HomeMy WebLinkAbout04.d. Approve Investment Policy and Guidelines for GASB 45 TrustCentral Contra Costa Sanitary District y-d. ' BOARD OF DIRECTORS POSITION PAPER Board Meeting Date: September 6, 2012 subject: REVIEW AND APPROVE THE STATEMENT OF INVESTMENT POLICY FOR DISTRICT ASSETS AND INVESTMENT GUIDELINES FOR THE GASB 45 TRUST Submitted By Initiating Dept. /Div.: Thea Vassallo, CPA, CMA Administrative /Finance & Accounting Finance Manager REVIEWED Am6 RECOMMENDED FOR BOARD ACTION T. Vassallo Kent Alm Ann arrell, General Manager ISSUE: The District's investment policies for District assets and Government . Accounting Standards Board (GASB) 45 Trust are reviewed and approved annually by the Board of Directors in accordance with District investment policy. RECOMMENDATION: Review and approve the District's investment policy for District assets and Investment Guidelines Document for the GASB 45 Trust. FINANCIAL IMPACTS: None ALTERNATIVES /CONSIDERATIONS: Additional investment options could be added for District investments which fall within the permissible investments prescribed by the Government Code of the State of California. The current moderate investment strategy previously adopted by the Board for the GASB 45 Trust could be changed to a less or more aggressive strategy. BACKGROUND: Section 53646 of the California Government Code, which covers District investments, states that the Treasurer or Chief Fiscal Officer of the local agency May annually render to the legislative body of that local agency and any oversight committee of that local agency a statement of investment policy, which the legislative body of the local agency shall consider at a public meeting. Any change in the policy shall also be considered by the legislative body of the local agency at a public meeting. Also, a quarterly report may be rendered to the legislative body of the local agency showing the type of investment, issuer, date of maturity, amount of deposit, current market value, rate of interest and such data as may be required by the local agency. Although no longer required, it has been the District's practice and policy to render an annual statement of investment policy to the District's governing Board for review and approval (see Attachment 1) as well as a monthly investment report. These provisions were previously incorporated into our investment policy. Staff recommends that a quarterly report for the GASB 45 Trust investments also be reviewed by the Budget N:\ADMINSUPVIDMIN \FINANCE MANAGER \Position Papers\2012\Approve Investment Policy 09- 06- 12.doc Page 1 of 5 POSITION PAPER Board Meeting Date: September 6, 2012 subject. REVIEW AND APPROVE THE STATEMENT OF INVESTMENT" POLICY FOR DISTRICT ASSETS AND INVESTMENT GUIDELINES FOR THE GASB 45 TRUST and Finance Committee. District Counsel and staff reviewed the current California Government Code for changes. No reportable changes were noted. The California Government Code provides for special districts and other local governments to use the County as their treasury function. The District uses the County exclusively as they ensure that the District invests not only within the Government Code and limits, but also within the District's internal investment policy. When the County makes an investment for the District, they look for the highest rate of return with the least amount of risk for the time period specified by the District. They look at the various options like U.S. Treasuries, CD's and Commercial Paper. Several issuers are called for rates. The list of who is regularly called for investment purchases includes Bank of America, Union Bank, RABO Bank, UBS, City Group, General Electric, Toyota Motor Credit Corporation, and Chevron, to name a few. The District uses the County versus an outside investment advisor because if an outside investment advisor were used, the County could not guarantee compliance with the Government Code and internal District policy requirements. The GASB 45 Trust Investment Guidelines Document is attached (see Attachment 2). The guidelines were written by the Public Agency Retirement Services (PARS) management and attorney. It is their responsibility to ensure compliance with the District's risk tolerance objective and State laws regarding a GASB 45 Trust account. The Board of Directors selected a moderate investment strategy in 2008. A semi- annual review of the performance results was given by Mr. Andrew Brown, Financial Advisor from HighMark Capital Management, to the Budget and Finance Committee on September 4, 2012. The moderate investment strategy was also discussed with the Budget and Finance Committee. The Committee recommended continuing the current moderate investment strategy. RECOMMENDED BOARD ACTION: Review and approve the District's investment policy for District assets and the Investment Guidelines Document for the GASB 45 Trust. N:WDMINSUP\ADMIN \FINANCE MANAGER \Position Papers\2012\Approve Investment Policy 09- 06- 12.doc Page 2 of 5 Attachment 1 CENTRAL CONTRA COSTA SANITARY DISTRICT STATEMENT OF INVESTMENT POLICY The