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Staff Report
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Report To: General Government Committee
Date of Meeting: May 29, 2023
Submitted By: Trevor Pinn, Deputy CAO/Treasurer
Reviewed By: Mary -Anne Dempster, CAO
File Number:
Report Subject: 2022 Investments Annual Report
Recommendation:
Report Number: FSD-025-23
By-law Number:
Resolution#: GG-115-23
1. That Report FSD-025-23, and any related delegations or communication items, be
received for information;
2. That the Draft Investment Policy, as attachment #1, be approved; and
3. That any interested parties listed in Report FSD-025-23, and any delegations, be
advised of Council's decision.
Municipality of Clarington
Report FSD-025-23
Report Overview
Page 2
The following report is the annual reporting requirement under the Municipality of
Clarington's Investment Policy. Regulations under the Municipal Act, 2001 require that the
Treasurer report certain information to Council on an annual basis and certify compliance
with the Municipality's adopted Investment Policy.
This report fulfills the annual reporting requirement under the Municipal Act, 2001 and the
Municipality's Investment Policy.
At December 31, 2022, the Municipality was in compliance with the Province of Ontario's
eligible investment regulations and the Municipality's approved Investment Policy.
Investment Income for the Municipality was approximately $7.5 million, which is significantly
higher than the $3.7 million in 2021. During the year, investable funds increased from $158.9
million to $213.3 million, which in part was due to the debenture funds being received in
June 2022. Overall, the return on investment was 4.09% which is a reasonable return given
interest rates during 2022 and the Municipality's reliance on fixed -income securities.
1. Background
1.1 In June 2018, through report FND-011-18, the Municipality of Clarington reviewed and
revised its Investment Policy. This policy requires the Treasurer of the Municipality to
report the state of the Municipality's investments to Council on an annual basis.
1.2 The policy was further reviewed in June 2021 and revised through Report FSD-035-21
to adjust the limits on certain investments to provide additional flexibility to the
Treasurer. These adjustments included a higher limit for financial institutions from 60 to
80 percent, a higher per -institution limit from 20 to 25 percent, an exception in municipal
debt limits for the Region of Durham, and a change to an annual review of the
investment policy rather than once per term.
1.3 There were no changes to the policy in 2022 recommended to Council. This report
outlines one minor change to the policy, which is recommended to Council for adoption
in 2023.
1.4 Section 8 of the Municipality's Investment Policy requires the Treasurer to report on an
annual basis to Council on the performance of the investments, the balance of the
investment portfolio, and the Municipality's compliance with the investment policy and
goals.
Municipality of Clarington
Report FSD-025-23
1.5 A snapshot summary of key information pertaining to the portfolio follows:
Fund Balance, Balance, Income
January 2022 Opening Closing Investment
-
General Fund $41,092,730 $65,412,278 $3,808,056
Development Charges 32,604,525
Reserve Fund
Non -DC Reserve Fund 74,387,525
Strategic Capital Reserve 10,783,566
Fund
$158,868,346
Investment Environment in 2022
Page 3
7.15%
$59,523,378 $1,694,340 3.68%
$77,142,302 $1,600,751 2.11%
$11,043,124
$372,817 3.42%
$213,121,082 $7,475,964 4.09%
1.6 Interest rates rose throughout 2022 as the Bank of Canada was working to control
inflation resulting from a number of global factors, including the recovery from COVID-
19, the Russia -Ukraine War, and global supply chain issues. In January 2022, the bank
rate was 0.50 percent, this increased seven times throughout the year ending at 4.50
percent in December 2022. The average rate for the year was 2.42 percent.
1.7 The rise in interest rates impacted equity markets as well as fixed -income markets
throughout 2022. Interest rates on newly issued fixed -income instruments were higher
than in 2021, which provided the ability for the Municipality to lock in higher rates than in
the past three years.
1.8 In 2022, the Municipality's primary banking partner increased the interest rate on its
general bank account. This follows 2021, which saw a decrease in the interest rate as a
result of the economic factors impacting interest rates and banks in 2021.
Municipality of Clarington
Report FSD-025-23
Looking into 2023
Page 4
1.9 Financial Services rebalanced the reserve funds in 2022 to ensure investments align
with the needs of the individual funds and better reflect the timing requirements of those
funds. The department continues to monitor these balances and may rebalance them
again in 2023.
1.10 Staff are monitoring the maturity dates of investments in relation to several planned
major capital initiatives to ensure that we have the cash flow available. The typical five-
year laddering strategy may be shortened to ensure that liquidity needs are met over the
next five years.
