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<br />CITY OF SAN LEANDRO <br /> <br />MEMORANDUM <br /> <br />DATE: <br />TO: <br />FROM: <br />SUBJECT: <br /> <br />March 14, 2007 <br /> <br />Finance Committee <br />Jesse Ba10ca, Finance Direct~ <br />Investment Report - Quarte~ed December 31, 2006 <br /> <br />RECOMMENDATION <br />Staff recommends Finance Committee acceptance of the attached investment report for the <br />quarter ended December 30, 2006. <br /> <br />OVERVIEW <br />On December 31, 2006 the City's investment portfolio had a market value of $80.8 million, <br />which is an increase of $5.3 million from September 30, 2006. Currently, the City's LAIF <br />investments account for 42% of the City's total investments. The investment portfolio managed <br />by Chandler had a December 31,2006 average book yield of 4.07%, an increase from 3.90% on <br />September 30, 2006. <br /> <br />The average maturity of the Chandler portfolio for the December 31, 2006 remains under 2 years <br />and is performance measured against 1-3 year government securities benchmark. As of March <br />13, 2007, the 5-year Treasury rate of 4.41 % is still lower than the 6-month Treasury rate of <br />5.10%. As a result of the inverted yield and the Fed's ongoing pause in regards to an increase on <br />interest rates, the City will continue with its current barbell strategy of purchasing short-term <br />investments (under I-year) in an effort to maintain liquidity and gain a higher yield while <br />optioning to also purchase long-term (up to 5 years) to ensure security with the portfolio and <br />current interest rate environment. <br /> <br />Since inception (May 2004), Chandlers' performance gain to the City, less the fees paid for <br />portfolio management services, remains less favorable when compared to LAJF. The <br />performance shortfall primarily reflects (2004) long-term investments that were made under the <br />previous 1 to 5 year performance benchmark when rates were rising. The December 31, 2006 <br />LAIF yield of 5.11 % continues to exceed the portfolio with Chandler of 4.07% resulting in a loss <br />when compared to Chandler. In response, the City will continue to withdraw from the Chandler <br />portfolio as investments mature and re-evaluate its reinvestment into either LAJF, Chandler Asset <br />Management or with other investment managers with the intent of increasing yield opportunities <br />and lower cost. <br /> <br />E:\Investments\InvestmentReport12-31-06doc <br />