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HomeMy WebLinkAboutRes 2012-04.1 Adopting Investment Policy and Investment StrategiesCity of West University Place Harris County, Texas RESOLUTION NO. 2012-04.1 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST UNIVERSITY PLACE, TEXAS, ADOPTING THE CITY OF WEST UNIVERSITY PLACE'S INVESTMENT POLICY AND INVESTMENT STRATEGIES IN ACCORDANCE WITH THE PUBLIC FUNDS INVESTMENT ACT; DESIGNATING AN INVESTMENT OFFICER; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. BE R RESOLVED BY THE CITY COUNCIL OF THE CITY OF WEST UNIVERSITY PLACE, TEXAS: Section I: That the City Council of th City of West University Place, Texas, has reviewed the Citys Investment Policy and Investment Strategies and the policy and strategies adopted in Section 2 hereof records any changes made by the City Councl to either such document. Section 2: That the City Council of the City of West University Place, Texas, hereby adopts the Investment Policy, including the Investment Strategies, of the City of West University Place, which is adached hereto as Exhibit 'A'and incorporated herein for all intents and purposes. Section 3: The City Council 01 the City of West Univendy Place, Texas, hereby designates those individuals named in Exhibit A of Me Investment Policy as Me investment officials of the City vino are responsible for the Investment of the Citys funds consistent with the Investment Policy adopted pursuant to Section 2 of this resolution. Becton 4: This resolution shall take effect immediately from and after its passage by the City Council of to City of West University Place. ,Ats1 Ury/yf INTRODUCED, READ antl PASSED, by Me adsmative vote of the City Council of ne 9 o st Ur varsity Placethlsthe 11'h day of June, 2012. A / hxa +, CILE Thelma Len; City Secretary ob Fry, May APPROVED AS TO FORM: RECOMMENDED BV' Alan Petrov, CIry Attorney Michael Fogy, City Manager Exhibit "A" CITY OF WEST UNIVERSITY PLACE, TEXAS INVESTMENT POLICY Exhibit "N' City of West University Place Investment Policy Table of Contents I. Policy II. Purpose III. Scope IV. General Objectives A. Safety B. Liquidity C. Public Trust D. Yield V. Standards of Cue A. Pruden B. Ethics and Conflicts of Interest C. Delegation of AUlhonry D. Training E. Interval Controls VI. Safekeeping and Custody A. Authorized Financial Dealers and Institutions B. Competitive Bids C. Delivery vs. Payment VB. Suitable and Authorized Investments A. Eligible Investments B. Collueralization C. Existing Investments VBL Investment Parameters A. Diversification B. MatinnurnMaturritics IX. Investment Strategies X. Reporting A. Methods B. Performance Standards C. Marking to Market l:8:3YIF A- AlrthoriZN Investment Officials 9 B - Statemem of Ethics and Conflicts of Interest t0 C- Approved BrokenDeders, Financial Institutions and Investment Pools 11 D - Certification by Business Orgardzation 12 E- Investment Strategy 13 City of West University Place I. Policy It is the policy of the City of West University Place (the "City ") to administer and invest its funds in a manner that will preserve the principal and maintain the liquidity while meeting the daily crib flaw requirements of the City. The City will coMbrm to all federal, state and local statutes, rates and regulations governing the investment of the City's foods. The City's policy is to hold lavestmers to maturity; however. securities may be sold in order to minimize the potential loss of principal on a wearily whose credit quality has declined; in swap ono another security which would improve the quality, yield or target duration of the ponfolio; or to meet unanticipated liquidity needs of the portfolio. Nut Ims thau unitedly, City Council diell adopt a "Id en insnunnut by rdsolutioa stating that it has reviewed the Investment Policy and investment strategies and dim the written instrument so adopted shill rceord any charges made to the Investment Policy or Investment strategies. It. Purpose The purpose of this policy is to Comply with Chapter 2256 of the Texas Government Code ( "Public Foods Investment Act "), which requires each entity to adopt a women investment policy regarding the investment of its foods and funds under its control. The investment policy addresses the methods, procedures and practices that must be exercised an ensure effective and judicious fiscal management of the entity's funds. III. Scope This investment policy applies an all financial assets of the City. These fonds are accounted for in the Chys Comprehensive Annual Financial Report and include all financial assets of all funds managed by the City, including but not limited to mss revenues, charges for services, bond proceeds, interest income, loans and funds received by the City where rbe City performs a tutorial friction. However, this policy does not apply to the assets administered for the benefit of the City by outside agencies under deferred compensation programs or other retirement programs. The City will consolidate cash balances from all funds to amounted investment earnings, (except as otherwise required by covenmts in bond ordinances, credit agreements as defined in V.T.G.A., Government Code $ 1391.001 or other applicable regulaions). Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. City of West University Place Investment Policy IV. General Objective The primary objectives, In priority order, of the City's investment activities shall be safety, liquidity, and yield: A. Safety- Safety of the principal is the retention objective of the investment program. Investments shall be undertaken in a matmer that seeks to ensure the prerervafion of capital In the overall portfolio. The objective will be to minimize credit risk and interest rate risk i. Credit Risk and Concentration of Credit Risk - The City will minimize credit risk, the risk of loss doe to the failure of the security Issuer or backer, and concentration of credit risk, the risk of loss attributed to the magnitude of investment in a single issuer, by: Limiting invca[monts to to safest typos of securities, • Pre qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City will do business, and: • Diversifying the investment portfolio so that potential losses on individual sec omie will be minimized. ii. Interest Rate Risk -The City will manage the risk that the market value of securities in the portfolio will fail due to changes in general invest rates, by • Structuring Ne investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby voiding Ne need in sell securities on the open market prior to maturity, • Investing operating funds primarily In shorter term seconder, money market mutant funds, or similar investment pools, and; • Diversify maturities and stagger purchase dates to minimize the impact of market movements over time. B. Liquidity - The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature canicamerat with cash needs to meet anticipated demands. Furthermore, since all possible cash demand cannot be anticipated, a portion of the portfolio will be invested in money market mutual funds or local government investment ports that offer same -day liquidity for shomesio r funds. Additionally, a portion of the portfolio will consist of securities with active secondary or resale markets. C. Public Trust -Ail participants in the City's investment process shall seek to act responsibly as custodians of the public trust. Investment officers City of West University Place shall avoid any transaction that might impair public confidence in the City's ability to govern effectively. Yield— The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the nvestmet risk maintains and liquidity needs. Return on investment is of secondary Importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of coming a fah retain relative in the risk being assumed. Securities shall not be sold prior in maturity with the following exceptions: • A security with declining credit maybe sold early as minimize loss of principal • Liquidity needs of the portfolio require that the security be sold V. Standards of Care A. Prudence - The standard of prudence to be used by investing officials shall be the "prudent inverter" mile. This mle states that "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 vestment, considering the probable safety of their capital as well as the probable income m be derived." The determination of whether an vesting official has exercised prudence with aspect to an investment decision shall be applied in the context of managing an overall portfolio rather than a consideration as in the prudence of a single investment. Investment offices acting in accordance with written procedures and the vestment policy and exercising sing due diligence shall be relieved of n personal responsibility for a individual security's alit risk or market price changes, provided drat deviations born expectations are reported in a timely fashion and appropriate action is liken to control unfavorable developments. B. Ethics and Conflicts of Interest - Officers and employees involved in the admonition process shall refrain from personal business activity that could conflict with proper execution and management of the investment program, in that could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City any material interests in financial institutions that conduct business with the City. They shall fudher disclose any personal financiahinvestment positions that could be related to the performance of the investment portfolio. (See F*b.bit B.) City of West University Place Furthermore, an investment official who has a personal business relationsbip with an organization seeking to sell an investment to the City shall file a statement disclosing that personal business interest. An vestment official who is related within me second degree by affinity or comanguiuity to an individual seeking to sell an investment to the City shall rile a statement disclosing bat relationship. A statement required under this subsection most be filed with me Texas Pbics Commission and be City Council. C. Delegation of Authority - Authority to