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Home My WebLink About2003-08-11 03-271 ORDERACTION Item RP 03-371 Date: August U1 3013 Item/Subject: ORDER -Adopting Inaecmram Pegry-RIA Inveatmeat Accetrnt Responsible Department: Finance Commentary: In June 2002, the City adopted an investment policy tat specifically excluded the Airports investment fund. This exclusion recognized! the fad tat the Airport's Immstnent account Is more long-term In nature and Is more appropriately able to bear some additional risk The attached BIA Investment Account - Investment Policy contains appromlate terminology, identifies to scope of investments covered, specifies maximum Investment terms, and establishes maximum and minimum limits by investment type to ensure appropriate diversity and liquidity. As to City mains an advisor for.investri purposes, It Is vital tat our imaestment objectives are clearly identified. In conclusion, the proposed policy represents a comprehensive review of and direction for to BIA Investnent Account. Manager's Comments: Recommended for adoption Icy the Finance Commitee on August 6, 2003. ary Manager Investment Policy - BIA Investment Admunt Duagev Appmvar: J/C/GHQ, ,Rnanoe Director Legal Approval: City solkRor Introduced for _L Passage _ Flrrt Reading Page _ of _ Referral 03-271 Assigned to Come Treahle August 11. 2W3 CITY OF BANGOR (TITLE.) ONer, Adopting ImestmeM PoHcV - BM lnwshmeM llaount By the Ory Cw x# of me dry dUngar. ORDERED, THAT Me adaMrtd 1nrgMtent Policy -BIA Mvestm rt AaourR k Nrdsy dMp[etl. IP psn WI O200L eogse[ ll. 2003 Motfa Made � Seconded fox Passage - p 03-271 Pa ad oaaeg L%E,)adopcfag IDveac.evc eol3cy - axe acmevc upt Assign to Lounctior/y/ A 03-2]t City of Bangor- BIA Investment Account Investment Policy SCOPE This Policy shall apply to the investment management of Bangor International Airports (BIA) Airport Investment account. This Statement of Investment Objectives and Policy Guidelines was developed to assist in carrying out our responsibilities for balancing conservation, growth and prudent use of assets in the BIA Investment Amount. To this and, this statement of objectives will: • Address the funding and liquidity needs of BIA, recognizing current and projectetl capital Projects. • Establish formal yet fledble investment guidelines incorporating prudent security divereificaton and realistic total return goals. • Create standards of investment performance which have been historically achievable. OBJECTIVES The Gtys principal Investment objectives are: • Preservation of capital and protection of investment principal. • Maintenance of sufficient liquidity W meet anticipated cash flows. • Attainment of a market value rete of return. • Diversification to avoid incumng unreasonable market risks. • Protection tram 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 80-A, Section 5718 of the Maine Revised Statutes which in general states that investments shall be made with Bre judgment and care that persons of prudence. discretion and intelligence, under circumstances then prevailing, exercise in the management of their own affairs, rat for speculation but for investment, considering safety, income and maintenance of liquidity. The BIA Investment account program shall be cataract and managed with a degree of professionalism that is wordy of the public trust. The Gly recognizes brat no investment is totally riskless and that the investment activities of the City are a reader of public record. Accordingly, the City recognizes that occasional measured losses are inevitable in a diverslfled portfolio and shall be considered widnin the context of the 03-2)1 overall portfolio's return, provided that adequate diversification 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 acing in accordance with whfen procedures and exercising due diligence shall be relieved of personal responsibility for an individual secuntys credit risk or market price changes, provided that ft deviafions from expectations are reported in a timely fashion to the City Manager and appropriate action is taken to central adverse developments. ETHICS AND CONFLICTS OF INTEREST Elected officials and employees Immlved 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 W make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any material financial Interests they have in financial imtitutions that conduct business with the City and they shall suboneinale their personal investment transactions to those of the City. DELEGATION OF AUTHORITY Under Me Maine Revised Slatutes and the Bangor City Code, responsibility for fire Investment of the City's funds covered by this Investment Policy resides with the Finance Director who is the City's Treasurer. The Finance Director is responsible for developing City policy regarding the im absent and custody of the City's investable funs, as well as the Clys internal procedures affecting hose 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 operation of the investment portfolio. In the absence of the Firrence Director, the City Manager possesses the same authority. No person may engage in an investment transaction except as expressly provided under the terms of this Investment Policy. The City may engage the support cervices of outside professionab in regard to its investment program, so long as it can be dearly demonstrated that Me" services -- produce a net financial advantage or necessary financial