HomeMy WebLinkAboutResolution No. 11-03 Adopt Investment Policy
RESOLUTION NO. 11-03
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
UNIVERSITY PARK, TEXAS, ADOPTING THE INVESTMENT POLICY
OF THE CITY OF UNIVERSITY PARK HERETOFORE ADOPTED BY
RESOLUTION NO. 10-12; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, the Public Funds Investment Act, as amended, requires the City to adopt an
investment policy by rule, order, ordinance or resolution, and to review such policy not less than
annually; and
WHEREAS, the Public Funds Investment Act, as amended, requires the Treasurer, the
Chief Financial Officer, and the Investment Officers of the City to attend investment training;
and
WHEREAS, the City of University Park approves of the investment training courses
sponsored by the Texas Municipal League and other independent sources; and
WHEREAS, the Treasurer, the Chief Financial Officer, and the Investment Officers of
the City have attended investment training courses as required by the Public Funds Investment
Act; and
WHEREAS, the attached investment policy complies with the Public Funds Investment
Act, as amended, and authorizes the investment of City funds in safe and prudent investments;
Now, Therefore,
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF UNIVERSITY
PARK, TEXAS:
SECTION 1.
That the City of University Park has complied with the
requirements of the Public Funds Investment Act, and the Investment Policy, as amended,
attached hereto as Exhibit "A" is hereby adopted as the Investment Policy of the City of
University Park, effective June 21, 2011.
SECTION 2.
That the following individuals are hereby designated as Investment
Officers for the City of University Park: Kent Austin, Director of Finance; Bob Livingston, City
Manager; and, Thomas Tvardzik, Controller.
SECTION 3. This resolution shall take effect from and after its passage, and it is
accordingly so resolved.
S: IFlNANC EI/N VESTMENTSl/nvestrnent Po/icyl20 I I IReso/ution Invest Policy 06-2/-20 I I.doc
DUL Y PASSED AND APPROVED by the City Council of the City of University Park,
Texas, on the 21st day of June, 2011.
APPROVED:
wjJ~~
W. RICHARD DA VIS, MAYOR
~~~
CITY ATTORNEY ....
ATTEST:
S: IFINANCEI/N VESTMENTSl/nvestrnent Policyl20 I I IReso/ution Invest Policy 06-2 I -20 I I.doc
City of University Park, Texas
Investment Policy
Effective June 21, 2011
City of University Park. Texas - Investment Policy
CONTENTS
Preface....................................................................................................................... ........ I
1. PURPOSE
1. Authorization ........ .......................... ...... ...... .............. ..................................... ....... I
2. Goal........................................................................... .......................... ..................1
3. Scope.....................................................................................................................l
4. Review and Amendment................ ...... ............... ..................................................2
2. INVESTMENT OBJECTIVES
1. Preservation and Safety of Principal.... ...... ............... ............................................2
I. Credit Risk....................................................................................................... 2
2. Interest Rate Risk....... ..... ............................ ......... ..... ...... ...... ...........................2
2. Maintenance of Adequate Liquidity .....................................................................3
3. Return on Investments.............................. ........... .......... ................ .......................3
4. Prudence and Ethical Standards................ ..................... ................................ .......3
3. INVESTMENT STRATEGY STATEMENT
1. Operating Funds... ...... .................................... .......... .............................................4
2. Bond Debt Service Funds................... ...... .................................................... ........4
3. Bond Reserve Funds................. ..................... ..... ..................... .......... ...................4
4. Capital Projects Funds........................ ...... .................... ........................................5
4. SPECIFIC INVESTMENT POLICIES
1. Eligible Investments............ ..................... .......... ..................................................5
1. Obligations of the United States ..................................................................5
2. Obligations of the State of Texas.............. .......... ........... ...................... ........5
3. Agencies of the United States and State of Texas................. .............. ........5
4. Obligations of other States, Counties, Cities ...............................................5
5. Direct Repurchase Agreements................................................................... 5
6. Certificates of Deposit and CDARS ............................................................6
7. Share Certificates of state and federal Credit Unions..................................6
8. Money Market Mutual Funds......... ........... ............... ...................................6
9. Local Government Investment Pools ......... ..................... .......................... ...7
2. Ensuring Safety of Principal. ...... .............. ............ ................ ..................................7
1. Protection of Principal............... .......... ................ ..... ...................................7
1. Approved Broker/Dealers/Financial Institutions/Depositories.............. 7
City of University Park. Texas - Investment Policy
2. Collateralization.......... ...........................................................................8
3. Portfolio Diversification.............. ..........................................................8
4. Limiting Maturity ................ .......... ........................................................ 9
2. Safekeeping ......................................... ................. ...............................10
3. Effect of Loss of Required Rating............... ............. ...................................10
3. Ensuring Liquidity .................................. ..................... ........... ............................ I 0
4. Achieving Investment Return Objectives................ ................ ...........................10
1. Securities Swaps.................................. ................. ............................. ..........10
2. Competitive Bidding........................... ..................... ................. ................. .11
3. Methods of Monitoring Market Price.......................................................... 1 1
4. Benchmark Rate of Return. ......................... .............................. ................. .11
5. Responsibility and Controls........................ ....................................................... .11
1. Authority to Invest....................... ................................................................ I 1
2. Bonding requirements/Standard of care....................... ............................... 12
3. Establishment of Internal Controls ............ .................................................. 12
4. Standard of Ethics......... .............. ................. ............ ................................... 12
5. Training and Education........................................ ........ ............................... I 3
6. Investment Committee.................... ............................................................ I 3
6. Reporting............ ........................................ ............. ........................................... I 3
7. Compliance Audit and Accounting Method .......................................................14
8. Certification............................ ............................. ............ ................................... 14
5. ADOPTING CLAUSE............................. ............................ ........................................ I 5
ATTACHMENTS
I. Investment Vendor Acknowledgement
2. Broker-Dealer and Bank Questionnaires
ii
City of University Park. Texas - Investment Policy
PREFACE
The purpose of this document is to establish specific investment policy and strategy
guidelines for the City of University Park, Texas ("City") to achieve the goals of safety,
liquidity, and yield for all investment activity. The City shall review its investment
strategies and policy not less than annually. This policy serves to satisfy the statutory
requirement, specifically the Public Funds Investment Act, Chapter 2256 of the Texas
Government Code (the "Act"), to define, adopt and review a formal investment strategy
and policy. All available funds shall be invested in conformance with these legal and
administrative guidelines.