1.11 Staff expect that fixed income investment rates will decrease in 2023 as the Bank of
Canada decreases the overnight and bank rates, it is not expected that rates will
decrease at the same pace that they increased in 2022. The gradual decrease will allow
the Municipality to maximize its return while mitigating risk.
1.12 CIBC Economics is forecasting that the Bank of Canada bank rate will decrease to 4.00
percent by March 2024, then again quarterly until reaching 3.00 percent by December
2024. The 10-year Government Bond rate will decrease from 3.82 percent in April 2023
to 2.30 percent by December 2024. Staff will be working with our advisors to monitor the
changing rates.
1.13 It is expected that the investment mix within the Municipality will continue to diversify.
The historical tendency to invest in GICs does not meet the need of the Municipality
from a rate of return perspective. The primary objective is capital preservation; however,
the changing economic and investment environment means that these objectives can
be met through other instruments while earning a reasonable return.
2. Performance of the Investment Portfolio
2.1 The Municipality's portfolio consists of several funds, including general funds, trust
funds, reserve funds, and other investments.
General Fund
2.2 The General Fund is the primary operating fund for the Municipality. This fund has the
least number of active investments. The majority of the investments in this fund are in
the HISA operated by ONE Investment Inc. This HISA account offers favourable interest
rates for a highly liquid investment.
2.3 The ONE Investment Inc. HISA was established in September 2016 and held low
balances throughout 2017. In 2018, the Municipality began being more active with its
investments and moved funds from the lower interest -earning bank accounts to the
Municipality of Clarington
Report FSD-025-23
Page 5
higher HISA account. At December 31, 2022, the ONE Investment HISA had
approximately $0.2 Million (2021 - $5.1 million). Funds held in the HISA are available
within 24 hours.
Non -Development Charges Reserve Funds
2.4 The Municipality operates a Non -Development Charges Reserve Fund investment
portfolio for all reserve funds not established under the Development Charges Act,
1997. There is one exception: the Strategic Capital Reserve Fund, a separate fund.
2.5 The total book value of investments is approximately $77.1 million (2021 - $74.4
million), including approximately $24.1 million (2021 - $27.4 million) in bank balances. At
December 31, 2022, the portfolio was comprised of $8.4 million (2021 - $10.2 million) in
GICs with maturities in each of 2023 and 2027 and $23.5 million (2021 - $20.8 million)
in bonds with maturities from 2027 to 2032. The portfolio includes $21.1 million (2021 -
$16.0) in principle -protected notes; these are banknotes which are linked to an index but
are issued by a chartered bank. For purposes of this report, the TD Bank Reserve Fund
bank account is included in this portfolio.
2.6 The Municipality has adopted a five-year laddering strategy for these investments, with
roughly equal distribution each year. This ensures that assets will be cashable in any
given year and can be withdrawn from the reserve fund. At December 31, 2022, the
third and fourth year of this ladder is lacking as interest rates for those years over the
past year have not been attractive enough to lock in funds for that amount of time. Staff
continue to monitor and invest in 2024 and 2025 as rates become feasible.
Development Charges Reserve Funds
2.7 The Development Charges Reserve Fund portfolio meets the obligations of the
Municipality under the relevant legislation for Development Charges.
2.8 The Municipality has two accounts with the ONE Investment Program related to this
fund: a Bond account and an Equity account.
2.9 Clarington opened its ONE Investment bond account in 2000. The investment pool was
transferred to its current custodian in 2005 with a book value of $2.6 million. As at
December 31, 2022, the book value, as a result of reinvested income, was $4.5 million
(2021 - $4.4 million). This is an increase of 71.9% over 16.75 years or 4.1 percent per
year. At December 31, 2022, the market value was below book value; however, the
adjusted return is still 2.91 percent per year since 2005.
2.10 The ONE Investment equity account was established in 2007 with an initial investment
of $500,000 and a $2.0 million investment in 2020. At December 31, 2022, the book
value of the investment is $3.0 million (2021 - $2.8 million), resulting from reinvested
Municipality of Clarington
Report FSD-025-23
Page 6
income and capital gains. The portfolio had a market value of $3.9 million. In 2022 there
was a decrease in the market value of $482,512 and approximately $148,099 of
reinvested income added to the portfolio.
Strategic Capital Reserve Funds
2.11 The Municipality established the Strategic Capital Reserve Fund portfolio to hold
investments for the Strategic Capital Reserve Fund specifically. This reserve fund was
created to provide a funding source for economic development activities. The intent was
to keep the $10.0 million capital as a source of internal borrowing for economic
development capital investments. Interest earned on the investments is transferred to
the general fund to offset the tax levy.
