INVESTMENT TECHNICAL ADVISORY COMMITTEE MEETING APPROVED MINUTES
Monday, September 8, 2003
Jesse Unruh State Office Building
915 Capitol Mall, Room 587
Sacramento, California 95814
- CALL TO ORDER AND ROLL CALL
Investment Technical Advisory Committee (TAC) Chair Tony Garcia called the meeting to order at 10:30 am. TAC members present at the meeting included: Constantine Baranoff, Bill Blackwill, Lee Buffington, Kay Chandler, Raymond Day, Joya DeFoor, Gay Eichhoff, Tony Garcia, Deborah Higgins, Nancy Jones, Carol Lew, Cherie Raffety, and Craig Underwood. CDIAC staff members present included: Executive Director Lisa M. Harris, Kristin Szakaly-Moore, Linda Louie, Frank Moore, Mark Campbell, Nova Edwards, and Carol Campbell. No members of the general public were present.
- INFORMATION ITEMS
Because the TAC can only meet once per year, TAC Chair Tony Garcia and California Debt and Investment Advisory Commission (CDIAC) Executive Director Lisa M. Harris emphasized the need for individual TAC members to be more involved informally in CDIAC activities. Both Mr. Garcia and Ms. Harris welcomed TAC members to the meeting. Members and staff introduced themselves.
- Investment Primer Update
CDIAC staff member Kristin-Szakaly-Moore gave a brief update on the status of the investment primer. CDIAC staff currently is reviewing the draft of the primer, and is looking for TAC volunteers with diverse skill sets to review select chapters. TAC members who agreed to review the primer include Mr. Baranoff, Mr. Blackwill, Ms. Jones, Ms. DeFoor, Mr. Day, Ms. Eichhoff, and Ms. Higgins. CDIAC hopes to have the review process complete by early in 2004.
Ms. Szakaly-Moore also asked TAC members for suggestions for formatting, distribution, and marketing of the investment primer. She expressed some concern for the costs associated with doing a large number of print copies, as was done with the Debt Primer. TAC members agreed that the 3-ring binder format works well and is good for adding sections for future updates. Other suggestions included providing the document both in print and on CD-ROM and putting the document on the Internet in an Adobe Acrobat PDF format similar to The Bond Buyer web site (i.e., possibly subscription based) and in a Microsoft Word version. One TAC member suggested that CDIAC survey its DEBT LINE readership to gauge whether a hard copy or online version would be more valuable to the respondents. TAC member suggestions for marketing the document included: publishing articles in various industry newsletters, holding a teleconference advertising the publication, using list services of other organizations, marketing at CDIAC and other public association seminars and conferences, and emailing TAC members relevant information to make available to their clients.
- Recently completed projects and future research topics
Ms. Szakaly-Moore gave a summary of recently completed projects, including the following:
- CDIAC's Investment Handbook for Elected Officials (Handbook). CDIAC has sent copies of the Handbook to all of the state's cities and counties and has received many requests for the publication from other elected officials as well as public- and private-sector public finance professionals. Ms. Szakaly-Moore indicated that the publication may be updated next year to reflect any changes in law.
- AB 943 reports from counties and cities. Ms. Szakaly-Moore stated that CDIAC recently completed its analysis of investment portfolio reports submitted by counties and cities for the quarter ending December 31, 2002. She stated the information has been posted to CDIAC's website. Ms. Szakaly-Moore mentioned that the analysis of the investment reports and policies might be significantly affected by recent legislation that suspended the state mandate for filing local agency investment reports and policies with legislative bodies. If local agencies do not file reports with their legislative bodies, then they do not have to file with CDIAC.
- Investment Portfolio Reporting Handbook. Ms. Szakaly-Moore provided information on a handbook that CDIAC currently is working on that provides information on how counties and cities are providing information in their investment reports. Staff asked TAC members what information they feel should be provided to legislative bodies in these reports that may not be provided now. Mr. Blackwill indicated that general information discussing changes in the investment portfolio from the prior period to the current period would be helpful. Mr. Buffington and Ms. Raffety indicated they rely on sophisticated analytical software that provides detailed portfolio information to their boards. Ms. Jones indicated that CDIAC's publication might best serve those local agencies that currently do not use such sophisticated software programs (in particular smaller cities and special districts). One TAC member suggested that CDIAC go to each provider of investment reporting services and ask for a copy of their Analytics page.