Effective cash management is recognized as essential to good fiscal management. An
aggressive cash management and investment policy will be pursued to take advantage of
investment interest as viable and material revenue to all operating and capital funds. The
City's portfolio shall be designed and managed in a manner responsive to the public trust
and consistent with state and federal law .
Investments shall be made with the primary considerations of:
. Preservation of capital and protection of principal
. Maintenance of sufficient liquidity to meet operating necds
. Security of City funds and investments
. Diversification of investments to avoid unreasonable or foreseeable risks
. Maximization of return on the portfolio
SECTION 1: PURPOSE
1-1. Authorization
This Policy is authorized by the City Council in accordance with Section 5 of the Public
Funds Investment Act (Chapter 2256, Texas Government Code), which requires the
adoption of a formal written Investment Policy.
1-2. Goals
The primary goal of the City of University Park's Investment Policy shall be: 1) to ensure
the safcty of all funds entrusted to the City; 2) to maintain the availability of those funds
for the payment of all necessary obligations of the City; and 3) to provide for the
investment of all funds, not immediately required, in interest-bearing securities or pooled
invcstment products. The safety of the principal invested shall always be the primary
concern.
1-3. Scope
This Investment Policy of the City of University Park shall include all investment
activities of any fund of the City, except for the Firefighters' Relief and Retirement Fund,
which is covered by a separate policy. In addition to this Policy, bond funds, including
debt service and reserve funds, shall be managed by their governing resolution and
City of University Park. Texas - Investment Policy
federal law, including the Tax Reform Act of 1986 and subsequent legislation. City funds
will be pooled for investment purposes.
1-4. Review and Amendment
This Policy may be amended from time to time as the City Council may so desire or as
State Law may require. This Policy, which includes strategies for each fund or pooled
fund group, shall be adopted by resolution, rule, or ordinance by the City Council and
shall be reviewed annually by the City Council. The fact that the Investment Policy has
been reviewed and that any amendments have been made must be recorded by resolution,
rule or ordinance.
SECTION 2: INVESTMENT OBJECTIVES
The City shall manage and invest its cash with four objectives, listed in order of priority:
Preservation and Safety of Principal; Liquidity; Yield; and Prudence. All investments
shall be designed and managed in a manner responsive to the public trust and consistent
with State and Local Law.
Cash management is defined as the process of managing monies in order to increase cash
availability and interest earnings on short-term investment of idle cash. The City shall
maintain a comprehensive cash management program that includes the prudent
investment of available cash.
2-1. Preservation and Safety of Principal
The primary objective of City investment activity is the preservation of principal in the
overall portfolio. Each investment transaction shall be conducted in a manner designed to
avoid principal losses, whether they are from securities defaults or erosion of market
value. The manner in which the City ensures safety of principal is presented in Section
4.2, "Ensuring Safety of Principal."
2-1-1 Credit Risk
The City will minimize credit risk, which is the risk ofloss due to the failure of the
security issuer or backer by:
a. Limiting investments to the types of securities listed in section 4-1 of this
Investment Policy.
b. Prequalifying the financial institutions, broker/dealers, intermediaries, and
advisors with which the City will do business in accordance with Section 4-2-
1-1.
c. Diversifying the investment portfolio so that the impact of potential losses
from anyone type of security or from anyone individual issuer will be
minimized.
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City of University Park. Texas - Investment Policy
2-1-2 Interest Rate Risk
The City will minimize interest rate risk, which is the risk that the market value of
securities in the portfolio will fall due to changes in market interest rates, by:
a. Structuring the portfolio so that securities mature to meet cash requirements for
ongoing operations.
b. Investing operating funds primarily in short-term securities, money market
mutual funds, or similar investment pools and by limiting the average maturity
of the portfolio in accordance with this policy.
2-2. Maintenance of Adequate Liquidity
The City investment portfolio shall be structured so that the City is able to meet all
obligations in a timely manner. Maintenance of adequate liquidity is described in Section
4.3, "Ensuring Liquidity."
2-3. Return on Investments
Consistent with State law, the City shall seek to optimize return on investments within
the constraints of safety and liquidity. Investments (excluding assets managed under
separate investment programs, such as in arbitrage restrictive programs) shall be made in
permitted obligations at yields equal to or greater than the bond equivalent yield on
United States Treasury obligations of comparable maturity. Other appropriate
performance measures may be established by the Investment Committee. Specific
policies regarding investment rate of return are presented in Section 4.4, "Achieving
Investment Return Objectives."
For bond issues to which Federal yield or arbitrage restrictions apply, the primary
objectives shall be to obtain satisfactory market yields and to minimize the costs
associated with investment of such funds.
