HomeMy WebLinkAboutR08-RDA Item
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. Redevelopment Agency . City of San Bernardino
~Ncrth "D" Sbal, PoanhFlaor " SIIlBtm.dino, Cllif'cmia 92418
(714) 384-5081 FAX (714) 888-9413
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SEPTEMBER 24, 1990
INVESTMENT POLICY RECOMMENDATIONS - WELLS
FARGO BANK
Svnopsls of Previous Commission/Council/Committee Action:
01-22-90 Community Development Commission adopted the Agency's Statement of
Investment Polley.
4-02-90 Community Development Commission received and filed the first
Agreement with Wood~Huslng and Associates for financial services.
4-09-90 Community Development Commission recelved.and filed status report on
first Agreement.
4-09-90 Community Development Commission received and filed second Agreement
with Wood-Huslng and Associates for financial services.
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Recommended Motion:
(COMMUNITY DEVELOPMENT COMMISSION)
Move to authorize staff to negotiate an agreement with Wells Fargo
Bank to provide Investment services. .
Respectfully Submitted,
Supporting data attached: Yes
Funding requirements: NA
Commission Notes:
Ward: All
Project: All
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Agenda of: October I, 1990
Item No.:
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S T A F F R E P 0 R T
Attached. for your review, Is a report from Wood-Huslng and Associates
outlining their Investment Polley Recommendations. and related comments from
Tim Sabo and Craig Graves.
The purpose of the Investment Polley Recommendations made by Wood-Huslng and
Associates Is to maximize the yield the Agency earns on Its Investment
portfolio and to use the funds Invested with Hells Fargo as leverage to secure
the $6.000.000 line of credit. As of June 30. 1990. $32.532,776.31 of the
total Investments of $56,759,275.71 were bond proceeds for the various project
areas. Of the remaining. $9,014,559.97 represents Low/Mod Housing funds
($1.238.562.92 Is Low/Mod bond proceeds>, and $3,004.119.97 represents CMO
funds. This leaves $12,207,819.46 as tax Increment (most of these funds are
currently obligated for payment on notes. agreements, etc.>.
After reviewing the four investment strategies recommended by Hood-Huslng and
Associates. staff's recommendations are: .
1. $10,000,000 will remain with the Local Agency Investment Fund
managed by the State of California Treasurer's Office because of the
high rate of return (8.3511 currently> and the ability to withdraw
funds on 24 hour notice. .
2. $10,000,000 will be invested through Hells Fargo 8ank Investment
Services. These. funds funds are tax increment funds. not bond
proceeds, and the funds will be Invested In accordance with the
Agency's InvestmentPol1cy and the agreement negotiated with Hells
Fargo. Investment of these funds with Hells Fargo will meet the
requirement that the Agency maintain the ratio of cash or cash
eqUivalents to the unsecured line of credit at any time and that
there be security In the amount of $6.000,000 for the sec~red line of
credit. It Is proposed to Invest the following funds:
Central City Projects $4.000,000
Southeast Industrial Park 2.000,000
State College 1.000.000
Central City North 1,000,000
Low/Mod Housing 2.000.000
Total 10,000.000
These funds will be invested with Hells Fargo after their current
maturity with the Agency and funds will be draw down from Hells Fargo
as needed to meet obligations.
3. The remaining funds, mostly bond proceeds. will stay with the
Agency to be Invested In accordance with the provisions In the Bond
Indentures, the Bond Rating Agencies, and the Agency Investment
Polley. These funds will continue to be Invested through the local
banks In Certificates of Deposit (remaining tax Increment>, and
through Merrill Lynch. Dean Hitter, First Interstate Bank and, now,
Shearson Lehman Hutton In government securities (bond proceeds>.
If Implemented, staff will monitor and evaluate the effectiveness of placing
funds with Hells Fargo on a monthly basis, and, additionally for the purpose
of updating financial Information on the Agency's financial statements.
