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HomeMy WebLinkAboutInvestment Reports - July and August 2011 - Joint ConsiderationRAD CITY OF PALM DESERT FINANCE DEPARTMENT INTEROFFICE MEMORANDUM TO: RACHELLE KLASSEN, CITY CLERK FROM: NIAMH ORTEGA, RECORDING SECRETAR"� DATE: OCTOBER 7, 2011 SUBJECT: COMPLIANCE ANALYSIS AND INVESTMENT REPORTS Please find attached the Compliance Analysis and Investment Reports which were presented and approved at the recent meeting of the Audit, Investment and Finance Committee for the months of July and August 2011. Please include the report on the upcoming agenda for review and acceptance by City Council. Also included are the Minutes of the July 2011 meeting for acceptance by the City Council. Please feel free to contact me at Ext. 382 if you have any questions. Thank you. nmo Attachment (as noted) CITY COUNCIL. ACTION APPROVED DENIED IZECEIVED ILL OTHER MEETING DATE 10 AYES: R �►�� ' Jl 1 NOES: LISP _ ABSENT:.KITA f' ABSTAIN: VERIFIED BY. k0k ra Original on File with City Clerk's Orice ON VERIFIED B`---91DK-ir( Original on file with%. i Clerk's Office GARNANCE\NIAMH ORTEGA\INVESTMENT COMMITTEE\MEMOS\RKLASSENINVREPORT.WPD City of Palm Desert City and Redevelopment Agency Portfolios COMPLIANCE ANALYSIS AND INVESTMENT REPORT July 31, 2011 Paul S. Gibson, C.C.M.T., Treasurer Thomas W. Jeffrey, J.D., M.B.A., Deputy City Treasurer Treasurer's Commentary On August 5, Standard & Poor's downgraded the U.S. Treasury's credit rating from "AAA" (since 1917) to "AA+". Fannie Mae and Freddie Mac debt were similarly downgraded. U.S. Treasury yields plunged, however, as investors bought Treasuries in a flight -to -safety as Italy and Spain, the third- and fourth -largest economies in Europe, became engulfed in the European sovereign debt crisis. Italy is the largest issuer of sovereign debt in the European Union. U.S. economic growth stalled during the first half of 2011. Second-quarter GDP was 1.3%. Consumer spending, which accounts for 70% of U.S. economic activity, increased by only 0.1 % -- the weakest since the recession ended two years ago. Manufacturers had their weakest growth in two years. Planned job cuts in July were the highest in the last 16 months. Homeowners are unable to refinance at historically low interest rates because they are "underwater". Many economists believe that the U.S. is tottering on the brink of a double -dip recession, waiting only for a triggering event. That event may be the European sovereign debt crisis. A systemic shock could result from: (1) France losing its "AAA" credit rating, which would undermine French banks and the European Financial Stability Facility; or (2) one or more countries dropping the Euro, and readopting their national currency in order to mark down their liabilities by 50% or more. France and Germany are facing the stark choice of either pursuing fiscal union with other Euro countries or severing links with heavily indebted Southern European member countries. Pis �j6NOyv, c, C.M 7- City Treasurer PORTFOLIO STATISTICS Dollars in Thousands