2.12 This fund invests $3.8 million (2021 - $4.7 million) in GICs with maturities ranging from
May 2023 to June 2024. Interest rates vary from 2.97 percent to 5.0 percent. Bonds of
Canadian chartered banks worth $6.1 million (2021 - $4.8 million) with maturities from
November 2027 to January 2032 are also held with an interest rate of 1.4 to 3.1 percent.
2.13 In 2021, the fund invested in debt from the Province of Ontario with a face value of $1.2
million. The debt matures in June 2031 with an interest rate of 1.65 percent.
Overall Performance
2.14 The total income for the past five years, excluding trust funds and Elexicon, by fund are
summarized below:
General Fund 1 $3,808056 $1,060,573 $1,046,664 $1,129,639 $1,351,995
Development Charges 1,694,340 624,705 923,855 1,339,291 1,386,839
Reserve Fund
Non -DC Reserve 1,600,751 1,123,800 1,343,802 336,824 976,382
Funds
Strategic Capital Fund 372,817 612,865 45,342 493,389 202,027
Municipality of Clarington
Report FSD-025-23
Total Investment
3. Compliance with Investment Policy
Page 7
3.1 The Municipality of invests based on the legal list of investments outlined in O.Req.
438/97 as amended. The legal list is very prescribed and limits the ability of the
Municipality to diversify its investments fully; however, it is relatively secure.
Investment Accounts
3.2 The Municipality of Clarington holds its investments through investment accounts with
several financial organizations. In determining whether the Municipality is meeting its
investment policies, the underlying asset is considered, not the custodian of the
investment.
3.3 In 2022, the Municipality opened an investment account with CIBC Woodgundy for the
Development Charges Reserve Fund. At the time, additional accounts were opened for
future use for the reserve fund as well as the general fund, however, no funds were
invested in those accounts in 2022.
3.4 The Municipality held the following accounts throughout 2021:
TD Bank
• General Fund bank
• Several small bank accounts
• Reserve Fund bank account
• Guaranteed Investment Certificates
(GICs)
RBC Dominion Securities 1 9 Reserve Fund investment account
Municipality of Clarington
Report FSD-025-23
Page 8
• DC Reserve Fund investment account
• Strategic Capital Fund investment
account
ONE Investment Inc. . Hight Interest Savings Account (HISA)
• Equity portfolio investment account
• Bonds portfolio investment account
BMO Nesbitt Burns • General fund investment
• Reserve Fund investment account
CIBC Woodgundy • DC Reserve Fund investment account
ScotiaBank • High Interest Savings Account (HISA)
3.5 The investment accounts with RBC Dominion Securities ,BMO Nesbitt Burns, and CIBC
Woodgundy hold a variety of investment instruments which could include GICs,
government bonds, and bank deposit notes
Diversification Risk
3.6 The Municipality holds investments of several different types. It is essential to diversify
the types of investments with an extensive portfolio to reduce the risk to the overall
portfolio from variations in any one market. The following table shows the December 31,
2022, investments by type as well as the minimum and maximum percentage allowed
per the Investment Policy:
Municipality of Clarington
Report FSD-025-23
High Interest Savings
$ 55,204,869
Account
Federal Debt
1,091,723
Provincial Debt
13,803,459
Municipal Debt
8,268,038
Financial Institutions
123,369,339
Corporate Debt (non-
4,099,594
financial)
ONE Investment
7,442,761
Pools
Total $213,279,783
3.7 The policy guideline for financial institutions is zero percent to 80 percent of the
investment portfolio. At December 31, 2022, the Municipality was within this limit.
3.8 While within the policy limits, the above indicates that the Municipality is concentrated in
Canadian financial institutions. Most of the investments consist of GICs purchased
initially with a five-year term.
Liquidity Risk
3.9 The Municipality attempts to balance cash flows through the timing of the maturity of
investments. Staggered maturity dates ensure that cash is readily available to meet the
needs of the Municipality and reduces interest rate risk. At December 31, 2022, the
Page 9
100.0%
0.5% 0.0% 100.0%
6.5% 0.0% 80.0%
3.9% 0.0% 35.0%
57.8% 0.0% 80.0%
1.9% 0.0%
3.5% 0.0%
1 n no/.
Municipality of Clarington Page 10
Report FSD-025-23
maturity dates, and allowable ranges, of investments held by the Municipality were as
follows:
Up to 90 Days $ 69,235,515 32.5% 20.0% 100.0%
90 Days to 1 Year 19,622,589 9.2% 30.0% 100.0%
1 to 5 Years 22,599,599 10.6% 0.0% 85.0%
5 to 10 Years 100,323,622 47.0% 0.0% 50.0%
10 to 20 Years 1,498,457 0.7% 0.0% 30.0%
$213,279,782
3.10 The Municipality's Investment Policy indicates the target range for less than 90 days is
20% to 100%, and less than one year is 30% to 100%. The amount shown above that is
90 days to 1 year should be added to the amount held less than 90 days to determine
compliance with the requirement. Total amounts maturing less than one year is
$88,858,105, which is 41.7% of the investment portfolio.
