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A. Safety <br />Safety of principal is the primary objective of the City. To mitigate credit and interest rate <br />risk, investment decisions shall be undertaken in a manner that seeks to ensure <br />preservation of capital in the overall portfolio. To obtain this objective, the following steps <br />will be taken: <br />i. Credit risk. This is the risk of loss due to the financial failure of the security issuer or <br />backer. The city will minimize credit risk by: <br />1. Limiting exposure to poor credits and concentrating the investments in the <br />safest types of securities. <br />2. Diversifying the investment portfolio so that potential losses on individual <br />securities will be minimized; and <br />3. Actively monitoring the investment portfolio holdings for rating changes, <br />changing economic market conditions, etc. <br />4. Credit rating downgrade. If the credit rating of a security is subsequently <br />downgraded below the minimum rating level for a new investment of that <br />security, the Finance Director shall evaluate the downgrade on a case -by -case <br />basis in order to determine if the security should be held or sold after further <br />analysis of the credit rating on an ongoing basis. The Finance Director will <br />apply the general objectives of safety, liquidity, and return to make the decision. <br />ii. Interest rate risk. This is the risk that the market value of securities in the portfolio will <br />fall due to increases in general interest rates. The city will mitigate the interest rate risk <br />by: <br />1. Structuring the investment portfolio so that securities mature to meet cash <br />requirements, when known, for ongoing operations, thereby avoiding the need <br />to sell securities on the open market prior to maturity; <br />2. Investing liquidity funds primarily in short-term instruments (i.e., investments <br />maturing in less than one year); and <br />3. Investing excess liquidity funds in a manner that is consistent with the <br />established risk/return objectives of this policy within the stated maximum <br />weighted average maturity constraint. <br />B. Liquidity <br />The investment portfolio will be structured to meet all expected obligations in a timely <br />manner, to avoid premature sale of an investment at a loss of principal. The investment <br />portfolio will provide liquidity sufficient to enable the City to meet all cash requirements <br />that might reasonably be anticipated. This will be accomplished by either maintaining a <br />portion of the portfolio in investment vehicles offering daily liquidity at face value, such as <br />the Washington State Local Government Investment Pool (LGIP) or structuring the <br />portfolio so that securities mature concurrently with cash needs to meet anticipated <br />demands. Because all possible cash demands cannot be anticipated, the portfolio should <br />consist largely of securities with active secondary or resale markets. <br />City of Tukwila Investment Policy 2025 Page 4 of 18 <br />8 <br />