Loading...
HomeMy WebLinkAbout10.b. Ratify changes to Board Policy No. BP 005 – Statement of Investment PolicyCentral Contra Costa Sanitary District a • ' BOARD OF DIRECTORS POSITION PAPER Board Meeting Date: September 17, 2015 Subject: RATIFY CHANGES TO BOARD POLICY NO. BP 005 —STATEMENT OF INVESTMENT POLICY Submitted By. Initiating Dept. /Div.: David Heath Administration Director of Administration Finance & Accounting/-., REVIEWED AND RECOMMENDED FOR BOARD ACTION: Thea Vassallo - Finance Manager + ..2 n w Roger 9. Bail y General Mana er ISSUE: Board approval is required for changes to policies adopted by the Board. At its last meeting, the Board authorized revisions to Board Policy No. BP 005 — Statement of Investment Policy. It was subsequently noted that one of the changes suggested during the meeting is inconsistent with another Board policy and that one additional clarification should be made. BACKGROUND: On September 3, 2015, the Board approved substantive updates to BP 005 — Statement of Investment Policy to incorporate industry best practices and expand the types and limits of allowable investment instruments as permitted by California Government Code Section 53601. During the discussion two additional changes were suggested by Member Causey and approved by the Board. Staff was asked to incorporate them into the final Policy without the need for further Board review. However, when the Administration Committee met on September 10, 2015 to review the new draft BP 017 — Fiscal Reserves, it was discovered that a couple of minor changes should be made to BP 005 for consistency purposes. A recap of the proposed changes, each of which is reflected in the attached strikeout, follows: Changes to Section III. Bank and Dealers as suggested by Member Causey on September 3 allow the District greater flexibility to pursue investment options in addition to the County pool. 2. Changes to Section VII. Delegation and Authority and various other sections throughout the Policy as recommended by the Administration Committee on September 10 clarify the General Manager's authority under the Statement of Investment Policy. 3. Changes to Section XIV. Policy Considerations clarify who has authority to change the Policy. It may only be changed by the Board, preferably upon recommendation from the Administration Committee. Page 1 of 2 POSITION PAPER Board Meeting Date: September 17, 2015 subject: RATIFY CHANGES TO BOARD POLICY NO. BP 005 —STATEMENT OF INVESTMENT POLICY ALTERNATIVESICONSIDERATIONS: The Board could choose not to make the proposed Policy modifications, but that would not be recommended. The Board could also choose to make other changes to the Policy. FINANCIAL IMPACTS: None. COMMITTEE RECOMMENDATION: The Administration Committee discussed this matter on September 10, 2015 recommended ratification of the changes as proposed in this Position Paper. RECOMMENDED BOARD ACTION: Ratify the proposed wording changes to BP 005 — Statement of Investment Policy as set forth in the attached strikeout. Attached Supporting Document: 1. Strikeout— BP 005— Statement of Investment Policy N:\ADMINSUPWDMIN \DIST- SEC \Position Papers\2015 \PP -Fix BP 005 - Investment Policy 9- 17- 15.doc Page 2 of 2 Number: BP 005 Authority: Board of Directors Effective: September 1, 2011 Revised: September 174, 20154 Reviewed: Initiating Dept. /Div.: Finance BOARD POLICY ATTACHMENT Central Contra Costa Sanitary District I STATEMENT OF INVESTMENT POLICY PURPOSE The investment policy of the Central Contra Costa Sanitary District governs the District's investments. Investments will be in compliance with the provisions of, but not necessarily limited to California Government Code Section 53601 and other applicable statutes. A separate investment policy governs the District's GASB 45 Trust. This investment policy is embodied in the following fourteen sections: POLICY Statement of Objectives The primary objectives, in priority order, of the District's investment activities shall be: Safety. Investments of the District shall be undertaken in the manner that seeks to ensure the preservation of capital in the overall portfolio. Liquidity. The District's portfolio will remain sufficiently liquid to enable the District to meet all operating requirements which might be reasonably anticipated. Return on Investment. The portfolio will be invested to attain a market average rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints, liquidity needs, and cash flow characteristics of the portfolio.. rmissible Investments Within the constraints prescribed by the Government Code of the State of California for permissible investments, the District's investment portfolio will only be invested in the following instruments: Number: BP 005 STATEMENT OF INVESTMENT POLICY Page 2 of 8 United States Treasury Obligations. United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. United States Government Agency Issues. Federal agency or United States government- sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government - sponsored enterprises. Municipal Investments. Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue - producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue - producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. Eligible obligations shall be rated in category "AA" or its equivalent or better by a nationally recognized statistical rating organization Nationally Recognized Statistical Rating Organization (NRSRO). No more than 5% shall be invested in any single issuer. Money Market Funds. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. See. 80a -1, et seq.). That invest in the securities and obligations as authorized by California Government Code 53601 subdivisions (a) to (k), inclusive, and subdivisions (m) to (q), inclusive, and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). To be eligible for investment pursuant to this subdivision, these companies shall either: i. Attain the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs; ii. Retain an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). Number: BP 005 STATEMENT OF INVESTMENT POLICY Page 3 of 8 A maximum of 20% of the District's portfolio may be invested in money market funds. No more than 10% of the District's portfolio may be invested in any one fund. • Bankers' Acceptances, otherwise known as bills of exchange or time drafts, drawn on and accepted by a commercial bank. Purchases of bankers' acceptances shall not exceed 180 days' maturity or 40% of the District's moneys that may be invested pursuant to this section. However, no more than 5% of the District's moneys may be invested in the bankers' acceptances of any one commercial bank pursuant to this section. • Collateralized Certificates of Deposit issued by a Federal or State chartered bank or a Federal or State chartered savings and loan association. Time certificates of deposit shall meet the requirements for deposit under Government Code Section 53635 et. seq. The Director of Administration, for deposits up to the current FDIC insurance limit, may waive collateral requirements if the institution insures its deposits with the Federal Deposit Insurance Corporation (FDIC). Fully insured time certificates of deposit placed through a deposit placement service shall meet the requirements under Code Section 53601.8. • Negotiable Certificates of Deposit issued by a nationally or state - chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally licensed or state - licensed branch of a foreign bank. Purchases of negotiable certificates of deposit shall not exceed 30% of the District's moneys that may be invested pursuant to this section and not more than 5% may be invested in any single issuer. Eligible negotiable certificates of deposit shall be rated in category "AA" or its equivalent or better by a NRSRO. • Commercial Paper of prime quality of the highest ranking or of the highest letter and number rating as provided for by a NRSRO. The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (a) or paragraph (b): a) The entity meets the following criteria: (i) Is organized and operating in the United States as a general corporation. (ii) Has total assets in excess of five hundred million dollars ($500,000,000). (iii) Has debt other than commercial paper, if any, that is rated "A" or higher by a NRSRO. b) The entity meets the following criteria: (i) Is organized within the United States as a special purpose corporation, trust, or limited liability company. (ii) Has program wide credit enhancements including, but Number: BP 005 STATEMENT OF INVESTMENT POLICY Page 4 of 8 not limited to, over coI lateral ization, letters of credit, or surety bond. (iii) Has commercial paper that is rated "A -1" or higher, or the equivalent, by a NRSRO. Eligible commercial paper shall have a maximum maturity of 270 days or less. The District may invest no more than 25% of their moneys in eligible commercial paper and no more than 5% of the outstanding commercial paper of any single issuer. Medium Term Notes, defined as all corporate and depository institution debt securities with a maximum of five years maturity, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States, or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated "AA" or better by an NRSRO. Purchases of medium -term notes shall not include other instruments authorized by this section and shall not exceed 30% of the District's moneys that may be invested pursuant to this section. No more than 5% of the District's total investment portfolio may be invested in the debt of any one corporation. Government Pools. Shares of beneficial interest issued by a joint powers authority organized pursuant to California Government Code Section 6509.7 that invests in securities and obligations authorized by California Government Code 53601 subdivisions (a) to (q), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: i. The adviser is registered or exempt from registration with the Securities and Exchange Commission. ii. The adviser has not less than five years of experience investing in the securities and obligations authorized in California Government Code 53601 subdivisions (a) to (q), inclusive. iii. The adviser has assets under management in excess of five hundred million dollars ($500,000,000). Local Agency Investment Fund of the State of California. Investment in LAIF may not exceed the current LAIF limit and should be reviewed periodically. Supranationals, defined as United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter - American Development Bank, with a maximum remaining maturity of five years or Number: BP 005 STATEMENT OF INVESTMENT POLICY Page 5of8 less, and eligible for purchase and sale within the United States. Supranationals shall be rated "AA" or its equivalent or better by a NRSRO. Purchases of supranationals may not exceed 30% of the District's investment portfolio and no more than 5% may be invested in any single