The new year may bring an increase in investment returns to Los Altos Hills to the tune of $100,000 via the town’s new private investment policy.
The policy, approved by the city council Dec. 15, will allow the town to move its approximately $10 million reserve into securities managed by a private investment firm. After a bidding process, the town finance and investment committee selected PFM Asset Management LLC to manage the portfolio.
The council and the committee pursued a move toward private investment in 2000 but the project faltered, due to high projected fees from investment firms and strong returns from the town’s existing public account, according to committee member Frank Lloyd.
Through 2005 the town invested its funds in California’s Local Agency Investment Fund (LAIF), an investment alternative administered by the state treasurer. Cities can participate in this portfolio at no cost, and the conservative fund offers security and liquidity. Because so many cities participate, losses and successes are widely distributed.
The benefits of turning to private investment, according to Lloyd, are the increased attention and flexibility possible in a smaller fund. The city will still limit its investment to public resources such as government bonds, despite PFM’s suggestion to include corporate funds.
“We determined that the fractional percentage increase we would get in private corporation bonds wasn’t worth doing because of the risk of [corporate bankruptcy],” Lloyd said. “We decided to take the ultraconservative approach.”
The town’s PFM representative, Nsesa Kazadi, said that the primary benefit of the new policy would be longer-term investments, with the potential of a higher yield than liquid LAIF funds.
“If you invest on average three years out, you can earn anywhere between 1 percent and 1.5 percent more on your money,” Councilman Jean Mordo said. “So with $10 million invested at 1.5 percent better, you are making $150,000 extra in interest.”
PFM charges a yearly fee of 10 basis points, or 0.1 percent of the town’s investment. The firm manages only public funds, including accounts for the cities of San Diego, Newport Beach and San Francisco.
The council speculated about potential uses, which could include road improvements or additional projects at Westwind Barn, for the projected increase in investment returns.
