Council Meeting Date: August 21, 2007
Agenda Item #: 8.1
MUNICIPAL POLICY (Revised)
Report Purpose
To revise the County’s Investment Policy FIN-001-007.
Recommendation
THAT Council approve revisions to Municipal Policy FIN-001-007 – Investments.
Council History
May 29, 1986 – Council approved Policy FIN-001-007 – Investments.
September 12, 1995 – Council approved revisions to Policy FIN-001-007 – Investments.
May 15, 2001 – Council approved revisions to Policy FIN-001-007 – Investments.
Background/Justification
Strategic Plan:
Governance
X Community Well Being
Community Sustainability
Economic Viability
Service Delivery
X
Stakeholder Communication
Resource Management
Legislative/Legal:
Municipal Policy GOV-002-021 – Mandatory Review of By-laws and
Policies. The Municipal Government Act (MGA), RSA 2000, c. M-26,
section 250 prescribes the authorized investments for a municipality.
Economic:
Social:
Environmental:
Stakeholder:
Interdepartmental:
N/A
N/A
N/A
N/A
All
X
Summary
Policy Statement: no changes recommended.
Policy Objectives: no changes recommended.
Policy Guidelines: minor changes recommended.
Schedule I – Schedule of Approved Investments: The asset mix and diversification guidelines
have been revised to provide improved investment quality standards (further minimizing interest
rate and credit risk), while maintaining liquidity and increasing flexibility. These changes will have
a positive impact on the rate of return.
The Schedule of Approved Investments, which combines both short and long-term investments,
will be replaced with the following three portfolios to better position the County’s current
investments and to manage future growth of the County’s investments:
1. Operating Portfolio – This portfolio will hold investments of one year or less to meet the
operating requirements of the next 12 months. The County will continue to manage this
portfolio internally.
2. Mid-Term Portfolio – This new portfolio will hold a portion of the funds not required in
the operating portfolio. The mid-term portfolio will hold ten, high-quality federal or
Document #: Finance Admin.0805.65701.3
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provincial bonds ranging from one to ten years. The County will manage this portfolio
internally, purchasing one investment per year as each one of the ten bonds matures.
3. Long-Term Portfolio – This portfolio will hold the remaining funds not required in the
operating portfolio. The objective of this portfolio is to hold a conservative, professionallymanaged bond portfolio with emphasis on the federal and provincial sectors and limited
corporate exposure.
The County will continue to use the investment services of BMO Nesbitt Burns and CIBC
Wood Gundy for the mid and long-term portfolios.
Schedule II – Definitions: the definitions section of the policy has been removed and will be
incorporated into an administrative procedure document.
A red-lined version of the policy is attached as Enclosure I.
Enclosure
I
FIN-001-007 – Investment Policy (Finance Admin. 65700)
Authors: Hugh Bell, Christine Jackson, Financial Services
Manager: Christine Jackson, Financial Services
Acting Associate Commissioner, Division: John Elzinga, Corporate Services
Document #: Finance Admin. 65701.3
Document #: Finance Admin.0805.65701.3
Date: August 13, 2007
ENCLOSURE I
Strathcona County
Municipal Policy Handbook
FIN-001-007
Investments
Date of Approval by Council: 05/29/86; 09/12/95;
05/15/01
Resolution No: C-078/86 762/95
360/2001
Lead Role:
Replaces: 40-43-012
Chief Commissioner
Last Review Date:
05/15/01
Next Review Date: 05/2004
Administrative Responsibility: Financial Services
Policy Statement
It is the policy of Strathcona County to invest public funds in a prudent manner that will provide optimum
investment returns with the maximum security while meeting the County's cash flow requirements and
conforming to all provincial statutes and regulations governing the investment of municipal funds.
Objectives
This investment policy has the following objectives listed in the order of their priority:
1.
Capital Preservation
Strathcona County recognizes its fiduciary responsibility for the stewardship of public funds with
which it has been entrusted. Therefore, the prime objective of this policy is to ensure that the
principal amount of each investment is safe from losses due to market conditions and issuer default.