investment policy of the Central Contra Costa Sanitary District governs the District's temporary investments. A separate investment policy governs the District's GASB 45 Trust. This investment policy is embodied in the following eleven sections: I. Statement of Objectives The temporary investment portfolio of the District will be managed to ensure that normal cash needs, as well as scheduled extraordinary cash needs can be met. Therefore, adequate liquidity will be the first priority. Second priority will be the safety of the portfolio ensuring that the investments could be readily converted to cash if needed without causing a material change in the value of the portfolio. Lastly, the portfolio will be invested to attain a market average rate of return, after meeting the first two previously stated objectives. II. Permissible Investments Within the constraints prescribed by the Government Code of the State of California for permissible investments, the District's investment portfolio will only be invested in the following instruments: • United States Treasury Bills and Notes, and obligations of government agencies for which the full faith and credit of the United States are pledged. • Bankers Acceptances, drawn on and accepted by a commercial bank, which are eligible for purchase by the Federal Reserve System. • Collateralized Certificates of Deposit issued by a Federal or State chartered bank or a Federal or State chartered savings and loan association. • Negotiable Certificates of Deposit issued by a Federal or State chartered bank or a Federal or State chartered savings and loan association. • Commercial Paper of prime quality limited to corporations with assets over $500,000,000. • Medium Term Notes of a maximum of five years maturity issued by U. S. corporations or any Federal or State depository institution. • Local Agency Investment Fund of the State of California. N:\ADMINSUP\ADMIN \FINANCE MANAGER \Position Papers\2012\Approve Investment Policy 09- 06- 12.doc Page 3 of 5 III. Bank and Dealers The District will use the services of the Treasurer's Office of the County of Contra Costa which will transact the District's investment decisions in compliance with the requirements described in this investment policy. The County Treasurer's Office will execute the District's investments through such brokers, dealers and financial institutions as are approved by the County Treasurer, and through the State Treasurer's Office for investment in the Local Agency Investment Fund. IV. Maturities The maximum maturity for investments of the District is one year. Prior approval of the Board of Directors must be obtained to acquire investments with maturities beyond one year. However, investments in Treasury Notes and the Local Agency Investment Fund would not be subject to the one -year maximum maturity. V. Diversification To minimize the risk of loss through default, the total amount invested in a single issuer will not be greater than 10 percent of the District's investment portfolio value, except that the 10 percent limitation will not apply to United States Treasury Bills and Notes and investment in the Local Agency Investment Fund. VI. Risk Credit and market risks will be minimized through adherence to the list of permissible investments, a limit on maximum maturities, and the limitation on the total investment in a single issuer. VII. Delegation and Authority The District Finance Manager will be responsible for investment transactions which should be made in accordance with this investment policy and within the internal controls described in Section IX. VIII. Prudence Prudent judgment must be exercised by the District Finance Manager responsible for investment transactions undertaken in accordance with this investment policy. N:\ADMINSUP\ADMINTINANCE MANAGER \Position Papers\2012\Approve Investment Policy 09- 06- 12.doc Page 4 of 5 IX. Controls The District Finance Manager will establish subsidiary accounting records of each investment which will enable the determination of income earned monthly and through maturity, and the balancing of the principal amounts to a control account in the general ledger. Internal control procedures require the Finance Manager to sign all transactions, which are then countersigned by the General Manager. Such internal controls are to be reviewed by the District's independent auditors annually. X. Reporting The District Finance Manager will annually render a statement of investment policy to the Board of Directors. Also, annually, the GASB 45 Trust Investment Policy will be brought before the Board. The Finance Manager will submit a monthly report to the District's General Manager and Board of Directors showing the type of investment, issuer, date of maturity, par (or face), dollar amount invested, current market value of all securities, and the source of this same valuation, and a statement of compliance of the portfolio with the investment policy. XI. Performance Evaluation A performance evaluation will be completed by the District's independent auditors every year, commencing