2-4. Prudence and Ethical Standards
The standard of prudence used by the City shall be the "prudent person rule" and shall be
applied in the context of managing the overall portfolio within the applicable legal
constraints. The prudent person rule is restated below:
"Investments shall be made with judgment and care, under circumstances then
prevailing, which persons of prudence, discretion and intelligence would exercise in
the management of their own affairs, not for speculation, but for investment,
considering the probable safety of their capital as well as the probable income to be
derived. "
In determining whether the Investment Officer(s) or Investment Advisor under contract
has exercised prudence with respect to an investment decision, the determination shall be
made taking into consideration the investment of all funds over which the Officer or
Advisor had responsibility, rather than a consideration as to the prudence of a single
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City of University Park. Texas - Investment Policy
investment, and whether the investment decision was consistent with the written
Investment Policy of the City.
The Investment Officers, acting in accordance with written procedures and exercising
due diligence, shall not be held personally responsible for a specific security's credit risk
or market price changes, provided that these deviations are reported immediately.
Specific policies describing the City's prudence and ethical standards are found in
Section 4.5, "Responsibility and Controls."
SECTION 3: INVESTMENT STRATEGY STATEMENT
The City maintains portfolios that utilize four specific investment strategy considerations
designed to address the unique characteristics of the fund groups represented in the
portfolios. To maximize the effective investment of assets, all funds needed for general
obligations may be pooled into one account for investment purposes. The income derived
from this account will be distributed to the various funds based on their average balances
on a periodic basis. Proceeds of bond issues shall not be pooled with other assets of the
City, but shall be maintained in the fund issuing the bonds with interest earnings on these
invested proceeds recorded directly to that fund.
3-1. Operating Funds
The investment strategy for operating funds has as its primary objective the assurance
that anticipated cash flows are matched with adequate investment liquidity. The
secondary objective is to create a portfolio structure which will experience minimal
volatility during economic cycles. This may be accomplished by purchasing high-quality
short-to medium-term securities. The dollar weighted average maturity shall be
calculated in accordance with GASB requirements. The weighted average maturity of
operating funds shall not exceed 548 days. Securities may not be purchased that have a
final stated maturity date that exceeds five (5) years.
3-2. Bond Debt Service Funds
The investment strategy for bond debt service fund(s) has as its primary objective the
assurance of investment liquidity adequate to cover the debt service obligation on the
required payment date. Securities purchased shall not have a stated final maturity date
that exceeds the next unfunded bond debt service payment date.
3-3. Bond Reserve Funds
The investment strategy for bond reserve fund(s) has as its primary objective the ability
to generate a dependable revenue stream to the appropriate debt service fund from
securities with a low degree of volatility. Securities should be of high quality and, except
as may be required by the Bond Ordinance specific to an individual issue, of short-to-
intermediate-term maturities. The stated final maturity dates of securities held shall not
exceed five (5) years.
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City of University Park. Texas - Investment Policy
3-4. Capital Projects Funds
The investment strategy for capital projects funds portfolios has as its primary objective
the assurance that anticipated cash flows are matched with adequate investment liquidity.
These portfolios should include at least 10% in highly liquid securities to allow for
flexibility and unanticipated project outlays. The stated final maturity dates of securities
held should not exceed the estimated project completion date.
SECTION 4: SPECIFIC INVESTMENT POLICIES
4-1. Eligible Investments
Investments described below are those authorized by the Public Funds Investment Act
(Chapter 2256, Texas Government Code), as amended, which is made a part of this
Policy. The following list may not contain all of those securities that are authorized by
state statutes, but only those that the City Council wishes to include in their portfolios.
The purchase of specific issues may at times be further restricted or prohibited because of
current market conditions. City funds governed by this Policy may be invested in:
1. obligations of the United States or its agencies and instrumentalities;
2. direct obligations of the State of Texas or its agencies;
3. other obligations, the principal and interest on which are unconditionally
guaranteed or insured by the State of Texas or the United States or its agencies and
instrumentalities, including obligations that are fully guaranteed or insured by the
Federal Deposit Insurance Corporation or by the explicit full faith and credit of the
United States.
4. obligations of states, agencies, counties, cities and other political subdivisions of
any state having been rated of their own accord as to investment quality by a
nationally recognized investment rating firm and having received a rating of not
less than AA or its equivalent, and with additional credit enhancement having
received a rating of not less than AAA or its equivalent by a nationally recognized
investment rating firm.
5. fully collateralized direct repurchase agreements: I) having a defined termination
date; 2) secured by a combination of cash and obligations described by subdivision
1 of this subsection: 3) having securities purchased by the City or cash held by the
City pIcdged to the City, held in the City's name and deposited at the time the
investment is made with the City with a third party selected and approved by the
City; and 4) placed through a primary government securities dealer, as defined by
the Federal Reserve, or a financial institution doing business in Texas, and having a
market value (including accrued interest) of no less than the principal amount of the
funds disbursed;
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City of University Park. Texas - Investment Policy
6. a. certificates of deposit issued by a depository institution with a main office or
branch in Texas that are:
1. guaranteed or insured by the Federal Deposit Insurance Corporation, or its
successor; or,
2. secured by obligations that are described by 1 - 4 above, which are intended
to include all direct federal agency or instrumentality issues that have a
market value of not less than the principal amount of the certificates or in
any other manner and amount provided by law for deposits of the City.
b. made in accordance with the following conditions, commonly known as the
Certificate of Deposit Account Registry Service (CDARS):
1. the funds are invested by the City through a broker that has its main office
or a branch office in this state and is selected from a list adopted by the
City or a depository institution ("bank") that has its main office or a
branch office in this state and that is selected by the City;
2. the broker or bank selected by the City under Subdivision (1) arranges for
the deposit of the funds in certificates of deposit in one or more federally
insured depository institutions, wherever located, for the account of the
City;
3. the full amount of the principal and accrued interest of each of the
certificates of deposit is insured by the United States or an instrumentality
of the United States; and
4. the City appoints the bank selected by the City under Subdivision (I), an
entity described by the Texas Public Funds Collateral Act (Texas
Government Code 2257.041(d)) or a clearing broker-dealer registered
with the Securities and Exchange Commission and operating pursuant to
Securities and Exchange Commission Rule 15c3-3 917 C.F .R. Section
240.15c3-3) as custodian for the City with respect to the certificates of
deposit issued for the account of the City.
