The purpose of this Mayor and Council Communication (M&C) is to adopt an amended and revised investment policy and strategy for the Fort Worth Permanent Fund in accordance with the requirements of the Public Funds Investment Act, Texas Government Code 2256 (PFIA). The Permanent Fund consists of money generated from mineral revenues that the City Council has directed be set aside to be held in trust for the long-term benefit of the City and its residents. The Permanent Fund Investment Policy and Strategy was initially adopted in 2013 and has been reviewed and readopted multiple times since then (M&C G-17857, G-18244, G-18466, G-18552). In accordance with a 2009 PFIA amendment that was sought by the City of Fort Worth and that allows investment in any vehicle that a trustee could invest in under the Texas Trust Code, the current policy authorizes a number of investment vehicles - stocks, commodities and real estate investment trusts - that are not generally available for the investment of other City revenues. However, the policy still primarily emphasizes the safety of principal and liquidity as required under the PFIA even with respect to mineral revenues. Wells Fargo, which serves as trustee for the Permanent Fund, proposed revisions to certain asset allocations and investment options in an effort to better respond to current market environment. These revisions were reviewed by staff and the Investment Committee, which recommend the following changes to authorized investments and diversification requirements and guidelines:
Authorized Investments | | Current | Proposed | | Certificates of deposit from banks in Texas | Certificates of deposit from banks in the United States | | SEC-Registered money market mutual funds | US Institutional Government money market mutual funds | | Domestic and international bond mutual funds and equity and preferred stock mutual funds with Morningstar Rating of at least 2 Stars | Domestic and international bond mutual funds and equity and preferred stock mutual funds - Morningstar Rating of at least 2 Stars, if available - For funds less than three years old, if recommended by Wells Fargo Investment Institute | | Hedge Funds - Conservative, Diversified, Aggressive | Hedge Funds - renamed existing as Relative Value, Macro, Event Driven and added Equity Hedge |
Diversification / Asset Allocation | | | Type | Current | Proposed | Money Market Mutual Funds Municipal Obligations
Corporate Obligations | 10.00% Max | 20.00% Max | | Asset Backed Securities | 10.00% Max | 20.00% Max | | Domestic Bond Mutual Funds | 5.00% Max | 5.00% Max | | International Bond Mutual Funds | 5.00% Max | 10.00% Max | | Hedge Funds - Relative Value (Formerly "Conservative Hedge") | 4.00% Target | 3.00% Target | | Hedge Funds - Macro (Formerly "Diversified Hedge") | 4.00% Target | 3.00% Target | | Hedge Funds - Equity Hedge | n. a. | 2.00% Target |
The revised policy also adds language to explicitly note that the Trustee as manager for the Permanent Fund is responsible for ensuring compliance with the policy by itself and its broker/dealers. In addition, the attached policy reflects a recommended change in the benchmark for the fixed income portion of the portfolio from Barclays' Five Year Index to Barclays One-Five Year Government/Credit Index with the proposed benchmark including U.S. Treasury, Agency and Corporate issues and better reflecting the investment process used in the core holdings of the fixed income portfolio. Finally the policy includes a number of minor non-substantive grammatical revisions. This M&C does not request approval of a contract with a business entity. |