To accomplish this objective the County will ensure that sufficient diversification exists within its
investment portfolio.
2.
Maintenance of Liquidity
Strathcona County's investment portfolio will be sufficiently liquid in order to enable the County to
meet its operating cash flow requirements which might be reasonably anticipated in the short and
longer term. For the purposes of this policy the County defines liquidity as the ability to convert an
investment into cash with minimum risk associated with loss of principal or accrued interest.
3
Rate of Return
Strathcona County's investment portfolio will be effectively managed to ensure that an optimum rate
of return is realized on all investments within the parameters of the objectives established within this
policy.
4.
Compliance with the Municipal Government Act
Strathcona County will ensure that all investments purchased and owned by Strathcona County are
in accordance with the Municipal Government Act, RSA 2000, c. M-26 (Section 250).
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Strathcona County
Municipal Policy Handbook
Guidelines
1.
Authority
The Chief Administrative Officer is ultimately responsible and accountable for the control,
management, and administration of Strathcona County's investments in accordance with the
investment policy approved by Council. The Chief Administrative Officer may delegate this
responsibility.
2.
Responsibilities of the Chief Administrative Officer or Appointed Delegate
The Chief Administrative Officer or Appointed Delegate shall establish appropriate guidelines,
procedures, and internal controls;
3.
a)
To ensure the achievement of the objectives identified within this policy.
b)
For authorizing officers, employees and persons to engage in investment activities.
c)
For purchasing and selling investments.
d)
For custody and safekeeping of investments.
e)
For the accounting and reporting of investment activities.
Authorized Investments
The following schedule identifies the securities that the Chief Administrative Officer or Appointed
Delegate can purchase on behalf of and in the name of Strathcona County:
a)
4.
Schedule I - Schedule of Approved Investments
Procurement and Custody
The Chief Administrative Officer or Appointed Delegate shall ensure that:
a)
The method of procurement achieves and maximizes the objectives of this policy.
Investment activities may be undertaken utilizing internal resources or external (contract)
resources or a combination of internal and external resources. The utilization of external
resources (or outsourcing) can be recommended by Council or the Chief Administrative
Officer or his appointed delegate but must be approved by Council.
b) All investment certificates issued to Strathcona County are in the name of or held in the
name of Strathcona County.
c)
d)
Negotiable securities are held in one of two ways:
1)
In a safekeeping compartment with Strathcona County's banker.
2)
Held by a third party custodian in the name of Strathcona County and evidenced by
safekeeping receipts and monthly statements.
Non-negotiable investment certificates are maintained in an appropriate investment file at
County Hall.
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FIN-001-007
5.
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Strathcona County
Municipal Policy Handbook
Prudence
Investments shall be made with judgement and care under circumstances then prevailing. All
reasonable steps shall be taken to ensure that the management of Strathcona County's investment
portfolio is in accordance with this policy. Officers, employees, and persons involved in investment
activities shall exercise the degree of care, diligence, skill, and prudence that a reasonable person
would exercise in the administration of his own affairs and in doing so shall attempt to maximize the
investment earnings of the portfolio within the parameters of the objectives established within this
policy.
6.
Ethics & Conflict of Interest
Officers, employees, and persons involved in the investment process shall refrain from personal
business activity that could conflict with the proper execution of their responsibilities, or which could
impair their ability to make impartial investment decisions. Officers and employees shall disclose to
the Chief Administrative Officer any material interests in financial institutions that conduct business
with Strathcona County, and they shall subordinate their personal investment transactions to those
of Strathcona County particularly with regard to the timing of purchases and sales.
7.
Reporting
The Chief Administrative Officer or Appointed Delegate will report to Council quarterly on the
investment activities undertaken by Strathcona County.
The Executive Team will review the following information on a regular basis:
a)
b)
c)
d)
8.
Total assets within the investment portfolio.
Specific holdings within the investment portfolio.
