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File Number: 21-359 <br />Attachment 2 - PARS Investment Strategies and Percentage Allocations. Some investment <br />strategies focus on capital appreciation. These strategies tend to yield higher returns over time <br />with more investments in equity. The more conservative strategies invest more heavily in fixed <br />income, and the yields tend to be lower. Each investment strategy also invests a portion of the <br />assets in cash. It should be noted that the Moderately Conservative strategy is the most <br />commonly selected strategy by other Program participants, followed by the Moderate strategy. <br />The investment returns for these two strategies are targeted at 5.14% and 5.89% as presented in <br />Attachment 3 - PARS Investment Objectives. The investment horizon for the Moderately <br />Conservative strategy is five to seven years, and the investment horizon for the Moderate strategy <br />is six to eight years. Both strategies would meet the City’s investment objectives. <br />The City’s OPEB Trust with PARS utilizes the Moderately Conservative strategy. It is appropriate <br />for the City to utilize an active Moderate strategy for the Pension Trust since the City already has <br />over $21 million in a more conservative portfolio. The City also has the option to change the <br />investment strategy as needed. The investment strategy will be evaluated on an annual basis and <br />quarterly investment reports will be provided to the Finance Committee for review. <br />The asset allocation ranges for the Moderate strategy are presented below. Staff refers City <br />Council to the Investment Guidelines Document for detailed information on investment categories <br />and performance benchmarks. <br />Strategic Asset Allocation Ranges <br />Cash Fixed Income Equity <br />0-20% 40%-60% 40%-60% <br />Policy: 5% Policy: 45% Policy: 50% <br />Fees <br />Fees are based on a tiered pricing structure. For assets over $15 million, the fee would be <br />0.30% for both administration and investment management. Please note that other <br />management fees may also be charged by investment managers, which will be deducted directly <br />from investment returns consistent with industry standard. The City currently has more than $21 <br />million in assets in the OPEB Trust, and the annual fee is approximately $93,000. PARS allows <br />agencies to combine their OPEB and Pension Trust assets together to benefit from a lower fee. <br />Contributions into the Pension Trust will be charged at 0.30%. With a $750,000 initial <br />contribution, the annual fee is estimated at $2,300. The fee will increase as more <br />assets/contributions are accumulated in the account. <br />Review by Finance Committee <br />The Committee met on May 4, 2021 to review the PARS proposal and discuss the investment <br />strategies. The Committee had a split recommendation over the Moderate strategy and the <br />Moderately Conservative strategy. Staff recommends that the City Council adopt an active <br />Moderate strategy due to the reasons stated above. <br />Next Steps <br />Staff will work with PARS to execute the service agreement and other relevant documents to <br />establish the Pension Trust. It will take about a month to set up the trust account. <br />Current Agency Policies <br />Page 3 City of San Leandro Printed on 6/4/2021 <br />183