Investment of Surplus Funds


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Investment of Surplus Funds

  1. 1. RULES OF THE BOARD OF TRUSTEES NUMBER TITLE PAGE 6Hx7-4.7 Investment of Surplus Funds 4-8 (1) The Board will approve a policy statement for the investment of surplus funds of the College. This policy must be consistent with Florida Statutes. (2) The Board will approve selections and contracts of investment advisory firms for the College. (3) The College President and Vice President of Administrative Services will have the authority to make investments of College funds consistent with Policy in (1) and approved investment in (2). (4) The College President will submit an annual investment report to the Board. (5) The Investment Policy Statement is shown below: A. Scope and General Guidelines 1. This Investment Policy applies to the surplus funds (Fund) managed by the Investment Manager for the benefit of Florida Community College at Jacksonville (College). 2. Subject to the limitations provided below, the Investment Manager shall have full discretion in terms of asset mix, security selection and timing of transactions. 3. Investments shall be made in accordance with the “prudence standard.” That being, investments shall be made with the same judgment and care which persons of prudence, discretion and intelligence would use in management of their own affairs. The Fund shall not be used for speculation, rather for investment in which consideration is given to the probable safety of capital and the probable income to be derived. 4. Management of the Fund shall be in accordance with Florida Statute 218.415, State Board of Education rule 6A-14.0765 and as may be superceded by this policy, local statute(s) and bond trust indenture(s) or resolution(s). B. Investment Objective The Fund’s primary objective is to maximize income (book yield) while providing minimal risk of market value volatility and adequate short-term liquidity to meet the demands of the College. Investments shall emphasize preservation of capital and diversity with regards to specific security types, issuers and maturity.
  2. 2. RULES OF THE BOARD OF TRUSTEES NUMBER TITLE PAGE 6Hx7-4.7 Investment of Surplus Funds 4-8.1 As a secondary objective, the Fund seeks to outperform its benchmark on a total return basis. The target benchmark to be used for maturity and risk management is the Merrill Lynch 1-5 Year Government/ Corporate A+ Index. Recognizing that varying market conditions may affect this long-term objective, the portfolio should also rank within the top 50 percentile of other fixed-income managers with similar objectives over a market cycle (4 to 7 years). C. Authorized Investments Investments shall be limited to fixed income securities selected from the following types: 1. U.S. Treasury Bills, Notes, Bonds, and Strips and other obligations whose principal and interest are fully guaranteed by the United States of America or any of its agencies. 2. Government Sponsored Enterprises (Federal instrumentalities) including but not limited to: Federal Farm Credit Bank (FFCB), Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal Home Loan Bank (FBLB), Student Loan Marketing Association (SLMA), Financing Corporation (FICO), The Resolution Funding Corporation (REFCO), Farm Credit System Financial Assistance Corporation, the Federal Housing Finance Board and all other government sponsored agencies and enterprises. 3. Repurchase Agreements: collateralized at 102% by U.S. Treasuries. 4. Certificates of Deposit in state-certified qualified public depositories. 5. Mortgage-backed securities guaranteed by the U.S. Government or a Federal agency, including securities collateralized by the same or mortgage-backed securities rated “AAA” by either Standard and Poor’s or Moody’s or other nationally recognized credit rating organizations. All other references to credit ratings in this Policy shall mean by the same organizations. 6. Asset Backed Securities: rated “AAA”.
  3. 3. RULES OF THE BOARD OF TRUSTEES NUMBER TITLE PAGE 6Hx7-4.7 Investment of Surplus Funds 4-8.2 7. Money Market Instruments: securities rated “A1/P1” or the equivalent as a minimum (Tier 1 as defined by 2(a) 7 money market funds) at the time of purchase, included but not limited to commercial paper, time deposits and banker’s acceptances. 8. Corporate notes rated “A” or better. 9. Money market funds registered with the SEC with the highest credit quality rating from a nationally recognized rating company. 10. Any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act, as provided in F.S. 163.01, which maintains a similar investment objective. It should be recognized that certain securities may meet the above definition of an authorized Investment but their performance risk, as created by their structure, may be such that a prudent investor would deem them inappropriate for the Fund. Securities of this type which are prohibited: a. Reverse repurchase agreement. b. Floating rate securities whose coupon floats inversely to an index or whose coupon is determined based upon more than one index. c. Branches of Collateralized Mortgage Obligations (CMO) which receive only the interest or principal from the underlying mortgage referred Securities Commonly referred to as “IO’s” and “PO’s.” d. Securities whose future coupon may be suspended because of the movement of interest rates or an index. D. Portfolio Construction Recognizing that market value volatility is a function of maturity, the Investment Manager shall maintain the Fund as an intermediate term maturity portfolio. Additionally, it is recognized that proper diversification is considered a prudent investment approach. Specifically, the following restrictions apply in the management and investment of the Fund:
