HomeMy WebLinkAbout3.d. Review BP 005- Statement of Investment Policy and Investment Guidelines related to public agencies post retirement health care plan trust Page 1 of 26
Item 3.d.
CENTRAL SAN BOARD OF DIRECTORS
POSITION PAPER
DRAFT
MEETING DATE: AUGUST20, 2019
SUBJECT: REVIEW DRAFT POSITION PAPER TO APPROVE PROPOSED
REVISIONS TO:
1) BOARD POLICY NO. BP 005 - STATEMENT OF INVESTMENT
POLICY, AND
2) INVESTMENT GUIDELINES DOCUMENTS (IGDS) RELATED TO
THE PUBLICAGENCIES POST-RETIREMENT HEALTH CARE PLAN
TRUST, WHICH INCLUDES BOTH OF THE FOLLOWING:
• IGD FOR THE EXISTING GOVERNMENT ACCOUNTING STANDARDS
BOARD 45 OTHER POST-EMPLOYMENT BENEFITS TRUST (GASB 45
OPEB TRUST), AND
• IGD FOR THE PENSION PREFUNDING TRUST
SUBMITTED BY: INITIATING DEPARTMENT:
KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION-FINANCE
REVIEWED BY: PHILIPLEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION
ISSUE
The District's investment policies for District assets are reviewed and approved annually by the Board in
accordance with the District investment policy.
BACKGROUND
Board Policy No. BP 005 - Statement of Investment Policy: Califomia Govemment Code section
53646 states 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
I nvestment Policy to the Board for review and approval (Attachment 1). Monthly investment reports are
also provided as part of the monthly financial statements distributed to the Board. These provisions were
previously incorporated into the District's investment policy. Furthermore, staff annually reviews the Local
Agency I nvestment Guidelines, issued by the California Debt and I nvestment Advisory Commission
(CDIAC) annually to ensure the District is in compliance.
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 24 of 52
Page 2 of 26
In 2019, staff has reviewed B P 005, along with the current version of Califomia Govemment Code
section 53601 to ascertain whether revisions may be appropriate. As part of this review it was identified
that Assembly Bill 1770 (AB 1770), approved by the Governor on September 6, 2018, made minor
revisions to California Government Code section 53601 effective January 1, 2019. These relatively de-
minimis changes included: (1) deleting the requirement that the issuer of an asset-based security must be
rated in a rating category of"A" or above to be eligible for investment of surplus local agency funds, and
(2) revised the maximum 5-year maturity requirement to instead require that the securities have a maximum
remaining maturity of 5 years or less.
Pursuant to the change in state law, staff recommends the Permitted Investments section of the District's
Investment Policy be updated to allow the investment in medium term notes with a maximum remaining
maturity of 5 years or less as highlighted in Attachment 1. This change has no immediate impact on the
District's investment portfolio, as there are no funds currently invested in medium term notes.
OPEB Trust: Public Agency Retirement Services (PARS) is the Trust Administrator responsible for
recording/sub-trust accounting, plan compliance relative to GAS 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.
The market value of the account at June 30, 2019 was $65,929,448, reflective of prior year contributions,
additional contributions of$1,582,800 during FY2018-19, and investment growth. Staff provides quarterly
reports of the OPEB Trust investments to the Finance Committee, and HighMark and/or PARS presents
an update of the OPEB Trust twice a year to the Finance Committee.
Staff proposes no substantive changes to the OPEB Trust I GD (Attachment 2) at this time. Minor
edits were limited to updating the market value for the Trust and updating the date on the front of the
document. Staff recommends adoption of the document with the minor edits noted.
Pension Prefunding Trust: In FY 2016-17 the District Board directed staff to establish a new Internal
Revenue Code Section 115 Pension Trust (Pension Trust) as an alternative funding source for Central
San's pension obligations. At the July 20, 2017 Board meeting, the Board adopted a resolution
authorizing the establishment and funding of a new trust entitled "Public Agencies Post-Employment
Benefits Trust" to be initially funded with $3.359 million from the prior year's budget variance. The market
value of the account at June 30, 2019 was $8,419,897, reflective of prior year contributions, an additional
contribution of$2.5 million during FY 2018-19, and investment growth.
Similar to the OPEB Trust discussed previously, PARS is the Trust Administrator for the pension trust
account responsible for record keeping/sub-trust accounting, plan compliance relative to GAS 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 moderately conservative investment strategy.
