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Council updates investment policy; members debate inclusion of mortgage-backed securities
Summary
Oviedo adopted amendments to its investment management standard operating procedure after a review by Chandler Asset Management; council members raised concerns about mortgage-backed securities, but council approved the update with one recorded Nay by the mayor.
The Oviedo City Council approved updates to the city's investment management standard operating procedure at its Sept. 15 meeting, adopting a policy that expands permitted investments and adds risk-management and documentation measures recommended by the city's investment advisor.
Scott Stitcher of Chandler Asset Management presented the proposed revisions, saying the changes align the city's policy with Florida Statute 218.415 and best practices from the Association of Public Treasurers and the Government Finance Officers Association. "We expanded the permitted investments to include supranationals, commercial paper, corporate notes, agency mortgage-backed securities and asset-backed securities," Stitcher said.
The presentation said the changes aim to limit portfolio risk while enhancing potential yield by adding maximum maturities, credit ratings requirements and issuer allocation limits. Staff recommended adopting the new procedure, which would repeal and replace the prior document and implement a checklist for evaluating investment pools.
Several council members raised questions about mortgage-backed securities. One council member said, "I feel weird about it... it's morally problematic for the government to invest in other people's loans," and asked about past market failures. Chandler Asset Management responded by distinguishing agency mortgage-backed securities (Ginnie Mae, Fannie Mae, Freddie Mac) from the private-label securities tied to the 2008 crisis and noted that agency securities carry government backing and a senior-tranche structure intended to protect principal.
Staff clarified the proposed policy limits exposure: the aggregate agency sector allocation would be capped (policy text in Exhibit 1 described a 75% cap for agency securities as a whole with an additional 30% maximum exposure to any single issuer, combining both direct issuer debt and mortgage-backed holdings). In the roll call, the motion to adopt Resolution No. 46-40-25 carried with Mayor Sladek recorded as Nay; other members recorded Aye.
Formal action: Council adopted Resolution No. 46-40-25, repealing and replacing the previous investment management standard operating procedure and authorizing the planned limitations and reporting improvements recommended by the advisor.
Why it matters: The policy change broadens the city's permitted investment toolbox and adds formal documentation and allocation rules. Council discussion made clear some members have reservations about mortgage-backed securities despite staff and the advisor describing safeguards and limits in the policy.