Effective rate of return on the investment portfolio.
Evaluation of portfolio performance.
Review and Amendment Procedures
Strathcona County's investment policy shall be reviewed annually by the Executive Team with any
changes being recommended to Council for approval.
Deleted: Audit Review
Enclosure
Schedule I - Schedule of Approved Investments
Deleted: Schedule II - Definitions
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Strathcona County
Municipal Policy Handbook
Schedule I – Schedule of Approved Investments
Approved Investments – Operating Portfolio
Investment Description
Government:
Securities issued or guaranteed by:
Federal Government
Alberta Government
Crown Corporations
Other Provinces
Chartered Banks:
Securities issued or guaranteed by:
Schedule "1" Chartered Banks
Approved
Institution
Limit
Total
Portfolio
Limit
Unlimited
70 %
40 %
40 %
Unlimited
70 %
Unlimited
Unlimited
30 %
75 %
DBRS
Minimum
Rating
R-1
R-1
R-1
R-1
(M)
(M)
(M)
(M)
R-1 (M)
Maximum
Term of
Maturity
1
1
1
1
year
year
year
year
1 year
Other Financial Institutions:
Securities issued or guaranteed by:
ATB Financial
40 %
40 %
R-1 (M)
1 year
Servus Credit Union
40 %
40 %
R-1 (M)
1 year
•
The above two financial institutions’ deposits are 100 % guaranteed by the Government of Alberta.
•
Should the guarantee change, the holdings will be immediately reassessed to determine their DBRS credit rating and
allowable percentages within the portfolio.
•
If the minimum credit rating does not meet R1 (M-mid) status, the investments will be disposed of within one month.
Canadian Corporate Commercial Paper:
Commercial Paper, asset backed paper
created by Schedule "1" Chartered Banks
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10 %
20 %
R-1 (H)
1 year
FIN-001-007
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Strathcona County
Municipal Policy Handbook
Schedule I – Schedule of Approved Investments
Schedule of Approved Investments – Mid-Term Portfolio
Investment Description
Approved
Institution
Limit
Government:
Bonds issued or guaranteed by:
Federal Government
Alberta Government
Crown Corporations
Other Provinces
Unlimited
70 %
40 %
40 %
Total
Portfolio
Limit
S&P
Minimum
Rating
Unlimited
70 %
Unlimited
Unlimited
AAAA-
Maximum
Term of
Maturity
10
10
10
10
years
years
years
years
Schedule of Approved Investments – Long-Term Portfolio
Investment Description
Managed Bond Portfolio:
Government:
Bonds issued or guaranteed by:
Federal/Provincial Governments
including Crown Corporations
Corporate Bonds:
Bonds issued or guaranteed by:
Canadian Corporations
Document #: FinanceAdmin.65700.3
Approved
Institution
Limit
Total
Portfolio
Limit
S&P
Minimum
Rating
Maximum
Term of
Maturity
Unlimited
Unlimited
A-
30 years
10 %
25 %
A-
30 years
FIN-001-007
Strathcona County
Municipal Policy Handbook
6
Schedule I – Schedule of Approved Investments
Schedule of Approved Investments
Investment Description
Government:
Securities issued or guaranteed by:
The Government of Canada
Federal Crown Corporations
Provincial Governments within
Canada
Provincial Crown Corporations
Chartered Banks:
Securities issued or guaranteed by:
Schedule "1" Major Chartered
Banks
Bank of Montreal
Bank of Nova Scotia
Canadian Imperial
Bank of Commerce
Royal Bank of Canada
Toronto Dominion Bank
Approved
Institution
Limit
Total
Portfolio
Limit
DBRS
Minimum
Rating
Maximum
Term of
Maturity
Unlimited
5,000,000
5,000,000
Unlimited
20,000,000
20,000,000
R1 (L)
R1 (L)
R1 (M)
7 years
7 years
7 years
5,000,000
10,000,000
R1 (M)
7 years
12,000,000
12,000,000
12,000,000
R1 (M)
R1 (M)
R1 (M)
7 years
7 years
7 years
12,000,000
12,000,000
R1 (M)
R1 (M)
7 years
7 years
60,000,000
Schedule "1" Chartered
Banks
1,000,000
5,000,000
R1 (H)
2 years
Schedule "2" Chartered
Banks
1,000,000
5,000,000
R1 (H)
1 year
12,000,000
1,000,000
12,000,000
5,000,000
R1 (M)
R1 (H)
2 years
1 year
Other Financial
Institutions:
Securities issued or guaranteed by:
Province of Alberta Treasury Branch
Trust Corporations or Credit Unions
Canadian
Corporations:
500,000
Securities issued by Canadian
2,000,000
R1 (H)
Corporations
A maximum of $18,000,000 can be invested for periods greater than 1 year. A maximum of $5,000,000
of the $18,000,000 total can be invested for periods greater than 5 years.
