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HomeMy WebLinkAbout09.a. Approve updates to Board Policy No. BP 005-Statement of Investment PolicyCentral Contra Costa Sanitary District BOARD OF DIRECTORS POSITION PAPER Board Meeting Date: September 3, 2015 Subject: REVIEW AND APPROVE REVISIONS TO BOARD POLICY NO. BP 005 - STATEMENT OF INVESTMENT POLICY AND INVESTMENT GUIDELINES FOR THE GASB 45 OTHER POST - EMPLOYMENT BENEFITS TRUST Submitted By: Initiating Dept. /Div.: David Heath Administrative / Finance & Accounting Director of Administration REVIEWED AND RECOMMENDED FOR BOARD ACTION: Thea Vassallo — Finance Manager Kent Alm Roger S. Bailey Counsel for the District General Manager ISSUE: The District's investment policies for District assets and the Government Accounting Standards Board (GASB) 45 Other Post - Employment Benefits Trust (OPEB Trust) are reviewed and approved annually by the Board of Directors in accordance with District investment policy. RECOMMENDATION: Approve revisions to the District's Statement of Investment Policy (Board Policy No. BP 005), and approve the Investment Guidelines Document (IGD) for the OPEB Trust with no changes. FINANCIAL IMPACTS: The yield earned on District investments is directly correlated to the policies and guidelines being considered which address the risk tolerance and investment practices of the District relative to optimizing the return taking into account the priorities of safety and liquidity. ALTERNATIVES /CONSIDERATIONS: The attached BP 005 - Statement of Investment Policy and IGD for the OPEB Trust are being recommended for approval after considerable deliberation of the alternatives allowed by the California Government Code and prescribed by industry best practices. BACKGROUND: Section 53646 of the California Government Code 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. 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 as well as a monthly investment report. These provisions were previously incorporated into the District's investment policy. Staff recommends that a quarterly report for the OPEB Trust investments also be reviewed by the Finance Committee. Page 1 of 3 POSITION PAPER Board Meeting Date: September 3, 2015 subject: REVIEW AND APPROVE REVISIONS TO BOARD POLICY NO. BP 005 - STATEMENT OF INVESTMENT POLICYAND INVESTMENT GUIDELINES FOR THE GASB 45 OTHER POST - EMPLOYMENT BENEFITS TRUST Staff recently retained Lauren Brant, Managing Director with PFM Asset Management LLC (PFMAM), to review the District's current policy and provide recommendations. Ms. Brant has been providing asset management consulting services to a multitude of public agencies in California the past twenty years and regularly assists those agencies with refining and updating investment policies. She is a respected subject matter expert relative to public agency investment of idle funds and the associated policies which serve as a guide for those investments. She is also a member of the Association of Public Treasurers of the United States and Canada's (APTUS &C) Investment Policy Certification Committee and regularly provides input to the Committee. Staff presented recommendations to the Administration Committee on July 6, 2015 and the revised Statement of Investment Policy is recommended for approval by the Committee. The following changes are reflected in the policy statement: • Under the Statement of Objectives section, Safety was designated as the top priority in accordance with California Government Code Section 53600.5. Liquidity was previously stated as the top priority. • Under the Permissible Investments section, United States Government Agency Issues, Municipal Investments, Money Market Funds, Government Pools and Supranationals were added as allowable investments. Also, the minimum credit rating of allowable investments is being elevated from `A' to `AA.' • Under the Maturities section, the maximum maturity of investments is being increased from one year to five years. • Under the Diversification section, the previous language was replaced with more specific criteria reflecting best industry practices addressing both safety and liquidity. • Under the Prudence section, language was added defining the `prudent person rule.' • New sections have been added, including Ethics and Conflicts of Interest, Safekeeping and Custody and Policy Considerations, in the interest of adopting best practices. DISTRICT CURRENT AND PROPOSED INVESTMENT STRUCTURE The California Government Code provides for special districts and other local governments to use the County as their treasury function. The District currently invests all of its funds with the County. The County pool has provided the District with a good Page 2 of 3 POSITION PAPER Board Meeting Date: September 3, 2015 subject: REVIEW AND APPROVE REVISIONS TO BOARD POLICY NO. BP 005 - STATEMENT OF INVESTMENT POLICYAND INVESTMENT GUIDELINES FOR THE GASB 45 OTHER POST - EMPLOYMENT BENEFITS TRUST investment option in recent years as interest rates hit historical lows. Additionally, the pool has provided ongoing liquidity to cover the District's operational and other cash needs. Now that intermediate -term interest rates have trended higher, the District may benefit from identifying a portion of its available funds to invest in slightly longer, but very high - quality, securities to generate higher returns. The proposed changes to the District's Statement of Investment Policy for operating funds will help with this process. The OPEB Trust IGD was revised in 2013 to more clearly specify the scope and purpose, investment objectives and constraints, and duties and responsibilities