3.11 The Municipality's HISA and TD Reserve Fund bank accounts are considered to have a
maturity of less than 90 days, as they are available to the Municipality within 24 hours.
3.12 The Municipality is allowed in certain circumstances to invest in terms greater than ten
years, at December 31, 2022, there was $1.5 million (2021 - $4.8 million) invested with
a maturity greater than ten years. The decrease in this amount explains the increase in
the five -to -ten-year range, as the greater than ten year investments come closer to
maturity. These investments are bonds held in the three reserve fund investment
portfolios and are traded on an active market.
Municipality of Clarington Page 11
Report FSD-025-23
Concentration Risk
3.13 The Municipality attempts to diversify its investment portfolio by restricting the
percentage of investments any single institution may have. Diversification mitigates the
risk to the Municipality if an investment becomes insolvent. Note that the Canadian
Deposit Insurance Corporation (CDIC) only guarantees investments up to $100,000 per
institution, therefore, most of the Municipality's investments are not insured through
CDIC.
3.14 At December 31, 2022 the Municipality's investments by institution were as follows:
ONE — HISA 194,765 0.1 % 100.0%
ONE — Equity 2,983,725 1.4% 15.0%
ONE — Bond 4,459,036 2.1 % 15.0%
Scotiabank HISA 30,782,513 14.4% 100.0%
Royal Bank of Canada 6,323,669 3.0% 25.0%
CIBC - HISA
106,828
0.1 %
100.0%
National Bank
12,829,265
6.0%
25.0%
Bank of Nova Scotia
14,185,629
6.7%
25.0%
Bank of Montreal
32,675,531
15.3%
25.0%
Municipality of Clarington Page 12
Report FSD-025-23
CIBC
36,000,000
16.9%
25.0%
HSBC
3,358,884
1.6%
25.0%
TD Bank
16,612,169
7.8%
25.0%
Province of Ontario
1,600,000
0.8%
20.0%
Province of British Columbia
4,969,061
2.3%
20.0%
Regional Municipality of Durham
1,495,677
0.7%
N/A
Regional Municipality of Niagara
1,495,790
0.7%
10.0%
Quebec Hydro
1,600,000
0.8%
5.0%
City of Toronto
4,778,046
2.2%
10.0%
Canada Housing Trust
1,091,723
0.5%
20.0%
Province of Alberta
6,118,857
2.9%
20.0%
Province of Quebec
2,499,732
1.2%
20.0%
Ontario Hydro
2,499,594
1.2%
5.0%
Municipality of Clarington
Report FSD-025-23
Page 13
Regional Municipality of York 498,525 0.2% 10.0%
$213,279,782
4. Review of Investment Policy
Background
4.1 The Municipality of Clarington is required, under the Municipal Act, 2001 to have an
investment policy adopted and approved by Council.
4.2 The Municipality utilizes the legal list of investments as allowed under O.Reg 438/97,
which prescribes what investments a municipality may make.
4.3 Staff have provided information reports in the past, most recently FND-038-20 regarding
the option to adopt the Prudent Investor Standard under the section 418.1 of the
Municipal Act. This remains an option for Council to consider as an alternative to the
current prescribed legal list.
Proposed Changes
4.4 The draft policy included in Attachment #1 follows the new format for policies approved
by Council.
4.5 Staff have included a definition of Environmental, Social and Governance Investment
(ESG) into the Policy. This definition mirrors the definition used by the Region of
Durham. A section in the policy was also added to provide that these considerations
would be factored into decision making, but at this time Staff are not recommending
excluding any investments or making ESG a primary decision factor.
4.6 The inclusion of ESG in municipal investment policies is becoming more common as the
focus on climate change, equity, diversity and inclusion as well ethical governance
becomes higher.
Municipality of Clarington Page 14
Report FSD-025-23
5. Financial Considerations
5.1 At this time, there are no expected financial considerations as a result of the
modifications to the Municipality's Investment Policy.
5.2 The Municipality is limiting its allowable investments by following the eligible investment
rules rather than utilizing the prudent investor standard. Historical results of investments
do not predict future results; however, a diversified portfolio is a key tool to mitigating
risk.
6. Concurrence
Not Applicable.
