14. Investment policy updateADMINISTRATIVE SEF,VICES DEPARTMENT
CUPERTINO
CITY HALL
10300 TORRE AVENUE: • CUPE:RTINO, CA 950143255
{408) 777-3220 • FAX {108) 777-3109
SUMM~-RY
Agenda Item No.
SUBJECT AND ISSUE
Receive update report on the Investment Portfolio.
BACKGROUND AND FISCAL IMPACT
Meeting Date: October 21, 2008
In July 2008, the President signed a Housing Biill enabling the Treasury to provide capital
to Fannie Mae and Freddie Mac. By September, Lehman filed for bankruptcy (the 4a'
largest investment bank in the US and the largest bankruptcy in US history} and the US
government seized control of AIG with an $8' billion bailout. Over the next few days,
investors pulled a record $89.9 billion from m~~ney market funds, 3-month Treasury bill
rates dropped to a yield of 0.03%, and the Federal Government announced its plans to
create a $700 billion bailout fund. And that was just the beginning. Tn short, the turmoil in
the financial markets over the past month is unlike anything we have experienced in our
lifetimes. So the next question is.... What is the City of Cupertino doing to stay safe?
The .City has an investment portfolio of approximately $58 million dollars. As a
municipality, we are limited in our investment options by the State of California
Government Code. 'Throughout this financi~~1 turmoil, staff has been following the
investrnent policy's priority of preserving capitaJ~ and liquidity over pursuing yield.
In the past, most of the fixed investment portfolio was in US Treasuries, Federal Hame
Loan Bank bonds and Federal Farm Credit Bank bonds, with no direct positions in Fannie
M~.e of Freddie Mac. The liquid component of the portfolio was in the Wells Fargo
Government Securities Money Market Fund, the Wells Fargo 100% Treasury Money
Market Fund and the Local Agency Investment Fund (LATE). The Government Money
Market fund consisted of Federal Agencies, including bonds from Fannie and Freddie and
bank repurchase agreements backed by those bends. The Fund did not invest in Lehman
Brothers, AIG, Washington Mutual or Wachavia. LAIF invests in Federal Agencies,
Treasuries, certificates of deposit (CDs), commercial paper, SBA loans, mortgages, and
corporate bonds. It has investments in Fannie acid Freddie mortgages/bonds and Wachovia
CDs, but no investments Lehman, AIG and Washington Mutual. The City's checking,
sweep and security custody accounts are wish Wells Fargo, which has remained on
relatively solid footing through this credit crisis.
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Update report on the Investment Portfolio
October 21, 2008
Page 2 of 2
Over the past two weeks, given the continued turmoil in the financial markets, we have
repositioned our portfolio to achieve additional security and liquidity. The portfolio as of
October 16~' is heavily invested in Treasuries (60%), Federal Home Loan Bank and Federal
Farm Credit Bank bonds (28%), certificates of deposit {2%}, and a small amount of money
in LAIF/Wells Fargo 100% Treasury Money Market to provide for liquidity based on
projected cash flow needs over the next six months. The Treasuries and CD's are fully
insured, the Federal Home Loan Bank and Farm Credit bonds are implicitly guaranteed by
the Federal Government in case of default and the LAIF/Wells Fargo portion of the
portfolio provides fox our liquidity needs. Although our current composite rate on the
portfolio will decline, we feel it is prudent to move to Treasuries at this time.
Staff will continue to monitor the portfolio mix and invest in accordance with prudence and
policy. Investments are in full compliance with City investment policy and/or State law,
and are tiered to provide sufficient cash flows to pay City obligations over the next six
months.
RECOMMENDATION
Receive update report on the Investment Portfolio.
Submitted by: Approved for submission:
Carol A. Atwood David W. Knapp
Director of Administrative Services City Manager
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