, notes, and bonds, and
GNMA securities directly issued and backed by the full faith and credit of the U.S,
Government. The City's Investment Policy limits investments in U.S. Treasury issues and
GNMA's to 100% of the portfolio.
➢ The City's Investment Policy does not allow investments in local and state
indebtedness.
4. U.S. Government Agency Securities and Federal Government Securities - The City may
invest in securities issued by U.S. Government instrumentalities and agencies (commonly
referred to as government sponsored enterprises or GSE's). These securities are not
backed by the full faith and credit of the U.S. Government. Publicly owned GSE's include
Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation
(FHLMC) and Student Loan Marketing Association (SLMA). Non -publicly owned GSE's
include the Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal
Land Bank (FLB) and Federal Intermediate Credit Bank (FICB).
The City's Investment Policy allows investment only in securities of FNMA, FHLMC, FHLB
and FFCB. For Fiscal Year 2008/09, the maximum face amount per issuer is $20 million
for FNMA and FHLMC, $25 million for FHLB and $30 million for FFCB. In addition, no
more than 30% of the portfolio surplus may be invested in all GSE's combined with a
maximum $10 million face amount per purchase.
5, Prime Commercial Paper - As authorized in Government Code Section 53601(g), a portion
of the City's portfolio may be invested in commercial paper of the highest rating (A•1 or P-
1) as rated by Moody's or Standard and Poor's. There are a number of other qualifications
regarding investments in commercial paper based on the financial strength of the
corporation and the size of the investment. The City's Investment Policy permits
investments in commercial paper with the following limitations:
A. Maximum 15% of the portfolio.
B. Maximum maturity of 90 days.
C. Maximum of $5 million per issuer.
the
6. State Treasurer's Local Agency Investment Fund (LAIF) - As authorized in Government
Code Section 16429.1 and by LAIF procedures, local government agencies are each
authorized to invest a maximum of $40 million per account in this investment program
administered by the California State Treasurer.
The City's investment in LAIF is allowable as long as the average maturity of its
investment portfolio does not exceed two years, unless specific approval is authorized by
the City Council. The City has two accounts with LAIF and limits investment to 30% of
the portfolio.
10
Money Market Mutual Funds - As authorized in Government Code Section 53601(k), local
agencies are authorized to invest in shares of beneficial interest issued by diversified
management companies (mutual funds) in an amount not to exceed 20% of the agency's
portfolio. There are a number of other qualifications and restrictions regarding allowable
investments in corporate notes and shares of beneficial interest issued by mutual funds
which include (1) attaining the highest ranking or the highest letter and numerical rating
provided by not less than two of the three largest nationally recognized rating services, or
(2) having an investment advisor registered with the Securities and Exchange Commission
with not less than five years' experience investing in the securities and obligations and
with assets under management in excess of five hundred million dollars ($500,000,000).
The City's Investment Policy only allows investments in mutual funds that are money
market funds maintaining a par value of S1 per share that invest in direct issues of the
U.S. Treasury and/or US Agency Securities with an average maturity of their portfolio not
exceeding 90 days and the City limits such investments to 20% of the portfolio.
8. Corporate Notes - As authorized in Government Code Section 53601 (i), local agencies
may invest in corporate notes. The notes must be issued by corporations organized and
operating in the United States or by depository institutions licensed by the United States
or any other state and operating in the United States. The City's Investment Policy allows
investment in corporate notes authorized by the Government Code with the following
limitations:
► Maturities shall not exceed three years from date of purchase.
► Eligible notes shall be regularly quoted and traded In the marketplace,
► Eligible notes shall be rated "AA"or better.
► Total investment shall not exceed 10% of the portfolio, and
► The maximum aggregate investment shall not exceed $5 million face amount for
each issuer.
This is more restrictive than the State code allowed amounts of 30% of the total portfolio
with maturities up to five years with no per -issuer limitations.
9. Professionally Manacled Account(s) - The City Treasurer may place up to 10% of the
portfolio with a professional portfolio management firm ("PPMF"). The PPMF will be
approved by the City Council based upon the City Treasurer's recommendation pursuant to
completion of a request for proposal (RFP) as outlined in Appendix G. The PPMF shall
have:
(a) An established professional reputation for asset or investment management;
(b) Knowledge and working familiarity with State and Federal laws governing and
restricting the investment of public funds;
(c) Substantial experience providing investment management services to local public
agencies whose investment policies and portfolio size are similar to those of the
City;
(d) Professional liability (errors and omissions) insurance and fidelity bonding in such
amounts as are required by the City;
(a) Registration with the Securities and Exchange Commission under the Investment
Advisers Act of 1940.
Before engagement by the City and except as may be specifically waived or revised, the
PPMF shall commit to adhere to the provisions of the City's Investment Policy with the
following exceptions:
11
(f) The PPMF may be granted the discretion to purchase and sell investment securities
in accordance with Appendix I of this Investment Policy;
(g) The PPMF is not required to adhere to the buy -and -hold policy of the City's
Investment Policy, and;
(h) The PPMF does not need City Manager or City Treasurer approval to make
permissible investments as detailed in column 8 of Appendix H of this Investment
Policy,
XI INVESTMENT POOLS
There are three (3) types of investment pools:
State -run pools (e.g., LAIF);
Pools that are operated by a political subdivision where allowed by law and the political
subdivision is the trustee (e.g„ County Pools);
Pools that are operated for profit by third parties,
The City's Investment Policy permits investment only in pools authorized in Section X.
XII PAYMENT AND CUSTODY
The City shall engage qualified third party custodians to act in a fiduciary capacity to maintain
appropriate evidence of the City's ownership of securities and other eligible investments. Such
custodians shall disburse funds, received from the City for a purchase, to the broker, dealer or
seller only after receiving evidence that the City has legal, record ownership of the securities.
Even though ownership is evidenced in book -entry form rather than by actual certificates, this
procedure is commonly accepted as the delivery versus payment (DVP) method for the transfer of
securities,
XIII INTEREST EARNING DISTRIBUTION POLICY
Interest earnings are generated from pooled investments and specific investments.
Pooled Investments - It is the general policy of the City to pool all available operating cash
of the City of La Quints, La Quinta Redevelopment Agency and La Quinta Financing
Authority and allocate interest earnings, in the following order, as follows:
A. Payment to the General Fund of an amount equal to the total annual bank service
charges as incurred by the general fund for all operating funds as included in the
annual operating budget.
B. Payment to the General Fund of a management fee equal to 5°/u of the annual
pooled cash fund investment earnings.
