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City of Saint Anthony <br /> Investment Portfolio Review Report <br /> tRecommendation#7: Review individual investments to determine which are <br /> book-entry and which are physical delivery. Consider drafting a safekeeping <br /> ' agreement, whereby a third party provides for transfer and safekeeping of <br /> physical securities. <br /> •Collateralization. Minnesota law requires that cash deposits be collateralized to <br /> 110% of their value. Collateral is purchased by the financial institution and is held <br /> at the Federal Reserve Bank in trust for the City. Investments are not required to be <br /> ' separately collateralized because the underlying investment is the `collateral'. This <br /> is also true of money market accounts because the balances are invested in <br /> allowable instruments. The City of St. Anthony sweeps excess funds into money <br /> ' market accounts and holds actual cash balances to a minimum. <br /> 4. Are bids and quotes received when placing investments? <br /> ' •Competition among brokers. In prior years, the apparent direction from the St <br /> Anthony City Council was to invest excess cash for the long term. The investment <br /> ' strategy then was to maximize yield. Each investment account has been viewed as a <br /> separate portfolio and each broker as a portfolio manager. Consequently, <br /> competition in the form of bids has not been a part of the investment philosophy. <br /> This hasn't hurt the City's overall portfolio performance because the average yield <br /> to maturity is greater than the current treasury yield. The portfolio has not <br /> experienced a large decrease in market value and the unrealized loss as of <br /> ' November 30 is small, at 1.56% of the net book value. <br /> Recommendation#8: Encourage competition when purchasing commercial <br /> ' paper in order to ascertain that the highest possible yield is being earned. <br /> 5. How does cash operating needs compare to investment timeline? <br /> •Investment horizon. In the past, the investment horizon has been focused on long- <br /> term yield. The bulk of the investment portfolio has been used to generate interest <br /> 1 earnings and has not been ear marked for long-term capital or bond needs. As a <br /> result, no cash flow forecast has been prepared. Much of the day-to-day cash <br /> operating needs have been funded through the 4M money market account. The <br /> operating environment of the City has changed and some long-term capital needs <br /> have begun to be identified, such as the operation of the water filtration plant. <br /> ' Recommendation#9: One of the steps that the Government Finance Officer's <br /> Association encourages in managing an investment portfolio is to determine an <br /> investment horizon and prepare a comprehensive financial strategies and cash <br /> ' flow projections. One of the important steps in preparing a cash flow projection <br /> is identifying capital and other cash needs. Capital equipment needs should be <br /> identified. The City of Saint Anthony should consider quantifying their <br /> equipment replacement needs, long term debt and operating needs. <br /> 1 Prepared by Ehlers and Associates 5 <br /> February 5,2001 <br />