By COLLIN GALLANT on March 12, 2020.
cgallant@medicinehatnews.com
City finance officials are planning to launch a second, $100-million outside investment fund this year as the second phase of a goal of driving higher returns from the city’s relatively large cash reserves.
Administrators presented the plan to council’s corporate services committee meeting on Tuesday, stating that seeking better returns simply makes sense.
Two years ago the city was given greater latitude by the province in options for its reserve holdings.
At that time, an investment fund for long-term cash was created with a $155 deposit with the Alberta Investment Management Corp. (AIMCo.).
If approved by council next week, the new fund would comprise money not needed for one- to five-year time frame and be handled by private sector financial firm Manulife Investment Management.
Committee members supported the amendments to the city’s external investment policy that would leave about $188 million in short-term cash that would be managed internally by the city hall treasury.
That money is restricted to easily accessible, but low-return holdings, like 90-day GICs or other short term bonds, whereas the goal for the medium and long-term return will be returns equalling inflation plus 4 per cent.
Over the next year managers will also examine how much operating cash is needed.
“One of our objectives is to clarify what we need for short-term cash on hand to pay for day-to-day operations,” said Dennis Egert, the corporate services commissioner.
“That will determine what our medium-term (holdings) should be. We expect both the long-term and medium-term (balances) to grow.”
During a December budget update, administrators outlined a half dozen initiatives to reduce cost or increase income without directly affecting public services.
That fits under financial operations that could under the Financially Fit mandate to eliminate a structural deficit of $15 million this year from reserves that make up for a lack of natural gas profits.
This specific medium-term fund would be made up of portions of existing reserve funds, working capital or grants from other levels of government that wouldn’t be expended over the next 12 months.
As such, the returns would either remain in the fund or a specific project envelop (in terms of grants) as a shield against inflation, or be counted in general revenue as investment income, said Egert.
In terms of cash borrowed by the city for capital construction project, debentures are only executed in batches several times each year close to the date when its required to make payments.
Since 2017, Medicine Hat has deposited about $155 million with AIMCo.
Based on a general investment strategy that calls for a mix of domestic and foreign equities, plus fixed-income funds, the return rose above 10 per cent last year.
A briefing note included with the motion Tuesday notes the value of holdings in AIMCo. at $179 million at the end of 2020.
That money is earmarked for long-term needs, such as cash to abandon gas wells, as well as a “Heritage Savings Fund.”
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