7. Conclusion
7.1 It is respectfully recommended that Council receive the 2022 Annual Investment Report
in compliance with the Municipal Investment Policy and the Municipal Act, 2001.
7.2 It is respectfully recommended that Council approve the Draft Investment Policy which
includes minor formatting changes as well as new definitions for Environmental, Social
and Governance investing.
Staff Contact: Trevor Pinn, Deputy CAO/Treasurer, 905-623-3379 x2602 or
tpinn@clarington.net.
Attachments:
Attachment 1 — Draft Investment Policy
Interested Parties:
List of Interested Parties available from Department.
Attachment1 to Report FSD-025-23
Council Policy CladW4011
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Number:
Title:
Investment Policy
Type:
Financial Management
Sub -type:
Investments
Owner:
Financial Services
Financial Planning
Approved By:
Council
Approval Date:
July 3, 2018
Effective Date:
July 3, 2018
Revised Date:
July 6, 2021
Applicable to:
All Staff
Legislative or Administrative Authority:
1.1. This policy was developed in accordance with Section 418 of the
Municipal Act, 2001, which authorizes a municipality to invest in
prescribed securities, in accordance with prescribed rules, money that
it does not require immediately. The policy follows Ontario Regulation
438/97, Eligible Investments, Related Financial Agreements and
Prudent Investment
2. Purpose:
2.1. The Municipality of Clarington strives for the optimum utilization of its
cash resources within statutory limitations and the basic need to
protect and preserve capital, while maintaining solvency and liquidity to
meet ongoing financial requirements
3. Scope:
3.1. This policy includes all funds that are managed by the Municipality of
Clarington except for the Municipality's investment in Elexicon Group
4. Definitions:
4.1. Asset Backed Securities — Fixed income securities (other than a
government security) issued by a Special Purpose Entity, substantially
all of the assets of which consist of Qualifying Assets.
Page 1 of 17
Attachment1 to Report FSD-025-23
Council Policy CladW4011
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4.2. Basis Point — A unit that is equal to 1/100t" of 1 %, and is used to
denote the change in a financial instrument. The basis point is
commonly used for calculating changes in interest rates, equity
indexes and the yield of a fixed -income security.
4.3. CHUMS Financing Corporation (CHUMS) — A subsidiary of the
Municipal Finance Officers Association of Ontario (MFOA) which in
conjunction with the Local Authority Services Limited (LAS) operates
the ONE Investment Program.
4.4. Credit Risk - The risk to an investor that an issuer will default in the
payment of interest and/or principal of a security.
4.5. Discount — The amount by which the par value of a security exceeds
the price paid for the security.
4.6. Diversification — A process of investing assets among a range of
security types by class, sector, maturity and quality rating.
4.7. Duration — A measure of the timing of the cash flows, such as the
interest payments and the principal repayment, to be received from a
given fixed -income security. This calculation is based on three
variables: term to maturity, coupon rate, and yield to maturity. The
duration of a security is a useful indicator of its price volatility for given
changes in interest rates.
4.8. Environmental, Social and Governance (ESG) Investing —
considering and integrating ESG factors into the investment process,
rather than eliminating investments based on ESG factors alone.
Integrating ESG information can lead to more comprehensive analysis
of a company.
4.9. Holding Period Classification — Classification of investments based
on the intended period the Municipality would hold the asset, as
follows:
4.9.1. Cash Equivalent: short-term highly liquid investments that are
readily convertible to known amounts of cash and that are
subject to an insignificant risk of changes in value.
Page 2 of 17
Attachment1 to Report FSD-025-23
Council Policy Clar*wn
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Coordinator at 905-623-3379 ext. 2131
4.9.2. Short-term: securities with a holding period of one year or less.
4.9.3. Long-term: securities with a holding period of greater than one
year.
4.10. Liquidity — A measure of an assets' convertibility to cash
4.11. Local Authority Service Limited (LAS) — A subsidiary of the
Association of Municipalities of Ontario (AMO) which in conjunction
with CHUMS are members of the ONE Investment Inc.
4.12. ONE Investment Inc. — An incorporated not -for -profit organization
which includes investment portfolios available for Ontario
municipalities. Formerly was the ONE Investment Program which is a
professionally managed group of pooled investments that meet
eligibility criteria as defined by regulations under the Municipal Act.
Also includes the High Interest Savings Account (HISA).
4.13. Market Risk — The risk that the value of a security will rise or decline
as a result of changes in market conditions.
4.14. Market Value — The current market price of a security.
4.15. Maturity — The date on which payment of a financial obligation is due.
The final stated maturity is the date on which the issuer must retire a
bond and pay the face value to the bondholder.
