COUNTY OF SAN MATEO

County Manager’s Office

 

DATE:

March 24, 2009

BOARD MEETING DATE:

March 31, 2009

SPECIAL NOTICE:

None

VOTE REQUIRED:

Majority

 

TO:

Honorable Board of Supervisors

FROM:

Reyna Farrales, Deputy County Manager

SUBJECT:

Report on Risk Analysis of Treasurer’s Investment Pool

 

RECOMMENDATION:

 

A)

Accept report from Public Finance Management (PFM) on Risk Analysis of Treasurer’s Investment Pool

   

B)

Accept response from County Treasurer

 

VISION ALIGNMENT:

Commitment: Responsive, effective and collaborative government.

Goal 20: Government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain

 

The report from Public Finance Management contributes to the goal by analyzing the Treasurer’s Investment Pool as of January 5, 2009 and recommending improvements to the County Investment Policy in order to minimize risks, create greater diversification and improve the safety and stability of pooled funds.

 

BACKGROUND:

On September 15, 2008, Lehman Brothers Holdings, Inc. filed for bankruptcy in the United States Bankruptcy Court in New York. On this date, the County Investment Pool held 5.9% or approximately $155 million of its value in Lehman securities. The $155 million loss has been distributed among pool participants as of September 30, 2008, in accordance with the Investment Policy. The Board has retained the law firm of Nixon Peabody LLP in connection with the Lehman bankruptcy proceedings, has continued to pursue legislation for the recovery of funds from the Emergency Economic Stabilization Act of 2008, and has filed a lawsuit against Lehman Brothers for misleading investors about its financial health prior to filing for bankruptcy.

 

The Board Finance and Operations Committee, under the leadership of Supervisors Mark Church and Rich Gordon, has initiated a comprehensive process of reviewing and revising the County’s Investment Policy in order to minimize risks, create greater diversification and improve the safety and stability of pooled funds.

 

A Request for Proposals (RFP) was conducted and Public Finance Management (PFM) was selected to conduct an assessment of immediate risk among current investments in the County Investment Pool.

 

DISCUSSION:

The primary purpose of the PFM engagement was to identify any securities in the Investment Pool which have immediate exposure to significant principal losses, and to recommend corrective action, if needed.

 

PFM has completed its report dated February 27, 2009. There were no securities in the portfolio, as of January 5, 2009, that represent immediate risk to the County. The portfolio was found to be in compliance with the requirements of the Investment Policy. There were two securities identified that may not be in compliance with California Government Code issuer requirements, and one security where it is uncertain whether the County purchased it as a “Qualified Institutional Buyer (QIB)”. County Counsel is working with the Treasurer’s Office and will provide an opinion on these findings.

 

Recommendations include setting a maximum per corporate issuer limit of 5% to be aggregated by issuer name/issuer family across all sectors, excluding Repurchase Agreements; revising the Policy to reflect actual practices in the Treasurer’s Office that are more in line with best practices; including an Approved Issuer List in the monthly investment report; and bringing the Securities Lending Agreement with Bank of New York in line with California Government Code requirements;

 

County Treasurer Lee Buffington provided a written response to the PFM report, dated March 9, 2009. This response is attached and the Treasurer or his designee will be present at the March 31 Board meeting.

 

The Board Finance and Operations Committee accepted the PFM report and the Treasurer’s response at its March 18 meeting.

 

FISCAL IMPACT:

There is no fiscal impact in accepting this report.