Investing Reserves Strategies
Question: Has anyone taken their reserve accounts (non-operating accounts) and formed an investment policy
and invested in more than a money market or CD type of investment vehicle? We are looking to do this in VA
and one of the questions was how many other chapters do this with reserve accounts. In FL we have an
investment advisor and have our reserves in Charles Schwab accounts which have grown nicely over the years.
(From Jennifer Ray Beckman)
Answers:
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Both the NC & SC Chapters utilize Morgan Stanley for their investments (From Beth Denny)
Our investment formula in general terms is 2 x operating budget is kept in a cash vehicle. The
remainder is split between a stock fund and a bond fund. We use Vanguard. (From Gwen Goldfarb)
Here is Illinois policy and we have CD and mutual funds investments. We did the same policy for
Wisconsin. (From Nancy Mueller). See attachment I.
Kentucky currently uses a rotating ladder of CDs and money market, but we’re going to be putting
together an investment policy and at least look at other options this year. Whether they will opt to
change their investment strategy is yet to be seen. (From Sandy Kaye)
Here is a sample we use as a template/starting point.... (From Lianna Collinge). See attachment II.
We also use Morgan Stanley. We have a combination of stocks and bonds (always socially conscious
funds). We try to maintain a 60/40 ratio. We are considering a new Morgan Stanley program called
“Investing with Impact.” Has anyone had any experience with that? (From Alice Betz)
Our Audit and Finance Committee has elected to remain with laddered CDs and money market, rather
than be too speculative. (From Nancy Weiner)
Alabama has its reserves in an investment account with Morgan Stanley and we have a designated
investment advisor. The Chapter Leadership is asking for an investment policy. Does anyone have an
investment policy they can share? (From Dee Mooty)
ATTACHMENT I
Illinois Chapter of the American College of Cardiology
Cash Management and Investment Policy
1. Purpose
This policy establishes guidelines which will provide safety and liquidity of Illinois American Chapter of
Cardiology (ILACC) assets and establish acceptable investments and limits for those investments.
2. Operating Funds Reserve
ILACC will maintain a minimum of nine (9) months of annual expenses in cash or cash equivalent as an operating
funds reserve. The remaining balance of assets may be invested per guidelines below.
3. Permitted and Prohibited Investments
Assets may be invested in any of the following:
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(a) Cash equivalents, such as U.S. Treasury bills, money market funds, certificates of deposit, and interestbearing checking and savings accounts; (b) Publicly traded fixed income securities, such as securities issued by
U.S. government agencies, and corporate notes and bonds. (c) Publicly traded equity securities, such as
domestic or foreign common stocks, preferred stocks, and convertible preferred stocks. (d) Mutual funds or
exchange-traded funds which invest the majority of their portfolio in above listed securities, in real estate or in
commodities.
4. Diversification
The equity and fixed income investments shall be well diversified to avoid undue exposure to any single
economic sector, industry, or individual security. No more than 10% of invested assets shall be invested in
securities of any one issuer other than the U.S. government and its agencies. Investments in Equity securities (c)
and Mutual funds or exchange traded funds (d) will not exceed 25% of total investment portfolio without the
approval of the Executive Committee of the ILACC. The investment portfolio will be re-balanced annually to
maintain above ratios.
5. Maturity
Every attempt will be made to stagger investment maturities so that asset liquidity is not compromised.
6. Administration of Policy
The Treasurer of ILACC shall administer this policy and report to the Executive Committee no less than quarterly
on the investment mix and returns.
ATTACHEMENT II
SAMPLEINVESTMENT POLICY
March 2015
Overview
1. This statement of Investment Policy has been adopted by the Board of Directors of
_______________________(ASSOCIATION) to provide guidelines for the investment of funds held by
the association. The purpose of this policy is as follows:
a. To ensure that investment of funds is accomplished in a safe and secure manner,
particularly with respect to limiting the exposure of the association to unnecessary risk.
b. To provide adequate liquidity for meeting cash disbursements.
c. To structure an investment portfolio that will provide competitive yields.