The Pension Trust was set up similarly to the OPEB Trust I GD in a single vehicle with the OPEB Trust, as
part of the Public Agencies Post-Retirement Health Care Plan Trust. This resulted in economies of
scale as to the level of fees charged by both HighMark Capital Management and PARS.
Staff provides quarterly reports of the Pension Prefunding Trust investments to the Finance Committee,
and HighMark and/or PARS presents an update of the Pension Trust twice a year to the Finance
Committee. At this time staff does not propose any substantive changes to the Pension Prefunding
Trust I GD (Attachment 3). Minor edits were limited to noting contributions to-date on page 3, updating the
market value of the Trust, and updating the date on the front of the document. Additionally, staff has
proposed an update to the Pension Trust I GD to include a target rate of return (5.82%), which was
previously omitted, as well as a revision to the investment time horizon from "5 - 10 years" to "over 10
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 25 of 52
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years". The inclusion of a target rate of return, consistent with the OPEB Trust I GD, serves to improve the
transparency of the Pension I G D but does not cause any changes to the investment strategy or long-term
goals given the investment risk tolerance remains unchanged at the "moderately conservative" level. Staff
recommends adoption of the document with the minor edits noted.
ALTERNATIVES/CONSIDERATIONS
Additional options could be added for District investments that fall within the permissible investments
prescribed by California Government Code. The Board could also choose not to make the proposed
changes or make other changes to the I nvestment Policy, and the OPEB and Pension Prefunding Trust
IGD.
The current moderate investment strategy previously adopted by the Board for the OPEB Trust could be
changed to a lessor more aggressive strategy. The Board adopted in July 2017 a "moderately
conservative" strategy for the Pension Prefunding Trust, and the I GD continues to reflects that choice.
FINANCIAL IMPACTS
The yield earned on District investments and Trust investments is affected by the policies and guidelines
being considered, which address the risk tolerance and investment practices of the District. These
policies and guidelines impact the goals of optimizing the return, taking into account the priorities of safety
and liquidity.
COMMITTEE RECOMMENDATION
Staff presented the proposed changes to B P 005 - Statement of Investment Policy and the I G Ds to the
Administration Committee on August 20, 2019. The Committee recommended Board approval.
RECOMMENDED BOARD ACTION
Approve proposed changes to each of the following:
1) Board Policy No. BP 005 - Statement of Investment Policy;and
2) Investment Guidelines Documents (IGDs) related to the Public Agencies Post-Retirement Health
Care Plan Trust, which includes both of the following:
• I G D for the existing GAS 45 OPEB Trust, and
• I GD for the Pension Prefunding Trust
Strategic Plan re-In
GOAL THREE: Be a Fiscally Sound and Effective Water Sector Utility
Strategy 1 - Conduct long-range financial planning, Strategy 2- Manage costs
ATTACHMENTS:
1. BP 005 Statement of Investment Policy (strikethrough)
2. CCCSD OPEB Trust IGD August 2019
3. C C C S D Pension Trust I G D August 2019
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 26 of 52
Page 4 of 26
Attachment 1
Central Contra Costa
Number: BP 005 Sanitary District
Authority: Board of Directors
Effective: September 1, 2011
Revised: QGteber 4, 20 QSeptember 5, 2019 =---_
Reviewed: Septeer118-20118September 5, 2019
Initiating Dept./Div.: Administration/Finance
BOARD POLICY
STATEMENT OF INVESTMENT POLICY
PURPOSE
The investment policy of the Central Contra Costa Sanitary District governs the District's
investments held with the following:
• Contra Costa County
• GASB 45 Other Post-Employment Benefits Trust*
• Pension Prefunding Trust*
• Debt Reserves — as indicated in the Bond Official Statement (if applicable)
*Trusts are governed by a separate Investment Guidelines Document
provided by Investment Manager on an annual basis.
Investments will be in compliance with the provisions of, but not necessarily limited to
California Government Code Section 53601 and other applicable statutes.
This investment policy is embodied in the following fourteen sections:
POLICY
I. 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,
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 27 of 52
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Attachment 1
Number: BP 005
STATEMENT OF INVESTMENT POLICY
Page 2 of 8
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:
• 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 "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:
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Page 6 of 26
Attachment 1
Number: BP 005
STATEMENT OF INVESTMENT POLICY
Page 3 of 8
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).
