AgdaPkt 2016-06-27 Closed and Joint SA PFA

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staff sought and received the City Council Finance/Audit Sub-Committee’s concurrence, at its meeting of January 25, 2015, to issue a Request for Proposals (RFP) to seek independent, professional investment management services for ultimate appointment by the City Council. ANALYSIS With the assistance of Hossein Golestan, a financial advisor with the municipal consulting firm Management Partners, staff conducted research of current best practices in investment policy and developed the proposed draft policy, with the intention of ultimately submitting the policy to the CMTA for certification. This endorsement by the State association for treasury professionals will provide an added level of assurance regarding the soundness of the City’s approach to investing. The draft policy represents a complete re-write of the current policy, since staff viewed this as the most effective way to improve the document’s organization and update its language. The draft policy was approved by the Finance/Audit Sub-Committee on January 25, 2016. The most significant changes to the substance of the policy are summarized below. Substantive Policy Changes The changes proposed below are intended to update Redwood City’s investment policies and practices to ensure they continue to conform to best practices and still maintain the policy’s existing objectives of safety, liquidity, and yield (in that order of priority). Maximum maturity of investments The draft policy proposes to increase the allowable maximum maturity from three years to five years, as permitted by State law and as is common practice amongst other agencies. This change would allow the City to invest in longer maturities with higher yields without sacrificing safety. Decisions regarding maturity would still be made in a manner that ensure sufficient liquidity to meet the City’s cash flow needs. A possible downside is that the market value of investments with longer maturities tends to experience more fluctuation over the term of the investment. However, these fluctuations would not likely affect the total yield of investment since it is the City’s general practice to hold investments until maturity. It should be noted, though, that any paper gain or loss in a given year would need to be recognized in the City’s annual audited financial reports. In the unlikely event of the need to sell investments before their maturity, and if the investments with longer maturities had declined in market value, the shorter maturities would likely be sold first, thus minimizing the risk of an actual, or realized, loss. Proportions of various investment maturities The City’s current investment policy requires that: approximately 50% of idle funds be placed in liquid investments (i.e., investments that can be sold for face value in the open market if needed); not more than 50% of idle funds be invested for more than one year; and not more than 25% of idle funds be invested for more than two years. While the first of these objectives has always been achieved, in practice over the past few years it has 6.1.I. - Page 2