of the plan sponsor, trustee and investment manager of the Trust. The 2013 revised OPEB Trust IGD is attached (see Attachment 3). PARS is the Trust Administrator responsible for record keeping /sub -trust accounting, plan compliance relative to GASB 45 /state laws, monitoring contributions and processing disbursements; US Bank is the Trustee and custodian of assets; and HighMark Capital Management is the sub - adviser, hired by US Bank to invest the plan assets according to the moderate investment strategy chosen by the Board of Directors in 2008. COMMITTEE RECOMMENDATION: Staff presented recommendations to the Administration Committee on July 6, 2015 and the revised Statement of Investment Policy is recommended for approval by the Committee. RECOMMENDED BOARD ACTION: Approve revisions to BP 005 - Statement of Investment Policy, and approve the Investment Guidelines Document for the OPEB Trust with no changes. Attached Supporting Documents: 1. BP 005 — Strikeout showing proposed revisions 2. BP 005 — Final proposed 3. HighMark Capital Management — Investment Guidelines Document - GASB 45 / Other Post - Employment Benefits Trust — October 2013 Page 3 of 3 Number: BP 005 Authority: Board of Directors Effective: September 1, 2011 Revised: November 7, 2013 Revised: September 4, 2014 Reviewed: Initiating Dept. /Div.: Finance BOARD POLICY STATEMENT OF INVESTMENT POLICY PURPOSE ATTACHMENT 1 • • I www.centralsan.org The investment policy of the Central Contra Costa Sanitary District governs the District's teminvestments. Investments will be in compliance with the provisions of, but not necessarily limited to California Government Code Section 53601 et see-and other applicable statutes. A separate investment policy governs the District's GASB 45 Trust. This investment policy is embodied in the following eleveR fourteen sections: POLICY Statement of Objectives The primary objectives, in priority order, of the District's investment activities shall be: • Safety. Investments of the District shall be undertaken in the manner that seeks to ensure the preservation of capital in the overall portfolio. • Liquidity. The District's portfolio will remain sufficiently liquid to enable the District to meet all operating requirements which might be reasonably anticipated. • Return on Investment. - Lastly, tThe portfolio will be invested to attain a market average rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints, liquidity 11 Page 2 of 8 needs, and cash flow characteristics of the portfolio.a£teF meeting the 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 Obligations. United States Treasury notes, bonds, bills, or certificates of indebtedness, or those Bills and Notes, and for which the full faith and credit of the United States are pledged for the payment of principal and interest. United States Government Agency Issues. Federal agency 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. Municipal Investments. Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue - producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. 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 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. Eligible obligations shall be rated in category "AA" or its equivalent or better by a nationally recognized statistical rating organization Nationally Recognized Statistical Rating Organization (NRSRO). No more than 5% shall be invested in any single issuer. Money Market Funds. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. See. 80a -1, et seq.). That invest in the securities and obligations as authorized by California Government Code 53601 subdivisions (a) to (k), inclusive, and subdivisions (m) to (q), inclusive, and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). To be eligible for investment pursuant to this subdivision, these companies shall either: BP 005 Page 3 of 8 Attain the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs; Retain an investment advisor 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 five hundred million dollars ($500,000,000). A maximum of 20% of the District's portfolio may be invested in money market funds. No more than 10% of the District's portfolio may be invested in any one fund. Bankers' Acceptances, otherwise known as bills of exchange or time drafts, drawn on and accepted by a commercial bank., whiGh are eligible fer puFGhase by the Federal Reserve System. Purchases of bankers' acceptances shall not exceed 180 days' maturity or 40% of the District's moneys that may be invested pursuant to this section. However, no more than 5% of the District's moneys may be invested in the bankers' acceptances of any one commercial bank pursuant to this section. Collateralized Certificates of Deposit issued by a Federal or State chartered bank or a Federal or State chartered savings and loan association. Time certificates of deposit shall meet the requirements for deposit under Government Code Section 53635 et. seq. The Bistr+c-t FinaRGe Director of Administration, for deposits up to the current FDIC insurance limit, may waive collateral requirements if the institution insures its deposits with the Federal Deposit Insurance Corporation (FDIC). Fully insured time certificates of deposit placed through a deposit placement service shall meet the requirements under Code Section 53601.8. Negotiable Certificates of Deposit issued by a nationally or state - chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally licensed or state - licensed branch of a foreign bank. Purchases of negotiable certificates of deposit shall not exceed 30% of the District's moneys that may be invested pursuant to this