7. share certificates issued by state and federal credit unions with a main office or
branch in Texas that are:
1. guaranteed or insured by the National Credit Union Share Insurance Fund,
or its successor; or,
2. secured by obligations that are described by 1 - 4 above, which are intended
to include all direct federal agency or instrumentality issues that have a
market value of not less than the principal amount of the certificates or in
any other manner and amount provided by law for deposits of the City.
8. SEC-regulated, no-load money market mutual funds with a dollar-weighted average
stated portfolio maturity of 90 days or less and whose investment objectives include
seeking to maintain a stable net asset value of $1 per share. No more than 15% of
the City's average fund balance may be invested in money market mutual funds,
and the City may not invest funds under its control in an amount that exceeds 10%
of the total assets of any individual money market mutual fund.
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City of University Park. Texas - Investment Policy
9. Local government investment pools organized in accordance with the InterIocal
Cooperation Act (Chapter 791, Texas Government Act) as amended, whose assets
consist exclusively of the obligations that are allowed as a direct investment for
funds subject to the Public Funds Investment Act (Chapter 2256, Texas
Government Code). A public funds investment pool must be continuously rated no
lower than AAA, AAA-m or at an equivalent rating by at least one nationally
recognized rating service.
Eligible investment pools must be authorized by the City Council, by rule, order,
ordinance, or resolution, as appropriate. The City Council has approved: I) the
Texas Local Government Investment Pool ("TexPool"), administered by the Texas
State Comptroller; 2) the Texas Short Term Asset Reserve ("TexST AR");
administered by JPMorgan Chase and First Southwest Asset Management; and 3)
TexasTERM and TexasDaily, administered by PFM Asset Management LLC.
Unless backed by the full faith and credit of the U.S. government, investments in
collateralized mortgage obligations are strictly prohibited. These securities are also
disallowed for collateral positions. The City will not be required to liquidate investments
that were authorized investments at the time of purchase.
4-2. Ensuring Safety of Principal
Ensuring safety is accomplished through protection of principal and safekeeping.
4-2-1 Protection of Principal
The City shall seek to control the risk of loss due to the failure of a security issuer
or guarantor by investing only in the safest types of securities as defined in the
Policy. Settlement of all investment transactions, except those transactions
involving investments in mutual funds or local government investment pools, must
be made on a delivery versus payment (DVP) basis. The purchase of individual
securities shall be executed DVP through the Federal Reserve System delivered to
an authorized safekeeping agent or trustee ("custodian"). By so doing, City funds
are not released until the City has received, through the Federal Reserve wire, the
securities purchased. The security shall be held in the name of the City. The
custodian's records shall assure the notation of City ownership of or explicit claim
on the securities.
Additionally, the City shall adhere to the following practices to protect its
investment principal:
4-2-1-1 Approved Broker/Dealers/Financial Institutions and Depositories
Investments shall only be made with those firms and institutions who have
acknowledged receipt and understanding of the City's Investment Policy. The
"qualified representative" of the business as defined in Chapter 2256 of the
Texas Government Code shall execute a written certification to acknowledge
receipt of the City's Investment Policy and to acknowledge that the
organization has implemented reasonable procedures and controls to preclude
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City of University Park. Texas - Investment Policy
imprudent investment activities arising out of the investment transactions
conducted between the entity and the City. Should the City contract with an
external investment advisor to execute the investment strategy, including the
negotiation and execution of investment transactions, a managing officer of
the investment advisory firm may sign the written certification in lieu of the
broker/dealer firms. This certification must be included as part of the
investment advisory contract.
Securities and certificates of deposit shall only be purchased from those
institutions included on the City's list of broker/dealers and financial
institutions as approved by the Investment Committee. All securities dealers
shall provide the City with references from other public entities that they are
currently serving. This list of approved investment providers must be
reviewed at least annually by the City's Investment Committee and shall be
recorded in the Committee's meeting minutes. The City's Finance Advisory
Committee shall comprise the Investment Committee.
All state and national banks located in the State of Texas, which are insured
by the Federal Deposit Insurance Corporation (FDIC) are to be considered as
eligible depositories. The financial condition of the bank shall be considered
prior to establishing any accounts with that bank. The Finance Advisory
Committee shall review the bids submitted by depository candidates and make
a recommendation to the City Council for final approval.
4-2-1-2 ColIateralization
Consistent with the requirements of State law, the City requires all bank
deposits (including time deposits) to be federally insured or collateralized
with eligible securities. Financial institutions serving as City Depositories
will be required to sign an Agreement with the City and its safekeeping agent
for the collateral, perfecting the City's rights to the collateral in case of
default, bankruptcy or closure.
The City shall not accept, as depository collateral, any security that is not
specifically allowed to be held as a direct investment by the City portfolio
(see 4-1). Repurchase agreements must also be collateralized in accordance
with State law. Evidence of the pledged collateral shall be maintained by the
Finance Director or a third party financial institution. All collateral shall be
subject to inspection and audit by the Finance Director or the City
independent auditors.
