HomeMy Public PortalAboutr2389
R E S O L U T I O N NO. 2389
WHEREAS, the Board of Trustees of The Metropolitan St. Louis Sewer
District adopted Ordinance No. 10908 on February 8, 2001, which specifies a
Public Funds Investment Policy for the District, a copy of which is attached hereto
as Exhibit “A”, and
WHEREAS, Ordinance No. 10908 requires that the Board of Trustees
approve the Public Funds Investment Policy, as presented by the Secretary-
Treasurer, on an annual basis.
NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF
TRUSTEES OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT that the Public
Funds Investment Policy, attached hereto as Exhibit “A”, is hereby approved.
METROPOLITAN ST. LOUIS SEWER DISTRICT
PUBLIC FUNDS INVESTMENT POLICY
- Adopted February 8, 2001 -
METROPOLITAN ST. LOUIS SEWER DISTRICT
PUBLIC FUNDS INVESTMENT POLICY
1. PURPOSE
The purpose of this Public Funds Investment Policy (this Policy) is to outline the
standards applicable to the investment of public funds of the Metropolitan St. Louis Sewer
District (the District) and to describe the investments permitted.
II. SCOPE OF INVESTMENT POLICY
This Policy applies to all financial assets of the District as accounted for in the
District's Secretary-Treasurers Monthly Report. These funds include:
Construction Escrow Fund;
Clean Water Capital Improvement Fund;
Mississippi River Bond Fund; and
Pooled Investments Fund
Except for cash in certain restricted and special funds, the District will consolidate
cash balances from all funds to obtain economies of scale. Investment income will be
allocated to various funds based on their respective participation and in accordance with
generally accepted accounting principals.
This section does not apply to the District's pension funds. Any new fund created by
the Districts Board of Trustees (the Board), unless specifically exempted by the Board or
by law, shall be presumed to be within the scope of this section.
Investment through external programs, facilities and professionals operating in a
manner consistent with this Policy will constitute compliance.
III. OBJECTIVES
Subject to the legal restrictions on investments imposed by the Missouri Constitution,
Missouri State Statute and the Plan of the Metropolitan St. Louis Sewer District, as amended
(the Plan) and District Ordinances, the Districts primary objectives in its investment
activities, in order of priority, shall be:
First - SAFETY: Preservation of principal is the foremost objective of the Districts
investment program. Investments of the District 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.
a. Credit Risk
The District will minimize credit risk, the risk of loss due to the failure of the security
issuer or backer, by:
Page -2-
1) Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisors
with which the District will do business; and
2) Diversifying the portfolio so that potential losses on individual securities will be
minimized.
b. Interest Rate Risk
The District will minimize the risk that the market value of securities in the portfolio will
fall due to changes in general interest rates, by:
1) 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
2) Investing operating funds primarily in short-term securities.
Second - LIQUIDITY: The Districts investment portfolio shall remain sufficiently liquid
to meet all operating and debt service obligations that may be reasonably anticipated. This is
accomplished by structuring the portfolio so that the securities mature with cash needs to
meet anticipated demands. Furthermore, since all possible cash demands cannot be
anticipated, the portfolio should consist largely of securities with active secondary or resale
markets. A portion of the portfolio also may be placed in bank deposits or repurchase
agreements that offer same-day or next-day liquidity for short-term funds.
Third - YIELD: The Districts investment portfolio shall be designed with the objective of
attaining a market rate of return throughout budgetary and economic cycles, taking into
account the Safety and Liquidity objectives stated above. 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 assumed. Securities shall not be sold prior to maturity except
when:
1) Sale of a security with declining credit may minimize the risk of loss of principal;
2) A security swap would improve the quality, yield, or target duration in the portfolio; or
3) Liquidity needs of the portfolio require that the security be sold.
Page -3-
Fourth - LOCAL ECONOMIC BENEFIT: While satisfying the objectives of Safety,
Liquidity and Yield, the District shall seek to place investments with financial institutions
that demonstrate a strong record of investing in, and supporting the local economy through
the institutions lending practices.
Fifth - SOCIAL POLICY: While satisfying the objectives of Safety, Liquidity and Yield,
investment decisions should further the District's social policies established by Districts
Board.
IV. STANDARD OF CARE
The standard of prudence to be used by investment officials shall be the prudent
person standard and shall be applied in the context of managing an overall portfolio.
