The City of Moose Jaw’s investment committee has pulled several million dollars out of guaranteed investment certificates (GICs) and reinvested the money to take advantage of premium prices elsewhere.
During its recent regular meeting, city council voted 6-1 on a motion from the committee to pull out $2 million from GICs. Coun. Brian Swanson was opposed.
Council also voted 6-1 to accept another motion that the committee recommended to pull out $8.1 million from a GIC. Swanson was opposed.
Background
During its June meeting, the investment committee decided to adopt RBC’s Dominion Securities (DS) Strategy recommendation for the municipality’s moderate-term pool account and redeem $1 million of 2021 GICs and $1 million from 2022 GICs to take advantage of premium prices, council’s report explained.
The committee would take $1 million in GIC proceeds, plus $487,523 in interest, and invest it into an equity portfolio that would mature this December. The committee would also take the other $1 million and invest it into a bond pool to take advantage of the yield spread opportunity.
The committee attempted to redeem $5.4 million in GICs and invest them in long-term pools during that same meeting. However, service provider RBC wouldn’t allow partial withdrawals, Coun. Scott McMann, a member of the committee, explained. That is why the committee had to meet in July, so it could delete this motion and recommend another one.
From the July meeting, the committee agreed to adopt the RBC DS Strategy that was recommended for the long-term portfolio and sell the 2024 RBC GIC for $8.1 million, plus gains and accrued interest. It would also include the May interest payment of $713,066 to fund the remaining withdrawal requirement of $1.3 million and invest $3 million in a professionally managed, low-cost global bond pool.
Lastly, the committee planned to invest the remainder of the money in equal monthly instalments into equities to this December.
Therefore, if the committee withdrew $8.1 million and invested $3 million into a global bond pool, the remainder — some or all of $5 million — was invested into equities.
In an email to the Express, finance director Brian Acker would not confirm how much money went into equities since the committee handled that information in private. Nor would he say what percentage value the GICs were worth — i.e. 2.4 per cent — before the committee pulled them out since members dealt with that in private as well.
Council discussion
McMann confirmed for Swanson that RBC was both the service provider and financial advisor to the City of Moose Jaw’s investment committee. Swanson then wondered whether it was true that RBC as financial advisor didn’t know that RBC as service provider wouldn’t allow a partial withdrawal of funds from GICs.
“That’s my understanding, is how that happened … ,” McMann replied. “It probably should have been something they should have known but didn’t, so I guess we know now.”
Swanson’s concern, he explained, was the municipality had a respectable bond portfolio at one point that was earning 3.5 per cent to four per cent in interest before the investment committee sold those bonds more than a year ago. Now, council is about to enter into a bond fund where the returns there are much less than the bonds the municipality previously held.
Secondly, Swanson pointed out the municipality pays RBC about $500,000 a year to manage its investment portfolio.
“It seems a lot of our portfolio is going into mutual funds,” he said. “So, we hire a consultant to pick a consultant for us.”
While the management fees of roughly 0.5 per cent might not sound like much, Swanson added, it becomes a lot of money and council is paying more fees it never did before to have its money managed.
The next regular council meeting is Monday, Aug. 10.
