2021/12/14 City Council Resolution 2021-144 RESOLUTION NO. 2021-144
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROHNERT PARK
APPROVING AN UPDATED INVESTMENT POLICY
WHEREAS, The Finance Department has completed a review of the investment policy
for the City of Rohnert Park ("City") incorporated in Resolution No. 2006-105 entitled
Investment Policy for Idle Funds; and
WHEREAS, the City's investment policy needs to be updated to include most recent
California Government Code updates, expand the use of applicable assets classes, include
additional best practices, and that staff recommends an update to the existing policy thereto; and
WHEREAS, the proposed investment policy supersedes the policy adopted on April 25,
2006, under resolution No. 2006-105 of the Council of the City of Rohnert Park; and
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Rohnert
Park hereby approves the adoption of the updated Investment Policy, attached as Exhibit A;
which is incorporated herein by this reference, is effective immediately as of the date and time of
adoption of this resolution; and
DULY AND REGULARLY ADOPTED this 14th day of December, 2021.
CITY OF ROH b T P RK
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Gerard Giudi -, i ayor
ATTEST:
Elizabeth Machado, Deputy City Clerk
Attachments: Exhibit A: Investment Policy
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CITY OF ROHNERT PARK
CITY COUNCIL POLICY
SUBJECT/TITLE: POLICY NO: APPROVED BY: APPROVAL DATE:
INVESTMENT POLICY
☐ RESO NO:_________________
☐ MINUTE ORDER
EXHIBIT A
CONTENTS
I. INTRODUCTION ..................................................................................................................... 1
II. SCOPE ................................................................................................................................. 1
III. PRUDENCE ........................................................................................................................... 1
IV. OBJECTIVES .......................................................................................................................... 2
V. DELEGATION OF AUTHORITY .................................................................................................... 2
VI. ETHICS AND CONFLICTS OF INTEREST ......................................................................................... 3
VII. INTERNAL CONTROLS .............................................................................................................. 3
VIII. AUTHORIZED FINANCIAL INSTITUTIONS, DEPOSITORIES, AND BROKER/DEALERS ................................. 4
IX. AUTHORIZED INVESTMENTS ..................................................................................................... 5
X. PROHIBITED INVESTMENT VEHICLES AND PRACTICES ................................................................... 10
XI. INVESTMENT POOLS/MUTUAL FUNDS ..................................................................................... 11
XII. COLLATERALIZATION ............................................................................................................. 11
XIII. DELIVERY, SAFEKEEPING AND CUSTODY ................................................................................... 12
XIV. MAXIMUM MATURITY .......................................................................................................... 12
XV. RISK MANAGEMENT AND DIVERSIFICATION .............................................................................. 12
XVI. REVIEW OF INVESTMENT PORTFOLIO ....................................................................................... 14
XVII. PERFORMANCE EVALUATION ................................................................................................. 14
XVIII. REPORTING ........................................................................................................................ 14
XIX. REVIEW OF INVESTMENT POLICY ............................................................................................. 15
GLOSSARY OF INVESTMENT TERMS ........................................................................................................ 16
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I. INTRODUCTION
The purpose of this investment policy is to identify various policies and procedures that
will foster a prudent and systematic investment program designed to seek the City of
Rohnert Park objectives of safety, liquidity, and return on investment through a
diversified investment portfolio. The City has a fiduciary responsibility to maximize the
productive use of assets entrusted to its care and to invest and manage those public funds
wisely and prudently. This policy also serves to organize and formalize the City’s
investment-related activities, while complying with all applicable statutes governing the
investment of public funds. This policy is written to incorporate industry best practices
and recommendations from sources such as the Government Finance Officers Association
(GFOA), California Municipal Treasurers Association (CMTA), California Debt and
Investment Advisory Commission (CDIAC) and the Association of Public Treasurers (APT).
This investment policy was endorsed and adopted by the City Council and is effective as
of the 14th day of December, 2021, and replaces any previous versions.
II. SCOPE
This policy covers all funds and investment activities under the direct authority of the City,
as set forth in the State Government Code, Sections 53600 et seq., with the following
exceptions:
• Proceeds of debt issuance shall be invested in accordance with the City’s general
investment philosophy as set forth in this policy; however, such proceeds are to be
invested pursuant to the permitted investment provisions of their specific bond
indentures.
• IRS Section 115 Trust funds for post-employment benefits such as retirement or
medical benefits.
• Any other funds specifically exempted by the City Council.
POOLING OF FUNDS
Except for cash in certain restricted and special funds, the City will consolidate cash and
reserve balances from all funds to maximize investment earnings and to increase
efficiencies with regard to investment pricing, safekeeping, and administration.
Investment income will be allocated to the various funds based on their respective
participation and in accordance with generally accepted accounting principles.
III. PRUDENCE
Pursuant to California Government Code, Section 53600.3, all persons authorized to make
investment decisions on behalf of the City are trustees and therefore fiduciaries subject
to the Prudent Investor Standard:
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“…all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing public funds
pursuant to this chapter are trustees and therefore fiduciaries subject to the
prudent investor standard. When investing, reinvesting, purchasing, acquiring,
exchanging, selling, or managing public funds, a trustee shall act with care, skill,
prudence, and diligence under the circumstances then prevailing, including, but
not limited to, the general economic conditions and the anticipated needs of the
Agency, that a prudent person acting in a like capacity and familiarity with those
matters would use in the conduct of funds of a like character and with like aims,
to safeguard the principal and maintain the liquidity needs of the Agency. Within
the limitations of this section and considering individual investments as part of an
overall strategy, investments may be acquired as authorized by law.”
