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Home My WebLink AboutRES NO 067-19RESOLUTION NO. 06 7- 19 A RESOLUTION APPROVING ADOPTION Of AMENDED INVESTMENT GUIDELINES FOR RETIREE MEDICAL SUBSIDY TRUST WHEREAS, the City is required to comply with Governmental Accounting Standards Board (GASB) Pronouncements and Statements; and WHEREAS, the City desires to continue funding the future liabilities of the City's Retiree Medical Subsidy Program, which according to the GASB definitions is considered an Other Post Employment Benefit (OPEB); and WHEREAS, in accordance with GASB requirements, the City has established an irrevocable trust arrangement to hold deposits associated with the City's OPEB liabilities; and WHEREAS, the City has contracted with the Public Agency Retirement Services (PARS) organization to assist the City with formation and administration of the Plan and Trust; and WHEREAS, the City is eligible to participate in the GASB 75 Funding Program, a tax-exempt trust and plan performing an essential governmental function within the meaning of Section 115 of the Internal Revenue Code, as amended, and the Regulations issued thereunder, and is a tax-exempt trust under the provisions of the relevant statutory provisions of the state of California; and WHEREAS, the City adopted Resolution No. 008-07 on January 17, 2007 adopting the PARS trust agreement, the Post -Retirement Health Care Master Plan document, and the Investment Guidelines for the trust assets; and WHEREAS, the City desires approval of a new Investment Guidelines Document to expand the investment opportunities available to maximize investment returns in the trust while still maintaining a moderately conservative approach. The change will provide more fixed income (debt security) options and a more active management approach as opposed to index -based options. -- Page 1 of 3 Pages -- NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Bakersfield as follows: 1. The foregoing recitals are true and correct and incorporated in their entirety herein by reference. 2. The City Council hereby approves the updated Investment Guidelines Document for assets held in the Trust. 3. The City Council hereby appoints the City Manager, or his designee, as the City's Plan Administrator for the GASB 75 Funding Program. 4. The City's Plan Administrator is hereby authorized to take whatever additional actions are required to administer and maintain compliance with the City's updated investment guidelines and the GASB 75 Funding Program. -- Page 2 of 3 Pages — o1<0AK, r M M i3 ORGNALV y I HEREBY CERTIFY that the foregoing Resolution was passed and adopted MAT the Council of the City of Bakersfield at a regular meeting thereof held on 1019 , by the following vote: AVE ' COUNCILMEMBER ✓ ✓ ,/ ✓ ✓ ✓ RIVERA, GONZALES. WNR, SMI H, FREEMAN, SULLIVAN, PARKER N ES COUNCIL MEMBER NQYI ABSTAIN : COUNCILMEMBER (TT. COUNCILMEMBER \A/P 1 APPROVED MAY 2 2 2019 BY KAREN GOH Mayor APPROVED AS TO FORM: VIRGINIA GENNARO City Attorney JOSHUA H. RUDNICK Deputy City Attorney II Attachments: Exhibits A JHR/,Ig NIA][ NJ J LIE DRIMAKIS City Clerk and Ex Officio Clerk of the Council of the City of Bakersfield -- Page 3 of 3 Pages — o�gAYF9N � T E- m OR;GAAL JHIGHMARKO CAPITAL MANAGEMENT Investment Guidelines Document City of Bakersfield OPEB Post -Retirement Health Care Plan May 2019 o� $AK, 9N T T r m J ORw;PoALV Investment Guidelines Document Scope and Purpose The purpose of this Investment Guidelines Document is to: • Facilitate the process of ongoing communication between the Plan Sponsor and its plan fiduciaries; • Confirm the Plan's investment goals and objectives and management policies applicable to the investment portfolio identified below and obtained from the Plan Sponsor; • Provide a framework to construct a well -diversified asset mix that can potentially be expected to meet the account's shod- and long-term needs that is consistent with the account's investment objectives, liquidity considerations and risk tolerance; • Identify any unique considerations that may restrict or limit the investment discretion of its designated investment managers; • Help maintain a long-term perspective when market volatility is caused by shod -term market movements. Key Plan Sponsor Account Information as of March 2019 Plan Sponsor: City of Bakersfield Governance: The CHy Carl for the City &e1illusisiftlill Plan Name ("Plan /: Cky of 9llteltlS#W POs1 Hatlgll:Cam Pian Trustee: US Bank Contact. Susan Hughes, 949-224-7209 Susan HUnhes((Dusbank.com Type of Account: GASB 45/Other Post -Employment Benefits Trust ERISA Status: Not subject to ERISA Market Value of Account: $55,308,346 Investment Manager: US Bank, as discretionary trustee, has delegated investment management responsibilities to HighMark Capital Management, Inc. ("Investment Manager"), an SEC -registered investment adviser Contact. Andrew Brown, CFA, 415-705-7605 Andrew.brown@highmarkcapital.com City of Bakersfield Post -Retirement Health Care Plan 16AKF Investment Guidelines Document— HighMark Capital Management, Inc. Ok yiP (v. 3112/2019 -ARB) 2 �, r r m J � DRIv;NAL Investment Authority: Except as otherwise noted, the Tmstee, US Bank, has delegated investment authority to HighMark Capital Management, an SEC -registered investment adviser. Investment Manager has full investment discretion over the managed assets in the account. Investment Manager is