4.16. Par — The face value or principal value of a bond.
4.17. Premium — The amount by which the price paid for a security exceeds
the security's par value.
4.18. Principal — The face or par value of a debt instrument or the amount
of capital investment in a given security.
4.19. Rate of Return — The yield obtainable on a security based on its
purchase price or its current market price. Yield reflects coupon, term,
liquidity and credit quality.
Page 3 of 17
Attachment1 to Report FSD-025-23
Council Policy Clar*wn
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Coordinator at 905-623-3379 ext. 2131
4.20. Schedule I Bank — Schedule I banks are domestic banks and are
authorized under the Bank Act to accept deposits, which may be
eligible for deposit insurance provided by the Canadian Deposit
Insurance Corporation.
4.21. Schedule II Banks — Schedule II banks are foreign bank subsidiaries
authorized under the Bank Act to accept deposits, which may be
eligible for deposit insurance provided by the Canada Deposit
Insurance Corporation. Foreign bank subsidiaries are controlled by
eligible foreign institutions.
4.22. Sinking Fund — Money accumulated on a regular basis, through
regular contributions and interest earnings, in a separate custodial
account that is used to redeem debt securities by a specified date.
4.23. Weighted Average Maturity (WAM) — The average maturity of all the
securities that comprise a portfolio.
4.24. Yield to Maturity (YTM) — The annual return on a bond held to
maturity when interest payments and price appreciation (if priced
below par) or depreciation (if priced above par) are considered
4.24.1.
5. Policy Requirements:
General
5.1. The primary objectives of the investment program, in order of priority,
shall be:
5.2. Adherence to Statutory Requirements
5.2.1. All investment activities must be made in accordance with
Section 418 (1) of the Municipal Act, 2001, as amended which
states that a municipality may invest money it does not need
immediately in securities, in accordance with prescribed rules
and regulations.
Page 4 of 17
Attachment1 to Report FSD-025-23
Council Policy CladW4011
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Coordinator at 905-623-3379 ext. 2131
5.2.2. The prescribed securities that municipalities may invest in as
well as the rules for making investments, entering into related
financial agreements and reporting on activities is set out
under Ontario Regulation 438/97, as amended. Any Provincial
Statutes or Regulations will supersede and take precedence
over this policy.
5.2.3. Investments, unless limited further by Council, will be those
deemed eligible under O.Reg 438/97 as amended.
5.3. Preservation of Capital
5.3.1. Safety of principal is an important objective of the investment
program. Investments shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall
portfolio.
5.3.2. Staff shall mitigate credit risk through the following:
• Limiting investments to safer types of securities;
• Diversifying the investment portfolio so that potential
losses on individual securities will be minimized.
5.3.3. Staff shall mitigate interest risk through the following:
• Structuring the investment portfolio so that securities
mature to meet ongoing cash flow requirements, thereby
reducing the need to sell securities on the open market
prior to maturity;
• Investing operating funds primarily in shorter -term
securities or approved investment pools; and
Diversifying longer -term holdings to match term exposures
to requirements of underlying reserve funds and to
mitigate effects of interest rate volatility.
Page 5 of 17
Attachment1 to Report FSD-025-23
Council Policy ClafiWOOJI
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Coordinator at 905-623-3379 ext. 2131
5.4. Maintaining Liquidity
5.4.1. The investment portfolio shall remain sufficiently liquid to meet
all operating or cash flow requirements and limit temporary
borrowing requirements. This shall be done where possible by
structuring the portfolio such that securities mature concurrent
with anticipated cash demands.
5.4.2. The portfolio shall consist largely of securities with active
secondary or resale markets to ensure liquidity. A portion of
the portfolio may be placed in local government investment
pools which offer liquidity for short-term funds.
5.5. Competitive Rate of Return
5.5.1. Notwithstanding the other objectives of this policy, the
Municipality shall maximize the rate of return earned on its
investment portfolio by implementing a dynamic strategy as
part of the investment program.
5.5.2. Diversification, as well as ensuring safety of principal by
limiting exposure to credit, sector or term risk, provides
opportunities to enhance the investment return on the
Municipality's portfolio.
Standards of Care
5.6. Prudence
5.6.1. Investments shall be made in accordance with the policy,
under the prevailing circumstances. Consideration of the
probable safety of the principal as well as income to be
derived should be of primary concern.
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5.6.2. Staff acting in accordance with procedure and this investment
policy and having exercised due diligence, shall be relieved of
personal responsibility for any individual security's credit risks
or market price changes, provided deviations from
expectations are reported in a timely fashion and the
liquidation or sale of securities are carried out in accordance
with the terms of this policy.