The Treasurer and other authorized persons responsible for managing City funds
acting in accordance with written procedures and this investment policy and
exercising due diligence shall be relieved of personal responsibility for an individual
security’s credit risk or market price changes provided that the Treasurer or other
authorized persons acted in good faith. Deviations from expectations of a security’s
credit or market risk should be reported to the governing body in a timely fashion and
appropriate action should be taken to control adverse developments.
IV. OBJECTIVES
The City’s overall investment program shall be designed and managed with a degree of
professionalism worthy of the public trust. The overriding objectives of the program are
to preserve principal, provide sufficient liquidity, and manage investment risks, while
seeking a market-rate of return.
• SAFETY. Safety of principal is the foremost objective of the investment program.
Investments will be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. To attain this objective, the City will diversify its
investments by investing funds among a variety of securities with independent
returns.
• LIQUIDITY. The investment portfolio will remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated.
• RETURN ON INVESTMENTS. The investment portfolio will be designed with the objective
of attaining a market rate of return throughout budgetary and economic cycles, taking
into account the investment risk constraints for safety and liquidity needs.
V. DELEGATION OF AUTHORITY
Authority to manage the City’s investment program is derived from California
Government Code, Sections 41006 and 53600 et seq.
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The City Council is accountable for the management of the City’s funds, including the
administration of this investment policy. Management responsibility for the cash
management of the funds is hereby delegated to the Treasurer.
The Treasurer will be responsible for all transactions undertaken and will establish a
system of procedures and controls to regulate the activities of subordinate officials and
employees. Such procedures will 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 policy and the procedures
established by the Treasurer.
The City may engage the services of one or more external investment advisers, who are
registered under the Investment Advisers Act of 1940, to assist in the management of the
City’s investment portfolio in a manner consistent with the City’s objectives. External
investment advisers may be granted discretion to purchase and sell investment securities
in accordance with this investment policy.
The City’s overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The City recognizes that in a diversified
portfolio, occasional measured losses may be inevitable and must be considered within
the context of the overall portfolio’s return and the cash flow requirements of the City.
VI. ETHICS AND CONFLICTS OF INTEREST
All participants in the investment process shall act as custodians of the public trust.
Investment officials shall recognize that the investment portfolio is subject to public
review and evaluation. Thus employees and officials involved in the investment process
shall refrain from personal business activity that could create a conflict of interest or the
appearance of a conflict with proper execution of the investment program, or which could
impair their ability to make impartial investment decisions.
Employees and investment officials shall disclose to the City Manager any material
interests in financial institutions with which they conduct business, and they shall further
disclose any large personal financial/investment positions that could be related to the
performance of the investment program. Employees and officers shall refrain from
undertaking any personal investment transactions with the same individual with whom
business is conducted on behalf of the City.
VII. INTERNAL CONTROLS
The Treasurer is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the entity are protected from loss, theft or misuse.
The internal control structure shall be designed to provide reasonable assurance that
these objectives are met. The concept of reasonable assurance recognizes that (1) the
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cost of a control should not exceed the benefits likely to be derived; and (2) the valuation
of costs and benefits requires estimates and judgments by management.
Periodically, as deemed appropriate by the City Council, an independent analysis by an
external auditor shall be conducted to review internal controls, account activity and
compliance with policies and procedures.
VIII. AUTHORIZED FINANCIAL INSTITUTIONS, DEPOSITORIES, AND BROKER/DEALERS
To the extent practicable, the Treasurer shall endeavor to complete investment
transactions using a competitive bid process whenever possible. The City’s Treasurer will
determine which financial institutions are authorized to provide investment services to
the City. It shall be the City’s policy to purchase securities only from authorized
institutions and firms.
The Treasurer shall maintain procedures for establishing a list of authorized
broker/dealers and financial institutions which are approved for investment purposes
that are selected through a process of due diligence as determined by the City. Due
inquiry shall determine whether such authorized broker/dealers, and the individuals
covering the City are reputable and trustworthy, knowledgeable and experienced in the
investment of public funds and able to meet all of their financial obligations. These
institutions may include "primary" dealers or regional dealers that qualify under
Securities and Exchange Commission (SEC) Rule 15c3-1 (uniform net capital rule).
In accordance with Section 53601.5, institutions eligible to transact investment business
with the City include:
• Institutions licensed by the state as a broker-dealer.
• Institutions that are members of a federally regulated securities exchange.
• Primary government dealers as designated by the Federal Reserve Bank and non-
primary government dealers.
• Nationally or state-chartered banks.
• The Federal Reserve Bank.
• Direct issuers of securities eligible for purchase.
Selection of financial institutions and broker/dealers authorized to engage in transactions
will be at the sole discretion of the City, except where the City utilizes an external
investment adviser in which case the City may rely on the adviser for selection.
All financial institutions which desire to become qualified bidders for investment
transactions (and which are not dealing only with the investment adviser) must supply
the Treasurer with audited financials and a statement certifying that the institution has
reviewed the California Government Code, Section 53600 et seq. and the City’s
investment policy. The Treasurer will conduct an annual review of the financial condition
and registrations of such qualified bidders.
