Investing Perspective of a City Treasurer Russell Fehr January 11, 2010

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Questions & Comments