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HomeMy WebLinkAbout2006-05-22 06-186 ORDERItem No. OB 188 Date: May 220 Me Ilam/Sebject ORDER -Adopting BlRllneaftiv Mt PoYry Responsible Department: Finance Commentary: The attached RIA Investment policy, will supersede any prior policy. The proposed policy Is merely an update of the current policy. Tire signifrant changes are to allow for the Purchase of corporate dein within the flied Income portion of the portfolio. The remaining changes relate to the eculty portion of the portfolio. The pennitted ranges have been expanded slightly to allow for further diversification. The policy now includes the specific ability to purchase mid -cap Investments. Lastly, it allows for the purchase of exchange traded funds. `z Department Head Managees Comments: This policy was reviewed and recommended to the full Council by the finance Committee. Associated Information: Legal Approval: Finance Director city sdlcltw passage First Reading Page _ of _ _ galleried A mypedwCvuvvJor Stove RAY 22, 2006 CITY OF BANGOR (TITLE.) Order, Moptlng M Inv mm Polity 6y the CityCowmv of Me Cty of Beigw. ORDERED, TDRT the atta fled BIA Inv trnent Policy s thereby adopted and supersedes the wrrent Inv tment polity. IR CITY CO09CSl Nay 22. 2006 Eu f6 i( 06-186 ORDER YY CLERK (TITLE,) AdooH.v¢ BL Ivve nt Vnliev AWgoetl N Couoeilo�jr��ShN City of Bangor -- BIA Investment Account Investment Policy SCOPE This policy shall apply to the investment management of Bangor International Airport's (BIA) Airport Investment Account. This Statement of Investment Objectives and Policy Guidelines were developed to assist in carrying out our responsibilities for balancing conservation, growth and pmdent use of assets in the BIA Investment Account. To this end, this statement of objectives will: • Address the funding and liquidity needs of BIA, recognizing current and projected capital projects. • Establish formal yet flexible investment guidelines incorporating prudent security diversification and realistic total return goals. • Create standards of investment performance which have been hlstodcally achievable. OBJECTIVES The City's principal Investment objectives are: Preservation of capital and protection of investment principal. Maintenance of sufficient liquidity to meet anticipated cash flows. Attainment of a =*at value rale of return. Divereiflcalion to avoid incurring unreasonable market risks. Protection from inflationary erosion. Conformance with applicable Federal and State regulations and with the City Code. PRUDENCE The standard of prudence to be used for managing the BIA Investment Account shall be Title 30-A, Section 5718 of the Maine Revised Statutes which in general states that investments shall be made with Me judgment and care that persons of prudence, discretion and intelligence, under circumstances then prevailing, exercise in the management of their own affairs, not for speculation but for investment, considering safety, income and maintenance of liquidity. The BIA investment account pmgmm shall be designed and managed with a degree of professionalism that is worthy of the public trust. The City recognizes Met no investment is totally riskless and that the investment activities of the City are a matter of public record. Accordingly, the CiN recognizes that occasional measured losses are inevitable in a diversified portfolio and shall be considered within the context of the overall portfolio's return, provided that adequate diversfic ition has been implemented and that the sale of a security is in the best long-term Interest of the City. The Finance Director and authorized investment personnel acting in accordance with written procedures and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided that the deviations from expectations are reported in a timely fashion to the City Manager and appropriate action is taken to control adverse developments. ETHICS AND CONFLICTS IF INTEREST Elected officials and employees 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 or create the appearance of an impairment of their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any material financial Interests they have in financial institutions that oondud business with the City and they shall subordinate their personal Investment transactions to those of the City. DELEGATION OF AUTHORITY Underthe Maine Revised Statutes and the Bangor City Code, responsibility for the investment of the City's funds covered by this Investment Policy resides with the Finance Director who is the Chys Treasurer. The Finance Director is responsible for developing City policy regarding the investment and custody of the City's investable funds, as well as the City's internal procedures affecting those funds. The Finance Director shall implement this Policy after it is approved by the City Council. The Finance Director has the authority to conduct Investment transactions and manage the aperation of the investment portfollo. In the absence of the Finance Director, the City Manager possesses the same authority. No person may engage in an investment "reaction except as expressly provided under the terms of this Investment Policy. The City may engage the support services of outside professionals in regard to Its Investment program, so long as it can be dearly demonstrated that these services produce a net financial advantage or necessary financial protection of the We financial resources. INTERNAL CONTROLS The following internal controls shall exist to prevent possible loss of funds arising from fraud, employee error, misrepresentation by third parties, unanticipated 06 186 changes in financial markets or imprudent actions by employees and officers of the City: 1. Separation of functions: In order to minimize the possibility of an employee personally benefiting from the use of public funds, the separation of functions shall be adhered to at all time. The authorized Individual intiating the investment shall not be solely involved in the recondkeeping functions of the investment program. 