HomeMy Public PortalAbout2010-46 Approving an Investment PolicyRESOLUTION NO. 2010-46
A RESOLUTION OF THE VILLAGE COUNCIL OF THE
VILLAGE OF KEY BISCAYNE, FLORIDA, APPROVING AN
INVESTMENT POLICY AND PROVIDING AN EFFECTIVE
DATE.
WHEREAS, the Village Council finds it prudent and appropriate to approve the Investment
Policy substantially in the form attached hereto as Exhibit "A;" and
WHEREAS, the Village Council finds the Resolution in the best interest and welfare of the
residents of the Village.
NOW, THEREFORE, BE IT RESOLVEDBY THE VILLAGE COUNCIL OF THE
VILLAGE OF KEY BISCAYNE, FLORIDA, AS FOLLOWS:
Section 1. Recitals Adopted. Each of the above stated recitals is hereby adopted and
confirmed.
Section 2. Investment Policy. The Investment Policy substantially in the form attached
hereto as Exhibit "A;" is hereby approved.
Section 3. Effective Date. That this Resolution shall be effective immediately upon
adoption hereof.
PASSED AND ADOPTED this 26th day of October , 2010
MAYOR ROBERT L. VERNON
CONCHITA H. ALVAREZ, MMC, VILLAGE CLE
APPROVED AS T • FORM AND LEGAL SUFFICI
VILLAGE AT
EXH I BIT "A"
Village of Key Biscayne, Florida
Investment Policy
It is the policy of the Village of Key Biscayne (the "Village") that all available funds
shall be invested in conformance with these legal and administrative guidelines.
Effective cash management is recognized as essential to good fiscal management. An
effective cash management and investment policy will be pursued to take advantage of
investment interest as viable and material revenue to all operating and capital funds. The
Village's portfolio shall be designed and managed in a manner responsive to the public
trust and consistent with state and federal law.
Investments shall be made with the primary objectives in order of importance:
• Safety,
• Liquidity, and
• Risk -appropriate Yield.
To ensure these objectives are attained, the Village will pursue:
• Preservation of capital and protection of principal,
• Maintenance of sufficient liquidity to meet operating needs,
• Diversification of investments to avoid unreasonable or avoidable
risks, and
• Optimization of interest earnings.
This Policy is to be authorized by the Village Council in accordance with Chapter
218.415 of the Florida Statutes.
Scope
This Policy shall govern the investment of all financial assets of the Village as accounted
for in the Village's Financial Statements, including but not limited to, general, special
revenue, and capital project funds.
When possible, the Village will consolidate cash balances to enhance investment
earnings. Investment income will be allocated, if necessary, to the various funds based
on their respective participation and in accordance with generally accepted accounting
principles.
This Policy shall apply to all transactions involving the financial assets and related
activity of the Village. To the extent that Village assets include debt proceeds or related
funds, any requirements stipulated in the debt covenants for these funds that are more
restrictive than this Policy, shall supersede this Policy.
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Delegation of Authority
The Village Finance Director is designated as the Investment Officer of the Village and is
responsible for investment decisions and activities. The Investment Officer may delegate
certain aspects of day-to-day administration of the cash management program as part of
the written "Internal Controls." In the absence of a Finance Director, the Village
Manager shall assume all Investment Officer duties.
No person may engage in an investment transaction except as provided under the terms of
this Policy. The Village may appoint an outside Investment Advisor to assist in the
management of the Village's investment portfolio. Such Advisor must be registered
under the Investment Advisors Act of 1940.
Investment Objectives
The Village shall manage and invest its cash with three primary objectives, listed in order
of priority: safety, liquidity, and yield, expressed as optimization of investment earnings.
The safety of the principal invested always remains the primary objective. All
investments shall be designed and managed in a manner responsive to the public trust and
consistent with State and local law.
The Village shall maintain a comprehensive cash management program, which includes
collection of account receivables, vendor payments in accordance with invoice terms, and
prudent investment of available cash. Cash management is defined as the process of
managing monies in order to ensure maximum cash availability and enhancing earnings
on short-term investment of idle cash.
Safe
Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. The objective will be to mitigate credit and interest
rate risk.
❑ Credit Risk — The Village will minimize credit risk, the risk of loss due to
the failure of the issuer or backer of the investment, by:
• Limiting investments to the safest types of issuers,
• Pre -qualifying the financial institutions, pools, money market mutual
funds, and broker/dealers with which the Village will do business, and
• Diversifying the investment portfolio so that potential losses on
individual issuers will be minimized (where appropriate).