JUL-11 JUN-11 MAY-11 APRA I MARA I FEBA 1 CITY Month -End Book Value— $ 207,383 $ 223,281 $ 219,682 $ 198,991 $ 199,348 $ 195,436 Month -End Market Value*** $ 207,415 $ 223,342 $ 219,780 $ 199,115 $ 199,495 $ 195,618 Paper Gain (Loss) $ 32 $ 61 $ 98 $ 124 $ 147 $ 182 Prior Year Book Variance $ 9,505 $ 21,349 $ 17,899 $ 48 $ 1,396 $ (4,688) Interest Earnings 122 131 125 109 91 96 Yield -To -Maturity 0.67% 0.72% 0.71 % 0.76% 0.54% 0.56% Weighted Maturity (Days) 77 79 81 89 96 105 Effective Duration 0.02 0.02 0.03 0.04 0.05 0.06 RDA Month -End Book Value *** $ 247,803 $ 236,903 $ 241,394 $ 225,883 $ 245,817 $ 256,731 Month -End Market Value *** $ 248,063 $ 237,195 $ 241,718 $ 225,653 $ 246,074 $ 257,025 Paper Gain (Loss) $ 260 $ 292 $ 324 $ (230) $ 257 $ 294 Prior Year Book Variance $ (50,709) $ (65,660) $ (58,327) $ (59,452) $ (49,590) $ (47,490) Interest Earnings 114 122 120 167 136 142 Yield -To -Maturity 0.56% 0.63% 0.62% 0.73% 0.61 % 0.71 % Weighted Maturity (Days) 208 218 228 257 235 267 Effective Duration 0.28 0.31 0.32 0.39 0.38 0.37 *** Omits SLGSs. City of Palm Desert -- Portfolio Characteristics July 31, 2011 Dollars in Thousands Ageing Interval Market Value < 1 M $ 157,456 < 2M - < 3M 3,017 < 6M - < 1YR - < 2YR 3,024 < 3YR - < 4YR - < 5YR - > 5YR - Total: $ 163,497 Ratings * Market Value AAA $ 144,971 AA 4,000 A 3,801 Unrated ** 53,229 Total: $ 206,001 Sector Market Value MMF $ 4,095 Agencies 6,041 MTNs 7,801 CAMP 5,016 LAIF 14,365 County Pool 80,041 Rabobank 49,778 RDA Loan 13,555 LAIF/Bond Proceeds 25,309 Total: $ 206,001 Month City Yield LAIF Yield Variance Aug 10 0.93 0.51 0.41 Sep 0.96 0.50 0.46 Oct 0.78 0.48 0.30 Nov 0.75 0.45 0.30 Dec 0.72 0.46 0.26 Jan11 0.66 0.54 0.12 Feb 0.56 0.51 0.05 Mar 0.54 0.50 0.04 Apr 0.76 0.59 0.17 May 0.71 0.41 0.30 Jun 0.72 0.45 0.27 Jul 0.67 0.38 0.29 i General Fund Ageing 100Et. 80 �. 0 60 o I 0 0 40 a 20 0 2 0 0 2 0 0 0 0 0 <1M <2M c3M <61M < WR<2YR<3YR<,IYR<5YR>5YR Credit Quality AAA Unrated '* 70% 26% A AA 2% 2% Asset Allocation County Pool 39% LAIF Rabobank 7% 24% MTNs Agea ncies 3°/ RDA Loan �2MPMMF LAIF/Bond 7% 2% Proceeds 12% / Performance 1.0 ° 0.5 m 0.0 AuglOSep Oct Nov Dec Janll Feb Mar Apr May Jun Jul e o * Standard and Poors * LAIF, and City Loan to RDA Page 2 Palm Desert Redevelopment Agency -- Portfolio Characteristics July 31, 2011 Dollars in Thousands Aneing Interval Market Value < 1 M $ 206,429 Portfolio Ageing w/o SLGSs < 2M < 3M < 6M 15,063 < 1YR 2,519 < 2YR 21,262 2 < 3YR - < 4YR - a° < 5YR - > 5YR 2,790 Total: $ 248,063 Credit Quality ualit Market Value AAA $ 104,613 AA 6,692 A - Unrated 135,473 Total: $ 246,778 Sector Market Value MMF $ 7,078 Agencies 32,152 MTNs 6,691 CAMP 8,104 County Pool 7,502 Rabobank 49,777 LAIF 8,668 EIP 2,790 LAIF/Bond Proceeds 124,016 Total: $ 246,778 Month RDA Yield LAIF Yield Variance Aug10 0.79 0.51 0.28 Sep 0.59 0.50 0.09 Oct 0.60 0.48 0.12 Nov 0.59 0.45 0.14 Dec 0.60 0.46 0.14 Jan11 0.68 0.54 0.14 Feb 0.71 0.51 0.20 Mar 0.61 0.50 0.11 Apr 0.73 0.59 0.14 May 0.62 0.41 0.21 Jun 0.63 0.45 0.18 Jul 0.67 0.38 0.29 Asset