Town of Wayland, Massachusetts Investment Policy Statement General Fund & Trust Funds

Transcription

1 Twn f Wayland, Massachusetts Investment Plicy Statement General Fund & Trust Funds I. The Investment f General Funds, Special Revenue Funds, Enterprise Funds, and Capital Prjects Funds A. Scpe This sectin f the plicy applies nly t shrt term perating funds such as general funds, special revenue funds, enterprise funds, bnd prceeds and capital prject funds. Sectin tw will deal with trust funds, and any ther funds with special circumstances such as stabilizatin funds. A separate Cntributry Retirement Bard, either lcal r cunty, is respnsible fr the investment f the pensin funds. B. Objectives Massachusetts General Laws, Chapter 44, sectin 55B requires the municipal/district treasurer t invest all public funds except thse required t be kept uninvested fr purpses f immediate distributin. Mdern banking systems enable the public treasurer t maintain even these funds in interest bearing frm until the date a disbursement rder clears thrugh the banking system. The state law further requires that invested funds are t be placed at the highest pssible rate f interest reasnably available, taking accunt f safety, liquidity and yield. Therefre, these guidelines are intended t further the bjective f securing the highest return that is cnsistent with safety f principal while meeting the daily cash requirements fr the peratin f the entity's business. Safety f principal is the fremst bjective f the investment prgram. Investments shall be undertaken in a manner that seeks t ensure the preservatin f capital thrugh the mitigatin f credit risk and interest rate risk. These risks shall be mitigated by the diversificatin and prudent selectin f investment instruments, and chice f depsitry. Credit risk is the risk f lss due t the failure f the security issuer r backer. Interest rate risk is the risk that the market value f the security will fall due t changes in general interest rates. Liquidity is the next mst imprtant bjective. The verall investment prtfli shall remain sufficiently liquid t meet all perating requirements that may be reasnably anticipated. Since all pssible cash demands cannt be anticipated, the treasurer shall carry ut investment activities in a manner that prvides fr meeting unusual cash demands withut the liquidatin f investments that culd result in frfeiture f accrued interest earnings, and lss f principal in sme cases. Yield is the third, and last, bjective. Investments shall be undertaken s as t achieve a fair market average rate f return, taking int accunt safety and liquidity cnstraints as well as all legal requirements. C. Investment Instruments Nte: Public investments in Massachusetts are nt prtected thrugh prvisins in State law. Therefre, they are largely uncllateralized. Many banking institutins are willing t put up cllateral, albeit at a cst t the entity f a lwer interest rate. The Treasurer negtiates fr the highest rates pssible, cnsistent with safety principles. The Treasurer may invest in the fllwing instruments: Massachusetts State pled fund: Unlimited amunts (Pl is liquid)

2 The Massachusetts Municipal Depsitry Trust (MMDT), an investment pl fr state, lcal, cunty and ther independent gvernmental authrities, is under the auspices f the State Treasurer and currently managed by Fidelity Investments. It invests in Bankers Acceptances, Cmmercial Paper f high quality, Bank Certificates f Depsit, Repurchase agreements (Reps), and U. S. Treasury Obligatins. It has Federal Depsit Insurance Crpratin (F.D.I.C.) passthrugh insurance n the C.D.'s and takes delivery n the Reps and Treasuries. Under Gvernment Accunting Standards Bard Regulatin (GASB III), it is nt cnsidered an uncllateralized prduct. U. S. Treasuries that will be held t maturity: Unlimited amunts (Up t ne year maturity frm date f purchase) U.S. Agency bligatins that will be held t maturity. Unlimited amunts (Up t ne year maturity frm date f purchase) Bank accunts r Certificates f Depsit, hithert termed C.D.'s. (Up t ne year) which are fully cllateralized thrugh a third party agreement: Unlimited Amunts Bank accunts and C.D.'s (Up t ne year) insured by F.D.I.C. up t $100,000 limit all bank accunts and C.D. s in ne institutin are cnsidered in the aggregate t receive the $100,000 insurance cverage. In sme cases Banking Institutins carry additinal insurance, Depsitry Insurance Fund (D.I.F.): Cntact banking representative fr amunts f cverage. Unsecured bank depsits f any kind such as ther checking, savings, mney market, r Certificates f Depsit accunts at Banks that d nt fit the abve categries. These investments are subject t the fllwing limitatins: These investments will be limited t n mre than 5% f an institutin's assets and n mre than 25% f a municipality's cash. This percentage may be increase fr nt mre than 30 days during times f heavy cllectin r in anticipatin f large payments that will be made by the Twn in the near future. These payments may be fr such items as debt service payment r reginal schl assessments. Their credit wrthiness will be tracked by Veribanc, r ther bank credit wrthiness reprting systems. They will be diversified as much as pssible. C.D.'s will be purchased fr n mre than ne year and will be reviewed frequently. Mney Market Mutual Funds that are registered with the Securities and Exchange Cmmissin that have received the highest pssible rating frm at least ne natinally recgnized statistical rating rganizatin and as therwise referenced in the Massachusetts General Law Chapter 44 Sectin 55. Risk Tlerance Credit Risk Credit risk is the risk that an issuer r ther cunterparty t an investment will nt fulfill its bligatins. The Twn will manage credit risk several ways. There will be n limit t the amunt f United States Treasury and agency bligatins which bth f these types f investments carry an AAA rating. In regards t ther investments the Twn will nly purchase investment grade securities with a high cncentratin in securities rated A and abve. The Twn may invest in the Massachusetts Municipal Depsitry Trust (MMDT) with n limit t the amunt f funds placed in the fund. The Twn may place funds in banking institutins as stated in the Sectin C f this plicy. Twn f Wayland Investment Plicy Statement Page 2

