City of Los Angeles Office of the Treasurer

Transcription

1 City of Los Angeles Office of the Treasurer INVESTMENT & CASH MANAGEMENT REPORT August 31, 2009 Joya C. De Foor, CTP City Treasurer Crista Binder, CTP Assistant Treasurer 200 N. Spring Street Room 201, City Hall Los Angeles, CA (213)

2 JOYA C. DE FOOR, CTP City Treasurer CRISTA BINDER, CTP Assistant Treasurer CITY OF LOS ANGELES CALIFORNIA OFFICE OF THE TREASURER 200 N. SPRING ST. ROOM 201 CITY HALL LOS ANGELES, CA (213) ANTONIO R. VILLARAIGOSA MAYOR Honorable Members of City Council of the City of Los Angeles Honorable Members: This is the Investment Report for the month ending August 31, It is provided to ensure the City Council is informed of the Department s activities. It satisfies the recommended reporting requirements of the City of Los Angeles Administrative Code, Chapter 5.1, Article 1, Section 20.90, which addresses the City Council s request for monthly financial information. RECENT ACTIVITIES 2009 Association for Financial Professionals Pinnacle Award City of Los Angeles, the winner of the Strategy category, was named the Grand Prize Winner of the 2009 Association for Financial Professionals Pinnacle Award. The Pinnacle Award is one of the most prestigious finance and treasury awards in the country. The other finalists were Microsoft, the winner of the Innovation category and General Electric, the winner of the Risk Management category. As the Grand Prize Winner, the City received a $10,000 charitable donation which Treasury directed to Angel s Flight for the benefit of both homeless and runaway children Treasury & Risk Alexander Hamilton Award The City was invited, as a finalist in the Cash Management Division, to present our bank implementation project at Treasury & Risk s Best Practices Summit and Awards Program. The other category finalists are Honeywell International and the United States Postal Service. Treasury & Risk magazine is the leading monthly business publication for senior financial executives. The awards program recognizes excellence in finance and treasury management and honors the best and the brightest from corporate America s treasury and finance departments. The Magazine s editorial staff and distinguished panel of judges selected the finalists in the 10 award categories and the best overall winner from a record number of entries.

3 Page 3 Moody s Investor Service In late spring, the Office of the Treasurer informed Moody s of our intent to forego the rating in due to the firm s unilateral change in the methodology by which the City's portfolio would be evaluated, the City s concern about the transparency of the new methodology and the report that, in legal proceedings Moody's representatives referred to some of the firm s work product as puffery. The decision to forego the rating was ratified by City Council in early summer and communicated to Moody s shortly thereafter. In September 2009, Moody s informed the City Treasurer that before they would withdraw the Aaa rating, they would re-analyze the May portfolio since they no longer felt that the portfolio met requirements of the Aaa category. Moody s then released an announcement that the City s portfolio had been downgraded to Aa and that the rating had been withdrawn. Treasury has independently validated the there has been no change in the manner in which the portfolio was managed since the initial rating in Receiving ratings for the investment portfolio has been and is a totally discretionary action and has no impact on the City's debt rating. Department of Water and Power Retirement Plan The Office of the Treasurer was recently informed that we were unsuccessful in competing for the opportunity to manage the cash portion of the DWP s retirement plan. We will continue to pursue opportunities to leverage our expertise for the benefit of the City as a whole. Trademark and Copyright for CashWiz Working with the Office of the City Attorney, we completed the filing process for our internally developed software. CashWiz is software that parses daily banking information and automatically posts that information to the Controller s general ledger. We will begin marketing efforts immediately and will provide a quarterly status report. INVESTMENT ENVIRONMENT 1 The U.S. economy is expected to grow at a 2.9% rate in the third quarter 2009, after continued delclines in the first half of the year. Growth is expected to return Economists believe that the Federal Reserve will continue to maintain low interest rate targets as the U.S. economy is expected to experience below GDP (QoQ%) 1 Source: Bloomberg Finance L.P.