2. Safety of principal and interest shall prevail over yield in all investment decisions. For the purposes
of managing investment risk and to optimize investment returns within acceptable risk parameters,
the funds held will be divided into three separate investment pools. The process for determining
the dollar amount in each pool is set forth in the "Procedures" section of this document. The three
investment pools shall
be called the "Operating Fund", the "Short-Term Funds" and the "Long-Term Funds".
3. Procedures
a. The following procedures will be instituted to ensure the investment policy statement is
consistent with the current mission of ASSOCIATION and accurately reflects the current
financial condition:
This investment policy shall be reviewed annually by the Finance and Audit Committee for
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any necessary revisions.
Recommendations for any revisions or modifications will be made by the Finance and Audit
Committee to the Executive Council and to the Board of Directors for final approval.
b. The following procedures will be used to determine the dollar amounts to be placed in ShortTerm Funds and Long-Term Funds. Dollars not specifically designated for Short-Term or LongTerm Funds will be restricted to investments designated in the "Investment Guidelines" for the
Operating Fund.
The Finance and Audit Committee will recommend the dollar amounts to be placed in the
Short-Term and Long-Term Funds.
For each fiscal year, the Board of Directors will have final approval of funds earmarked for
Short-Term and Long-Term funds.
Actual investment of funds designated as long-term funds will not occur until year end
financials are confirmed as final to ensure availability of funds.
c. The following procedure shall be followed to engage a new or replace a current registered
investment advisor. The same procedure shall apply for both individually managed accounts
and mutual funds (with the exception of money market mutual funds).
The Finance and Audit Committee will interview and recommend the hiring or replacing of an
investment advisor to the Executive Council and the Board.
Reporting – The Executive Vice President/CFO will provide the Finance and Audit Committee
the following reports quarterly:
o Schedule of Accounts and Investments, including maturity date (if applicable)
and current yield
o Interest Income Year-to-Date (included on monthly financial
statements)
o Capital Gains & Loss Realized/Unrealized(included on monthly financial
statements)
4. Currency Considerations
The international scope of ASSOCIATION activities may result in contractual liabilities being
denominated in currencies other than U.S. dollars. In order to reduce exposure to currency
fluctuations, the Finance and Audit Committee will authorize the investment of assets in currencies
that match contractual liabilities. This can be done through spot purchases or forward contracts only.
The investment in assets denominated in non-U.S. currencies will be done without regard to the
prevailing interest rates available because of the importance of minimizing exposure to currency
fluctuation. It is hereby recognized that the protection of principal should prevail in all transactions
even if the interest earnings may suffer. We will mitigate on both high side and low side. We will
move no more than $100,000 at any one time when ASSOCIATION will incur a loss. When trading is to
ASSOCIATION’s advantage, this limit will not apply.
ASSOCIATION Operating Fund
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1. Purpose
The purpose of the Operating Fund is to provide sufficient cash to meet the financial
obligations of ASSOCIATION in a timely manner.
2. Investment Objectives
The investment objectives of the Operating Fund are: Preservation of Capital
Liquidity
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To optimize the investment return within the constraints of preservation of capital
and liquidity.
3. Investment Guidelines
a. Allowable Investments - The President and/or the CFO shall be authorized to invest the
ASSOCIATION Operating Fund as follows:
U.S. dollar denominated:
o Federally insured Certificates of Deposit not to exceed $100,000 per institution,
including interest, at commercial banks or savings and loans institutions.
o Money Market Funds that invest in government-backed securities and are rated Tier
1.
o Interest-bearing checking accounts in commercial banks that have at least a 5% net
worth and $500 million or more in assets.
o Direct Obligations of the U.S. Government, its Agencies and
instrumentalities.
o Repurchase agreements with institutions whose senior debt rating is rated AA or
better by Standard & Poor's and/or Moody's or where physical delivery of the
collateral is made to a third party custodian.