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Public deposits will be made only in qualified public depositories as established by State
law. Deposits will be insured by the Federal Deposit Insurance Corporation, or, to the
extent the amount exceeds the insured maximum, will be collateralized in accordance
with State law.
Selection of broker/dealers used by an external investment adviser retained by the City
will be at the sole discretion of the adviser. Where possible, transactions with
broker/dealers shall be selected on a competitive basis and their bid or offering prices
shall be recorded. If there is no other readily available competitive offering, best efforts
will be made to document quotations for comparable or alternative securities. When
purchasing original issue instrumentality securities, no competitive offerings will be
required as all dealers in the selling group offer those securities at the same original issue
price.
IX. AUTHORIZED INVESTMENTS
The City’s investments are governed by California Government Code, Sections 53600 et
seq. Within the investments permitted by the Code, the City seeks to further restrict
eligible investments to the guidelines listed below. In the event a discrepancy is found
between this policy and the Code, the more restrictive parameters will take precedence.
Percentage holding limits and minimum credit requirements listed in this section apply at
the time the security is purchased.
Any investment currently held at the time the policy is adopted which does not meet the
new policy guidelines can be held until maturity and shall be exempt from the current
policy. At the time of the investment’s maturity or liquidation, such funds shall be
reinvested only as provided in the current policy.
An appropriate risk level shall be maintained by primarily purchasing securities that are
of high quality, liquid, and marketable. The portfolio shall be diversified by security type
and institution to avoid incurring unreasonable and avoidable risks regarding specific
security types or individual issuers.
1. MUNICIPAL SECURITIES include obligations of the City, the State of California, and any
local agency within the State of California, provided that:
• The securities are rated in a rating category of “A” or its equivalent or better by at
least one nationally recognized statistical rating organization (“NRSRO”).
• No more than 5% of the portfolio may be invested in any single issuer.
• No more than 30% of the portfolio may be in Municipal Securities.
• The maximum maturity does not exceed five (5) years.
2. MUNICIPAL SECURITIES (REGISTERED TREASURY NOTES OR BONDS) of any of the other 49 states
in addition to California, including bonds payable solely out of the revenues from a
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revenue-producing property owned, controlled, or operated by a state or by a
department, board, agency, or authority of any of the other 49 states, in addition to
California.
• The securities are rated in a rating category of “A” or its equivalent or better by at
least one nationally recognized statistical rating organization (“NRSRO”).
• No more than 5% of the portfolio may be invested in any single issuer.
• No more than 30% of the portfolio may be in Municipal Securities.
• The maximum maturity does not exceed five (5) years.
3. U.S. TREASURIES and other government obligations for which the full faith and credit of
the United States are pledged for the payment of principal and interest. There are no
limits on the dollar amount or percentage that the City may invest in U.S. Treasuries,
provided that:
• The maximum maturity is five (5) years.
4. FEDERAL AGENCIES or United States Government-Sponsored Enterprise obligations,
participations, or other instruments, including those issued by or fully guaranteed as
to principal and interest by federal agencies or United States government-sponsored
enterprises. There are no limits on the dollar amount or percentage that the City may
invest in Federal Agency or Government-Sponsored Enterprises (GSEs), provided that:
• No more than 30% of the portfolio may be invested in any single Agency/GSE
issuer.
• The maximum maturity does not exceed five (5) years.
• The maximum percent of agency callable securities in the portfolio will be 20%.
5. BANKER’S ACCEPTANCES, provided that:
• They are issued by institutions which have short-term debt obligations rated “A-
1” or its equivalent or better by at least one NRSRO; or long-term debt obligations
which are rated in a rating category of “A” or its equivalent or better by at least
one NRSRO.
• No more than 40% of the portfolio may be invested in Banker’s Acceptances.
• No more than 5% of the portfolio may be invested in any single issuer.
• The maximum maturity does not exceed 180 days.
6. COMMERCIAL PAPER, provided that the securities are issued by an entity that meets all
of the following conditions in either paragraph (a) or (b) and other requirements
specified below:
a. SECURITIES issued by corporations:
(i) A corporation organized and operating in the United States with assets
more than $500 million.
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(ii) The securities are rated “A-1” or its equivalent or better by at least one
NRSRO.
(iii) If the issuer has other debt obligations, they must be rated in a rating
category of “A” or its equivalent or better by at least one NRSRO.
b. SECURITIES issued by other entities:
(i) The issuer is organized within the United States as a special purpose
corporation, trust, or limited liability company.
(ii) The securities must have program-wide credit enhancements including,
but not limited to, overcollateralization, letters of credit, or a surety bond.
(iii) The securities are rated “A-1” or its equivalent or better by at least one
NRSRO.
• No more than 10% of the outstanding commercial paper of any single issuer.
• No more than 25% of the City’s investment assets under management may be
invested in Commercial Paper.
• No more than 5% of the portfolio may be invested in any single issuer.
• The maximum maturity does not exceed 270 days.
7. NEGOTIABLE CERTIFICATES OF DEPOSIT (NCDS), issued by a nationally or state-chartered
bank, a savings association or a federal association, a state or federal credit union, or
by a federally licensed or state-licensed branch of a foreign bank, provided that:
• The amount of the NCD insured up to the FDIC limit does not require any credit
ratings.
• Any amount above the FDIC insured limit must be issued by institutions which
have short-term debt obligations rated “A-1” or its equivalent or better by at least
one NRSRO; or long-term obligations rated in a rating category of “A” or its
equivalent or better by at least one NRSRO.
