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HomeMy WebLinkAboutFND-013-19Clarington Finance Department Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: General Government Committee Date of Meeting: May 6, 2019 Report Number: FND-013-19 Resolution: GG -300-19 File Number: By-law Number: Report Subject: 2018 Annual Investment Report Recommendation: That Report FND-013-19 be received for information. Municipality of Clarington Report FND-013-19 Report Overview Page 2 The following report is the annual reporting requirement under the Municipality of Clarington's Investment Policy. Regulations require the Treasurer to report certain information to Council on an annual basis and to certify compliance with the Municipality's Investment Policy. This report meets these requirement obligations. 1. Background 1.1 In June 2018, through report FND-011-18 the Municipality of Clarington reviewed and revised its Investment Policy. 1.2 This policy requires the Treasurer of the Municipality to report the state of the Municipality's investments to Council on an annual basis. 2. Securities Held Investment Accounts 2.1 The Municipality of Clarington holds its investments through several investment accounts. For the purposes of determining whether the Municipality is meeting its investment policies, the underlying investment is considered not the custodian of the investment. 2.2 The Municipality held the following accounts: TD Bank RBC Dominion Securities Manulife The ONE Investment Program General bank account Several small bank accounts Reserve Fund bank account Guaranteed Investment Certificates Reserve Fund investment account DC Reserve Fund investment account Strategic Capital investment account Investment account High Interest Savings Account Equity portfolio investment account Bonds portfolio investment account Municipality of Clarington Resort FND-013-19 3. Portfolio Mix Investments by Type Page 3 3.1 The Municipality holds investments of several different types. The following table shows the December 31, 2018 investments by type: Investment Type High Interest Savings Account Book Value at December $42,246,562 Percentage of .. 37.2% Provincial Debt 3,145,614 2.8% Financial Institutions 63,665,669 56.0% ONE Investment Pools 4,580,401 4.0% $113,638,246 100.00% 3.2 The policy guideline for Financial Institutions is 0% to 60% of the investment portfolio. At December 31, 2018, the Municipality was within this policy limit. 3.3 While within the policy limits, the above indicates that the Municipality is heavily concentrated in Canadian financial institutions (56% with a limit of 60%). Most of the investments consist of Guaranteed Investment Certificates which were originally purchased on a five-year term. Municipality of Clarington Page 4 Report FND-013-19 Investments by Maturity 3.4 The Municipality attempts to balance cash flows through the timing of the maturity of investments. Staggered maturity dates ensures that cash is readily available to meet the needs of the Municipality and reduces interest rate risk. At December 31, 2018, the maturity dates of investments held by the Municipality were as follows: Timeframe Less than 90 days Book Value at December $48,911,807 Percentage Portfolio 43.0% 90 days to 1 year 9,566,030 8.4% 1 to 5 years 51,996,481 45.8% 5 to 10 years 3,163,928 2.8% $113,638,246 100.00% 3.5 The Municipality's HISA account and TD Bank - Savings account are considered to have a maturity of less than 90 days, as they are available to the Municipality within 24 hours and are savings accounts. 3.6 The Municipality is allowed in certain circumstances to invest in terms greater than 10 years, at December 31, 2018 there were no investments with a maturity greater than 10 years. Investments by Institution 3.7 The Municipality attempts to diversify its investment portfolio by restricting the percentage of investments that any one institution may have. This mitigates the risk to the Municipality if an investment becomes insolvent. It should be noted that Canadian Deposit Insurance Corporation (CDIC) only guarantees investments up to $100,000 per institution, therefore most of the Municipality's investments are not insured through CDIC. Municipality of Clarington Report FND-013-19 Page 5 3.8 At December 31, 2018 the Municipality's investment by institution was as follows: Institution ONE Investment — HISA Book Value at December $30,000,000 Percentage Portfolio 26.4% ONE Investment — Equity 500,000 0.4% ONE Investment — Bond 4,080,401 3.6% Royal Bank of Canada 11,516,607 10.1% Manulife 789,344 0.7% National Bank 10,820,429 13,802,923 9.5% Bank of Nova Scotia 12.1% Bank of Montreal 12,119,107 10.7% HSBC 5,380,068 4.7% Tangerine 3,237,191 2.8% TD Bank 6,000,000 5.3% TD Bank — Savings Account 12,246,562 10.8% Province of British Columbia Province of Manitoba 2,369,686 2.1% 775,928 0.7% $113,638,246 100.00% Municipality of Clarington Page 6 Report FND-013-19 4. Portfolio Summary 4.1 The Municipality portfolio consists of several funds which include general funds, trust funds, reserve funds and other investments. General Fund 4.2 The General Fund is the main operating fund for the Municipality. This fund has the least number of active investments. The majority of the investments in this fund are in the HISA operated by ONE Investments. This consisted of $30,000,000 as at December 31, 2018. The funds held in the HISA are available within 24 hours and are considered liquid investments. 