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Home My WebLink AboutResolution No. 2017-05Suggested by: Administration CITY OF KENAI RESOLUTION NO. 2017 -05 A RESOLUTION OF THE COUNCIL OF THE CITY OF KENAI, ALASKA, PERTAINING TO THE AUTHORIZED INVESTMENTS OF, THE INVESTMENT ALLOCATIONS OF, AND ESTABLISHING APPROPRIATE BENCHMARKS TO MEASURE PERFORMANCE OF THE CITY'S PERMANENT FUNDS FOR CALENDAR YEAR 2017. WHEREAS, pursuant to KMC 7.30.020 (a) (2) the Council of the City of Kenai shall annually approve an Asset Allocation Plan for investment of the City's Permanent Funds; and, WHEREAS, the KMC 7.30.020 (b) permits investment of the Permanent Funds in various asset classes and the Council believes that establishing asset allocation criteria for these various asset classes is in the best interest of the City of Kenai; and, WHEREAS, the annually approved Asset Allocation Plan will provide benchmarks to measure investment performance, and; NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, that the Council adopts the Asset Allocation Plan for calendar year 2017 as follows: PERMANENT FUND ASSET ALLOCATION PLAN AND PERFORMANCE MEASUREMENT TARGETS Section 1: The Asset Allocation Plan and Target Weightings with range restrictions are as follows: ASSET CLASS TARGET % WEIGHTING RANGE % Cash 5 0 -10 Fixed Income 40 35 -65 Large -Cap Domestic Equity 20 15 -25 International Equity 10 5 -15 Mid -Cap Equities 10 5 -15 Small-Cap Equities 5 0 -10 International Emerging Markets 5 0 -10 Real- estate equities 5 0 -10 Section 2: The performance of the Fund and investment managers will be measured as follows: Resolution No. 2017 -05 Page 2 of 2 Performance measurement of the Fixed Income allocation will be measured against the Target weighting, using the Barcley's Intermediate Government/ Credit Index for the benchmark. Performance measurement of the Large -Cap Domestic Equity allocation will be measured against the Target weighting, using the Standard & Poor's 500 Index for the benchmark. Performance measurement of the International Equity allocation will be measured against the Target weighting, using the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) index for the benchmark. Performance measurement of the Mid -Cap Equity allocation will be measured against the Target weighting, using the Standard & Poor's 400 Mid -Cap Index as the benchmark. Performance measurement of the Small -Cap Equity allocation will be measured against the Target weighting, using the Standard & Poor's 600 Small-Cap Index as the benchmark. Performance measurement of the International Emerging Markets allocation will be measured against the Target weighting, using the Morgan Stanley Capital International Emerging Markets index as the benchmark. Performance measurement of the Real- Estate Equities allocation will be measured against the target weighting, using the Standard & Poor's US REIT Index as the benchmark. PASSED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, this 1st day of February 2017. BRIAN GABRIEL, SR., MAYOR To: Mayor Gabriel Council Members "Villaye with a Past, C# with a Future" FINANCE DEPARTMENT 210 Fidalgo Avenue, Kenai, Alaska 99611 -7794 Telephone: 907 - 283 -7535 / FAX: 907 - 283 -3014 Thru: Paul Ostrander, City Manager // From: Terry Eubank, Finance Director Date: January 24, 2017 Re: Permanent Fund Authorized Investments and Asset Allocation Plan for CY2017. Pursuant to KMC 7.30.020 the Council shall annually designate by resolution the authorized investments and allocation plan for the City's Permanent Funds. Resolution 2017 -05 establishes the authorized investments and allocation plan to be used for calendar year 2017. This year's allocation plan is identical to the 2016 investment methodology. $17,281,883, the Airport Permanent Fund Balance, was invested in September 2008 and since the fund has transferred $7,859,153 to the Airport Special Revenue Fund for operations and had a market value of $23,690,184 at December 31, 2016. $2,526,702, the General Land Sale Permanent Fund Balance, was invested in April 2011 and since the fund has transferred $457,785 to the General Fund for operations and had a market value of $2,996,033 at December 31, 2016. On November 1, 2015, at the request of the Kenai Community Foundation's Board of Directors, the $66,143 invested by the City on behalf of the foundation was combined with the City's permanent fund investments. The Foundation's December 31, 2016 balance was $128,413 including subsequent deposits by the Foundation. The three portfolios are combined and managed together to reduce investing costs. The combined portfolio has returned 8.39% since September 2008. In contrast the City's investment portfolio has yielded between 3.0% and 0.34% for the same period. When originally adopted the investment model being used was projected to return 8.0% annually. Due to lower projected total returns on the fixed income portion of the portfolio (which constitutes 40 -65% of the portfolio's value) the current 10 -year projected rate of return for the portfolio is 6.1% annually. This is an increase of 0.20% from last year due to start of interest rate normalization. Risk of the portfolio is measured in standard deviation from the expected rate of return. One standard deviation is equal to about 66% of all possible outcomes and two standard deviations is equal to about 95% of all possible outcomes. 66% (one standard deviation) of the time, the portfolio is expected to annually return between (4.0 %) and 16.2 %, with an average annual return of 6.1 %. 95% (two standard deviations) of the time, the portfolio is expected to annually return between (14.1 %) and 26.3 %.