• No more than 30% of the total portfolio may be invested in NCDs (combined with
CDARS).
• No more than 5% of the portfolio may be invested in any single issuer.
• The maximum maturity does not exceed five (5) years.
8. FEDERALLY INSURED TIME DEPOSITS (Non-Negotiable Certificates of Deposit) in state or
federally chartered banks, savings and loans, or credit unions, provided that:
• The amount per institution is limited to the maximum covered under federal
insurance.
• No more than 20% of the portfolio will be invested in a combination of federally
insured and collateralized time deposits.
• The maximum maturity does not exceed five (5) years.
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9. COLLATERALIZED TIME DEPOSITS (Non-Negotiable Certificates of Deposit) in state or
federally chartered banks, savings and loans, or credit unions in excess of insured
amounts which are fully collateralized with securities in accordance with California
law, provided that:
• No more than 20% of the portfolio will be invested in a combination of federally
insured and collateralized time deposits.
• The maximum maturity does not exceed five (5) years.
10. CERTIFICATE OF DEPOSIT PLACEMENT SERVICE (CDARS), provided that:
• No more than 30% of the total portfolio may be invested in a combination of
Certificates of Deposit, including CDARS.
• The maximum maturity does not exceed five (5) years.
11. COLLATERALIZED BANK DEPOSITS. City’s deposits with financial institutions will be
collateralized with pledged securities per California Government Code, Section 53651.
There are no limits on the dollar amount or percentage that the City may invest in
collateralized bank deposits.
12. REPURCHASE AGREEMENTS collateralized with securities authorized under California
Government Code, maintained at a level of at least 102% of the market value of the
Repurchase Agreement. There are no limits on the dollar amount or percentage that
the City may invest, provided that:
• Securities used as collateral for Repurchase Agreements will be delivered to an
acceptable third party custodian.
• Repurchase Agreements are subject to a Master Repurchase Agreement between
the City and the provider of the repurchase agreement. The Master Repurchase
Agreement will be substantially in the form developed by the Securities Industry
and Financial Markets Association (SIFMA).
• The maximum maturity does not exceed one (1) year.
13. STATE OF CALIFORNIA LOCAL AGENCY INVESTMENT FUND (LAIF), provided that:
• The City may invest up to the maximum amount permitted by LAIF.
• LAIF’s investments in instruments prohibited by or not specified in the City’s policy
do not exclude the investment in LAIF itself from the City’s list of allowable
investments.
14. LOCAL GOVERNMENT INVESTMENT POOLS
• Sonoma County Investment Pool
• There is no issuer limitation for Local Government Investment Pools
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15. CORPORATE MEDIUM TERM NOTES (MTNS), provided that:
• The issuer is a corporation organized and operating within the United States or by
depository institutions licensed by the United States or any state and operating
within the United States.
• The securities are rated in a rating category of “A” or its equivalent or better by at
least one NRSRO.
• No more than 30% of the total portfolio may be invested in MTNs.
• No more than 5% of the portfolio may be invested in any single issuer.
• The maximum maturity does not exceed five (5) years.
16. ASSET-BACKED, MORTGAGE-BACKED, MORTGAGE PASS-THROUGH SECURITIES, AND
COLLATERALIZED MORTGAGE OBLIGATIONS FROM ISSUERS NOT DEFINED IN SECTIONS 3 AND 4 OF
THE AUTHORIZED INVESTMENTS SECTION OF THIS POLICY, provided that:
• The securities are rated in a rating category of “AA” or its equivalent or better by
a NRSRO.
• No more than 20% of the total portfolio may be invested in these securities.
• No more than 5% of the portfolio may be invested in any single Asset-Backed or
Commercial Mortgage security issuer.
• The maximum legal final maturity does not exceed five (5) years.
17. MUTUAL FUNDS AND MONEY MARKET MUTUAL FUNDS that are registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, provided that:
a. MUTUAL FUNDS that invest in the securities and obligations as authorized under
California Government Code, Section 53601 (a) to (k) and (m) to (q) inclusive and
that meet either of the following criteria:
(i) Attained the highest ranking or the highest letter and numerical rating
provided by not less than two (2) NRSROs; or
(ii) Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not less
than five years’ experience investing in the securities and obligations
authorized by California Government Code, Section 53601 and with assets
under management in excess of $500 million.
• No more than 10% of the total portfolio may be invested in shares of any one
mutual fund.
b. MONEY MARKET MUTUAL FUNDS registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 and issued by diversified
management companies and meet either of the following criteria:
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(i) Have attained the highest ranking or the highest letter and numerical
rating provided by not less than two (2) NRSROs; or
(ii) Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not less
than five years’ experience managing money market mutual funds with
assets under management in excess of $500 million.
• No more than 20% of the total portfolio may be invested in the shares of any
one Money Market Mutual Fund.
c. No more than 20% of the total portfolio may be invested in these securities.
18. SUPRANATIONALS, provided that:
• Issues are US dollar denominated senior unsecured unsubordinated obligations
issued or unconditionally guaranteed by the International Bank for Reconstruction
and Development, International Finance Corporation, or Inter-American
Development Bank.
• The securities are rated in a rating category of “AA” or its equivalent or better by
a NRSRO.
• No more than 30% of the total portfolio may be invested in these securities.
• No more than 5% of the portfolio may be invested in any single issuer.
• The maximum maturity does not exceed five (5) years.
