I recently sat down with Eliot Finkel to learn about the $260 million of taxpayer money he's in charge of investing as treasurer for the City of Beverly Hills. Being treasurer is a part time position; his day job is being principal of Eliot Finkel Investment Counsel, LLC. According to their website, they manage $100 million and everything they do is done in house. Finkel, who is a USC alumnus, is in charge of where the city invests. 

Why did you decide to run for City Treasurer? How has your occupation given you the tools you need to succeed in this position?

Well, I decided to run for city treasurer, I guess, for two reasons. First, I like being involved in the community. And second, my background fits that of the city treasurer, whose primary responsibility is to invest the city’s general portfolio. My occupation – I have been an investment advisor for almost forty years…so that qualifies me.

Does your occupation, being involved in the private sector, influence the work you do for the City of Beverly Hills when you’re wearing your Treasurer’s hat?

You know other than having 40 years of investment experience; I guess that would have an impact, but…the two aren’t particularly tied together…

The city treasurer is an elected position and you are running unopposed again, so I congratulate you on your victory. Why do you normally run unopposed?

I can’t answer that. Who knows? I don’t know how many people out there in the community have the background that I do…to handle the primary responsibility of the Treasurer…maybe they’re intimidated maybe nobody else is interested. It’s not a job that has a lot of power…political power in the city. I don’t make any of the decisions you see before the Council.

Do you have aspirations for higher political office when your next term ends?

I don’t know. Undecided.

What does the City Treasurer do for the City of Beverly Hills and since this is a part time position, how much time do you put in as City Treasurer?

The primary responsibility of the City Treasurer is to invest the general portfolio of the city. That after at this point in time requires…a few hours a month on my part because it’s all pretty much settled. You see the portfolio; things change…it’s not an actively traded portfolio. Although, the duration of most of these things is short, so there isn’t a lot goin’ on. I make one or two, maybe, purchases a month and stuff gets called away or matures.

What do you mean when you say “called away”?

Well, a lot of the positions that are – in fact they’re all of the positions in the portfolio – are bonds. They’re debt instruments. A lot of them have call provisions where they can be called by the issuing party, so they get called away. And it’s not uncommon given what’s going on in this market where there’s very low interest rates. For a while I would buy step-ups, so they would start at a low rate and then after a while the rate would start to go up and the issuing agency would call ’em away because they could issue new bonds for a lower rate. So that’s why.

In the private sector, are there these clauses?

Any bond may or may not have call provisions in it and that’s just what it says…A call provision says that the issuing party can redeem the bonds at a pre-determined price at any time from a given date or at given dates throughout the life of the instrument.

So, the private sector has this option as well.

It can, yes. It’s just part of the trust that goes behind any debt instrument. It’s one of the terms. You can have it or not. It can be non-callable; it can be callable.

How large of a role do you play in creating the City’s budget and in generating the funds that are used in this budget?

I generate funds only through the portfolio, which is pitiful at this point in time, but…so I’m probably generating on the order of two or three million dollars a year. Since I started eight years ago, I think I’ve severed through the end of 2011, I don’t have 2012 yet, generated about $52 million for the city all in.

How is your relationship, in general, with the chief financial officer and how do you work together and what do you work together on?

Primarily…we work together through my responsibility to manage it. There is an investment committee with the city. The Investment Committee consists of myself, the Chief Financial Officer, who was Scott Miller, and the Director of Finance, who is Noel Marquis now acting CFO. So, the three of is would sit down periodically and review…what kinds of investments we’re looking to do and annually we would update the investment policy.

Are there any other staff members you work with on a regular basis?

I work with the people in finance as well as a result of something not directly related to the treasurer’s position, but after…beginning my second term and it was just as…the country was entering a recession, I was asked by the then City Manager to form a committee to review the budget and come up with recommendations, so that committee has been active since then and so it’s been going on four years now and we report to the City Council every year making recommendations. We’ve made a number over the years. Some of which have been enacted, others haven’t, but that’s what this committee recommends.

How do you, as treasurer, interact with the City Council and what is your relationship with the Council?

Well, I support the City Council. I have no…I mean they can fire me; they can actually eliminate the job, if you will, because the job of treasurer was formed by the City Council. But as far as interaction, I will show up at meetings if there’s something…germane for me to address and I will address them periodically on issues of the budget.

So you do not go to all of the City Council meetings?

No.

So, what you’re doing – basically and correct me if I am wrong – is investing the reserve funds, so that way the City continually has a stable amount in the reserve.

Well…I…it’s not to create them; it’s to maintain them…The idea is how can we best…what can we get out of these funds given the demands placed on ’em.

According to the report on the City’s website it appears as though the City invests all in bonds. What is the reason for this?

Well, there’s a number of reasons…first of all, there’s a…state policy going back to Orange County, which I believe says something like 70 percent of the funds should be invested in government and agency paper, so that would be treasuries, Fannie Mae, Freddie Mac, federal home loan bank, so you could invest up to 100 percent in those, but should have at least 70 percent.

Why do believe that banks are safe when we had the financial crisis not too long ago?

Well, some banks are safer than others. We invested basically in J.P. Morgan and Wells Fargo. Those are the two I think that we have money in and those are the only two that we have money in, which are two of the strongest institutions.

What do you have to say to your constituents about these choices? In addition to what you have already said.

…When put to the test…the purpose of these funds is as an emergency reserve, so they must be liquid, so what ever they are going to be invested in is not something that could be something that could become illiquid, for example stocks. If there was…some kind of catastrophe, the stock market may take a real nosedive and it would hit the portfolio. That’s exactly the wrong time to be drawing it out, but that may be the time we need these reserve funds to carry the city, so we want safety and liquidity. Rate of return…is a distant third.

As of October 31, 2012, the average yield on the City’s investments was 0.91%. In the world of municipal investing, is this a low number?

Currently, no…that’s more than you can get on a five-year treasury and we can’t invest more than five years out. There are other aspects to this…I can say…that…my track record through 2011…I think was something like 3.7 percent.

From your expertise in the finance field, is this in general a low number?

For this kind of portfolio? No. I think I’ve done a great job…

What is being done, or what will be done, to increase this percentage?

Well, I don’t control the market and we don’t control the market. The…interest rate is affected by all kinds of things, the economy certainly and the Federal Reserve System, which has said it’s going to be low for at least another two years, so the Federal Reserve, since they basically can print money through quantitative easing, pretty much can assure that rates are gonna be low.

Are you willing and/or able to predict the average yield for 2013?

Sure; it’s gonna be about one percent. Maybe.

 

Click here to view the treasurer's website.

 

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