5.7. Ethics and Conflict of Interest
5.7.1. 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 ability to make impartial decisions.
5.7.2. Employees involved in investment procedures shall disclose
all 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.
5.7.3. Employees and officers shall not undertake personal
investment transactions with the same individual with whom
business is conducted on behalf of the Municipality.
5.7.4. If a staff member of the Finance Department or any elected or
appointed member of the Municipality is party to, or has a
direct or indirect beneficial interest in an investment
transaction of the Municipality, he or she must provide full
disclosure of that interest to the Director of Finance/Treasurer
(or designate). The Director of Finance (or designate) will
determine whether the Municipality's investment is to continue
to be retained or sold forthwith.
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5.8. Safekeeping and Custody
5.8.1. All securities shall be held for safekeeping by a financial
institution approved by the Municipality. Individual accounts
shall be maintained for each portfolio. All securities shall be
held in the name of the Municipality.
5.8.2. The depository shall issue a safekeeping receipt to the
Municipality listing the specific instrument, rate, maturity and
other pertinent information. On a periodic basis (preferably
monthly), the depository will also provide reports, which lists all
securities held by the Municipality, the book value of holdings
and the market value as of month -end.
5.9. Authority
5.9.1. The Deputy CAOITreasurer, or designate, has overall
responsibility of the investment portfolio. The Deputy
CAOITreasurer shall be responsible for all transactions
undertaken, and shall establish a system of controls to
regulate the activities of subordinate officials and shall
exercise control over that staff. The Deputy CAOITreasurer or
designate have the authority to make investment decisions for
the Municipality
5.9.2. The authority to enter into arrangements with banks,
investment dealers and brokers, and other financial institutions
for the purchase, sale, redemption, issuance, transfer and
safekeeping of securities shall be done in a manner that
conforms to the Municipal Act, 2001 and the Municipality's
policies, including the Delegation of Authority By-law.
5.10. Approval Requirements
5.10.1. All investment transactions must be approved by two of the
following:
• CAO
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• Director of Financial Services[Treasurer
• Manager of Accounting Service/Deputy Treasurer
5.10.2. Signing authority for transactions from the Municipality's bank
account to an investment account would follow the signing
authorities outlined in the Banking Signing Authorities Policy.
5.11. Council Reporting
5.11.1. The Deputy CAOITreasurer shall provide an annual
investment report to Council which shall contain at a minimum:
• A statement about the performance of the portfolio of
investments during the period covered by the Report;
• The balance of the current outstanding investment
portfolio;
• A statement as to whether or not all investments were in
accordance with the investment policies and goals of the
Municipality;
• If applicable, a description of the estimated proportion of
investments that are invested in the Municipality's own
long-term and short-term securities and a description of
the change, if any, in the estimated proportion since the
previous report;
• If applicable, a record of the date of each transaction in or
disposal of its own securities, including a statement of the
purchase and sale price of each security; and
• Contains such other information that the Council may
require or that, in the opinion of the Treasurer or
designate, should be included.
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5.12
General Fund
5.11.2. If an investment made by the Municipality is, in the Treasurer
or designate's opinion, not consistent with the investment
policies and goals adopted by the Municipality, the Treasurer
shall report the inconsistency to Council within 30 days after
becoming aware of it.
Eligible Investments and Statutory Requirements
5.12.1. The Municipality maintains the following funds:
Non -Development
Charges Reserve Fund
Development Charges
Reserve Fund
To provide a source of
funding for operating and
non -DC supported capital
expenditures.
To provide a source of
funding for reserve funds
which are not funded by
Development Charges.
Typically requirements
relate to the Municipality's
capital plan.
To provide a source of
funding for growth -related
activities funded through
development charges.
The investment horizon for
this fund is typically within
24 months. However
longer -term investments
may be made to recognize
increased returns.
The investment horizon for
these funds is typically 5
years. There will be
deposits annually from
budgeted contributions as
well as withdrawals to
support the annual budget
requirements.
The DC study has a
horizon of 5 years, within
this fund there will be
withdrawals and deposits
annually.
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Strategic Capital Fund
Trust Funds
Long-term asset
management strategic
financing tool; Investment
in debt financing
opportunities through
internal debenture
issuance; investment in
servicing of non-residential
areas as a front -ending
tool
May include funds held for
the perpetual care of
cemeteries under the
control of the Municipality.
Trusts may also include
bequests made to the
Municipality. These
bequests may be
restricted in use, which
The key investment driver
is to ensure liquidity in the
portfolio that can be used
to finance approved
growth -related
expenditures.
This fund has an
investment horizon of over
5 years.