Allocation i Performance 100 80 60 40 20 0 < W c2M <3M <W <1YR<2YR<3YR<4YR<5YR>5YR AA A 3% 0% 4'AA Unrate d ** 2% 0 55 /o Rabobank County Pool 20% LAIF 3% 4% CAMP EIP 3% 1% MTNs 3% Agencies 13% LAIF/Bond MMF Proceeds 3% 50% Standard and Poors LAIF Page 3 STATEMENT OF COMPLIANCE The investment portfolios of the City of Palm Desert ("City") and the Palm Desert Redevelopment Agency ("RDA") are governed by federal, state, and local law. The City Treasurer's "Statement of Investment Policy" is more restrictive than the California Government Code. The Palm Desert Audit, Investment, and Finance Committee and the Palm Desert City Council review the Statement of Investment Policy annually. For the month ended July 31, 2011, the City and the RDA investment portfolios were in compliance with all applicable federal, state, and local laws and regulations. The City Treasury continued to pursue conservative and prudent investment strategies, based upon the stated objectives of safety, liquidity, and yield (in order of priority). Barring unforeseen events, the City Treasury should have sufficient cash to finance the operations of the City of Palm Desert and the Palm Desert Redevelopment Agency over the next six months. In addition, portions of either the City or the RDA portfolio could be liquidated in order to meet any significant, unexpected cash requirements. Interactive Data Corporation provided the data that was used to calculate the market value of all securities in the City and the RDA investment portfolios. State and Local Government Series securities are held in escrow accounts, and are therefore not included in this report as assets. All balances are bank balances. Respectfully Submitted on August 23, 2011, PW(I s. Cir; ),a , C. C. T: City Treasurer SUMMARY OF AUTHORIZED INVESTMENTS California Government Code City Investment Policy CA Govt Maximum Maximum Quality Maximum Maximum Quality % of City % of RDA Code Investment Category Maturity Limit S&P/Mdys Maturity Limit S&P/Mdys Portfolio Portfolio 53601 a Palm Desert Bonds 5 Years No Limit - 1 1.1% 53632(c) Savings Accounts No Limit No Limit No Limit No Limit 24.2% I 20.2% 53601(b) U.S. Treasuries 5 Years No Limit 5 Years No Limit - I - 53601(c) CA State Debt 5 Years No Limit Not Authorized 53601 d CA Local Agency Debt 5 Years No Limit Not Authorized 53601(e) Federal Agencies 5 Years No Limit 5 Years 30% 6% 2.9% 13.0% 53601(f) Bankers's Acceptances 180 Days 40% 180 Days 40% A-1 & P-1 - - 53601() Commercial Paper 270 Days 25% A-1+ or P-1 270 Days 25% A-1+ or P-1 - - 53601 h Negotiable CDs 5 Years 30% 5 Years 30% AA- or Aa3 - - 53601(i) Repos 1 Year No Limit 30 Days 20% AAA & Aaa - - 53601(I) Reverse Repos 92 Days 20% Not Authorized 53601 ') Medium -Term Notes 5 Years 30% A 5 Years 30% 1 A 1 3.8% 2.7% 53601 k Mutual Funds 90 Days 20% AAA & Aaa 90 Days 1 20% (2) IAAA&Aaal 2.0% 1 2.9% 53601(I) Trust Indenture Debt Not Authorized 53601(m) Secured Bank Deposits 5 Years No Limit Not Authorized 53601(k) Local Government Investment Pools 90 Days 20% AAA & Aaa or Advisor 90 Days 20% (2) 1 AAA & Aaa or Advisor 1 41.3% 6.3% 53601(n) Mortgage -Backed Securities 5 Years 20% A (Issuer) & AA (Security) Not Authorized 16429.1(b) LAIF No Limit No Limit 19.3% 53.8% (1) The City loan to RDA, which is not a bond, has been approved by the Palm Desert City Council. 