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REPORT <br />To the Honorable Mayor and City Council <br />From the City Manager <br /> <br />June 27, 2016 <br /> <br />SUBJECT <br />Investment Policy and agreement for independent professional investment management <br />services with PFM Asset Management, LLC <br /> <br />RECOMMENDATION <br />Staff recommends that the City Council 1) review and approve by motion the revised <br />Investment Policy and 2) approve by motion the award of contract to PFM Asset <br />Management, LLC (PFM) for independent, professional investment management <br />services for a period of three years with an option to extend by two additional years. <br /> <br />BACKGROUND <br />The City has an investment portfolio of approximately $220 million, which consists of <br />reserves and fund balances held by the City for general operations, capital projects, <br />utilities, and various other special purpose funds. The return on the investments in the <br />form of interest income is considered revenue to the City and it varies annually <br />depending on the interest rates in the market. <br /> <br />Investments are governed by State law and the City’s investment policy. The City’s <br />investment objectives are safety, liquidity, and return on investment (yield). The City’s <br />policy was initially adopted in the early 1990s in substantially the same form as the <br />current document. The policy was most recently approved by the City Council in July <br />2013, as part of a regular review process which has typically occurred on an annual <br />basis. While the policy has met the needs of the City, staff felt a comprehensive review <br />was warranted to ensure that the policy best addresses the City’s investment objectives <br />in light of the growth of the City’s investment portfolio and changing market conditions. <br />Consequently, staff has developed a draft policy that takes these changes into account <br />and incorporates best practices as informed by the California Municipal Treasurers <br />Association (CMTA). California Government Code 53646(a)(2) requires that any <br />changes to the City’s investment policy be considered by the City Council at a public <br />meeting. <br /> <br />Historically, the City’s investments have been managed by the Finance Director, who <br />was assigned the role of City Treasurer, and the Deputy Treasurer. Over time, as the <br />size of the City’s portfolio has increased (approximately 80% in the last ten years) and <br />as market conditions have changed, the work required to manage investments has <br />grown and become more complex. More staff time and greater levels of expertise are <br />now required to manage the City’s portfolio in the most effective manner. Therefore, <br />6.1.I. - Page 1