2. Separation of transaction authority from rerordkeeoina and aectnumna: All records generated from the purchase of investments shall be prepared by authorized personnel. The accounting and auditing of said records shall be the function of the Auditing Division. 3. Supervisory control of employee actions: Whenever subordinate staff members are authorized by the Finance Director to perform investment activities, supervision of Mair actions shall be exercised at all times. The Finance Director shall review all investment decisions and actions. 4. Dgcumentation of transactions: All investment transactions shall be documented utilizing appropriate Investment fors and recorded in the Investment ledger and cash book ledger of the respective cash funds. 5. Internal Auditing; These internal controls shall be reviewed periodically by the external audtord the City. The basis, timing and method of audit shall be delerined by said eodemal auditor. AUTHORIZED SECURITIES AND TRANSACTIONS All investments of the City shall be made in accordance with Title 30-A, Sections 5705 through 5719 of the Maine Revised Statutes. Any revisions or extensions of these sections of the Maine Revised Statutes will be assumed to be part of this Investment Policy immediately upon being evaded. The City has further restricted the investment of funds to the folbW ng types of securities and transactions: 1. Permitted Asset Classes: Fixed -Income, Cash Equivalents (money markets) and Common Stocks 2. Perltetl Asset Allocation Range: Fixed -Income: 70-1001/a Cash Equivalents: 2-20% Stocks: 0-10% a. Permitted Fixed Income Investments: The acccurd's feed -income assets shall be limited to: (1) Bonds, notes and bills that are issued by and a direct obligation of the United States Government; (2) direct obligations of the following United States Government agencies: The Government National Mortgage Association, the Federal Home Loan Bank, the Federal Farm Credit Bank. Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association; (3) the direct obligations of any state of the United States or any subdivision of any slate to which are pledged the full faith and credit of the state or subdivision, the unsecured debt of which is rated "A' or better by Standard and Poore or a similar rating equivalent; (4) Corporate debt of investment grade quality which Is rated "A"or better by Standard and Pows ora similar rating equivalent, (5) certificates of deposit fully insured by the FDIC; and (6) mutual funds that invest solely in the foregoing permitted fixed Income investments. i. Maximum Maturi r. The maximum maturity for any individual bond shall net exceed 10 yeare from the date of purchase. ii. Duration: The average effective duration shall be maintained to stay within two years of the duration of the Lehman Brothers Intermediate GovemmentCredit Index. b. Equities (Stocksl: The City acknowledges that: (1) the Investment horimn of the Investment fund is long-term; and (2) historically and over the long- term, stocks pee have outperformed bonds as an asset class. In light of the foregoing, the City has determined that investments in common stock, subject to constraints below, is a prudent Investment and therefore has authorized the allocation of a portion of the fund to stocks, namely that portion of the portfolio that represents proceeds from the sale of BIA real estate, as determined by BIA. The initial amount shall be $627,500. At no time shall me allocation to stocks exceed 10% of the portfolio value. L Permitted Asset Classes and Range Benchmark Large -Cap 60%-a 100% S&P 500 Index Small -/MidCap 0d0%-20% Russell 2000/S&P 400 Index International 040%-20% MS EAFE Index Investment constraints: (1) No more than 5% of the total equity allocation may be invested in the security of any one company; (2) the large -cap equity portfolio shall be broadly diversified across business sectors and industries, as classified by Standard and Pours; (3) the equity exposure shall also be diversified access asset classes —large -eats, mld- and small - cap and international; (4) with respect to the composition of the large -cats domestic equities, the investment manager Is not permitted to over- or underweight the sectors of the S & P by more than 50% from me actual IRME sector weightings of the S S P 500 Index, as adjusted on a calendar quarter basis; (5) Mutual funds and/orEwhange Traded Funds (ETF)s are permitted Irrvestmenta. . Ii. Periodic Realization and transfer of gains Whenever the market value of the equity portion of the portfolio has appreciated in value by more than 25% over the designated funds from real estate sales invested in stocks, the City shall be required to realize gains antl reduce the investment in stocks to within 10% of the designated funds from real estate sales invested. In conjunction with this reduction, the realized gains shall be transferred into fixed-income investments. It is the imam of the City that the foregoing list of authorized securities be strictly Interpreted. Any deviation from this list must be preapproved by the Finance Director in vatting. POLICY REVISIONS This Investment Policy shall be reviewed periodically by the Director of Finance and may be amended by the City Council as condition warrant.