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HomeMy WebLinkAboutInvestment PolicyCity of Prior Lake INVESTMENT OF CITY FUNDS The City shall maintain a set of procedures for the investment of City funds and the policy • shall address the following elements: 1. A listing of authorized investments. 2. Investment and diversification guidelines that are appropriate to the nature of the funds, the purpose for the funds, and the amount of the public funds within the investment portfolio. • 3. Investment portfolio duration as to maximum term with respect to time of investment. 4. Guidelines regarding collateral requirements, if any, for the deposit of public funds in a financial institution made pursuant to State Statute, and, if applicable, guidelines for • contractual arrangements for the custody and safekeeping of that collateral. 5. A system of internal controls and operational procedures designed to prevent losses of funds that might arise from fraud, employee error, misrepresentation by third parties, or imprudent actions by employees of the city. 6. Appropriate periodic review of the investment portfolio, its effectiveness in meeting the city's needs for safety, liquidity, rate of return, and diversification, and its general performance. 7. Ethics and conflicts of interest provision. 8. The standard of care that must be maintained by the persons investing the public funds. • 9. Procedure for selection of investment advisors. • 10. At least quarterly written reports of investment activities by the Finance Director for submission to the City Council. The Finance Director shall establish such procedures as included within the investment policy for the Council's approval and shall periodically review and propose needed amendments. Such procedures and this policy shall be kept available at all times for public review at the City's administrative offices. A. Scope This investment procedure applies to all funds of the City. These funds are accounted for in the City's annual financial report and includes all current funds, and any other funds that may be created from time to time. The portion of idle funds invested shall have a target percentage of 98%. All transactions involving the funds and related activity of any funds shall be administered in accordance with the provisions of this procedure. B. Objectives 1. Safety of Principal — Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of principal in the overall portfolio. To attain this objective only 1 r■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■ ■ ■ appropriate investment instruments will be purchased and insurance or collateral may be • required to ensure the return of principal. 2. Liquidity - The City's investment portfolio shall be structured in such manner as to • provide sufficient liquidity to pay obligations as they come due. : 3. Return on Investments - The investment portfolio shall be designed to attain a market - average rate of return throughout budgetary and economic cycles, taking into account the risk constraints, the cash flow characteristics of the portfolio and legal restrictions for return on investments. 4. Maintaining the Public's Trust - The investment officers shall seek to act responsibly as custodians of the public trust and shall avoid any transaction that might impair public • confidence in the City and oversight as executed by its investment officers. • C. Investment Instruments • The City may invest in any type of security allowed by Minnesota Statutes as may be amended from time to time. The City has chosen to limit its allowable investments to those • instruments listed below: 1. Bonds notes certificates of indebtedness treasury bills or other securities now or hereafter issued by the United States of America, its agencies and allowable instrumentalities; 2. Interest bearing checking and savings accounts, or any other investments constituting • direct obligations of any bank; 3. Certificates of deposit with federally insured institutions that are collateralized or insured in excess of the $100,000 provided by the Federal Deposit Insurance • Corporation coverage limit; • 4. Money market accounts that are invested in above referenced government securities. 5. Commercial paper meeting the following requirements a) The corporation must be organized in the United States. b) The corporation's assets must exceed $500,000,000. c) The obligations at the time of purchase must be rated at the highest classifications by at least two of the four standard rating services (Standard and Poor's, Duff and Phelp's, Moody's and Fitch Investors Service). d) The obligations cannot have a maturity longer than 270 days. e) The total investment in any one corporation cannot exceed 10% of that corporation's outstanding obligations. . 2 . r■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■� fl The total investment in any one corporation cannot be more than $2 million. 6. Investments may be made only in those savings banks or savings and loan associations the shares, or investment certificates of which are insured by the Federal Deposit Insurance Corporation. 7. Investmentroducts that are considered as derivatives are specifically excluded from p p Y approved investments. D. Diversification It is the policy of the Cit to diversify its investment portfolio. Investments shall be diversified . p Y Y Y p . to eliminate the risk of loss resulting in over concentration in a specific maturity, issuer, or class of securities. Diversification strategies shall be determined and revised periodically b the Cit . g p Y Y Y . Finance Director. The diversification shall be as follows: a Up to 100% of C. 1. but not less than 10%. b) Up to 90% of C.2. and C.3. c) Up to 20% of CA. d) Up to 10% of C.5. E. Duration It is the policy of the City to require that all investment maturities shall not extend beyond ten (10) years in length. Subject to market conditions and cash flow requirements, it is desirable for the city's investments to be laddered over time in an effort to reduce interest rate market risk. F. Collateralization 1. It is the policy of the Cit to require that time deposits in excess of FDIC insurable . p Y Y q p . limits be secured by collateral or private insurance to protect public deposits in a single financial institution if it were to default. Collateralization must be equal to 110% of the uninsured portion when pledging government securities or agencies. 2. Eligible collateral instruments are any investment instruments acceptable under 118A.03. The collateral must be placed in safekeeping at or before the time the City buys the investments so that it is evident that the purchase of the investment is predicated on the securing of collateral. 3. Safekeeping of Collateral a Safekeeping is required for all collateral. To accomplish this, the securities . ) p g q p . must be held at one or more of the following locations: 1) at a Federal Reserve Bank or its branch office; 3 r■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ . 2) at another custodial facility in a trust or safekeeping department through book -entry at the Federal Reserve; 3) by an escrow agent of the pledging institution; or 4 b the trust department of the issuing bank Y P g b) Safekeeping will be documented by an approved written agreement between the City and the governing counsel of the bank that complies with FDIC regulations. This may be in the form of a safekeeping agreement. c) Substitution or exchange of securities held in safekeeping for the City can be approved exclusively by the Finance Director, subject to the amount of the investment. G. Safekeeping of Securities . 