3 Custdial Risk The custdial credit risk fr depsits is the risk that, in the event f the failure f a depsitry financial institutin, a gvernment will nt be able t recver depsits r will nt be able t recver cllateral securities that are in the pssessin f an utside party. The custdial credit risk fr investments is the risk that, in the event f the failure f the cunterparty t a transactin, a gvernment will nt be able t recver the value f investment r cllateral securities that are in the pssessin f an utside party. The Twn will review the firm s financial statements and the backgrund f the sales representative. The intent f this qualificatin is t limit the Twn s expsure t nly thse institutins with a prven financial strength, Capital adequacy f the firm, and verall affirmative reputatin in the municipal industry. Further all securities nt held directly by the Twn, will be held in the Twn s name and tax identificatin number by a third party custdian apprved by the Treasurer and evidenced by safekeeping receipts shwing individual CUSIP numbers fr each security. Cncentratin f Credit Risk Cncentratin f credit risk is the risk f lss attributed t the magnitude f a gvernment s investment in a single issuer. The twn will minimize Cncentratin f Credit Risk by diversifying the investment prtfli s that the impact f ptential lsses frm any ne type f security r issuer will be minimized. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value f an investment. The twn will manage interest rate risk by managing duratin in the accunt. Freign Currency Risk Freign currency risk is the risk that changes in the exchange rates will adversely affect the fair value f an investment r a depsit. The Twn will nt invest in any instrument expsed t freign currency risk. D. Diversificatin Diversificatin shuld be interpreted in tw ways: in terms f maturity as well as instrument type and issuer. The diversificatin cncept shuld include prhibitin against ver cncentratin f maturities as well as cncentratin in a specific institutin. With the exceptin f U.S. Treasury bligatins r investments fully cllateralized by U.S. Treasuries r agencies, and State pls (MMDT), n mre than 10% f the Twn's investments shall be invested in a single financial institutin. E. Authrizatin The Treasurer has authrity t invest municipality/district funds, subject t the statutes f the Cmmnwealth Massachusetts General Law Chapter 44 Sectin 55,55A, & 55B. F. Ethics The Treasurer (and Assistant Treasurer) shall refrain frm any persnal activity that may cnflict with the Twn f Wayland Investment Plicy Statement Page 3