X. PROHIBITED INVESTMENT VEHICLES AND PRACTICES
• State law notwithstanding, any investments not specifically described herein are
prohibited, including, but not limited to futures and options.
• In accordance with Government Code, Section 53601.6, investment in inverse
floaters, range notes, or mortgage derived interest-only strips is prohibited.
• Investment in any security that could result in a zero interest accrual if held to
maturity is prohibited. Under a provision sunsetting on January 1, 2026, securities
backed by the U.S. Government that could result in a zero- or negative-interest accrual
if held to maturity are permitted.
• Trading securities for the sole purpose of speculating on the future direction of
interest rates is prohibited.
• Purchasing or selling securities on margin is prohibited.
• The use of reverse repurchase agreements, securities lending or any other form of
borrowing or leverage is prohibited.
• The purchase of foreign currency denominated securities is prohibited.
• Agencies that are not Qualified Institutional Buyers (QIB) as defined by the Securities
and Exchange Commission are prohibited from purchasing Private Placement
Securities. The SEC defines a QIB as having at least $100,000,000 in securities owned
and invested.
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• The City recognizes that it has an equal obligation to be aware of the social and
political impacts of its investments, and subsequently to act responsibly in making its
financial decisions. In the event all general objectives mandated by state law and set
forth in Section IV above are met and created equal, the City shall not knowingly make
any investments in any institution, company, corporation, subsidiary or affiliate that
practices or supports directly or indirectly through its actions discrimination on the
basis of race, religion, color, creed, national or ethnic origin, age, sex, sexual
preference, or physical disability.
XI. INVESTMENT POOLS/MUTUAL FUNDS
The City shall conduct a thorough investigation of any pool or mutual fund prior to
making an investment, and on a continual basis thereafter. The Treasurer shall develop
a questionnaire which will answer the following general questions:
• A description of eligible investment securities, and a written statement of
investment policy and objectives.
• A description of interest calculations and how it is distributed, and how gains and
losses are treated.
• A description of how the securities are safeguarded (including the settlement
processes), and how often the securities are priced and the program audited.
• A description of who may invest in the program, how often, what size deposit and
withdrawal are allowed.
• A schedule for receiving statements and portfolio listings.
• Are reserves, retained earnings, etc. utilized by the pool/fund?
• A fee schedule, and when and how is it assessed.
• Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds?
XII. COLLATERALIZATION
CERTIFICATES OF DEPOSIT (CDS). The City shall require any commercial bank or savings and
loan association to deposit eligible securities with an agency of a depository approved by
the State Banking Department to secure any uninsured portion of a Non-Negotiable
Certificate of Deposit. The value of eligible securities as defined pursuant to California
Government Code, Section 53651, pledged against a Certificate of Deposit shall be equal
to 150% of the face value of the CD if the securities are classified as mortgages and 110%
of the face value of the CD for all other classes of security.
COLLATERALIZATION OF BANK DEPOSITS. This is the process by which a bank or financial
institution pledges securities, or other deposits for the purpose of securing repayment of
deposited funds. The City shall require any bank or financial institution to comply with the
collateralization criteria defined in California Government Code, Section 53651.
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REPURCHASE AGREEMENTS. The City requires that Repurchase Agreements be collateralized
only by securities authorized in accordance with California Government Code:
• The securities which collateralize the repurchase agreement shall be priced at
Market Value, including any Accrued Interest plus a margin. The Market Value of
the securities that underlie a repurchase agreement shall be valued at 102% or
greater of the funds borrowed against those securities.
• Financial institutions shall mark the value of the collateral to market at least
monthly and increase or decrease the collateral to satisfy the ratio requirement
described above.
• The City shall receive monthly statements of collateral.
XIII. DELIVERY, SAFEKEEPING AND CUSTODY
DELIVERY-VERSUS-PAYMENT (DVP). All investment transactions shall be conducted on a
delivery-versus-payment basis.
SAFEKEEPING AND CUSTODY. To protect against potential losses due to failure of individual
securities dealers, and to enhance access to securities, interest payments and maturity
proceeds, all cash and securities in the City’s portfolio shall be held in safekeeping in the
City’s name by a third party custodian, acting as agent for the City under the terms of a
custody agreement executed by the bank and the City. All investment transactions will
require a safekeeping receipt or acknowledgment generated from the trade. A monthly
report will be received by the City from the custodian listing all securities held in
safekeeping with current market data and other information.
The only exceptions to the foregoing shall be depository accounts and securities
purchases made with: (i) local government investment pools; (ii) time certificates of
deposit, and, (iii) mutual funds and money market mutual funds, since these securities
are not deliverable.
XIV. MAXIMUM MATURITY
To the extent possible, investments shall be matched with anticipated cash flow
requirements and known future liabilities.
The City will not invest in securities maturing more than five (5) years from the date of
trade settlement, unless the City Council has by resolution granted authority to make such
an investment.
XV. RISK MANAGEMENT AND DIVERSIFICATION
MITIGATING CREDIT RISK IN THE PORTFOLIO
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Credit risk is the risk that a security or a portfolio will lose some or all its value due to a
real or perceived change in the ability of the issuer to repay its debt. The City will mitigate
credit risk by adopting the following strategies:
• The diversification requirements included in the “Authorized Investments” section of
this policy are designed to mitigate credit risk in the portfolio.
• No more than 5% of the total portfolio may be deposited with or invested in
securities issued by any single issuer unless otherwise specified in this policy.
