HomeMy WebLinkAboutResolution No. 04 06 Inv Pol/ExRESOLUTION NO. 04-06
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. 03-11; 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
WltEREAS, the attached investment policy complies with the Public Funds Investment
Act, as amended, and a~thorizes 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 18, 2004.
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.
DULY PASSED AND APPROVED by the City Council of the City of University Park,
Texas, on the 18th day of June, 2004.
.... ~-~P~PROVED AS TO FORM:
CITY ATTORNEY
APPROVED: ~~
(,/AriES II. I-IOLnES, III~,MAYOR
Investment Policy
Effective June 18, 2004
City of University Park, Texas
,Ci ,ty of Universi .ty Park~ Texas - Investment Policy
CONTENTS
Preface ............................................................................................................................. iv
1. PURPOSE
2.
3.
4.
Authorization ........................................................................................................ 1
Goal ....................................................................................................................... 1
Scope ..................................................................................................................... 1
Review and Amendment ....................................................................................... 1
2. INVESTMENT OBJECTIVES
2.
3.
4.
Preservation and Safety of Principal ..................................................................... 2
Maintenance of Adequate Liquidity ...................................................................... 2
Return on Investments .......................................................................................... 2
Prudence and Ethical Standards ............................................................................ 3
3. INVESTMENT STRATEGY STATEMENT
2.
3.
4.
Operaling Funds .................................................................................................... 4
Bond Debt Service Funds ..................................................................................... 4
Bond Reserve Funds ............................................................................................. 4
Capital Projects Funds .......................................................................................... 5
4. SPECIFIC INVESTMENT POLICIES
Eligible Investments .............................................................................................. 6
1. Obligations of the United States .................................................................. 6
2. Obligations of the State of Texas ................................................................. 6
3. Agencies of the United States and State of Texas ....................................... 6
4. Obligations of other States, Counties, Cities ............................................... 6
5. Direct Repurchase Agreements .................................................................... 6
6. Certificates of Deposit ................................................................................. 6
7. Share Certificates of state and federal Credit Unions .................................. 7
8. Money Market Mutual Funds ...................................................................... 7
9. Local Government Investment Pools ........................................................... 7
Ensuring Safety of Principal ................................................................................... 8
1. Protection of Principal ................................................................................. 8
1. Approved Broker/Dealers/Financial Institutions/Depositories .............. 8
2. Master Repurchase Agreement .............................................................. 9
3. Collateralization ..................................................................................... 9
Ci,ty of Universi ,ty Park~ Texas - Investment Policy
1. Allowable Collateral ..................................................................... 10
1. Certificates of Deposit .......................................................... 10
2. Repurchase Agreements ........................................................ 10
2. Collateral Levels ........................................................................... 10
1. Certificates of Deposit .......................................................... 10
2. Repurchase Agreements ........................................................ 11
3. Monitoring Collateral Adequacy .................................................. 11
1. Certificates of Deposit .......................................................... 11
2. Repurchase Agreements ........................................................ 11
4. Margin Calls ................................................................................. 11
1. Certificates of Deposit .......................................................... 11
2. Repurchase Agreements ........................................................ 11
5. Collateral Substitution ................................................................. 12
6. Collateral Reductions ................................................................. 12
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4. Portfolio Diversification ...................................................................... 12
1. Bond Proceeds .............................................................................. 13
5. Limiting Maturity ................................................................................. 13
1. Operating Funds ........................................................................... 13
2. Bond Proceeds, Bond Reserves, Debt Service Funds .................. 13
2. Safekeeping ................................................................................................. !4
1. Safekeeping Agreement ....................................................................... 14
2. Safekeeping of Certificate of Deposit Collateral ................................. 14
3. Safekeeping of Repurchase Agreement Collateral .............................. 14
Ensuring Liquidity .............................................................................................. 14
Achieving Investment Return Objectives ........................................................... 15
1. Securities Swaps ............................................................... v,' ....................... 15
2. Competitive Bidding ................................................................................... 15
3. Methods of Monitoring Market Price .......................................................... 15
16
4. Benchmark Rate of Return ..........................................................................
Responsibility and Controls ................................................................................ 16
1. Authority to Invest ....................................................................................... !6
2. Bonding requirements/Standard of care ...................................................... 16
3. Establishment of Internal Controls .............................................................. 17
17
4. Standard of Ethics .......................................................................................
5. Training and Education.i'. ............................................................................ 17
6. Investment Committee ................................................................................. 18
Reporting ............................................................................................................. 1189
Compliance Audit ...............................................................................................
19
Certification ........................................................................................................