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 "AX 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):
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 29 of 52
Page 7 of 26
Attachment 1
Number: BP 005
STATEMENT OF INVESTMENT POLICY
Page 4 of 8
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)
Has commercial paper that has a short term rating of"A-1" / "P-1" /
"F1" 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 remaining maturity of five years iamayor
less, 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 equivalent "P-1" / "A-1" /
"F1") 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).
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 30 of 52
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Attachment 1
Number: BP 005
STATEMENT OF INVESTMENT POLICY
Page 5 of 8
• 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 "P-1" / "A-1" / "F1" short term rating)
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 has the option of investing funds internally, using the services of
the Treasurer's Office of the County of Contra Costa or a registered
investment advisor to transact the District's investments in compliance with
the requirements described in this investment policy. If the District uses the
services of the County, 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. If the District
utilizes an external investment advisor, the advisor is authorized to transact
with its own approved broker-deal list on behalf of the district. The advisor
will perform all due diligence for the brokers and dealers on its approved list.
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.
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Attachment 1
Number: BP 005
STATEMENT OF INVESTMENT POLICY
Page 6 of 8
• 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.
VI I. 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 General Manager or designee, for a one-
year period.
The General Manager or designee 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 General
Manager or designee 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 General Manager or designee.
Vill. Prudence
Prudent judgment must be exercised by the General Manager or designee
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.
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 32 of 52
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Attachment 1
Number: BP 005
STATEMENT OF INVESTMENT POLICY
Page 7 of 8
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 General Manager or designee 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 General Manager or designee 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 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.
XI I. Reporting
The General Manager or designee will annually render a statement of
investment policy to the Board The General Manager or designee will submit
a monthly report for investments held with the County to the District's General
Manager and Board Finance Committee 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.
Also, annually, the GASB 45 Other Post-Employment Benefits and Pension
Prefunding Trust Investment Guidelines Documents (IGD) will be brought
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Attachment 1
Number: BP 005
STATEMENT OF INVESTMENT POLICY
Page 8 of 8
before the Board Administration Committee for review. Quarterly statements
for both Trusts are reviewed by the Board Finance Committee. At least, twice
a year the investment manager and/or the Trust Administrator meets with the
Finance Committee.
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 Board after review by the Administration Committee, as well
as the individual(s) charged with maintaining internal controls.
[Original Retained by the Secretary of the District]
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 34 of 52
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Attachment 2
HIGHMARKO
CAPITAL MANAGEMENT
Investment Guidelines Document
Central Contra Costa County Sanitary District
GASB 45 / Other Post-Employment Benefits Trust
As
July 2018
Revised August 2019
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 35 of 52
Page 13 of 26
Investment Guidelines Document
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 well-diversified asset mix that can potentially be
expected to meet the account's short-and long-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 August 2019
Plan Sponsor: Central Contra Costa County Sanitary District
Governance: Board of Directors of the Central Contra Costa County
Sanitary District
Plan Name ("Plan'): Central Contra Costa County Sanitary District
GASB 45/Other Post-Employment Benefits Trust
Trustee: US Bank
Contact: Susan Hughes, 949-224-7209
Susan.Hughes _Usbank.com
Account Number("Account'):6746055900
Type of Account: GASB 45/Other Post-Employment Benefits Trust
ERISA Status: Not subject to ERISA
Market Value of Account: $65,929,448 as of June 30, 2019
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@highmarkcapital.com
Central Contra Costa County Sanitary District—GASB 45/Other Post-Employment Benefits Trust
Investment Guidelines Document—HighMark Capital Management, Inc.
(v.July 2018 ARB) Revised August 2019 2
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 36 of 52
Page 14 of 26
Investment Authority: Except as otherwise noted, the Trustee, US Bank, 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 Objectives and Constraints
The goal 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 goal:
• The Plan should earn, 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. To 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
Anticipated Cash Flows: Approximately$130,000 in monthly contributions. Distributions
are expected to be modest in the early years of the Plan.
Occasionally an additional one-time payment may also be made
as determined by the Central Sans Board.
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 the 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 Contra Costa County Sanitary District—GASB 45/Other Post-Employment Benefits Trust
Investment Guidelines Document—HighMark Capital Management, Inc.
(v.July 2018 ARB) Revised August 2019 3
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 37 of 52
Page 15 of 26
Strategic Asset Allocation: 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 Investment Manager will rebalance the portfolio no less than quarterly and/or
when the actual weighting differs substantially from the strategic range, if appropriate and
consistent with your objectives.
