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CITY OF SAN LEANDRO <br />MEMORANDUM <br />DATE: February 19, 2008 <br />TO: Finance Committee <br />FROM: Perry Carter, Interim Finance Director ~/ ~ <br />SUBJECT: Investment Report -Quarter Ended December 31, 2007 <br />RECOMMENDATION <br />Staff recommends that the Committee review and accept the attached investment report for the <br />quarter ended December 31, 2007. <br />OVERVIEW <br />At December 31, 2007, the City's investment portfolio had a market value of approximately <br />$86.3 million. Of this amount, $44.5 million was with the Local Agency Investment Fund, <br />(LATE) and bank accounts and $41.8 million was in the Chandler Asset Management program. <br />The rate of return for LAIF for the quarter was 4.8% and for Chandler managed funds, the <br />Average Book Yield was 4.42%. In both cases the City's portfolio exceeded the Investment <br />Policy benchmark which is the rate of return on two and five year US Treasury securities, which <br />was 3.05% and 3.45% respectively <br />Amounts invested with LAIF are essentially liquid and funds can be withdrawn with minimal <br />notice. The rate of return earned by LAIF follows fixed income securities rates in general. For <br />example, a year ago the LAIF rate was 5.11 %, currently it is 4.8% and expected to fall further. <br />Also, the LAIF rate tends to respond slowly to market conditions. During a rate decline, as is <br />being experienced currently, this can be a positive. Consequently, with a little over half of the <br />City's portfolio with LAIF the City is able to benefit from the "buffering" aspect of LAIF, as <br />interest rates continue to fall. Concerning investment security, staff is pleased to note that <br />California State Treasurer, Bill Lockyer has responded publicly to several "sub prime mortgage" <br />questions. The Treasurer notes that the Pooled Money Investment Account, of which LAIF is a <br />participant, has not and does not invest in Structured Investment Vehicles (SNs) or <br />Collateralized Debt Obligations (CDOs), which, if held, could expose the fund to a potential loss <br />in value. <br />The balance of the City's portfolio is under the Chandler management program. The attached <br />report notes that the City is in compliance with all provisions of the City's Investment Policy. <br />The basic strategy recommended by Chandler is to gradually lengthen the average maturity of <br />the portfolio, to capture higher interest rates. This is particularly true, as the yield curve begins <br />