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87 WAL.L. IITREET
NEW YORK, NY 10005
_I "0-8300
CITY "L.ACE
... MV1.UM aTIltCET
HAJIr1TORD, CT 0810:1
(a03) 278-"80
ONE OATEWAY CENTER
NEWAIItK, N.I 07101:-UII
(.IOn ......5&4
MIMORAIIDDM
TO:
Me. Barbara LiDdaeth
nOM:
rillotby J. Sabo
July 3, 1990
DArE:
I have reviewed the report from Wood-Budna & bsociates entitled
"San BernardinoRDA Investment POlicy Recommendations" dated June 19, 1990 and
offer the followina comments as we discussed on the telephone this momina:
1. A~bitraae Aft" Rebate. A1thouah it is beneficial in many
instances for. pUblic saencies to lII8Xillize investment eaminas, there are
..vera1 potential prob1_ areas. lfazimidna investment eaminas on bond
proceeds could sometimes result in excaedina the permitted arbitrage yield
limitations ~n yield restricted funds (~.g., sdvance refundina escrowa, moneys
that are .he1d beyond . temporary period for unlimited yield, transferred
proceeds, etc.) or could result in rebate liability by the Redevelopment
Aaebcy to th" f"d"r..l 1I0ve~ent of excess investment aaminas. Bonds issued
dnce 1985 have different arbitrage limitations and rebate requirements for
various funds dependina upon the year durina which bonds were issued.
2. Bond Doc1l"'ent Hmitations. Some attempts to I118Xfmize
investment ..minas could violate express providons written into the bond
documents at the insistence of prospective bOndholders, a muniCipal bond
insurance company or a municipal bond rating agency. Generally, reserve fund
moneys IlUst be invested in a narrowly defined group of federal securities and
in some inatances investments of All funds IlU8t be in "AAA" rated investments
which would only include federal securities and Obligations of a few large
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national and international bllDka. lIone)"s that sre svailable to the Aleney
free and clear of &IIY rutrieticnw contained in the bond doc1lllents (e.g., a
Conatruction Fund, Improvelllent ruDd Or ledevelopment Fund) would unally need
be invened .. permitted UDder California law. However, such funds would
continue to be subject to the arbitrage and rebate concerna diacuased in Item
50. 1 above.
3. State law limitatiOllll. California law containa some
conflictina and ambiguona descriptiona of appropriate investment inatr=entB
for public asencies and ,specially redevelopment agencies. As you are aware,
public aaencies :are required . to adollt a statelllat of investment policies
within which the)" II&y fUrther reatrict their investment optiona so as to
achieve an appropriate balance between investment earninas and the amount of
risk the)" seek to incur in obtain1na a level of investment earnings.
4. ..ell.&itv for and l:o.~. of . Trader or .A...et. ..n..emmlt
DeDSrtmtl!Dt. The Agency aut deteE:abe precisely wbat it seaka to accomplish
by alterina the present method of placina inveatments throuah you and your
staff. If after taking into account that s aubnantial portion of the
$46,919,419 of unenc1lllbered funda with a weipted yield of 7.4941: are either
yield renricted or are restricted to certain types of federal securities
UDder bond documents, there II&y .DOt necuaarily be a significant amount of
funds that sre suitable to be invested by a trader or an asaet management
department. The use of auch OUtside investment advisors mipt be further
limited in lipt of the Agency's investment policies to obtain secure
investments and not to obta~n the maximum yield posaible irrespective of
risk. The Agency IllUst review the added cons of either one of these propoaala
in lipt of the present Agency staff costs in placina investments to achieve
the present yield but with minimizing the risk of &IIY invaatment.
I am sure that a workina relatiOllllhip with a trader may be helpful in
certain inatances; nevertheless, either a staff person in your position or an
invutment conaultant will have to review the renrictiona on &IIY funds that
the Agency desires to invest and weip such other factors .. Alency cash needs
and liquidity and diversification 'of portfolio in addition to the leaal
restraints diacU8sed above. Perhaps even a minimal amount of the leaat
restrictive Agency funda could be tranaferred to an aaset management
department.
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City of San Bernardino
INTEROFFICE MEMORANDUM
9007-201
TO:
BARBARA LINDSETB, Redevelopment Agency
CRAIG A. GRAVES, City Treasurer
FROM:
SUBJECT: RDA Investment Recommendations
DATE: July 6, 1990
COPIES:
Shauna Edwins, Robert TemPle~
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You have requested my input on the
WOod-Busing concerning the investing
offer the following comments dealing
RDA funds.
One of the first questions that must be resolved is whether
the RDA staff wants to continue to perform this function and
do all of the accounting that is required in terms of invest-
ment instruments, interest income and state and federal
mandated reporting. If 80, then either dealing with an asset
management firm or a brokerage firm are appropriate alterna-
tives and should increase the interest income over the past
practice of CD's with the downtown banks.
recommendations made by
of RDA funds. I would
with the investing of
Sowever, to do these things at least one member of the staff
and probably two are going to need significant training in
regards to investment instruments, legal requirements, use of
bond proceeds and other subjects dealing with the investing
of public funds. A person will also have to be responsible
for the tracking of these investments, their income and the
monthly and annual reporting.