section and not more than 5% may be invested in any single issuer. Eligible negotiable certificates of deposit shall be rated in category "AA" or its equivalent or better by a NRSRO. Federal ral e; State e"artered ntm-d - rcC ,�,- t-- St Cto - ch aO Ced savings and IeaR assOGiatiGR7 • Commercial Paper of prime quality of the highest ranking or of the highest letter and number rating as provided for by a NRSRO. The entity that BP 005 Page 4 of 8 issues the commercial paper shall meet all of the following conditions in either paragraph (a) or paragraph (b): a) The entity meets the following criteria: (i) Is organized and operating in the United States as a general corporation. (ii) Has total assets in excess of limited te Gerperatiens with assets eve five hundred million dollars ($500,000,000). (iii) Has debt other than commercial paper, if any, that is rated "A" or higher by a NRSRO. b) The entity meets the following criteria: (i) Is organized within the United States as a special purpose corporation, trust, or limited liability company. (ii) Has program wide credit enhancements including, but not limited to, over collateral ization, letters of credit, or surety bond. (iii) Has commercial paper that is rated "A -1" or higher, or the equivalent, by a NRSRO. Eligible commercial paper shall have a maximum maturity of 270 days or less. The District may invest no more than 25% of their moneys in eligible commercial paper and no more than 5% of the outstanding commercial paper of any single issuer. • Medium Term Notes, defined as all corporate and depository institution debt securities with -of a maximum of five years maturity, issued by U. S. corporations 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. Notes eligible for investment under this subdivision shall be rated "AA" or better by an NRSRO. Purchases of medium -term notes shall not include other instruments authorized by this section and shall not exceed 30% of the District's moneys that may be invested pursuant to this section. No more than 5% of the District's total investment portfolio may be invested in the debt of any one corporation.or • Government Pools. Shares of beneficial interest issued by a joint powers authority organized pursuant to California Government Code Section 6509.7 that invests in securities and obligations authorized by California Government Code 53601 subdivisions (a) to (q), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: i. The adviser is registered or exempt from registration with the Securities and Exchange Commission. ii. The adviser has not less than five years of experience investing in the securities and obligations authorized in California Government Code 53601 subdivisions (a) to (q), inclusive. BP 005 Page 5 of 8 iii. The adviser has assets under management in excess of five hundred million dollars ($500,000,000). Local Agency Investment Fund of the State of California. Investment in LAIF may not exceed the current LAIF limit and should be reviewed periodically. Supranationals, defined as United States 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, with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Supranationals shall be rated "AX or its equivalent or better by a NRSRO. Purchases of supranationals may not exceed 30% of the District's investment portfolio and no more than 5% may be invested in any single issuer. 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 To the extent possible, the District shall attempt to match its investments with anticipated cash flow requirements. Unless stated otherwise in this Policy or approval made by the District's executive body, the maximum maturity of the District's eligible investments will not exceed five years. The maximum maturity for of the DmstF'Gt is ene year. Prier approval ef the Beard ef DireGters mUst be ebtaiRed to aGquire investments with maturities maturity. V. Diversification The District's investments shall be diversified by: • Limiting investments to avoid over concentration in securities from a specific issuer or sector. BP 005 Page 6 of 8 • Limiting investments in securities that have higher credit risks. • Investing in securities with varying maturities. • Continuously investing a portion of the portfolio in readily available funds such as local government investment pools or money market funds to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. To MiRiMize the risk ef less thmugh default, the total anqeuRt invested iR a siRgle value, exGept that the 10 perGeRt limitation will net apply to United States FURd. 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 Board of Directors is responsible for the investment of the District's funds. The Board hereby delegates responsibility for investment transactions for the investment program to the Director of Administration or designee, for a one -year period. The'Director of Administration LB11may delegate the day -to -day execution of investments to a registered investment advisor, via written agreement approved by the Board. The Advisor in coordination with the Director of Administration will manage on a daily basis the District's investment portfolio pursuant to the specific and stated investment objectives of the District. The Advisor shall follow the policy and such other written instructions provided by the Director of Administration. VIII. Prudence Prudent judgment must be exercised by the Director of Administration and all investment staff responsible for investment transactions undertaken in accordance with this investment policy. The standard of prudence to be applied by the investment officer shall be the "prudent person" rule: BP 005 