93.4% 1 100.0% (2) The City Energy Independence Program has been approved by the Palm Desert City Council. 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U c � d E t°- a � o d > C — U') LO N N N M O O N ,^ V � Z U, to O a U N W N O x U U N co City of Palm Desert City and Redevelopment Agency Portfolios COMPLIANCE ANALYSIS AND INVESTMENT REPORT August '31, 2011 Paul S. Gibson, C.C.M.T., Treasurer Thomas W. Jeffrey, J.D., M.B.A., Deputy City Treasurer Treasurer's Commentary Greece will default on its debt. It is trapped in a vicious cycle of a shrinking economy, falling tax collections, and soaring interest rates. Greek sovereign debt is now 140% of GDP. A one-year Greek bond has a yield of 110%. Within the EU, there is stiff German, Dutch, and Finnish resistance to any more financial aid for Greece. A Greek default (90-100% loss for creditors) would hit French and German banks particularly hard since they have the largest holdings of Greek sovereign debt. This has already had a chilling effect on European inter -bank lending. Of greater concern, however, is the possibility that a Greek default could precipitate defaults by Spain, Italy, Portugal, and Ireland, thereby collapsing the European banking system. Europe narrowly averted a 2008-style liquidity crisis in September as U.S. money market funds stopped investing in Europe, and diverted their money into U.S. Treasury purchases, driving down the yield on a 10-year U.S. Treasury Note to 1.97%. Only the intervention of the U.S./Japanese/British/Swiss central banks prevented a crisis. During this time, European banks deposited large amounts of their reserves into the Federal Reserve system as a hedge against a European banking collapse. Why does Europe matter? Europe is the United States's largest export market, and a key source of funding for its national debt. A severe recession in Europe (along with a stronger U.S. Dollar) would devastate U.S. exports, and make the U.S. more dependent on China (which has announced that it will begin selling U.S. Treasuries to invest in hard assets) for public financing. It would also tip the U.S. into a double -dip recession, further enlarging the national deficit. ;Pau,is zjdWn,, C. C.IV T. City Treasurer PORTFOLIO STATISTICS Dollars in Thousands AUG-11 JUL-11 JUNA 1 MAY-11 APRA 1 MARA 1 CITY Month -End Book Value*** $ 206,655 $ 207,383 $ 223,281 $ 219,682 $ 198,991 $ 199,348 Month -End Market Value*** $ 206,683 $ 207,415 $ 223,342 $ 219,780 $ 199,115 $ 199,495 Paper Gain (Loss) $ 28 $ 32 $ 61 $ 98 $ 124 $ 147 Prior Year Book Variance $ 382 $ 9,505 $ 21,349 $ 17,899 $ 48 $ 1,396 Interest Earnings 91 122 131 125 109 91 Yield -To -Maturity 0.49% 0.67% 0.72% 0.71 % 0.76% 0.54% Weighted Maturity (Days) 22 77 79 81 89 96 Effective Duration 0.02 0.02 0.02 0.03 