Under the prudent person standard, investments shall be made with judgment and care, under
the 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.
Investment officers acting in accordance with written procedures and this Policy, and
exercising due diligence, shall be relieved of personal responsibility for an individual
securitys credit risk or market price changes, provided deviations from expectations are
reported in a timely fashion and appropriate action is taken to control adverse developments.
V. 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 business. They shall further disclose any personal
financial or investment positions that could be related to the performance of the investment
portfolio. Employees and officers shall refrain from undertaking personal investment
transactions with individuals with whom business is conducted on behalf of the District.
VI. DELEGATION AND SCOPE OF AUTHORITY
Authority to manage the investment program of the District is granted to the Secretary
Treasurer, with approval of the Board, as derived from Section 7.020 of the Plan. The
Secretary-Treasurer shall act in accordance with the established written procedures and
internal controls for the operation of the investment program consistent with this Policy.
Procedures should include references to: safekeeping, delivery vs. payment, investing and
accounting, repurchase agreements, wire transfer agreements, and collateral/depository
agreements. No person may engage in an investment transaction except as provided under
the terms of this Policy and the procedures established by the Board. The Secretary-
Treasurer shall be responsible for all transactions undertaken and shall establish procedures
to regulate the activities of subordinate officials.
Page -4-
VII. INTERNAL CONTROLS
The Secretary-Treasurer shall establish a system of internal controls designed to ensure
that the assets of the District are protected from loss, theft or misuse. The internal controls
shall be designed to provide reasonable assurance that these objectives are met. Reasonable
assurance recognizes that (1) the cost of a control should not exceed the anticipated benefits
likely to be derived and (2) the valuation of costs and benefits requires estimates and
judgments by the Secretary-Treasurer. Accordingly, the Secretary-Treasurer shall establish a
process for annual independent review by an external auditor to assure compliance with this
Policy and the procedures set by the Secretary-Treasurer.
The internal controls shall address the following:
a. Control of collusion;
b. Separation of transaction authority from accounting and record keeping;
c. Custodial safekeeping;
d. Avoidance of bearer or physical delivery securities;
e. Clear delegation of authority to staff members;
f. Written confirmation of telephone transactions; and
g. Development of a wire transfer agreement with the lead bank and third party
custodian.
VIII. SUITABLE AND AUTHORIZED INVESTMENTS
Consistent with the Plan, the following investments will be permitted by this Policy:
a. Obligations of the United States Government;
b. Obligations of any agency or instrumentality of the United States;
c. Time certificates of deposit secured by collateral as required by statute and in the
section Collateralization of this Policy;
d. Repurchase agreements maturing and payable within 90 days and secured by
collateral as required by statute and in the section Collateralization of this Policy;
e. Deposits with Approved Depository Banks (defined below), provided the
Approved Depository Banks shall give a bond equal to the deposit, with good and
sufficient sureties, or the deposit of collateral as required by statute and in the section
Collateralization of this Policy;
f. Bankers Acceptances issued by domestic commercial banks possessing the highest
rating issued by a nationally recognized rating agency and maturing and becoming
payable not more than one hundred eighty days from the date of purchase; and
g. Commercial paper issued by domestic corporations which has received the highest
rating issued by a nationally recognized rating agency and maturing and becoming
payable not more than one hundred eighty days from the date of purchase. Eligible
commercial paper is further limited to issuing corporations that have a total
commercial paper program size in excess of five hundred million dollars
($500,000,000.00).
Page -5-
In determining the approved securities, the Secretary-Treasurer may rely on any
information or designation maintained and approved by the Treasurer of the State of
Missouri.
All trades, where applicable, will be executed by delivery vs. payment (DVP) to ensure
that the securities are deposited in eligible financial institutions prior to the release of funds.
All securities shall be perfected in the name or for the account of the District and shall be
held by a third-party custodian and evidenced by safekeeping receipts.
Approved Depositary Banks means any bank, trust company, or savings and loan,
selected by the Secretary-Treasurer and approved by the Board.
Repurchase transactions will be executed only with Primary Dealers or financial
institutions located in the State of Missouri that qualify under Securities & Exchange
Commission Rule 15C3-1 (Uniform Net Capital Rule) with whom the District has executed a
Master Repurchase Agreement. In addition, local financial institutions, with whom there is
an Master Repurchase Agreement, may be used for late-in-the-day transactions or regular
cash account sweeps. In all cases, repurchase agreements shall be collateralized as provided
in the section Collateralization of this Policy.