Security Guidelines:
Equities
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 Equities 40%-60%
Equity Style Range
Domestic Large Cap Equity 15%-45%
Domestic Mid Cap Equity 0%-10%
Domestic Small Cap Equity 0%-15%
International Equity(incl Emerging Markets) 0%-15%
Real Estate Investment Trust(REIT) 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%
If individual fixed income securities are purchased for the Plan, the following guidelines will be
adhered to in the management of the fixed income segment:
Eligible Investments
• Debt obligations of the U.S. Government, its agencies, and Government Sponsored
Enterprises
• Mortgage-Backed Securities (MBS)
• Asset Backed Securities (ABS)
• Collateralized Mortgage Obligations (CMO)
• Commercial Mortgage-Backed Securities (CMBS)
Central Contra Costa County Sanitary District—GASB 45/Other Post-Employment Benefits Trust
Investment Guidelines Document—HighMark Capital Management, Inc.
(v.July 2018 ARB) Revised August 2019 4
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 38 of 52
Page 16 of 26
• Corporate debt securities issued by U.S. or foreign entities including, but not limited to,
limited partnerships, equipment trust certificates and enhanced equipment trust
certificates
• Eligible instruments issued pursuant to SEC Rule 144(a)*
• Municipal Bonds
ualit
The portfolio will maintain a minimum weighted average quality of A-at all times. Individual
securities shall have a minimum quality rating of Baa3 by Moody's or BBB- by Standard & Poor's
(S&P).
Duration
The manager will maintain the portfolio duration within +/-25% of the benchmark duration at all
times.
Diversification
• No more than 5% of the portfolio assets may be invested in any individual issuer, with the
exception of securities issued or guaranteed by the U.S. Government, its agencies, and
Government Sponsored Enterprises.
No more than 10% of the portfolio may be invested in securities issued under Rule
144A*.
"Note:Rule 144A is an administrative rule under the SEC allowing, under certain circumstances,for qualified institutional
investors to trade certain securities with other institutional investors without registering the trade with the SEC.
Specifically,the rule allows private companies,both domestic and international,to sell unregistered securities,also known
as Rule 144 securities,to qualified institution buyers(QIBs)through a broker-dealer.
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.
Total Portfolio Blended Benchmark
26.50% S&P500Index
5.00% Russell Mid Cap Index
7.50% Russell 2000 Index
3.25% MSCI Emerging Market Index
6.00% MSCI EAFE Index
1.75% Wilshire REIT Index
33.50% Bloomberg Barclays US Aggregate Bond Index
10.00% ML 1-3 Year US Corp/Gov't Index
1.50% US High Yield Master II
5.00% Citi 1 Mth T-Bill
Asset Class/Style Benchmarks
Over a market cycle, the long-term objective for each investment strategy is to add value to a
Central Contra Costa County Sanitary District—GASB 45/Other Post-Employment Benefits Trust
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(v.July 2018 ARB) Revised August 2019 5
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market benchmark. The following are the benchmarks used to monitor each investment strategy:
Large Cap Equity S&P 500 Index
Mid Cap Equity Russell Mid Cap Index
Growth Russell Mid Cap Growth Index
Value Russell Mid Cap Value Index
Small Cap Equity Russell 2000 Index
Growth Russell 2000 Growth Index
Value Russell 2000 Value Index
REITs Wilshire REIT Index
International Equity MSCI EAFE Index
Investment Grade Bonds Bloomberg Barclays US Aggregate Bond Index
High Yield US High Yield Master II
Security Selection
Investment Manager may utilize a full range of investment vehicles when constructing the
investment portfolio, 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.
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
• Derivatives, with exception of ETFs*
*Permissible in diversified mutual funds and exchange-traded funds
Duties and Responsibilities
Responsibilities of Plan Sponsor
The 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 plan/account'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 all service vendors and investment options, including
investment managers.
■ Avoiding prohibited transactions and conflicts of interest.
Central Contra Costa County Sanitary District—GASB 45/Other Post-Employment Benefits Trust
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(v.July 2018 ARB) Revised August 2019 6
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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 Finance Committee with the development and maintenance of this
Investment Policy Guideline document annually.
■ Meeting with the Finance Committee semi-annually to review portfolio structure, holdings,
and performance.
■ Designing, recommending 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.
■ 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
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 Finance Committee if changes occur in personnel that are responsible for
portfolio management or research.