Page 7 of 8 "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." The prudent person rule shall be applied in the context of managing the overall portfolio. IX. Ethics and Conflicts of Interest Officers and employees (LB21involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial /investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the District. IX.X. Controls The DiStFiGt FiRanGe MaRaWDirector of Administration 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 lima^^ MapaWDirector of Administration 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. XI. Safekeeping and Customs All investment transactions will be executed on a delivery versus payment basis. Securities will be held in safekeeping by a third party custodian designated by the District. The custodian will be required to provide timely (written or on -line) confirmation of receipt and monthly position and transaction reports. X1.XII. Reporting The District FiRaRGe ManaWDirector of Administration 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 " It Page of EinaRGe Manager Director of Administration 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. X4- .X111. Performance Evaluation constraints The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate wit the investment risk • the cash flow -• -e evaluation wall be GGmpleted by the Distric-t's independent auditeFs GemmeRGiRg with the 2004-2005 fiscal year, to deteFMiRe whether the ta inin te wit market Results verage weighted average of the Portfolio will b-e GaIGHlated eaGh MeRth and Gernpile to deteFMiRe the aRRual yield. ■ pertfolie and the three .. .. reported te the Beard .. XIV. Policy Considerations This policy shall be reviewed on an annual basis. Any changes must be approved by the investment officer and any other appropriate authority, as well as the individual(s) charged with maintaining internal controls. Number: BP 005 Authority: Board of Directors Effective: September 1, 2011 Revised: November 7, 2013 Revised: September 4, 2014 Reviewed: Initiating Dept. /Div.: Finance BOARD POLICY STATEMENT OF INVESTMENT POLICY PURPOSE T T wwwxentralsan.org The investment policy of the Central Contra Costa Sanitary District governs the District's investments. Investments will be in compliance with the provisions of, but not necessarily limited to California Government Code Section 53601 and other applicable statutes. A separate investment policy governs the District's GASB 45 Trust. This investment policy is embodied in the following fourteen sections: POLICY Statement of Objectives The primary objectives, in priority order, of the District's investment activities shall be: • Safety. Investments of the District shall be undertaken in the manner that seeks to ensure the preservation of capital in the overall portfolio. • Liquidity. The District's portfolio will remain sufficiently liquid to enable the District to meet all operating requirements which might be reasonably anticipated. Return on Investment. The portfolio will be invested to attain a market average rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints, liquidity needs, and cash flow characteristics of the portfolio.. 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: BP 005 Page 2 of 7 • United States Treasury Obligations. United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. United States Government Agency Issues. Federal agency 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. • Municipal Investments. Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue - producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. 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 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. Eligible obligations shall be rated in category "AX or its equivalent or better by a nationally recognized statistical rating organization Nationally Recognized Statistical Rating Organization (NRSRO). No more than 5% shall be invested in any single issuer. • Money Market Funds. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the.lnvestment Company Act of 1940 (15 U.S.C. See. 80a -1, et seq.). That invest in the securities and obligations as authorized by California Government Code 53601 subdivisions (a) to (k), inclusive, and subdivisions (m) to (q), inclusive, and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). To be eligible for investment pursuant to this subdivision, these companies shall either: i. Attain the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs; ii. Retain an investment advisor 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 five hundred million dollars ($500,000,000). BP 005 Page 3 of 7 A maximum of 20% of the District's portfolio may be invested in money market funds. No more than 10% of the District's portfolio may be invested in any one fund. • Bankers' Acceptances, otherwise known as bills of exchange or time drafts, drawn on and accepted by a commercial bank. Purchases of bankers' acceptances shall not exceed 180 days' maturity or 40% of the District's moneys that may be invested pursuant to this section. However, no more than 5% of the District's moneys may be invested in the bankers' acceptances of any one commercial bank pursuant to this section. • Collateralized Certificates of Deposit issued by a Federal or State chartered bank or a Federal or State chartered savings and loan association. Time certificates of deposit shall meet the requirements for deposit under Government Code Section 53635 et. seq. The Director of Administration, for deposits up to the current FDIC insurance limit, may waive collateral requirements if the institution insures its deposits with the