Investments with a maturity date that is greater than 7 years from the date of purchase require approval
by Council. Strathcona County defines maturity date as the actual stated maturity date on an investment
certificate and does not consider a reedemable date or a callable date as an acceptable maturity date.
Document #: FinanceAdmin.65700.3
1 year
FIN-001-007
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Strathcona County
Municipal Policy Handbook
Schedule I – Schedule of Approved Investments
INVESTMENT INSTRUMENTS
1.
Banker's Acceptances
This instrument is essentially a commercial draft drawn by a borrower for payment on a specified
date and accepted, or guaranteed, by his bank. The bank's acceptance is signified by a counter
signature on the draft. Once a draft of this nature has been co-signed, it becomes a "Banker's
Acceptance" and is backed by the credit of the accepting bank. These instruments are actively and
openly traded in the money markets and as a result are extremely liquid.
2.
Bearer Deposit Notes
These securities are short term promissory notes that are issued by a bank. They are direct
obligations of the specific issuing bank and generally have a term that ranges from one week to one
year. They are very liquid in nature and yield approximately the same yield as a banker's
acceptance.
3.
Commercial Paper
These instruments are short term unsecured promissory notes that are issued by major Canadian
Corporations. The notes are backed by the general credit of the issuing corporation and are usually
unsecured. These instruments are traded actively in the money markets and usually have a
maturity of less than one year. The notes may be interest bearing or issued at a discount and are
issued in either bearer or fully registered form.
4.
Corporate Bonds
These instruments are interest bearing debt that is secured by the assets of the issuing Corporation.
These securities generally have a maturity which is greater than one year and form a part of the
money markets only when the long term debt approaches maturity. These instruments are actively
traded within the markets and do have some degree of liquidity.
5.
Debentures
Debentures are similar to bonds and represent interest bearing debt; however, debentures are
secured only by the general credit of the issuing organization. Typically these instruments are
offered by organizations that have exhausted their ability to issue bonds or by organizations that
have a high enough credit standing that they are not required to pledge any specific assets. These
instruments have a reasonable degree of liquidity and usually have a yield that is higher than similar
bonds.
6.
Federal & Provincial Crown Corporation Notes
These investments are guaranteed by the Government of Canada or the issuing Province and are
secured by the assets of the issuing Crown. These securities can range in term and can be either
discounted or interest bearing. These investments are very liquid and yield approximately the same
yield as other Federal or Provincial obligations.
7.
Government of Canada & Provincial Bonds
This instrument is essentially an interest bearing debt which is secured by the assets of the
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Strathcona County
Municipal Policy Handbook
Schedule I – Schedule of Approved Investments
Government of Canada or the issuing Province. These securities have a maturity that is greater
than one year and form a part of the money market only when the long term debt approaches
maturity. As with the other government securities these instruments are actively traded and
generally considered high quality investments. Organizations such as municipalities usually acquire
these instruments for the purposes of retaining them until maturity.
8.