4-2-1-3 Maximum Exposure Guidelines
Risk of principal loss in the portfolio as a whole shall be minimized by
diversifying investment types according to the following limitations. As
discussed below, these limitations do not apply to bond proceeds.
Investment Type:
% of Portfolio
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City of University Park. Texas - Investment Policy
. U.S. Treasury Notes/Bonds/Bills 100%
. U.S. Agencies 60%
. Local Government Investment Pools 50%
. Repurchase Agreements 30%
. Certificates of Deposit 30%
. Municipal Bonds 20%
. Money Market Mutual Funds 15%
It is the policy of the City to diversify its investment portfolio so that reliance
on anyone issuer or broker will not place an undue financial burden on the
City. Generally, the City should limit its repurchase agreement exposure with
a single firm to no more than 15% of the value of the City's overall portfolio.
To allow efficient and effective placement of proceeds from any bond sales,
these limits may be exceeded for a maximum of five business days following
the receipt of bond proceeds. Proceeds of a single bond issue may be invested
in a single security or investment if the Investment Committee determines that
such an investment is necessary to comply with Federal arbitrage restrictions
or to facilitate arbitrage record keeping and calculation.
4-2-1-4 Limiting Maturity
To minimize risk of loss due to interest rate fluctuations, investment
maturities will not exceed the anticipated cash flow requirements of the funds.
For operating funds, the dollar weighted average days to final stated maturity
shall be 548 days or less. The Investment Officer will monitor the maturity
level and make changes as appropriate. For bond funds, the investment
maturity of bond proceeds (including reserves and debt service funds) shall be
determined considering: 1) the anticipated cash flow requirements of the
funds, and; 2) the "temporary period" as defined by Federal tax law during
which time bond proceeds may be invested at an unrestricted yield. After the
expiration of the temporary period, bond proceeds subject to yield restriction
shall be invested considering the anticipated cash flow requirements of the
funds.
The City shall have a goal of maintaining a minimum of ten percent of the
portfolio maturing within thirty days, and twenty-five percent under one year.
Under 30 days
Under 1 year
Under 3 years
Five years
10% minimum
25% minimum
85% minimum
maximum single investment
Reserve funds and other funds with longer-term investment horizons may be
invested in securities exceeding three years if maturities of such investments
arc made to coincide as nearly as practical with the expected use of fund. The
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City of University Park. Texas - Investment Policy
intent to invest in securities with longer maturities shall be disclosed in
writing to the City Council
4-2-2 Safekeeping
The City shall contract with a bank or banks for the safekeeping of securities either
owned by the City as a part of its investment portfolio or held as collateral to secure
certificates of deposits or repurchase agreements. The Safekeeping Agreement shall
clearly define the procedural steps for gaining access to the collateral should the
City determine that the City funds are in jeopardy. The safekeeping institution, or
Trustee, shall hold all aforementioned securities in an account at the Federal
Reserve Bank that specifies City ownership of the account. The Safekeeping
Agreement shall include the signatures of authorized representatives of the City, the
firm pledging the collateral and the Trustee. The City shall request from the
safekeeping institution a copy of its most recent report on internal controls
(Statement of Auditing Standards 70, or SAS 70).
4-2-3 Effect of Loss of Required Rating
If a holding's credit quality rating falls below the minimum required, the City shall
take all prudent measures that are consistent with its investment policy to liquidate
the holding. City staff will periodically review the credit quality rating of
instruments in the City portfolio using rating agency online resources or other
media reporting these changes.
4-3. Ensuring Liquidity
Liquidity shall be achieved by matching investment maturities with forecasted cash flow
requirements, by investing in securities with active secondary markets, and by investing
in eligible money market mutual funds (MMMF's) and local government investment
pools (LGIP's). A security may be liquidated to meet unanticipated cash requirements,
to re-deploy cash into other investments expected to outperform current holdings, or to
otherwise adjust the portfolio.
4-4. Achieving Investment Return Objectives
Investment selection for all funds shall be based on legality, appropriateness, liquidity,
and risk/return considerations. Although the City will adopt a "buy and hold" approach,
at times the portfolios may be actively managed to enhance overall interest income.
Active management will take place within the context of the "Prudent Person Rule." (see
Section 2.4).
4-4-1 Securities Swaps
The City may take advantage of security swap opportunities to improve portfolio
yield. A swap which improves portfolio yield may be selected even if the
transaction results in an accounting loss.
4-4-2 Competitive Bidding
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City of University Park. Texas - Investment Policy
It is the policy of the City to require competitive bidding for all individual security
purchases except for those transactions with money market mutual funds (MMMFs)
and local government investment pools (LGIP's) which are deemed to be made at
prevailing market rates, and for government securities purchased at issue through a
primary dealer at auction price. Rather than relying solely on yield, investment in
MMMFs and LGIP's shall be based on criteria determined by the Investment
Committee, including adherence to Securities and Exchange Commission (SEe)
guidelines for MMMFs when appropriate. At least three bidders must be contacted
in all transactions involving individual securities. Competitive bidding for security
swaps is also required. Bids may be solicited in any manner provided by law. For
those situations where it may be impractical or unreasonable to receive three bids
for a transaction due to a rapidly changing market environment or to secondary
market availability, documentation of a competitive market survey of comparable
securities or an explanation of the specific circumstance must be included with the
transaction bid sheet. All bids received must be documented and filed for auditing
purposes.
