Page 62 - City of Bedford FY21 Budget

the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.

a. Credit Risk. BEDFORD will minimize credit risk, the risk of loss due to the failure
of the investment issuer or backer, by:

1) Limiting investments to the safest types.

2) Pre-qualifying the financial institutions, broker/dealers, intermediaries, and
advisors with whom BEDFORD will do business.

3) Diversifying the investment portfolio so that potential losses on individual
investments will be minimized.

4) Establishment of procedures to monitor rating changes of investments and the
liquidation of such investments as required by the PFIA.

b. Interest Rate Risk. BEDFORD will minimize the risk that the market value of
securities in the portfolio will fall due to changes in general interest rates by:

1) 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.

2) Investing operating funds primarily in shorter-term securities, financial
institution deposits, money market mutual funds, or local government
investment pools.

2. Liquidity. The 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 investments 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 investments with active secondary or resale markets
(dynamic liquidity). All or a portion of the portfolio also may be placed in financial institution
deposits, 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 safety and liquidity. Investments shall not be liquidated prior to maturity with the following
exceptions:

a. An investment with declining credit may be sold early to minimize loss of principal.

b. An investment swap would improve the quality, yield, or target duration in the portfolio.

c. Liquidity needs of the portfolio require that the investment be sold or redeemed.

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