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HomeMy WebLinkAboutFSD-014-21Clarington Staff 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: April 19, 2021 Report Number: FSD-014-21 Submitted By: Trevor Pinn, Director of Financial Services Reviewed By: Andrew C. Allison, CAO By-law Number: File Number: Resolution#: GG-267-21 Report Subject: 2020 Annual Investment Report Recommendation: 1. That Report FSD-014-21 be received for information. Municipality of Clarington Report FSD-014-21 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. This policy requires the Treasurer of the Municipality to report the state of the Municipality's investments to Council on an annual basis. 1.2 The Municipality of Clarington invests based on the legal list of investments outlined in O.Req. 438/97 as amended. The legal list is very prescribed and limits the ability of the Municipality to fully diversify its investments, however it is relatively secure. 2. Securities Held Investment Accounts 2.1 The Municipality of Clarington holds its investments through investment accounts with several financial organizations. For the purpose 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 • General Fund bank account • Several small bank accounts • Reserve Fund bank account • Guaranteed Investment Certificates (GICs) Municipality of Clarington Report FSD-014-21 RBC Dominion Securities ONE Investment Inc BMO Nesbitt Burns 3. Portfolio Mix Page 3 • Reserve Fund investment account • DC Reserve Fund investment account • Strategic Capital Fund investment account • High Interest Savings Account (HISA) • Equity portfolio investment account • Bonds portfolio investment account • General Fund investment account Investments by Type 3.1 The Municipality holds investments of several different types. With a large portfolio it is important to diversity the types of investments to reduce the risk to the overall portfolio from variations in any one market. The following table shows the December 31, 2020 investments by type: Municipality of Clarington Page 4 Report FSD-014-21 3.2 The policy guideline for financial institutions is zero per cent to 60 per cent of the investment portfolio. At December 31, 2020, the Municipality was within this limit. 3.3 While within the policy limits, the above indicates that the Municipality is heavily concentrated in Canadian financial institutions. Most of the investments consist of GICs which were originally purchased with a five-year term. Investments by Maturity 3.4 The Municipality attempts to balance cash flows through the timing of the maturity of investments. Staggered maturity dates ensure that cash is readily available to meet the needs of the Municipality and reduces interest rate risk. At December 31, 2020, the maturity dates of investments held by the Municipality were as follows: Less than 90 days $58,044,595 48.3% 90 days to 1 year 9,812,283 8.2% 1 to 5 years 1 27,814,182 I 23.1% 5 to 10 years 1 19,692,673 I 16.4% More than 10 years 1 4,841,449 I 4.0% $120,205,182 100.0% 3.5 The Municipality's HISA and TD Reserve Fund bank accounts are considered to have a maturity of less than 90 days, as they are available to the Municipality within 24 hours. 3.6 The Municipality is allowed in certain circumstances to invest in terms greater than 10 years, at December 31, 2020 there was $4.8 million invested with a maturity greater than 10 years. These investments are bonds held in the three reserve fund investment portfolios and are traded on an active market. Municipality of Clarington Report FSD-014-21 Investments by Institution Page 5 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. 3.8 At December 31, 2020 the Municipality's investments by institution were as follows: Institution TD Bank Savings ONE HISA Book Value at December i $26,490,185 Percentage Portfolio 22.0% 19.5% 23,436,972 ONE Equity Portfolio 2,588,679 2.2% ONE Bond Portfolio 4,316,986 3.6% Royal Bank of Canada 11,389,813 8,805,845 9.5% I National Bank 7.3% Bank of Nova Scotia 16,236,823 13.5% Bank of Montreal 12,959,520 10.8% HSBC 4,360,864 3.6% TD Bank City of Toronto 4,841,449 4,778,046 4.0% 4.0% $120,205,182 100.0% 4. Portfolio Summary 4.1 The Municipality's portfolio consists of several funds which include general funds, trust funds, reserve funds and other investments. Municipality of Clarington Report FSD-014-21 General Fund Page 6 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 Investment Inc. This HISA account offers favourable interest rates for a highly liquid investment. At December 31, 2020, the ONE Investment HISA had approximately $23,437,000. Funds held in the HISA are available within 24 hours. 