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HomeMy WebLinkAboutResolution No. 2011-04e yof KENAI. ALASKA CITY OF KENAI RESOLUTION NO. 2011 -04 Suggested by: Administration 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 AIRPORT PERMANENT FUND. WHEREAS, the City of Kenai Council is authorized to establish investment policies for the Airport Permanent Fund; and, WHEREAS, the KMC 7.30.050 (b) permits investment of the Airport Permanent Fund 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 Council intends to annually review the asset allocations and performance of the Airport Permanent Fund; and, WHEREAS, providing benchmarks to measure the performance of the fund is prudent. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, that the Council designates the following investments for the Airport Permanent Fund: AUTHORIZED INVESTMENTS FOR THE AIRPORT PERMANENT FUND (1) Investments authorized by KMC 7.22.030 (2) Corporate obligations of investment grade quality as recognized by a nationally recognized rating organization. If, after purchase, these obligations are downgraded below investment grade, they shall be sold in an orderly manner within ninety days of downgrading. (3) Domestic Equities, which taken as a whole, attempt to mirror the characteristics or replicate the Standard Poor's 500 Index, including both mutual funds and exchange traded funds (ETF's). (4) Domestic Equities, which taken as a whole, attempt to replicate the Standard Poor's 400 Mid -Cap Index, including both mutual funds and exchange traded funds ETF's). (5) Domestic Equities, which taken as a whole, attempt to replicate the Standard Poor's 600 Small -Cap Index, including both mutual funds and exchange traded funds (ETF's). (6) International Equites, which taken as a whole, attempt to replicate the Morgan Stanley Europe, Australasia, Far East (EAFE) Index, including both mutual funds and exchange traded funds (ETF's). (7) Equities, which taken as a whole, attempt to replicate the universe of domestic real- estate investment trusts as represented by the Standard Poor's REIT composite index, including both mutual funds and exchange traded funds (ETF's). Resolution No. 2011 -04 Page 2 of 3 (8) Emerging Market Equities, which taken as a whole, attempt to replicate the Morgan Stanley Emerging Market Index including both mutual funds and exchange traded funds (ETF's). BE IT FURTHER RESOLVED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, that the Council adopts the asset allocations and performance measurement standards as follows: AIRPORT 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 Fixed Income 45 40 -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: Performance measurement of the Fixed Income allocation will be measured against the Target weighting, using the Barcleys 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 Europe, Australia, Far East (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. Resolution No. 2011 -04 Page 3 of 3 Performance measurement of the International Emerging Markets allocation will be measured against the Target weighting, using the Morgan Stanley 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 REIT Composite Index as the benchmark. PASSED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, this 5th day of January 2011. ATTEST: Carol L. Freas, City Clerk Approved by Finance: wz_ e cty a KENAI, ALASKA To: Rick Koch, City Manager From: Terry Eubank Date: December 22, 2010 Village with a Past, Ci y with a Future FINANCE DEPARTMENT 210 Fidalgo Avenue, Kenai, Alaska 99611 -7794 Telephone: 907 283 -7535 ext 221 FAX: 907 283 -3014 Re: Airport Land Sale Permanent Fund Investment Authorized Investments and Asset Allocation Plan for CY2011. Pursuant to KMC 7.30.020 the Council shall annually designate by resolution the authorized investments and allocation plan for the Airport Land Sale Permanent Fund. Resolution 2011 -04 reauthorizes the authorized investments and allocation plan used by the Fund since inception in September 2008. $17,281,883 was invested in September 2008 and since the fund has transferred $1,174,312 to the Airport Special Revenue Fund and had a market value of $21,101,151 at November 30, 2010. The portfolio has returned nearly 13% since September 2008. In contrast the City's investment portfolio has yielded between 3.0% and 0.85% for the same period. When originally adopted the investment model being used was projected to return 8.0% annually. Due to depressed rates in the fixed income portion of the portfolio (which constitutes 40 -65% of the portfolio's value) the current projected rate of return for the portfolio is 7.1% annually. 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 return between (5.0) and 19.2 with an average return of 7.1 95% (two standard deviations) of the time, the portfolio is expected to return between (12.3) and 26.5 At this time it is not being recommended to change the portfolio's investments or their allocations. Over time it is expected that the fixed income markets will return to historic rates of return and should return the portfolios performance to the 8% level.