with the 2004 -05 fiscal year, to determine whether the investment objective of achieving a market - average rate of return is being realized. In determining the market - average rate of return, the average return of three -month U.S. Treasury Bills will be used as a comparison. The weighted average of the portfolio will be calculated each month and compiled to determine the annual yield. Results of the comparison between the District's portfolio and the three -month Treasury Bill benchmark will be reported to the Board annually. NAADMINSUPWDMINTINANCE MANAGER \Position Papers\2012Wpprove Investment Policy 09- 06- 12.doc Page 5 of 5 Attachment 2 INVESTMENT GUIDELINES DOCUMENT Central Contra Costa Sanitary District as Central Contra Costa Sanitary District investment Guidelines August 2011 Central Contra Costa Sanitary District Investment Guidelines Document In response to the Government Accounting Standards Board (GASB) Statement Number 45 disclosure requirements for Other Post - Employment Benefit (OPEB) Plans, the Central Contra Costa " T Sanitary District has adopted a Section 115 Trust and Plan that seeks to satisfy these liabilities for certain eligible employees Executive Summary Client Name: Central Contra Costa Sanitary District Investment Authority: Full Investment Authority Account Number: Risk Tolerance: Time Horizon: 6746030600 Moderate Objective Long -Term Investment Objective: The primary objective is to maximize total Plan return, subject to the risk and quality constraints set forth below. The Plan's targeted rate of return is 6.0 %. The Investment objective the District has selected is the Moderate Objective. The asset allocation ranges for this objective are listed below: Strategic Ranges: 0 - 20% Cash 40 - 60% Fixed Income 40 - 60% Equity Communication Schedule: Semi - annual committee meetings. Monthly statements provided. HCM Portfolio Manager: HCM Back up - Portfolio Manager: UB Administrative Officer: Andrew Brown, CFA 415 - 705 -7605 Andrew.Brown(&- Unionbank.com Anne Wimmer, CFA 310 - 550 -6457 Anne.W immer(cD- Unionbank.com Fran Schoenfeld, 949 - 553 -7961 Fran. Schoenfeld(cD- Unionbank.com The managing director for HlghMark Capital Management is Kevin Rogers, he can be reached at 949 -553 -2580 -° Central Contra Costa Sanitary District Investment Guidelines August 2011 2 { Client Signature: Z/—/—/,OlDate: HCM Portfolio Manager: Date: UB Administrative Officer C! Date: G • 15_ + Jl Central Contra Costa Sanitary District Investment Guidelines August 2011 Detailed Information for Investment Guidelines Document Overview The purpose of this Investment Guidelines document (IGD) is to assist you and your Portfolio Manager in effectively supervising, monitoring and evaluating the investment of your portfolio. Your investment program is defined in the various sections of the IGD by: 1. Stating in a written document your attitudes, expectations, objectives and guidelines for the investment of all assets. 2. Setting forth an investment structure for managing your portfolio. This structure includes various asset classes, investment management styles, asset allocation and acceptable ranges that, in total, are expected to produce an appropriate level of overall diversification and total investment return over the investment time horizon. 3. Encouraging effective communications between you and your Portfolio Manager. 4. Complying with all applicable fiduciary, prudence and due diligence requirements experienced investment professionals would utilize, and with all applicable laws, rules and regulations from various local, state, and federal entities that may impact your assets Diversification Your Portfolio Manager is responsible for maintaining the balance between fixed income and equity securities based on the asset allocation. The following parameters shall be adhered to in managing the portfolio: Fixed Income • The long -term fixed income investments (greater than seven -years in maturity) shall constitute no more than 25 %, and as little as 0% of the total Plan assets. • The intermediate -term fixed income investments (between three -seven years in maturity) shall constitute no more than 60 %, nor less than 25% of the total Plan assets. • The high -yield portion of the Plan shall constitute no more than 10 %, and as little as 0% of the total Plan assets. • The convertible bond exposure shall constitute no more than 10 %, and as little as 0% of the total Plan assets. • The short -term fixed income investments (between one -three years in maturity) shall constitute no more than 25 %, and as little as 0% of the total Plan assets. Equity • The domestic large cap equity investments of the Plan shall constitute no more than 45% nor less than 15% of the total Plan assets. • The domestic mid - capitalization equity investments of the Plan shall constitute no more than 10 %, and as little as 0% of the total Plan assets. • The domestic small capitalization equity investments of the Plan shall constitute no more than 15% and as little as 0% of the total Plan assets. Central Contra Costa