5. ADOPTING CLAUSE ................................................................................................. 20
City of Universi ,ty Park~ Texas - Investment Policy
APPENDICES
Ao
INVESTMENT LEGISLATION .................................................................... 21
MASTER REPURCHASE AGREEMENT .................................................. 48
BROKER/DEALER CERTIFICATION ....................................................... 56
ATTACHMENTS
BROKER/DEALER QUESTIONNAIRE ...................................................... 58
iii
Ci,ty of Universi~, Park, Texas - Investment Polic~y
PREFACE
The purpose of this document is to establish specific investment policy and strategy
guidelines for the City of University Park, Texas ("City") in order 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.
It is the policy of the City that 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 needs
· Security of City funds and investments
· Diversification of investments to avoid unreasonable or foreseeable
risks
· Maximization of return on the portfolio
SECTION 1
PURPOSE
City of Universi .ty Park~ Texas - Investment Policy
1. Purpose
1. Authorization
This Policy is to be 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.
Goal
The primary goal of the City of University Park's Investment Policy shall
be to ensure the safety of all funds entrusted to the City; to maintain the
availability of those funds for the payment of all necessary obligations of
the City; and to provide for the investment of all funds, not immediately
required, in interest-bearing securities or pooled investment products. The
safety of the principal invested shall always be the primary concern.
Scope
This )nvestment Policy of the City of University Park shall include all
investment activities of any fund of the City, except for the Firemen's
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 federal law,
including the Tax Reform Act of 1986 and subsequent legislation. City
funds will be pooled for investment purposes.
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
City of University Park~ Texas - Investment Polic~
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.
The City shall maintain a comprehensive cash management program that includes the
prudent investment of available cash. 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.
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."
Maintenance of Adequate Liquidity
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The City investment portfolio shall be structured such 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."
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 will 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.
,City of University Park~ Texas - Investment Policy
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/Advisor had responsibility
rather than a consideration as to the prudence of a single investment, and
whether the investment decision was consistent with the written
Investment Policy of the City.
The I0vestment 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."
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SECTION 3
INVESTMENT STRATEGY STATEMENT
.Ci ,ty of Universi ,ty Park~ Texas - Investment Policy
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.
1. The 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 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.
2. The Bond Debt Service Funds
The investment strategy for bond debt service fund(s) has as its primary
objec[ive 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. 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.
City of University Park~ Texas - Investment Policy,
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.
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.
SECTION 4
SPECIFIC INVESTMENT POLICIES
Ci.ty of Universi ,ty Park~ Texas - Investment Policy
4. SPECIFIC INVESTMENT POLICIES
1. Eligible Investments
Investments described below are those authorized by the Public Funds
Investment Act (Chapter 2256, Texas Government Code), as amended,
which is included and made a part of this Policy as Appendix A. 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;
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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.
obligations of states, agencies, counties, cities and other political
s~4bdivisions of any state having been rated as to investment quality by
a nationally recognized investment rating firm and having received a
rating of not less than A or its equivalent.
fully collateralized direct repurchase agreements having a defined
termination date, secured by obligations described by subdivision 1 of
this subsection, pledged 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 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;
6. certificates of deposit issued by state and national banks domiciled 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
Ci.ty of Universi .ty Park~ Texas - Investment Policy
amount of the certificates or in any other manner and amount
provided by law for deposits of the City.
7. share certificates issued by state and federal credit unions domiciled in
Texas that are:
guaranteed or insured by the National Credit Union Share
Insurance Fund, or its successor; or,
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.
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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.
Lgcal government investment pools organized in accordance with the
Interlocal 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 the Texas Local Government Investment Pool
("TexPool"), administered by the Texas State Comptroller, and; the
Texas Short Term Asset Reserve ("TexSTAR");; administered~
JPMorgan Chase and First Southwest Asset Management; andI
~rexasTERM, administered by PFM Asset Management LLC.I
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.
City of Universi ,ty Park~ Texas - Investment Policy
2. Ensuring Safety of Principal
Ensuring safety is accomplished through protection of principal and
safekeeping.
1. Protection of Principal
The City shall seek to control the risk of loss due to the failure of a
security issuer or guarantor. Such risk shall be controlled by:
1. investing only in the safest types of securities as defined in the
Policy,
2. qualifying the broker/dealer and financial institution with
whom the City will transact,
3. collateralization as required by law,
4. portfolio diversification, and
5. limiting maturity.
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 basis. The purchase of
individual securities shall be executed "delivery versus payment" (DVP)
through the Federal Reserve System delivered to an-authorized
safekeeping agent or "Trustee." 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 by the
Trustee. The Trustee's records shall assure the notation of the City
ownership of or explicit claim on the securities. The original copy of the
safekeeping receipts shall be delivered to the City within twenty-four (24)
hours of the security's receipt by the Trustee.