C. Payment to each fund of an amount based on the average computerized
daily cash balance included in the common portfolio for the earning period,
2. Specific Investments - Specific investments purchased by a fund shall incur all earnings
and expenses to that particular fund.
12
XIV INTERNAL CONTROLS AND INDEPENDENT AUDITOR
The City Treasurer shall establish a system of internal controls to accomplish the following
objectives:
► Safeguard assets;
► The orderly and efficient conduct of its business, including adherence to management
policies;
► Prevention or detection of errors and fraud;
► The accuracy and completeness of accounting records; and
► Timely preparation of reliable financial information.
While no internal control system, however elaborate, can guarantee absolute assurance that the
City's assets are safeguarded, it is the intent of the City's internal control to provide a reasonable
assurance that management of the investment function meets the City's objectives.
The internal controls shall address the following:
Control of collusion. Collusion is a situation where two or more employees are working in
conjunction to defraud their employer.
2. Separation of transaction authority from accounting and record keeping. By separating the
person who authorizes or performs the transaction from the people who record or
otherwise account for the transaction, a separation of duties is achieved.
3. Custodial safekeeping. Securities purchased from any bank or dealer including appropriate
collateral (as defined by State Law) shall be placed with an independent third party for
custodial safekeeping.
Avoidance of physical delivery securities. Book entry securities are much easier to
transfer and account for since actual delivery of a document never takes place. Delivered
securities must be properly safeguarded against loss or destruction. The potential for
fraud and loss increases with physically delivered securities.
Clear delegation of authority to subordinate staff members. Subordinate staff members
must have a clear understanding of their authority and responsibilities to avoid improper
actions. Clear delegation of authority also preserves the internal control structure that is
contingent on the various staff positions and their respective responsibilities as outlined in
the Segregation of Major Investment Responsibilities appendices.
6. Written confirmation or telephone transactions for investments and wire transfers. Due to
the potential for error and improprieties arising from telephone transactions, all telephone
transactions shall be supported by written communications or electronic confirmations and
approved by the appropriate person. Written communications may be via fax if on
letterhead and the safekeeping institution has a list of authorized signatures. Fax
correspondence must be supported by evidence of verbal or written follow-up.
7. Development of a wire transfer agreement with the City's bank and third party custodian.
This agreement should outline the various controls, security provisions, and delineate
responsibilities of each party making and receiving wire transfers.
13
The System of Internal Controls developed by the City, shall be reviewed annually by the
independent auditor in connection with the annual audit of the City's Financial Statements.
The independent auditor's management letter comments pertaining to cash and investments, if
any, shall be directed to the City Manager who will direct the City Treasurer to provide a written
response to the independent auditor's letter. The management letter comments pertaining to
cash and investment activities and the City Treasurer's response shall be provided to the City's
Investment Advisory Board for their consideration. Following the completion of each annual
audit, the independent auditor shall meet with the Investment Advisory Board and discuss the
auditing procedures performed and the review of internal controls for cash and investment
activities,
See Appendix D, "Segregation of Major Investment Responsibilities."
XV REPORTING STANDARDS
The City Treasurer shall submit a monthly Treasurers Report to the City Council and the
Investment Advisory Board that includes all cash and investments under the authority of the
Treasurer.
The Treasurer's Report shall summarize cash and investment activity and changes in balances and
include the following:
► A certification by the City Treasurer.
► A listing of purchases and sales/maturities of investments.
► Cash and Investments categorized by authorized investments, except for LAIF
which will be provided quarterly and show yield and maturity.
► Comparison of month end actual holdings to Investment Policy limitations.
► Current year and prior year monthly history of cash and investments for trend
analysis.
► Balance Sheet.
► Distribution of cash and investment balances by fund,
► A comparison of actual and surplus funds.
► A year to date historical cash flow analysis and projection for the next six months.
► A two-year list of historical interest rates.
XVI FINANCIAL ASSETS AND INVESTMENT ACTIVITY NOT SUBJECT TO THIS POLICY
The City's Investment Policy does not apply to the following:
► Cash and Investments raised from Conduit Debt Financing;
► Funds held in trust in the City's name in pension or other post -retirement benefit
programs;
► Cash and Investments held in lieu of retention by banks or other financial
institutions for construction projects;
► Short or long term loans made to other entities by the City or Agency; and
Short term (Due to/from) or long term (Advances from/to) obligations made
either between the City and its funds or between the City and Agency.
14
XVII INVESTMENT OF BOND PROCEEDS
The City's Investment Policy shall govern bond proceeds and bond reserve fund investments,
California Code Section 5922 (d) governs the investment of bond proceeds and reserve funds in
accordance with bond indenture provisions which shall be structured in accordance with the
City's Investment Policy.
Arbitrage Requirement - The US Tax Reform Act of 1986 requires the City to perform arbitrage
calculations as required and return excess earnings to the US Treasury from investments of
proceeds of bond issues sold after the effective date of this law. These arbitrage calculations
may be contracted with an outside source to provide the necessary technical assistance to
comply with this regulation. Investable funds subject to the 1986 Tax Reform Act will be kept
segregated from other funds and records will be kept in a fashion to facilitate the calculations.
The City's investment position relative to the new arbitrage restrictions is to continue pursuing
the maximum yield on applicable investments while ensuring the safety of capital and liquidity. It
is the City's position to continue maximization of yield and to rebate excess earnings, if
necessary.
XVIII INVESTMENT ADVISORY BOARD - CITY OF LA QUINTA
The Investment Advisory Board (IAB) is a standing board composed of five members from the
public that are appointed by the City Council, Background information will be requested and
potential candidates must agree to a background check and verification. On an annual basis, in
conjunction with the Political Reform Act disclosure statutes, or at any time if a change in
circumstances warrants, each board member will provide the City Council with a disclosure
statement which identifies any matters that have a bearing on the appropriateness of that
member's service on the board. All board members shall report annually to the City Clerk on
Form 700, Statement of Economic Interests, any activities, interests, or relationships that may be,
or have the appearance of, a conflict of interest,
The IAB must meet at least quarterly, but usually meets monthly, to:
1. Review at least annually the City's Investment Policy and recommend appropriate
changes;
2. Review monthly treasury report and note compliance with the Investment Policy and
adequacy of cash and investments for anticipated obligations;
3. Receive and consider other reports provided by the City Treasurer;
4. Meet with the independent auditor after completion of the annual audit of the City's
financial statements, and receive and consider the auditor's comments on auditing
procedures, internal controls and findings for cash and investment activities, and;
5. Serve as a resource for the City Treasurer on matters such as proposed investments,
internal controls, use or change of financial institutions, custodians, brokers and dealers.