4 prper executin f the investment prgram r which culd impair r appear t impair ability t make impartial investment decisins. Said individuals shall disclse t the Chief Executive Officer any material financial interest in financial institutins that d business with the twn. They shall als disclse any large persnal financial investment psitins r lans that culd be related t the perfrmance f the twn's investments. G. Relatinship with Financial Institutins Financial institutins shuld be selected first and fremst with regard t safety. The Twn subscribes t the Veribanc Rating Service t evaluate the banking institutins that it currently has relatinships with. Brkers shuld be recgnized, reputable dealers and members f FINRA. If the Twn des nt purchase this service the Treasurer shuld request n a quarterly basis frm all f the banking institutins that are wrking with the Twn that institutins Veribanc rating. When using the Veribanc rating service the Treasurer may invest in such banks that shw a green rating in a particular quarter. If a rating is yellw the Treasurer shuld cntact the apprpriate banking institutin and request in writing an explanatin f the change in rating and the expected time table fr it t be changed t green. If fr a secnd quarter such rating has nt been crrected, the Treasurer shuld cnsider remving all funds that are nt cllateralized, r carries sme frm f depsitrs insurance. If a rating mves t red all mney shuld be immediately cllateralized r cvered by sme frm f depsitrs insurance r be remved frm the banking institutin. The Treasurer shall require any brkerage huses and brker/dealers wishing t d business with the municipality t supply the fllwing infrmatin t the Treasurer: Audited financial statements If acting as an Investment Advisr their updated Frm ADV upn request. Prf f Natinal Assciatin f Security Dealers certificatin A statement that the dealer has read the municipality's investment plicy and will cmply with it n an annual basis. Prf f credit wrthiness (minimum standards: at least five years in peratin and a minimum capital f 10 millin dllars) H. Reprting Requirements On a regular basis (quarterly, semi-annually, r annually), a reprt cntaining the fllwing infrmatin will be prepared by the Treasurer and distributed t the Chief Executive Officer, Twn Manager, and/r Finance Cmmittee, as apprpriate. The quarterly reprt will include the fllwing infrmatin, as a minimum requirement: A listing f the individual accunts and individual securities held at the end f the reprting perid. A listing f the shrt-term investment prtfli by security type and maturity t ensure cmpliance with the diversificatin and maturity guidelines established in the "Diversificatin" sectin f this Investment Plicy. A summary f the incme earned n a mnthly basis and year t date basis shall be reprted. The municipal treasurer shall include in the reprt a brief statement f general market and ecnmic cnditins and ther factrs that may affect the Twn's cash psitin. The reprt shuld demnstrate the degree f cmpliance with the tenets set frth in the Investment Plicy. Twn f Wayland Investment Plicy Statement Page 4

5 I. Restrictins Chapter 44, Sectin 55 set frth the several restrictins that the Treasurer must be aware f when making investment selectins. A Treasurer shall nt at any ne time have n depsit in a bank r trust cmpany an amunt exceeding 60% f the capital and surplus f such bank r trust cmpany, r banking cmpany, unless satisfactry security is given t it by such bank r trust cmpany, r banking cmpany fr such excess. The treasurer shall nt make a depsit in any bank, trust cmpany r banking cmpany that he is assciated as an fficer r emplyee r has been the same fr any time during the three years immediately preceding the date f any such depsit. All securities shall have a maturity frm date f purchase f ne year r less. Purchases under an agreement with a trust cmpany, natinal bank r Banking Cmpany t repurchase at nt less than riginal purchase price f said securities n a fixed date shall nt exceed ninety days. J. Legal References Massachusetts General Law Chapter 44, Sectin 55 Massachusetts General Law Chapter 44, Sectin 55A Massachusetts General Law Chapter 44; Sectin 55B Twn f Wayland Investment Plicy Statement Page 5

6 II. The Investment f Trust Funds, Stabilizatin Funds and Cmmunity Preservatin Act Funds This sectin f the plicy applies nly t funds that culd be invested lng term, i.e. trust funds, stabilizatin funds and cmmunity preservatin act funds. A. Scpe This plicy applies t all accunts that are designated as Trust Funds, Stabilizatin Funds, and Cmmunity Preservatin Funds. These funds include all accunts that are received as schlarships and perpetual care receipts. In additin the Twn has placed bth the Capital Stabilizatin and regular Stabilizatin mney in this accunt alng with their wrkers cmpensatin and unemplyment cmpensatin accunts. All accunts will be maintained separately receiving their prprtinate interest and any realized and unrealized gains r lsses. The accunt will be established as a pled investment prtfli unless therwise stated. Any additinal accunts will be maintained in this same manner. B. Authrity Massachusetts General Law Chapter 44, sectin 54 pertains t the investment f Trust Funds. All trust funds shall fall under the cntrl f the Twn Treasurer unless therwise prvided r directed by the dnr. C. Objective Massachusetts General Laws, Chapter 44, sectin 55B requires the Twn Treasurer t invest all public funds except thse required t be kept uninvested fr purpses f immediate distributin. This sectin als requires that invested funds are t be placed at the highest pssible rate f interest reasnably available, taking accunt f safety, liquidity and yield. Therefre, these guidelines are intended t further the bjective f securing the highest return that is cnsistent with safety f principal while meeting the daily cash requirements fr the peratin f the entity's business. Safety f principal is the fremst bjective f the investment prgram. Investments shall be undertaken in a manner that seeks t ensure the preservatin f capital thrugh the mitigatin f credit risk and interest rate risk. These risks shall be mitigated by the diversificatin and prudent selectin f investment instruments, and chice f depsitry. Credit risk is the risk f lss due t the failure f the security issuer r backer. Interest rate risk is the risk that the market value f the security will fall due t changes in general interest rates. Liquidity is the next mst imprtant bjective. The verall investment prtfli shall remain sufficiently liquid t meet all perating requirements that may be reasnably anticipated. Since all pssible cash demands cannt be anticipated, the treasurer shall carry ut investment activities in a manner that prvides fr meeting unusual cash demands withut the liquidatin f investments that culd result in frfeiture f accrued interest earnings, and lss f principal in sme cases. Yield is the third, and last, bjective. Investments shall be undertaken s as t achieve a fair market average rate f return, taking int accunt safety and liquidity cnstraints as well as all legal requirements. D. Investment Instruments M.G.L. Chapter 44 sectin 54 states that mney shuld be depsited int savings bank, trust cmpanies Twn f Wayland Investment Plicy Statement Page 6

