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Home My WebLink About2008 10 20 Regular 600 Investment of Idle FundsCity of Winter Springs October 20, 2008 Special Meeting 102008_COMM_Special_Meeting_Regul ar_600_Idle_Funds Page 1 of 4 COMMISSION AGENDA ITEM 600 Consent Informational Public X October 20, 2008 MGR/~w~ /DEPT. Special Meeting Authorization REQUEST: City Manager requesting the Commission to reconsider direction provided at their October 13, 2008 Commission Meeting regarding the Investment of Idle Funds and to provide direction it deems appropriate. PURPOSE: This agenda item is needed to provide the Commission with additional information regarding the investment of idle funds, and to receive additional direction the Commission may deem appropriate. CONSIDERATIONS: On December 6, 2007 the City Commission met in a called Emergency Special Meeting to consider issues related to the panic run on funds invested in the S.B.A. Local Government Investment Pool. After considerable debate the Commission rendered an emergency directive for the City Manager to enter into a contract with Bogdahn Consultants to survey the marketplace for three alternative investment instruments in which to invest the City's idle funds including those that would be transferred out of S.B.A. At its December 10, 2007 regular meeting the Commission received Bogdahn's recommendations which included investments in 100% U.S. Treasuries in the following investment options: 1. Gabelli MM: US Treasury 2. Vanguard ADM: Treasury Money Market 3. Reserve: US Treasury Fund Institutional After review the Commission directed the City Commission to authorize the City Manager to work with Bogdahn and Associates to select which funds would be the best. Subsequent to the meeting, Bogdahn recommended the Reserve over the other two alternatives. City of Winter Springs October 20, 2008 Special Meeting 102008_COMM_Special_Meeting_Regular_600_Idle_Funds Page 2 of 4 On August 13, 2008 the Commission heard presentations from SBA and Florida Municipal League regarding investments of idle funds. After consideration of the presentation the Commission requested the Pension Board of Trustees to receive the same presentation from SBA and the League, and to provide the Commission with an advisory recommendation regarding the advisability of investing in one or more of the investment instruments. On October 13, 2008 the Pension Board of Trustees filed its report with the Commission recommending the following: 1. That the City engage Bogdahn Consulting for a one time engagement to re-evaluate the marketplace and to identify investment opportunities for the City based upon current day information. 2. That the City engages Bogdahn Consulting for the purpose of providing third party oversight of the performance of the City's investments until such time that the City selects a full time third party advisory consultant for idle funds. 3. That the City place 25% of the idle cash in the Florida League of Cities Municipal Trust and retain 75% of its idle funds in the Reserve - US Treasury Investment Fund. After lengthy debate the Commission did the following: Denied the engagement of Bogdahn Consultants to re-evaluate the marketplace for investment alternatives, and for Bogdahn Consultants to perform oversight services for the City's investments. 2. Directed that the City Manager invest 1/3 of the City's investments not currently held at SBA in the following investment money market U.S. Treasury Funds: a. The Reserve - U.S. Treasury Funds b. Vanguard Group -ADM Fund Institutional c. Gabelli Fund -Money Market U.S. Treasury Fund To revisit the advertisement of selecting a third party investment services consultant after the first of the year. 4. To authorize the City Manager to consult with Bogdahn for placement of the funds. Currently the City has $17,184,478 invested in the Reserve U.S. Treasury Institutional Fund. The maturity date and coupon rates of these treasuries are as follows: Date Couuon Rate 12-11-08 1.4650% 12-04-08 1.6600% If the City should choose to liquidate these funds prior to their maturity date, the yield would be based upon the market rate on the day of redemption. This past Friday that rate was around .07%. City of Winter Springs October 20, 2008 Special Meeting 102008_COMM_Spec ial_Meet ing_Regul ar_600_Idle_Funds Page 3 of 4 For the Following two reasons I need to request additional direction from the Commission. 1. Based upon the Commission's directive the City Manager and staff began discussions with Bogdahn Consulting Group to work out the placement of the funds. After review of the situation the management of Bogdahn Consulting advised the City of the following: a) Based upon the fact that the information upon which they had originally recommended the Reserve, Gabelli and Vanguard funds is now 10 months old, and that conditions have changed dramatically over the 10 months, they would not be able to recommend the City investing in any fund groups without going through a due diligence review of fund offerings in the marketplace based upon current conditions. b) That Bogdahn would not enter into a due diligence engagement unless it included monitoring services for at least 3 months. 2. Additionally, on Friday we received a copy of an advisory from the Reserve Fund advising the following regarding the Treasury Fund: a) The Treasury Fund had applied to participate in the U.S. Department of Treasury's Temporary Guarantee Program for money market funds. b) The Treasury Fund will not offer any additional treasuries to the marketplace. c) The Treasury Fund has failed to meet the seven day redemption period. d) Opinions have been raised regarding the Reserve Treasury Fund's ability to continue doing business. For these two reasons I am requesting additional guidance from you this date. SUMMARY: 1. The City's funds in the Reserve-U.S. Treasury Funds are 100% secure. 2. The Reserve-U.S. Treasury Fund will more than likely receive additional security from the U.S. Treasury Department in the immediate future. 3. The City funds are redeemable at reduced earnings through an early redemption or at the full coupon rate at maturity in early December. 4. The City does not need the funds invested in the Reserve Fund in order to operate. 5. The Reserve Fund has, on at least one occasion, taken up to nine days to complete a redemption demand. 6. The Reserve Fund has started a process of liquidation and closure. QUESTION: Should the City leave its funds in the Reserve Fund and allow them to mature at the full coupon rate, or call for early redemption at a much lower rate? In either case, in light of Bogdahn's recommendation, is it prudent to reinvest the funds prior to an updated due diligence process being completed? City of Winter Springs October 20, 2008 Special Meeting 102008_COMM_Special_Meeting_Regular_600_Idle_Funds Page 4 of 4 OPTIONS: There are at least three options. 1. Carry out the Commission's previous direction a) 1/3 Reserve Fund until maturity b) 1/3 Gabelli fund c) 1/3 Vanguard Fund 2. New Directive a) Leave funds in Reserve Fund until maturity b) Employ Bogdahn for three month's to update investment options c) Reinvest based upon revised Bogdahn recommendations d) Begin selection process for idle funds financial advisor 3. New Directive a) Early redemption of Reserve Fund b) Reinvest - 50% Gabelli Fund c) Reinvest - 50% Vanguard Fund 4. New Directive a) Leave funds in Reserve Fund until maturity b) Reinvest by direct purchase of Treasury's -which entity? c) Start selection process for idle funds financial advisor 5. New Directive a) Early redemption of Reserve Fund b) Reinvest in direct purchase of treasury's c) Start selection process for idle funds financial advisor FUNDING: The cost of engaging Bogdahn to update their alternative investment recommendations and to monitor the performance of the investment is $5,000 per quarter. The investment expense will depend upon the fund options chosen. The Reserve Fund is 0.13 basis points. RECOMMENDATION: It is recommended that the Commission review the updated information and provide whatever direction it deems appropriate. However, I cannot over emphasize that the Commission needs the advice of an independent financial advisor in order to fulfill its fiduciary responsibility in this matter. ATTACHMENTS: COMMISSION ACTION: