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
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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
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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
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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.
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