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DAVENPORT&COMPANY ORANGE COUNTY 31 <br /> .O1;II I Rol INv <br /> Operating Funds Investment Strategy-Overview <br /> As the County's financial advisor, Davenport and Company LLC ("Davenport"), in collaboration with <br /> County Staff is in the process of developing and implementing a comprehensive investment strategy <br /> for County operating funds. The investment strategy is structured to comply with both the North <br /> Carolina State Statute 159-30 for public investment activity as well as GFOA best practices for <br /> investing public funds. Stated simply, the primary objectives for sound investing of public funds are <br /> (listed in order of importance): <br /> • Safety/ Preservation of Principal <br /> • Liquidity <br /> • Yield <br /> The comprehensive investment strategy is designed to allow the County to purchase securities with <br /> longer average lives (maturity dates) and thus, in a normal interest rate environment, realize a higher <br /> investment yield without taking on increased credit risk. The basic tenants of the strategy include: <br /> 1. Liquidity Position <br /> Working with County staff a liquidity target will be established to ensure that the County has flexibility <br /> to meet daily cash flow requirements and unknown or unforeseen expenditures. The portion of the <br /> County's portfolio designated for the liquidity position will be held in overnight investments with daily <br /> liquidity, such as the County's current bank deposits and North Carolina Capital Management Trust <br /> ("NCCMT") accounts. <br /> 2. Cash Flow Forecasting and Laddered Investment Portfolio <br /> County staff and Davenport are in the process of developing a customized detailed cash flow <br /> forecast of operating fund revenues and expenditures. The cash flow forecast will indentify time <br /> periods where projected expenditures exceed projected revenues - these periods of time will be <br /> identified and targeted for investment purchases based upon a targeted asset allocation (discussed <br /> herein). This approach will allow the County to create a laddered portfolio of securities, investing <br /> longer on the yield curve without taking undue investment risk given that future expenditure gaps will <br /> be covered by maturing investments. This laddered portfolio approach will work in collaboration with <br /> the liquidity position to ensure the ability to accommodate short-term variances in cash flow. <br /> 3. Asset Allocation <br /> Prior to implementation of the program, an agreed upon asset allocation will be established to <br /> provide guidance for the securities purchased for the laddered portfolio. The Asset Allocation will <br /> take into account investment restrictions established by State Statute, County Policies, Outside <br /> Limitations (e.g. Bond Resolutions) and Investment Credit Factors to create a diversified portfolio of <br /> securities which will minimize concentration in / exposure to any one asset class or issuer. The <br /> Asset Allocation will include: <br /> • Liquid Investments (e.g. Bank Accounts, NCCMT Cash and Term Portfolios) <br /> • US Treasury Direct Obligations (e.g. Bonds, Bills, Notes) <br /> Member NYSE I FINRA I SIPC Page 3 <br />