4-4-3 Methods of Monitoring Market Price
The methods/sources to be used to monitor the price of investments that have been
acquired with public funds shall be [rom sources deemed reliable by the Investment
Officer, including primary or regional broker/dealers, established financial
institutions providing portfolio management/accounting services, third-party
safekeeping reports, financial publications such as the Wall Street Journal, market
information vendors such as Bloomberg or Telerate, and market pricing services.
4-4-4 Benchmark Rate of Return
As a general guideline, the City's cash management portfolio shall be designed with
the objective of regularly meeting the average return on three-month U.S. Treasury
Bills, or the average rate of 90-day Certificates of Deposit. These indices are
considered benchmarks for risk-free investment transactions and therefore comprise
a standard for the portfolio's rate of return. Additional benchmarks may be
developed and recommended by the Investment Committee and used as a
comparative performance measures for the portfolio. Additional benchmarks that
may be considered for targeting by the Investment Committee include the Constant
Maturity Treasury Bill with the maturity that most closely matches the weighted
average maturity of the portfolio or a more customized index made up of blended
Merrill Lynch Treasury/Agency indices. The investment program shall seek to
augment rates of return above this threshold, consistent with legal restrictions and
prudent investment principles. In a diversified portfolio, measured losses are
inevitable and must be considered within the context of the overall portfolio.
4-5. Responsibility and Control
4-5-1 Authority to Invest
Authority to manage the City investment program is derived from a resolution of
the City. Those authorized by said resolution are designated as Investment Officers
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City of University Park. Texas - Investment Policy
of the City, and, in conjunction with the Investment Committee, are responsible for
investment decisions and activities. All investment transactions must be
acknowledged by a second investment officer besides the one who initiated the
transaction. All wire transfers must be approved by two investments officers. The
City reserves the right to contract with an external investment advisory firm to
manage the investment assets, and the resulting resolution will grant investment
authorization to the contracted firm. The Finance Director shall establish written
procedures for the operation of the investment program consistent with this
Investment Policy.
4-5-2 Bonding requirements/Standard of care
Each of the authorized investment officers shall be a bonded employee. All
participants in the investment process shall act responsibly as custodians of the
public trust and shall exercise the judgment and care, under prevailing
circumstances, that a prudent person would exercise in the management of the
person's own affairs.
4-5-3 Establishment of Internal Controls
The Finance Director is responsible for establishing and maintaining an internal
control structure designed to ensure that the assets of the entity are protected from
loss, theft, or misuse. The internal control structure shall be designed to provide
reasonable assurance that the objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of a control should not exceed the benefits
likely to be derived, and (2) the valuation of costs and benefits requires estimates
and judgments by management.
4-5-4 Standard of Ethics
City staff involved in the investment process shall refrain from personal business
activity that could conflict with proper execution of the investment program, or
which could impair the ability to make impartial investment decisions.
City staff shall disclose to the City any material interests in firms or businesses that
conduct investment matters with the City, and they shall further disclose positions
that could be related to the performance of the City portfolio. City staff shall
subordinate their personal financial transactions to those of the City, particularly
with regard to the timing of purchases and sales.
An investment officer of the City who has a personal business relationship with an
organization seeking to sell an investment to the City shall file a statement
disclosing that personal business interest. An investment officer who is related
within the second degree by affinity or consanguinity to an individual seeking to
sell an investment to the City shall file a statement disclosing that relationship. A
statement required under this subsection must be filed with the Texas Ethics
Commission and the governing body of the City.
4-5-5 Training and Education
In accordance with the Public Funds Investment Act (Chapter 2256, Texas
Government Code), the designated Investment Officers, or those personnel
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City of University Park. Texas - Investment Policy
authorized to execute investment transactions, must attend periodic investment
training. State law requires that training relating to investment responsibilities must
be provided by an independent source, such as the Texas Municipal League, North
Central Texas Council of Governments, or the University of North Texas Center for
Public Management, or as approved by the City Manager. Personnel authorized to
execute or approve investment transactions must receive at least 10 hours of
investment training for each two year period that begins on the first day of the
City's fiscal year and consists of the two consecutive fiscal years after that date.
Newly appointed investment officers must attain at least 10 hours of instruction
relating to the officer's responsibility under the Act within 12 months after
assuming investment duties.
4-5-6 Investment Committee
An Investment Committee that is comprised of the membership of the Finance
Advisory Committee shall be established to determine investment guidelines,
general strategies, and monitor performance. The Committee shall meet quarterly to
review performance, strategy, and procedures. The Investment Committee shall
include in its deliberation such topics as: performance reports, economic outlook,
portfolio diversification, maturity structure, potential risk to the City funds,
authorized brokers and dealers, and the target rate of return on the investment
portfolio.
4-6. Reporting
Investment performance is continually monitored and evaluated by the Finance Director.
The Investment Officer(s) will provide detailed reports, as required by the Public Funds
Investment Act (Chapter 2256, Texas Government Code, Section 2256.023) for the City
on a quarterly basis. The Finance Director shall submit a quarterly investment report
signed by the investment officers. The report shall include a succinct management
summary that provides a clear picture of the status of the current investment portfolio and
transactions made over the last quarter. This management summary will be prepared in a
manner which will allow the City to ascertain whether investment activities during the
reporting period have conformed to the Investment Policy. The management summary
shall: 1) summarize current market conditions, economic developments and anticipated
investment conditions; 2) summarize investment strategies employed in the most recent
quarter; 3) describe the portfolio in terms of investment securities, maturities, risk
characteristics, and average return for the quarter; 4) outline conformance to the
restrictions of the Policy in the area of diversification and term of maturity; 5) compare
the performance of City's portfolio to appropriate benchmarks as determined by the
Investment Committee.