Government of Canada Treasury Bills
The Bank of Canada, as agent for the Government of Canada, calls for tenders at noon each
Tuesday for a specified amount of treasury bills. These are short term promissory notes issued by
the Government of Canada which are used to finance ongoing expenditures. Treasury bills are
issued in bearer form only and are sold at a discount to mature at a stated par value. There is no
risk of default and they are extremely liquid and considered a prime investment vehicle.
10.
Provincial Treasury Bills & Notes
These securities are issued periodically by the majority of provinces in Canada and are actively
traded in the money markets. These instruments are very liquid and are usually issued in bearer
form. These instruments can be interest bearing or sold at a discount and are considered to be
prime investment vehicles due to the minimal risk associated with default.
11.
U.S. Dollar Swap Deposits
Otherwise known as a "Bank Swap", this non liquid instrument is essentially a United States dollar
deposit with a foreign exchange swap attached to it. The Canadian investor receives protection
from any future exchange rate fluctuations. Swap deposits, regardless of where the U.S. deposit is
placed, carry the credit rating of the issuing bank.
12.
Term Receipts
These instruments have various labels including Certificates of Deposits (CDs), Term Deposits,
Fixed Term Deposits, Guaranteed Investment Certificates (GICs), Term Deposit Certificates,
Deposit Receipts, etc. These instruments are generally fully registered, non-transferable, interest
bearing notes. Terms range from one to six years. While some of these instruments do have call
features which allow them to be liquidated on demand most tend to be non liquid investments.
These instruments are direct obligations of the issuing bank.
Document #: FinanceAdmin.65700.3
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Strathcona County
Municipal Policy Handbook
Schedule I – Schedule of Approved Investments
INVESTMENT TERMINOLOGY
1.
Bank of Canada Rate (Bank Rate)
The bank rate is the interest rate that the Bank of Canada charges for advances made to the
Canadian chartered banks. The bank rate is set every Tuesday and is set at 25 basis points above
the average yield received from the auction or tendered sale of Government of Canada three month
treasury bills.
2.
Basis Point
A basis point is 1/100 of a percentage point.
3.
Bearer Form Securities
A negotiable security that can be redeemed by whoever has actual physical custody of the security.
These securities are not in the name of the owner and usually have a clause on the actual security
that states something such as "Pay to the Bearer ".
4.
Dominion Bond Rating Services (DBRS) – A company that investigates and reports on the credit
worthiness of Governments and Corporations issuing securities in the Canadian Financial Markets.
5.
Delivery vs. Payment
There are two methods of delivery of securities; delivery vs. payment and delivery vs. receipt.
Delivery vs. payment is the delivery of securities in exchange of money for the securities. Delivery
vs. receipt is the delivery of securities with an exchange of a signed receipt for the security.
6.
Financial Markets
Financial markets encompass the institutions and procedures that are involved in the process of
buying or selling various securities and assets. They are usually classified by the types of securities
traded and the maturities. Examples include; Money Markets (short term debt), Capital Markets
(long term debt), Equity Markets (preferred shares, common shares), Euro Market (foreign debt,
currencies).
7.
Liquidity
In the context of a firm, liquidity is the ability to meet its financial obligations as they become due. In
the context of investments, liquidity refers to the ability to convert the security on short notice into
cash without a substantial loss of principal or accrued interest.
8.
Market Value
The price at which a security is currently trading and therefore presumably purchased or sold.
9.
Portfolio
The collection of securities owned by an investor.
Document #: FinanceAdmin.65700.3
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Strathcona County
Municipal Policy Handbook
Schedule I – Schedule of Approved Investments
10.
Portfolio Diversification
A fundamental investment principle that reduces risk by diversifying the maturity terms and the
types of investments held within the portfolio.
11.
Prime Rate
Prime rate is the rate of interest that chartered banks charge for advancements made to select
organizations and individuals that are considered by the bank to be a "prime" customer.
12.
Rate of Return
The yield obtained on a security based on its purchase price or its current market price.
Document #: FinanceAdmin.65700.3