CC Resolution No. 18-053 accepting the Investment Policy for the OPEB TrustRESOLUTION NO. 18-053
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CUPERTINO
ACCEPTING THE CITY INVESTMENT POLICY FOR THE OTHER POST-
EMPLOYMENT BENEFITS TRUST
WHEREAS, the City's Other Post-Employment Benefit Trust, established for sole
purpose to benefit the general public, has available funds to invest in accordance with
principles of sound treasury management; and
WHEREAS, the City invests funds in accordance with provisions of California
Government Code Section 53600 et seq.; and
WHEREAS, the City's Audit Committee reviewed and accepted the attached City
Investment Policy for the Other Post-Employment Benefits Trust on April 10, 2018.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of
Cupertino accepts the attached City Investment Policy for the Other Post-Employment
Benefits Trust dated June 5, 2018.
PASS ED AND ADOPTED at a regular meeting of the City Council of the City of
Cupertino this 5th day of June 2018, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
Members of the City Council
Paul, Sinks, Chang, Scharf, Vaidhyanathan
None
None
None
APPROVED:
Grace Schmidt, City Clerk ~yPaul4f--,V
City of Cupertino
INVESTMENT POLICY STATEMENT
City of C upertino
CITY OF CUPERTINO
OPEBTRUST
Investme nt Guidelines
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June 5, 20 18
Invesbnent Policy Statement
Overview
In response to the Government Accounting Standards Board (GASB) Statement No. 45,
replaced by GASB Statement No. 74 and GASB Statement No. 75, n ew disclosure requirements
for Other Post-employment Benefit (OPEB) Plans, the City of Cupertino has adopted a
Section 115 Trust and Plan that seeks to satisfy these liabilities for certain eligible employees
Executive Summary
Account Name:
Account Number:
Investment Authority:
Current Assets:
Time Horizon:
Target Rate of Return:
Communication Schedule:
U.S. Bank Portfolio Manager:
City of Cupertino OPEB Trust
6746035000
Full Investment Authority
$27.8 Million (March 2018)
Long-Term
7%
Meetings will be conducted at least twice per year
Rick Rosenthal
richard.rosenthal@usbank.com
213-443-1848
U.S. Bank Relationship Manager: Carolyn Cox
carolyn.cox@usbank.com
415-677-3603
Invesbnent Objective: 'Balanced'
This investment objective is designed to provide a moderate amount of current income with moderate
growth of capital. Investors should have sufficient tolerance for price and return volatility and substantial
periodic declines in investment value. This objective is recommended for investors with a long-term time
horizon .
The strategic asset allocation ranges and tactical targets for this objective are listed below:
C ity of C upertino In ves tment Guidelines
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June 5, 2018
Benchmark
Asset Class Range Target
Fixed Income 20-40 % 29 %
Equities 50-70 % 62 %
Real Estate 0-15 % 6 %
Commodities 0-10 % 2 %
Cash 0-10 % 1%
Investment Guidelines
Overview
This document defines the investment policy, guidelines and performance objectives applicable
to the assets of The City of Cupertino's OPEB Trust. The goal of this Policy is to create an
investment framework within which the assets can be actively yet prudently managed.
The purpose of this document is threefold.
• First, it will set forth an investment s tructure for managing the Portfolio assets. This
structure is expected to produce an appropriate level of overall diversification and total
investment return over the investment time horizon .
• Second, it will serve as to encourage effective communications between the organization
and parties inv olved with investment management decisions.
• Third, thes e guidelines will prov ide a framework to measure ongoing investment
performance.
Within the constraints imposed by these policies, Investment Managers are expected to comply
with all applicable fiduciary and due diligence requirements under the "prudent investor" rules,
which state: "Investments shall be made with judgment and care, under circumstances then
prevailing, which persons of prudence, discretion and intelligence exercise in the management
of their own affairs, not for speculation, but for investment, considering the probable safety of
their capital as well as the probable income to be derived." All applicable laws, rules and
regulations from various local, state, federal and international political entities that may impact
the Portfolio are to be adhered to .
Di versification
Your Portfolio Manager is responsible for maintaining the balance between the various asset
classes based on the investment objective's strategic ass et allocation. As a general policy, the
Investment Manager will maintain reasonable divers ification at all times by asset class, credit
quality, issuer, sector, industry, and country.
The following parameters shall be adhered to in managing the portfolio:
C ity of C upertino In vestment Guide lin es
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Fixed Income Assets
• The fixed income investments are to maintain intermediate-term average weighted
duration, between three-seven years.
• At the time of purchase, no single fixed income issuer shall exceed 2% of the total market
value of the Portfolio, with the exception of U .S. Treasury or Agency obligations.
• The direct high-yield portion shall constitute no more than 10% of the total market value of
the Portfolio.