Additionally, the quarterly financial report will include the following detailed
information:
I. A listing of individual securities held at the end of the reporting period.
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City of University Park. Texas - Investment Policy
2. Unrealized gains or losses resulting from appreciation or depreciation by
listing the beginning and ending book and market value of securities for thc
period.
3. Additions and changes to thc market value during the period.
4. A verage weighted yield to maturity or total return performance of the
portfolio on entity investments as compared to applicable benchmarks.
5. Listing of investments by maturity date.
6. The percentage of the total portfolio which each type of investment
represents.
7. Statement of compliance of the City investment portfolio with State Law and
the investment strategy and policy approved by the City.
Within 60 days of the end of the fiscal year, the Finance Director or the Investment
Advisory firm shall present an annual report on the investment program and invcstment
activity. The report may be presented as a component of the fourth quarter report to the
City.
4-7. Compliance Audit and Accounting Method
In conjunction with its annual financial audit, the City shall perform a compliance audit
of management controls on investments and adherence to the City's established
Investment Policies. The results of the audit shall be reported to the Investment
Committee and the governing body of the City.
The City shall comply with all required legal provisions and Generally Accepted
Accounting Principles (GAAP) relating to investment accounting. The accounting
principles are those contained in the pronouncement of authoritative bodies including but
not necessarily limited to, the Governmental Accounting Standards Board (GAS B), the
American Institute of Certified Public Accountants (AICP A), and the Financial
Accounting Standards Board (F ASB).
4-8. Certification
A copy of this Investment Policy will be provided to the senior management of any bank,
dealer, broker, investment advisor, or safekeeping institution wishing to transact
investment business directly with the City in order that it is apprised of the investment
goals of the City. Before business is transacted with the firm, a certification (Attachmcnt
1) must be signed by a senior member of a firm. Should the City contract with an
external investment advisor to execute the cntity's investment strategy, including the
negotiation and execution of investment transactions, a managing officer of the
investment advisory firm may sign the written certification in lieu of the broker/dealer
firms. This certification must be included as part of the investment advisory contract.
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City of University Park. Texas - Investment Policy
SECTION 5: ADOPTING CLAUSE
This Investment Policy for the City of University Park, Texas is hereby adopted as of the
st
21" day of June, 2011.
ATTEST:
D
15
City of University Park. Texas - Investment Policy
ATTACHMENT 1
ACKNOWLEDGEMENTS
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City of University Park. Texas - Investment Policy
TEXAS PUBLIC FUNDS INVESTMENT ACT
ACKNOWLEDGMENTS
These Acknowledgments are executed on behalf of the City of University Park, Texas
("Investor") and ("Business Organization") pursuant to the
Public Funds Investment Act, Chapter 2256, Government Code, Texas Codes
Annotated (the "Act"), in connection with investment transactions conducted between the
Investor and the Business Organization.
Acknowledgment by Investor
The undersigned investment officer of the Investor ("Investment Officer") hereby
acknowledges, represents and agrees on behalf of the Investor that:
(i) The Investment Officer (a) has been duly designated by official action of the
governing body of the Investor to act as its Investment Officer pursuant to the
Act, (b) is vested with full power and authority under the Act and other applicable
law to engage in investment activities on behalf of the Investor, and (c) is duly
authorized to execute this Acknowledgment on behalf of the Investor,
(ii) Pursuant to the Act, the governing body of the Investor has duly adopted a
written investment policy which complies with the Act, including an investment
strategy (as the same may be amended, the "Investment Policy"), and the
Investment Officer (a) has furnished a true and correct copy of the Investment
Policy to the Business Organization and (b) will notify the Business Organization
of any rescission of, or amendment to, the Investment Policy. The Business
Organization shall be entitled to rely upon the most recent version of the
Investment Policy furnished by the Investment Officer until provided with an
amended version;
(iii) Attached hereto is a list of investments that are authorized pursuant to the
Investment Policy and that the Investment Officer understands may be available
from the Business Organization. The attached list may be amended from time to
time by mutual agreement of the Investor and the Business Organization, and
(iv) In connection with any investment transaction between the Business
Organization and the Investor, the Business Organization is not responsible for
assuring compliance with those aspects of the Investment Policy over which the
Business Organization has no control or knowledge, such as restrictions as to
diversity and average maturity, or which require an interpretation of subjective
investment standards.
INVESTMENT OFFICER
Kent R. Austin
Director of Finance
City of University Park, Texas
Signature:
Date:
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City of University Park. Texas - Investment Policy
Acknowledgment by Business Organization
I am a registered principal or authorized representative of
(the "Firm"). The Firm is a registered dealer under the Securities Exchange Act
of 1934 (the "Act"), and a member of the Financial Industry Regulatory Authority
("FINRA").
I have received a copy of the City of University Park (the "City") investment policy
dated . I have provided each current licensed member of the sales
personnel who perform investment services for the City with a copy of your
investment Policy and have instructed these professionals to familiarize
themselves with the terms of the Policy. The Firm has implemented reasonable
procedures and controls in an effort to preclude investment transactions
conducted between the Firm and the City that are not authorized by the City's
investment policy, except to the extent that this authorization is dependent on an
analysis of the composition of the entity's entire portfolio.
As a FINRA registered dealer, the Firm is subject to the rules of the Securities
and Exchange Commission (the "SEC") and the Rules of Fair Practices of
FINRA. Those rules establish requirements for, among other things, net capital,
reserves and custody of customer securities, and suitability of investment
recommendations. Those rules also prohibit the use of fraudulent and deceptive
practices.
The Firm has extensive internal procedures to assist the firm in complying with
the rules of the SEC, FINRA and other regulatory bodies having jurisdiction. The
Firm's compliance with these rules will be monitored by FINRA-licensed
supervisory principals and its Compliance Department. This process is audited
routinely by both internal and outside auditors.