❑ Market Risk — the Village will minimize the risk that the portfolio will be
forced to realize market gains or losses, by:
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" S t r u c t u r i n g i n v e s t m e n t s t o m e e t c a s h r e q u i r e m e n t s a n d
" D i v e r s i f y i n g m a t u r i t i e s a n d s t a g g e r i n g p u r c h a s e d a t e s t o m i n i m i z e t h e
i m p a c t o f m a r k e t m o v e m e n t s o v e r t i m e .
L i q u i d i t y
T h e i n v e s t m e n t p o r t f o l i o s h a l l r e m a i n s u f f i c i e n t l y l i q u i d t o m e e t a l l o p e r a t i n g
r e q u i r e m e n t s t h a t m a y b e r e a s o n a b l y a n t i c i p a t e d . T h i s w i l l b e a c c o m p l i s h e d b y
s t r u c t u r i n g t h e p o r t f o l i o s o t h a t i n v e s t m e n t s m a t u r e c o n c u r r e n t w i t h c a s h n e e d s , a n d
m a i n t a i n i n g a p o r t i o n o f t h e p o r t f o l i o i n c a s h e q u i v a l e n t i n v e s t m e n t o p t i o n s .
Y i e l d ( O p t i m i z a t i o n o f I n v e s t m e n t E a r n i n g s )
T h e i n v e s t m e n t p o r t f o l i o s h a l l b e d e s i g n e d w i t h t h e o b j e c t i v e o f a t t a i n i n g a m a r k e t
r a t e o f r e t u r n t h r o u g h o u t b u d g e t a r y a n d e c o n o m i c c y c l e s , t a k i n g i n t o a c c o u n t t h e
i n v e s t m e n t r i s k c o n s t r a i n t s a n d l i q u i d i t y n e e d s . R e t u r n o n i n v e s t m e n t i s o f
s e c o n d a r y i m p o r t a n c e c o m p a r e d t o t h e s a f e t y a n d l i q u i d i t y o b j e c t i v e s d e s c r i b e d
a b o v e .
P e r f o r m a n c e M e a s u r e m e n t
A s r e q u i r e d b y S t a t e l a w , t h e V i l l a g e w i l l e s t a b l i s h a p p r o p r i a t e p e r f o r m a n c e m e a s u r e s b y
s e l e c t i n g b e n c h m a r k s t h a t a r e a p p r o p r i a t e f o r t h e p r u d e n t m a n a g e m e n t o f e a c h o f t h e
f u n d t y p e s a n d m o n i t o r i n g t h e r e s u l t s o n n o l e s s t h a n a q u a r t e r l y b a s i s .
G e n e r a l F u n d I n v e s t m e n t s t r a t e g i e s f o r g e n e r a l f u n d s w i l l h a v e a s t h e i r p r i m a r y
o b j e c t i v e t o a s s u r e t h a t a n t i c i p a t e d c a s h f l o w s a r e m a t c h e d w i t h a d e q u a t e i n v e s t m e n t
l i q u i d i t y . T h e s e c o n d a r y o b j e c t i v e i s t o c r e a t e a p o r t f o l i o s t r u c t u r e t h a t w i l l e x p e r i e n c e
m i n i m a l v o l a t i l i t y d u r i n g e c o n o m i c c y c l e s . T h i s m a y b e a c c o m p l i s h e d b y p u r c h a s i n g
h i g h q u a l i t y , s h o r t - t o - m e d i u m t e r m i n v e s t m e n t s t h a t w i l l c o m p l e m e n t e a c h o t h e r i n a
l a d d e r e d m a t u r i t y s t r u c t u r e . T h e d o l l a r w e i g h t e d a v e r a g e m a t u r i t y o f 3 6 5 d a y s o r l e s s
w i l l b e c a l c u l a t e d u s i n g t h e s t a t e d f i n a l m a t u r i t y d a t e o f e a c h i n v e s t m e n t . T h e
p e r f o r m a n c e o f t h e g e n e r a l f u n d s w i l l b e m e a s u r e d a g a i n s t t h e 3 - m o n t h U . S . T r e a s u r y
B i l l i n d e x .
