Minutes - Investment - 2008-09-18•
COSTA MESA SANITARY DISTRICT
MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING
September 18, 2008
CALL TO ORDER The meeting was called to order at 5:30 p.m. by Treasurer /Finance Director
Marc Davis
ROLL CALL Committee Members Present:
President Arthur Perry (rotating committee member)
Director Arlene Schafer (rotating committee member)
Mr. Rob Hamers, Manager /District Engineer
Staff Members Present:
Mr. Marc Davis, Treasurer /Finance Director
Mr. Thomas Fauth, Assistant Manager
Ms. Teresa Gonzalez, Accountant
0 NEW BUSINESS Review of Treasurer's Report
Mr. Davis reported that the District's portfolio is earning approximately 3.07%
as of August 31, 2008. The District's weighted average interest rate was 29
basis points above the daily effective yield of LAIF. The increase in the
average interest rate was due to the purchase of four securities during the
period of June through August. Mr. Davis made a reference to page 10 of
the August 31, 2008 Treasurer's report showing a listing of the new
securities. The District purchased the following securities: two FHLB's and
two FNMA's. The interest rates of the new securities have very attractive
yields from the mid 3% to 4% with maturities from the 2.5 to 3.5 years. An
additional security was purchased on September 17, 2008. The new security
is a farm credit with an interest rate of 4.05% and a 5 year maturity. Mr.
Davis made a reference to the Yield Curve Data of the August 31, 2008
Treasurer's report and reported that the District's yield falls a little short of the
5 year T -Note. Mr. Hamers commented on the excellent investment job done
by Mr. Davis. The total securities invested in the portfolio are $5 million. Mr.
Davis disclosed his plan to keep the additional $5 million in the portfolio
invested in LAIF to provide liquidity in the event the District needs the funds
to make expenditures for the District Yard.
Director Shafer inquired about the District's future investment plans with the
CalTrust Investment Pool. Mr. Davis reported that his plans are to invest in
the CalTrust Investment Pool by the end of the current fiscal year. A
resolution will be brought to the Board to authorize the investment in the
CalTrust Investment Pool.
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MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING September 18, 2008
Page 2
Update on FNMA and FHLMC
Mr. Davis reported that the District owns debt, not stock, from FNMA and
FHLMC. President Perry inquired about the safety of our investments. Mr.
Davis responded by saying that all of our securities have the implicit backing
or guarantee of the Federal government and that the recent financial events
are affecting the stockholders of FNMA and FHLMC and not the
bondholders.
Mr. Davis reported that the current financial turmoil ties back to the subprime
mortgage loans. The creative mortgage loan structure enabled many first
time home buyers to participate. The mortgage companies forecasted high
profits during the life of the loan. Financial problems began to emerge when
the home prices cooled down and homeowners started to walk away from
their houses and loans. The housing market went down and the mortgages
went into the water.
FNMA and FHLMC own about 50% of the nation's $12 trillion mortgage
loans, most important, they own the subprime mortgages. They would
package the subprime mortgages and bundle them up to sell as collateral to
obtain additional funding for subprime mortgages. FNMA and FHLMC faced
a financial crisis when a large number of mortgage loans went underwater.
As a consequence the Federal government was forced to step in and
financially assist FNMA and FHLMC.
PUBLIC COMMENTS There were no items discussed under public comments.
ADJOURNMENT The meeting adjourned at 5:55 p.m.
Approved by:
Secretary, Costa Mesa Sanitary District President, Costa esa aniti
Board'of Directors Board of Directors