The primary objectives, in priority order of the city’s investment activities shall be:
(A) Legality. Investments of the city will be made in conformance with federal and state laws, as well as complying with local ordinances and internal policies.
(B) Safety. Safety of principal is the foremost objective of the investment program. Investments of the city shall be undertaken in a manner that seeks to insure the preservation of capital in the portfolio.
(1) Credit risk. Credit risk is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by:
(a) Limiting investments to the safest types of securities;
(b) Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisers with which the city will do business; and
(c) Diversifying the investment portfolio so that potential losses on individual securities will be minimized.
(2) Interest rate risk. Interest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by:
(a) Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity; and
(b) By investing operating funds primarily in shorter-term securities.
(C) Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary markets.
(D) Return on investments. Return on investment is of tertiary concern when compared to the safety and liquidity objectives described above. The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Investments are limited to very low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturity with the following exceptions:
(1) A declining credit security could be sold early to minimize loss of principal;
(2) A security swap would improve the quality yield or target duration in the portfolio; or
(3) Liquidity needs of the portfolio require that the security be sold.
(Prior Code, § 38.05) (Ord. 99-286, passed 12-14-1999)