1. Approved Broker/Dealers/Financial Institutions and Depositories
Investments shall only be' made with those finns 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 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
City of Universi ,ty Parlq Texas - Investment Policy
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.
2. Master Repurchase Agreement
It is the policy of the City to require each issuer of repurchase
agreements to sign a copy of the City's Master Repurchase Agreement.
An executed copy of this agreement must be on file before the City
will enter into any repurchase agreement with an issuer. (See Appendix
B, "Master Repurchase Agreement".)
3. Collateralization
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. Each issuer of repurchase agreements is
required to sign a copy of the City's Master Repurchase Agreement.
An executed copy of this agreement must be on file before the City
Ci,ty of Universi ,ty Park~ Texas - Investment Policy
will enter into any repurchase agreements with an issuer. (See
Appendix B, "Master Repurchase Agreement".) The City considers
repurchase agreements to be simultaneous purchases and sales of
securities as outlined in the Master Repurchase Agreement and not as
collateralized loans. However, the underlying securities may be
referred to as "collateral."
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.
(1) Allowable Collateral
1. Certificates of Deposit
Eligible securities for collateralization of certificates of
deposit are U.S. Treasury obligations and government
agency securities. The eligibility of specific issues may
at times be restricted or prohibited because of current
market conditions.
2. Repurchase Agreements
Collateral underlying repurchase agreements is limited
to U.S. government and agency obligations, which are
eligible for wire transfer (i.e. book entry) to the City's
designated safekeeping agent through the Federal
Reserve System.
(2) Collateral Levels
Collateral is valued at current market plus interest accrued
through the date of valuation.
1. Certificates of Deposit
The market value of collateral pledged for certificates
of deposit must at all times be equal to or greater than
102% of the par value of the certificate of deposit plus
accrued interest, less the amount insured by the FDIC or
its successors. Investment in eligible pooled Certificate
of Deposit programs is authorized under this section.
2. Repurchase Agreements
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.Ci ,ty of Universi ,ty Park~ Texas - Investment Policy
The market value of collateral required to be pledged
for repurchase agreements shall be a percentage of the
par value of the agreement plus accrued interest and
shall be maintained at the following levels:
Collateral U.S. Treasury U.S. Government
Maturi _ty Securities Agency
1 year or less 102 % 102 %
1 year to 5 years 102 % 103 %
Over 5 years 103 % 104 %
(3) Monitoring Collateral Adequacy
1. Certificates of Deposit
The City requires monthly reports with market values of
pledged securities from all financial institutions with which the
City has certificates of deposit. The City's Investment Officer
will at least weekly monitor the adequacy of collateral.
2. Repurchase Agreements
Weekly monitoring by the City's Investment Officer of all
collateral underlying repurchase agreements is required. More
frequent monitoring may be necessary during periods of market
volatility.
(4) Margin Calls
1. Certificates of Deposit
If the collateral pledged for a certificate of deposit falls below
the 102% of the deposit, plus accrued interest less FDIC
insurance, the institution will be notified by the City and will
be required to pledge additional securities no later than the end
of the next succeeding business day.
2. Repurchase Agreements
If the value of the collateral underlying a repurchase agreement
falls below the margin maintenance levels specified above, the
City will make a margin call unless the repurchase agreement is
Ci,ty of University Park~ Texas - Investment Policy,
scheduled to mature within five business days and the amount
is deemed to be immaterial.
(5) Collateral Substitution
Collateralized investments and certificates of deposit often require
substitution of collateral. Any broker or financial institution
requesting substitution must contact the Investment Officer(s) for
approval and settlement. The substituted collateral's value will be
calculated and substitution approved if its value is equal to or
greater than the required value (See 4.2.1.3.2.2). The Investment
Officer or must give immediate notification of the decision to the
bank or the safekeeping agent holding the collateral. Substitution is
allowable for all transactions, but should be limited, if possible, to
minimize potential administrative problems and transfer expense.
The Investment Officer may limit substitution and assess
appropriate fees if substitution becomes excessive or abusive.
Collateral may be substituted only with the oral authorization of
the Investment Officer, followed by written confirmations within
24 hours.
(6)
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Collateral Reductions
Should the collateral's market value exceed the required amount,
any broker or financial institution may request approval from the
Investment Officer to reduce collateral. Collateral reductions may
be permitted only if the City's records indicate that the collateral's
market value exceeds the required amount. Written confirmations
of the collateral reduction should be received within 24 hours of
the Investment Officer's approval.
