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Adopt a resolution to renew annual delegation of investment authority to County Treasurer and approve the proposed County Investment Policy; and Adopt a resolution to approve the proposed County PARS 115 Trust Investment Policy
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Published Notice Required? Yes ____ No _X _
Public Hearing Required? Yes ____ No _X _
DEPARTMENTAL RECOMMENDATION:
It is recommended that the Board of Supervisors adopt the resolution renewing its annual delegation of investment authority to the County Treasurer for FY2019/20 and approve the proposed Investment Policy. It is further recommended that the Board of Supervisors adopt a resolution to approve the proposed PARS 115 Trust Investment Policy.
SUMMARY:
California Government Code section 27000.3 provides that the Board of Supervisors is the agent of the County that serves as a fiduciary and is subject to the prudent investor standard for the County Investment Pool unless a delegation of authority has occurred pursuant to Government Code section 53607. Section 27000.1 permits the Board to delegate to the County Treasurer the authority to invest funds in the County Treasury for a period of one year. When such a delegation occurs, the County Treasurer and not the Board of Supervisors serves as the fiduciary and is subject to the prudent investor standard.
On February 10, 2015 this Board took action to adopt Resolution 2015-21 establishing the PARS 115 Pension Trust (the Trust). The Trust is to be used exclusively to fund contractual obligations to provide benefits under the post-employment health care plan and to contribute to a defined benefit pension plan maintained under section 401 (a) of the Internal Revenue Code. This Board also delegated to the Treasurer investment authority for the Trust. While not mandated, in keeping with the tenets of Section 27000.1, the Treasurer is requesting an annual reaffirmation of the delegation and investment policy as a means of providing transparency.
Background
Retirement trust funds have different objectives and statutory prohibitions than the County Treasurer’s Pool and therefore require a separate investment policy that is reflective of those differences. The purpose of these funds requires staff to manage the funds to a risk profile unique from the investment pool.
These differences include an ability to purchase and hold equities, private placement securities, and fixed income investments whose risk profiles are greater than those found in a cash management pool such as the Treasurer’s Pool. Since these funds will be held for a greater length of time and with a more predictable cash flow need they can be invested in securities that provide the potential for a greater return on investment that might otherwise be achievable.
Other Policy Considerations
Environmental, Social and Governance Investing (ESG) has developed as a new principle with regards to funds management. The objective of ESG investing is to influence social change through the restricting of investments to only those that have met and maintained certain yet to be fully defined ESG standards. Lacking fully defined standards and measurement tools, ESG standards are not incorporated in the current policy.
Additionally, while the value of ESG focused investing is recognized, the implementation of an effective ESG program at the county level may prove challenging within reasonable budgetary constraints. Preliminary estimates based on comparisons of similar ESG and non ESG focused funds has indicated that program implementation could add an additional ten basis points of overhead to Treasury costs. By comparison, total operating costs of the Treasury, as currently operating, are estimated to be less than eight basis points. The concern is that while the ESG investing may provide a difficult to quantify level of global benefit, the cost of implementation is likely to impose a more direct tangible cost on participating depositors and reduce their ability to provide socially beneficial services locally.
In addition to the cost concerns, the Treasurer is bound by a statutorily mandated fiduciary obligation to invest on behalf of the more than 80 depositing agencies, school districts, and other special districts under the guiding principal of providing a yield commensurate with appropriate levels of safety and liquidity. The potential impacts of ESG investing as it relates to Treasury investment management have not been defined or codified by law.
In lieu of an ESG program implementation at this time, the Treasurer anticipates maintaining overhead costs at current levels and continuing to provide the additional revenue to the pool participants as a revenue source for use at the public agency depositor’s discretion. The Treasurer will continue to monitor ESG developments.
FINANCIAL IMPACT:
The preparation cost of this report is included in the Treasurer’s annual appropriations. The full cost of operations for the Treasurer’s Office is paid from investment earnings of the Treasury pool, which is allocated to all pool participants proportionately to their share of the pool investments. The General Fund share in the investment pool is approximately 12%. The costs associated with preparing the agenda item are nominal and absorbed by the department’s FY2018/19 Adopted Budget.
ALTERNATIVES:
The Board may choose not to renew the delegation of authority to the Treasurer and choose instead to keep the investment responsibilities and serve as fiduciary. The Board could elect to make changes to either of the proposed policies.
OTHER AGENCY INVOLVEMENT:
County Counsel has reviewed the policies
CAO RECOMMENDATION:
APPROVE DEPARTMENTAL RECOMMENDATION