The primary objectives, in order of priority, of the investment activities of the city shall be as follows.
(A) 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 ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of 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 or other allowable investments;
(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 or other allowable investments will be minimized.
(2) Interest rate risk. INTEREST RATE RISK is the risk that the market value of securities or other allowable investments 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 or other allowable investments mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities or other allowable investments on the open market prior to maturity; and
(b) By investing operating funds primarily in shorter-term securities or other allowable investments.
(B) Liquidity. The investment portfolio of the city should establish adequate liquidity to meet all reasonably anticipated as well as unforeseen expenditures. This is accomplished by structuring the portfolio so that securities or other allowable investments mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, the portfolio should provide adequate liquidity to meet unexpected cash needs. Liquidity can be achieved utilizing securities with active secondary markets, money market accounts and/or savings deposit accounts offering daily liquidity, or other liquid options acceptable under 30 ILCS 235.
(C) 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 economic cycles, taking into account the investment risk constraints and liquidity needs. Investments are limited to very low risk securities or other allowable investments 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.
(D) Legality. The investment activities of the city will conform to federal, state and local legal requirements.
(1994 Code, § 40.05) (Ord. 99-03, passed 3-22-1999; Ord. 2017-07, passed 12-26-2017)