The IAB will report to the City Council after each meeting either in person or through
correspondence at a regular City Council meeting. See Appendix B: "Investment Advisory Board
Provisions".
XIX INVESTMENT POLICY ADOPTION
The City's Investment Policy will be reviewed annually by the City's Investment Advisory Board
15
and the City Treasurer. The Investment Advisory Board will forward the Investment Policy with
any revisions to the City Manager and City Attorney for their review and comment. A joint
meeting will be held with the Investment Advisory Board, City Manager, City Attorney, and City
Treasurer to review the Investment Policy and any comments prior to submission to the City
Council for their consideration.
The Investment Policy shall be adopted by resolution of the City Council annually before the and
of June of each year.
16
H
Z_
0
J
LL
0
Al
F-
Z
W
LU
\W
Z
0
Z
Q
0
CL
W
0
J
m
N
U)
a
W
0.
LL
0
cr
Q
2
�o
7
CL
d13 oV
c
0
LU
W
a
dE
r
ro
r
m
e n n e
`pp0��
a
E
;�'E•�
'K
yroy aroi aroi
v
w
y
d
ate'
V
O
w
H
c
F
g
E
tt
$
c
`N
w
til
O
p
QO
Gp
O
00
O
O
O
c
O
U
d
52
y
v
mw
W
�
a
3
rn
E
w
E p
a
o
0
0
0
o
a
o
0
0
X«
LL
o
OE
M
O
O
O
O
NN
O
O
O
O
R ¢
C
=
N
N
M
N
7.2
i
a
j
Et
a
a
a
a°
a°
`o
O
C
i
c
EO
E�
c`m
8m
m
i„� U
iac
N
Own
y
>
c
a
O LO N
C
t:
c
ro S3
9�<i O C N
r m
p N
U
-"a9
L�qq
w� ro� C
LL
�N
0
0
EE
G
w
m°
•^
c `a Zc n
c
Q
m
C
>
w
.12 Q
6.08
LL
w
¢8
m t9
.' c m g
d
¢
8y
Z s
c
ERm'
N
m
a
fDyy
�t E F
c
�j
N
ro
yd
Ems `z~° i 2
gII`4�
EF'n
Z
G
CL
142�
odd
Egg
7
�yy
N p
V1 yy IL li IOL IL
E
U
O w
2O O
O
Q
d
U
mO
a`
MF1tJO��V �I�
17
�6ypZ g n v �
F = m € m
y c
E E
�E 45
m N C N
r a ti V E o c ao'o q=i
w=a k 5
N av qg�
E gcgo E�� 20`0 � o
W j m' o r 0 CVOJ 0, O
o °CyUg�o�v Ica=
NU,u�i m
C=
Ua O.=O"�Ytl N m== O
C v
o ram,
m
Z o a K 3 a
05qR
E
ry/� p o p o
d o n ° W N q o
c w E
{0(11 o c L' 0 E
N�n O(� N n _n m
O c s ry d d 0 C Q m
CmN m=L° .5 •Nc S =� mw E
i..Zv yp N« U e 85 g G 8R p
LL8 ?� C6
�n3 d oc E'
t N p $ E
N �mQ U�CN y ,O y Q �% iJ
"0CL so
c
.°'8�va7Gy p m6 �U
" a .0 °` w. = N Jin w6f 0°O.. y0 C OId
n
c �C5 c E vo - E.'c. oo c of t0 E d o
$a•ro�� a'E o ^waE .5��
2cS uN o Av_ 41-c 21 Ea
0
EO Ol 0
N
s o
m OI
O S
I LL LL
a
18
Appendix B
City of La nuinta Municipal Code
Chapter 2.70
INVESTMENT ADVISORY BOARD PROVISIONS
Sections;
2.70,010 General Rules Regarding Appointment.
2.70.020 Board meetings.
2.70.030 Board functions,
2.70.010 General rules regarding appointment
A. Except as set out below, see Chapter 2.06 for General Provisions.
B. The Investment Advisory Board (the "board") is a standing board composed of five (5)
members from the public that are appointed by city council.
C. Background in the investment field and/or related experience is preferred. Background
information will be requested and potential candidates must agree to a background check and
verification.
D. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or
any time if a change in circumstances warrants, each board member will provide the City Cou
with a disclosure statement which identifies any matters that have a bearing on the
appropriateness of that member's service on the board. Such matters may include, but are nc
limited to, changes in employment, changes in residence, or changes in clients.
2.70.020 Board meetings.
The Board usually will meet monthly, but this schedule may be extended to quarterly
meetings upon the concurrence of the Board and the City Council. The specific meeting date,
be determined by the Board Members and meetings may be called for on an as needed basis.
2.70.030 Board functions.
A. The principal functions of the Board are; (1) review at least annually the City's Investmf
Policy and recommend appropriate changes; (2) review monthly Treasury Report and note
compliance with the Investment Policy and adequacy of cash and investments for anticipated
obligations; (3) receive and consider other reports provided by the City Treasurer; (4) meet wi
the independent auditor after completion of the annual audit of the City's financial statements
receive and consider the auditor's comments on auditing procedures, internal controls, and fin
for cash and investment activities, and; (5) serve as a resource for the City Treasurer on matt
such as proposed investments, internal controls, use or change of financial institutions, Gusto,
brokers and dealers.
B. The Board will report to the City Council after each meeting either in person or through
correspondence at a regular City Council meeting.
m
Appendix C
City of Le Quinta Municipal Code
Chapter 3.08
INVESTMENT OF MONEYS AND FUNDS
Sections:
3.08.010 Investment of city moneys and deposit of securities.
3,08.020 Authorized Investments.
3.08.030 Sales of securities.
3.08.040 City bonds.
3.08.050 Reports.
3,08.060 Deposits of securities.
3.08.070 Trust fund administration.
3.08.010 Investment of city moneys and deposit of securities.
Pursuant to, and in accordance with, and to the extent allowed by, Sections
53607 and 53608 of the Government Code, the authority to invest and reinvest
moneys of the city, to sell or exchange securities, and to deposit them and provide for
their safekeeping, is delegated to the city treasurer. (Ord. 2 § 1 (part), 1982)
3.08.020 Authorized investments.
Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is
authorized to purchase, at their original sale or after they have been issued, securities
which are permissible investments under any provision of state law relating to the
investing of general city funds, including but not limited to Sections 53601 and 53635 of
the Government Code, as said sections now read or may hereafter be amended, from
moneys in his custody which are not required for the immediate necessities of the city
and as he may deem wise and expedient, and to sell or exchange for other eligible
securities and reinvest the proceeds of the securities so purchased. (Ord. 2 § 1 (part),
1982)
3.08.030 Sales of Securities.
From time to time the city treasurer shall sell the securities in which city moneys have
been invested pursuant to this chapter, so that the proceeds may, as appropriate, be
applied to the purchase for which the original purchase money may have been designated
or placed in the city treasury. (Ord.2 § I (part),
3,08.040 City bonds.