Federal Deposit Insurance Corporation (FDIC). Fully insured time certificates of deposit placed through a deposit placement service shall meet the requirements under Code Section 53601.8. • Negotiable Certificates of Deposit issued by a nationally or state - chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally licensed or state - licensed branch of a foreign bank. Purchases of negotiable certificates of deposit shall not exceed 30% of the District's moneys that may be invested pursuant to this section and not more than 5% may be invested in any single issuer. Eligible negotiable certificates of deposit shall be rated in category "AK or its equivalent or better by a NRSRO. Commercial Paper of prime quality of the highest ranking or of the highest letter and number rating as provided for by a NRSRO. The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (a) or paragraph (b): a) The entity meets the following criteria: (i) Is organized and operating in the United States as a general corporation. (ii) Has total assets in excess of five hundred million dollars ($500,000,000). (iii) Has debt other than commercial paper, if any, that is rated "A" or higher by a NRSRO. b) The entity meets the following criteria: (i) Is organized within the United States as a special purpose corporation, trust, or limited liability company. (ii) Has program wide credit enhancements including, but not limited to, over collateral ization, letters of credit, or surety bond. (iii) BP 005 Page 4 of 7 Has commercial paper that is rated "A -1" or higher, or the equivalent, by a NRSRO. Eligible commercial paper shall have a maximum maturity of 270 days or less. The District may invest no more than 25% of their moneys in eligible commercial paper and no more than 5% of the outstanding commercial paper of any single issuer. • Medium Term Notes, defined as all corporate and depository institution debt securities with a maximum of five years maturity, issued by corporations 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. Notes eligible for investment under this subdivision shall be rated "AX or better by an NRSRO. Purchases of medium -term notes shall not include other instruments authorized by this section and shall not exceed 30% of the District's moneys that may be invested pursuant to this section. No more than 5% of the District's total investment portfolio may be invested in the debt of any one corporation. Government Pools. Shares of beneficial interest issued by a joint powers authority organized pursuant to California Government Code Section 6509.7 that invests in securities and obligations authorized by California Government Code 53601 subdivisions (a) to (q), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: i. The adviser is registered or exempt from registration with the Securities and Exchange Commission. ii. The adviser has not less than five years of experience investing in the securities and obligations authorized in California Government Code 53601 subdivisions (a) to (q), inclusive. iii. The adviser has assets under management in excess of five hundred million dollars ($500,000,000). • Local Agency Investment Fund of the State of California. Investment in LAIF may not exceed the current LAIF limit and should be reviewed periodically. • Supranationals, defined as United States 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, with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Supranationals shall be rated "AX or its equivalent or better by a NRSRO. BP 005 Page 5 of 7 Purchases of supranationals may not exceed 30% of the District's investment portfolio and no more than 5% may be invested in any single issuer. 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 To the extent possible, the District shall attempt to match its investments with anticipated cash flow requirements. Unless stated otherwise in this Policy or approval made by the District's executive body, the maximum maturity of the District's eligible investments will not exceed five years. V. Diversification The District's investments shall be diversified by: • Limiting investments to avoid over concentration in securities from a specific issuer or sector. • Limiting investments in securities that have higher credit risks. • Investing in securities with varying maturities. • Continuously investing a portion of the portfolio in readily available funds such as local government investment pools or money market funds to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. 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 Board of Directors is responsible for the investment of the District's funds. The Board hereby delegates responsibility for investment transactions for the investment program to the Director of Administration or designee, for a one -year period. BP 005 Page 6 of 7 The Director of Administration may delegate the day -to -day execution of investments to a registered investment advisor, via written agreement approved by the Board. The Advisor in coordination with the Director of Administration will manage on a daily basis the District's investment portfolio pursuant to the specific and stated investment objectives of the District. The Advisor shall follow the policy and such other written instructions provided by the Director of Administration. VIII. Prudence Prudent judgment must be exercised by the Director of Administration and all investment staff responsible for investment transactions undertaken in accordance with this investment policy. The standard of prudence to be applied by the investment officer shall be the "prudent person" rule: "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." The prudent person rule shall be applied in the context of managing the overall portfolio. IX. