Memorandum 17-108 Permanent Fund Information

Memorandum 17-108

TO:                        Mayor Zak and Homer City Council  

FROM:                 Katie Koester, City Manager

DATE:                   July 19, 2017

SUBJECT:          Permanent Fund Info

The purpose of this memo is to provide relevant background for Council’s consideration of the two Permanent Fund related ordinances on the agenda and rescinding action on Ordinance 17-23.

The growth portion of the permanent fund is invested in two separate pots: one that tracks the S&P 500 and one that tracks the NASDAQ. The intent behind selecting these two was to keep the investing very simple (read no steep management fees) and track a nationally recognized index that is easy to follow.  See the attached screen shots from Morningstar.com that show historical performance of the S&P 500 and NASDAQ.

Market value of growth fund as of July 17, 2017: $1,625,542

S&P 500: $936,205

NASDAQ: $689,337

The income fund is stable by its very nature. It is invested in two government bonds with a combined value of $678,259. The City’s investment firm, TVI, recommends a minimum of $100,000 to purchase a decent bond.

Market Value of Permanent Fund as of 7/18/2017: $2,303,801

If Council decides to adopt the two ordinances before them, paying off the Library loan and rebalancing the fund, TVI recommends paying off the Library loan entirely by selling off equities. This would still leave the need to sell approximately $140,000 in equities to purchase a bond in order to achieve the 25/75 growth/income split Councilmember Stroozas recommends.

TVI charges a $250 transaction fee to sell off any portion of an equity fund or $500 to close it (sell all the shares). Bond fees are undisclosed but range from $200 to $400 per $100,000 in bond value. These fees are minimal compared to an actively managed fund where the City was paying between $11,500-$15,200 annually.

Enc:

Historical performance of the S&P 500 and NASDAQ
City of Homer Permanent Fund Investment Portfolio as of 7-18-17