Title
A Resolution Of The City Commission Of The City Of Hollywood, Florida, Updating The Current Investment Policy.
Strategic Plan Focus
Financial Management & Administration
Body
Staff Recommends: Approval of the Attached Resolution.
Explanation:
The Investment Policy of the City of Hollywood originally adopted on September 21, 1994, and minimally amended by Resolution R-2013-054 on March 6, 2013, was repealed and replaced with the current Investment Policy adopted by Resolution R-2020-218 on September 16, 2020.
The City desires to update the current Investment Policy by further refining investment parameters and incorporating additional investment vehicles to enhance the Investment Policy based on recommendations from the City’s Investment Manager.
The more significant revisions in the updated Investment Policy include the following updates and additional investment vehicles:
1. Expanding Section IX, Authorized Investment Institutions and Dealers, to include specific requirements for the use of non-primary securities dealers.
2. Revising Section XIII, Authorized Investments and Portfolio Composition, including adding a summary table of investment by sector type, updating portfolio composition limits, and adding additional investment types as follows:
(A) Updating the maximum percentage of the portfolio permitted to be invested in United States Government Securities from 50% to 100% to provide flexibility in portfolio composition.
(B) Updating the maximum percentage of the portfolio permitted to be invested in Federal Instrumentalities (United States Government Sponsored Enterprises) from 40% to 75% and increasing the individual issuer limit from 10% to 20% to provide flexibility in portfolio composition.
(C) Updating maximum percentage of the portfolio permitted to be invested in Intergovernmental Investment Pool with a stable net asset value from 20% to 30% to provide flexibility in portfolio composition.
(D) Adding a separate sector type for Intergovernmental Investment Pool with a floating net asset value with a maximum percentage of the portfolio permitted to be invested of 30% to encourage portfolio diversification.
(E) Adding a sector type for Mortgage-Backed Securities, an investment that is made up of a bundle of home loans bought from the banks that issued them. Most mortgage-backed securities are issued by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), or the Federal Home Loan Mortgage Corporation (Freddie Mac), which are all U.S. Government-sponsored enterprises. Mortgage-backed securities from Ginnie Mae are backed by the full faith and credit of the U.S. Government, which guarantees that investors receive full and timely payments of principal and interest. Fannie Mae and Freddie Mac mortgage-backed securities are not backed by the full faith and credit of the U.S. Government, but both have special authority to borrow from the U.S. Treasury if necessary. The maximum percentage of the portfolio permitted to be invested in this sector is 20% with a limit in individual issuers of 15% to enhance portfolio diversification.
(F) Updating maximum percentage of the portfolio permitted to be invested in Municipal Bonds from 20% to 30% to provide flexibility in portfolio composition.
(G) Adding a sector type for Corporate Notes, a type of debt security that is issued by a company and sold to investors and has a maturity of one to ten years. The company gets the capital it needs and in return the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. High-quality corporate notes are considered a relatively safe and conservative investment. Corporate notes are considered to have a higher risk than U.S. Government bonds and as a result, interest rates are almost always higher on corporate notes, even for companies with top-flight credit quality. The maximum percentage of the portfolio permitted to be invested in this sector is 30% with a limit in individual issuers of 5% to enhance portfolio diversification.
(H) Adding a sector type for Asset-Backed Securities, a type of financial investment that is collateralized by an underlying pool of assets that usually generate cash flow from debt. Common pools of assets for fixed income investment programs include pools backed by credit card receivables and auto loans. Taking the form of a bond or note, it pays income at a fixed rate for a set amount of time, until maturity. The maximum percentage of the portfolio permitted to be invested in this sector is 20% with a limit in individual issuers of 5% to enhance portfolio diversification.
3. Revising Section XIV, Unauthorized Investments, to remove corporate bonds, mortgage backed securities, mortgage pass through certificates, and collateralized mortgage obligations. The Investment Manager, in consideration of their expertise and stringent instrument review process, will have authority to invest in these vehicles on behalf of the City. The mortgage backed securities, mortgage pass through certificates, and collateralized mortgage obligations are technically considered to be “structured products”, given the way the underlying collateralization is structured. With these instruments, the City would actually own the debt; it is not a forward commitment or contingent claim.
4. Revising Section XV, Performance Measurements, including benchmarks for short-term and long-term portfolios to better measure the City’s returns against other investors in the same markets.
In addition, there were formatting changes and other minor revisions and clarifications.
Fiscal Impact:
Revising the Investment Policy in and of itself will not have a fiscal impact on the City. The proposed revisions will further enhance opportunities for the City to obtain increased returns on investments while achieving its objective to have an Investment Policy which is current and provides an improved opportunity for the City to yield results while maintaining its safety and liquidity goals.
Recommended for inclusion on the agenda by:
Shawn Burgess, Assistant Director of Financial Services/City Treasurer
David E. Keller, Director of Financial Services Department
Adam Reichbach, Assistant City Manager for Finance and Administration