Bonds issued by the city and purchased pursuant to this chapter may be canceled
either in satisfaction of sinking fund obligations or otherwise if proper and appropriate;
provided, however, that the bonds may be held uncancelled and while so held may be
resold. (Ord. 2 § 1 (part), 1982)
20
3.08.050 Reports.
The city treasurer shall make a monthly report to the city council of all investments
made pursuant to the authority delegated in this chapter. (Ord. 2 § 1 (part), 1982)
3.08.060 Deposits of securities.
Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is
authorized to deposit for safekeeping, the securities in which city moneys have been
invested pursuant to this chapter, in any institution or depository authorized by the terms
of any state law, including but not limited to Section 53608 of the Government Code as
it now reads or may hereafter be amended, In accordance with said section, the city
treasurer shall take from the institution or depository a receipt for the securities so
deposited and shall not be responsible for the securities delivered to and receipted for by
the institution or depository until they are withdrawn therefrom by the city treasurer.
(Ord, 2 § 1 (part), 1982
3.08.070 Trust fund administration.
Any departmental trust fund established by the city council pursuant to Section
36523 of the Government Code shall be administered by the city treasurer in accordance
with Section 36523 and 26524 of the Government code and any other applicable
provisions of law. (Ord. 2 § 1 (part), 1982)
21
SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES
Function
Develop and Recommend Modifications
to City's Formal Investment Policy
Review City's Investment Policy
and Recommend City Council Action
Adopt Format Investment Policy
Implement Formal Investment Policy
Review Financial Institutions & Select Investments
Acknowledge Investment Selections
Execute Investment transactions
Confirm Wires (if applicable)
Record Investment Transactions in City's
Accounting Records
Investment Verification (match broker confirmation
to City investment records)
Reconcile Investment Records
to Accounting Records and Bank Statements
Reconcile Investment Records
to Treasurers Report of Investments
Security of Investments at City
Security of Investments outside City
Review Internal Control Procedures
22
Appendix D
Responsible Parties
Investment Advisory Board
and City Treasurer
City Manager
and City Attorney
City Council
City Treasurer
City Treasurer
City Manager or
Assistant City Manager
City Treasurer or City Manager
Accounting Manager or
Financial Services Assistant
Accounting Manager or
Financial Services Assistant
City Treasurer and Financial
Services Assistant
Financial Services Assistant
Accounting Manager
Vault
Third Party Custodian
External Auditor
Appendix E
LISTING OF APPROVED FINANCIAL INSTITUTIONS
1. Banking Services Wells Fargo Bank, Government Services,
Los Angeles, CA
2. Custodian Services Bank of New York, Los Angeles, CA
3. Deferred Compensation International City/County Management
Association Retirement Corporation
4. Broker/Dealer Services Merrill Lynch, San Francisco, CA
Morgan Stanley, San Rafael, CA
CitiGroup, San Francisco Newport
Beach, CA
5. Government Pool State of California Local Agency
Investment Fund
City of La Quinta Account
La Quinta Redevelopment Agency
6, Bond Trustees 1991 City Mall Revenue Bonds - US Bank
1991 RDA Project Area 1 - US Bank
1992 RDA Project Area 2 - US Bank
1994 RDA Project Area 1 - US Bank
1998 RDA Project Area 1 &2 - US Bank
2001 RDA Project Area 1 - US Bank
2002 RDA Project Area 1 - US Bank
2003 RDA Project Area 1 - US Bank
Assessment Districts - US Bank
No Changes to this listing may be made without City Council approval
23
Appendix F
BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION
1. Name of
2. Address
3. Telephone: (_) (_
4. Broker's Representative to the City (attach resume):
Name:
Title: _
Telephone:
5. Manager/Partner-in-charge (attach resume):
Title:_ _
Telephone:
6. List all personnel who will be trading with or quoting securities to City employees (attach
resume)
Name;
Title: _
Telephone:
7. Which of the above personnel have read the City's Investment Policy?
8. Which instruments are offered regularly by your local office? (Must equal 100%)
_% U.S. Treasuries
_% BA's
• Commercial Paper
�% CD's
_% Mutual Funds
—% Agencies (specify):
Repos
Reverse Repos
CMO's
_% Derivatives
_% Stocks/Equities
Other (specify):
9. References -- Please identify your most directly comparable public sector clients in our
geographical area.
Entity _
Contact
24
Entity _
Contact
Telephone (�) Telephone
Client Since Client Since
10. Have any of your clients ever sustained a loss on a securities transaction arising from a
misunderstanding or misrepresentation of the risk characteristics of the instrument? If so,
explain.
11. Has your firm or your local office ever been subject to a regulatory or state/ federal
agency investigation for alleged improper, fraudulent, disreputable or unfair activities
related to the sale of securities? Have any of your employees been so investigated? If
so, explain.
12. Has a client ever claimed in writing that you were responsible for an investment loss?
Yes_ No If yes, please provide action taken__ ._
Has a client ever claimed in writing that your firm was responsible for an investment
loss? Yes — No__ If yes, please provide action taken _
Do you have any current or pending complaints that are unreported to FINRA?
Yes No If yes, please provide action taken
Does your firm have any current, or pending complaints that are unreported to FINRA?
Yes No__ If yes, please provide action taken
13. Explain your clearing and safekeeping procedures, custody and delivery process.
Who audits these fiduciary responsibilities?
Latest Audit Report
A&I
14. How many and what percentage of your transactions failed?
Last month? % $
Last year? % $
15. Describe the method your firm would use to establish capital trading limits for the City of
La Quinta._, —
16. Is your firm a member in the S.I.P.C. insurance program? Yes No
If yes, explain primary and excess coverage and carriers. _
17. What portfolio information, if any, do you require from your clients?_ _,
18. What reports and transaction confirmations or any other research publications will the City
receive? µ _ --
19. Does your firm offer investment training to your clients? Yes_.__— No__-
20. Does your firm have professional liability insurance? Yes No__
If yes, please provide the insurance carrier, limits and expiration date.
21, Please list your FINRA/NASD Registration Number _ ..-
22. Do you have any relatives who work at the City of La Quints?
Yes No If yes, Name and Department ..-
23, Do you maintain an office in California? Yes No_ _,
24, Do you maintain an office in La Quinta or Riverside County? Yes No
25. Please enclose the following:
► Latest audited financial statements,
► Samples of reports, transaction confirmations and any other research/publications the
City will receive.