If the function stays within the Agency, then will the title
Treasurer go to the one with the expertise or will it remain
with the Executive Director regardless of their background.
During the problems with AstroWood, staff raised concerns
several times only to be overruled by the Executive Director/
Treasurer.
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Asset Management Departments are the latest area of expansion
within the banking and securities industry. They do bring
advantages of daily monitering of the market, sophisticated"
equipment and resources, expert personnel and large pools of
income to invest. However, the guidelines are still set by
the Agency which means someone will have to acquire the
appropriate expertise. I have a concern about the yield
quoted with Wells Fargo in that it includes Euro CD s which
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INTEROFFICE MEMORANDUM: 9007-201
RDA Investment Recommendations
July 6, 1990
Page 2
are not authorized by the California Government Code and
depending on the mix of investments there are also
restrictions on the percentages a City can have in Banker's
Acceptances and Commercial Paper. The yield will be greatly
affected by guidelines set up by the Agency in which
instruments they are allowed to invest in.
The other concern with an asset management department is
where the liability rests for any losses that may occur.
Will the bank be accountable or will it still rest with the
Agency.
One must also be aware of the fact that the great majority of
the Agency's holdings are tied up in bond fUnds. While these
funds maybe invested, The 1986 Tax Bill prOhibits a local
agency from keeping, on tax exempt issues, the interest
inco_ earned over the interest rate the bonds were issued at
if the proceeds were not spent within six months. City's
can no longer arbitrage their bonds proceeds. Since Wood-
Busing have included these funds in their income projections,
their projections would be greatly affected when the bond
proceeds are split apart. There bas been soane loosen of the
arbitrage rules for issues after January of 1990, however,
the rules are still highly restrictive.
The use of a brokerage firm is a standard practice by most
public a~encies. I would not restrict myself to just one
firm as you become limited to their inventory and you have no
comparative market. You may end up with one dealer that the
majority of transactions occur, however, I would continue to
have involvement with other major brokerage houses. The
training and reporting requirements mentioned earlier would
be of paramount importance in accepting this option.
If the Treasurer's Office assumed the duties, it was my
understanding that we would also do all of the tracking of
investments, interest income and appropriate reporting.
Bowever, as I mentioned before we are not presently staffed
to assume all of those responsibilities, so an additional
position would be required.
While we can provide information on our interest income on a
quarterly basis, I will not get into the highest yield
syndrome. Unfortunately during the 1980's several Citys did
get into the highest yield race and thus ended up taking
massive losses in their portfOlios when the market made
unanticipated shifts.
The primary responsibility of the City Treasurer is to first
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INTBROFFICB MBMORANDOMr 9007-201
RDA Investment Recommendations
July 6, U90
Page J
insure tbe appropriate safety of all funds cOllected, tben to
insure adequate funds are available to pay tbe City's obli-
gations and last to seek tbe most appropriate yield for tbe
City's remaining funds. Tbe yield can vary depending on tbe
difference of needs between tbe Agency and tbe City and tbeir
appropriate casb flow and liquidity. While comparisons are
important tbey can become unbealtby if tbe basic responsi-
bilities are not understood.
I bope tbis ans.ers some of your questions and concerns.
Whatever patb tbe Agency takes, appropriate areas ofrespon-
sibility and accountability.ost be clearly defined. If you
any furtber questions, please feel free to contact me.
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THOMAS W HAYES
trreasurer of fill' $tate of CIlalifonria
September 4, 1990
To: All Loe.l Agency Inve.tment Fund P.rticip.nt.
In respon.e to the r.commendation of the Loc.l Ag.ncy
Inv.stm.nt Advisory Board, the Loc.l Agency Inve.tment Fund
will.cc.pt Bond Proc.ed. which will not be .ubject to
"Arbitr.ge R.b.t." under federal t.x law., by m..ting either
of the following condition.:
a) The I..uer and Bond. qu.lify for the exemption
from .rbitrage .rebate r.quirement. for certain
bond i..u.. of $5 million or 1.... (Se. Section
148 (f)(4)(C) of the Internal R.venu. Code of
1986) .
or: b)
The Bond. qualify as "Con.truction Bond.," the
Bond. are not "priv.te .ctivity bond.," and the
Is.uer expect. th.t all proceed. of the Bond.
(other than r..erve fund.) will be .xpended within
the p.riod.and in the minimum .mount. n.c....ry
to qualify for the "two-y..r exception" from the
arbitrage rebate requirem.nt. (See S.ction 148
(f)(4)(B)(iv) o~ the Int.rn.l Rev.nue Code of
1986). Addi tion.lly, the Is.uer mu.t properly
elect to pay the altern.te pen.lty in lieu of
reb.te if Bond proceeds .re not expended quickly
enough. No Re.erve Fund proceed. of such
"Con.truction Bond." may b. depo.it.d in LAIF.