S p e c i a l R e v e n u e F u n d s I n v e s t m e n t s t r a t e g i e s f o r s p e c i a l r e v e n u e f u n d s w i l l h a v e a s
t h e i r p r i m a r y o b j e c t i v e t o a s s u r e t h a t a n t i c i p a t e d c a s h f l o w s a r e m a t c h e d w i t h a d e q u a t e
i n v e s t m e n t l i q u i d i t y . T h e s e c o n d a r y o b j e c t i v e i s t o c r e a t e a p o r t f o l i o s t r u c t u r e t h a t w i l l
e x p e r i e n c e m i n i m a l v o l a t i l i t y d u r i n g e c o n o m i c c y c l e s . T h i s m a y b e a c c o m p l i s h e d b y
p u r c h a s i n g h i g h q u a l i t y , s h o r t - t o - m e d i u m t e r m i n v e s t m e n t s t h a t w i l l c o m p l e m e n t e a c h
o t h e r i n a l a d d e r e d m a t u r i t y s t r u c t u r e . T h e d o l l a r w e i g h t e d a v e r a g e m a t u r i t y o f 3 6 5 d a y s
o r l e s s w i l l b e c a l c u l a t e d u s i n g t h e s t a t e d f i n a l m a t u r i t y d a t e o f e a c h i n v e s t m e n t . T h e
p e r f o r m a n c e o f t h e s p e c i a l r e v e n u e f u n d s w i l l b e m e a s u r e d a g a i n s t t h e 3 - m o n t h U . S .
T r e a s u r y B i l l i n d e x .
P a g e 3 o f 9
Capital Project Funds — Investment strategies for capital project funds will have as their
primary objectives to assure that anticipated cash flows are matched with adequate
investment liquidity. These portfolios should include at least 10% in cash equivalent
deposits or investments to allow for flexibility and unanticipated project outlays. The
stated final maturity dates of investments held should not exceed the estimated project
completion date. Funds shall be managed and invested with the objectives of safety,
liquidity and yield (listed in order of priority). The performance of the capital project
funds will be measured against the performance of the U.S. Treasury Bill index that
represents a comparable maturity range.
Prudence and Ethical Standards
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 from the investment.
This "prudent person" standard shall be applied in the context of managing an overall
portfolio. Investment Officers 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
deviation from expectations are reported in a timely fashion to the Village Manager.
In determining whether the Investment Officer has exercised prudence with respect to an
investment decision, the investment of all funds over which the Investment Officer had
responsibility, rather than the prudence of a single investment, and whether the
investment decision was consistent with the Investment Policy, shall be considered.
All participants in the Village's investment process shall seek to act responsibly as
custodians of the public trust. The Investment Officer shall avoid any transaction that
might impair public confidence in the Village's ability to govern effectively.
Additionally, the Investment Officer will adhere to the Village's Code of Ethics.
Investment Officers involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment program, or
which could impair their ability to make impartial investment decisions, and should
disclose any material personal interests that could be construed as conflicts to the Village
Manager.
Authorized Investments
The Village is empowered by State law and this Investment Policy to invest in the
following:
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1 Direct obligations of the U.S. Government, its Agencies or
Instrumentalities;
2. Securities and Exchange Commission registered money market mutual
funds with the highest credit quality rating from a nationally recognized
rating agency;
3. Insured or fully collateralized financial institution deposits that are in
qualified public depositories of the State as determined by the State Chief
Financial Officer, in accordance with Chapter 280.02 of the State Statutes;
4. Financial institution deposits that are in qualified public depositories of the
State in accordance with Chapter 280.02, where the selected depository
arranges for the deposit of the funds in certificates of deposit in one or
more federally insured financial institutions, wherever located, for the
account of the Village in amounts that ensure that each certificate of
deposit is insured by the Federal Deposit Insurance Corporation, and meet
the requirements of Chapter 218.415 (23);
5. Intergovernmental investment pools authorized pursuant to the Florida
Interlocal Cooperation Act functioning as a money market mutual fund
with the highest credit quality rating from a nationally recognized rating
agency; and
6. Repurchase agreements secured by direct obligations of the U.S.
Government, its Agencies or Instrumentalities, pledged with an
independent third party approved by the Village, and having a market
value of not less than 102% of investment balance plus accrued interest.
All repurchase agreement transactions shall be governed in accordance
with a master repurchase agreement executed in compliance with State
law.
Maturity Limitations
In order to ensure adequate liquidity to meet financial obligations, the Village will
attempt to match investment maturities with known cash needs and anticipated cash flow
requirements. Investment maturities for general and special revenue funds shall not
exceed two years and capital project funds shall not exceed the lesser of the anticipated
expenditure schedule or five years.