► Samples of research reports and/or publications that your firm regularly provides to
clients.
► Complete schedule of fees and charges for various transactions.
'CERTIFICATION`'
26
I hereby certify that I have personally read the Statement of Investment Policy of the City of La
Quinta, and have implemented reasonable procedures and a system of controls designed to
preclude imprudent investment activities arising out of transactions conducted between our firm
and the City of La Quinta. All sales personnel will be routinely informed of the City's investment
objectives, horizons, outlooks, strategies and risk constraints whenever we are so advised by the
City. We pledge to exercise due diligence in informing the City of La Quinta of all foreseeable
risks associated with financial transactions conducted with our firm.
By signing this document the City of La Quinta is authorized to conduct any and all background
checks.
Under penalties of perjury, the responses to this questionnaire are true and accurate to the best of
my knowledge.
Broker
Sales Manager and/or Managing Partner"
Date Tit
27
Appendix G
Request for Proposals
Professional Portfolio Management Firm
City of La Quinta, CA
The City of La Quints, CA is soliciting Requests for Proposals (RFP) from interested firms for the
provision of a discretionary investment management services for City of La Quinta, CA. The
portfolio to be managed of the invested assets is will be approximately 10% of the City's
investment portfolio and will be invested between 0 - 3 years.
The investment of City of La Quints, CA's funds is guided by the applicable State statutes and
the City of La Quinta, CA's investment policy. A copy of the investment policy is attached for
your information.
Questions regarding this RFP should be directed to:
Name:
Title:
City of:
Address:
City, State, Zip Code:
Phone Number:
John M. Falconer
Finance Director/Treasurer
La Quinta, CA
78-495 Calle Tampico
La Quinta, CA 92253
(760)777-7150
I. CRITERIA FOR EVALUATION AND SELECTION
■ Experience of the firm in providing services to public sector entities of similar size
and with similar investment objectives;
■ Professional experience and qualifications of the individuals assigned to the
account;
■ Portfolio management resources, investment philosophy and approach;
■ Responsiveness to the RFP, communicating an understanding of the overall
program and services required;
■ Reporting capabilities;
■ Fees.
II. SELECTION TIMETABLE
A. [Month, Day and Year] Proposals due by [Time] PST.
B. [Month, Day and Year] Proposals evaluated: to be determined
C. [Month, Day and Year] [City of La Quints, CA] [Board/Council] approves selection
and awards contract.
III. FORMAT FOR PROPOSALS
Please format your response to this RFP in the following manner:
A. Organization
28 U J
1. Describe your organization, date founded, ownership and other business
affiliations. Provide number and location of affiliated offices. Specify the number
of years your organization has provided investment management service.
2. Describe your firm's revenue sources (e.g., investment management, institutional
research, etc.) and comment on your firm's financial condition.
3. Within the past three years, have there been any significant developments in your
organization (e.g., changes in ownership, new business ventures)? Do you expect
any changes in the near future?
4. Describe any U.S. Securities and Exchange Commission (SEC) censures or litigation
involving your organization, any officer, or employee at any time in the last ten
years.
5. Describe the firm's fiduciary liability and/or errors and omissions insurance
coverage. Include dollar amount of coverage.
B. Personnel
1. Identify the number of professionals employed by your firm by classification.
2. Provide an organization chart showing function, positions, and titles of all the
professionals in your organization.
3. Provide biographical information on investment professionals that will be involved
in the decision -making process for our portfolio, including number of years at your
firm. Identify the person who will be the primary portfolio manager assigned to the
account.
4. Describe your firm's compensation policies for investment professionals and
address any incentive compensation programs.
C. Assets Under Management
1. Summarize your institutional investment management asset totals by category for
your latest reporting period in the following table:
Number Operating Funds Number of Other Restrictive
of Clients Clients Funds
,ernmental S $
Fernmental Pension Spp
a
i Governmental $
sion
29
U
gate 8 - of A - ��
Net Worth Client $ Ao�._
�%� h — ►r
wmental/Foun- $ WR
-�
n !ot A Iq
nowZ. Provide the number of separate accounts whose portfolios consist of operating
funds.
3. List in the following table the percentage by market value of aggregate assets
under all governmental accounts under management for your latest reporting
period:
Type of Asset
U.S. Treasury securities
Federal Agency obligations
Corporate securities rated AAA -AA
Corporate securities rated A
Corporate securities rated BBB or
lower
Other
(specify
Percent by Market
Value
4. Describe the procedures that your firm has in place to address the potential or
actual credit downgrade of an issuer and to disclose and advise a client of the
situation.
5. Provide data on account/asset growth over the past five years. Indicate the
number of government accounts gained and the number of government accounts
lost.
6. List your five governmental largest clients. Identify those that are exclusively
operating fund relationships and/or those that are other relationships (e.g., bond
fund, retirement fund).
7. Provide a copy of the firm's Form ADV, Parts I and II (including all schedules).
8. Provide proof of State of California Registration, if your firm is not eligible for SEC
registration.
9. Provide a sample contract for services.
30
041
D. Philosophy/Approach
1. Describe your firm's investment philosophy for public clients, including your firm's
philosophy regarding average duration, maturity, investment types, credit quality,
and yield.
2. Describe in detail your investment process, as you would apply it to City of La
Quinta, CA's portfolio.
3. What are the primary strategies for adding value to portfolios?
4. Describe the process you would recommend for establishing the investment
objectives and constraints for this account.
5. Describe in detail your process of credit risk management, including how you
analyze credit quality, monitor credits on an ongoing basis, and report credit to
governmental accounts.
6. Describe your firm's trading methodology.
7. Describe your firm's decision -making process in terms of structure, committees,
membership, meeting frequency, responsibilities, integration of research ideas, and
portfolio management.
8. Describe your research capabilities as they would pertain to governmental
accounts. What types of analysis do you use?
9. Describe the firm's approach to managing relationships with the broker -dealer
community.
E. Portfolio Management
1. Are portfolios managed by teams or by one individual?
2. What is the average number of accounts handled per manager?
3. Which professional staff member will be the primary client contact for City of La
Quinta, CA?
4. How frequently are you willing to meet with us?
5. Describe procedures used to ensure that portfolios comply with client investment
objectives, policies, and bond resolutions.
F. Fees Charged
1. Please include a copy of your firm's fee schedule applicable to this RFP.
2. Identify any expenses that would not be covered through this fee structure and
would be required in order to implement the firm's program.