Qualifying Bond Proc.ed. will be depo.ited for the t.rm of
30 day.. After the initial 30 day deposit, either an
addition.l term depo.it of 30 day. may be reque.ted, or the
depo.it may be withdrawn.
You may reque.t an application to depo.it Bond Proceed. by
telephoning the Local Agency Inve.tment Fund 7:30 a.m. to
4:15 p.m., Mond.y thru Friday.
Should you have any que.tions, pl.a.e t.l.phon. Pat B.al at
(916)445-5911.
Sincer.ly, .
~ .,.,,~
THOMAS W. HAYES
STATE TREASURER
915 CAPITOL MALL. SACRAMENTO. CALIFORNIA 9561.. .19161 ....5-5316
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RDA INVBSTMEHT RBCOMMEHDATIOH
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fABLE 1.-PIIWICIAL COII'I'AC'l'S BY IIOOD-IIUSIIG
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B'l'RA'l'RGY I1-R1'1'AII alllllnor IDA 1R'&lI111UT PBAC'1'ICI
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fABLE I.-IDA IRVESblalu nELD AS OP PlBBUAIY 1&, 1990
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B'l'RA'l'RGY '2-IR'..n'IID'I Br A 1lAJ0Il BAlI'S A8SI'l'
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BAlI A'l"l'I'1'UDIS OK tIllS 01' CUDIf &
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B'l'RATmY '3-BDA IIVISTIIIlIT VIA A 'l'IWl18 Dft A -&01 PIIII . . . . &
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B'l'RATmY '.-eI'r! 'l'IlIA8UBI8 IIVIS'I' IDA l'UlOlS . . . . . . . . . . . . . 8
RltUlNBNDATIOI8 8
IIHIBIT A DETAIL: s.ur BlBNABDIIO IDA I'OaTI'ULIO YIELD, 2/1&/90 ... 9
IIIRIBIT B II'ILLII PARGO BAlI UliBISTBICI'1'ID CUDIT tIll PIIOPOSAL
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TO:
Robert Temple, Acting Director
San Bernardino Redev~lopment Agency
FROM:
SUBJECT:
DATE:
Wood-Busing " Aseocfates
. .
Investment Strategy Reco_endations
June 19, 1990
PURPnRR
In order to maximize the yield, which the San Bernardino Redevelopment
Agency ("RDA" or "Agency") receives frolD its investment portfolio, the agency
retained Wood-Busing to review the rates of return and risks of varying
investment strategies, and reco_end an appropriate manner for the agency
to handle its funds.
In the process, we have attempted to identity a strategy which would increase
the leverage RDA gets from its monies, and gradually increase the aophistication
with which Agency staff handles its financial relationships.
J'OUR STRATRuIICH
Initially our work concentrated solely on yield, and looked towards four
alternative strategies:
1. Maintaining current practice.
2. Paying a major institution's asset management group to manage the
agency's portfolio subject to RDA policies. .
3. Establishing a relationship whereby RDA .taft would work with one
or more institutional floor traders. placing orders for a variety of
eate investment instruments; . but with yields above those currently
being realized.
4. Baving the City Treasurer invest RDA's funds.
LEVRRAGR
While we were contacting organizations about these ideas, the demise of the
SI;L's led to an increasing decline in bank willingness to make loans to new
customers. This seriously impacted our other charge from the RDA: Finding
unrestricted loan lines ot credit. For that reaaon, we broadened our discussions
to identity what concessions, if any, each group would grant RDA on the loan
side to gain the right to manage a portion of the Agency's investment portfolio.
This approach clearly revealed the leverage inherent in the Agency's cash
rich position. Organizations divided between those simply wanting access to
RDA's cash surpluses, and those seriously interested in establishing a working
relationship with the Agency.
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ROW GRntlPR WRRR MN'I'.A.C'I'RD
From experi.nce, Wood-Husina know. that financial oraanization. rev.al their
appetite. for unusual cu.tomer., lik. GA, throuah the determination with
which th.y pur.u. th.ir busin.... W. th.refore contacted som. 22 bankina
and brok.ra,e firm., explain.d our charas from the .\a.ncy, and left it for
th.m- to decide how ..are.lIlv.ly to pur.u. diecu.lIione.