Sanitary District Investment Guidelines August 2011 • The international equity investments of the Plan shall constitute no more than 15% and as little as 0% of the total Plan assets. • The real estate investments of the Plan shall constitute no more than 10% and as little as 0% of the total Plan assets. Permitted Asset Classes and Security Types The following asset classes and security types have been approved by HighMark for use in client portfolios: Asset Classes • Fixed Income o Domestic Bonds o Non -U.S. Bonds • Equities o Domestic o Non -U.S. o Emerging Markets o Real Estate Investment Trust (REITs) • Cash and Cash Equivalents Security Types • Equity Securities o Domestic listed and unlisted securities o Equity and equity- related securities of non -US corporations, in the form of American Depository Receipts ( "ADRs ") • Equity Mutual Funds o Large Cap Core, Growth and Value o Mid Cap Core, Growth and Value o Small Cap Core, Growth and Value o International and Emerging Markets o REITs • Exchange Traded Funds (ETFs) • Fixed Income Securities • Government/Agencies • Mortgage Backed Bonds • Corporate Bonds and Notes • Fixed Income Mutual Funds • Corporate • Government • High Yield • International and Emerging Market • Convertible o Preferred • Closed end funds • Cash and Cash Equivalents • Money Market Mutual Fund • Commercial Paper • CDs and Bankers Acceptance Central Contra Costa Sanitary District Investment Guidelines August 2011 5 Prohibited assets • Precious metals •. Venture Capital • Short sales • Purchases of Letter Stock, Private Placements, or direct payments • Leveraged Transactions • Commodities Transactions Puts, calls, straddles, or other option strategies, • Purchases of real estate, with the exception of REITs • Derivatives, with exception of ETFs Rebalancina Procedures From time to time, market conditions may cause your asset allocation to vary from the established target. To remain consistent with the asset allocation guidelines established by this Investment Guidelines document, your Portfolio Manager will rebalance the portfolio on a quarterly basis. Duties of Responsibilities of Portfolio Manager Your portfolio manager is expected to manage your portfolio in a manner consistent with this Investment Guidelines document and in accordance with State and Federal law and the Uniform Prudent Investor Act. HighMark Capital Management is a registered investment advisor and shall act as such until you decide otherwise. Your portfolio manager shall be responsible for: 1. Designing, recommending and implementing an appropriate asset allocation consistent with the investment objectives, time horizon, risk profile, guidelines and constraints outlined in this statement. 2. Advising the committee about the selection of and the allocation of asset categories. 3. Identifying specific assets and investment managers within each asset category. 4. Monitoring the performance of all selected assets. 5. Recommending changes to any of the above. 6. Periodically reviewing the suitability of the investments, being available to meet with the committee at least once each year, and being available at such other times within reason at your request. 7. Preparing and presenting appropriate reports. 8. Informing the committee if changes occur in personnel that are responsible for portfolio management or research. You shall be responsible for: 1. The oversight of the investment portfolio. 2. Providing your portfolio manager with all relevant information on the Plan, and shall notify him or her promptly of any changes to this information. 3. Advising your portfolio manager of any change in the Plan's circumstances, such as a change in the actuarial assumptions, which could possibly necessitate a change to your overall risk tolerance, time horizon or liquidity requirements; and thus would dictate a change to your overall investment objective and goals for the portfolio. 4. Monitoring performance by means of regular reviews to assure that objectives are being met and that the policy and guidelines are being followed. Central Contra Costa Sanitary District Investment Guidelines August 2011 Communication As a matter of course, your portfolio manager shall keep you apprised of any material changes in HighMark Capital's outlook, recommended investment policy and tactics. In addition, your -� portfolio manager shall meet with you no less than annually to review and explain the portfolio's investment results and any related issues. Your portfolio manager shall also be available on a reasonable basis for telephone communication when needed. Any material event that affects the ownership of HighMark Capital Management or the management of the portfolio must be reported immediately to you. Disclosures Union Bank N.A. and HighMark Capital Management, Inc. are wholly owned subsidiaries of UnionBanCal Corporation. Investments are not deposits or bank obligations, are not guaranteed by any government agency, and involve risk, including loss of principal Central Contra Costa Sanitary District Investment Guidelines August 2011 7