IX. INVESTMENT RESTRICTIONS
To provide for the safety and liquidity of the Districts funds, the investment portfolio will
be subject to the following restrictions:
a. Borrowing for investment purposes (Leverage) is prohibited.
b. Instruments known as Structured Notes (e.g. inverse floaters, leverage floaters, and
equity-linked securities) are not permitted. Investment in any instrument, which is
commonly considered a derivative instrument (including options, futures, swaps, caps,
floors, and collars), is prohibited.
c. Contracting to sell securities not yet acquired in order to purchase other securities for
purposes of speculating on developments or trends in the market is prohibited.
d. No more than 5% of the total market value of the portfolio may be invested in bankers
acceptances issued by any one commercial bank and no more than 5% of the total market
value of the portfolio may be invested in commercial paper of any one issuer.
X. COLLATERALIZATION
Collateralization will be required on (1) repurchase agreements, (2) time certificates of
deposit and (3) deposits with banking institutions. All securities pledged as collateral shall
be held in a segregated account on behalf of the District by an independent third party with
whom the District has a current custodial agreement and that has been designated by the
Secretary-Treasurer and the Board as eligible to serve in such capacity. Clearly marked
evidence of ownership (safekeeping receipt) must be supplied to the District and retained.
The right of collateral substitution may be granted.
The market value of any collateral shall be measured on the 15th day and last day of
each month, or more frequently if determined by the Secretary-Treasurer. In the event the
Page -6-
market value of the collateral no longer satisfies the collateralization level required, then the
repurchase agreement provider or depository, as appropriate, shall provide additional
collateral within two business days to satisfy the required level. The maturity of the pledged
collateral shall not exceed the maximum specified in the Section Maximum Maturity of
this Policy.
Repurchase Agreements. In order to anticipate potential market changes and provide a
level of security for all funds, the collateralization level shall be 103% of the amount of the
repurchase agreement and shall be based on the market value of principal and accrued
interest of the pledged collateral. Acceptable collateral for repurchase agreements shall
consist of U.S. Treasury obligations or obligations of U.S. government agencies or
instrumentalities that are eligible to be delivered via the Federal Reserves Fedwire book
entry system. Securities will be delivered to the Districts designated Custodial Agent.
Funds and securities will be transferred on a delivery vs. payment basis.
Time Certificates of Deposit and Deposits with Banking Institutions. In order to
anticipate potential market changes and provide a level of security for all funds, the
collateralization level shall be 103% of the amount of the time deposits and demand deposits
with any depository (less the amount, if any, which is subject to federal deposit insurance)
and shall be based on the market value of principal and accrued interest of the pledged
collateral. Acceptable collateral for time certificates of deposit and deposits with banking
institutions shall consist of U.S. Treasury obligations or other interest-bearing securities
guaranteed as to principal and interest by the U.S. or an agency or instrumentality of the U.S.
(and approved by the state Secretary-Treasurer).
All securities, which serve as collateral against the deposits of a banking institution,
must be safekept at a non-affiliated custodial facility. Banking institutions pledging
collateral against deposits must, in conjunction with the custodial agent, furnish the
necessary custodial receipts within five business days from the settlement date.
The District shall have a depository contract and pledge agreement with each bank that
will comply with the Financial Institutions, Reform, Recovery and Enforcement Act of 1989
(FIRREA). This will ensure that the Districts security interest in collateral pledged to
secure deposits is enforceable against the receiver of a failed financial institution.
XI. MAXIMUM MATURITIES
To the extent possible, the District shall attempt to match its investments with its
anticipated cash flow requirements. The District will not directly invest in securities or make
a time deposit with a stated maturity of more than five years from the date of purchase. The
average maturity for collateral provided to the District for deposits or in connection with a
repurchase agreement shall not exceed five years without the written approval of the
Secretary-Treasurer.
Because of inherent difficulties in accurately forecasting cash flow requirements, a
portion of the portfolio should be continuously invested in readily available funds such as in
Page -7-
bank deposits or overnight repurchase agreements to ensure that appropriate liquidity is
maintained to meet ongoing obligations.