Of th..e ,roup., one brok.ra,e house and .iz banks .how.d si.nificant
interest in as.istin. tIDA: Sh.areon Lehlll&D Hutton, Bank of America, Welle
Farao Bank, Bank of California, Security Pacific National Bank, Am.rican National
Bank and li'iret Interstate Bank. Durina the course of the discussions, Am.rican
National Bank m.raed with W.n. Far,o Bank.
WHO W.A.S MN'I'.A.C'I'RD
Tabl. 1 shows the full 1iet of the l.v.l of people with whom w. had meetin.s:
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TITLB
Financial Consultant
Institutional Sales
Financial Consultant
Ex.cutive Vice President,
Commercial Bankina Divisiol'
Vice Prellld.nt, Private
Investm.nt Services
Sr. Vic. President
Inland Empire
Vice President, Reaional Com-
mercial Bankina Group
ABst Vice President
Corporate Payments
Vice Presid.nt, Mar.
As.t. Vice President
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Reaional Vice President
Commercial Bankin. Office
Vice President
Commercial Bankin. Office
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ORGARlZATION
Sheareon Lehman Hutton
San Bernardino
Shear80n Lehman Hutton
San Bernardino
Bank of America
San Francisco
Bank of America
Santa Monica
Bank of America
San B.rnardino
Bank of Am.rica
Ontario
Bank of America
Ontario
Bank of America
San Bernardino
Bank of America
San Bernardino
Wells Far.o Bank
Rancho Cucamon.a
Wells Farao Bank
Rancho Cucamon.a
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TI'1'LE
Vice President
Private 1lA"1rlng Group
Vice President
ORGAlUZATIOlf
Wens Fargo Bank
Puadena
American National Bank
San Bernardino
Bank of California
Benk of Calitornia
Fir.t Interst8te Bank
San Bernardino
Security Pacitic National Bank
Los Angeles
Security Pacitic National Bank
. Palm Sprin,s
Security Pacitic National Bank
San Bernardino
Ci~y of R!tdlands
City.. of. San Bernardino
Vice President
hst. Vice President
Vice President, Mgr.
Vice President, Merchant
Benking Group
Investment Officer
Manager
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RDA Director
City Treasurer
BTRATRGY .1:- RDA Rl!:'l'ATW CtJRRRNT IIIVRRTMmI'I' PRAt!'I'Tt'!W
Current RDA investment practice is to have a member of Barbara Lindseth's
accounting st.tf contact the banks and brokerage firms in the San Bernardino
region on Thursda:v of each week. Each institution is asked about its yields
on Treasury Billa, Certificates of "Deposit, Banker's Acceptances and Money
Market Funds. The RDA then places its surplus, unencumbered cash with the
institution, and in the instrument, with the highest yield.
In addition, the RDA maintains $10 million of ita unencumbered funds with the
Local Agency Investment Fund ("LAIF") managed by the California State
Treasurer's Office. This fund offers local agencies a high rate of return.
In addition it provides them with hi,h liquidity, as funds can be withdrawn
on 24 hours notice.
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These RDA investment procedure, have been in place for some time. The
_jor change since February, 1990, when Wood-Rusing be.an its work, has
been the inclusion of Banker's Acceptances in the ,roup of instruments
considered.
As Strategy 11 provides a bench mark against which other investment
methodologies can be measured, Wood-Rusing calculated the yields on each
part of RDA', portfolio, as of February 15, 1990. These yields are shown in
Table 2, with the detail in Exhibit A.
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POR'lTOLIO nBLDS
Non-LAIF, Unencumbered
Funds
LAIF Funds
Total Unencumbered Funds
Encumbered Funds
Total Funds
IRVBSTMBlft'
'46,916,419
WGT. YIBLD
7.494"
8.733"
7.712"
8.011"
7.737"
10,000,000
56,916,419
5,349,000
'62,265,419
On Non-LAIF, unencumbered funds, Table 2 ahows that RDA had a yield of
7.494". On the '10 million invested with LAIF, the yield w.. 8.733". Finally,
the RDA had .5.3 million in funda encumbered to aecure loana at Firat Interatate
Bank. These were yieldin. 8.011".
RBCOMMBRDATIONS:
1. RDA should retain $10 million in unencumbered funds in the LAIF .. the
yield is excellent, the riak ia low and the liquidity is outstanding.
2. RDA should aeek an alternate inveatment methodology for ita other unen-
cumbered funds.. a 7.494" yield can be bettered by at least 125 basis
points (1.25"), with equivalent risk. On '46,916,419 that would amount to
.703,716 per year in extra interest.
