The primary objectives, in priority order, of investment activities shall be:
(A) Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.
(1) Credit risk. The city will minimize the risk of loss due to the failure of the security issuer or backer, 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. The city will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates by structuring the portfolio to meet the cash requirements of ongoing operations, thereby mitigating the need to liquidate securities at a loss prior to maturity.
(3) Concentration risk. The city will minimize the risk associated with placing a large portion of the investment portfolio with a single issuer by limiting the exposure of each issuer to 20% of the total portfolio.
(4) Custodial credit risk. The city will minimize custodial credit risk by holding the investments in the city’s name.
(5) Foreign currency risk. The city will only invest in U.S. dollar denominated investments.
(B) 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 (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). A portion of the portfolio also may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds.
(C) Return on investment. 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. Return on investment is of secondary importance compared to the safety and liquidity objectives described above.
(Ord. 02-2010, passed 6-8-2010)