1. Safekeeping is required for all securities and commercial paper. To accomplish this, the securities must be held only at the following locations: a at a Federal Reserve Bank or its branch office; b) at another custodial facility, which shall be a trust or safekeeping department through book -entry at the Federal Reserve, unless physical securities are involved; or c Investments held in safekeeping b a broker dealer must provide asset . ) P g Y P . protection of $500,000 thru Securities Investor Protection Corporation (SIPC) and at least an additional $49.5 million dollars of supplemental insurance protection. 2. Safekeeping will be documented by an approved written agreement between the City and the holder of the securities. This may be in the form of a safekeeping agreement, trust agreement, escrow agreement or custody agreement. 3. Written confirmations of investment transactions shall be required indicating purchase q g price, type of security, settlement date, interest rate, call provisions etc. 4. Original certificates of deposits will be held b the originating bank except with . . brokered c.d. programs whereby a master certificate is held in safekeeping at the broker designated depository. A safekeeping receipt will be acceptable documentation. H. Oualified Financial Institutions and Intermediaries 1. Depositories -Demand Deposits (Checking Accounts) 4 a) Any financial institution selected by the City shall provide normal banking services including, but not limited to: checking accounts wire transfers and safekeeping services. b) The City will not maintain funds in any financial institution that is not a member of the FDIC system. In addition, the City will not maintain funds in any institution that does not first agree to post required collateral for funds or purchase private insurance in excess of FDIC insurable limits and in amounts acceptable to the City. d Fees for bankingservices shall be mutually agreed to b an authorized Y g Y representative of the depository bank and the City Finance Director on an annual basis. Fees for services shall be substantiated by a monthly account analysis. e) All financial institutions acting as a depository for the City must enter into a "Depository Agreement." 2. Banks and Savings and Loans - Certificates of Deposit g p Any financial institution utilized by the city to purchase certificate of deposits must: a) provide wire transfer and certificate of deposit safekeeping services; b ) be a member of FDIC system and be willing and capable of posting required Y g p p g q . . collateral or private insurance for funds in excess of FDIC insurable limits and in amounts required by the City; and c meet at all times the financial criteria as established in the investment procedures of the City. 3. Brokerage Dealers An financial brokerage dealer selected b the cit to handle investments must: Y g Y Y a provide wire transfer and deposit safekeeping services; p p p g b be a member of a recognized U.S. Securities and Exchange Commission Self g g Regulatory Organization such as the New York Stock Exchange, National Association of Securities Dealers, Municipal Securities Rule Making Counsel, etc; c) provide an annual audit upon request; d) maintain an office within the State of Minnesota and be licensed to conduct business in this State; and e be familiar with the City's policy and accept financial responsibility �for any investment not appropriate according to the policy. 5 r■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■. I. Management of Program 1. The following individuals are authorized to purchase and sell investments, authorize wire transfers, authorize the release of pledged collateral, and to execute any documents • required under this procedure: a) City Manager b) Finance Director These documents include: 1) Wire Transfer Agreement • 2) Depository Agreement • 3) Safekeeping Agreement 4) Custody Agreement 2. Management responsibility for the investment program is hereby delegated to the Finance Director, who shall establish operational procedures designed to prevent losses of funds that might arise from fraud, employee error, misrepresentation by third parties, • or imprudent actions by employees of the entity. Such procedures shall include explicit delegation of authority to persons responsible for the execution under the direction of the Finance Director of specific financial transactions, including: investment transactions; check signing, check reconcilement, deposits, bond payments, report • preparation and wire transfers. No person may engage in any investment transaction except as provided for under the terms of this policy. The Finance Director shall be • responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinates. J. Performance The Finance Director will seek to earn a rate of return appropriate for the type of investments being managed given the portfolio objectives defined in Section B of this • document for all funds. In general, the Finance Director will strive to earn an average rate of return equal to or greater than the ninety (90) day U.S. Treasury Bill rate. K. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Further, no officer involved in the investment process shall have any interest in, or receive any compensation from, any investments in which the City is authorized to invest, or the sellers, sponsors or • managers of those investments. L. Indemnification • 6 • r■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■� Investment officers and employees of the City acting in accordance with this Investment Policy who exercise due diligence and act with reasonable prudence, shall be relieved of personal liability for an individual security's credit risk or market changes. [ 118.02 sub. 2] M. Investment Advisor Selection 1. The Finance Director is hereby authorized to determine those investment brokers that would serve the best interests of the city in providing investment advice and services consistent with the requirements of this Investment Policy. 2. For purposes of administering the city's investments on an efficient and timely basis, the number shall be limited to no more than three (3) investment advisors. 3. Participation in the League 4M Fund is hereby endorsed by the city council for the investment of the city's available money market funds. 4. All brokers must ll annua acknowledge city's statement of investment Y receipt P of the tY restrictions in writing (Broker Certification pursuant to Minn. Statute 118A. 04 SUM 9) and agree to handle the City of Prior Lake's account in accordance with these restrictions and requirements of this Investment Policy. N. Reporting The Finance Director shall submit to the City Council a quarterly investment report that shall include information regarding securities in the portfolio by type, advisor affiliation, principal amount and aggregate rate of return as of the report date. A council approved listing of authorized investments for information purposes shall accompany the report. O. Amendment This policy shall be reviewed from time to time b the Finance Director with regards to the . P Y Y g . Investment Policy's effectiveness in meeting the City's needs for safety, liquidity, rate of . return, diversification, and general performance. Any substantive changes will be reported to the City Council. . 7 r■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■.