• The City may elect to sell a security prior to its maturity and record a capital gain or
loss in order to manage the quality, liquidity or yield of the portfolio in response to
market conditions or City’s risk preferences.
• If a security owned by the City is downgraded to a level below the requirements of
this policy, making the security ineligible for additional purchases, the following steps
will be taken:
• Any actions taken related to the downgrade by the investment manager will be
communicated to the Treasurer in a timely manner.
• If a decision is made to retain the security, the credit situation will be monitored
and reported to the City Council.
MITIGATING MARKET RISK IN THE PORTFOLIO
Market risk is the risk that the portfolio value will fluctuate due to changes in the general
level of interest rates. The City recognizes that, over time, longer-term portfolios have the
potential to achieve higher returns. On the other hand, longer-term portfolios have higher
volatility of return. The City will mitigate market risk by providing adequate liquidity for
short-term cash needs, and by making longer-term investments only with funds that are
not needed for current cash flow purposes.
The City further recognizes that certain types of securities, including variable rate
securities, securities with principal paydowns prior to maturity, and securities with
embedded options, will affect the market risk profile of the portfolio differently in
different interest rate environments. The City, therefore, adopts the following strategies
to control and mitigate its exposure to market risk:
• The City will maintain a minimum of six months of budgeted operating expenditures
in short term investments to provide sufficient liquidity for expected disbursements.
• The maximum stated final maturity of individual securities in the portfolio will be five
(5) years, except as otherwise stated in this policy.
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• The duration of the portfolio will generally be approximately equal to the duration
(typically, plus or minus 20%) of a Market Benchmark, an index selected by the City
based on the City’s investment objectives, constraints and risk tolerances.
XVI. REVIEW OF INVESTMENT PORTFOLIO
The Treasurer shall periodically, but no less than quarterly, review the portfolio to identify
investments that do not comply with this investment policy and establish protocols for
reporting major and critical incidences of noncompliance to the City Council.
XVII. PERFORMANCE EVALUATION
The investment portfolio shall be designed to attain a market-average rate of return
throughout budgetary and economic cycles, taking into account the City’s risk constraints,
the cash flow characteristics of the portfolio, and state and local laws, ordinances or
resolutions that restrict investments.
The Treasurer shall monitor and evaluate the portfolio’s performance relative to the
chosen market benchmark(s), which will be included in the Treasurer’s quarterly report.
The Treasurer shall select an appropriate, readily available index to use as a market
benchmark.
XVIII. REPORTING
MONTHLY REPORTS
Monthly transaction reports will be submitted to the City Council in accordance with
California Government Code Section 53607.
QUARTERLY REPORTS
Monthly reports may be supplemented with a detailed quarterly investment report to the
City Council which provides disclosure of the City’s investment activities. These reports
will disclose, at a minimum, the following information about the City’s portfolio:
1. An asset listing showing par value, cost and independent third-party fair market value
of each security as of the date of the report, the source of the valuation, type of
investment, issuer, maturity date and interest rate.
2. Transactions for the period.
3. A description of the funds, investments and programs (including lending programs)
managed by contracted parties (i.e. LAIF; investment pools, outside money managers
and securities lending agents)
4. A one-page summary report that shows:
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a. Average maturity of the portfolio and modified duration of the portfolio;
b. Maturity distribution of the portfolio;
c. Percentage of the portfolio represented by each investment category;
d. Average portfolio credit quality; and,
e. Time-weighted total rate of return for the portfolio for the prior one month, three
months, twelve months and since inception compared to the City’s market
benchmark returns for the same periods;
5. A statement of compliance with investment policy, including a schedule of any
transactions or holdings which do not comply with this policy or with the California
Government Code, including a justification for their presence in the portfolio and a
timetable for resolution.
6. A statement that the City has adequate funds to meet its cash flow requirements for
the next three months.
XIX. REVIEW OF INVESTMENT POLICY
The investment policy will be reviewed periodically to ensure its consistency with the
overall objectives of preservation of principal, liquidity and return, and its relevance to
current law and financial and economic trends.
Any recommended modifications or amendments shall be presented by staff to the City
Council for their consideration and adoption.
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GLOSSARY OF INVESTMENT TERMS
AGENCIES. Shorthand market terminology for any obligation issued by a government-sponsored entity
(GSE), or a federally related institution. Most obligations of GSEs are not guaranteed by the full
faith and credit of the US government. Examples are:
FFCB. The Federal Farm Credit Bank System provides credit and liquidity in the agricultural
industry. FFCB issues discount notes and bonds.
FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market. FHLB
issues discount notes and bonds.
FHLMC. Like FHLB, the Federal Home Loan Mortgage Corporation provides credit and liquidity in
the housing market. FHLMC, also called “FreddieMac” issues discount notes, bonds and
mortgage pass-through securities.
FNMA. Like FHLB and FreddieMac, the Federal National Mortgage Association was established to
provide credit and liquidity in the housing market. FNMA, also known as “FannieMae,” issues
discount notes, bonds and mortgage pass-through securities.
GNMA. The Government National Mortgage Association, known as “GinnieMae,” issues mortgage
pass-through securities, which are guaranteed by the full faith and credit of the US
Government.
PEFCO. The Private Export Funding Corporation assists exporters. Obligations of PEFCO are not
guaranteed by the full faith and credit of the US government.
