Sample Investment Policy
I. OBJECTIVE
To ensure that excess funds of the Hospital Commissioners are invested in a manner to maximize yield and at the same time minimize risk, maintain liquidity and demonstrate legal compliance.
II. DIRECTIVES
A. SCOPE
These investment policies apply to all financial assets of the Hospital which are under the direct control of the Board of the Hospital. These policies do not include any financial assets under the direct control of any of the Constitutional Officers of the Hospital.
B. AUTHORITY
These investment policies are established to supplement the existing Colorado State Statutes. The Board shall establish overall investment policies, the implementation of which is a constitutional responsibility of the Finance Department, as well as the Chief Financial Officer to the Hospital. The Chief Financial Officer is herewith delegated the responsibility of establishing detailed investment and accounting procedures to govern the day to day investment activities necessary to carry out these investment policies.
III. INVESTMENT OBJECTIVES
A. SAFETY OF CAPITAL
Safety of capital is regarded as the highest priority in the handling of investments for the Hospital. All other investment objectives are secondary to the safety of capital. Each investment transaction shall seek to first ensure that capital losses are avoided.
From time to time, however, securities may be traded for other similar securities to improve yield, maturity or credit risk. For these transactions, a loss may be incurred for accounting purposes, provided any of the following occurs with respect to the replacement security:
• The yield has been increased, or
• The maturity has been reduced, or
• The quality of the investment has been improved
B. MAINTENANCE OF ADEQUATE LIQUIDITY
The investment portfolio must be structured in such a manner that will provide sufficient liquidity to pay obligations as they become due.
C. RETURN ON INVESTMENTS
The Hospital seeks to optimize return on investments within the constraints of safety and liquidity. The investment portfolio shall be designed with the annual objective of exceeding the weighted average return earned on investments within money market accounts.
D. DIVERSIFICATION
The investment portfolio must be diversified to avoid incurring unreasonable risks regarding specific security types or individual financial institutions.
E. COMPLIANCE WITH LEGAL REQUIREMENTS
The investments purchased by the Hospital must demonstrate compliance with legal requirements. In addition, the Hospital may authorize additional investments through the adoption of an ordinance.
IV. AUTHORIZED INVESTMENTS
Authorized investments include:
A. Colorado Surplus Asset Fund Trust (C SAFE)
B. Colorado Local Government Liquid Asset Trust (ColoTrust)
C. U.S. Treasury Money Market Fund (FGIC Public Trust)
D. Direct obligations of the U.S. Government, such as U.S. Treasury obligations
E. Obligations guaranteed by the U.S. Government as to principal
and interest.
F. Time deposits and savings accounts in banks and savings and loan associations, organized under the laws of Colorado or the United States, doing business in the State of Colorado. All such deposits shall be collateralized as provided for by Colorado State Statutes.
G. Obligations of the (Agencies of the United States):
• Federal Farm Credit Banks (FFCB)
• Federal Home Loan Bank Mortgage Corporation (FHLMC) (participation certificates)
• Federal Home Loan Bank (FHLB) or its banks
• Government National Mortgage Association (GNMA)
• Federal National Mortgage Association (FNMA)
• Student Loan Marketing Association
In addition to the above, the following types of investments are authorized by ordinance:
a. Repurchase agreements comprised only of those investments as authorized in Sections D, E and F
b. Commercial Paper of U.S. Corporations rated, at the time of purchase, “Prime-1” by Moody's and “A-1” by Standard & Poor's
c. State and/or local government taxable and tax exempt debt, general obligation and/or revenue bonds rated at least “Aa” by Moody's and “AA” by Standard & Poor's for long-term debt or rated at least MIG-2 by Moody's and SP-2 Standard & Poor's for short-term debt
d. Fixed income mutual funds comprised of only those investment instruments as authorized in Sections D, E,
G and J.
V. PRUDENCE AND ETHICAL STANDARDS
The “prudent person” standard shall be used by investment officials in the management of the overall investment portfolio.
The persons performing the investment functions, acting as a “prudent person” in accordance with these written policies and procedures, and exercising due diligence, shall not be responsible for an individual security's credit risk or market price changes provided that appropriate monitoring efforts are performed.
The “prudent person” standard is herewith understood to mean the following: Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence 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.
Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with State Statutes, Hospital Ordinances, proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Investment officials shall disclose to the Board any material financial interests in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the Hospital's investment portfolio. Investment Officials shall subordinate their personal investment transactions to those of the County, particularly with regard to the timing of purchases and sales.
VI. INTERNAL CONTROLS
The Chief Financial Officer - Finance, Audit and Budgets shall establish a system of internal controls to ensure the integrity of the investment process.