manage the City's investment program is granted to the Finance Director, hereinafter referred to as vestment officer, and derived from the following: City Chimer Article VII, section 9.01c. Responsibility for the operation of Na investment program is bereby delegated to the investment officer, who shall act in accordance with established procedures and internal controls for the operation of Ne investment program consistent with Nis investment policy. This policy includes explicit delegation of aubority to persons responsible for investment mareactions. (See Exhibit A) No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by die investment officer. The vestment officer shall be responsible for all transactions undertaken and shall estableb a system of controls to regulate activities of subordinate officials. D. Training - Investment officials most complete at least 10 hours of investment training widim 12 months of taking office or assuming duties, and shall attend an investment running session not less than once in a two year period and receive not less Nan 10 hours of instruction relating to vestment responsibilities The City shall provide be training through courses and seminars offered by professional organizations and associations m order to insure the quality and capability of the City's vestment perwrmel making investment decisions in compliance with Public Funds Investment Act (PFIA). Professional organizations and associations bat may provide investment training included the Government Treasurer's Organization of Texas, be University of North Texas, the Government Finance Officers Association of Texas, or the Texas Mumcipni league. F. Intermit 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 TOO, or misuse. The nitemel control structure shall be designed to provide reasonable assurance bat these objectives are met. The concept of reasonable assurance recognizes Nat (a) the cost of a control should not exceed the benefits likely to be derived and (b) the valuation of casts and benefits requires estimates and judgments by management. Therefore, be Finance Director shall City of West University Place Investment Policy estalisb a process for =us[ independent review by an external auditor to assure compliance with policies and procedures. W. Safekeeping and Custody A. Authorized Financial Dealers and Institutions The investment officer will monsoon a list of formation institutions and security broker /dealers authorized to provide investment services (Exhibit C) as the City. This list shall be reviewed, revised as necessary and adopted at least aanus lly. No public deposit shall be made except in a qualified public depository as established by smte laws. Those firms this request to become qualified bidders for securities transactions will be required to provide 1) a completed broker/dealer questionnaire (Exhibit D) Nat provides information regarding creditworthiness, experience and reputation, and 2) a certification stating the firm has received, read and understood the Entity's investment policy and agree to comply with de, policy. Authorized firms may include primary dealers or regional dealers that quality under Securities & Exchange Commission Rule 1503 -1 (Uniform Net Capital Rule), and qualified depositories. All investment providers, including financial institutions, banks, money marker mutual funds, and local government investment pads, must sign a certification acknowledging that the organrzation has received and reviewed the Entity's investment policy and that reasonable procedures and comrols have been implemented m preclude Investment transactions that are not authmiced by the Entity's policy. B. Competitive Bids -The City's policy requires competitive bidding for all individual security purdmses and sales except for a) transactions with money market mumA funds and local government investment pools and b) treasury and agency securities purchased at issue through an approved broker/dealer or financial institution. C, Delivery vs. Payment -Ail trades with rise exception of investment pools and mutual funds will be executed by delivery vs. payment (DVP) to create that securities are deposited in on eligible financial institution poor in the release of funds. Securities and collateral will he held in the City's me by a third party custodian re evidenced by safekeeping receipts of the institution with which the securities are deposited. VIL Suitable and Authorized Investments; A. Eligible Investments - Assets of the City may be invested in the following instruments deserted below. All of these investments are authorized by the Public Foods Investment Ad. Only those instruments listed in this section are authorized. City of West University Place 1. Obligations of the United States of America, its agencies and instrumentalities 2. Certificates of Deposit issued by a depository institution that his its main office or a branch in Texas. The cenificale of deposit must be guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National Credit Union Share Insurance Fund or its successor and sawed by obligations in a mainver and amount as provided by law. In addition, cmificates of deposit obtained through a depository institution which are fully collateralized under a pledge agreement approved by the City are authorized investments. 