Investing Perspective of a City Treasurer

1. InvestingPerspective of a City Treasurer Russell Fehr January 11, 2010

2. Municipal Investing • Responsibility for public funds in an open, structured & increasingly challenging environment • Transparency & disclosure are not new requirements or trends to investment officials • Economic downturn impacts • Levels of communication • Technical to general

3. Investment Official • Custodian of public funds • This role carries fundamental obligations • Ethical • Fiduciary • Legal • Disclosure / Transparency / Reporting / Communication

4. New & Emerging Issues • Impacts of economic downturn & associated events • Interest rates – yields & choices • Cash balances – budgetary response • Misbehavior of private & public officials • Higher levels of public interest in public finance in difficult times

5. Authority • Rooted in historical political development of England & the United States • Investment authority starts with governing body as does all fiscal authority • Consistent with other fundamental financial authority of the legislative body • Impose taxes • Approve appropriations • Authorize staffing

6. Delegation of Authority • Governing body may delegate investment authority with responsibilities & obligations • Delegation limited on one year • Delegation typically to a Treasurer or Finance Director • Regardless of charter, general law, historical tradition there must be a one-year delegation from the governing body • Should go forward with annual update of investment policy

7. “Prudent Investor” • Broad application of prudent investor standard • Standard initially applies to the governing body • Standard is delegated to investment officers along with authority

8. Investment Objective Mandates • Principal protection – prime directive • Liquidity for pool participants • Investment return • Tension among objectives • Higher yields associated with risk inconsistent with principal protection • Liquidity needs may also impact yields • Emphasis on liquidity increasing with prolonged economic downturn

9. City of Sacramento Investing • City Treasury Pool • Redevelopment Agency • Public Library Authority • Closed (1978) retirement plan (1400 retired & 50 active) • Staff must handle equities as well a fixed investments

10. So How Does One Do All This? • Achieve somewhat contradictory objectives in an ethical, legal and open manner under authority from an elected legislative body • Policy • Investment plan & operations • People • Constant evaluation, measurement, reporting & improvement

11. Investment Policy • Mandatory elements • Many excellent policies in place from California cities & counties • Sacramento’s major update in 2009 used as templates other cities policies • During the year any issues are noted • Full review of policy in advance of annual renewal

12. Investment Plan & Operations • The doing of investing • Meeting the three objectives • Asset allocation • Maturities • Opportunities • Delegation of authority to investment officers • Established, frequent meetings with investment officers • Daily reporting & portfolio updates

13. People • Investment officer is a unique classification in a governmental human resources system • Recruiting is a challenge • Experience necessary given resource levels • With closed retirement fund need strong equity as well a fixed experience • Listen

14. Setting Expectations • Must be appropriate to environment • Simple comparisons, yield for example, may be misleading given different liquidity positions • Numbers of pool participants • Economic realities – interest rate environment • Knowledge & skill improvement necessary element • Total performance evaluation

15. Reporting & Communication • “Transparency” • Changing disclosure requirements • Public opinion of the management of financial affairs coupled with economic downturn • Reporting on different levels • Technical – transaction level • Summary – meaning of transactions • Public – trends, status, risks & future

16. Questions & Comments