HomeMy Public PortalAboutInvestment_Policy_Dec-2022
METROPOLITAN ST. LOUIS SEWER DISTRICT
PUBLIC FUNDS INVESTMENT POLICY
May 14, 2015
Reviewed: December, 2022
Page -1-
METROPOLITAN ST. LOUIS SEWER DISTRICT
PUBLIC FUNDS INVESTMENT POLICY
I. 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
A. General
The Policy applies to all Operating Funds of the Metropolitan St. Louis Sewer
District. The operating funds of the District for purposes of this policy include:
• Cash and investment balances in the Construction Escrow Fund;
• Cash and investment balances in the various Operation, Maintenance and
Construction Improvement funds;
• Cash and investment balances in the General Fund;
• Cash and investment balances in the various Construction Funds;
• Cash and investment balances of the various bond funds including but not
limited to the construction or project funds, debt reserve funds, arbitrage rebate
funds, and bond sinking funds:
• Cash and investment balances of any special revenue fund of the District
including but limited to the Improvement fund;
• Any pooled investment fund used for operating purposes as defined above;
• And any escrowed deposit(s) associated with the District's operations.
Longer-term funds, including investment in employees' retirement funds and
deferred compensation arrangements as well as proceeds from certain bond issues, are
covered by separate policy. This section does not apply to the District's pension funds. Any
new fund created by the District's Board of Trustees (the "Board"), unless specifically
exempted by the Board or by law, and shall be presumed to be within the scope of this
section.
B. Pooling of Funds
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.
C. External Management of Funds
Investment through external programs, facilities and professionals operating in a
manner consistent with this Policy will constitute compliance.
Page -2-
III. OBJECTIVES
General
Subject to the legal restnct1ons 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 District's primary objectives
in its investment activities, in order of priority, shall be:
1. SAFETY: Preservation of principal is the foremost objective of the District's
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:
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 secunt1es 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.
2. LIQUIDITY: The District's 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.
3. YIELD: The District's 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
Page -3-
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.
4. 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.
5. SOCIAL POLICY: While satisfying the objectives of Safety, Liquidity and Yield,
investment decisions should further the District's social policies established by the
District's Board.
IV. STANDARD OF CARE
All participants in the investment process shall act responsibly as custodians of
public trust. The standard of prudence to be used by investment officials shall be the
"prudent investor" rule, which states, "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."
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
Page -4-
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.
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.
h. Steps to show evidence of review and approval of daily journal vouchers
1. Procedures to formalize the monthly reconciliation
J. Verify by recalculation the price of securities
Broker confirmations should be mailed directly to the District's accounting
department for control purposes. Accounting should then match the trade details of the
confirmation against the trade information provided by the District's Treasury staff.
All trades where applicable will be executed by delivery vs. payment (DVP) to
ensure that securities are deposited in eligible financial institutions prior to release of
funds. All securities shall be perfected in the name or for the account of the Metropolitan
St. Louis Sewer District and shall be held by a third-party custodian as evidenced by
safekeeping receipts.
VIII. SUITABLE AND AUTHORIZED INVESTMENTS
A. Investment Types
Consistent with the Plan, the following investments will be permitted by this
Policy:
1. United States Government & Agency Debt
1. Obligations of the United States Government (minimum portfolio percentage of
5%);
Page -5-
2. Obligations of any agency or instrumentality of the United States (no more than 30%
of the total market value of the portfolio may be invested in obligations issued by any
one governmental agency or instrumentality of the United States);
2. Fixed Income Investments secured by FDIC insurance and/or collateral
1. Fixed Income investments such as but not limited to time certificates of deposit
secured by collateral as required by statute and in the section "Collateralization" of this
Policy;
2. Repurchase agreements maturing and payable within 90 days and secured by
collateral as required by statute and in the section "Collateralization" of this Policy;
3. 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.
3. Other Fixed Income Debt issued by Commercial Enterprises: It should be noted that
investments in the following instruments require an additional level of care and prudence
when undertaken by an Investment Officer. Because these investments are in commercial
credits as opposed to governmental credt, or subject to the added safety of collateral, the
risk of loss of principal is significantly higher for the following investments than for those
in the prior categories. Added financial training and education is required for the
Investment personnel that participate in and/or manage the commercial paper program,
also outside professional management is encouraged.
a. Banker's Acceptances. Bills of exchange or time drafts on and accepted by a
commercial bank, otherwise known as bankers' acceptances. An issuing bank must
have received the highest letter and numerical ranking (i.e. Al / Pl) by at least two
nationally recognized statistical rating organizations (NRSRO'S). Must be issued by
domestic commercial banks. Purchases of bankers' acceptances may not exceed 180
days to maturity. No more than 5% of the total market value of the portfolio may be
invested in bankers' acceptances of any one issuer and no more than 25% of the entire
portfolio may be invested in banker's acceptances.; and
b. Commercial Paper Commercial paper which has received the highest letter and
numerical ranking (i.e., Al / Pl) by at least two nationally recognized statistical rating
organizations (NRSRO's). Eligible paper is further limited to issuing corporations that
have a total commercial paper program size in excess of
$250,000,000 and have long-term debt ratings, if any, of "A" or better from at least one
NRSRO. Purchases of commercial paper may not exceed 180 days to final maturity.
