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  Agenda Item   5.    
Investment Advisory Committee
Meeting Date: 07/27/2020  
FROM: Bill Gallardo
Subject:
Approval of Statement of Investment Policy for the City/Brea Successor Agency to the Brea Redevelopment Agency
RECOMMENDATION
Approve the City of Brea/Successor Agency to the Brea Redevelopment Agency Statement of Investment Policy.
BACKGROUND/DISCUSSION
State law allows the City Council to annually adopt the Statement of Investment Policy. Thus, per the City's fiscal policies, "The City Council will review and adopt annually an investment policy as recommended by the Investment Advisory Committee." The Investment Policy serves as a guideline for the investment of City and Successor Agency funds.  The Brea Investment Advisory Committee annually reviews the Statement of Investment Policy for the City of Brea and the Successor Agency to the Brea Redevelopment Agency.

The below changes and additions have been recommended by Chandler Asset Management for review and approval by the Investment Advisory Committee.  Chandler Asset Management, the City's Portfolio Manager, recommends the following to update the document to be consistent with their internal practices for the upcoming year:
  1. Investment Instruments Section (Pass Thru Securities) – Delete the language related to Collateralized Mortgage Obligations (CMOs) to be in line with recommended best practices:  "Collateralized Mortgage Obligations must pass the Federal Financial Institution Examination Council (FFIEC) liquidity test to be an eligible investment for the City."  This line is recommended to be deleted because the Federal Financial Institution Examination Council (FFIEC) liquidity test is not in line with recognized best practices and limits the City’s ability to take advantage of all permittable investments consistent with California Government Code.                                                                                                                                                                                                            
  2. Investment Instruments Section (Mitigating Risk in the Portfolio) – Add language regarding the downgrade of securities to enhance the risk mitigation measure of the policy.   The following sentences are recommended to be added:
  •  If a security owned by the City is downgraded to a level below the requirements of this policy, making the security ineligible for additional purchases, the following steps will be taken. 
    • Any actions taken related to the downgrade by the investment manager will be communicated to the Treasurer in a timely manner.
    • If a decision is made to retain the security, the credit situation will be monitored and reported to the City Council.
For ease of reference, the current Investment Policy is attached along with the red-lined version with recommended changes.  In addition, a clean version with the recommended changes is also attached. 
FISCAL IMPACT/SUMMARY
There is no fiscal impact from the adoption of the Statement of Investment Policy.
RESPECTFULLY SUBMITTED:
William Gallardo, City Manager
Prepared by:  Faith Madrazo, Revenue & Budget Manager
Concurrence:  Cindy Russell, Administrative Services Director
Attachments
Currrent Investment Policy - Adopted 8/20/19
Recommended Changes - REDLINED version
Draft Investment Policy - Clean Version

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