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.