BOARD MEETING DATE: December 3, 2004
AGENDA NO. 30

Investment Oversight Committee

SYNOPSIS:

The Investment Oversight Committee met Friday, November 19, 2004 and discussed various issues detailed in the Committee report. The next Investment Oversight Committee meeting is scheduled for Friday, February 18, 2005 at 12:00 noon in Conference Room CC8.

RECOMMENDED ACTION:

Receive and file this report.

Michael Antonovich, Chair
Investment Oversight Committee

Attendance: Present were Committee members Michael Antonovich, Gary Burton, David E. Ertel and Paul Sundeen. Absent was Committee member William S. Craycraft.

Investment Committee Action Items:
Quarterly Report of Investments: Reviewed the quarterly investment report to the Governing Board. For the month of September 2004, the AQMD’s weighted average yield on total investments of $241,787,118, from all sources, was 1.72%. The allocation by investment type was 79.9% in the Los Angeles County Pooled Surplus Investment Fund (PSI); 16.4% in the State of California Local Agency Investment Fund (LAIF); and 3.7% in Federal Agency securities. The Committee approved the quarterly report.

Investment Committee Discussion Items:
Cash Flow Forecast: Rick Pearce reported on the cash flows for the current year and projected for the next three years. AQMD Investment Policy limits its Special Purpose investments to 75% of the minimum amount of funds available for investment during the Cash Flow Horizon. That limit, which includes all funds (General, MSRC, Clean Fuels), is approximately $121.6 million.

Investment Agreement for Debt Service Accounts – Pension Obligation Bonds: Terry McGuire (Sperry Capital) presented to the Committee information regarding the various investment agreements available to the AQMD regarding its Pension Obligation Bonds debt service accounts. Permitted investment agreements are approved by the insurance companies that insure Bond agreements and provide for the ability to enhance investment returns during the term of the Bonds on moneys deposited with the bond trustees. Guaranteed Investment Contracts (GICs) from a AAA rated provider is an example of a permitted investment. The Committee agreed that the agency should move forward next year with seeking bids on an investment agreement.

Financial Market Update: Terry McGuire briefed the Committee on the economy and the interest rate outlook. In summary, Mr. McGuire stated that the economy appears to have traction both in new jobs and manufacturing, while the consumer and retail sales are continuing to do well. As expected, the Federal Reserve increased the Federal Funds Rate for the 4th time in six months by 25 basis points (bp) to 2.0%. Another 25 bp increase is expected in December. The Producer Price Index (PPI) increased 1.7% for October, the highest one-month increase in 15 years. The Consumer Price Index (CPI) increased 0.6% in October, the highest rate in 6 months. The core rates, excluding food and energy, were two times higher than expected. The weakening dollar, caused by growing budget and current account deficits, is a growing concern – prepare for higher interest rates. The yield curve may flatten further, but the entire curve may also start to shift upward in 2005 if current fiscal and monetary policies continue. Iraq, terrorism threats and high oil prices are the major uncertainties facing the economy.

Other Business: None

Public Comment: None

/ / /