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06
City of Pleasanton
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CITY CLERK
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2020
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020420
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CITY CLERK
CITY CLERK - TYPE
AGENDA REPORT
DOCUMENT DATE
2/4/2020
DESTRUCT DATE
15Y
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CURRENT INVESTMENT STRATEGY: <br /> The effective rate of return for the recent month on the portfolio increased slightly <br /> to 2.38% due to a mix of investment strategy. Analysts predict moderate U.S. <br /> economic growth in 2020 with the Federal Reserve potentially cutting rates by <br /> another 25 basis points in early 2020. Staff continues to invest in longer-term <br /> securities to secure the interest rate and match maturities with future cash needs. <br /> While short-term yields are highly sensitive to the Federal monetary policy, longer- <br /> term yields are more influenced by growth and inflation expectations. This strategy <br /> increased the average days to maturity (ADM) to 946 days as of December 31 , <br /> 2019 to capitalize the rate cuts as widely expected. <br /> Additionally, staff is balancing the portfolio's credit exposure to pick up incremental <br /> yields while complying with the City's investment policy's mandate of safety, <br /> liquidity, and yield. Staff will continuously monitor this strategy during the next fiscal <br /> year. <br /> Section 115 Trust Fund <br /> In June 2018 the City council approved the investment of $28 Million of various <br /> reserves into a Section 115 Trust Fund to help smooth the pension liabilities which <br /> are expected to grow considerably due to the reduction in the CALPERS discount <br /> rate from 7.5% to 7%. The investment is made into two separate portfolios, the first <br /> one for $6.7 Million into a Conservative portfolio which is available to pay the <br /> annual unfunded liabilities if necessary. We anticipate this investment to remain in <br /> place for a minimum of three years before being used if required. As of December <br /> 31, 2019, this portfolio was fully funded with PARS the investment manager <br /> selected by the City. <br /> The second portfolio (Capital Growth) addresses the longer-term pension liabilities <br /> and is currently designed to have an initial investment of $21.3 Million. The focus <br /> of this portfolio is to earn a higher rate of return over the next ten years or so <br /> before we would need to draw upon it. As of December 31, 2019, the <br /> Conservative portfolio's balance was $7.2 Million and had a quarterly investment <br /> return of 1.80%. The Capital Growth portfolio's December 31, 2019 balance was <br /> $23.7 Million and had a quarterly investment return of 5.92%. <br /> SAFEKEEPING OF SECURITIES: <br /> The two portfolios are held in third party safekeeping for the benefit of the City of <br /> Pleasanton at US Bank where US Bank is the contractual agent for PARS trust <br /> investments that are managed by Highmark capital Management. <br />
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