Equity & Growth Assets
• The domestic equity investments are expected to be diversified at all times by size,
industry, sector, and style (Large Cap, Mid Cap, and Small Cap).
• At the time of purchase, no individual equity security shall exceed 2% of the total market
value of the Portfolio .
• The international equity investments (including emerging markets) shall constitute no more
than 20 % of the total market value of the Portfolio
• The real estate investments shall be captured through the use of diversified mutual funds
or ETFs investing in REITs; and shall constitute no more than 15 % of the total market
value of the Portfolio.
• The commodities investments shall be captured through the use of diversified mutual
funds or ETFs; and shall constitute no more than 10% of the total market value of the
Portfolio .
Permitted Asset Classes and Security Types
Fixed Income & Cash Equivalent Investments:
• Domestic Certificates of Deposit (rated A-1/P-1 or better)
• Domestic Commercial Paper (rated A-1/P-1 or better)
• Floating Rate Notes
• Money Market Mutual Funds
• U.S . Treasury Bonds, Bills and Notes
• U.S. Agency (and Instrumentality) Discount Notes, Notes, and Bonds
• Treasury Inflation-Protected Securities (TIPS)
• Municipal Bonds and Notes
• Corporate Bonds
• Mortgage-Backed Bonds (MBS)
• Asset-Backed Bonds (ABS)
• High-Yield Bonds (rated B-/B3 or better)
• Dollar denominated Foreign Bonds and Notes
• Bond Mutual Funds
Equity Investments:
• Common & Preferred Stocks
• American Depository Receipts (ADRs)
• Domestic and International Equity Mutual Funds (Open and Closed)
• Emerging Market Equity Funds or Exchange Traded Funds (ETFs)
C ity of C up ertino In vestment Guidelin es
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June 5, 201 8
Alternative Investments:
• Commodities Mutual Funds or Exchange Traded Notes (ETNs)
• REIT Investment or Pooled Strategy or Fund of REITs
• Registered Hedge Funds or Hedge Fund of Funds
Prohibited Asset Classes and Transactions
The Investment Manager is prohibited from purchasing or holding any of the following types of
investments:
• Partnerships unless investing in Master Limited Partnerships invested in a mutual fund and
limited in scope and allocation of Portfolio based on asset class limitations of table above
• Letter stock and other unregistered securities; commodities or other commodity contracts;
and short sales or margin transactions
• Investments in the equity securities of any company with a record of less than three years
continuous operation, including the operation of any predecessor
• Investments for the purpose of exercising control of management
Duties and Responsibilities
1) CITY OF CUPERTINO AUDIT COMMITTEE
a) Establish, approve, and maintain investment objectives, guidelines, and policies
(including this Policy).
b) Appoint Investment Managers who can be reasonably expected to adhere to the
investment guidelines and meet the investment objectives as established.
c) Monitor the investment performance of the Portfolio and compare actual investment
performance relative to an appropriate benchmark index given the stated investment
guidelines and objectives set forth in this Policy.
d) Conduct a formal review of the Portfolio's asset allocation, investment structure and
performance annually or more frequently as the need arises.
e) Periodically review the Portfolio performance against objectives.
2) CITY OF CUPERTINO CITY COUNCIL
a) Adopt the Policy by resolution of the City Council on an annual basis.
3) PORTFOLIO MANAGER
The Portfolio Manager will be responsible for carrying out the activities related to the
Portfolio in accordance with the Policy including:
a) Manage the day-to-day investment of Portfolio assets in accordance with the Policy
guidelines and objectives included herein.
b) Exercise full investment discretion and prudence in the selection and diversification of
investments.
C ity of Cupertino Investment Guidelines
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June 5, 2018
c) Promptly bring to the attention of the City Treasurer or designee any inve stment that is
subsequently downgraded and fails to meet the quality guidelines, along with a
recommendation of retention or disposal.
d) Provide on a quarterly basis the following investment reporting:
(i) Year-to-date rate of return
(ii) Annualized one, three, five, etc. rates of return
e) Provide annually to the City's Audit Committee a commentary and analysis of
investment performance to include an evaluation of the current and future investment
environment and potential impact of the investment environment on achievement of
investment objectives.
Investment Policy Statement Review
The City's Audit Committee will review and the Cupertino City Council will adopt this Investment
Policy Statement at least annually to determine whether stated investment objectives are still
relevant and the continued feasibility of achieving the same. It is not expected that the Policy will
change frequently. In particular, short-term changes in the financial markets should not require
adjustments to the Policy.
If at any time the Portfolio Manager finds the above guidelines too restrictive or possibly injurious
to investment returns, they should communicate that information immediately to the City's Audit
Committee.
--Adopted: __ J_u_l"l_~_S"""~,_2-_o_l_f" __ _
(Date)
By:~ ZachKorach
C ity o f C upertin o
Finance Manager
David Brandt
City Manager
In ves tm ent Guidelin es
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