3. No-load Money Market Mutual Funds that 1) are registered and regulated by the Securities and Exchange Commission, 2) have a dollar weighted average stated maturity of W days or less, 3) seek to maintain a net asset value of $1.00 per share and 4) are rated no Iowa than AAA or an equivalent rating by at least one nationally recognized rating service. 4. kucal Government Investment Pools, authorized by a separate resolution, which mcet the requirements of Chapter 2256.016 of the Public Funds Investment Act and are rated no lower than AAA or an equivalent rating by at least one nationally recognized razing service. B. CollamandieaUOn — Collateralization will be required on all funds on deposit with a depository bank, other than investments. In order to anticipate market changes and provide a level of security for all funds, the collatervlization level will be one hundred two percent (102 %) of market value of principal and accused rams[ on the deposits, less an amount insured by the FDIC. Securities pledged as collateral will be held in the City's name by an Independent third party with whom the City has a current custodial agreement. The Finance Director is responsible for entering into collatemlization agreements with third party custodians in complianne with this Policy. The agreements are to specify the acceptable investment securities for collateral, including provisions relation to posswomn fthe collateral, the substitution or release of investment securities, ownership of securities, and the teethed of valuation of securities. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the City and retained. Collateral shall be reviewed at least quarterly to assure that the market value of the pledged securities is adequate. C, Existing Investments— Any investment currently held that does not meet the guidelines of this policy, but wend authorized investments a the time of purchase, is not required to be liquidated; however, me City and take City of West University Place all prudent measures consistent with this Investment Policy to liquidate an investment that does not or no longer qualities as an authorized investment Vlll. Investment Parameters A. Diversification - The investments shall be diversified by security type and institution. With the exception of U.S. Treasury securities and authorized Poole, the City will diversify the entire portfolio to comply with the investment strategy; however, in no case shall arty single investment trmrsaction be more than five Percent (5%) of she entire portfolio. B. Maximum Maturities - To the extent possible, the City shall attempt to match its investments with anticipated rash flow requirements. Unless Interlard to a specific cash Dow, the City will not directly invest in securities maturing more than tivee (3) years from the date of purchase The composite portfolio will base a weighted average maturity of 365 days or less. This dollar weighted average maturity will be calculated using the stated final maturity dates of each security. IX. Investment Strategies The City maintains separate portfolios for individual funds or groups of funds that are managed according to the terms of this Policy and the corresponding vestment strategies listed in Exhibit E The investment strategy for portfolios established after the annual Investment Policy review and adoption will be managed m accordance with the terms of this Policy and applicable agreements until the next annual review when a specific strategy will be adopted. The City maintains a pooled fund group that is an aggregation of the majority of City funds including lax receipts. enterprise fund revenues, fine and fee as well as some, but not all, bond proceeds, and grants. This portfolio s maintained to meet anticipated daily cash needs for City operations, capital projects and debt service In order to ensure she ability of the City to meet obligations and to minimize potential liquidation losses, the dollar weighted average stated maturity of the investment portfolio slmll not exceed one (1) year. The objectives of this portfolio are an ensure safety of principal; ensure adequate investment liquidity; limit market and credit risk through diversification; and atm'ur the best feasible yield in accordance with the objectives and restrictions set for m this Policy. City of West University Place K Reporting A. Methods - The investment officer shall prepare an investment report at least quarterly, including s management summary that provides an analysis of the slams of the current investment portfolio and transactions made over the last quarter. This management summary will be imposed in a manner consistent with the requirements of Section 2256.023 (Internal Management Reports) of the PPIA, and thaz will allow the City to i suarism whether