CC Resolution No. 19-018 Accepting the City Investment Policy for the Pension TrustRESOLUTION NO. 19-018
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CUPERTINO
ACCEPTING THE CITY INVESTMENT POLICY FOR THE PENSION TRUST
WHEREAS, the City's Pension Trust, established 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; and
WHEREAS, the City's Audit Committee reviewed and accepted the attached City
Investment Policy for the Pension Trust on December 11, 2018.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of
Cupertino accepts the attached City Investment Policy for the Pension Trust dated
February 5, 2019.
PASS ED AND ADOPTED at a regular meeting of the City Council of the City of
Cupertino this 5th day of February 2019, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
Members of the City Council
Scharf, Chao, Paul, Sinks, Willey
None
None
None
/ '
Grace Schmidt, City Clerk Steven Scharf, Mayor,
City of Cupertino
Citywide Policy Manual
CITY OF Pension Trust II Investment Policy Attachments: N/ A
CUPERTINO
Effective Date: Responsible Department:
February 5, 2019 Administrative Services
Related Policies & Notes :
N/A
Investment Policy Statement
Overview
The City has established a Section 115 Trust with PARS to assist in stabilizing the potential impact
of pension cost volatility on the City's operating budget. The City intends to use the Section 115
Trust to pre-fund pension costs and proactively address the unfunded liability. The City's goal
is to have sufficient assets in the trust to increase the funded status to over 80% within 20 years,
as well as fund the difference between a 7 .0% and 6 .25% discount rate.
Executive Summary
Account Name:
Account Number:
Investment Authority:
Current Assets:
Time Horizon:
Target Rate of Return:
City of Cupertino Pension Trust
6746050100
Full Investment Authority
$8 Million (February 2019)
Long-Term
7%
Communication Schedule: Meetings will be conducted at least twice per year
U.S. Bank Portfolio Manager: Rick Rosenthal
richard .rosenthal@usbank.com
213-443-1848
U.S. Bank Relationship Manager: Carolyn Cox
carolyn.cox@usbank.com
415-677-3603
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Investment 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:
Benchmark
Asset Class Range Target
Fixed Income 20-40 % 29%
Equities 50-70% 63%
Real Estate 0-15 % 5 %
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 Pension 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 structure 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 involved with investment management decisions.
• Third, these guidelines will provide 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.
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Diversification
Your Po r tfolio Manager is responsible for maintaining the balance between the various asset
classes based on the inveshnent objective's strategic asset allocation. As a general policy, the
Inveshnent Manager will maintain reasonable diversification at all times by asset class, credit
quality, issuer, sector, industry, and cotmtry.
The following parameters shall be adhered to in managing the portfolio:
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-l or better)
• Domestic Commercial Paper (rated A-1/P-l 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)
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•
•
Dollar denominated Foreign Bonds and Notes
Bond Mutual Funds
Equity Investments:
• Common & Preferred Stocks
• American Depository Receipts (ADRs)
• Domestic and International Equity Mutual Fw1ds (Open and Closed)
• Emerging Market Equity Funds or Exchange Traded Fw1ds (ETFs)
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 Parh1erships 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.
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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) Promptly bring to the attention of the City Treasurer or designee any investment 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 tl1e following inveshnent 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 conunentary and analysis of
investment performance to include an evaluation of the current and future investment
enviromnent and potential impact of tl1e inveshnent 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.
Oty Manager's signature~---i=--"i:N~,,__ ___ ...,.
Date: 1.tbo / t9
( I I
Revisions:
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