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HomeMy WebLinkAboutRESOLUTION - 28-99 - 10/26/1999 - INVESTMENT POLICY ADOPTEDRESOLUTION NO. 28-5- ' A RESOLUTION ADOPTING AN INVESTMENT POLICY FOR THE VILLAGE OF ELK GROVE VILLAGE NOW, THEREFORE, BE IT RESOLVED by the President and Board of Trustees of the Village of Elk Grove Village, Counties of Cook and DuPage, State of Illinois as follows: Section 1: That an investment policy for the management and administration of all investment activities related to short-term operating funds, except Pension Trust Funds and Foreign Fire Insurance Tax Funds, be hereby adopted. Section 2: That the Village President be and is hereby authorized to sign the attached document marked: VILLAGE OF ELK GROVE VILLAGE INVESTMENT POLICY a copy of which is attached hereto and made a part hereof as if fully set forth and the Village Clerk is authorized to attest said documents upon the signature of the Village President. Section 3: That this Resolution shall be in full force and effect from and after its passage and approval according to law. VOTE: AYES: 5 NAYS: 0 ABSENT: 1 PASSED this 26th APPROVED this 26th ATTEST: Ann I. Walsh Village Clerk day of October '1999. day of October ,1999. Craig B. Johnson Village President M1602investmentl.doc Village of Elk Grove Investment Policy Finance Department October, 1999 VILLAGE OF ELK GROVE INVESTMENT POLICY TABLE OF CONTENTS 1 VILLAGE OF ELK GROVE INVESTMENT POLICY 1.0 POLICY It is the policy of the Village of Elk Grove to invest funds in a manner which will provide the highest investment return with the maximum security while meeting daily cash flow demands and conforming to all federal and state statutes governing the investment of public funds. 2.0 SCOPE This investment policy applies to all short-term operating funds, except Pension Trust Funds, governed by the Village President and Board of Trustees. Pension Trust Funds are governed by separate investment policies currently in place. Except for cash in certain restricted and special funds, cash balances from all funds may be consolidated to maximize investment earnings. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. 3.0 GENERAL OBJECTIVES The primary objectives, in priority order of the investment activities shall be legality, safety, liquidity, and yield. 3.1 Legality Conformance with federal, state, and other legal requirements is the foremost objective of the investment program. 3.2 Safety Investments shall be undertaken in a manner that seeks to ensure the preservation of capital and protection of investment principal in the overall portfolio. Investments shall be diversified so that potential losses on individual securities are minimized and do not exceed the income generated from the remainder of the portfolio. a. Credit Risk Credit Risk is the risk of loss due to the failure of the security of the issuer or backer. Credit risk may be mitigated by: • limiting investments to the safest types of securities; • pre -qualifying financial institutions, broker/dealers, and advisors with which the Village will do business; and, diversifying the investment portfolio so that potential losses on individual securities will be minimized. b. Interest Rate Risk Interest rate risk is the risk that the market value of the securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by: • structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity; and, investing operating funds in shorter -term securities, money market mutual funds, or similar investment pools. 3.3 Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished through structuring the portfolio so that securities mature concurrently with cash needs to meet anticipated demands. Since all possible cash demands cannot be anticipated, a portion of the portfolio may be placed in money market accounts or investment pools that offer same-day liquidity for short- term funds. 3.4 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 investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturity with the following exceptions: • a declining security could be sold early to minimize loss of principal; • a security swap would improve the quality yield or target duration in the portfolio; and, • liquidity needs of the portfolio require that the security be sold. 4.0 STANDARDS OF CARE 4.1 Prudence The standard of prudence to be used by investment officials shall be the "prudent person rule" and shall be applied in the context of managing an overall portfolio. Investments shall be made with judgment and care under circumstances then prevailing that 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 4.2 Ethics and Conflicts of Interest Officials and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution and management of the investment program or that could impair their ability to make impartial decisions. Such individuals shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Except for pecuniary interests permitted under subsection (f) of Section 3-14-4 of the Illinois Municipal Code or under Section 3.2 of the Public Officer Prohibited Practices Act, no person acting as treasurer or financial officer may do any of the following: 1. have any interest, directly or indirectly, in any investments in which the Village is authorized to invest; 2. have any interest, directly or indirectly, in the sellers, sponsors, or managers of those investments; and, receive in any manner, compensation of any kind from any investments in which the Village is authorized to invest. 4.3 Delegation of Authority Authority to manage the investment program is derived from the following: The establishment of an investment policy is the responsibility of the President and Board of Trustees. Management and administrative responsibility for the investment program is hereby delegated to the Director of Finance. The Director of Finance shall establish written procedures for the operation of the investment program consistent with this investment policy. Such procedures should include references to: safekeeping, delivery versus payment, investment accounting, wire transfer agreements, collateral/depository agreements and banking service contracts. These procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Director of Finance. The Director of Finance shall be responsible for all transactions undertaken and shall establish a system of internal controls to regulate the activities. The Director of Finance may from time to time 3 amend the written procedures in a manner consistent with this policy and state statutes. 5.0 SAFEKEEPING AND CUSTODY 5.1 Authorized Financial Dealers /Institutions The Director of Finance will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved security broker/dealers selected by credit worthiness. These may include "primary" dealers or regional dealers that qualify under the Securities and Exchange Commission Rule 15-0-1 (uniform net capital rule). No public deposit shall be made except in a qualified public depository as established by state statutes, insured by the Federal Deposit Insurance (FDIC) and approved by the Village President and Board of Trustees. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Director of Finance with the following: • audited financial statements; • proof of National Association of Security Dealers (NASD) certification; • proof of state registration; • copies of the last two sworn statements of resources and liabilities which the bank or savings and loan is required to furnish to the Commissioner of Banks and Trust Companies or the Commissioner of Savings and Residential Finance; and, • certification of having read and understood and agreeing to comply with this investment policy. An annual review of the financial condition and registration of qualified financial institutions and broker/dealers will be conducted by the Director of Finance. Approval by Village President and Board of Trustees is required for appointment of professional investment advisors. 5.2 Internal Controls The Director of Finance is responsible for establishing and maintaining an internal control structure designed to insure that the assets of the Village are protected from loss, theft, or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of the control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits require estimates and judgments by management. Accordingly, the Director of Finance shall establish a process for annual independent review by an external auditor to assure compliance with policies and procedures. The internal controls shall address the following points: • separation of transaction authority from accounting and record keeping; • control of collusion; • custodial safekeeping; • clear delegation of authority to department staff members; and • written confirmation of telephone transactions for investment and wire transfers. 5.3 Delivery vs. Payment All security transactions, where applicable, entered into by the Director of Finance shall be settled on a delivery versus payment (DVP) basis. This payment method will ensure that securities are deposited in an eligible financial institution prior to the release of funds for payment. A third party custodian designated by the Director of Finance and evidenced by safekeeping receipts will hold securities. 6.0 SUITABLE AND AUTHORIZED INVESTMENTS 6.1 Investment Types Investments permitted by this policy shall be only those authorized and defined by the Illinois Compiled Statutes (30 ILCS 235) regarding the investment of public funds. This policy shall also include any amendments and/or changes that may be made to the state statutes regarding the investment of public funds. Investments in securities known as derivative products of authorized investment instruments are not allowed by this policy. 6.2 Collateralization It is the policy of the Village and in accordance with the GFOA's Recommended Practices on the Collateralization of Public Deposits, funds on deposit in excess of FDIC insured limits be secured by collateral. This policy will accept any of the following assets as collateral: • Government Securities; • Obligations of Federal Agencies ; • Obligations of municipal and governmental agencies; • Obligations of Federal Instrumentalities; and, • Obligations of the State of Illinois. The amount of collateral provided will be at least 110% of the fair market value of the net amount of funds secured. The ratio of fair market value of collateral to the amount of funds secured will be monitored, and additional collateral will be required when the ratio declines below the level required and collateral may be released if the fair market value exceeds the required level. Pledged collateral will be held in safekeeping, by an independent third party depository, or the Federal Reserve Bank of Chicago, as designated and approved by the Village Board of Trustees and evidenced by a written agreement. Collateral agreements will preclude the release of the pledged assets without an authorized signature. 7.0 INVESTMENT PARAMETERS 7.1 Diversification Investments shall be diversified based on the type of funds invested and cash flow needs for specific fund types. In order to reduce the risk of default, the investment portfolio shall be diversified by: • limiting investments to avoid over concentration in deposits in specific institutions and securities from a specific issuer or business sector (excluding U.S. Treasury securities); • limiting investment in securities that have higher credit risks; • investing in securities with varying maturities; and, • continuously investing a portion of the portfolio in readily available funds such as money market accounts and the Illinois Public Treasurers' Investment Pool to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. 7.2 Maximum Maturities To the extent possible, the Director of Finance will attempt to match investment maturities with anticipated cash flow requirements. Unless matched to a specific cash flow, the Village will not directly invest in securities maturing or having a call date of more than three (3) years from the date of purchase. Reserve funds and other funds having longer- term investment horizons may be invested in securities exceeding three (3) years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the funds. F M 8.1 Methods The Director of Finance shall prepare an investment report at least quarterly, including a management summary that provides a clear picture of the status of the current investment portfolio. The report should be provided to the President and Board of Trustees. An annual report should also be provided. Reports shall include pertinent information regarding securities in the portfolio described by class or type such as book value, income earned, and market value as of the report date. 8.2 Performance Standards The investment portfolio will be managed in accordance with the parameters specified within this policy. The portfolio should obtain a market average rate of return during a market/economic environment of stable interest rates. Portfolio performance should be compared to appropriate benchmarks on a regular basis. 8.3 Marking to Market The market value of the portfolio shall be calculated at least quarterly and a statement of the market value of the portfolio shall be issued at least quarterly. This will ensure that review of the investment portfolio, in terms of value and price volatility, has been performed consistent with marking to market practices for local government investment portfolios. In defining market value, consideration should be given to the GASB Statement 31 pronouncement. 9.0 POLICY CONSIDERATIONS 9.1 Indemnification Employees acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided that appropriate action is taken to control adverse developments. 9.2 Adoption and Amendments The Elk Grove Village Investment Policy shall be adopted by a formal vote of the President and Board of Trustees. The Director of Finance will review the investment policy on an annual basis and submit modifications for consideration and approval by the President and Board of Trustees. 0