BOARD MEETING DATE: December 1, 2006
AGENDA NO. 26

REPORT:

Investment Oversight Committee

SYNOPSIS:

The Investment Oversight Committee met Friday, November 17, 2006 and discussed various issues detailed in the Committee report.  The next Investment Oversight Committee meeting is scheduled for Friday, February 16, 2007 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 (via teleconference), Gary Burton, David E. Ertel and Paul Sundeen.

Investment Committee Action Items:
Quarterly Report of Investments:  Reviewed the quarterly investment report to the Governing Board.  For the month of September 2006, the AQMD’s weighted average yield on total investments of $339,185,686, from all sources, was 5.06%.  The allocation by investment type was 82.75% in the Los Angeles County Pooled Surplus Investment Fund (PSI); 11.65% in the State of California Local Agency Investment Fund (LAIF); and 5.60% in Federal Agency securities and Negotiable Certificates of Deposit.  The Committee unanimously approved the quarterly report.

Adopt Resolution Authorizing Execution of a Guaranteed Investment Contract and Escrow Agreement; Approve Form of Contract and Selected Provider:  Rick Pearce, Chief Financial Officer, presented (in addition to the Board letter, Resolution and Escrow Agreement) a sample Guaranteed Investment Contract (GIC) and the GIC bid proposal for discussion by the Committee.  James Martling, Sperry Capital, discussed the proposed structure of the GIC, the collateral and down grade requirements, and the provider and bidding requirements.  The Committee members had questions regarding the higher collateral requirements dictated by the California Government Code and the benefits of an economic versus a legal defeasance.  It is important to note that the bids will be delivered directly to the AQMD by FAX on December 1, 2006 at 8:30 am.  The winning bid will be presented to the Board at their 9:00 o’clock meeting for approval of the bid and the selected provider.  The Committee unanimously approved this item for Board consideration and Committee member Gary Burton commended the agency on its proposal to use one-time money to reduce long-term debt.

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 $168.6 million.

Financial Market Update:  James Martling briefed the Committee on the current interest rate market.  In summary, Mr. Martling stated that we have the most inverted yield curve of the year, where a 2 year Treasury is earning 4.84% and a 10 year Treasury is at 4.66% or 18 basis points lower to extend out 8 years.  In May, six months ago, the yield curve was a positive 20 basis points.  This means that the short term market is a very good place to invest currently.  Inflation is still a concern of the Federal Reserve and the financial markets strongly believe that the Federal Reserve will not cut the 5.25% Fed Funds rate anytime in the near future.

Other Business:  None

Public Comment:   None

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