INVESTMENT POLICY
Modeled on the Investment Policy Guidelines issued by the Department of Premier and Cabinet – Division of Local Government
Suite 1, Level 2, 1-17 Elsie Street, BURWOOD NSW 2134
PO Box 240, BURWOOD NSW 1805
Phone: 9911-9911 - Fax: 9911-9900
Email: council@burwood.nsw.gov.au
Website: www.burwood.nsw.gov.au
Public Document
Adopted by Council: 18 November 2013 (Min. No. 187/13)
Trim No. 15/6371
Ownership: Finance
Version No.3
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Investment Policy
Purpose
To provide a framework for the investing of Council’s funds at the most favourable rate of interest
available to it and the time whilst having due consideration of risk and security for that investment type
and ensuring that Council’s liquidity requirements are being met.
Background
Section 625 of the Local Government Act 1993 allows Council to invest funds in particular securities
so long as the funds are not required for any other purpose.
The Minister for Local Government issued revised guidelines in 2010 which placed emphasis on
observing the ‘prudent person test’ and is consistent with the new Investment Policy Guidelines 2010:
The investment will be managed with the care, diligence and skill that a prudent person would
exercise. As trustees of public monies, officers are to manage Council’s investment portfolios to
safeguard the portfolio in accordance with the spirit of this Investment Policy, and not for speculative
purposes (DLG – May 2010)
At the same time the investment of Council’s funds must be conducted to the highest of ethical
standards:
Officers shall refrain from personal activities that would conflict with the proper execution and
management of this portfolio. This policy requires officers to disclose any conflict of interest to the
General Manager. Independent advisors are also required to declare that they have no actual or
perceived conflicts of interest. (DLG – May 2010)
Authority for Investment
The Council may invest surplus funds pursuant to the:
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Local Government Act 1993
Local Government (General) Regulation 2005
Ministerial Investment Order of 12 January 2011
Local Government Code of Accounting Practice and Financial Reporting
Australian Accounting Standards
Division of Local Government Circulars
The Trustee Act 1925 Section 14 and the Trustee Amendment (Discretionary Investments) Act
1997 – Sections 14A(2), 14C(1) and (2)
Investment Policy Guidelines 2010
Delegation of Authority
The General Manager has the authority to invest surplus funds.
The General Manager has delegated this authority to other Council Staff as per the Sub-delegations to
Council Officers from the General Manager.
Further to that these members of staff are required to acknowledge they have received a copy of this
policy and understand their obligations in this role.
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Investment Policy
Authorised Investments
Investments are limited to those allowed by the most current Ministerial Investment Order that has
been issued by the NSW Minister for Local Government.
This policy further limits the types of investments to:
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Any public funds or securities issued by or guaranteed by, the Commonwealth, any State of the
Commonwealth or a Territory
Senior debt issued by Authorised Deposit -Taking Institutions (ADI)
A bill of exchange which has a maturity date of not more than 200 days or a Floating Rate Note
which has a maturity date of not more than five years and has a right of recourse against an ADI
institution
See “Investment Guidelines” below for specific examples of types of investments.
Prohibited Investments
In accordance with the Ministerial Investment Order, this investment policy prohibits, but is not limited,
to any investment carried out for speculative purposes including:
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derivative based instruments
principal only investments or securities that provide nil or negative cash flow
stand alone securities issued that have underlying futures, options, forward contracts and swaps of
any kind
shares of any kind
This policy also prohibits the use of leveraging (borrowing to invest) of an investment.
Investment Guidelines
While exercising the power to invest, consideration is to be given to the preservation of capital,
liquidity, and the return on investment.
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Preservation of capital is the principle objective of the investment portfolio. Investments are to be
placed in a manner that seeks to ensure security and safeguarding the investment portfolio. This
includes managing credit and interest rate risk within identified thresholds and parameters.
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Investments should be allocated to ensure there is sufficient liquidity to meet all reasonably
anticipated cash flow requirements, as and when they fall due, without incurring the risk of
significant costs due to the unanticipated sale of the investment.
