City’s new investment plan nearing completion

By COLLIN GALLANT on January 29, 2022.

cgallant@medicinehatnews.com@CollinGallant

A plan to change how the city manages the nearly $574 million in reserves it holds is nearing completion, and that includes a new search for money management firms.

Thursday’s meeting of the corporate services committee included an update and overview for new council members on investment policy changes approved last summer that will see a portion of the city’s money moved into nontraditional areas of commercial mortgages and global funds.

Officials say an additional $10 million in income could be the wholesale result after changes now underway are completed in July.

“My thought was that we would make some tweaks but there are significant pivots here,” chair Coun. Robert Dumanowski told the committee this week.

In 2017 the city gained provincial approval to move beyond a conservative schedule of investment options into things like domestic and global equities.

That saw an initial first step of depositing the $150 million set aside for gas well abandonment with the provincial government’s investment wing AIMCo, as well as the recently created Heritage Savings reserve, which has grown above $50 million.

Choosing AIMCo as the manager was seen at the time as a conservative first move as the city had just joined Calgary and Edmonton in the “major cities investment” regulations.

Four years later, finance officials are in the late stages of designing policy for how investment funds can be used in the city budget.

Committee heard the goal is to set an initial minimum of returning three per cent to city coffers in any year while extraordinary results would be held in an “investment stabilization fund” in the general operating reserve to augment returns in poor performance.

In 2020, the city first engaged Manulife Financial with short-term funds that now total $74 million, which the city keeps for essentially cash-on-hand purposes. It now deals with four other financial management firms, with two more contracts outstanding, plus a consultancy group that will evaluate all funds and contracts on a biannual basis.

Coun. Darren Hirsch chairs council’s audit committee, which receives the financial reports and provides commentary on the results.

He pushed last term for council to consider a more “sustainable dividend” model from the funds to boost revenue as the city wrestled with revenue shortfall in the budget.

“I am really pleased with the progress,” he told the News on Friday.

“We’ve evolved to the point where we’re seeking out good talent to manage our portfolio.”

The city also set its portfolio mix goals with AIMCo., but the recent allocations to things like fixed income, global equities and others is projected to return about 2.9 per cent in the medium term.

“It’s not exceptionally high return so we are seeking out additional value,” said city treasurer Ryan Wright, who joined the city this past year from the City of Calgary.

As such, he said the entire portfolio is in the process of being rebalanced to include smaller portions of fixed-income holdings (eventually just 15 per cent), less cash of hand, slightly more equities (from 39 to 45 per cent) but with a more international mix, and up to 30 per cent in alternatives like mortgage and infrastructure funds. That “Growth-Plus” asset mix forecasts a 4.9 per cent return over time.

“That represents an additional $11 million for the city while the risk-to-reward ratio improved,” said Wright.

Corporate services head Dennis Egert said there is a danger in relying too heavily on investment revenue that includes some risk, but the stabilization fund is designed to mitigate that.

“With the gas division, (the city) built its budget around a $23-million dividend that dried up and created major problems,” he said. “We believe this (system) can provide a smooth and steady three per cent return.”

Dumanowski said the question always remains how residents would react to good years when tax increases or program spending cuts are proposed.

Mayor Linnsie Clark said via teleconference call she saw long-term benefits of “intergenerational” investment as the primary consideration.

“We’re very lucky to have the value of it right now,” she said. “We need to consider the very long-term strategy.”

Wright also said because North American and global funds are involved, the city could eventually have $300 million of foreign currency exposure.

That will lead the city to engage a foreign currency analysis management firm.

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