Consideration should be given to the diversification by industry type within the
portfolio of commercial paper investments. Consideration should be given to avoiding
sectors that may exhibit characteristics of undue risk, and potential illiquidity should
be avoided. Asset-backed commercial paper programs that are eligible for purchase
should be fully supported programs that provide adequate diversification by asset type
(trade receivables, credit card receivables, auto loans, etc.). No arbitrage programs or
commercial paper issued by Structured Investment Vehicles (SIV)'s) shall be
considered. No more than 5% of the total market value of the portfolio may be invested
in commercial paper of any one issuer. No more than
Page -6-
25% of the entire investment portfolio may be invested in Commercial Paper.
Commercial paper issuers will be subject to an on-going credit review and a daily news
research analysis and monitoring program will be established and maintained.
B. Security Selection
The following list represents the entire range of United States agency securities that the
Metropolitan St. Louis Sewer District will consider and which shall be authorized for the
investment of funds by the District.
• U.S. Government Agency Coupon and Zero Coupon Securities. Bullet coupons bonds
with no embedded options.
• U.S. Government Agency Discount Notes. Purchased at a discount with maximum
maturities of one (1) year.
• U.S. Government Callable Securities. Restricted to securities callable at par only
with final maturities of five (5) years.
• U.S. Government Step-Up Securities. The coupon rate is fixed for an initial term.
At coupon date, the coupon rate rises to a new, higher fixed term. Restricted to
securities with final maturities of five (5) years.
C. Procurement The following items are included by the District and are are not
necessarily embodied in State Law or in the model investment policy sponsored by the
Missouri Treasurer's Office
1. Competitive Process All securities purchased on behalf of the District, where
possible, for the investment portfolio shall be acquired by competitive bid with a three
bid minimum and that purchase shall be evidenced by at least two individuals
2. Approved Depository Bank "Approved Depository Banlcs" means any banlc, trust
company, or savings and loan, selected by the Secretary-Treasurer and approved by
the Board.
3. Approved Commercial Paper List All purchases of Commercial Paper and
Banker's Acceptances are restricted to the District's "Approved Credit List" of viable
Commercial Paper and Banlcer's Acceptances issuers/providers. Prior to purchasing a
Commercial Paper or Banker's Acceptance investment, a credit review of the issuer
should be completed and documented in a brief report, and, if approved, the issuer's
name should be added to the "Approved Credit List" of issuers. The list should be
monitored for changes in credit quality and an updated review of each issuer should be
performed at least annually.
4. Repurchase Agreement Counter Parties 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 which there is a Master
Repurchase Agreement, may be used for late-in-the-day transactions or
Page -7-
regular cash account sweeps. In all cases, repurchase agreements shall be
collateralized as provided in the section "Collateralization" of this Policy.
Professional investment management firms assisting the District in the management of its
portfolio may purchase and sell investment securities in accordance with this Policy and
may utilize their own approved list of broker/dealers and security issuers; however, the list
shall comply fully with the criteria maintained in this Policy.
IX. INVESTMENT RESTRICTIONS
To provide for the safety and liquidity of the District's 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
commercial paper and/or banker's acceptances (combined) issued by any one
commercial bank or any one issue/provider.
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 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 Reserve's Fed wire book
Page -8-
entry system Securities will be delivered to the District's 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 safe kept 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 District's 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. Investments in repurchase agreements shall mature
and become payable in not more than 90 days from the date of purchase. The District will
not directly invest in securities or make a time deposit with a stated maturity of more than
five (5) years from the date of purchase. The District's weighted average maturity will not
exceed three (3) years and will be consistent with the investment objectives for the funds
being managed.
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 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%
Page -9-
b. Collateralized time and demand deposits ........................................................... 100%
c. U.S. Government agencies, and government
Sponsored enterprises ............................................................................................ 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 25%
g. Bankers' Acceptances ..................................................................... no more than 25%
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 secunt1es 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 Secretary-Treasurer as a
part of the review process described above. The requested information shall be determined
by the Secretary-Treasurer.
XIV. PERFORMANCE BENCHMARK
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 Merrill
Lynch 1 - 3 Year U.S. Treasury Index.. For the purposes of performance measurement,
the District seeks to calculate the return of the investment portfolio on a total market value
return basis.
XV. REPORTING
The Secretary-Treasurer shall provide the Board investment reports which provide
a clear and accurate picture of the current status of the investment portfolio. The Secretary-
Treasurer's report should include comments on the fixed income markets and economic
conditions and such other matters as Secretary-Treasurer's believes necessary. The
monthly report shall also include a prospective overview to the Secretary-Treasurer's
Page -10-
investment strategy for the succeeding monthly period. The report shall contain schedules
that provide the following:
a. A listing of individual securities held by the District should be made available on
the District's website.
b. For each individual security listed, the report shall include: coupon, yield, par
value, amortized book value and market value;
c. Percentage of the portfolio represented by each investment category;
d. For any time certificates of deposit, deposits with banking institutions or any
repurchase agreements, a listing of the collateral pledged to such investments; and
e. 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 provision of this Policy, the provision 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 meet 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.