investment activities during the reporting period have conionued to by investment policy. The repair should be provided to the City Council. An independent auditor shall formally review the quarterly reports prepared under this section at least aunually, and that auditor shall report me results of me review to City Council. B. Performance Standards - The investment portfolio shall be managed in accordance with the objectives specified in this policy (safety, liquidity, and yield). The portfolio should obtain a market average raze of return during a markecleconomlc environment of stable interest razes. The investment officer shall determine whether market yields are being achieved by comparing the portfolio market yield m the three (3) month U.S. Treasury Bill, me six (6) month U.S. Treasury Bill and the two (2) year U.S. Treasury Note. C. Marking to Market - The market value of me portfolio shall be calculated at least monthly said a statement of the market value of the pmUolio shall be issued at least quarterly. The market value of each vestment shall be obtained from s source such as the Wail Street loumal, a reputable brokerage firm or security pricing service and reported on the investment reforms. City of West Universty Place EX11113IT A City of West University Place Authorized Investment Officials Rhonda Daugherty. CPA, Finance Director Reuea Dobbs, Treasurer LaToya Jasper, Contraler City of West University Place EXHIBIT B City of West University Place Statement of Ethics and Conflicts of Interest investment officials for the City of West University Place shall refrain from personal business relationships with business organizations that could conflict with the proper execution of me vestment progress, or which could impair der ability to make partial investment decisions. This would only apply to personal business relationships with business organizations that have been approved by City Council to conduct investment bargaining with me City of West University Place. M Investment official is considered to have a personal business relationship with a business organization if. (D The investment official owns 10 present or more of the voting stock or shares of the buguws organization or owns $5,000 or more of the fair market value of me business. (2) Funds received by the investment official from me business organization exceed 10 penem of Me investment official's gross income for the previous year (5) The Invesuneut official has acquired rrom the business orgavi cation during the previous year investments with a hook value of $2,500 or more for the personal account of me investment official. I do hereby certify that 1 do not have a personal business relationship with any business organization approved to conduct investment transactions with the City of Wes University Place, nor m I related wahm the second degree by affinity or consanguinity, as deminamed eager Chapter Spa, to an individual seeking to sell an investment to the City of West University Place as of Pre Mine of this samment. City of Wes University Place Investment Officials Rhonda Daughmy, CPA, Finance Director Date Renew Dobbs, Treasurer Daze IaToy t Jasper, Controller Date 10 City of West University Place EXBBIT C City of West University Place Approved BrokerMealers, Financial Institutions and Investment Pools Broker Dealers Coastal Securities First SouNwest Company Public Depositories /P Morgan CAme, NA (Primary) Investment Pools TexPoal City of West University Place EXHIBIT D City of West University Place Certification by Busiu ®s Organization !date) City of West University Place, Texas (Alm' Designed investment dial) 38W University Blvd. West University Place , TX 79W5 Dowar Mds.(Invemment official): This certificazion is executed on behalf of the City of West University Place, Texas (the Investor) and (the Business Organization), pursuam to the Public Funds Investment Act Chapter 2256, Texas Grvemment Code, (the Act) in connection with investment transactions conducted between the Investor and Business Ofganization. The undersigned Registered Principal of the Business Organization hereby certifies on behalf of the Business Organization that I. The undereigoed is a Registered principal of the Business Organization offering to enter an vestment transaction with the Investor (Nam: as such terms are used in the Public Funds Investment Act, chapter 2256. Texas Local Government Code) and: 2. The Registered Principal of the Business Organization has received and reviewed the Investment Policy fhrnlshM by the investor and; 3. The Registered principal of the Business Organization has implemented re srnable procedures and controls in an effort to preclude investment transactions conducted between the Business Organization and the Investor that are not authorized by the Investor's vestment policy, except to the anent that this authonzation Is dependent on an analysis of the makeup of the investor's entire portfolio or requires and interpretation of the subjective investment standards. Registered Principal Broker