Acknowledgement and Acceptance
I/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.
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(v.July 2018 ARB) Revised August 2019 7
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 41 of 52
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Date:
Plan Sponsor: Central Contra County Sanitary District Board President
Date:
Investment Manager: Andrew Brown, CFA, Senior Portfolio Manager, (415) 705-7605
Central Contra Costa County Sanitary District—GASB 45/Other Post-Employment Benefits Trust
Investment Guidelines Document—HighMark Capital Management, Inc.
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Attachment 3
HIGHMARKO
CAPITAL MANAGEMENT
Investment Guidelines Document
Central Contra Costa County Sanitary District
Pension Prefunding Trust
Ok.
July 2018
Revised August 2019
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 43 of 52
Page 21 of 26
Investment Guidelines Document
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 well-diversified asset mix that can potentially be
expected to meet the account's short-and long-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 August 2019
Plan Sponsor. Central Contra Costa County Sanitary District
Governance: Board of Directors of the Central Contra Costa County
Sanitary District
Plan Name ("Plan'): Central Contra Costa County Sanitary District
Employee Benefits Pension Plan
Trustee: US Bank
Contact: Susan Hughes, 949-224-7209
Susan.Hughes .Usbank.com
Account Number("Account'):6746055901
Type of Account: Pension Plan
ERISA Status: Not subject to ERISA
Market Value of Account: $8,419,897 as of June 30, 2019
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@highmarkcapital.com
Central Contra Costa County Sanitary District—Employee Benefits Pension Plan
Investment Guidelines Document—HighMark Capital Management, Inc.
(v.July 2018 ARB) Revised August 2019 2
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 44 of 52
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Investment Authority: Except as otherwise noted, the Trustee, US Bank, 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 Objectives and Constraints
The goal of the Plan's investment program is to provide a reasonable level of growth which, 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 goal:
• The Plan should seek to earn a return in excess of its policy benchmark over the life of
the Plan.
• The long-term expected rate of return for the target allocation for the Plan's Moderately
Conservative investment objective currently is 5.82%. This should not be confused with
the expected rate of return for the CCCERA Pension Plan.
• 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. To achieve these
objectives, the Plan Sponsor allocates its assets (asset allocation)with a strategic
perspective of the capital markets.
Investment Time Horizon: Over 10 years
Anticipated Cash Flows: The initial contribution into the Plan was $3.35 million with
subsequent contributions totaling $4.5 million. This has resulted
in a total of approximately$7.85 million in contributions to-date
as of June 30, 2019. Assets in the Plan will seek to mitigate the
impact of future rate increases from CCCERA. Typically
increases in rates come with a one-year advance warning
however this Plan may transfer assets to CCCERA at any time.
Target rate of return: 5.82% annual target
Investment Objective: The primary objective is to generate a reasonable level of
growth. The assets in this Plan will eventually be used to fund
Pension Plan obligations for assets managed in the CCCERA
Trust.
Risk Tolerance: Moderately Conservative
The account's risk tolerance has been rated moderately
conservative, which demonstrates that the account can accept
some price fluctuations to pursue its investment objectives.
Central Contra Costa County Sanitary District—Employee Benefits Pension Plan
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(v.July 2018 ARB) Revised August 2019 3
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 45 of 52
Page 23 of 26
Strategic Asset Allocation: The asset allocation ranges for this objective are listed below:
Strategic Asset Allocation Ranges
Cash Fixed Income Equity
0-20% 50%-80% 20%-40%
Policy: 5% Policy: 65% Policy: 30%
Market conditions may cause the account's asset allocation to vary from the stated range from
time to time. The Investment Manager will rebalance the portfolio no less than quarterly and/or
when the actual weighting differs substantially from the strategic range, if appropriate and
consistent with your objectives.
Security Guidelines:
Equities
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 Equities 20%-40%
Equity Style Range
Domestic Large Cap Equity 10%-30%
Domestic Mid Cap Equity 0%-10%
Domestic Small Cap Equity 0%-12%
International Equity (incl. Emerging Markets) 0%-12%
Real Estate Investment Trust (REIT) 0%-8%
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 50%-80%
Eligible Investments
• Debt obligations of the U.S. Government, its agencies, and Government Sponsored
Enterprises
• Mortgage-Backed Securities (MBS)
• Asset Backed Securities (ABS)
• Collateralized Mortgage Obligations (CMO)
• Commercial Mortgage-Backed Securities (CMBS)
• Corporate debt securities issued by U.S. or foreign entities including, but not limited to,
limited partnerships, equipment trust certificates and enhanced equipment trust
certificates
Central Contra Costa County Sanitary District—Employee Benefits Pension Plan
Investment Guidelines Document—HighMark Capital Management, Inc.