7 incrprated under the laws f the cmmnwealth, banking cmpanies incrprated under the laws f the Cmmnwealth which are members f the Federal Depsit Insurance Crpratin, r natinal banks, r invested in participatin units in a cmbined investment fund under sectin thirty-eight A f chapter twentynine, r in a paid up shares and accunts f and in c-perative banks, r in shares f savings and lan assciatins r in share r savings depsits f federal savings and lan assciatins ding business in the cmmnwealth. Additinally the Twn may invest such funds in securities, ther than mrtgages r cllateral lans, which are legal fr the investment f funds f savings banks under the laws f the cmmnwealth; prvided, that nt mre than fifteen percent f any such trust funds shall be invested in bank stcks and insurance cmpany stcks, nr shall mre than ne and ne-half percent f such funds be invested in the stck f any ne bank r insurance cmpany. See attached the Cmmnwealth f Massachusetts List f Legal Investments. The Treasurer may invest in the fllwing instruments: U. S. Treasuries that maybe sld prir t maturity: f maturity frm date f purchase) Unlimited amunts (With n limit t the length U.S. Agency bligatins that maybe sld prir t maturity. Unlimited amunts (With n limit t the length f maturity frm date f purchase) Bank accunts r Certificates f Depsit, hithert termed C.D.'s. Unlimited amunts (With n limit t the length f maturity frm date f purchase), which is fully cllateralized thrugh a third party agreement: Bank accunts and C.D.'s (With n limit t the length f maturity frm date f purchase), fully insured by F.D.I.C. and in sme cases als Depsitry Insurance Fund f Massachusetts (D.I.F.): $100,000 limit all bank accunts and C.D. s in ne institutin are cnsidered in the aggregate t receive the $100,000 insurance cverage. Unsecured bank depsits f any kind such as ther checking, savings, mney market, r Certificates f Depsit accunts at Banks that d nt fit the abve categries. These investments are subject t the fllwing limitatins: These investments will be limited t n mre than 5% f an institutin's assets and n mre than 25% f a municipality's cash. This percentage may be increase fr nt mre than 30 days during times f heavy cllectin r in anticipatin f large payments that will be made by the Twn in the near future. These payments maybe fr such items as debt service payment r reginal schl assessments. Their credit wrthiness will be tracked by Veribanc, r ther bank credit wrthiness reprting systems. They will be diversified as much as pssible. C.D.'s will be purchased with n limit t the length f maturity frm the date f purchase and will be reviewed frequently. Cmmn and preferred stck that are listed in the List f Legal Investments. Investment Funds that are listed in the List f Legal Investments. All ther items nt separately identified here that are listed in the List f Legal Investments. Risk Tlerance Credit Risk Credit risk is the risk that an issuer r ther cunterparty t an investment will nt fulfill its bligatins. The Twn will manage credit risk several ways. There will be n limit t the amunt f United Twn f Wayland Investment Plicy Statement Page 7