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Investments are expected to achieve an average market return in line with the Council’s risk
tolerance
Investments obtained are to be considered in light of the following key criteria:
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Preservation of Capital – the requirement for preventing losses in an investment portfolio’s total
value (considering the time value of money
Diversification – setting limits to the amounts invested with a particular financial institution or
government authority to reduce credit risk
Credit risk – the risk that a council has invested in fails to pay the interest and repay the principal
of an investment
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Investment Policy
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Market Risk – the risk that the fair value or future cash flows of an investment will fluctuate due to
changes in market prices
Liquidity Risk – the risk an investor is unable to redeem the investment at a fair price within a
timely period
Maturity Risk – the risk relating to the length of term to maturity of the investment. The larger the
term, the greater the length of exposure and risk to market volatilities
Authorised Investments for the purposes of this policy are limited to:
Type of investment security:
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Issued by:
Bonds and Debentures
Term and Cash Deposits
Bill of Exchange – only with ADI right of
recourse
Negotiable Certificates of Deposit
Transferable Certificates of Deposit
Floating Rate Notes
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Commonwealth, State, Territory or
guaranteed by
Banks*
Building Societies*
Credit Unions*
* must be an ADI
The structure and features of the investment securities must be consistent with the time horizon, risk
parameters and liquidity requirements of Council. Thus:
Term to Maturity/Term to Call
Term and Cash Deposits – not more than 185 days
Bill of Exchange – not more than 200 days
Negotiable Certificates of Deposit – not more than 185 days
Transferable Certificates of Deposit – not more than 185 days
Floating Rate Notes – not more than five years
Other Considerations
No less than three quotations will be obtained when placing a new investment
Ethical or Socially Responsible Investments - where an ethical investment is competing with other
securities and meets legislative compliance, policy requirements and financial analysis results are
similar, preference may be given to the ethical or socially responsible investment.
The amount invested with any one financial institution should not exceed the following percentages of
total average investments:
Long Term Rating (Standard
and Poors or Equivalent)
AAA to AAA+ to A
BBB+ to BBBNot rated*
Short Term Rating (Standard
and Poors or Equivalent)
A1+
A1
A2
Not rated*
Maximum Percentage of Total
Average Investments
100%
40%
20%
10%
*Not Rated - This rating is necessary to allow investing in APRA related approved institutions ie,
Authorised Deposit Taking Institutions (ADI’s) such as banks, building societies and credit unions that
do not have a rating
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Investment Policy
Performance benchmarks need to be established and should be based on sound and consistent
methodology.
The performance benchmarks for the purposes of this policy are:
Investment
Performance Benchmark
Cash deposits – eg 11am, Online Saver
RBA Official Cash Rate
Term deposits, bill of exchange, negotiable
certificates of deposit, transferable certificates of
deposit, floating rate notes
RBA Cash rate plus 0.15%pa
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Documentary evidence must be held for each investment and details thereof maintained in an
Investment Register located in Trim
The documentary evidence must provide Council legal title to the investment
Certificates must be obtained from the financial institutions confirming the amounts of the
investments held on Council’s behalf as at 30 June each year and reconciled to the Investments
Register
All investments are to be appropriately recorded in Council’s financial records and reconciled on
a monthly basis
A monthly report will be provided to Council. The report will detail the investment portfolio in
terms of performance, percentage exposure of total portfolio, maturity date and changes in
market value
As Council continues to hold grandfathered investments such as Collateralised Debt Obligations
(CDOs), the investment returns for the portfolio is to be regularly reviewed by an independent financial
advisor by assessing the market value of the portfolio. The market value is to be assessed at least
once a month to coincide with monthly reporting.
The Council’s investment advisor must be approved by Council and licenced by the Australian
Securities and Investment Commission. The advisor must be an independent person who has no
actual or potential conflict of interest in relation to investment products being recommended and is free
to choose the most appropriate product within the terms and conditions of the investment policy.
The independent advisor is required to provide written confirmation that they do not have any actual or
potential conflicts of interest in relation to the investments they are recommending or reviewing,
including that they are not receiving any commission or other benefits in relation to the investments
being recommended or reviewed.
Glossary
ADI – Authorised Deposit-Taking Institution are corporations that are authorised under the Bank Act
1959 (Cwth) to take deposits from customers.
Bill of Exchange – a bill of exchange is an unconditional order in writing, addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed to pay on
demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a
specified person, or to bearer.
Securities – for financial markets these any many types of financial instruments (i.e. documents) that
are traded in financial markets (except futures contracts) e.g. bills of exchange, transferable
certificates of deposit, negotiable certificates of deposit, floating rate notes.
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Investment Policy
Contact Person
Chief Finance Officer - 9911 9830
Review of Policy
This investment policy will be reviewed at least once a year or as required in the event of legislative
changes. The Investment Policy may also be changed as a result of other amendments that are to the
advantage of Council and in the spirit of this policy. Any amendment to the Investment Policy must be
by way of Council resolution.
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