All investment transactions shall be supported by written evidence such as a confirmation ticket issued by the broker/dealer. In addition, an independent auditing firm (in conjunction with the required fiscal year audit) shall perform a review of the controls on at least an annual basis. The controls shall be designed to prevent loss of public funds because of fraud, error, misrepresentation by another party or imprudent actions by an employee of the Clerk.
VII. INVESTMENT COMMITTEE
Since the Hospital does not have a full-time portfolio manager, there is hereby established an Investment Committee for the purpose of formulating alternative investment strategies and short-range directions and for monitoring the performance and structure of the portfolio within established policies. The committee will act as an advising committee to the Clerk or his designee, who will give final approval for all investments purchased. The committee will formulate and recommend change, if necessary, to the investment policies. Members of the committee shall include the Chief Deputy Clerk - Finance, Audit and Budgets (serving as chairman), Chief Deputy Clerk - Administrative Services, Accounting Director, Budget Director, County Manager and County Attorney. The Investment Committee will meet on an as needed basis. Due to the limitation in staffing, the intention behind investment decisions will be to hold investments until mature.
VIII. CASH FORECASTING
The investment portfolio will be structured in a manner to provide sufficient liquidity to pay obligations when due. To that end, the investment procedures shall include cash forecasting techniques in order to match investment maturities with known cash needs and anticipated cash flow requirements.
IX. COLLATERALIZATION AND SAFEKEEPING REQUIREMENTS REQUIREMENTS
Collateral for public deposits is controlled by the State of Colorado through
the Colorado State Statute. The Hospital shall not be under any obligation to secure additional collateral beyond the provision set forth in the Colorado State Statutes, except in the case of Repurchase Agreements. Collateral requirements for Repurchase Agreements will be contained in the Master Repurchase Agreement, executed between the Hospital and the broker/dealer or bank.
All investment securities purchased, except Certificates of Deposit, shall be held in safekeeping at an institution designated by the Chief Financial Officer. The institution shall issue a safekeeping receipt to the Hospital's Finance Department listing the specific instrument, par value, rate, maturity and any other pertinent information. In addition, the safekeeping institution shall send a report on at least a quarterly basis listing all securities held in each safekeeping account which shall be verified by the Hospital's Finance Department.
Certificates of Deposit issued by a local bank may be held in safekeeping at that Institution. The institution shall issue a copy of the Certificate of Deposit, a safekeeping receipt, or some other confirmation of the purchase which is satisfactory to the Clerk, to be kept on file in the Clerk's Office and which indicates the amount, interest rate, issue date and maturity date of the Certificate of Deposit.
X. DIVERSIFICATION OF PORTFOLIO
Prudent investing necessitates that the portfolio be diversified as to instruments and dealers. The following maximum limits are guidelines established for diversification by instrument. These guidelines may be revised by the Chief Financial Officer for specific circumstances.
Repurchase Agreements 10 %
Certificates of Deposit 25 %
U.S. Treasury Bills/Notes 100 %
Other U.S. Government Agencies 100 %
Commercial Paper 20 %
XI. LIQUIDITY
A. Maintenance of Liquidity Base
A liquidity base of approximately two months of anticipated disbursements, excluding bond construction payments made from escrow or trust accounts, will be kept in relatively short-term investments. These would include the State Investment Pool/Money Markets, Repurchase Agreements and U.S. Treasury Obligations.
B. Maximum Maturity on Repurchase Agreement
The maximum maturity for any single Repurchase Agreement, except for the daily repurchase agreement with the concentration bank, will be one (1) year
C. Purchase Securities with Active Secondary Market
Although many securities are acceptable for investment using the legal authorized list, some are not desirable from a liquidity standpoint. Accordingly, although investments may be on the authorized list, only those securities with an active secondary market may be purchased from that list.
XII. INTEREST RATE RISK
Generally, the longer the maturity of a particular investment, the greater its price volatility. Accordingly, the Hospital seeks to limit its risk by maintaining an investment portfolio with limited volatility. Procedures are established below.
Pooled Cash and Investments (no restriction):
No security shall have an estimated average return of principal exceeding five (5) years. The weighted average duration of principal return for the portfolio shall be less than two years. These restrictions shall be modified for adjustable rate securities, whose maturities could be as much as 30 years. The total adjustable rate securities purchased shall not be more than 25% of the total portfolio.
Restricted Accounts:
Securities will have a maximum maturity consistent with the nature of the restricted accounts. When structuring the maturity composition of the portfolio, it is the policy of the Hospital to evaluate current and expected interest rate yields, by evaluating the general economic conditions. Whenever interest rates are expected to increase in the near future, actions will be taken on the portfolio to shorten the maturities. Accordingly, whenever interest rates are expected to decrease, the maturities of the portfolio will be lengthened, as appropriate.