Specifications include, but are not limited to: 1. Safety Safety of principal is the foremost objective of the City of Little Rock’s investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. Credit Risk The City of Little Rock will minimize credit risk, which is the risk of loss due to the failure of the security issuer or backer, by: Limiting investments to the safest types of securities (no stocks, no derivatives) Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City will do business Diversifying the investment portfolio so that potential losses on individual securities will be minimized b. Interest Rate Risk The City of Little Rock will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates, by: Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity Investing operating funds primarily in shorter-term securities, money market mutual funds, or similar investment pools. 2. Liquidity The City of Little Rock’s investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). A portion of the portfolio also may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds. 3. Yield The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. The City shall maximize interest yields while ensuring that the maturity dates coincide with projected expenditure requirements. Furthermore, the City shall purchase investments through competitive bidding, placing the investment with the bid providing the highest interest yield for the maturity required. Securities shall not be sold prior to maturity with the following exceptions: A security with declining credit may be sold early to minimize loss of principal. A security swap, which would improve the quality, yield, or target duration in the portfolio.