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial /investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the District. X. Controls The Director of Administration 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 Director of Administration 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. BP 005 Page 7 of 7 XI. Safekeeping and Custody All investment transactions will be executed on a delivery versus payment basis. Securities will be held in safekeeping by a third party custodian designated by the District. The custodian will be required to provide timely (written or on -line) confirmation of receipt and monthly position and transaction reports. X1 1. Reporting The Director of Administration 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 Director of Administration 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. XIII. Performance Evaluation The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. XIV. Policy Considerations This policy shall be reviewed on an annual basis. Any changes must be approved by the investment officer and any other appropriate authority, as well as the individual(s) charged with maintaining internal controls. ATTACHMENT 3 HIGHMARK QD CAPITAL MANAGEMENT Investment Guidelines Document Central Contra Costa County Sanitary District GASB 45 / Other Post - Employment Benefits Trust October 2013 Investment Guidelines Documint Scope and Purpose The purpose of this Investment Guidelines Document is to: • Facilitate the process of ongoing communication between the Plan Sponsor and its plan fiduciaries; • Confirm the Plan's investment goals and objectives and management policies applicable to the Investment portfolio identified below and obtained from the Plan Sponsor; • Provide a framework to construct a welt - diversified asset mix that can potentially be expected to meet the account's short- and tong -term needs that is consistent with the account's investment objectives, liquidity considerations and risk tolerance; • Identify any unique considerations that may restrict or limit the investment discretion of its designated investment managers; • Help maintain a long -term perspective when market volatility is caused by short -term market movements. • Assist the Plan Sponsor in formulating an investment Policy Statement ( "IPS ") for the account. Key Plan Sponsor Account Information as of October 23, 2013 Plan Sponsor. Central Contra Costs. County Sanitary District Governance. Board of Directors of the Central Contra Costa County Sanitary".gtsf iet Plan Name ("Plan ").- Central Co mtri ,?Costa County Sanitary District GASQR45 /QtherPost- Employment Benefits Trust Trustee. US Bank Contact: Fran Schoenfeld, 949 - 224.7204 fran.schoerifeld *usbank.com Account Number ("Account "):6746030600 Type of Account: GASB 451Other Post - Employment Benefits Trust ERISA Status: Not subject to ERISA Market Value of Account. $32,000,000 Investment Manager. US Bank, as discretionary trustee, has delegated investment management responsibilities to HighMark Capital Management, Inc. ( "Investment Manager"), an SEC - registered investment adviser Contact: Andrew Brown, CFA, 415 - 705 -7605 Andrew.brown t2 highmarkcapllial.com Central Contra Costa County Sanitary District — GASS 4SKMer Post-Employment Benda$ Trust Investrnent Guidelines Documeni — HighMark Capital Management, Inc. N. 4/2NO13 - cis) Introstment Authority: Except as otherwise noted, the Trustee, US Sank, has delegated investment authority to HighMark Capital Management, an SEC - registered investment adviser. Investment Manager has full investment discretion over the managed assets In the account. Investment Manager is authorized to purchase, sell, exchange, invest, reinvest and manage the designated assets held in the account, all in. accordance with account's investment objectives, without prior approval or subsequent approval of any other party(ies). Investment 04jectiyes and Constmints The goat of the Plan's Investment program is to generate adequate long -term returns that, When combined with contributions, will result in sufficient assets to pay the present and future obligations of the Plan. The following objectives are intended to assist in achieving this goat • The Plan should eam, on a long-term average basis, a rate of return equal to or in excess of the target rate of return of 6.25%. • The Plan should seek to earn a return in excess of its policy benchmark over the long- term, • The Plan's assets will be managed on a total return basis which takes Into consideration both Investment Income and capital appreciation. While the Plan Sponsor recognizes the Importance of preservation of capital, It also adheres to the principle that varying degrees of investment risk are generally rewarded with compensating returns' Jo achieve these objectives, the Plan Sponsor allocates its assets (asset allocation) with a strategic, long- term perspective of the capital markets. Investment Time Horizon: Long -term Antic4xMW Cash l=bws: Approximately $200,00D to $300,000 In monthly contributions. Distributions are expected to be modest in the early years of the Plan. Target Rate of Return: 6.25% annual target investment objective. The primary objective is to maximize total Plan return, subject to the risk and quality constraints set forth herein. The investment objective the Plan Sponsor has selected is %a Moderate Objective., which has a dual goal to seek moderate growth of income and principal. Risk Tolerance: Moderate The account's risk tolerance has been rated moderate, which demonstrates that the account can accept average, or moderate, price fluctuations to pursue its Investment objectives. Central Conan Costa County San" Distrkt — GASS 4S/Ok»r Past - Employment Swwftts Tnut Uwashrwd Guide ms Document — HighMwk Capital NWmvemwt, ino. (v. 4/25/2013 - als) Strategic Asset Allocadon: The asset allocation ranges for this objective are listed below: Strategic Asset Allocation Ranges Cash Fixed Income Equity 0 -20% 40% -60% 40% -60% Policy. 