issuer. III. Bank and Dealers The District has the option of investing funds internally, using will use -the services of the Treasurer's Office of the County of Contra Costa or a registered investment advisor w#+ehwill to transact the District's investments d^^6 in compliance with the requirements described in this investment policy. If the District uses the services of the County, tThe County Treasurer's Office will execute the District's investments through such brokers, dealers and financial institutions as are approved by the County Treasurer, and through the State Treasurer's Office for investment in the Local Agency Investment Fund. If the District utilizes an external investment advisor, the advisor is authorized to transact with its own approved broker - deal list on behalf of the district. The advisor will perform all due diligence for the brokers and dealers on its approved list. IV. Maturities To the extent possible, the District shall attempt to match its investments with anticipated cash flow requirements. Unless stated otherwise in this Policy or approval made by the District's executive body, the maximum maturity of the District's eligible investments will not exceed five years. V. Diversification The District's investments shall be diversified by: • Limiting investments to avoid over concentration in securities from a specific issuer or sector. • Limiting investments in securities that have higher credit risks. • Investing in securities with varying maturities. • Continuously investing a portion of the portfolio in readily available funds such as local government investment pools or money market funds to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. Number: BP 005 STATEMENT OF INVESTMENT POLICY Page 6 of 8 VI Nil l�Illl =1 Credit and market risks will be minimized through adherence to the list of permissible investments, a limit on maximum maturities, and the limitation on the total investment in a single issuer. Delegation and Authority The Board of Directors is responsible for the investment of the District's funds. The Board hereby delegates responsibility for investment transactions for the investment program to the General Manager or designee, for a one -year period. The General Manager or designee may delegate the day -to -day execution of investments to a registered investment advisor, via written agreement approved by the Board. The Advisor in coordination with the Director of rat+eeGeneral Manager or designee will manage on a daily basis the District's investment portfolio pursuant to the specific and stated investment objectives of the District. The Advisor shall follow the policy and such other written instructions provided by the D+eFe# Adm in'strat +enGeneral Manager or designee. Prudence Prudent judgment must be exercised by the Dirontr,r of dministrotinnGeneral Manager or designee and all investment staff responsible for investment transactions undertaken in accordance with this investment policy. The standard of prudence to be applied by the investment officer shall be the "prudent person" rule: "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." The prudent person rule shall be applied in the context of managing the overall portfolio. IX. 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 and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct Number: BP 005 STATEMENT OF INVESTMENT POLICY Page 7 of 8 business. They shall further disclose any personal financial /investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the District. X. Controls The DireGter of AdministratinnGeneral Manager or designee will establish subsidiary accounting records of each investment which will enable the determination of income earned monthly and through maturity, and the balancing of the principal amounts to a control account in the general ledger. Internal control procedures require the I_�4:eGWr- e4--A4m n4- &"t+e- RGeneral Manager or designee to sign all transactions, which are then countersigned by the General Manager. Such internal controls are to be reviewed by the District's independent auditors annually. XI. Safekeeping and Custody All investment transactions will be executed on a delivery versus payment basis. Securities will be held in safekeeping by a third party custodian designated by the District. The custodian will be required to provide timely (written or on -line) confirmation of receipt and monthly position and transaction reports. XII. Reporting The General Manager or designee will annually render a statement of investment policy to the Board of Directors. Also, annually, the GASB 45 Trust Investment Policy will be brought before the Board. The General Manager or designee will submit a monthly report to the District's General Manager and Board of Directors showing the type of investment, issuer, date of maturity, par (or face), dollar amount invested, current market value of all securities, and the source of this same valuation, and a statement of compliance of the portfolio with the investment policy. XIII. Performance Evaluation The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. Number: BP 005 STATEMENT OF INVESTMENT POLICY Page 8 of 8 XIV. Policy Considerations This policy shall be reviewed on an annual basis. Any changes must be approved by the Board after review by the Administration Committee' nve ssfim.e At effiGer and aRy ether apprepFiate autherit , as well as the individual(s) charged with maintaining internal controls.