protection of the Citys financial humorous. INTERNAL CONTROLS The following internal controls shall exist to precept possible loss of funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets or imprudent senors by employees and officers of the City: 1. Separation of funclons: In order to minimize the possibility of an employee personally barrefting from fire use of public funds, the separation of functions shall be adhered to at all time. The authorized individual initiating the investnenl shall not be soley involved In the remMkeeping functions of the investment program. Page2of6 03-2]1 2. Separated f transadon audoodityf rdk and accounting:All records generated from the purchase of investrnents shall be prepared by authorized personnel. The accounting and auditing of said records shall be the function of the Auditing Division. 3. Sucernsory control of employee actions: Whenever subordinate staff members are authorizetl by the Finance Director to perform investment activities, superkslon of their actions shall be exerdsed at all times. The Finance Director shall review all Investment decisions and actions. 4. Documentation of transactions: All investment transactions shall be documented utilizing appropriate investment forms and recorded in the investmem ledger and cash book ledger of the respecthre rash funds. S. Internal Auditing: Them internal controls shall be reviewed perlodically by the external auditor of the City. The basic, timing and method of audit shall be determined by said external auditor. AUTHOR12ED SECURRIES AND TRANSACTIONS All investments of the City shall be made in accordance with Title 30-A, Sodom 51W through 5719 of the Maine Revised Stables. Any revisions or extensions of these sections of the Maine Revised Statutes will be assumed W be part of this Imestmem Policy immediately upon being enacted. The City has further restricted the investment of funds W Me following types of securities antl transactions: 1. Permitted Asse[Clames:Fixed-income, Cash Equivalents (money markets) and Common Stocks 2. Permitted Asset Allocation Range: Fixeddncbndi 70-100% Cash Equirslem; 2-20% Stocks: 0-10% Permitted Fixed Income Investments: The account's trued -income assets shall be limited to: (1) Bonds, notes and bills that are issued by and a direct obligation of Me United Slates Gown-ment; (2) direct obligations of the following United Student Government agencies: The Governmerrt National Mortgage Association, Me Federal Home Loan Bank, Me Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation and da Federal National Mortgage Association; (3) Me dired obligations of arty stare of the United States or any subdiNsiom of any state W which are pledged the full faith and credit of the state or subdivision, the unsecured tlem of which is rated W or better by Standard and Poors or a similar rating equivalent; (4) cer110celes of deposit fully insured by the FDIC; and (5) mutual funds that invest solely in the foregoing permitted %cod income investments. Pati of4 03-2]1 I. Maximum Maturity: The maximum maturity for any ind ridual bond shall not exceed 10 years from the date of purnimi ii. Duration: The average effective durabon shall be maintained to stay within tyro years of the duration of the Lehman Brothers Intermediate GovemmenVCredg Index. b. Equities (Stacks): The City acknowledges Net: (1) the invsstment horizon of the investment fund is long-term; and (2) historically and over the long -tens, stocks have outperformed bonds as an asset class. In light of Me 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 Me fund to stocks, namely that portion of the portfolio that represents proceeds fore the sale of BIA real estate, as determined by W. The initial amount shall be $627,500. At no time shall the allocation to stocks exceed 10% of Me portfolio value. I. Permitted Asset Classesand Range Benchmark Large -Cap 80-100% S & P 5001ndex Small -Cap 0.10% Russell 2000 Index International 0-10% MS EAFE Index Investment constraints: (1) No more than 5% of Me total equity allocation may be invested In Me security of any one company; (2) the large -cep equity por tiollo shall be broadly diversified across business sectors and industries, as classRed by Standard & Poors; (3) the equity exposure shall also be diversified across asset Granas — large -cap, small -cap and intematiorak(4) with respect to the composition of domestic equities, the inveshnent manager is not permitted to over- or underweight Me sectors of Me S & P by more than 50% from Me actual sector wggWngs of the S & P 500 Index, as adjusted on a calendar quarter basis; (5) Mutual fund are perml0ed for small cap and international exposure. it. Periodic Realization and transfer of gains Whenever the market value of the equity potion of the portfolio has apprecieletl 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 and reduce Me investment in stocks b within 10% of the designated funds from real estate sales invested. In conjunction with this reduction, Me realized gains shall be transferred into fixed -Income Investments. It is the intent of the City that the foregoing list of authorized securities be strictly Interpreted. Any deviators from Mis list mus[ be preapproved by the Finance Director in writing. POLICY REVISIONS This Investment Policy shall he reviewed periodically by the Director of Finance and may be amended by bar City Council as conditions warrent. Pages of