3. RDA should free its encumbered funds .. BOOn as possible .. the 8.011"
yield can be bettered by at le..t 75 b..is points (.75"). On '5,349,000
that would amount to '40,118 per year in extra interest.
STRATRGY .2 - INVRRTMRN'r BY A V4.JOR R&W1r'S A8SRT v&.&nRM2ll1'l' DEPARTMRNT
Many California agencies use a major bank ....t management group to handle
their portfolio for them. Wood-Rusing discussed RDA's needs in depth with
three such organizations: The Aaset Management niviaion of Wells Fargo's
Private Banking Group; the Private Banking Investment Services subsidiary
of Bank of America; and Security Pacific Investments, Inc.
The procedure, which would be followed with each of these organizations, is
eBBentially the same:
1. First a representative of the ..set management group would meet with the
. RDA to ..certain the risk and liquidity requirements which its investment
instruments must meet.
The risk level is inherent in the state law regulating the kinds of securities
in which RDA can invest, together with any further limitation which the
RDA board has specified in its investment policy guidelines. The liquidity
level depends on the flexibility which the Agency desires to maintain, in
being able to get out of its securities and back to a cash position.
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2. The ..set mana,ement ,roup would recommend cate,ories of investments
in which the areney should consider investin" and diacu.. the risk,
liquidity and rates of return on each.
3. The A,ency and the ....t mana,ement ,roup would lIi,n an a,reement
authorizin, the ,roup to invest the RDA's tunds in an arreed upon
group ot securitias. This contract could be amended .. market condi-
tions change, and the arency decided to have the ....t mana,ement
group expand or restrict the POtential instruments to be used.
4. The arency would transter whatever amount of money it desired to be
invested by the ..set manager.
5. A member of the RDA accounting statt would be ..signed the responsi-
bility of mOnitorin, the securities bein, used by the ....t management
group, with reports made on a mutually a,reed upon buis.
The char,e tor ..set management services varies trom 25 to 50 basis points
(.25lh50") and is negotiable. In most cases, this service includes holding
the agency's tinancialinstrumenta and thus eliminates the necessity of paying
a separate trustee.
IWIJ[ ATTITUDES OR LmBS OF CREDIT
RDA's substantial investment portfolio is a major attraction to the commercial
banks. Theretore, each ot the three organizations mentioned ,ave Wood-Husing
access to very senior executives, who put torth considerable ettort in explaining
why their group should handle them.
As RDA also retained Wood-Husing to asBiBt it in leveraring its as..ts to
acquire unrestricted loan lines ot credit, we telt compeDed to ask each ot
them the terms under which they would &Bsist the Agency in achieving this
objective. In the clearest possible tltrms both Security Pacific National Bank
and Bank ot America indicated the" had no appetite tor such a relationship.
WeDs Fargo, on the either hand, made a very attractive propoaal which is
included .. Exhibit B and discussed under separate cover.
RECOMMENDATIONS:
1. RDA should negotiate an &Bset management agreement with the Asset
Management Division ot WeDs Fargo's Private Banking Group.
2. RDA should place a signiticant percentage ot its asset portfolio in the
hands ot this organization.
3. Barbara Lindseth should be ,iven responsibility tor monitoring com-
pliance with this agreement.
4. RDA should set up a system tor tracking the investment yield trom
tunds placed in this manner, BO the ettectiveness ot this strategy, as
compared to investments with LAIF and through Strategy '3 and '4
below, can be judged.
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5. The decision to maintain the relationship, established through this strat-
e,y, should be re-evaluated in three and six months, based upon :yield,
and the effectiveness of the loan relationships.
Four additional notes:
1. Barbara Lindseth's operation has been very profe..ional in assisting
Wood-Husing in answering all questions posed by the financial commu-
nity. Her department is better than those we find in most of our
private clients.
2. Wells Far,o is currently managing $94 billion in a..ets for over 25,000
organizations, individuals and pension funds.
3. For the year ended March, 1990, Wells Fargo yislded 9.79X on its A1!Pl
quality investment portfolio, with securities that have an average matu-
rity of 87 days, and a ......,lIIum maturity of 180 days. This portfolio
includes Dolilestic and Euro CDs and CPs. SUbtractin, 25 basis points
for ita management fes, this would be a net :yield of 9.64".
The year ended March, 1990 is a comparable time period to the 7.494"
:yield experienced by BOA, as of February, 1990. The portfolio, however,
does include 80me items not currently authorized under current BOA
guidelines. Yields for a set of investments, conforming exactly to BOA
guidelines, should be obtained as part of the Agency's due diligence.