TVA. The Tennessee Valley Authority provides flood control and power and promotes
development in portions of the Tennessee, Ohio, and Mississippi River valleys. TVA currently
issues discount notes and bonds.
ASSET BACKED SECURITIES. Securities supported by pools of installment loans or leases or by pools of
revolving lines of credit.
AVERAGE LIFE. In mortgage-related investments, including CMOs, the average time to expected receipt of
principal payments, weighted by the amount of principal expected.
BANKER’S ACCEPTANCE. A money market instrument created to facilitate international trade transactions. It
is highly liquid and safe because the risk of the trade transaction is transferred to the bank which
“accepts” the obligation to pay the investor.
BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index, which
reflects the mix of securities allowed under a specific investment policy.
BROKER. A broker brings buyers and sellers together for a transaction for which the broker receives a
commission. A broker does not sell securities from their own position.
CALLABLE. A callable security gives the issuer the option to call it from the investor prior to its maturity.
The main cause of a call is a decline in interest rates. If interest rates decline, the issuer will likely
call its current securities and reissue them at a lower rate of interest.
CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate.
CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SYSTEM (CDARS). A private placement service that allows local
agencies to purchase more than $250,000 in CDs from a single financial institution (must be a
participating institution of CDARS) while still maintaining FDIC insurance coverage. CDARS is
currently the only entity providing this service. CDARS facilitates the trading of deposits between
the California institution and other participating institutions in amounts that are less than
$250,000 each, so that FDIC coverage is maintained.
COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase
agreement. Also, securities pledged by a financial institution to secure deposits of public monies.
COLLATERALIZED BANK DEPOSIT. A bank deposit that is collateralized at least 100% (principal plus interest to
maturity). The deposit is collateralized using assets set aside by the issuer such as Treasury
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securities or other qualified collateral to secure the deposit in excess of the limit covered by the
Federal Deposit Insurance Corporation.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the cash flows of
mortgage securities (and whole loans) to create securities that have different levels of
prepayment risk, as compared to the underlying mortgage securities.
COLLATERALIZED TIME DEPOSIT. Time deposits that are collateralized at least 100% (principal plus interest to
maturity). These instruments are collateralized using assets set aside by the issuer such as
Treasury securities or other qualified collateral to secure the deposit in excess of the limit covered
by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. The short-term unsecured debt of corporations.
COUPON. The rate of return at which interest is paid on a bond.
CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner
due to changes in the condition of the issuer.
DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities
for their own position.
DEBENTURE. A bond secured only by the general credit of the issuer.
DELIVERY VS. PAYMENT (DVP). A securities industry procedure whereby payment for a security must be made
at the time the security is delivered to the purchaser’s agent.
DERIVATIVE. Any security that has principal and/or interest payments which are subject to uncertainty (but
not for reasons of default or credit risk) as to timing and/or amount, or any security which
represents a component of another security which has been separated from other components
(“Stripped” coupons and principal). A derivative is also defined as a financial instrument the value
of which is totally or partially derived from the value of another instrument, interest rate, or index.
DISCOUNT. The difference between the par value of a bond and the cost of the bond, when the cost is
below par. Some short-term securities, such as T-bills and banker’s acceptances, are known as
discount securities. They sell at a discount from par and return the par value to the investor at
maturity without additional interest. Other securities, which have fixed coupons, trade at a
discount when the coupon rate is lower than the current market rate for securities of that
maturity and/or quality.
DIVERSIFICATION. Dividing investment funds among a variety of investments to avoid excessive exposure to
any one source of risk.
DURATION. The weighted average time to maturity of a bond where the weights are the present values of
the future cash flows. Duration measures the price sensitivity of a security to changes interest
rates.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC). The Federal Deposit Insurance Corporation (FDIC) is an
independent federal agency insuring deposits in U.S. banks and thrifts in the event of bank
failures. The FDIC was created in 1933 to maintain public confidence and encourage stability in
the financial system through the promotion of sound banking practices.
FEDERALLY INSURED TIME DEPOSIT. A time deposit is an interest-bearing bank deposit account that has a
specified date of maturity, such as a certificate of deposit (CD). These deposits are limited to funds
insured in accordance with FDIC insurance deposit limits.
LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay earnings at a rate
higher than the cost of borrowing.
LIQUIDITY. The speed and ease with which an asset can be converted to cash.
LOCAL AGENCY INVESTMENT FUND (LAIF). A voluntary investment fund open to government entities and
certain non-profit organizations in California that is managed by the State Treasurer’s Office.
LOCAL GOVERNMENT INVESTMENT POOL. Investment pools that range from the State Treasurer’s Office Local
Agency Investment Fund (LAIF) to county pools, to Joint Powers Authorities (JPAs). These funds
are not subject to the same SEC rules applicable to money market mutual funds.
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MAKE WHOLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining debt
early. Unlike a call option, with a make whole call provision, the issuer makes a lump sum payment
that equals the net present value (NPV) of future coupon payments that will not be paid because
of the call. With this type of call, an investor is compensated, or "made whole."
MARGIN. The difference between the market value of a security and the loan a broker makes using that
security as collateral.
MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market conditions
or interest rates.
MARKET VALUE. The price at which a security can be traded.
MATURITY. The final date upon which the principal of a security becomes due and payable.
MEDIUM TERM NOTES. Unsecured, investment-grade senior debt securities of major corporations which are
sold in relatively small amounts on either a continuous or an intermittent basis. MTNs are highly
flexible debt instruments that can be structured to respond to market opportunities or to investor
preferences.