4.3 The HISA was established in September 2016 and held low balances throughout 2017. In 2018, the Municipality was more aggressive in moving funds from the general bank account to the HISA to take advantage of the higher interest rate on the savings account with little risk of liquidity issues. 4.4 In October 2018 the Municipality invested in a $3,000,000 GIC with a maturity of October 2019 at an interest rate of 2.58%. Another investment of $3,000,000 with a maturity at October 2020 with an interest rate of 2.75% was also made in October. Both of these GICs were with our banking provider, TD Bank, and are not easily converted to cash. Non -Development Charges Reserve Funds 4.5 The Municipality operates a Non -Development Charges Reserve Fund investment portfolio for all reserve funds which are not established under the DC Act. There is one exception which is the Strategic Capital Reserve Fund which is a separate fund. 4.6 The total book value of investments is approximately $25,620,400 and at December 31, 2018 was comprised of GICs with maturities in each of 2019, 2020, 2021, 2022 and 2023. For purposes of this report, the TD Bank Reserve Fund bank account, is included in this portfolio. 4.7 The Municipality has adopted a five-year laddering strategy for these investments with roughly equal distribution each year. This ensures assets will be cashable in any given year and can be withdrawn from the reserve fund as necessary. Municipality of Clarington Page 7 Resort FND-013-19 Development Charges Reserve Fund 4.8 The Development Charges Reserve Fund portfolio meets the obligations of the Municipality under the relevant legislation for Development Charges. 4.9 The Municipality has two accounts with the ONE Investment Program related to this fund: a Bond account and an Equity account. 5. Unrealized and Realized Gains 5.1 An unrealized gain or loss arises when the market value of an investment varies from book value of the investment. An unrealized gain or loss becomes realized when the investment is sold or matures. 5.2 Interest accrued, but not paid, on the GICs held is assumed to approximate the market value, therefore this has been recorded as investment income and has been recorded as an increase in the balance of the investment. 5.3 The market value of the Municipality's ONE Fund portfolios is as follows: ONE Bond (DC Reserve Fund) has been held since August 2000 and currently has a book value of $4,080,401 with a market value at December 31, 2018 of $3,812,686 for an unrealized loss of $267,715. It should be noted that at March 29, 2019 the market value had improved to $3,927,717, these investments are designed for longer term horizons; 2. ONE Equity (DC Reserve Fund) has been held since January 2007 with an initial investment of $500,000. At December 31, 2018 the market value of this fund was $1,069,572 for an unrealized gain of $569,572. At March 29, 2019 the market value had improved to $1,132,943. 5.4 While the equity portfolio had seen a decline in 2009 and 2010 with the market crash, the Municipality held onto the investment for the long term and can clearly see the benefit of this investment. In just over 12 years the investment has had an unrealized return of 114%, which averages to 9.49% per year. 6. Concurrence Not Applicable Municipality of Clarington Resort FND-013-19 7. Conclusion Page 8 7.1 In my opinion, all investments were made in accordance with the investment policies and goals adopted by the Municipality of Clarington and are in compliance with the regulations adopted under the Municipal Act, 2001. 7.2 In my opinion, the Municipality was in compliance with its investments policy at December 31, 2018. 7.3 It is respectfully recommended that the report be received. 8. Strategic Plan Application Not applicable. Submitted by: /—,-" Trevor Pinn, B.Com, CPA, CA, Director of Finance/Treasurer Reviewed by: Andrew C. Allison, B. Comm, LL.B CAO Staff Contact: Trevor Pinn, B.Com, CPA, CA, Director of Finance / Treasurer, 905-623-3379 ext. 2602 or tpinn@clarington.net There are no interested parties to be notified of Council's decision.