U
31 4
3. Is there a minimum annual fee?
G. Performance Reporting
1. Please report on all accounts under $100 million.
2. Please provide performance history for governmental accounts for the last five
years.
3. Please provide risk measurements for governmental accounts for the last five
years.
4. Indicate whether your returns are calculated and compiled in accordance with
the Association for Investment Management and Research (AIMR/CFA Institute)
standards.
5. Do your reports conform to the State of California reporting standards? Are you
willing to customize your reports to meet our specifications?
6. How will you notify us of investment transactions?
7. Are confirmations of investment transactions sent directly by the broker/dealer to
the client?
8. Do your reports include rating information on investments which is required by
GASB 40?
H. References
Provide a list of at least five (5) client references in California. References should be
public agencies with portfolio size and investment objectives similar to City of La Quinta,
CA. Include length of time managing the assets, contact name, and phone number.
Insurance Requirements
Exhibit A defines the insurance requirements that will need to be met prior to the
[Board/Council]'s approval of any agreement for services.
J. Submittal of proposals
1. Seven (7) copies of the proposal shall be submitted in a sealed envelope bearing
the caption RFP for (City of La Quinta, CA) and addressed to:
City of Le Quinta, CA
78-495 Calle Tampico
La Quinta, CA 92253
Attention: John M. Falconer
Finance Director/Treasurer
2. Proposal must be received no later than [Time] PST on [Month, Day, and Year].
32 043
3. Proposals should be verified before submission. The City of La Quinta, CA shall
not be responsible for errors or omissions on the part of the respondent in
preparation of a proposal. The City of La Quinta, CA reserves the right to reject
any and all proposals, to wave any irregularities, or informalities in the
proposals, and to negotiate modifications to any proposal.
Enclosures: Investment Policy
Treasurers Report
33 U
P
a
E
i,
v
L
s€
zzozozo
z'
z'
z°�>}ffi��
>
W
a�
a
0
z
0
z
0
z
0
z
0
z
0
z
0
z
0
z
0
z
0
z
0
z
g>
g
g
ffi
a�
U
¢¢s
Q
aa0
4
a1X
z
z'
z
z
z
z
z°
z
z
z°
z
z'
a¢
z
z'
a
0
0
«
c
c
0
0
o
;e
3e
e
0
c
c
Oc
p
cE
3Y
C
�QQ
v 0
Z
Z
Z
Z
Z
e`e
N
N
z
z
Z
Z
O
Z
Z
y�y
O
pppp
2
N
WW
N
E
0
�
N
N
00
Z
Z
z
Z
N
r
Z
}
i
to
10
10
Off!
W
B
N
o
b
E€
m
N
L)
'�
a
z
5
n
U
.�
c 8
O�
N
C
C
O
�j
€
E�
W
cc
� O
gyp
U
F
J
O
L"
W
W
N
�/1
i
W
E
_
c
U
v
u
�
L
04
cm
Appendix I
Investment Management Process and Risk
Except as provided for in Section 27000.3, Government Code Section 53600.3 declares each
person, treasurer, or governing body authorized to make investment decisions on behalf of
local agencies to be a trustee and therefore a fiduciary subject to the prudent investor
standard. These persons shall act with care, skill, prudence, and diligence under the
circumstances then prevailing when investing, reinvesting, purchasing, acquiring, exchanging,
selling, and managing funds. Section 53600.5 further stipulates that the primary objective of
any person investing public funds is to safeguard principal; secondly, to meet liquidity needs
of the depositor; and lastly, to achieve a return or yield on invested funds (Government Code
Section 27000.5 specifies the same objectives for county treasurers and board of
supervisors).
Risk is inherent throughout the investment process. There is risk assigned to any investment
activity as well as opportunity risk related to inactivity. Market risk is derived from exposure
to overall changes in the general level of interest rates while credit risk is the risk of loss due
to the failure of the insurer of a security. The market value of a security varies inversely with
the level of interest rates. If an investor is required to sell an investment with a five percent
yield in a comparable seven percent rate environment, that security will be sold at a loss. The
magnitude of that loss will depend on the amount of time until maturity.
Purchasing certain allowable securities with a maturity of greater than five years requires
approval of the governing board (see Government Code Section 53601). Part of that approval
process involves assessing and disclosing the risk and possible volatility of longer -term
investments
Another element of market risk is liquidity risk. Instruments with unique call features, special
structures or those issued by little known companies are often thinly traded. Their uniqueness
often makes finding prospective buyers in a secondary market more difficult and,
consequently, the securities' marketability and price are discounted. However, under certain
market conditions, gains are also possible with these types of securities.
Default risk occurs when the borrower is unable to repay the obligation. Generally, securities
issued by the federal government and its agencies are considered the most secure, while
securities issued by private corporations or negotiable certificates of deposit issued by
commercial banks have a greater degree of risk. Securities with additional credit
enhancements, such as bankers acceptances, collateralized repurchase agreements and
collateralized bank deposits are somewhere between the two on the risk spectrum.
The vast majority of portfolios are managed within a buy and hold policy. Investments are
purchased with the intent and capacity to hold that security until maturity. At times, market
forces or operations may dictate swapping one security for another or selling a security before
maturity. Continuous analysis and fine tuning of the investment portfolio are considered
prudent investment management. [...1
The Government Code contains specific provisions regarding the types of investments and
practices permitted after considering the broad requirement of preserving principal and
maintaining liquidity before seeking yield. These provisions are intended to promote the use of
reliable, diverse, and safe investment instruments to better ensure a prudently managed portfolio
worthy of public trust.
Chapter II. Fund Management
Local Agency Investment Guidelines 2007 Issued by California Debt and Investment Advisory Commission
35
Appendix J
GLOSSARY
(Adopted from the Municipal Treasurers Association)
e purpose of this glossary is to provide the reader of the City of La nuinta investment
licies with a better understanding of financial terms used in municipal investing.
ENCIES: Federal agency securities and/or
✓ernment-sponsored enterprises.
KED: The price at which securities are offered.
NKERS' ACCEPTANCE IBA): A draft or bill of
hange accepted by a bank or trust company.
i accepting institution guarantees payment of
bill, as well as the issuer.
: The price offered by a buyer of securities.
ien you are selling securities, you ask for a
See Offer.
WER: A broker brings buyers and sellers
ether for a commission.
ITIFICATE OF DEPOSIT (CD): A time deposit
i a specific maturity evidenced by a
:ificate. Large -denomination CD's are typically
otiable.
LLATERAL: Securities, evidence of deposit or
ar property which a borrower pledges to
ure repayment of a loan. Also refers to
urities pledged by a bank to secure deposits of
lic monies.