4 Page 4 average price inflation for the remainder of 2009 and in According to the National Bureau of Economic Research, the U.S. economy has been contracting since December Consumer spending fell 1.2% during the second quarter, but it is expected to rise by 1.7% in the third quarter and rise 1.0% in the fourth quarter Economists expect consumers to experience more job losses as the unemployment rate reached 9.7% for August. The unemployment rate is forecast to rise to 10.0% by the fourth quarter 2009 and is expected to continue at a rate of 9.8% in 2010 and 8.8% in Fed Fund Futures (%) The Federal Reserve held the Fed Funds rate within the range of 0.0% to 0.25%, at the September 23, 2009 meeting. The Fed said that economic activity has picked up following a severe downturn. Hoewever, the Fed continues to see consumer being hit by job losses, sluggish income growth, lower housing wealth, and tight credit as a basis for continued low rates. Many economists expect consumer prices to decline 0.5% in Core inflation, which excludes food and energy, is expected to rise 1.5% in Capital Markets Outlook As of September 23, 2009, Federal Funds futures, which are priced by market participants, indicate a 97% chance that the Federal Reserve Bank will leave the Fed Funds rate unchanged at 0.0% to 0.25% for the November 4, 2009 meeting. The likelihood of a 25 basis point decrease (0.0% rate) is 3%. Fed Fund futures indicate that the Fed will likely (more than a 50% possibility) keep rates at a range of 0.0% to 0.25% for the remainder of 2009 and well into Forward yield curves, which are based on the current (spot) U.S. Treasury Bond market rates, indicate rising short-term and long-term interest rates. The curves depict forecast rates in December 2009, March 2009, and September 2010.

5 Page 5 Treasury continues to monitor the economic and capital markets environment and review established investment policy for the City. We utilize our outlook for the economic and capital markets environment to implement investment programs that best meet tactical and strategic investment objectives. COMPLIANCE Investment transactions were executed in accordance with the California State Government Code and the City s Investment Policy. REVIEW AND MONITORING Chandler Asset Management, the City s investment advisor, as well as Standard & Poor s, one of the world s largest independent rating agencies, currently monitor the Department s investment activities. PORTFOLIO CHARACTERISTICS The Office of the Treasurer invests in a variety of fixed income securities that vary in maturity from one day to five years. The following table summarizes the key characteristics of the City s investment portfolios as of August 31, NOTE: Effective yield is a snapshot of how much an investment would yield assuming that when interest is received it is immediately reinvested. It does not include capital gains or losses in its computation.

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8 Millions Page 8 LIQUIDITY SCHEDULE August 31, 2009 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0

9 Page % Reserve Portfolio and Benchmark Sector Allocation 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% FIN IND UTIL AGY FOR MORT TSY RESERVE 10.4% 11.5% 0.6% 23.8% 0.0% 4.0% 49.7% MER 1-5 GC 10.0% 7.8% 0.8% 23.7% 4.5% 0.0% 53.3% Sector Differences 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% FIN IND UTIL AGY FOR MORT TSY Sector Difference 0.5% 3.7% -0.2% 0.2% -4.5% 4.0% -3.6% Sector Allocation Chart - Highlights the portfolio differences versus the benchmark with respect to the percentage of assets in each sector. FIN Financial Services IND Industrial UTIL Utilities AGY- Government Agencies FOR GOV Foreign Government and Sovereign Issues MORT Mortgage-Backed Securities TSY Treasury Notes and Bonds MER 1-5 GC Merrill Lynch 1-5 year Government and Corporate Index

10 Page 10 Reserve and Benchmark Credit Ratings 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% AAA AA A RESERVE 77.4% 7.8% 14.8% MER 1-5 GC 81.0% 6.6% 12.4% Credit Ratings Chart Highlights the portfolio differences versus the benchmark with respect to percentage of assets in each of the S&P s Credit Ratings allocations. Reserve and Benchmark Contribution to Duration FIN IND UTIL AGY FOR MORT TSY RESERVE MER 1-5 GC Contribution to Duration Chart Highlights the portfolio differences versus the benchmark based on the contribution to the overall portfolio duration. This measure explains the sensitivity of each sector to changes in interest rates.