The key investment driver
is to earn a return which
can be used to fund other
activities while preserving
capital.
This fund does not see
significant levels of
transactions annually and
is more focused on
specific projects which
qualify under the
establishing by-law.
This fund has an
investment horizon of 5
years.
As these funds are held in
trust for other parties, the
key investment driver is
maintain the capital while
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varies based on the
earning a reasonable
return.
5.12.2. The above categories are funds which manage similar
accounts. For example the Development Charge Reserve
Fund invests for all individual DC Reserve Funds, individual
accounts are not required to be established. An individual
investment security may be made utilizing funds from different
sources (i.e. a GIC in the DC Reserve Fund may relate to
general government, parks and road DC reserve funds).
5.13. Eligible Securities
5.13.1. Eligible securities are prescribed under O.Reg 438/97, as
amended.
5.13.2. Investments shall be diversified 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 maturity dates;
Investing primarily in liquid, marketable securities which
have an active secondary market, to ensure appropriate
liquidity.
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5.14. Investment Limitations
5.14.1. To promote diversification, the following percentage
weightings for each type of investment within the portfolio shall
be established and maintained:
Federal Debt
Provincial Debt
Municipal Debt
Municipal Corporation Equity
Financial Institutions
Corporate Debt (non -financial)
ONE Investment Pools
100%
80% 20% per province
35% 10% per municipality
(except the Region of
Durham)
50% 50% per municipal
corporation
80% 25% per financial
institution
10% 5% per corporation
25% 15% per portfolio
5.14.2. To promote diversification and ensure liquidity, the following
percentage weightings for the investment portfolio shall be
established and maintained:
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Less than 90 days 20% to 100%
Less than 1 year 30% to 100%
From 1 year up to, but not including, 5 0% to 85%
years
From 5 years up to, but not including 0% to 50%
10 years
From 10 years up to 20 years 0% to 30%
5.14.3. Unless matched to a specific cash flow, the Municipality will
not directly invest in securities maturing more than 10 years
from the date of purchase. Reserve funds and other funds
with longer -term investment horizons may be invested in
securities exceeding ten (10) years, provided they match as
practicably as possible to the expected use of funds.
5.14.4. Portfolio size limitations listed above will be applicable based
on the allowable percentage of the portfolio on the day the
investment is made. Limitations relate to the total investment
portfolio and are to be applied to the Municipalities' separate
funds that it manages.
5.14.5. When determining the portfolio limitation:
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• The total portfolio (denominator) shall include all cash,
cash equivalents, short-term investments and long-term
investments (excluding investment in Elexicon Group Inc.)
Funds held within general or high interest savings
accounts shall not be used to determine the maximum
category or sector limitations (numerator). For further
clarification, funds held in a bank account do not count
towards the 25 per cent limit for the institution.
5.14.6. The Municipality may invest in US denominated funds, as
allowed by regulation, provided that the purpose of the
investment relates to a pending or anticipated purchase which
is to be denominated in US funds and it is prudent to mitigate
from foreign exchange risk.
5.15. Environmental, Social and Governance (ESG) Investing
5.15.1. The Municipality supports incorporating ESG investing into the
Portfolio. The Municipality believes that well -managed
companies are those that demonstrate high ethical and
environmental standards and respect for their employees,
human rights, and the communities in which they do business
and that these actions contribute to long-term financial
performance.
5.16. Policy Review
5.16.1. This policy shall be reviewed annually and updated as
necessary
6. Roles and Responsibilities:
6.1. Council is responsible for:
6.1.1. Setting the investment policy for the Municipality.
6.1.2. Determining the risk tolerance of the Municipality.
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6.2. Deputy CAO/Treasurer is responsible for:
6.2.1. Establishing internal controls around the investment and
banking process.
6.2.2. Determining an investment plan in compliance with the
Investment Policy.
6.2.3. Ensuring the Municipality's investment plan is in compliance
with legislation.
6.2.4. Reporting to Council investment information in compliance
with the Policy and the legislation.
6.3. Directors / Managers are responsible for the following within their
scope of authority:
6.3.1. Making investment decisions in compliance with the
Investment Policy.
6.4. All Staff are responsible for:
6.4.1. Following the Investment Policy.
7. Related Documents:
7.1. O.Reg.438/97: Eligible Investments, Related Financial Agreements
and Prudent Investment
7.2. Delegation of Authority By-law
8. Inquiries:
8.1. Manager, Financial Planning/Deputy Treasurer
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9. Revision History:
Date
Description of Changes
Approved By
June 12, 2023
Update format to new policy
Council
template
Add definition and section on
Environment, Social and
Governance (ESG) Investing
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