MMERCIAL PAPER: Short-term unsecured
nissory notes issued by a corporation to raise
king capital. These negotiable instruments
purchased at a discount to par value or at par
ie with interest bearing. Commercial paper is
ad by corporations such as General Motors
eptance Corporation, IBM, Bank America, etc.
VIPREHENSIVE ANNUAL FINANCIAL REPORT
FR): The official annual report for the City of
luinta. It includes five combined statements
each individual fund and account group
Jared in conformity with GAAP. It also
ides supporting schedules necessary to
ronstrate compliance with finance -related
l and contractual provisions, extensive
introductory material, and a detailed Statistica
Section.
CONDUIT FINANCING: A form of Financing it
which a government or a government agent)
lends its name to a bond issue, although it is
acting only as a conduit between a specific projec
and bond holders. The bond holders can look onl)
to the revenues from the project being financec
for repayment and not to the government of
agency whose name appears on the bond.
COUPON: (a) The annual rate of interest that <
bond's issuer promises to pay the bondholder or
the bond's face value. (b) A certificate attachec
to a bond evidencing interest due on a paymem
date.
DEALER: A dealer, as opposed to a broker, acts w
a principal in all transactions, buying and sellinc
for his own account.
DEBENTURE: A bond secured only by the genera
credit of the issuer.
DELIVERY VERSUS PAYMENT: There are twc
methods of delivery of securities: delivery versus
payment and delivery versus receipt. Delivery
versus payment is delivery of securities with ar
exchange of money for the securities. Delivery
versus receipt is delivery of securities with ar
exchange of a signed receipt for the securities.
DERIVATIVES: (1) Financial instruments whose
return profile is linked to, or derived from, the
movement of one or more underlying index or
security, and may include a leveraging factor, or
(2) financial contracts based upon notional
amounts whose value is derived from an
underlying index or security (interest rates, foreign
exchange rates, equities or commodities).
DISCOUNT: The difference between the cost price
of a security and its maturity when quoted at
36 04
war than face value. A security selling below
iginal offering price shortly after sale also is
insidered to be at a discount.
SCOUNT SECURITIES: Non -interest bearing
oney market instruments that are issued a
scount and redeemed at maturity for full face
clue, e.g., U.S. Treasury Bills.
VERSIFICATION: Dividing investment funds
nong a variety of securities offering
dependent returns.
iDERAL CREDIT AGENCIES: Agencies of the
:deral government set up to supply credit to
irious classes of institutions and individuals,
g., S&L's, small business firms, students,
rmers, farm cooperatives, and exporters.
FNMA's (Federal National Mortgage
Association) - Used to assist the home
mortgage market by purchasing mortgages
insured by the Federal Housing
iministration and the Farmers Home
iministration, as well as those guaranteed by
e Veterans Administration. They are issued in
rious maturities and in minimum denominations
$10,000. Principal and Interest is paid
onthly.
FHLB's (Federal Home Loan Bank Notes and
Bonds) - Issued by the Federal Home Loan
Bank System to help finance.the housing
industry. The notes and bonds provide
liquidity and home mortgage credit to savings
and loan associations, mutual savings banks,
cooperative banks, insurance companies, and
mortgage -lending institutions. They are
issued irregularly for various maturities. The
minimum denomination is $5,000. The notes
are issued with maturities of less than one
year and interest is paid at maturity.
FLB's (Federal Land Bank Bonds) - Long-term
mortgage credit provided to farmers by
Federal Land Banks. These bonds are issued
at irregular times for various maturities
ranging from a few months to ten years. The
minimum denomination is $1,000. They carry
37
semi-annual coupons. Interest is calculated
a 360-day, 30 day month basis.
4. FFCB's (Federal Farm Credit Bank) - DE
instruments used to finance the short a
intermediate term needs of farmers and t
national agricultural industry. They are issu
monthly with three- and six-month maturity
The FFCB issues larger issues (one to t
year) on a periodic basis. These issues E
highly liquid.
5. FICB's (Federal Intermediate Credit ba
Debentures) - Loans to lending institutio
used to finance the short-term a
intermediate needs of farmers, such
seasonal production. They are usually issu
monthly in minimum denominations of $3,01
with a nine -month maturity. Interest
payable at maturity and is calculated on a 36
day, 30-day month basis.
6. FHLMC's (Federal Home Loan Mortga
Corporation) - a government sponsored ent
established in 1970 to provide a seconds
market for conventional home mortgage
Mortgages are purchased solely from t
Federal home Loan Bank System memt
lending institutions whose deposits are insur
by agencies of the United States Governmer
They are issued for various maturities and
minimum denominations of $10,000. Princir
and Interest is paid monthly. Other fedei
agency issues are Small Busine
Administration notes (SBA's), Governme
National Mortgage Association not
(GNMA's), Tennessee Valley Authority note
(TVA's), and Student Loan Association not
(SALLIE-MAE's).
FEDERAL DEPOSITOR INSURAN(
CORPORATION (FDIC): A federal agency th
insures bank deposits, currently up to $100,0(
per deposit.
FEDERAL FUNDS RATE: The rate of interest
which Fed funds are traded. This rate is current
pegged by the Federal Reserve through ope
market operations.
)ERAL HOME LOAN BANKS (FHLB):
vernment sponsored wholesale banks
rrently 12 regional banks) which lend funds
I provide correspondent banking services to
mber commercial banks, thrift institutions,
dit unions and insurance companies. The
;sion of the FHLB's is to liquefy the housing
ited assets of its members who must purchase
ck in their district Bank.
)ERAL OPEN MARKET COMMITTEE (FOMC):
isists of seven members of the Federal
;erve Board and five of the twelve Federal
verve Bank Presidents. The President of the
nr York Federal Reserve Bank is a permanent
mber, while the other Presidents serve on a
Sting basis. The Committee periodically meets
set Federal Reserve guidelines regarding
chases and sales of Government Securities in
open market as a means of influencing the
ume of bank credit and money.
)ERAL RESERVE SYSTEM: The central bank of
United States created by Congress and
isisting of a seven member Board of Governors
Vashington, D.C., 12 regional banks and about
00 commercial banks that are members of the
tem.
VERNMENT NATIONAL MORTGAGE
SOCIATION (GNMA or Ginnie Mae): Securities
uencing the volume of bank credit guaranteed
GNMA and issued by mortgage bankers,
nmercial banks, savings and loan associations,
I other institutions. Security holder is
tected by full faith and credit of the U.S.
iernment. Ginnie Mae securities are backed
the FHA, VA or FMHM mortgages. The term
ss-through" is often used to describe Ginnie
es.