  4. 4. RULES OF THE BOARD OF TRUSTEES NUMBER TITLE PAGE 6Hx7-4.7 Investment of Surplus Funds 4-8.3 1. The maximum average duration of the portfolio shall be no greater than 125% of the target benchmark’s average duration. a. The maturity of debt obligations with a call and/or put option(s) shall be considered the date on which it can be reasonably expected that the bond will be called, put or mature. b. The maturity of mortgage securities shall be considered the date corresponding to its average life. This date reflects the point at which an investor will have received back half of the original principal (face) amount. The average life may be different from the stated legal maturity included in a security’s description. c. The effective maturity of floating rate securities shall be considered the time until the next full reset of the coupon. The maximum final maturity of a floating rate security shall be five (5) years from the date of purchase. d. The maximum effective maturity of an individual security shall be five (5) years from the date of purchase. e. To limit principal fluctuation, the maximum average life of the portfolio shall not be greater than three (3) years. f. To the extent possible, known cash needs and anticipated cash-flow requirements will be met with matching investment maturities. 2. U.S. Government and government agency backed securities are not subject to any limitations. A maximum of 80% of the Fund may be invested in Federal instrumentalities or mortgage backed securities subject to an additional limit of 35% of any single issuer. A maximum of 35% of the Fund may be directly invested in corporate notes and commercial paper subject to the additional limit of 5% in any individual issuer. A maximum of 35% of the Fund may be directly invested in asset backed securities subject to the additional limit of 5% in any individual issuer.
  5. 5. RULES OF THE BOARD OF TRUSTEES NUMBER TITLE PAGE 6Hx7-4.7 Investment of Surplus Funds 4-8.4 3. The Fund must maintain a total quality rating of 8.0 or higher on the following scale: U.S. Government fully guaranteed: 10.0 Government sponsored enterprises (GSE): 9.0 “AAA”-rated corporate securities: 8.0 “AA”-rated corporate securities: 7.0 “A”-rated corporate securities: 6.0 E. Expectations of Investment Manager Unless otherwise indicated, the following are the responsibilities expected of the Investment Manager: 1. Monthly reporting of holdings and transactions occurring in the Fund. This report is to include at least (1) all assets held by the Fund with their book value, approximate market value, accrued income and (2) all transactions occurring in the Fund during the month. 2. Quarterly reporting of the Fund’s performance. The Investment Manager shall report the Fund’s total rate of return which reflects the true earnings of the Fund and incorporates cash flows, changes in market value and income earned. Calculation of the Fund’s total rate of return will comply with the performance measurement standards as defined by the Association of Investment Management and Research (AIMR). 3. The Investment Manager shall maintain an approved list of investment institutions and dealers for the purchase and sale of securities. 4. The Investment Manager shall execute purchases and sales in a competitive bid environment wherein at least three (3) offers or bids are obtained for each security. Exceptions to this approach may be made when (1) prices for purchases/sales are compared to systems providing current market prices and deemed reasonable; (2) when the security to be purchased is unique to one institution or (3) the security has recently been issued and is trading at the same price by all financial institutions. 5. The Investment Manager shall maintain a master repurchase agreement and require all approved institutions and dealers transacting repurchase agreements to adhere to the requirements of the master repurchase agreement.
  6. 6. RULES OF THE BOARD OF TRUSTEES NUMBER TITLE PAGE 6Hx7-4.7 Investment of Surplus Funds 4-8.5 F. Custodial Arrangement(s) and Agreement(s) 1. All securities purchased by the College or by its approved Investment Manager under this Policy shall be properly designated as an asset of the College and (except for those related to overnight repurchase agreements) held in safe keeping by a third party custodial bank or other third party custodial institution. If a bank or trust company serves in the capacity of investment Advisor, said bank or trust company could also perform required custodial and reporting services. The only exception to this will be for overnight repurchase agreements whose underlying securities are held by the originating institutions. Those agreements shall have the following limitations: a. Made with primary securities dealers or authorized depositories meeting such credit quality standards as established by the Investment Manager or College. b. Made with only those dealers and authorized depositories with whom the Investment Manager or College has executed a master repurchase agreement. 2. No withdrawal of such securities, in whole or in part, shall be made from safekeeping except by those designated within the Investment Manager and Custodial Agreement between the Investment Manager and the College. In the event the Investment Manager is not the custodian of the securities, the College shall execute a separate Custodial Agreement with the trustee guaranteeing the same safe-keeping provisions listed above. G. Internal Controls The Vice President of Administrative Services shall establish a system of internal controls and procedures, which will be documented in writing. The controls and procedures will be designed to prevent losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of entity. (General Authority: FS 218.415, 1001.64, Formerly 240.319) (Adopted 07/01/72, Revised 07/01/74, 06/23/80, 11/17/82, 11/14/84, 10/21/93, 11/02/99, 01/11/00, 12/02/03, 04/04/06, Formerly 2.14)