Non-U.S. dollar denominated
o Recognizing that the safeguards available to investors in U.S. denominated assets are
generally not available in other countries, investments overseas will be limited to
accounts in securities of banks deemed appropriate by the Finance and Audit
Committee. The Finance and Audit Committee will authorize the initiation of new
relationships in countries other than the United States.
b. Maturity - The maturities on investments for the Operating Fund shall be limited to two years or
less.
ASSOCIATION Short-Term Fund
1. Purpose
The purpose of the Short-Term Fund is to meet the expenses occurring as the result of unanticipated
activities, improve the return on funds held for expenditure over the next one to five years, and to
manage investment risk.
2. Investment Objectives - The investment objectives of the Short-Term Fund are:
Preservation of Capital
Liquidity
Optimization of the investment return
within the constraints of (1.) & (2.)
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above
Maintenance of principal in non-US dollar denominated currencies should always prevail over
yield, particularly in relation to minimizing exchange rate risk.
3. Investment Guidelines
a. Allowable Investments - The President and/or Executive Vice President/CFO shall be
authorized to invest the ASSOCIATION Short-Term Fund as follows:
U.S. dollar denominated:
o Federally insured Certificates of Deposit not to exceed $100,000 per institution
including interest at commercial banks or savings and loans institutions.
o Money Market Funds that invest in government backed securities and are rated Tier
1.
o Direct Obligations of the U.S. Government, its Agencies and
instrumentalities.
o Commercial paper rated A-I/P-1 by Standard & Poor’s and Moody’s.
o Repurchase agreements with institutions whose senior debt rating is rated AA or
better by Standard & Poor's and/or Moody's or where physical delivery of the
collateral is made to a third party custodian.
o Mutual funds consisting of a portfolio where 100% of the securities in the fund are
obligations of the U.S. Government, its agencies or instrumentalities or
collateralized by obligations of the U.S. Government, its agencies or
instrumentalities.
Non-U.S. dollar denominated
o Recognizing that the safeguards available to investors in U.S. denominated assets are
generally not available in other countries, investments overseas will be limited to
accounts in securities of banks that are deemed appropriate by the Finance and Audit
Committee.
b. Maturity – Investments in Short-Term Funds shall have a maturity of five years or less.
ASSOCIATION Long-Term Fund
1. Purpose
The purpose of the ASSOCIATION Long-Term Fund is to enhance the purchasing power of
funds held for future expenditure, to maintain the financial stability of the Society, and to
provide income to be used during future budget cycles.
2. Objectives
a. The objectives of the portfolio represent a long-term goal of maximizing returns without exposure
to undue risk, as defined herein. It is understood that fluctuating rates of return are characteristic
of the securities markets. The primary concern should be long-term appreciation of the assets and
consistency of total return on the portfolio. Recognizing that short-term market fluctuations may
cause variations in the account performance, the portfolio is expected to achieve the following
objectives over a three-year moving time period:
The account’s total expected return will exceed the increase in the CPI plus 3% annually. On a
quarter-to-quarter basis, the actual returns will fluctuate and can be expected to exceed the
target about half the time.
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The account’s total expected return will exceed the increase in the Treasury Bill Index by a
minimum of 3% annually. On a quarter-to-quarter basis, the actual returns will fluctuate and
can be expected to exceed the target about half the time.
b. Understanding that a long-term positive correlation exists between performance volatility (risk)
and statistical returns in the securities markets, we have established the following short-term
objective: The portfolio should be invested to minimize the probability of low negative total
returns, defined as a one-year return worse than negative 8%. The goal of this policy is that a loss
greater than this will occur no more than one out of twenty years.
3. Investment Guidelines - The investment policies and restrictions presented in this statement serve as a
framework to achieve the investment objectives at the level of risk deemed acceptable. These policies
and restrictions are designed to minimize interference with efforts to attain overall objectives, and to
minimize the probability of excluding appropriate investment opportunities.
a. Prohibited Investments - The following investments and investment activities are prohibited:
Private Placements Letter stock
Derivatives - However, to the extent that mutual funds are used by ASSOCIATION, the
mutual funds may buy or sell derivatives for the purposes of managing portfolio risk
Securities whose issuers have filed a petition for bankruptcy Commodities or
commodity contracts
Short sales
Margin transactions
Any speculative investment activities
Diversification
Individual stocks are subject to a maximum 5% commitment at cost or 7% commitment of the
accounts market value for an individual security and 15% for a particular industry.
