POLICY NUMBER: CS – 022
APPROVAL: Mayor and Council
APPROVAL DATE: April 10, 2017
DATE OF NEXT REVIEW: 4 Years (April 10, 2021)
This Policy provides guidance for the management of the City’s investment funds including restrictions and limitations, risk tolerance, and investment objectives.
2.0 Policy Statement
It is the Policy of The Corporation of the City of Sarnia to invest public funds in a manner that will provide the highest investment return with the maximum security, while meeting the daily cash flow demands of the City and conforming to all legislation governing the investment of public funds.
The Policy applies to all investments made on behalf of the City, including, but not limited to, operating funds, capital funds, reserve funds and trust funds.
“City/Corporation” means The Corporation of the City of Sarnia.
“Credit Risk” means the risk that some or all of the principal and/or interest amount of an investment will be lost due to default by the insurer, securities broker or dealer, or financial institution.
“Diversification” means the process of investing assets among a range of security types by sector, maturity, and quality rating.
“Liquidity” means the measure of assets convertibility to cash.
“One Funds” means a municipal pooled investment program designed specifically for the public sector, and tailored to maximize returns using a safe investment strategy. The program consists of a Money Market Fund for the short-term investor and a Bond Fund for the longer-term investor. The ONE Funds are operated by LAS (Local Authority Services Ltd., a subsidiary of the Association of Municipalities of Ontario) and the CHUMS Financing Corporation (a subsidiary of the Municipal Finance Officers’ Association of Ontario).
“Principal” means the amount of capital invested in a given security.
Sections 418, 419, and 420 of the Municipal Act, 2001 and Ontario Regulation 438/97, Eligible Investments and Related Financial Agreements, as amended.
The primary objectives of the Investment Strategy, in priority order, shall be:
- Adherence to statutory requirements;
- Preservation of capital;
- Maintaining liquidity/diversification; and
- Earning a competitive rate of return.
The basic strategy is to invest cash that will not be required for operations and internal financing in longer-term products, and to keep the bulk of the funds required for internal financing in our bank account, in municipal pooled investment programs such as the ‘One Fund’, or in short-term investments.
Cash flow will be managed on an ongoing basis and will include all investment, borrowing, operations, and capital activity affecting the cash balance of the Corporation.
To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements to maximize the advantage of longer investment terms, while preserving sufficient cash for internal financing purposes, except where the projected period of external borrowing is very brief.
Adherence to Statutory Requirements
Investments, unless otherwise limited by Council, will be those deemed eligible under O. Reg. 438/97, or as amended by subsequent provincial regulations.
Council limitations include:
Forward Rate Agreements, Section 10
Preservation of Capital
Safety of principal is the foremost objective of the investment program. The risk of loss is minimized by investing City funds only in those instruments that meet a minimum credit rating. Analysis of the credit worthiness of issuers is undertaken by several reputable credit rating agencies. These agencies assess the relative strength of issuers and their capacity to pay interest and repay principal. Minimum credit ratings for all investments are set out in the regulation and are different for different investments.
Maintaining Liquidity and Diversification
Risk will be managed by:
- Limiting investments to avoid over-concentration in securities from a specific issuer or sector (excluding Government of Canada securities);
- Limiting investment in securities to those that have higher credit ratings;
- Investing in securities with varying maturities;
- Investing in mainly liquid, marketable securities which have an active secondary market, to ensure that appropriate liquidity is maintained in order to meet ongoing obligations.
- Matching investments with anticipated cash flow requirements to the extent possible.
Specific institutions and limits will be reviewed regularly by the Director of Finance and amended as necessary in order to minimize the exposure of The Corporation of the City of Sarnia to changes in the financial marketplace, taking into consideration current financial information available.
Unless matched to a specific cash flow, the municipality will not invest in securities maturing more than one year from the date of purchase. Reserve funds may be invested in securities exceeding one year if the maturity of such investments is made to coincide, as nearly as practicable, with the expected use of the funds.
Earning a Competitive Rate of Return
The City’s funds shall be invested to maximize the rate of return within acceptable risk levels while respecting the legal constraints, security of principal, and the adequate liquidity and diversification needs of each investment portfolio.
Trust funds, by nature, must be maintained in a separate account and invested separately. The investment strategy will be primarily dictated by the terms of the trust agreement. In the absence of specific direction, the strategy must be in compliance with this Policy. The maturity of such investments shall be made to coincide, as nearly as practical, with the expected use of funds.
Investment income will be credited to the applicable fund. The allocation of earnings from combined investments shall be credited to each separate fund, in proportion to the amount invested from it.
Standards of Care
Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence, exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital, as well as the probable income to be derived.
Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Officers and employees shall not undertake personal investment transactions with the same individual with whom business is conducted on behalf of the Corporation.
Delegation of Authority
The Director of Finance has overall responsibility for the prudent investment of the City’s portfolio. Transactional investment activities may be delegated by the Director of Finance. The City Manager and Director of Finance or others, as directed by City Council, are authorized to execute and sign investment agreements on behalf of the Corporation.
The Director of Finance shall provide Council with an annual report of the City’s investment program in accordance with O. Reg. 438/97, s. 8. The investment report shall include:
- A statement about the performance of the portfolios;
- An estimated ratio of the long-term and short-term securities compared to the total investments and a description of the change since the previous year’s report;
- A statement by the Director of Finance as to whether all investments were made in accordance with the investment policies and goals of the City;
- A record of transactions, including a statement of the purchase and sale price of each security.
The General fund borrows from the Reserve Funds to provide cash for operations and to finance capital work on a short-term basis. For the most part, the interest charged is going ‘from one City pocket to another’, but given that some reserve funds are non-rate funded, there is a requirement to pay a fair rate to the reserve funds for ‘investing’ in the General fund. A fair rate will be applied based on the interest rate paid on funds in the City’s consolidated bank account.
6.0 Related Policies
CS-025 Reserves and Reserve Funds