5% -Policy, 45% Policy. 50% Market conditions may cause the account's asset allocation to vary from the stated range from time to time. The.lnvestment Manager will rebalance the portfolio no less: than quarterly andior when the actual weighting differs substantially from the strategic range, if appropriate and consistent with your objectives. Security Guidelines: Eauities With the exception of limitations and constraints described above, investment Manager may allocate assets of the equity portion of the account among various market capitalizations (large, mid, small) and Investment styles (value, growth). Further, Investment Manager may allocate assets among domestic, international developed and emerging market equity securities. Total E ulties 409'0.80% Equity a Range Domestic Lar go Cap Egug 15% -45°6 Domestic Mid Cap Equity 0% -100/0 Domestic Smati C ap E u' 09615% Intemational E it ..incl Emerging Markets 00/0-15% Real Estate Investment Trust (REM 0% -15% Fixed Income In the fixed income portion of the account, Investment Manager may allocate assets among various sectors and industries, as well as varying maturities and credit quality that are consistent with the overall goals and objectives of the portfolio. Total Fixed Income 40% -60% Fbred Income S e Range Long-term bonds (maturities >7 ears) 0% -25% Intermediate -term bonds (maturities 3 -7 years). 25% -60% Short-Term bonds maturities c3 years) 0%-25% High Yield bonds 0% -10% Convertible bonds 0% -10% Centnai Contra Costa County Sanitary District - GASS 45btber Post - Employment Beneft Trust Investment Guiddines Document - HghMark Capitol Mansgement Inc. (v. 4JJI 13 - do) performance Benchmarks: The performance of the total Plan shall be measured over a three and five -year periods. These periods are considered sufficient to accommodate the market cycles experienced with investments. The performance shall be compared to the return of the total portfolio blended benchmark shown below. To Portfolio Blended Benchmark 98:50% S &F500 5.00% Russell Mid Cap 7.50% Russel 2000 3.25% MSCI EM FREE e.00% MSCI SAFE 1.76% Wilshire REIT 33.5096 BC US Aggregate 10.0096 ML 1 -3 Year US Corp/Gov't 1.50% US High Yield Master 11 5.00% CIO 1 Mth T43M Asset Class/Style Benchmarks Over a market cycle, the long -term ONective for each investment strategy Is to add value to a market benchmark. The following are the benchmarks used to monitor each investment strategy., Large Cep Equity S &P 690 Mid Cap Equity Russell MldCap InOex Growth Russell MidMp Growth Value Small Cap Equity Growth Value REITs international Equity Investment Grade Bonds High Yield Russell MidCap Value Russell 2000 Ind" Russell 2000 Growth Russel 2000 Value Wilshire REIT MSCI SAFE BarCap US Aggregate Bond Credit Suisse High Yield security selection Investment Manager may utilize a full range of Investment vehicles when constructing the investment pordolo, including but not limited to individual securities, mutual funds, and exchange - traded funds. In addition, to the extent permissible, investment Manager Is authorized to invest in shares of mutual funds in which the Investment Manager serves as advisor or subadviser. C@" Cords Costa County Swfty Oistrbt - GASH 40ftr Post E npto wd Bandits Trust Inwstmsrd Guldelnes Docurnent- MOM" CaPitd Management, Ina N. 412&=3 - cis) 5 Investment Limitations: The following investment transactions are prohibited: • Direct investments in precious metals (precious metals mutual funds and exchange- traded funds are permissible). • 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 0. Derivatives, with exception of ETFs' 'Permissible In d verslfled mutual funds and exchange - traded funds Duties and Responsibilities Responsibilities of Plan Sponsor The Budget and Finance Committee of the Central Contra Costa Sanitary District Is responsible for ■ Confirming the accuracy of this Investment Guidelines Document, in writing. • Advising Trustee and investment Manager of any change in the planlaccount's financial situation, funding status, or cash flows, which could possibly necessitate a change to the account's overall risk tolerance, time horizon or liquidity requirements; and thus would dictate a change to the overall investment objective and goals for the account. ■ Providing Trustee and Investment Manager with an approved IPS for the account and providing any updates to the IPS. ■ Monitoring and supervising service vendors and investment options, including investment managers. • Avoiding prohibited transactions and conflicts of Interest. Responsibilities of Trustee The plan Trustee is responsible for: • Valuing the holdings. ■ Collecting all income and dividends owed to the Plan. ■ Settling all transactions (buy -sell orders). Responsibilities of Investment Manager The Investment Manager is responsible for • Assisting the Budget and Finance Committee with the development and maintenance of this Investment Policy Ouideline document annually. • Meeting with the Budget and Finance Committee semi - annually to review portfolio structure, holdings, and performance. • Designing, recommencing and implementing an appropriate asset allocation consistent with the