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
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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.
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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.
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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.
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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.
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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