City of Los Angeles Office of the Treasurer INVESTMENT REPORT May 31, 2011 Steve Ongele Interim City Treasurer Thomas Juarez Chief Investment Officer 200 N. Spring Street Room 201, City Hall Los Angeles, CA 90012 (213) 978-1718
CITY OF LOS ANGELES CALIFORNIA STEVE ONGELE Interim City Treasurer THOMAS JUAREZ Acting Assistant Treasurer OFFICE OF THE TREASURER 200 N. SPRING ST. ROOM 201 CITY HALL LOS ANGELES, CA 90012 --- (213) 978-1700 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 May 31, 2011. It is provided to ensure that 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. INVESTMENT ENVIRONMENT 1 The U.S. economy, as measured by the Gross Domestic Product (GDP), grew at an annual rate of 1.9% in the first quarter of 2011, less than the expected 2.5%. The current anticipated growth rate for the year is 2.7%, which is slightly lower than last month's 2011 forecast of 2.9%. The U.S. unemployment rate edged up to 9.1% for May, as compared to April's 9.0%. The Consumer Price Index (CPI) measured 3.6% for the twelve months ending in May 2011. Prices are higher in part due to higher energy and food costs. U.S. consumer spending, as measured by Retail Sales, increased 7.7% the past twelve months. 1 Source: Bloomberg Finance L.P.
Page 3 The Federal Reserve held the Fed Funds rate within the range of 0.0% and 0.25% at its June 22, 2011 meeting. Most economists anticipate the Federal Reserve will not raise interest rates until 2012. Fed Funds futures, which are priced by market participants, indicate that the Fed will likely raise rates in late 2012. CURRENT AND FORWARD INTEREST RATES The current U.S. Treasury yield curve is a normal, upwardly sloping curve--giving longer term investors more yield as they realize more interest rate risk than shorter term investors. Forward yield curves, which are based upon the current rates, indicate rising short-term and longterm rates in the future. COMPLIANCE Investment transactions were executed in accordance with the California State Government Code and the City s Investment Policy. REVIEW AND MONITORING Main Street Capital Advisors, 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.
Page 4 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 May 31, 2011. Portfolio Funds Amount of Funds at Market Value Effective Yield Average Weighted Maturity Average Credit Rating Core Portfolio $1,634,745,018 0.56% 46 Days AAA Reserve Portfolio $5,169,812,508 1.84% 2.7 Years AAA Total Investment Pool $6,804,557,526 1.53% 2.1 Years AAA 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. The effective yield of Core Portfolio excludes that of cash (bank balances) and CDARS. INVESTMENT PERFORMANCE 2 Core Portfolio Reserve Portfolio Combined Portfolio Market Value $1,634,745,018 $5,169,812,508 $6,804,557,526 Total Rate of Return 0.01% 0.70% n/a Benchmark Total Rate of Return 0.01% 0.68% n/a Variance 0.00% 0.02% n/a The City measures investment performance on a total return basis to an established industry recognized benchmark. The above table summarizes the May 31, 2011, portfolio total rate of return for the City s General Pool. Additional investment information may be found on page 6 through 29 of this report. 2 Performance is measured as mandated by the Global Investment Performance Standards, which is published by the CFA Institute and is widely accepted as the source of industry standard performance metrics. Section 2.A.1 states that total return, including realized and unrealized gains and losses must be used.
