Chicago investment returns on track to beat last year: City Treasurer Office

By Harvard Zhang

The return on Chicago’s investment portfolio is on track to beat last year’s results thanks to the re-allocation of funds into higher-yield bonds.

Chicago generated $15 million of revenue on “traditional reserves” from Skyway and parking meter revenues in the first quarter of 2016, and $22 million on operating funds, according to Miriam Martinez, chief investment officer of the City Treasurer Office, who said the total return for all of 2015 was nearly $57 million. Investment yield edged up in the first quarter, and the city stuck to its policy of requiring a minimum of a AA rating of its investments.

“We have hit some milestones, and we will have better figures in the second quarter,” Martinez said Tuesday during a conference call. “The biggest thing is not keeping $3 billion to $4 billion in money- market and short-term cash, which is not necessary.”

The rosy report came as the third-most-populated U.S. city has been grappling with its $26.8 billion pension liabilities after years of shortchanging its six retirement funds. Chicago’s general-obligation bonds have been pinned in the junk territory by the Moody’s Investors Service credit rating of Ba1, better than only one other populous city, Detroit.

Portfolio yield climbed 28 percentage points to 1.24 percent last quarter from the end of last year. Martinez said the key was re-allocating funds to corporate and municipal bonds while lowering holdings in cash, money-market funds and agency bonds.

The city’s investment portfolio had $1.5 billion in corporate bonds in the latest quarter, $580 million more than the last three months of 2015. Holdings in low-yield money-markets and cash shrank by $821 million.

Investment duration ticked up to 1.65 years from 1.48 years at the end of last year, indicating a higher interest-rate risk for bond prices in the portfolio. Duration measures the sensitivity of the price of a fixed-income investment to a change in interest rates.

Chicago has been punished in the bond market for its financial woes. The most-active Chicago bonds last week, which are due in 2038, were traded for an average of 98 cents on the dollar at a yield of 5.167 percent, according to Bloomberg data. The bonds have a credit spread of 290 basis points over the benchmark AAA-rated debt, widened from a 238-basis-point spread when the bonds were issued in January.

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