investment objectives, time horizon. risk profile, guidelines and constraints outlined in this statement. • Researching and monitoring investment advisers and investment vehicles. ■ Purchasing, selling, and reinvesting in securities held in the account. Central Contra Costa County Sanitary District - GASS 4&40 ter Post-Employment Senelits Trust Investrnsnt Guidelines Document - HoMark Capital Management, Ina N. 4/26/2019 - dsj • Monitoring the performance of all selected assets. • Voting proxies, if applicable. • Recommending changes to any of the above. • Periodically reviewing the suitability of the investments, being available to meet with the Budget and Finance Committee at least twice a year, and being available at such other times within reason at your request. • Preparing and presenting appropriate reports. • Informing the Budget and Finance Committee if changes occur in personnel that are responsible for portfolio management or research. Acknowledgement and Acceptance 1/We being the Plan Sponsor with responsibility for the account(s) held on behalf of the Plan Sponsor specified below, designate Investment Manager as having the investment discretion and management responsibility indicated in relation to all assets of the Plan or specified Account. If such designation is set forth in the Plan/trust, I/We hereby confirm such designation as Investment Manager. I have read the Investment Guidelines Document, and confirm the accuracy of it, including the terms and conditions under which the assets in this account are to be held, managed, and disposed of by Investment Manager. This Investment Guidelines Document supersedes all previous versions of an Investment Guidelines Document or investment objective instructions that may have been executed for this account. Gr Date: Plan S sor. Central Contra Cou Sanitary istrict Board President Date: Plan Sponsor. Central Contra County Sanitary District Date: Investment Manager Andrew Brown, CFA, Senior Portfolio Manager, (415) 705 -7605 Central Contra Caste County Sanitary District — GASS 45XVw Post Employment SeneQffi Trust Investment Guldelnes Document — HOW* Capital Management, Inc. (v. 4IM013 - do) Central Contra Costa Sanitary District Investment Policy Review and Update September 3, 2015 —rrtit The PFM Group Lauren Brant. Managing Director 50 California Sheet. Suite 2300 San Francisco. CA 94111 (415) 982 -5544 brantl�ofm.com Www.ofin —in Purpose of an Investment Policy • A written investment policy is the single most important element in a public funds investment program. - Defines primary objectives: safety, liquidity, and yield. Sets forth types and characteristics of eligible instruments, the investment process, and the management of a portfolio. • Improves the quality of decisions and demonstrates a commitment to the fiduciary care of public funds, with emphasis on balancing safety of principal and liquidity with yield. • Adherence to an investment policy signals that an entity is well managed and is earning interest income suitable to its situation and economic environment. GFOA Creating an Investment Policy Best Practices 2010 ® PFM Asset Management LLC 11.a. 1 Scope of PFMAM's Review • At the request of the District, PFM Asset Management LLC ( PFMAM) undertook a comprehensive review of the District's Investment Policy. • As part of this process, PFMAM evaluated the Policy's: Investment objectives and ability to achieve these objectives; Conformance with California Government Code sections regulating investment of public funds; Overall clarity; Incorporation of industry best practices. O PFM Aeaet Management LLC Y Summary of PFMAM's Recommendations Updated/Expanded Sections New Sections Statement of Objectives Ethics and Conflicts of Interest Permissible Investments Safekeeping and Custody Maturities Policy Considerations Diversification Prudence IO PFM A-M Management LLC 9 2 Allowable Investments Investment Types Permitted by Code District Investment Policy Recommendation U.S. Treasuries ✓ Federal Agencies ✓ Municipal Investments Add Money Market Funds Add Bankers'Acceptances ✓ Time Certificates of Deposit ✓ Negotiable Certificates of Deposit ✓ Commercial Paper ✓ Corporate Notes ✓ Local Government Pools Add Local Agency Investment Fund (LAIF) ✓ Supranationals Add Asset - Backed Securities Repurchase Agreements Other Policy currently limits maturities to 1 year, excepting for Treasuries and agencies. Recommend increasing maximum maturity to 5 years. Policy currently places a 10% issuer maximum on most sectors. Recommend reducing the per issuer limit to 5 for most sectors. ® PFM Asset Management LLC Additional Safeguards /Best Practices for the District's Funds Statement of Objectives Prudent Person Ethics and Conflicts of Interest Safekeeping and Custody Policy Considerations 0 PFM A•••t M•n•ytnsM LLC Prioritize safety of principal as primary objective Explicitly define the "Prudent Person- rule Require those involved in the investment process to disclose personal positions that could relate to the performance of the District's portfolio Address delivery vs. payment, third -party safekeeping, and reporting requirements from custodian Enact annual review of the Investment Policy PFM Asset Management LLC * Independent investment advisor * Registered with SEC * Over 30 years serving the public sector * $59 billion* of public assets under management * 199 investment professionals * Significant financial strength * Extensive management experience for northern California cities As of June 30, 2015 0 PFM Asset Management LLC Disclaimer This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. O PFM Asset Management LLC 11