Rio Rancho advisory board votes to reinvest 2024 permanent fund earnings; recommends investment-policy changes

The City of Rio Rancho Investment Advisory Board voted Feb. 26 to recommend that the governing body reinvest the city's 2024 permanent fund earnings rather than distribute them, and approved staff's recommendation to present edits to the permanent fund investment policy statement to the city council.

The recommendation follows presentations from the city's external investment advisors and portfolio managers, who reviewed quarterly performance and proposed two principal changes to the investment policy: clarify the policy's target return language and add a dedicated 6% policy target to "real assets and infrastructure" within the growth sleeve. Advisors also recommended moving the plan's current U.S. small-/mid-cap holding to an active small-/mid-cap pool to better match a broad-market benchmark exposure (the Russell 3000). Mallory Sampson, an advisor participating in the meeting, recommended the policy language: "the annual rate of return on the assets are commensurate with the then-prevailing investment environment." Sampson said that change avoids inappropriate references to a "discount rate" in the existing policy.

Why it matters: The board's recommendation preserves the corpus of the permanent fund and seeks to strengthen the policy framework that governs how the city invests that money. The permanent fund's market value at the end of 2024 was reported as $13,983,900; net earnings after fees were $1,253,509.89, of which the charter allows 50% to be available for distribution (about $626,007.54). Staff and advisors said reinvesting the earnings would grow the fund's corpus and better position it as a potential multi-year revenue source for the city.

Advisors' presentation and analysis Mallory Sampson and Chad Stapleton reviewed the recommended policy edits and the firm's suggested portfolio adjustments. They proposed adding a dedicated 6% allocation to real assets and infrastructure to the growth sleeve for inflation hedging and downside protection and recommended shifting the existing U.S. small-/mid-cap, all-weighted index holding to an active small-/mid-cap pool. Sampson said the current small/mid holding's benchmark tilts toward small-cap-only indexes and misses mid-cap exposure; pairing the Russell 1000 and Russell 2000 benchmarks would better approximate the Russell 3000 and the U.S. market composition.

Advisors noted the tradeoffs: the proposed changes would raise the portfolio's asset-weighted expense ratio from about 12 basis points to about 18 basis points (an increase of roughly 0.06%), but they projected a modest reduction in portfolio volatility (standard deviation) while keeping intermediate- and long-term expected returns similar (about 6.7% to 6.8% in the firm's capital market assumptions). Stapleton said the firm's five-year and 30-year scenario models show similar expected returns for the current and proposed targets, with reduced volatility under the new target mix.

Core and liquidity portfolio review A separate presentation on the city's operating/core and bond-proceeds portfolios emphasized the fixed-income strategy. The portfolio manager reported the core portfolio ended the quarter with a composite yield of about 4.34% and that the team has increased allocations to U.S. Treasuries (reporting 55.6% in treasuries and 19% in agencies at quarter end). The portfolio remains short of the policy average-duration limit (policy 3-year average; current about 1.29 years) and adheres to the city's single-issue and maturity limits (seven-year maximum for Treasuries/agencies; five-year maximum for supranationals). The manager said liquidity targets include maintaining a minimum liquidity balance of $50 million and growing the core fund target to $175 million.

Permanent fund mechanics and board discussion Carol Jaramillo, the city's director who presented the staff recommendation, told the board the permanent fund was established in the city charter and that the ordinance and charter together set distribution mechanics. She said the charter requires that 50% of annual earnings be added to principal and 50% be distributed, but that the governing body may "add to the permanent fund" (i.e., the council may choose to reinvest distributions). Jaramillo reported the city added $1 million to the fund earlier this year by resolution and described the fund's intended role as a long-term cushion and potential recurring revenue source in future fiscal stress.

Board members discussed a range of tradeoffs. Member Baker asked whether it would be possible to set aside a portion of earnings in a more liquid, protected bucket (for use if the market falls) while reinvesting the remainder; staff and other members said such a change would require an ordinance change and potentially further council or voter action because the charter and ordinance set the distribution rules. Director Jaramillo and staff said the governing body could amend the ordinance on recommendation from this advisory board, and the voters could also alter charter protections if they chose to do so in the future.

Board actions and votes at a glance - Motion to correct previous meeting minutes to reflect Member McCrary as absent for the prior vote: approved (roll call on the record). - Election of officers: Chair Christopher Wainwright was nominated and confirmed; Christopher Baker was elected vice chair (roll call recorded affirmative votes). - Recommendation on 2025 permanent fund distribution (staff recommendation to reinvest the 2024 earnings rather than distribute them): motion moved and seconded; roll call vote recorded: Baker Yes; McCray Yes; Billups Yes; Daniel Aye; Wainwright Yes; Jablonski Yes. Outcome: approved (recommendation to governing body to reinvest). - Recommendation to present edits to the permanent fund Investment Policy Statement (clarify return language; add flexibility for a dedicated allocation to real assets): motion moved and seconded; roll call vote recorded affirmatives from members; outcome: approved (staff will forward to the governing body).

What the board did not decide The advisory board did not change the charter or ordinance language at the meeting. Several members asked staff to return with options for a more liquid earnings set-aside or policy language that would allow some earnings to be parked for use if markets decline; staff said that would be a separate policy/ordinance conversation and could be brought to the governing body for consideration.

Context and next steps Staff will present the advisory board's recommendations to the governing body (city council) for any ordinance or policy action. If the council approves the investment policy edits, staff and advisors would implement the updated policy language and begin the portfolio adjustments described by the advisors only after any required council approvals. The advisory board said no immediate portfolio transactions were required at this meeting and that no distribution action will occur until the governing body addresses the recommendation.

Speakers quoted in this report include Mallory Sampson (investment advisor), Chad Stapleton (investment advisor), Carol Jaramillo (Director, City of Rio Rancho), Deann (portfolio manager), Chair Christopher Wainwright and board members Christopher Daniel, David Jablonski, Member Baker, Member McCray and Member Billups.