§ 2-433. Primary objectives.

The primary objectives of investment activities shall be as follows:

(1)

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.

a.

Credit risk. The term "credit risk" means the risk of loss due to the failure of the security issuer or backer. The city shall minimize credit risk by:

1.

Limiting investments to the safest types of securities (primarily obligations of the U.S. government or obligations explicitly guaranteed by the U.S. government or its agencies).

2.

Requiring a credit rating of Aa3 or better from Moody's rating agency and AA- or better from Standard and Poor's.

3.

Prequalifying the financial institutions, brokers/dealers, intermediaries, and advisers with which the city will do business.

4.

Diversifying the investment portfolio so that potential losses on individual securities will be minimized.

b.

Custodial risk. The term "custodial risk" means the risk associated with uninsured deposits, uninsured securities, or securities not registered in the city's name. The city shall minimize custodial risk by:

1.

Collateralization in alignment with state legislation equal to 110 percent of the deposit held in the city's name.

2.

Registering securities in the city's name.

c.

Interest rate risk. The term "interest rate risk" means the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. The city shall minimize interest rate risk by:

1.

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.

2.

Investing operating funds primarily in shorter-term securities, money market mutual funds, or similar investment pools.

d.

Concentration risk. The term "concentration risk" means the risk associated with a high concentration of government funds which are not diversified. The city shall minimize concentration risk by:

1.

Limiting investments with any one issuer to less than 15 percent of the investment portfolio.

2.

Investments explicitly guaranteed by the U.S. government and investments in mutual funds, external investment pools, and other pooled investments are excluded from this requirement.

e.

Foreign currency risk. The city will negate all foreign currency risk through investment only in instruments where exchange rates do not apply.

(2)

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 of securities with active secondary or resale markets (dynamic liquidity). A portion of the portfolio also may be placed in instruments offering same-day liquidity for short-term funds.

(3)

Yield. 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 in subsections (1) and (2) of this section. The core investments are limited to relatively 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:

a.

A security with declining credit may be sold early to minimize the loss of principal or to reduce any imminent risk as identified under subsection (1) of this section.

b.

A security swap will improve the quality, yield, or target duration in the portfolio.

c.

Liquidity needs of the portfolio require that the security be sold.

(Ord. No. 06-11-05, 11-21-2006; Ord. No. 17-03-305 , §§ 2, 3, 3-20-2017)