Individual bonds not guaranteed by the U.S. Government, its agencies or instrumentalities, are
subject to a maximum 5% commitment at cost.
b.
Long-Term Fund Target Asset Mix
The Long-Term Fund shall be comprised of the asset classes listed in the table below.
The target weight is desired weight for each asset class. The minimum weights and
maximum weights are to allow for normal market fluctuations. It shall be the
responsibility of the financial advisor to remain within the range specified for each asset
class. The financial advisor should re-balance the portfolio according to the target
weights semi-annually.
ASSET CLASS
MINIMUM
WEIGHT
TARGET
WEIGHT
MAXIMUM
WEIGHT
U.S. Large Capitalization Stocks
5%
20%
30%
U.S. Mid Capitalization Stocks
0%
5%
10%
U.S. Small Capitalization Stocks
0%
5%
10%
EQUITY
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International Stocks
5%
TOTAL EQUITY
15%
20%
45%
FIXED INCOME
U.S. Government/Corporate
Intermediate Bonds
25%
35%
45%
High Yield bonds
0%
5%
10%
International bonds
0%
5%
10%
TOTAL FIXED
INCOME
45%
ALTERNATIVES
Hedge Funds of Funds
0%
10%
15%
c. Equities
The equity asset classes should be maintained at risk levels roughly equivalent to the
sectors of the market represented, with the objective of exceeding a nationally recognized
index measuring the performance of the designated sector over a three-year moving time
period, net of fees and commissions. Mutual funds conforming to the policy guidelines
may be used to implement the investment program.
The following definitions shall apply for the purposes of this policy:
U.S. Large Capitalization Stocks: A portfolio of stocks comprised primarily of U.S. based
companies, with the average of the stocks held having a market value exceeding $10.0
billion and primary shares of which are traded on a major U.S. exchange.
U.S. Mid Capitalization Stocks: A portfolio of stocks comprised primarily of
U.S. based companies with each individual company having a market value of between $2
billion and $10.0 billion.
U. S. Small Capitalization Stocks: A portfolio of stocks comprised primarily of U.S. based
companies with each individual company having a market value less than $2 billion.
International Stocks: A portfolio comprised primarily of stocks of non-U.S. based companies,
the primary shares of which are traded on
exchanges outside the U.S. American Depository Receipts are considered International
Stocks.
d. Fixed Income
Investments in fixed income securities will be selected to pursue opportunities presented by
changes in interest rates, credit ratings, and maturity premiums. Mutual funds conforming to the
policy guidelines will be used to implement the investment program. The following definitions shall
apply for the purposes of this policy:
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U.S. Government/Corporate Intermediate Bonds: A portfolio consisting primarily of fixed
income securities denominated in U.S. dollars with an A rating or better, issued by the U.S.
Government or U.S. corporations are having a weighted average maturity of less than 10
years.
High Yield Corporate Bonds: A portfolio consisting primarily of bonds issued by U.S.
corporations where the majority of the bonds are rated below BBB/Baa. These would be
mainly in bond funds.
International Bonds: A portfolio consisting primarily of fixed income securities denominated
in currencies other than U.S. dollars. Issuers may be both governments and corporations.
e.
Performance Reporting
The Long-Term Fund will be evaluated annually on a total return basis.
Returns will be compared to:
o Consumer Price Index plus 3%
o Three-month Treasury Bill Index plus 3%
o Nationally recognized indices measuring the performance of the of the classes
specified in the target asset mix.
Comparisons will show results for the latest year and since inception. The report will be
prepared by the Investment Consultant and will be presented to the Finance and Audit
Committee.
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