4. Wells Fargo indicates that its the :yield on its investment of funds, for
al/encies comparable to BOA, has consistently exceed the LAIF. Docu-
mentstion of this claim should alao be requested as part of the Agency's
due diligence.
STRATRGY .3 - RnA INVRRT TRRnUGH A 'Muno WITH A RRnIrRRAml! FIRM
Many aophisticated a,encies handle their investment portfolio by daily or
weeklyp1acing funds in securities with the help of a trader at a major
brokerage firm. Under this arrangement a member of the BOA atatt would
be assigned responsibility for making final decisions of which instruments to
buy. Under agreement with BOA, the trader would be held responsible for
training and advising this individual.
The following steps are required to establish this type of relationship:
1. BOA would solicit proposals from the major traders with officers in the
San Bernardino region.
2. The chosen brokerage firm trader would be required to assign a trader
to the BOA account. This individual would meet with BOA to ascertain
the risk and liquidity requirements which its investment instruments
must meet, under agency and legal guidelines. He or she would also
meet with the designated trading officer 80 that a working relationship
between them could be established.
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3. Daily or weekly, depending on the de8ires ot RDA, the trader would
work with the Agency's investment officer and outline the available
instrumenta, their risk quality and yields, and recommend investment
decisions. The RDA investment otticer would make the final decision on
what instruments the A.ency should purchase.
RECOMMENDATIONS:
1. Shearson Lehman Hutton, Dean Witter and Merrill Lynch are the three
or.anizations which are recommended tor contact, to estsbliBh this rela-
tionship.
2. As part ot its due diligence, the RDA should Interview the specific
traders which each group would assign to the Agency's account.
3. RDA should reserve a portion of ita portfolio tor placement in this
manner.
4. RDA should set up a system tor trackin. the investment yield tor tunds
placed in this mannel', eo the effectiveness ot this strate.y, as com-
pared to investments with LAIF and through Strategy '2 and '4, can be
judged.
6. The decision to maintain the relationship estsbUshed through this strat-
egy should be re-evaluated in three and six months dependin. upon
yield.
Four additional notes:
1. This strategy would allow RDA to place ita investments in a wider vari-
ety ot instruments than it is currently uain..
2. The commissions .oin, to the broJterage firm, tor trades which it han-
dles, are extremely low. Shearaon Lehman Hutton char.es between 0
and 1 point (.OOX-.01"), depending on the "sue in which RDA chooses to
invest. Depending on the competence of the trader, and the learning
ability ot the investment otficer, RDA could theretore end up with its
highest net yield with this strategy.
3. RDA would benetit trom this type of arrangement as its investment
otficer would acquire a wider knowledge ot the risk, Uquidity and yield
of the kinds of assets in which the Agency would be investing. Fur-
ther the investment officer would gain a working knowledge of sophis-
ticated trading arrangements.
4. As part of its due diligence, RDA should investigate the costs of a
trustee to hold the agencies securities, it it did not choose to do so
itself. .
4. Wood-Rusing spoke oat length with Shearson Lehman Hutton, and was
very impressed by the background of the trader they would assign to
the RDA account. He has had extensive experience with San Bernardino
County, where he once handled $650 million as that agency's investment
ofticer tor county and pension tunds. There may, however, be individ-
uals in the other two organizations equally quaUfied to ..sist RDA.
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o STRA'I'RGV ... - CITY 'l'RR4!;IJR1l!R IlIVRAT IlQ& W'UND8
Man;r agencies place their investment portfolio management in the hands of
their City Treasurer. For RDA, this would mean contractin, with the San
Bernardino City Treasurer's office to manage its investment portfolio.
Under such an arran,ement, a member of the a,enc;r's staff would be appointed
as investment officer to over... the portfolio, and insure securities purchased
are in conformance with agency guidelines. Further, the investment officer
would keep the Cit;r Treasurer informed as to the coming liquidit;r needs of
the agency.
1. This strateg;r has the advantage of working with the Cit;r Treasurer,
who is already knowledgeable about the investment environment desired
by the Ma;ror and Cit;r Counell, who sit as the Redevelopment Agenc;r.
Q
2. The Cit;r Treasurer alread;rhas acquired the knowledge of investment
risks, liquidit;r and ;yields, neceslar;r for workin, with floor traders,
and has on-goin, relationships with such individuals.
2. This strategy has the disadvantage of movin, responsibi1it;r for the
management of RDA funds to another department of eft;r ,overnment. No
member of the agenc;r atatf would thus ,ain the expertise which could
be garnered from working with an independent floor trader.
