Title
Resolution to Adopt Revised Investment Policy
Memorandum
The City’s investment policy currently in effect was adopted in 1999. This policy established very conservative standards for investing that mitigate potential for loss, but also restrict earning potential.
After reviewing the policy with our investment advisor and various members of the Investment Policy Committee of the Association of Public Treasurers of the United States & Canada (APTUSC), some modifications are recommended. Below is a summary of the material changes to the policy:
- Entire policy rewritten and formatted to flow logically
- Mandated 50% allocation to Treasury Securities and/or Repurchase Agreements removed
- Restriction to 35% allocation in Federal Instrumentality Securities removed
- FDIC insurance requirement for Certificates of Deposit removed
- Treasurer’s Report to Council made quarterly.
The effect of these changes is to permit slightly more flexible investment strategies, which are still considered conservative. It is noteworthy that the revised policy complies with Michigan law and the established public treasury standards of safety, liquidity, yield and legality.
The removal of restrictions regarding Treasury Securities, Repurchase Agreements and Federal Instrumentality Securities will allow the City to attain higher yields through two mechanisms. One, Federal Instrumentality Securities can earn a premium over Treasury Notes as there is slightly higher perceived risk. These securities are not backed directly by the U.S. Treasury, but are backed on a defacto basis by virtue of the issuer’s relationship to the federal government. Two, our portfolio swells significantly during tax collections, up to $65 million in the summer collection season. The mandated allocation to Treasury Securities and Repurchase Agreements has a secondary effect of limiting our potential investment in Commercial Paper. While our policy allows a 50% allocation to Commercial Paper, we co...
Click here for full text