11 Page 11 Core Portfolio Performance 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 1 Month 3 Month YTD 1 year Core Portfolio 0.04% 0.15% 0.85% 1.83% 91 Day Treasury Bill: 0.02% 0.05% 0.14% 0.66%

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17 Page 17 Sect Issuer Coupon Maturity S&P S&P Qual S-T Mdys Moody S-T Fitch Fitch S- T CUSIP Par Value Book Val Mkt Val Accr Income Book Yield AGY FEDERAL HOME LN BKS /23/2012 AGY AGY AGY 3133XLMJ9 20,735,000 20,735, IND HONEYWELL INTL INC /01/2012 A A2 A AV8 5,000,000 5,000, AGY FEDERAL HOME LN BKS /02/2012 AGY AGY AGY 3133XLQW6 37,550,000 37,549, CMO FHLMC_3478- AB(U) /15/2012 AGY AGY AGY 31397Y3H2 30,000,000 29,999, FIN GOLDMAN SACHS GROUP INC /01/2012 A A-1+ A1 P-1 A+ F GCG7 20,000,000 20,000, IND LOWES COS INC /15/2012 A+ A-1 A1 P-1 A+ NR CM7 10,000,000 10,000, FIN PNC FUNDING CORP /28/2012 A A-2 A3 P-1 A BD4 9,449,000 9,449, FIN BB&T CORP /01/2012 A- A-1 A2 P-1 A AD9 7,925,000 7,925, IND PITNEY BOWES INC /01/2012 A A-1 A1 P-1 N/A AF7 6,000,000 6,000, FIN CITIGROUP INC /17/2012 A A-1+ A3 P-1 A EL1 17,155,000 17,155, IND IBM INTL GROUP CAP LLC /22/2012 A+ A1 A EAB6 14,370,000 14,370, AGY FEDERAL HOME LN MTG CORP /29/2012 AGY AGY AGY 3128X8YR7 25,000,000 24,999, AGY FEDERAL HOME LN BKS /19/2012 AGY AGY AGY 3133XMSS1 16,395,000 16,395, IND NUCOR CORP /01/2012 A A-1 A1 P-1 N/A AF2 5,600,000 5,600, IND NUCOR CORP /01/2012 A A-1 A1 P-1 N/A AF2 6,025,000 6,025, IND CATERPILLAR FINL SVCS MTNS B /07/2012 A A-1 A2 P-1 A NR 14912L3N9 11,000,000 11,000, UTIL ALABAMA PWR CO /15/2012 A A-1 A2 P-1 A EY0 10,000,000 10,000, AGY FEDERAL HOME LN MTG CORP /21/2012 AGY AGY AGY 3137EABE8 15,000,000 15,000, TSY UNITED STATES TREAS NTS /31/2012 TSY TSY TSY HM5 50,000,000 49,999, TSY UNITED STATES TREAS NTS /31/2012 TSY TSY TSY HM5 40,000,000 39,999, TSY UNITED STATES TREAS NTS /31/2012 TSY TSY TSY HM5 25,000,000 24,999, AGY FEDERAL NATL MTG ASSN /18/2013 AGY AGY AGY 31398ALB6 38,445,000 38,444, FIN BANK ONE CORP /30/2013 A A1 A AAS2 12,000,000 12,000, FIN WELLS FARGO & CO /31/2013 AA- A-1+ A1 P-1 AA- F NY3 10,000,000 10,000, FIN BANK NEW YORK MTN BK ENT /01/2013 AA- AA2 AA HBJ7 29,462,000 29,461, IND HERSHEY CO /01/2013 A A-1 A2 P-1 N/A NR AQ1 10,000,000 10,000, AGY FEDERAL HOME LN MTG CORP /08/2013 AGY AGY AGY 3128X8TZ5 25,000,000 24,999, AGY FEDERAL HOME LN MTG CORP /08/2013 AGY AGY AGY 3128X8TZ5 50,000,000 49,999,

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