AgdaPkt 2017-09-25 Closed and Joint SA PFA

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PARS offers a successful track record of investment experience serving public agencies, flexible investment options with five investment strategies, and the ability to diversify and customize investments in a judicious fashion. PARS has partnered with U.S. Bank to serve as a trustee for this program, and Highmark Capital Management to serve as the investment manager. Investment Portfolio Strategy The Section 115 Trust offered by PARS has five investment portfolios to choose from: Capital Appreciation, Balanced, Moderate, Moderately Conservative, and Conservative. Approximately 85 percent of the public agencies currently participating the PARS Section 115 Trust have selected the “Moderately Conservative” portfolio, with 30 percent of the funds invested in equities. Returns as of June 30, 2017 in the “Moderately Conservative” portfolio were as follows (net of fund fees, gross of investment management fees): 1-year return: 6.67 percent 3-year return: 3.64 percent 5-year return: 5.42 percent 10-year return: 4.75 percent On August 28, 2017, the Finance and Audit Sub-Committee received a presentation from PARS and Highmark Capital Management on the various investment portfolio options. The Sub-Committee approved recommendation of the “Moderately Conservative” investment strategy for the City of Redwood City’s Section 115 Trust. Funding the Trust City Council authorized an initial Section 115 Trust deposit of Fiscal Year 2016-17 year- end remaining fund balance beyond a 15 percent General Fund reserve threshold. Staff has analyzed the General Fund year-end fund balance and reserve threshold, and has determined the initial trust deposit to be $8.8 million. Staff will assess whether contributions can be made to the Trust from other City Funds to which employee costs are charged, such as the Sewer and Water Funds. Whether to add additional funds to the Trust in future fiscal years would require an annual evaluation, and will depend upon the City’s year-end budget position and overall financial outlook. Making a substantial contribution to the Trust now provides the greatest opportunity for investment earnings over time, and more significant leverage in paying future pension contributions. ALTERNATIVES The Council could decide not to enter into a contract with PARS and instead make additional payments directly to CalPERS. Under CalPERS practices, additional contributions would be applied evenly over a period of time. This means the City would 6.3.A. - Page 3