8 States Treasury and agency bligatins which bth f these types f investments carry an AAA rating. In regards t ther investments the Twn will nly purchase investment grade securities with a high cncentratin in securities rated A and abve. The Twn may invest in the Massachusetts Municipal Depsitry Trust (MMDT) with n limit t the amunt f funds placed in the fund. The Twn may place funds in banking institutins as stated in the Sectin C f this plicy. Custdial Risk The custdial credit risk fr depsits is the risk that, in the event f the failure f a depsitry financial institutin, a gvernment will nt be able t recver depsits r will nt be able t recver cllateral securities that are in the pssessin f an utside party. The custdial credit risk fr investments is the risk that, in the event f the failure f the cunterparty t a transactin, a gvernment will nt be able t recver the value f investment r cllateral securities that are in the pssessin f an utside party. The Twn will review the firm s financial statements and the backgrund f the sales representative. The intent f this qualificatin is t limit the Twn s expsure t nly thse institutins with a prven financial strength, Capital adequacy f the firm, and verall affirmative reputatin in the municipal industry. Further all securities nt held directly by the Twn, will be held in the Twn s name and tax identificatin number by a third party custdian apprved by the Treasurer and evidenced by safekeeping receipts shwing individual CUSIP numbers fr each security. Cncentratin f Credit Risk Cncentratin f credit risk is the risk f lss attributed t the magnitude f a gvernment s investment in a single issuer. The twn will minimize Cncentratin f Credit Risk by diversifying the investment prtfli s that the impact f ptential lsses frm any ne type f security r issuer will be minimized. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value f an investment. The twn will manage interest rate risk by managing duratin in the accunt. Freign Currency Risk Freign currency risk is the risk that changes in the exchange rates will adversely affect the fair value f an investment r a depsit. The Twn will nt invest in any instrument expsed t freign currency risk. E. Standards f Care The standard f prudence t be used by the Treasurer shall be the Prudent Persn standard and shall be applied in the cntext f managing an verall prtfli. The Treasurer acting in accrdance with written prcedures, and this investment plicy, and exercising due diligence shall be relieved f persnal Twn f Wayland Investment Plicy Statement Page 8

9 respnsibility fr an individual security s credit risk r market price changes, prvided the purchases and sale f securities is carried ut in accrdance with the terms f this plicy. Investments shall be made with judgment and care, under circumstances then prevailing, which persns f prudence, discretin, and intelligence exercise in the management f their wn affairs; nt fr speculatin but fr investment cnsidering the prbable safety f their capital as well as the prbable incme t be derived. In additin this sectin wuld als apply t M.G.L. Chapter 44 Sectin 55A which refers t the liability f the Treasurer fr lsses due t bankruptcy. F. Diversificatin Diversificatin shuld be interpreted in tw ways: in terms f maturity as well as instrument type and issuer. The diversificatin cncept shuld include prhibitin against ver cncentratin f maturities as well as cncentratin in a specific institutin, with the exceptin f U.S. Treasury bligatins r investments fully cllateralized by U.S. Treasuries r agencies. G. Ethics The Treasurer and Assistant Treasurer shall refrain frm any persnal activity that may cnflict with the prper executin f the investment prgram r which culd impair r appear t impair ability t make impartial investment decisins. The Treasurer shall disclse t the Twn Manager any material financial interest in financial institutins that d business with the twn. They shall als disclse any large persnal financial investment psitins r lans that culd be related t the perfrmance f the twn's investments. H. Relatinship with Financial Institutins Financial institutins shuld be selected first and fremst with regard t safety. The Twn subscribes Veribanc a recgnized bank rating service. Brkers shuld be recgnized, reputable dealers. The Treasurer shall require any brkerage huses and brker/dealers, wishing t d business with the Twn, t supply the fllwing infrmatin t the Treasurer: Audited financial statements If acting as an Investment Advisr, prvide yearly Frm ADV Prf f Natinal Assciatin f Security Dealers certificatin A statement that the dealer has read the municipality's investment plicy and will cmply with it n an annual basis I. Reprting Requirements On a regular basis (quarterly, semi-annually, r annually), a reprt cntaining the fllwing infrmatin will be prepared by the Treasurer and distributed t the Twn Manager, and/r Finance Cmmittee, as apprpriate. The quarterly reprt will include the fllwing infrmatin, as a minimum requirement: A listing f the individual accunts and individual securities held at the end f the reprting perid. A listing f the shrt-term investment prtfli by security type and maturity t ensure cmpliance with the diversificatin and maturity guidelines established in the "Diversificatin" sectin f this Investment Plicy. A summary f the incme earned n a mnthly basis and year t date basis shall be reprted. The Treasurer shall include in the reprt a brief statement f general market and ecnmic cnditins Twn f Wayland Investment Plicy Statement Page 9

10 and ther factrs that may affect the Twn's cash psitin. The reprt shuld demnstrate the degree f cmpliance with the tenets set frth in the Investment Plicy. J. Legal References Massachusetts General Law Chapter 44, Sectin 54 Massachusetts General Law Chapter 44, Sectin 55A Massachusetts General Law Chapter 44, Sectin 55B Trust Funds may be c-mingled and invested in any instruments allwed by the Cmmnwealth f Massachusetts list f Legal Investments Legal issued by the Banking Cmmissiner each July. Each trust fund must be accunted fr separately. Chapter 44 Sectin 54 sets frth that Treasurers may invest in instruments that are legal fr savings banks. This list f investments is included in the Cmmnwealth f Massachusetts List f Legal Investments, Chapter 167 Sectin 15A. Twn f Wayland Investment Plicy Statement Page 10