0.04 0.05 RDA Month -End Book Value *** $ 240,274 $ 247,803 $ 236,903 $ 241,394 $ 225,883 $ 245,817 Month -End Market Value *** $ 240,529 $ 248,063 $ 237,195 $ 241,718 $ 225,653 $ 246,074 Paper Gain (Loss) $ 255 $ 260 $ 292 $ 324 $ (230) $ 257 Prior Year Book Variance $ (36,071) $ (50,709) $ (65,660) $ (58,327) $ (59,452) $ (49,590) Interest Earnings 117 114 122 120 167 136 Yield -To -Maturity 0.58% 0.56% 0.63% 0.62% 0.73% 0.61% Weighted Maturity (Days) 215 208 218 228 257 235 Effective Duration 0.28 0.28 0.31 0.32 0.39 0.38 *** Omits SLGSs. Dollars in Thousands Aneinq Interval <1M < 2M < 3M < 6M < 1 YR < 2YR < 3YR < 4YR < 5YR > 5YR Total: City of Palm Desert -- Portfolio Characteristics August 31, 2011 Market Value $ 152,222 3,017 3,024 $ 158,263 Ratings ' Market Value AAA $ 151,576 AA - A - Unrated "" 53,219 Total: $ 204,795 Sector Market Value MMF $ 8,982 Agencies 6,034 MTNs - CAMP 6,716 LAIF 14,365 County Pool 80,042 Rabobank 49,803 RDA Loan 13,555 LAIF/Bond Proceeds 25,298 Total: $ 204,795 Month City Yield LAIF Yield Sep10 0.96 0.50 Oct 0.78 0.48 Nov 0.75 0.45 Dec 0.72 0.46 Jan11 0.66 0.54 Feb 0.56 0.51 Mar 0.54 0.50 Apr 0.76 0.59 May 0.71 0.41 Jun 0.72 0.45 Jul 0.67 0.38 Aug 0.49 0.41 Variance 0.46 0.30 0.30 0.26 0.12 0.05 0.04 0.17 0.30 0.27 0.29 0.08 General Fund Ageing 100 I 80 0 60 o 40 a 20 2 0 0 2 0 0 0 0 0 0 <11M <21VI <3M <61M <1YR<2YR<3YR<4YR<5YR>5YR Credit Quality A 0% AAA Unrated ** 74% 26% AA 0% i Asset Allocation MTNs County Pool 0% 39% Rabobank LAIF io 24% 7% Agencies 3% CAMP RDA Loan 3% MMF LAIF/Bond 7% 5% Proceeds 12% / Performance 1.0 m 0.5 r 0.0 Sepl00ct Nov DecJanll Feb Mar Apr May Jun Jul Aug ® a Standard and Poors " LAIF, and City Loan to RDA Page 2 Palm Desert Redevelopment Agency -- Portfolio Characteristics August 31, 2011 Dollars in Thousands Aneing Interval Market Value Portfolio Ageing w/o SLGSs < 1 M $ 72,399 < 2M - < 3M 9,023 < 6M 6,040 < 1YR 16,260 < 2YR 7,520 2 < 3YR - 0 t < 4YR - 0 a < 5YR - > 5YR 2,790 Total: $ 114,032 Credit Quality Quality * Market Value AAA $ 100,501 AA 6,666 A - Unrated *` 132,103 Total: $ 239,270 Sector Market Value MMF $ 2,940 Agencies 32,151 MTNs 6,666 CAMP 8,106 County Pool 7,502 Rabobank 49,801 LAIF 8,668 EIP 2,790 LAIF/Bond Proceeds 120,646 Total: $ 239,270 Month RDA Yield LAIF Yield Variance Sep10 0.59 0.50 0.09 Oct 0.60 0.48 0.12 Nov 0.59 0.45 0.14 Dec 0.60 0.46 0.14 Jan11 0.68 0.54 0.14 Feb 0.71 0.51 0.20 Mar 0.61 0.50 0.11 Apr 0.73 0.59 0.14 May 0.62 0.41 0.21 Jun 0.63 0.45 0.18 Jul 0.67 0.38 0.29 Aug 0.58 0.41 0.17 Asset Allocation i Performance 0.8 0.6 d 0.4 i= 0.2 0.0 Sepl00cl Nov DecJanll Feb Mar Apr May Jun Jul Aug ®LAIFYield ORDAYield 100 80 60 40 20 0 <1M <2M <3M <61VI<1YR<2YR<3YR<VR<VR>VR AA A 3% 0% AAA Unrated ** 42% 0 55% Rabobank County Pool 21% LAIF 3% 4 /° EIP CAMP 1% 3% MTNs 3% Agencies 14% LAIF/Bond MMF Proceeds 1 % 50% " Standard and Poors ** LAIF Page 3 STATEMENT OF COMPLIANCE The investment portfolios of the City of Palm Desert ("City") and the Palm Desert Redevelopment Agency ("RDA") are governed by federal, state, and local law. The