(v.July 2018 ARB) Revised August 2019 4
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 46 of 52
Page 24 of 26
• Eligible instruments issued pursuant to SEC Rule 144(a)
• Municipal Bonds
ualit
The portfolio will maintain a minimum weighted average quality of A-at all times. Individual
securities shall have a minimum quality rating of Baa3 by Moody's or BBB- by Standard & Poor's
(S&P).
Duration
The manager will maintain the portfolio duration within +/-25% of the benchmark duration at all
times.
Diversification
• No more than 5% of the portfolio assets may be invested in any individual issuer, with the
exception of securities issued or guaranteed by the U.S. Government, its agencies, and
Government Sponsored Enterprises.
No more than 10% of the portfolio may be invested in securities issued under Rule
144A*.
Note:Rule 144A is an administrative rule under the SEC allowing, under certain circumstances,for qualified institutional
investors to trade certain securities with other institutional investors without registering the trade with the SEC.
Specifically,the rule allows private companies,both domestic and international,to sell unregistered securities,also known
as Rule 144 securities,to qualified institution buyers(QIBs)through a broker-dealer.
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.
Total Portfolio Blended Benchmark
15.5% S&P500Index
3.00% Russell Mid Cap Index
4.50% Russell 2000 Index
2.00% MSCI Emerging Market Index
4.00% MSCI EAFE Index
1.00% Wilshire REIT Index
49.25% Bloomberg Barclays US Aggregate Bond Index
14.00% ML 1-3 Year US Corp/Gov't Index
1.75% US High Yield Master II
5.00% Citi 1 Mth T-Bill
Asset Class/Style Benchmarks
Over a market cycle, the long-term objective for each investment strategy is to add value to a
market benchmark. The following are the benchmarks used to monitor each investment strategy:
Large Cap Equity S&P 500 Index
Growth S&P 500 Growth Index
Value S&P 500 Value Index
Central Contra Costa County Sanitary District—Employee Benefits Pension Plan
Investment Guidelines Document—HighMark Capital Management, Inc.
(v.July 2018 ARB) Revised August 2019 5
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 47 of 52
Page 25 of 26
Mid Cap Equity Russell Mid Cap Index
Growth Russell Mid Cap Growth Index
Value Russell Mid Cap Value Index
Small Cap Equity Russell 2000 Index
Growth Russell 2000 Growth Index
Value Russell 2000 Value Index
REITs Wilshire REIT Index
International Equity MSCI EAFE Index
Investment Grade Bonds Bloomberg Barclays US Aggregate Bond Index
High Yield US High Yield Master II
Security Selection
Investment Manager may utilize a full range of investment vehicles when constructing the
investment portfolio, 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.
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
• Derivatives, with exception of ETFs*
*Permissible in diversified mutual funds and exchange-traded funds
Duties and Responsibilities
Responsibilities of Plan Sponsor
The 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 plan/account'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 all service vendors and investment options, including
investment managers.
■ Avoiding prohibited transactions and conflicts of interest.
Responsibilities of Trustee
Central Contra Costa County Sanitary District—Employee Benefits Pension Plan
Investment Guidelines Document—HighMark Capital Management, Inc.
(v.July 2018 ARB) Revised August 2019 6
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 48 of 52
Page 26 of 26
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 Finance Committee with the development and maintenance of this
Investment Policy Guideline document annually.
■ Meeting with the Finance Committee semi-annually to review portfolio structure, holdings,
and performance.
■ Designing, recommending 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.
■ 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
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 committee if changes occur in personnel that are responsible for portfolio
management or research.
Acknowledgement and Acceptance
I/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.
Date:
Plan Sponsor: Central Contra County Sanitary District Board President
Date:
Investment Manager: Andrew Brown, CFA, Senior Portfolio Manager, (415) 705-7605
Central Contra Costa County Sanitary District—Employee Benefits Pension Plan
Investment Guidelines Document—HighMark Capital Management, Inc.
(v.July 2018 ARB) Revised August 2019 7
August 20, 2019 Regular ADMIN Committee Meeting Agenda Packet- Page 49 of 52