4. Portfolio Diversification
Risk of principal loss in the portfolio as a whole shall be minimized by
diversifying investment tYPes according to the following limitations.
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Ci,ty of University Park~ Texas - Investment Policy
As discussed below, these limitations do not apply to bond proceeds.
Investment Type:
% of Portfolio
· U.S. Treasury Notes/Bonds/Bills 100%
· U.S. Agencies 60%
· Local Government Investment Pools 50%
· Repurchase Agreements 30%
· Certificates of Deposit 30%
· Money Market Mutual Funds 15%
It is the policy of the City to diversify its investment portfolio so that
reliance on any one 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.
(1) 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.
5. Limiting Maturity
In order to minimize risk of loss due to interest rate fluctuations,
investment maturities will not exceed the anticipated cash flow
requirements of the funds. Maturity guidelines by funds are as follows:
(1) 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.
(2) Bond Proceeds, Bond Reserves, Debt Service 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;
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City of University Park~ Texas - Investment Policy
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.
3. Safekeeping
1. Safekeeping Agreement
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.
e
S~fekeep~ng of Certificate of Deposit Collateral
All collateral securing certificates of deposit must be held by a third
party banking institution approved by the City, or collateral may be
held at the Federal Reserve Bank. The City's ownership in collateral
positions must be fully perfected.
3. Safekeeping of Repurchase Agreement Collateral
The securities that serve as collateral for repurchase agreements with
dealers must be delivered to a third-party custodian with which the
City has established a third-party safekeeping agreement. The City's
ownership of all securities that serve as collateral for repurchase
agreements must be fully perfected.
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).
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.Ci .ty of University Park~ Texas - Investment Policy
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. Achieving Investment Return Objectives
Investment selection for all funds shall be based on legality, appropriateness,
liquidity, and risk/return considerations. 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).
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.
2. Competitive Bidding
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
secunities 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 (SEC)
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.
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 from sources deemed
reliable by the Investment Officer, including primary or regional
broker/dealers, established financial institutions providing portfolio
management/accounting services, financial publications, such as the Wall
.Ci ,ty of University Park~ Texas - Investment Policy
Street Journal, market information vendors such as Bloomberg or Telerate
and market pricing services.
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.
\
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Responsibility and Control
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 of the City, and, in conjunction with the Investment
Committee, are responsible for investment decisions and activities. 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.
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.
,City of University Park~ Texas - Investment Policy
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. 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 financial
institutions that conduct business 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.
Training and Education
In accordance with the Public Funds Investment Act (Chapter 2256, Texas
Government Code), the designated Investment Officers, or those personnel
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 as approved by
the Investment Committee. Personnel authorized to execute or approve
investment transactions must receive at least 10 hours of investment
training within each two-year period. Newly appointed investment officers
must attain at least 10 hours of instruction relating to the officer's
17
Ci~, of Universi ,ty Parlq Texas - Investment Policy
e
responsibility under the Act within 12 months after assuming investment
duties.
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.
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 that summarizes current market conditions, economic
developments and anticipated investment conditions. The report shall
summarize investment strategies employed in the most recent quarter, and
describe the portfolio in terms of investment securities, maturities, risk
characteristics and shall explain the total investment return for the quarter.
The report will outline conformance to the restrictions of the Policy in the area
of diversification and term of maturity. The report will also compare the
performance of City's portfolio to appropriate benchmarks as determined by
the Investment Committee. The report shall summarize current market
conditions, economic developments and anticipated investment conditions.
The report shall also summarize investment strategies employed in the most
recent quarter, and describe the portfolio in terms of investment securities,
maturities and risk characteristics.
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 investment activity. The report may be presented as a component
of the fourth quarter report to the City.
The quarterly investment 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
City of University Park, Texas - Investment Policy
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 report will include the following:
1. A listing of individual securities held at the end of the reporting period.
Unrealized gains or losses resulting from appreciation or depreciation
by listing the beginning and ending book and market value of
securities for the period.
3. Additions and changes to the market value during the period.
4. Average 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.
Compliance Audit
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.
8. Certification
A copy of this Investment Policy will be provided to the senior management
of any bank, dealer, broker or investment advisor 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 (Appendix C) must be signed by a senior member of a firm.
Should the City contract with an external investment advisor to execute the
entity'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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SECTION 5
ADOPTING CLAUSE
.Ci ,ty of Universi~, Park~ Texas - Investment Policy
ADOPTING CLAUSE
This Investment Policy for the City of University Park, Texas is hereby adopted as of
the 18th day of June, 2004.
48