MODIFIED DURATION. The percent change in price for a 100-basis point change in yields. Modified duration
is the best single measure of a portfolio’s or security’s exposure to market risk.
MONEY MARKET. The market in which short-term debt instruments (T-bills, discount notes, commercial
paper, and banker’s acceptances) are issued and traded.
MONEY MARKET MUTUAL FUND. A mutual fund that invests exclusively in short-term securities. Examples of
investments in money market funds are certificates of deposit and U.S. Treasury securities. Money
market funds attempt to keep their net asset values at $1 per share.
MORTGAGE PASS-THROUGH SECURITIES. A securitized participation in the interest and principal cash flows
from a specified pool of mortgages. Principal and interest payments made on the mortgages are
passed through to the holder of the security.
MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital and operating
expenses.
MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a set of securities
which is specifically defined in the fund’s prospectus. Mutual funds can be invested in various
types of domestic and/or international stocks, bonds, and money market instruments, as set forth
in the individual fund’s prospectus. For most large, institutional investors, the costs associated
with investing in mutual funds are higher than the investor can obtain through an individually
managed portfolio.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO).
A credit rating agency that the Securities and Exchange Commission in the United States uses for
regulatory purposes. Credit rating agencies provide assessments of an investment's risk. The
issuers of investments, especially debt securities, pay credit rating agencies to provide them
with ratings. The three most prominent NRSROs are Fitch, S&P, and Moody's.
NEGOTIABLE CERTIFICATE OF DEPOSIT (CD). A short-term debt instrument that pays interest and is issued by a
bank, savings or federal association, state or federal credit union, or state-licensed branch of a
foreign bank. Negotiable CDs are traded in a secondary market.
PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve in its
execution of market operations to carry out U.S. monetary policy, and (2) that participates for
statistical reporting purposes in compiling data on activity in the U.S. Government securities
market.
PRUDENT PERSON (PRUDENT INVESTOR) RULE. A standard of responsibility which applies to fiduciaries. In
California, the rule is stated as “Investments shall be managed with the care, skill, prudence and
diligence, under the circumstances then prevailing, that a prudent person, acting in a like capacity
and familiar with such matters, would use in the conduct of an enterprise of like character and
with like aims to accomplish similar purposes.”
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REPURCHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement to sell the
securities back at a higher price. From the seller’s point of view, the same transaction is a reverse
repurchase agreement.
SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the customer’s name.
SECURITIES AND EXCHANGE COMMISSION (SEC). The U.S. Securities and Exchange Commission (SEC) is an
independent federal government agency responsible for protecting investors, maintaining fair
and orderly functioning of securities markets and facilitating capital formation. It was created by
Congress in 1934 as the first federal regulator of securities markets. The SEC promotes full public
disclosure, protects investors against fraudulent and manipulative practices in the market, and
monitors corporate takeover actions in the United States.
SECURITIES AND EXCHANGE COMMISSION SEC) RULE 15C3-1. An SEC rule setting capital requirements for
brokers and dealers. Under Rule 15c3-1, a broker or dealer must have sufficient liquidity in order
to cover the most pressing obligations. This is defined as having a certain amount of liquidity as a
percentage of the broker/dealer's total obligations. If the percentage falls below a certain point,
the broker or dealer may not be allowed to take on new clients and may have restrictions placed
on dealings with current client.
STRUCTURED NOTE. A complex, fixed income instrument, which pays interest, based on a formula tied to
other interest rates, commodities or indices. Examples include inverse floating rate notes which
have coupons that increase when other interest rates are falling, and which fall when other
interest rates are rising, and "dual index floaters," which pay interest based on the relationship
between two other interest rates - for example, the yield on the ten-year Treasury note minus the
Libor rate. Issuers of such notes lock in a reduced cost of borrowing by purchasing interest rate
swap agreements.
SUPRANATIONAL. A Supranational is a multi-national organization whereby member states transcend
national boundaries or interests to share in the decision making to promote economic
development in the member countries.
TOTAL RATE OF RETURN. A measure of a portfolio’s performance over time. It is the internal rate of return,
which equates the beginning value of the portfolio with the ending value; it includes interest
earnings, realized and unrealized gains, and losses in the portfolio.
U.S. TREASURY OBLIGATIONS. Securities issued by the U.S. Treasury and backed by the full faith and credit of
the United States. Treasuries are considered to have no credit risk and are the benchmark for
interest rates on all other securities in the US and overseas. The Treasury issues both discounted
securities and fixed coupon notes and bonds.
TREASURY BILLS. All securities issued with initial maturities of one year or less are issued as discounted
instruments and are called Treasury bills. The Treasury currently issues three- and six-month T-
bills at regular weekly auctions. It also issues “cash management” bills as needed to smooth out
cash flows.
TREASURY NOTES. All securities issued with initial maturities of two to ten years are called Treasury notes
and pay interest semi-annually.
TREASURY BONDS. All securities issued with initial maturities greater than ten years are called Treasury
bonds. Like Treasury notes, they pay interest semi-annually.
YIELD TO MATURITY. The annualized internal rate of return on an investment which equates the expected
cash flows from the investment to its cost.
REVISION HISTORY:
City of Rohnert Park Investment Policy for Idle Funds - Resolution 2006-105 … Effective 04.25.2006