F (Local Agency Investment Fund) - A special
d in the State Treasury which local agencies
y use to deposit funds for investment. There
no minimum Investment period and the
iimum transaction is $5,000, in multiples of
000 above that, with a maximum balance of
),000,000 for any agency. The City is
tricted to a maximum of ten transactions per
nth. It offers high liquidity because deposits
can be converted to cash in 24 hours and ni
interest is lost. All interest is distributed to those
agencies participating on a proportionate share
basis determined by the amounts deposited an(
the length of time they are deposited. Interest i
paid quarterly. The State retains an amount fo
reasonable costs of making the investments, no
to exceed one -quarter of one percent of thi
earnings.
LIQUIDITY: A liquid asset is one that can bi
converted easily and rapidly into cash without ;
substantial loss of value. In the money market,
security is said to be liquid if the spread betweer
bid and asked prices is narrow and reasonable size
can be done at those quotes.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP)
The aggregate of all funds from politica
subdivisions that are placed in the custody of th(
State Treasurer for investment and reinvestment
MARKET VALUE: The price at which a security h
trading and could presumably be purchased o
sold.
MASTER REPURCHASE AGREEMENT: A writter
contract covering all future transactions betweer
the parties to repurchase --reverse repurchase
agreements that establishes each party's rights it
the transactions. A master agreement will ofter
specify, among other things, the right of thi
buyer -lender to liquidate the underlying securities
in the vent of default by the seller -borrower.
MATURITY: The date upon which the principal o
stated value of an investment becomes due an(
payable
MONEY MARKET: The market in which short -tern
debt instruments (bills, commercial paper, banker
acceptances, etc.) are issued and traded.
OFFER: The price asked by a seller of securities
(When you are buying securities, you ask for ar
offer.) See Asked and Bid.
OPEN MARKET OPERATIONS: Purchases an(
sales of government and certain other securities it
the open market by the New York Federal Reservi
38 01
ank as directed by the FOMC in order to
fluence the volume of money and credit in the
:onomy. Purchases inject reserves into the
ank system and stimulate growth of money and
edit; sales have the opposite effect. Open
tarket operations are the Federal Reserve's most
nportant and most flexible monetary policy tool.
ORTFOLIO: Collection of all cash and securities
nder the direction of the City Treasurer,
icluding Bond Proceeds,
RIMARY DEALER: A group of government
acurities dealers who submit daily reports of
iarket activity and depositions and monthly
nancial statements to the Federal Reserve Bank
f New York and are subject to its informal
versight. Primary dealers include Securities and
xchange Commission (SEC) -registered securities
roker-dealers, banks and a few unregulated
rms.
IUALIFIED PUBLIC DEPOSITORIES: A financial
istitution which does not claim exemption from
he payment of any sales or compensating use or
d valorem taxes under the laws of this state,
vhich has segregated for the benefit of the
ommission eligible collateral having a value of
iot less than its maximum liability and which has
seen approved by the Public Deposit Protection
:ommission to hold public deposits.
IATE OF RETURN: The yield obtainable on a
security based on its purchase price or its current
narket price. This may be the amortized yield to
naturity on a bond the current income return.
tEPURCHASE AGREEMENT (RP OR REPO): A
epurchase agreement is a short-term investment
ransaction. Banks buy temporarily idle funds
rom a customer by selling U.S. Government or
)ther securities with a contractual agreement to
epurchase the same securities on a future date.
iepurchase agreements are typically for one to
:en days in maturity. The customer receives
nterest from the bank. The interest rate reflects
)oth the prevailing demand for Federal funds and
:he maturity of the repo. Some banks will
axecute repurchase agreements for a minimum of
5100,000 to $500,000, but most banks have a
39
minimum of $1,000,000.
REVERSE REPURCHASE AGREEMENTS (RRP
RevRepo) - A holder of securities sells the
securities to an investor with an agreement
repurchase them at a fixed price on a fixed da
The security"buyer" in effect lends the"sell
money for the period of the agreement, and I
terms of the agreement are structured
compensate him for this. Dealers use R
extensively to finance their positions. Exceptil
When the Fed is said to be doing RRP, it is lend
money that is increasing bank reserves.
SAFEKEEPING: A service to customers rende
by banks for a fee whereby securities i
valuables of all types and descriptions are hel(
the bank's vaults for protection.
SECONDARY MARKET: A market made for
purchase and sale of outstanding issues follow
the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Age
created by Congress to protect investors
securities transactions by administering securi
legislation.
SEC RULE 15C3-1: See Uniform Net Capital Ri
STRUCTURED NOTES: Notes issued
Government Sponsored Enterprises (FH
FNMAS, SLMA, etc.) And Corporations wt
have imbedded options (e.g., call features, star
coupons, floating rate coupons, derivative-ba
returns) into their debt structure. Their mai
performance is impacted by the fluctuation
interest rates, the volatility of the imbed
options and shifts in the Shape of the yield cu
SURPLUS FUNDS: Section 53601 of the Califo
Government Code defines surplus funds as
money not required for immediate necessitie
the local agency. The City has defined immed
necessities to be payment due within one we
TREASURY BILLS: A non -interest bearing disc(
security issued by the U.S. Treasury to finance
national debt. Most bills are issued to matur
three months, six months or one year.
EASURY BONDS: Long-term coupon -bearing
i. Treasury securities issued as direct
igations of the U.S. Government and having
sal maturities of more than 10 years.
EASURY NOTES: Medium -term coupon -bearing
i. Treasury securities issued as direct
igations of the U.S. Government and having
ial maturities from two to 10 years.
(FORM NET CAPITAL RULE: Securities and
:hange Commission requirement that member
ns as well as nonmember broker -dealers in
;urities maintain a maximum ratio of
elatedness to liquid capital of 15 to 1; also
led net capital rule and net capital ratio,
ebtedness covers all money owed to a firm,
luding margin loans and commitments to
'chase securities, one reason new public issues
spread among members of underwriting
idicates. Liquid capital includes cash and
;ets easily converted into cash.
(FORM PRUDENT INVESTOR ACT: The State
California has adopted this Act. The Act
stains the following sections: duty of care,
ersification, review of assets, costs,
npliance determinations, delegation of
estments, terms of prudent investor rule, and
flication.
LD: The rate of annual income return on an
estment, expressed as a percentage. (a)
;OME YIELD is obtained by dividing the current
lar income by the current market price for the
urity. (b) NET YIELD or YIELD TO MATURITY
he current income yield minus any premium
roe par of plus any discount from par in
chase price, with the adjustment spread over
period from the date of purchase to the date
naturity of the bond.
40