City Treasurer's "Statement of Investment Policy" is more restrictive than the California Government Code. The Palm Desert Audit, Investment, and Finance Committee and the Palm Desert City Council review the Statement of Investment Policy annually. For the month ended August 31, 2011, the City and the RDA investment portfolios were in compliance with all applicable federal, state, and local laws and regulations. The City Treasury continued to pursue conservative and prudent investment strategies, based upon the stated objectives of safety, liquidity, and yield (in order of priority). Barring unforeseen events, the City Treasury should have sufficient cash to finance the operations of the City of Palm Desert and the Palm Desert Redevelopment Agency over the next six months. In addition, portions of either the City or the RDA portfolio could be liquidated in order to meet any significant, unexpected cash requirements. Interactive Data Corporation provided the data that was used to calculate the market value of all securities in the City and the RDA investment portfolios. State and Local Government Series securities are held in escrow accounts, and are therefore not included in this report as assets. All balances are bank balances. Respectfully Submitted on September 27, 2011, f'a,azs, Cir lraofi, C. C. Af T: City Treasurer SUMMARY OF AUTHORIZED INVESTMENTS California Government Code City Investment Policy CA Govt Maximum Maximum Quality Maximum Maximum Quality % of City % of RDA Code Investment Category Maturity Limit S&P/Mdys Maturity Limit S&P/Mdys Portfolio Portfolio 53601 a Palm Desert Bonds 5 Years No Limit - 1.2% 53632(c) Savings Accounts No Limit No Limit No Limit No Limit 24.3% 20.8% 53601(b) U.S. Treasuries 5 Years No Limit 5 Years No Limit - - 53601(c) CA State Debt 5 Years No Limit Not Authorized 53601 d CA Local Agency Debt 5 Years No Limit Not Authorized 53601(e) Federal Agencies 5 Years No Limit 5 Years 30% 6% 2.9% 13.4% 53601(f) Bankers's Acceptances 180 Days 40% 180 Days 40% A-1 & P-1 - - 53601(g) Commercial Paper 270 Days 25% A-1+ or P-1 270 Days 25% 1 A-1+ or P-1 - - 53601 h Negotiable CDs 5 Years 30% 5 Years 30% AA- or Aa3 - - 53601(i) Repos 1 Year No Limit 30 Days 20% AAA & Aaa - - 53601(I) Reverse Repos 92 Days 20% Not Authorized 53601 ') Medium -Term Notes 5 Years 30% A 5 Years 30% A 0.0% 2.8% 53601 k Mutual Funds 90 Days 20% AAA & Aaa 90 Da s 1 20% (2) JAAA&AaaJ 4.4% 1 1.2% 53601(I) Trust Indenture Debt Not Authorized 53601(m) Secured Bank Deposits 5 Years No Limit Not Authorized 53601(k) Local Government Investment Pools 90 Days 20% AAA & Aaa or Advisor 90 Days 1 20% (2) AAA & Aaa 1 or Advisor 1 42.4% 6.5% 53601(n) Mortgage -Backed Securities 5 Years 20% A (Issuer) & AA (Security) Not Authorized 16429.1(b) LAIF No Limit No Limit 19.4% 54.1% (1) The City loan to RDA, which is not a bond, has been approved by the Palm Desert City Council. 93.4% 100.0% (2) The City Energy Independence Program has been approved by the Palm Desert City Council. 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