3. The Cit;r Treasurer's portfolio ;yield, which currentl;r stands at 8.35", is
currently less than that which appears possible through a bank asset
management group.
RBCOMMBRDATIONS:
1. RDA should not establish an investment relationship with the City Trea-
surer's office at this time.
2. RDA should request that the cii;r Treasurer's office suppl;r it with an
on-going statement of ;yields on ita portfolio 80 they can be compared to
those of the LAIF and Strategies 12 and 13 above.
3. If ;yields through the Cit;r Treasurer's office are shown to exceed those
froID other strategies, at three or six months, a decision can be made at
that time to establish an investment relationship with the City Treasur-
er's office.
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. DETAIL:
SAN BBRNARDIRO REDBVBLOPMBNT AGENCY PORTFOLIO nBLD
PBBRUARY 15. 1990
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WELLS Il'ARGO JWO[
t1MRBSTRICTBD LIRB all' CRBDIT PROPOSAL
June 19. 1990
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WIllLLs FARGO BAJO[
Inland Empir. R.glonal
Commercialllnklne OItice
10535 Foothill Boule.l,d, Stl. 270
Rancho Cucamon".. CA '1730
LOAN PROPOSAL LETTER
Date: June 18, 1990
Mr. Robert J. Temple, Executive Director
Redevelopment Agency of the
City of San Bernardino
300 North -D- Street, Fourth Floor
San Bernardino, CA 92418
Dear Mr. Temple:
Wells Fargo Bank, National Association (-Bank-) is pleased to
provide to the Redevelopment Agency of the City of San Bernardino
(-Borrower-) a proposal to extend the credit accommodations
described below in the aggregate principal amount ~f Seven
Million Dollars ($7,000,000), on the following terms and
conditions, so long as there has been no material adverse change
in Borrower's financial condition, as determined by Bank:
1. Type of Credit: A) Unsecured Line of Credit
B) Secured Line of Credit
2. Principal Amount: A) $1,000,000
B) $6,000,000
3. Purpose: A & B) Assist with financing Redevelopment
Projects.
4. Interest Rate: A) Prime Rate
B) Prime Rate - .50%
5.
Repayment:
A & B) Cash generated from Agency financing.or
investment activities.
6.
Prepayment: A) None
B) None
7.
Maturity Date: A & B) December 1, 1991
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Redevelopment Agency
Page 2
8.
Compensating Balances:
9.
No contractual balances are required
but it is expected that the Agency
will maintain it's primary banking
relationship with Wells Pargo.
Commitment or Loan Pee:
None
10.
Borrowing Base:
None
11. Collateral:
12. Guaranties:
Al
BI
None
Security interest in Cash or Cash
equivalents of not less than the Line
Commitment.
None
13. Subordinations:
14. Reporting:
None
al Audited Statements within 120 days of
.Borrower's Piscal Year End.
bl Consolidating schedule of Redevelopment
Pund Balances Quarterly.
cl Listing of Redevelopment Pund Investments
Quarterly.
15. Covenants: al Maintain the ratio of Cash or Cash
Equivalents to the Unsecured Line of Credit
Commitment (P~cility Al of not less that 1.5
at any time. .
bl Advise Bank In writing of the violation of
any provision of any Loan or Indenture
Agreement within 5 days of it's occurrence.
These credit accommodations are made available subject to the
terms, conditions and provisions of comprehensive loan documents
to be executed by Borrower, including without limitation a loan
agreement, all in form and substance satisfactory to Bank and all
of which shall be executed prior to August 1, 1990. Said loan
documents shall include such representations, warranties,
conditions, covenants and events of default as Bank deems
appropriate, which shall be in addition to the terms and
provisions stated in this letter.
Whether or not the loan agreement and other loan documents are
agreed to and executed, or whether or not any loan described
above is made, Borrower will pay to Bank immediately upon demand
all of Bank's costs and expenses, including reasonable attorney'.
fees, expended in preparation of the loan agreement and other
loan documents.
.-
o
Q
lO
o
o
Bank reserves the right to terminate this proposal at any time
prior to Bank's receipt of acceptance by Borrower. This proposal
is personal to Borrower and may not be transferred or assigned
without the prior written consent of the Bank. Your
acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions. Unless accepted or terminated~
this proposal will expire on July 15, 1990.
Sincerely,
WELLS FARGO BANK, N. A.
cf2?'~ -
Jim 8e1m
Vice President
ACknOWledged and accepted
, 1990:
Redevelopment Agency of the
. City of San Bernardino
By:
Robert J. Temple
Executive Director