Signature:
Name
Title
Date
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City of University Park. Texas - Investment Policy
ATTACHMENT 2:
BROKER-DEALER AND BANK
QUESTIONNAIRES
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City of University Park. Texas - Investment Policy
City of University Park, Texas
BROKER/DEALER QUESTIONNAIRE
1. Name of Firm
2. Address
(Local)
(National Offices)
3. Telephone ( )
4. Primary Representatives/Manager/Partner In-charge:
Name Name
~e ~e
Telephone Telephone
5. Are you a primary dealer in U.S. Government securities? [] Yes [] No
6. If so, for how long has your firm been a primary dealer? _years
7. What was your firm's total volume in U.S. Government securities trading last year?
Firmwide $ Number of transactions
Your local office $ Number of transactions
8. Which instruments are offered regularly by your local desk?
[ ] T-bills [ ] Agencies (specify) [ ] Instrumentalities [ ] Bank CDs [ ] S&L CDs
[ ] Treasury notes/bonds [ ] BAs (domestic) [ ] BAs (foreign) [ ] Commercial paper
[ ] Other (specify)
9. Identify all personnel who will be trading with or quoting securities to our government's
employees.
Name:
Telephone Number:
(Attach Resumes Of All The Above Persons)
10. Which of the above personnel have read our government investment policies?
11. Please identify our most directly comparable public sector clients in our geographical
area.
Entity:
Contact Person:
Telephone No.:
Client Since:
12. Have any of your clients ever sustained a loss on a securities transaction arising from a
misunderstanding or misrepresentation of the risk characteristics of the instrument? If so,
explain.
13. Have any of your public sector clients ever reported to your firm, its officers or
employees, orally or in writing, that they sustained a loss (in a single year) exceeding 10
percent of original purchase price on any individual security purchased through your
firm? (Explain.)
14. Has your firm ever been subject to a regulatory or state/federal agency investigation for
alleged improper, fraudulent, disreputable or unfair activities related to the sale of
securities? Have any of your employees ever been so investigated? (Explain.)
City of University Park. Texas - Investment Policy
15. Has a public sector client ever claimed, in writing, that your firm was responsible for
investment losses? (Explain.)
16. Please include samples of research reports that your firm regularly provides to public
sector clients.
17. Please explain your normal custody and delivery process. Who audits these fiduciary
systems?
18. Please provide certified financial statements and other indicators regarding your firm's
capitalization.
19. Describe the Capital line and trading limits that support/limit the office that would conduct
business with our government.
20. What training would you provide to our employees and investment officers?
21. Has your firm consistently complied with the Federal Reserve Bank's capital adequacy
guidelines? As of this date, does your firm comply with the guidelines? Has your capital
position ever fallen short? By what factor (1.5, 2x, etc.) does your firm presently exceed
the capital adequacy guideline's measure of risk? Include certified documentation of your
capital adequacy as measured by the Federal Reserve standards.
22. Do you participate in the S.I.P.C. insurance program? If not, explain why.
23. What portfolio information do you require from your clients?
24. What reports, transactions, confirmations and paper trail will we receive?
25. Enclose a complete schedule of fees and charges for various transactions.
26. How many and what percentage of your transactions failed last month? Last year?
27. Describe the precautions taken by your firm to protect the interest of the public when
dealing with governmental agencies as investors.
28. With whom are you doing business in the Dallas area?
29. Are you representing a parent corporation or a subsidiary of another corporation? If you
are a subsidiary, will you furnish audited financial statements on your parent corporation
as well as your subsidiary?
30. For all employees listed in part 9 above, please provide resumes for each and within
each resume include the company names of former employers.
31. Provide banking references and include officer contact names and telephone numbers.
32. Do you give perfected security interest in securities under repurchase agreements?
FINANCIAL RATIO CRITERIA
1. Growth in current assets and current liabilities must be parallel.
2. Total liabilities, as a multiple of equity, must be less than a ratio of 20:1.
3. The total of securities owned and securities purchased under agreement to resell
(reverse repos) must be greater than the total of short-term loans and securities sold
under agreements to repurchase (repos).
4. Equity, as a percentage of total assets, must be 5% or more.
5. Growth in retained earnings must exceed 7% for the last two years.
6. Equity growth must be parallel to asset and liability growth.
7. The auditor's opinion must be unqualified.
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City of University Park. Texas - Investment Policy
City of University Park, Texas
BANK QUESTIONNAIRE
1. Name of Bank
2. Address
(Local)
(National Offices)
3. Telephone
4. Primary Representatives/Managers:
Name
Name
Title
Title
Telephone
Telephone
5. Are you a primary dealer in U.S. Government securities? [] Yes [] No
6. If so, for how long has your firm been a primary dealer? _Years
7. Please attach a list of comparable public sector clients in north Texas; include entity
name, contact name, contact telephone number and email, and number of years as a
client.
8. General banking information - please attach on separate sheet:
. Financial statements for the past two fiscal years, with an unqualified opinion
from a certified public accountant
. Call reports for the last four quarters or credit rating information for senior and
subordinate debt from a recognized credit rating agency
. Rating information from recognized bank rating agencies
. Proof of current standing as an eligible public depository
. Capital ratios: tangible capital, core capital, and risk capital
. Evidence of growth in current assets and current liabilities being parallel
. Total liability to equity ratio (must be less than 20:1)
. Equity as a percentage of assets (must be at least 5%)
9. Please attach a list of the names of the current and most immediate past Board of
Directors.
3