Diversification Statement
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Diversification of the portfolio remains as the most effective means of protecting the
portfolio from overexposure to liquidity, credit, and market risks. To avoid unnecessary
risk, the portfolio will be diversified by issuer, maturity, and sector (where appropriate).
Authorized Financial Institutions and Broker/Dealers
Depository
In compliance with statutory requirements, a primary depository may be selected through
the Village's banking services procurement process, which shall include a formal request
for proposal (RFP). The selection of a primary depository will be based on the following
selection criteria:
• The ability to qualify as a depository for public funds in accordance with State
law.
• The ability to provide requested information or financial statements.
• The ability to meet all requirements in the banking RFP.
• Complete response to all required items in the banking RFP.
• "Best value" net banking service cost, consistent with the ability to provide an
appropriate level of service.
• The credit worthiness and financial stability of the bank.
All primary and non -primary depository deposits shall be insured or collateralized in
compliance with applicable State law. The Village reserves the right, in its sole
discretion, to accept or reject any form of insurance or collateralization pledged towards
depository deposits.
Broker/Dealers
The Village shall maintain a list of broker/dealers that are approved for investment
security transactions. Only firms meeting the following requirements shall be eligible to
serve:
1 Qualify under Securities and Exchange Commission Rule 15 C3-1
(uniform net capital rule);
2. Registered as a dealer under the Securities Exchange Act of 1934;
3. Member of the Financial Industry Regulatory Authority (FINRA); and
4. Registered to sell securities in Florida.
Third Party Custodians
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The Village shall contract with a bank or banks for the safekeeping or custody of
securities owned by the Village as part of its investment portfolio.
Securities owned by the Village shall be held in the Village's name as evidenced by
safekeeping receipts of the institution holding the securities. Safekeeping institutions
shall be independent from the parties involved in the investment transaction.
All security transactions shall utilize the "Delivery Versus Payment" procedure for
settlement.
Subject to Audit
All deposits, documents, and collateral shall be subject to inspection and audit by the
Village's designated financial officer or the Village's independent auditors.
Competitive Environment
It is the policy of the Village to create a competitive environment for all investment
activities. To achieve that objective, multiple investment sources and products will be
considered, with the Investment Officer selecting the best value determined by an
appropriate risk/rerun analysis.
Rather than relying solely on yield, investment in money market mutual funds and
intergovernmental investment pools shall be based on criteria determined by the
Investment Officer to demonstrate reasonable and prudent investment strategies of the
fund/pool.
Internal Controls
The Finance Director shall establish written internal controls and operations procedures.
The internal controls should be designed to prevent losses of funds, which might arise
from fraud, error, misrepresentation, or imprudent actions. No person may engage in an
investment transaction except as authorized under the terms of this Policy.
The controls and procedures shall address the following points:
• Control of collusion,
• Separation of transactions authority from accounting and record -
keeping,
• Third -party custody and safekeeping,
• Clear delegation of authority to subordinate staff members,
• Written confirmation of all transactions for investments and wire
transfers, and
• Adherence to all ethics and investment policies.
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Continuing Education
The Investment Officer(s) and any other staff responsible for investment -related activities
shall annually complete eight (8) hours of continuing education in subjects or courses of
study related to investment practices or products.
Reporting
The Investment Officer shall provide a quarterly investment report including the listing of
holdings in the portfolio at cost and market value to the Village Manager. Such reports
shall include:
• Individual investment descriptions,
• Coupon/Discount rate and yield to maturity,
• Final maturity and call dates,
• Credit Ratings,
• Book value and market value, and
• Quarterly interest earnings.
Sale of Securities
When invested funds are needed prior to maturity of a security, or when more optimal
investment positions are available and a swap would be deemed to be effective and
prudent, the Village may sell a security at the then -prevailing market price.
In the event that an authorized investment loses its required minimum credit rating, all
prudent measures will be taken to liquidate said investment. Additionally, the Village is
not required to liquidate investments that were authorized at the time of purchase.
Audits
As part of its annual audit, the external auditing firm shall review adherence to the
Investment Policy and compliance with State investment law. Additionally, the auditors
shall conduct a review of the system of internal controls to ensure compliance with
policies and procedures.
Investment Policy Review
The Policy shall be subject to revisions consistent with changing laws, regulations, and
needs of the Village. The Village Council shall review the Policy on a periodic basis and
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adopt a resolution stating that it has reviewed the Policy and approves any changes or
modifications.
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