YORKTON – Yorkton city administration brought forward a revamped Investment Policy designed to broaden how the city invests its money, but Council decided more details in terms of what was acceptable risk and what sort of investments might be allowable were needed.
Amber Matechuk, city controller, with the city told the regular meeting of Council Monday investments are important.
“The City of Yorkton has many needs for capital infrastructure improvement of our roads, water lines, facilities, and generally every physical asset we have,” she said. “It is prudent for the City to save up reserve funds to pay for the replacement of these assets over time – for example, if a road is going to cost $10 million to repair in ten years, the City should be allocating $1 million per year . . .
“While the City is not in a position to fully save for every possible project that needs doing, we do try to plan our capital spending this way such that we do not need to do large tax increases when there are large projects; rather, we have steady tax increases and savings to fund these larger projects in combination with sustainable debt.”
The result of this is that our City, and indeed every municipality that is properly planning for capital projects, has at any point an amount of capital reserve funds that are being saved for specific projects.
“These funds have traditionally been invested in simpler investment products such as GIC’s or high interest-bearing accounts, to generate additional revenue for the City. These returns have in fact been the cause of the surplus in the last two years, due to high interest rates,” said Matechuk.
“Now that interest rates are dropping, it is prudent to re-evaluate our investment strategy and our policies to ensure maximizing the return on our reserve funds while still protecting our capital.”
Matechuk said upon review, our existing Investment Policy is quite out of date, and it is our desire to update this policy to allow us to take advantages of new investment opportunities.
“The old policy was rather restrictive, allowing the City to invest mainly in well-rated bonds, Canadian banks, and other low-risk but low-return investment products,” she added.
“The new policy proposed will allow much more flexibility, acknowledging that it should be possible for the City to take on some level or risk but maintain higher long-term performance that will provide benefits to the City and ultimately our taxpayers.”
Matechuk explained, the investment landscape has changed dramatically even in the last decade, with larger institutional investors like the Canadian Pension Plan and many others getting into alternative investments, including infrastructure and private equity.
“Through pooled fund products, the City now has the capability to join other larger investors in these ventures to diversify risk in the investment portfolio,” she said.
SUMAInvest is one such product, aimed specifically at Saskatchewan Municipalities.
“This is a pooled fund, with over $125 million invested collectively into a well diversified portfolio,” said Matechuk.
“Their five-year average return is north of 10 per cent, with a 15-year approximately eight per cent.”
The opportunities for better returns are possible, said Matechuk.
“While it is key to know that past performance is not indicative of future returns, it should be possible for the City to obtain higher than traditional GIC type investment returns in the future, while still protecting our Capital,” she said.
City administration was proposing initial investment of reserve funds of $10 million as the City’s investment account.
“As a foundation for this investment portfolio, we are recommending that half of our investment funds go to SUMAInvest, in order to establish the core foundation of our investments,” said Matechuk.
“We are proposing the other half of invested funds be given to an investment manager with a mandate to maximize return for the City while keeping investment risk at an acceptable level. This manager will be selected using an RFP process that will assess who we feel has the best approach to creating and managing a portfolio for the City . . .
“There is always the risk of losses, however a long-term view on investing and an appropriately managed portfolio will help mitigate this risk to acceptable levels. There will likely be some years where we lose money on investments, perhaps during economic downturns or periods of instability, but it is our belief that the gains will outweigh the losses in the long term.”
Councillor Stephanie Ortynsky however was not ready to make the changes without asking administration to include more details, in particular in terms of risk.
“What’s our risk appetite?” she asked, as she made a motion to send the policy back for more details.
Coun. Darcy Zaharia agreed. While noting he liked that with changing times having “different ways to invest is awesome” as is an opportunity “for enhanced returns” more detail was a good idea too.
Ortynsky’s motion would ultimately carry with only Coun. Greg Litvanyi opposed.