Assigned to Be Account Tide 12 City of West University Place EXHIBIT E INVESTMENT STRATEGY The City of West University's investment portfolio will be designed and managed to ensure that it will meet all fie requirements established by the City of West University's investment policy and the Public Prods Investment Act The overall investment strategy outlined in the investment policy, has been further refined in this mvestmwt strategy statement by the following fwd types. Operating Funds: Operating Funds generally have greater cash Flow needs than other funds types. The operating fund portfolio may consist of any approved investment type with the understanding that the financial requirements of the operating funds will dictate the maturity, dates of the investment At union impottance is the preservation and safety of the investmwt principal. Additionally each investment will be viewed for its liquidity and marketability of the mvestmwt if the need arises to liquidate the investment before maturity. The final determining factors for the wvestment strategy will be the diversification of the investment portfolio and the yield of the investment To achieve short unin needs of one (1) to we hundred and eighty (180) days, finds will be invested in approved inveaunent pools. For longer term needs of six (6) months to five (5) years, foods will he invested in approved investments with objectives prioritized as follows: t) understanding the suitability of the investment to the fnnocial requirements of the City of West University Place; 2) preservation and safety of principal; 3) liquidity; 4) inalienability of the investment if the need arises to liquidate the investment before maturity; 5) diversification of the investment portfolio; and 6) yield. City of West University Place INVESTMENT STRATEGY (Con6amD Debt Service Funds: The debt service requirements we usually se annual, thus allowing the vesumit strategy to mirror debt obligation payment dates. The strategy for debt service funds allows greater Flexibility since the actual requirements are known into the future. lvvatments will still meet the adopted policies: however, planning maturity dates to match debt requirement daces will be the primary objective. The investment mountains will be primarily m approved investment types with maturities at six or twelve months established to match debt requirement dates. Shorvr -tetra investment may be used to meet these objectives and longer -semi vestments may be used when fund balance reserves exceed one year's debt service reqummits. To achieve this strategy the following objectives are pnionitized to evaluate investment opportunities: 1) understanding the suitability of the investment to rite finendid requirements of the City of West University Place; 2) preservation and safety of principal; 3) yield; 4) marketability of the investroent if the need anises to liquidate the investment before maturity; 5) diversification of the investment portfolio; and 6) liquidity. 14 City of West University Place Investment Policy INVESTMENT STRATEGY (Continued) Capital Improvement Funds: Bond proceeds can be invested over the life of the project; however, the exact disbursement of the funds is not always known. The investment objective of the capital hnpmvement funds is to schedule maturities to maximize investment earnings while preserving principle. The key to an effective strategy is to be aware of the project needs and match maturities to the period funds me needed. The investment objective for capital projects funds is still to match investment maturities with funding needs. As short -term needs are recognized investment maturities will be moved into approved investment pools to meet financial requirements. Longer -term needs will be invested with the following objectives as prioritized for capital improvement funds: 1) understanding the suitability of the Investment to the finaradal requirements of the City of West University Place; 2) preservation and safety of principal; 3) diversification of the investment portfolio; 4) yield; 5) liquidity; and 6) marketability of the investment if the need arises to liquidate the investment before maturity. IS City of West University Place [HYESTbIENT STRATEGY (Continued) Reserve Funds: Certain reserve funds have been esudi ished as required by bond covenants. The vestment objective is to invest reserve funds to the extent that maturities are established to the limit of the investment policy or to the end of the bond requirements whichever is shorter. The overall investment strategy for reserve funds will not rely on investment pools; however, the use of pools is not prohibited. Longer -term investment objectives are prioritaN as follows: 1) understanding the suitability of the investment to the financial requirements of the City of West University Place; 2) diversification of the investment portfolio; 3) preservation and safety of principal; 4) yield; 5) liquidity and b) marketability, of the investment if the need arises to liquidate the investment before minority.