Investment Portfolio

Overview

April 4, 2017

Date of Meeting: 04/04/17Item No.: 5B

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• Background

• Investment Guidelines

• Performance Targets

• Portfolio Composition

Investment Portfolio Overview

Background• Per the Charter, each Port initially contributed $25.5 million

working capital funds to the NWSA:

• Working capital liquidity = $3.6 million per Port

• Working capital reserve = $21.9 million per Port

• Per the Charter, each Port initially contributed capital

construction funds to the NWSA:

• Capital construction = $13.5 million per Port (2016 amount)

• 2016 funds fully spent

• Starting 2017, implemented monthly pay-as-you-go funding

by Homeports

• Easier tracking of bond proceeds use for IRS reporting

• Allows each homeport to manage its own investments

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Background

• NWSA manages North Harbor Lease Security fund

• Equivalent to 1-year cash rent at T18

• Approximately $12.4 million

• Interest earned credited back to customer

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Investment Guidelines

• Purpose:

• Manage investments in a manner which preserves

principle while providing highest possible return

• Meet daily cash flow demands of the NWSA

• Conform to all state statutes governing the

investment of public funds

• Objective:

• Safety – Preservation of capital

• Liquidity – Ability to meet all cash flow requirements

• Return on Investment – Achieve market rate of

return within confines of risk and cash flow

constraints

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Investment Guidelines

• Delegation of Authority:

• Authority to manage investment portfolio derived from

RCW 53.36.010, regarding Port District Treasurer,

and by

• NWSA Resolution No. 2015-01 and 2015-03,

delegating authority to Treasurer and Deputy

Treasurers

• Authorized and Suitable Investments:

• All investments authorized by RCW 39.59 (Public

Funds – Authorized Investments), RCW 43.84.080

(Investment of Current State Funds), and all

referenced RCW’s within

• All rated “A3 or A-” or better

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Some Authorized Investment Examples

• US Agencies: (implicit/explicit US Government guarantee)

• Federal National Mortgage Association (FNMA)

• Federal Home Loan Mortgage Corporation (FHMC)

• Federal Agricultural Mortgage Corporation (FAMCA)

• Municipalities – Guaranteed by tax levies (any US issuer)

• State, City, County, School districts, Water districts

• Municipalities – Revenue (WA state issuer only)

• Energy Northwest, Washington State University

• Supra-Nationals (US Government largest participant)

• World Bank, Asian Development Bank

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Some Authorized Investment Examples

• Washington State Local Government

Investment Pool (LGIP)

• Liquid pool managed by WA State Treasurer

• Similar to a Money Market fund

• Corporate Debt

• Bonds and Commercial Paper of major corporations

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Investment Guidelines

• Diversification:

• Diversified by security type and maturity

• Limits based on issuer type, issuer, and specific issue

• Ex: 60% U.S. Agency Bonds, 20% FNMA

• Ex: 40% Municipal Bonds, 5% WA State

• Performance Standards

• Working capital liquidity and reserve fund

• Performance goal is 1-year US Treasury Bill Index

• Lease security fund

• Performance goal is the safe preservation of

principle

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Working Capital Reserve

• Working Capital reserve is approximately $43.8 M

• Approximately 6 months operating funds

• Funds to be used to pay expenses in case of reduced

revenue

• Funds can be invested to maximize return or

maximize liquidity

• Maximizing return carries risk of loss if bonds have to be

sold before maturity to generate cash

• Maximizing liquidity may result in lower earnings

• Staff currently managing to a 1-year “duration” target

• Provides flexibility to invest some funds longer for yield,

balanced by shorter-term investments for liquidity

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Lease Security Fund

• Lease Security fund is approximately $12.4 M

• Funds to be used to replace lost rent in event of

customer default

• Interest earned credited back to customer

• Performance goal is the safe preservation of principle

• Staff currently investing fund in Washington

State Local Government Investment Pool for

liquidity

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Portfolio Composition as of 2/28/2017

• Working Capital Liquidity Composition

• Held in bank accounts at both homeports

• Working Capital Reserve Composition (par value)

• Treasury/ Agencies - $19 million

• Munis - $7.5 million

• LGIP - $17.3 million

• Capital Construction Composition

• No funds; Pay-as-you-go

• Lease Security Composition

• Invested in LGIP for liquidity

• Based on cash earned through February YTD, the estimated

annual return for the Working Capital Reserve is 1.25-1.5%.

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Conclusion

• Staff will invest Alliance funds in accordance with

the Guidelines and RCW’s

• Investment Guidelines will be reviewed annually,

and managing members updated if there are

significant changes

• Staff will report annual investment performance

to the managing members

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