Page 6 GENERAL PORTOFLIO ASSET HOLDINGS May 31, 2011 Description Par Value Market Value Percent of Total Average Days Weighted Years Bank Deposits* $102,332,763 $102,332,763 1.50% 1 0.0 Money Market Funds $0 $0 0.00% 0 0.0 L.A.I.F. (State of California) $0 $0 0.00% 0 0.0 Subtotal: Cash & Overnight Inv. $102,332,763 $102,332,763 1.50% 1 0.0 BNY Sweep Account $0 $0 0.00% 0 0.0 CDARS $8,000,000 $8,000,000 0.12% 16 0.0 Commercial Paper $804,528,000 $804,446,290 11.82% 15 0.0 Negotiable Cert. of Deposit $0 $0 0.00% 0 0.0 Corporate Notes $144,470,000 $149,669,665 2.20% 255 0.7 U.S. Federal Agencies $338,875,000 $339,296,940 4.99% 58 0.2 U.S. Treasuries $231,005,000 $230,999,360 3.39% 25 0.1 Subtotal: Pooled Investments $1,526,878,000 $1,532,412,256 22.52% 49 0.1 Total Short-Term Core Portfolio: $1,629,210,763 $1,634,745,018 24.02% 46 0.1 BNY Sweep Account $0 $0 0.00% 0 0.0 Mortgage-Backed Securities** $366,545 $370,625 0.01% 47 0.1 Commercial Paper $0 $0 0.00% 0 0.0 Negotiable Cert. of Deposit $0 $0 0.00% 0 0.0 Corporate Notes $916,971,000 $950,531,287 13.97% 1,071 3.0 U.S. Federal Agencies $1,062,125,000 $1,103,893,017 16.22% 1,007 2.8 U.S. Treasuries $3,020,000,000 $3,115,017,580 45.78% 951 2.6 Total Long-Term Reserve Portfolio $4,999,462,545 $5,169,812,508 75.98% 985 2.7 Total Cash & Pooled Investments $6,628,673,308 $6,804,557,526 100.00% 760 2.1 *Collected Balance for Bank of America, Wells Fargo, and Wachovia Active Accounts **Includes CMOs (Collateralized Mortgage Obligations)
Page 7 Description LIQUIDITY SCHEDULE May 31, 2011 Availability Market Value Cumulative Percent of Total Funds Bank Deposits* $102,332,763 $102,332,763 1.50% Money Market Funds $0 $102,332,763 1.50% L.A.I.F. State of California $0 $102,221,763 1.50% Pooled Investments Maturing: <30 days $1,342,769,504 $1,445,102,267 21.24% 31 to 90 days $19,995,600 $1,465,097,867 21.53% 91 to 180 days $47,262,821 $1,512,360,688 22.23% 181 to 365 days $133,239,330 $1,645,600,018 24.18% 1 to 2 years $1,681,197,423 $3,326,797,441 48.89% 2 to 3 years $1,736,292,539 $5,063,089,980 74.41% 3 to 4 years $948,027,813 $6,011,117,793 88.34% 4 to 5 years $793,439,733 $6,804,557,526 100.00% Total Cash and Pooled Investments $6,804,557,526 *Collected Balance for Bank of America, Wells Fargo, Wachovia Active Accounts
Page 8 RESERVE PORTFOLIO SECTOR ALLOCATION May 31, 2011 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 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 A-AAA Index
Page 9 RESERVE CREDIT RATINGS and DURATION May 31, 2011 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. 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.
Page 10 INVESTMENT PERFORMANCE May 31, 2011 1 Month 3 Months FYTD 1 Year 3 Years 5 Years Core Portfolio 0.01% 0.07% 0.20% 0.20% 0.92% 2.54% 3 Month Treasury Bill Index* 0.01% 0.05% 0.15% 0.16% 0.48% 2.08% Variance 0.00% 0.02% 0.05% 0.04% 0.44% 0.46% 1 Month 3 Months FYTD 1 Year 3 Years 5 Years Reserve Portfolio 0.70% 1.44% 2.54% 3.04% 4.67% 5.46% 1-5 Year Govt/Corp Index** 0.68% 1.47% 2.71% 3.49% 4.29% 5.12% Variance 0.02% -0.03% -0.17% -0.45% 0.38% 0.34% 1Y, 3Y, 5Y returns are annualized rates of return *Core Benchmark: Merrill Lynch 3 Month Treasury Bill Index (G0O1). **Reserve Benchmark: Merrill Lynch 1-5 Year Government/Corporate A-AAA Index (BV10)
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