authorized to purchase, sell, exchange, invest, reinvest and manage the designated assets held in the account, all in accordance with account's investment objectives, without prior approval or subsequent approval of any other party(ies). Investment Objectives and Constraints The goal of the Plan's investment program is to generate adequate long-term returns that, when combined with contributions, will result in sufficient assets to pay the present and future obligations of the Plan. The following objectives are intended to assist in achieving this goal: • The Plan should earn, on a long-term average basis, a rate of return equal to or in excess of the target rate of return of SAW • The Plan should seek to earn a return in excess of its policy benchmark over the long- term. • The Plan's assets will be managed on a total return basis which takes into consideration both investment income and capital appreciation. While the Plan Sponsor recognizes the importance of preservation of capital, it also adheres to the principle that varying degrees of investment risk are generally rewarded with compensating returns. To achieve these objectives, the Plan Sponsor allocates its assets (asset allocation) with a strategic, long- term perspective of the capital markets. Investment Time Horizon: Long-term Anticipated Cash Flows: Distributions are expected to be low in the early years of the Plan Target Rate of Return: 5.D% annual target Investment Objective: The primary objective is to maximize total Plan return, subject to the risk and quality constraints set forth herein. The investment objective the Plan Sponsor has selected is the Moderately Conservative Objective, which seeks to provide current income and moderate capital appreciation. The major portion of the assets are committed to income-producing securities. Market fluctuations should be expected. Risk Tolerance: Moderately Conservative The account's risk tolerance has been rated moderately conservative, which demonstrates that the account can accept modest price fluctuations to pursue its investment objectives. City of Bakersfield Post -Retirement Health Care Plan Investment Guidelines Document — HighMark Capital Management, Inc 0AKF9 (v. X1212019 ARB) 3 p c - r m ORIGINAL Strategic Asset Allocation: The asset allocation ranges for this objective are listed below: Strategic Asset Allocation Ranges 20%-40% Cash Fixed Income Equit 0-20% 10%-30% Policy: 5% Polic :65% Policy: 30% Market conditions may cause the account's asset allocation to vary from the stated range from time to time. The Investment Manager will rebalance the portfolio no less than quarterly and/or when the actual weighting differs substantially from the strategic range, if appropriate and consistent with your objectives. Security Guidelines: Equities With the exception of limitations and constraints described above, Investment Manager may allocate assets of the equity portion of the account among various market capitalizations (large, mid, small) and investment styles (value, growth). Further, Investment Manager may allocate assets among domestic, international developed and emerging market equity securities. Total Equities 20%-40% Equity Style Range Domestic Lar a Cap Equity 10%-30% Domestic Mid Cap Equity 0%-10% Domestic Small Cap Equity 0%-12% International Equi (incl. Emerging Markets) 0%-12% Real Estate Investment Trust (REI 0%-8% Fixed Income In the fixed income portion of the account, Investment Manager may allocate assets among various sectors and industries, as well as varying maturities and credit quality that are consistent with the overall goals and objectives of the portfolio. Total Fixed Income 50%•80% Eligible Investments • Debt obligations of the U.S. Government, its agencies, and Government Sponsored Enterprises • Mortgage -Backed Securities (MBS) • Asset Backed Securities (ABS) • Collateralized Mortgage Obligations (CMO) • Commercial Mortgage -Backed Securities (CMBS) • Corporate debt securities issued by U.S. or foreign entities including, but not limited to, limited partnerships, equipment trust certificates and enhanced equipment trust certificates • Securities issued under SEC Rule 144A • Municipal Bonds City of Bakersfield Past -Retirement Health Care PlanAK Investment Guidelines Document— HlghMark Capital Management, Inc. 1< F9 (v. 311Y2019 -ARB) 4 T r t7 O � OR;a,NAi Qual' The portfolio will maintain a minimum weighted average quality of A- at all times. Individual securities shall have a minimum quality rating of Baa3 by Moody's or BBB- by Standard & Poor's (S&P). Note, high yield fixed income can be purchased only in a diversified mutual fund or exchange traded fund. Duration The manager will maintain the portfolio duration within +A 25% of the benchmark duration at all times. Diversification • No more than 5% of the portfolio assets maybe invested in any individual issuer, with the exception of securities issued or guaranteed by the U.S. Government, its agencies, and Government Sponsored Enterprises. No more than 10% of the portfolio may be invested in securities issued under Rule 144A. Performance Benchmarks: The performance of the total Plan shall be measured over a three and five-year periods. These periods are considered sufficient to accommodate the market cycles experienced with investments. The performance shall be compared to the return of the total portfolio blended benchmark shown below. Total