Kelowna losing to inflation on $800 million worth of investments

The City of Kelowna has close to $800 million safely invested but is slowly being eaten away by high inflation that Canada experienced in 2022.

The city had a 2.49% rate of return on its money last year while the Consumer Price Index climbed by 6.3% for the year, according to a report going to city council on Monday.

“The primary performance objective is to achieve a rate of return greater than the Canada Consumer Price Index for all items,” states the city’s 2023 budget document.

By that measure, it fell far short this year.

But, that’s not the only marker of investment success. The goal is to also bring in a higher rate of return than four other “benchmarks.”

On that basis, the city did much better, exceeding Canada 91-Day T-bills (which came in at 1.8%), Median Money Market Return (1.87%), Municipal Finance Authority money market fund (1.93%) and the Municipal Finance Authority’s bond fund (-3.43%).

READ MORE: Why Kelowna isn't spending its $100 million legacy fund

The city had $792.1 million invested at the end of 2022 with 71% in long term investments and 29% in short term investments, since some of the money may be needed to fund various projects.

It can only buy into A, AA and AAA investments and uses a 10-year balanced approach so they mature at regular intervals.

“The City of Kelowna’s portfolio was able to outperform these benchmarks by maintaining a large portion of the portfolio in high liquid instruments,” the report to council says. “This allowed the city to take advantage of the increases in interest rates by not locking in funds at low rates for long durations.”

Things are looking up for 2023 with the rate of inflation expected to fall to 3% by mid-year and 2% by the end of the year, the report says. Interest rates are also expected to fall in coming years, it says.

By purchasing longer-term bonds at today’s higher interest rates, they should increase in value compared to inflation by the time they mature.

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