- Upcoming Seminars
Ms. Harris provided a brief overview of CDIAC's investment seminars through 2004. She mentioned that, due to budget constraints, CDIAC is trying to hold more seminars in conjunction with other organizations' conferences. In particular she highlighted CDIAC's Advanced Portfolio Management Decision Making Workshop that will be held at Bloomberg's office in San Francisco to allow attendees access to Bloomberg terminals and to better understand the information available to them about potential investments. TAC members agreed that there still is a need for the Fundamentals of Decision Making workshop. CDIAC staff member Linda Louie also commented on upcoming seminars. One TAC member suggested putting a glossary of terms in seminar materials, like what is done with debt seminars. Barron's Financial Guides: Dictionary of Financial and Investment Terms has a good glossary of investment terms that could be used as a starting point. Ms. Jones suggested the Advanced Class should have a prerequisite in order to take it. TAC members also suggested exploring the possibility of one-day seminars on topics such as security selection and portfolio management.
- Derivatives/interest rate swaps
The discussion of derivatives and interest rate swaps was combined with the discussion of current industry issues.
- Update on current industry issues
Ms. DeFoor stated there needs to be some consensus direction on securities lending agreements (an interpretation of what the Government Code actually requires). For example, what are the requirements for running a securities lending program and what should be required for collateral? Perhaps CDIAC should include a session on securities lending at an advanced seminar. Mr. Buffington added that the local agency's own investment policy generally sets the guidelines for such lending programs.
Mr. Blackwill suggested that CDIAC look at devising a template for certification of brokers/dealers. The current Government Finance Officers Association Investing Public Funds has good wording but many public agencies still are using the old version, which is antiquated. Mr. Blackwill said it would be good to know what's out there and what public agencies are using.
Other TAC members said that there are many sophisticated investments out there and that investors need to receive more information regarding the pros and cons of using them. Examples include step-ups, callables, and asset-backed commercial paper.
Portfolio management is another area where additional education could be helpful. Ms. Chandler stated that training using Bloomberg services could be helpful for doing various types of "what if" analyses. Ms. Higgins said it would be important to have someone with fixed income expertise. Mr. Blackwill said that the workshop that he has done for CDIAC with Mr. Garcia could be tailored to be more product specific or portfolio management specific. Ms. Jones said it would be helpful for public investors to have a set of questions to ask so that they know what's available to them; she also indicated a list of 20 of the most useful Bloomberg "shots" would be good. Ms. Chandler said it would be helpful to have information/education on how to develop an investment strategy (both active and passive).
Ms. Harris then led a discussion on derivatives and interest rate swaps. She provided a brief description of CDIAC's upcoming pre-conference at The Bond Buyer Annual California Conference. Ms. Lew said currently disclosure of fees/profits earned from swap provider transactions is less available. Mr. Underwood stated that people are afraid to ask and need to be educated on a basic level, perhaps through a certification process. Ms. Lew added that this could be a double-edged sword because the Internal Revenue Service has not produced any required swap guidelines yet. All TAC members agreed that a 10-15 question/answer sheet to consider before entering into a swap transaction would be helpful. Finance Directors and Treasurers need to be educated, in particular regarding the risks involved, such as basis risk and termination risk, and they need to be able to explain these risks to their boards.
Questions were raised regarding the structure of a new investment program offered through a JPA whose members include the League of California Cities and the California State Association of Counties. One TAC member said that it is not a constant asset pool and questioned the legality of the instrument.
- Next Meeting of the TAC
Mr. Garcia and Ms. Harris reiterated that the TAC could only meet annually, so the next meeting will be held in the Fall 2004. Both emphasized the need to maintain regular contact, and Mr. Garcia said he would keep in regular email and phone contact with various TAC members during the year to ensure that CDIAC is abreast of industry issues. One TAC member suggested setting up bulletin board so that TAC members and CDIAC staff could discuss hot topics in investments as they emerge.
- PUBLIC COMMENT
There was no public comment.
The meeting adjourned at 11:45 am.