HomeMy WebLinkAbout2011 02 28 Consent 201 Approve Rebalancing of City's Core Cash Portfolio COMMISSION AGENDA
CONSENT X
INFORMATIONAL
ITEM 201 PUBLIC HEARING
REGULAR
February 28, 2011 MGR \ /DEPT 1 65
Meeting Authorization
REQUEST The Finance Department requests Commission to approve the rebalancing of the
City's core cash portfolio and to authorize the City Manager to execute any and all applicable
documents.
SYNOPSIS:
Currently the City of Winter Springs has approximately $29.0 million dollars of cash on hand.
From time -to -time we review this cash and maintain an appropriate allocation between funds
required for short-term cash needs (Short-term) and funds that could be invested longer -term
(Core) to potentially generate higher rates of return. Though it is not the City's policy to chase
returns by assuming higher levels of risk, it is possible to generate relatively high returns while
simultaneously investing in quality assets. Currently City cash is invested in very high quality
(S &P AAA or better) assets with an average duration (life /maturity) of 91 days. The City's
Financial Advisor PFM and the Finance Department are recommending that the City purchase up
to $12.5 million of very high quality assets (S &P AAA or better) that have an average maturity
of 288 days. This would produce a portfolio with an average duration of .79 years /288 days
and an average return of .53% and an annual increase of approximately $50K -$75K in
investment income.
CONSIDERATIONS:
The current City of Winter Springs investment policy allows for a maximum investment horizon
of 5 years. The rebalancing proposal will invest $5.7 million in bonds with maximum duration of
2 years producing and average portfolio duration of .79 years; well within the current guidelines.
All the investments in this recommendation are AAA (S &P) or better (Treasury -Risk Free) and
will produce a stronger and more secure portfolio than exist currently.
Intermediate -term Treasury yields declined to record lows over the quarter. Two -year U.S.
Treasury rates closed at 0.33% in early November, spurred by the announcement of a second
round of quantitative easing ( "QE2 ") by the Federal Reserve at its November 3` FOMC
meeting. The Fed called for an additional $600 billion in longer -term Treasury purchases through
June 2011 in an attempt to reduce corporate, consumer, and mortgage borrowing rates, thus
stimulating economic growth through corporate investment and support for the housing sector.
By the end of the fourth quarter of 2010, the Fed had purchased nearly $168 billion in Treasury
securities.
By the end of the quarter, intermediate -term yields increased sharply from record lows in early
November, but remained well below long -term historical averages. The yield increases were due
in part to increased inflation expectations as a result of QE2, as well as the extension of the
Bush -era tax cuts, which will add an additional $858 billion to the economy over two years. The
two -year U.S. Treasury yield ended the quarter at 0.59 %, closing 0.17% higher than it opened.
Overall economic conditions appear to be improving. For example, third quarter GDP was 2.6 %,
a substantial improvement over second quarter GDP. However this level of growth remains
insufficient to impact the problematically high unemployment rate. Nonetheless, the
unemployment rate was 9.4% in December, the lowest reading of the year. At the same time, the
number of discouraged workers hit a record high 3.1 million — these workers are not counted in
the headline unemployment rate.
Current Portfolio Allocations
Yield to Maturity 0.36%
Duration (years) 0.25
IssuerAllocation Duration Distribution
100% ........ ................
Corporate 80%
TI-GP
23% 75% _..._...._._. .......__.__.
a y;
50% _............ .__._.... _ ___..
Federal f -
Agency .1. p
Treasury
6 20% 6 y 0 4' et "' 4, 4' Od le y ,1" Oo h
o
o
82011 PFM Asset. Management LLC
Current Cash Position as of December 31, 2010:
United State Treasuries $ 2,601,600.04
Federal Instrumentalities $ 7,472,337.49
Corporate Notes $ 3,017,062.74
Money Market Mutual Funds $ 7,665,478.70
Bank of America Operating $ 8,272,728.54
Total Cash and Equivalents $29,029,207.51
Recommend Purchases
Investment j Coupon Yield Dollar Value Duration
US Treasury 4 500% 16% $ 1.25 million 59
US Treasury .20% $ 1.27 million ; .77
.750%
US Treasury .27% $ 2.00 million .94
.875%
US Treasury .29% $ 2.30 million .97
4.875%
Federal Farm Credit .29% $ 2.80 million 1.96
4.875%
Federal Home Loan Bank 3.375% .86% $ 2.86 million 1.93
Total i $12.48 million 1.35
Rebalanced Portfolio Allocations
Yield to Maturity 0
Duration (years) 0.79
Sector Allocation Duration Distribution
corporte 50%
TLGP 40%
Federal 12% 40%
3%
Arr 2 30%
23%
20%
4411* 0% PIM 111
37%
e■ 2011 PFIVI Asset Man nemOn11..1,0 •Aed
FISCAL IMPACT:
This rebalancing will produce a portfolio with an average duration of .79 years /288 days and
an average return of .53% and an annual increase of approximately $50K -$75K in investment
income. The new portfolio will maintain the appropriate liquidity without reducing the credit
quality.
COMMUNICATION EFFORTS:
This Agenda Item has been forwarded to the Mayor and City Commission; City Manager; City
Attorney /Staff; placed in Press Packets; placed in the City Hall (Lobby) City Commission
Meeting binder; and is available on the City's Website, LaserFiche, and the City's Server.
Additionally, information related to this Agenda Item has been sent to media/press
representatives who have requested Agendas /Agenda Item information, all Homeowner's
Associations on file with the City, all individuals who have requested Agendas /Agenda Item
information, Department Directors; and also posted outside City Hall; posted inside City Hall
with additional copies available for the general public; and posted at five (5) different locations
around the City.
Furthermore, the following has also been completed to further communicate the information in
this Agenda Item:
1) Copies of this agenda will be sent to PFM for investment action.
RECOMMENDATION:
It is recommended that authorization be granted to rebalance the City's investable funds and
increase the average duration to approximately .79 years. Additionally, authorize the City
Manager and Finance and Administrative Services Director to prepare and execute the necessary
documents.
ATTACHMENTS:
None