XII. DIVERSIFICATION
The investments shall be diversified to minimize the risk of loss resulting from over
concentration of assets in specific maturity, specific issuer, or specific class of securities.
Diversification strategies shall be established and periodically reviewed. At a minimum,
diversification standards by security type and issuer shall be:
a. U.S. treasuries and securities having principal
and/or interest guaranteed by the U.S. government .................................. 100%
b. Collateralized time and demand deposits .................................................. 100%
c. U.S. Government agencies, and government
sponsored enterprises ............................................................. no more than 60%
d. Collateralized repurchase agreements ................................... no more than 50%
e. U.S. Government agency callable securities .......................... no more than 30%
f. Commercial Paper .................................................................. no more than 30%
g. Bankers Acceptances ........................................................... no more than 30%
XIII. AUTHORIZED SECURITIES DEALERS AND DEPOSITORY BANKS
Pursuant to the Plan, the Secretary-Treasurer shall maintain a list of Authorized Depository
Banks and Securities Dealers. The Secretary-Treasurer shall select those financial institutions that,
in his or her opinion, will be most commensurate with the safety of District funds. In order to assist
the Board, the Secretary-Treasurer shall employ a formal, competitive procurement process for
selecting financial institutions for the deposit of District funds, as well as for selecting broker/dealers
for purchase of securities and for other banking-related services.
Securities Dealers. For brokers and dealers of government securities the Secretary-Treasurer shall
select only primary government dealers that report daily to the New York Federal Reserve Bank or
meet the Uniform Net Capital Rule (Rule 15C3-1) of the Securities and Exchange Commission, any
Authorized Depository Bank, or any securities dealer with offices in the District or otherwise
approved by the Secretary-Treasurer. Any firm seeking to qualify as a securities dealer shall supply
the Secretary-Treasurer, on behalf of the Board, the information requested by the Secretary-Treasurer
as a part of the review process described above. The requested information shall be determined by
the Secretary-Treasurer.
XIV. PERFORMANCE BENCHMARK
Page -8-
The investment portfolio as maintained is invested to provide funds as needed and specified by
the direction of the various departments of the District. Given this strategy, the basis used to
determine whether market yields are being achieved shall be the ninety day U.S. Treasury Bill.
XV. REPORTING
The Secretary-Treasurer shall provide the Board monthly investment reports which
provide a clear and accurate picture of the current status of the investment portfolio. The
Secretary-Treasurers report should include comments on the fixed income markets and
economic conditions and such other matters as Secretary-Treasurer believes necessary. The
monthly report shall also include a prospective overview to the Secretary-Treasurers
investment strategy for the succeeding monthly period. The monthly report shall contain
schedules that provide the following:
1. A listing of individual securities held at the end of the reporting period;
2. For each individual security listed, the report shall include: coupon, yield, par value,
amortized book value and market value;
3. Percentage of the portfolio represented by each investment category;
4. For any time certificates of deposit, deposits with banking institutions or any repurchase
agreements, a listing of the collateral pledged to such investments; and
5. Additional information related to the portfolio as the Secretary-Treasurer deems
necessary.
XVI. CONFLICTS WITH CONSTITUTION OF MISSOURI
The Plan provides that the District may invest funds not immediately needed for the
purpose to which said funds are applicable, in the same manner as the state treasurer may
invest funds of the State of Missouri pursuant to Section 15, Article IV of the Constitution of
Missouri, as amended from time to time. This Policy is intended to conform to the
provisions of the Constitution of Missouri and to provide the District the same investment
alternatives and limitations as the state treasurer under the Constitution of Missouri. In
interpreting the provisions of this Policy, the provisions of Section 15, Article IV of the
Constitution of Missouri, as amended from time to time, shall govern and provisions of this
Policy shall be interpreted in a manner consistent therewith.
XVII. ADOPTION OF POLICY
Exemption. Any investment currently held that does not met the guidelines of this Policy
shall be exempt from the requirements of this Policy. At maturity or liquidation, such
monies shall be reinvested only as provided by this Policy.
Adoption. This Policy shall be adopted by resolution of the District. The Policy shall be
reviewed annually by the Board and recommended changes will be presented to the Board for
consideration.
Page -9-
The Board of Trustees for the Metropolitan St. Louis Sewer District hereby adopts
this Policy pertaining to investment of District funds this 8th day of February 2001.