4.3 The ONE Investment Inc. HISA was established in September 2016 and held low balances throughout 2017. In 2018, the Municipality began a period of being more active with its investments and moved funds from the lower interest earning bank accounts to the higher HISA accounts. 4.4 In October 2018, Clarington invested $3,000,000 in a GIC with TD Bank for a one-year period and $3,000,000 for a two-year period. In October 2019, the first GIC matured and was kept in the general operating account as GIC rates had declined significantly on one and two year terms. The second GIC, at a rate of 2.75% matured in October 2020 and was retained in the general operating account. 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 Development Charges Act, 1997. 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 $41,290,000, which includes approximately $26,490,200 in bank balances. At December 31, 2020 the portfolio was comprised of $14,760,100 in GICs with maturities in each of 2021, 2022 and 2023 as well as $9,106,100 in bonds with maturities from 2027 to 2032. 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. At December 31, 2020 the fourth and fifth year of this ladder is lacking as interest rates for those years over the past year have not been attractive enough to lock in funds for that amount of time. Staff continue to monitor and will be investing in 2024 and 2025 as rates become feasible. 4.8 In 2019, as a result of a decrease in interest rates for GICs the Municipality started to look at bonds as a way to continue to have safe investments with a reasonable return. The bonds held by the Municipality include Canadian chartered banks (BMO, TD and Bank of Nova Scotia) as well as the City of Toronto. Although bonds have a longer maturity they are generally fairly liquid as they are actively traded in the market. Municipality of Clarington Page 7 Report FSD-014-21 Development Charges Reserve Funds 4.9 The Development Charges Reserve Fund portfolio meets the obligations of the Municipality under the relevant legislation for Development Charges. 4.10 The Municipality has two accounts with the ONE Investment Program related to this fund: a Bond account and an Equity account. 4.11 The ONE Investment bond account was established in 2000. The investment pool was transferred to its current custodian in 2005 with a book value of $2,594,685. As at December 31, 2020 the book value, as a result of reinvested income, was $4,316,986 (2019 - $4,192,598). This is an increase of 66.4% over 15.75 years, or 4.2% per year. At December 31, 2020 the market value was below book value, however the adjusted return is still 3.9% per year since 2005. 4.12 The ONE Investment equity account was established in 2007 with an initial investment of $500,000, and a $2,000,000 investment during 2020. At December 31, 2020 the book value of the investment is $2,588,679 with a market value of $3,492,447. In 2020 there was an increase in market value of $203,837.88 on top of approximately $88,000 of reinvested income in the portfolio; during a year that saw a significant decline in equity values at the beginning of the year due to COVID-19. Strategic Capital Reserve Funds 4.13 The Strategic Capital Reserve Fund portfolio has been established to specifically hold investments for the Strategic Capital Reserve Fund. This reserve fund was established to provide a source of funding for economic development activities. The intent was to hold the $10.0 million capital as a source of internal borrowing for economic development capital investments, interest earned on the investments is transferred to the general fund as a way of offsetting the tax levy. 4.14 Investments in this fund consist of $6.7 million in GICs with maturities ranging from May 2021 to January 2032. Interest rates vary from 2.1 % to 3.2%. Bonds of Canadian chartered banks worth $3.8 million with maturities from November 2027 to September 2029 are also held with a interest rate of 1.2 to 2.9%. 5. Unrealized and Realized Gains 5.1 An unrealized gain or loss arises when the market value of an investment varies from the book value of the investment. An unrealized gain or loss becomes realized when the investment is sold or matures. Municipality of Clarington Report FSD-014-21 Page 8 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. 6. Concurrence Not Applicable. 7. Conclusion 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 compliant with its investment policy at December 31, 2020. 7.3 It is respectfully recommended that the report be received. Staff Contact: Trevor Pinn, Director of Financial Services/Treasurer, 905-623-3379 ext 2602, tpinn@clairngton.net. Attachments: Not Applicable Interested Parties: There are no interested parties to be notified of Council's decision.