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HomeMy WebLinkAboutResolution No. 2013-04Suggested by: Administration the of o CITE' OF KENAI KENAL ALASKA RESOLUTION NO. 2013 -04 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. 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. 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 2013 as follows: PERMANENT FUND ASSET ALLOCATION PLAN AND PERFORMANCE MEASUREMENT TARGETS Section l: 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 -1.5 Mid -Cap Equities 10 5 -15 Small -Cap Equities 5 0 -10 International Emerging Markets 5 0 -1.0 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 Barcley's Intermediate Government/ Credit Index for the benchmark. Resolution No. 2013 -04 Page 2 of 2 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 Financial Times Stock Exchange Developed ex North America 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 Financial Times Stock Exchange Emerging 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 16th day of January 2013. PAT PORTER, MAYOR ATT T: San ra o high,, City Clerk Approved by Finance:_ /_ U J440 To: Rick Koch, City Manager From: Terry Eubank Date: January 9, 2013 Re: Permanent Fund Authorized Investments and Asset Allocation Plan for CY2013. Pursuant to KNIC 7.30.020 the Council shall annually designate by resolution the authorized investments and allocation plan for the City's Permanent Funds. Resolution 2013 -04 establishes the authorized investments and allocation plan to be used for calendar year 2013. This year's allocation plan is very similar to what has been in place since inception of the investment methodology. Different for 2013 is a specific allocation for Cash. In the past cash has been combined in the fixed income component of the plan. Also the prescribed benchmarks for the International Equities, International Emerging Markets, and Real- estate Equities have been updated. $17,281,883, the Airport Permanent Fund Balance was invested in September 2008 and since the fund has transferred $3,207,845 to the Airport Special Revenue Fund for operations and had a market value of $20,982,078 at December 31, 2012. The portfolio has returned nearly 10.09% 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 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 6.5% 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 (4.8 %) and 17.8 %, with an average return of 6.5 %. 95% (two standard deviations) of the time, the portfolio is expected to return between (16.1 %) and 29.1 %. 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.