Investment Strategy and Benchmarks Page Two
Longer term strategies are permitted by the Trust Agreement for certain reserves that do not have cash flow needs. The Investment Policy’s investment objectives include longer-term total return considerations for reserves. Given that the unencumbered cash balance will be held long-term, a long-term approach is prudent and supported by the Finance and Administration Committee. The agency employs either a Matched Funding or Total Return Duration Targeted approach for certain categories of accounts. • Of the $1.1 billion portfolio at the end of March, $676 million of Match Funded accounts were invested in short-term securities with maturities of less than one year that precede or coincide with projected outflows. (Capital, Operating, Debt Service) • The remaining $405 million is managed for Total Return, representing long-term unrestricted reserves held in the General and M&O Reserve accounts. o Unrestricted reserves are managed for Total Return, with consideration of the volatility/return tradeoff associated with longer-term structures. o Longer duration portfolios benefit from higher average annual returns over multiyear periods and exhibit greater return volatility relative to shorter-term maturity structures. o Duration Targeted portfolios maintain a consistent structure and management does not attempt to time market rate changes. The General account is benchmarked to a composite index of 1-5-year bullet agency indices. Investment maturities are generally staggered from three-months to five-years, with an effective duration target of approximately 3.0. The smaller M&O Reserve, representing approximately 5% of assets under management, is benchmarked to a composite of 1–13-year Treasury Strip indices that approximates effective duration of a laddered portfolio of 6-month to 15-year securities. The 7.5-year average maturity structure has an associated effective duration of approximately 7.0. The General account strategy has not changed in many years and the smaller M&O Reserve’s recommended strategy has been consistent since 2020. RECOMMENDATION • Approve a continuation of the investment strategies and benchmarks for the current quarter.
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