Portfolio Blended Benchmark 15.5% S&P500 Index 3.00% Russell Mid Cap Index 4.50% Russell 2000 Index 100% MSCI Emerging Market Index 4.00% MSCI EAFE Index 1.00% Wilshire REIT Index 49.25% Bloomberg Barclays Capital US Aggregate Index 14.00% ML 1-3 Year US Corp/Gov't 1.75% US High Yield Master II 5.00% Citi 1Mth T -Bill Asset Class/Style Benchmarks Over a market cycle, the long-term objective for each investment strategy is to add value to a market benchmark. The following are the benchmarks used to monitor each investment strategy Large Cap Equity S&P 500 Index Growth S&P 500 Growth Index Value S&P 500 Value Index Mid Cap Equity Russell Mid Cap Index Growth Russell Mid Cap Growth Index Value Russell Mid Cap Value Index Small Cap Equity Russell 2000 Index Growth Russell 2000 Growth Index Value Russell 2000 Value Index City of Bakersfield Post -Retirement Health Care Plan 1<gFKFvN Investment Guidelines Document- HighMark Capital Management, Inc. -� (v. 3/1212019 -ARB) 5 i m 'oala NA4L REITs Wilshire REIT Index International Equity MSCI EAFE Index Investment Grade Bonds Bloomberg Barclays Capital US Aggregate Index High Yield US High Yield Master II Security Selection Investment Manager may utilize a full range of investment vehicles when constructing the investment portfolio, including but not limited to individual securities, mutual funds, and exchange - traded funds. In addition, to the extent permissible, Investment Manager is authorized to invest in shares of mutual funds in which the Investment Manager serves as advisor or sub -adviser. Investment Limitations: The following investment transactions are prohibited. • Direct investments in precious metals (precious metals mutual funds and exchange -traded funds are permissible). • Venture Capital • Short sales' • Purchases of Letter Stock, Private Placements, or direct payments • Leveraged Transactions` • Commodities Transactions Puts, calls, straddles, or other option strategies` • Purchases of real estate, with the exception of REITs • Derivatives, with exception of ETFs' *Permissible in diversified mutual funds and exchange -traded funds Duties and Responsibilities Responsibilities of Plan Sponsor ;the Ishmw DietwAnwitfor the City of BNcersfleld is responsible for. Confirming the accuracy of this Investment Guidelines Document, in writing. Advising Trustee and Investment Manager of any change in the plan/account's financial situation, funding status, or cash Flows, which could possibly necessitate a change to the account's overall risk tolerance, time horizon or liquidity requirements; and thus would dictate a change to the overall investment objective and goals for the account. Monitoring and supervising all service vendors and investment options, including investment managers. Avoiding prohibited transactions and conflicts of interest. Responsibilities of Trustee The plan Trustee is responsible for. • Valuing the holdings. • Collecting all income and dividends owed to the Plan. • Settling all transactions (buy -sell orders). City of Bakersfield Post -Retirement Health Care Plan BAKE Investment Guidelines Document — HighMark Capital Management, Inc. B O� 9Nn (v. 3112@019 -ARB) r m ORIGAALL Responsibilities of Investment Manager The Investment Manager is responsible for. • Assisting Mip%'hfBlnt�e'. Department with the development and maintenance of this Investment Policy Guideline document. • Meeting with IAp115'nito review portfolio structure, holdings, and performance. • Designing, recommending and implementing an appropriate asset allocation consistent with the investment objectives, time horizon, risk profile, guidelines and constraints outlined in this statement. Researching and monitoring investment advisers and investment vehicles. Purchasing, selling, and reinvesting in securities held in the account. Monitoring the performance of all selected assets. Voting proxies, if applicable. • Recommending changes to any of the above. • Periodically reviewing the suitability of the investments, being available to meet with the committee at least once each year, and being available at such other times within reason at your request. • Preparing and presenting appropriate reports. • Informing the committee if changes occur in personnel that are responsible for portfolio management or research. Acknowledgement and Acceptance IMe being the Plan Sponsor with responsibility for the account(s) held on behalf of the Plan Sponsor specified below, designate Investment Manager as having the investment discretion and management responsibility indicated in relation to all assets of the Plan or specified Account. If such designation is set forth in the Plan/trust, IMIe hereby confirm such designation as Investment Manager. I have read the Investment Guidelines Document, and confirm the accuracy of it, including the terms and conditions under which the assets in this account are to be held, managed, and disposed of by Investment Manager. This Investment Guidelines Document supersedes all previous versions of an Investment Guidelines Document or investment objective instructions that may have been executed for this account. Plan Sponsor: City of Bakersfield Date: Investment Manager: Andrew Brown, CFA, Senior Portfolio Manager, (415) 705-7605 Chy of Bakersfield Past -Retirement Health Care Plan Investment Guidelines Document— HighMark Capital Management Inc. O1< KF9N (v. 311212019 -ARB) 7 > T ORIGAAI