HomeMy WebLinkAboutFND-017-13 Clarbgton REPORT
FINANCE DEPARTMENT
Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE
Date: NOVEMBER 25, 2013 Resolution#: (1108- 567-13 By-law#:
Report#: FND-017-13 File#:
Subject: INVESTMENT POLICY
RECOMMENDATIONS:
It is respectfully recommended that the General Purpose and Administration Committee
.recommend to Council the following:
1. THAT Report FND-017-13 be received; and
2. THAT the proposed updated Investment Policy as updated be approved.
Submitted b � Reviewed by:
y:
N ncy T to , B PA,CA, Franklin Wu,
Director f Finance/Treasurer Chief Administrative Officer
NT/CC/hj I
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T 905-623-3379
REPORT NO.: FND-017-13 PAGE 2
1. BACKGROUND
1.1 As of September 30, 2013, the Municipality had a total of $54,619,541 in
investments. This includes $3,607,100 in the One Investment Program Bond
Fund and $500,000 in the One Investment Program Equity Fund. The remainder
of the investments is comprised of bonds, guaranteed investment certificates and
bankers acceptances. Investments held in the Municipality's portfolio are
assessed on an ongoing basis to ensure they meet the requirements of Section
418 on the Ontario Municipal Act, Ontario Regulation 438/97 and the
Municipality's investment policy.
1.2 The Director of Finance/Treasurer monitors all investment activity and reports the
value of investments held to Council on a quarterly basis in the quarterly
Financial Update Report.
1.3 The Investment Policy was last updated in November 2002 and prior to that in
1998.
2. Investment Policy
2.1 The Investment Policy has some outdated terminology and references that have
been updated to be relevant to current language.
2.2 All investments are made in accordance to the Ontario Municipal Act 2001, sec
418. Eligible investments are prescribed by the Ontario Regulation 438/97 and
all investments must be invested in Canadian dollars.
2.3 The previous policy referenced Schedule A & B banks. The correct terminology
is Schedule I & II banks. This has been updated.
2.4 The rating systems by qualified bond rating systems has changed since 2002.
The new policy now has a more comprehensive rating table that clearly indicates
appropriate ratings from several qualified bond rating services as generally
accepted for municipal investments.
2.5 In November 2002, the total investments were $48,828,638. As of September
30, 2013, the total investments were $54,619,541. Since the financial crisis of
2008, interest rates have been significantly lower than prior years as well as
relatively flat. It is expected that this climate of low interest rates will continue for
some time. With the top priority of municipal investments to preserve capital, it
becomes more of a challenge to stay ahead of inflation. Due to the nature of
municipal investments in minimizing risk, it is recommended that the limitations of
investment terms be updated.
REPORT NO.: FND-017-13 PAGE 3
2.6 Currently, the long-term investment limit is $30 million or 65% of the Reserve
Fund investment portfolio balance, whichever is less. Due to the increase in the
total portfolio and the current low interest environment, the following changes are
recommended for the investment term limits:
• Investments maturing within a year shall not be less than 10% of the total
portfolio as of December 31 (irrespective of the purchase date);
• The maximum investment term is ten (10) years; and
• Investments maturing greater than 5 years but less than 10 years at date of
purchase shall not exceed 10% of the total investment portfolio.
2.7 These revised limitations will allow more flexibility in the investment terms to
improve investment return while not increasing risk. In addition, the added
limitation on investments maturing within the year will ensure reserve funds are
available based on needs of the Municipality.
3. CONCURRENCE - Not applicable
4. CONCLUSION
4.1 The primary objectives of the Investment Policy of adherence to statutory
requirements, preservation of Capital, maintaining liquidity and earning a
competitive rate remain constant.
4.2 The updated limitations of the Investment Policy allows the Municipality to better
meet the investment objectives in the current economic environment.
4.3 It is recommended that the attached updated Investment Policy be approved.
CONFORMITY WITH STRATEGIC PLAN —
The recommendations contained in this report conform to the general intent of the
following priorities of the Strategic Plan:
Promoting economic development
X Maintaining financial stability
Connecting Clarington
Promoting green initiatives
Investing in infrastructure
Showcasing our community
Not in conformity with Strategic Plan
REPORT NO.: FND-017-13 PAGE 4
Staff Contact: Nancy Taylor, BBA, CPA, CA, Director of Finance/Treasurer
Attachments:
Attachment 1 - Investment Policy
Attachment 1
Leading the �j'ay
Investment Policy
Date Updated: November 25, 2013 Resolution:
Last Revised: November 18, 2002 Resolution: C-622-02
1. Policy Statement/Purpose
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.
2. Scope
This investment policy applies to all investments made on behalf of the Municipality and its
agencies, boards and commissions including, but not limited to, operating finds, reserves,
reserve funds, trust funds and any new fiend created by the Municipality unless specifically
exempted.
3. Objectives
The primary objectives of the Investment Policy, in priority order, shall be:
• Adherence to statutory requirements;
• Preservation of Capital;
• Maintaining liquidity; and
• Earning a competitive rate of return.
4. Standards of Care
Prudence
Investments shall be made with judgement 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.
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Investment officers acting in accordance with written procedure and this investment policy
and exercising due diligence, shall be relieved of personal responsibility for an individual
security's credit risks or market price changes, provided deviations from expectations are
reported in a timely fashion and the liquidation or the sale of securities are carried out in
accordance with the terms of this Policy.
Ethics and Conflict of Interest
Officers and employees involved in the investment process shall refrain from the 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. Employees and officers shall not undertake personal investment transactions with
the same individual with whom business is conducted on behalf of the Municipality.
Delegation of Authority
The Director of Finance/Treasurer has overall responsibility for the prudent investment of the
Municipality's portfolio. The Director of Finance/Treasurer can delegate to an alternate the
authority to be responsible for short and long-term investments. All investments shall
receive the approval of the Director of Finance/Treasurer. No person may engage in an
investment transaction except as provided under the terms of this policy and the procedures
and policies established by the Director of Finance/Treasurer.
5. Safekeeping and Custody
The Municipality of Clarington shall be permitted to take advantage of investments offered
by qualified investment brokerage houses and financial institutions as circumstances dictate.
All securities shall be held for safekeeping by a financial institution selected by the
Municipality. All securities shall be held in the name of the Municipality.
The depository shall issue a safekeeping receipt to the Municipality listing the specific
instrument, rate, maturity and other pertinent information. On a monthly basis, the
depository will also provide reports which list all securities held on behalf of the
Municipality, the book value of holdings and the market value as of month-end.
6. Internal Controls
The Director of Finance/Treasurer shall establish an annual process of independent review by
an external auditor as part of the annual audit. This review will provide internal control by
assuring compliance governing legislation and with policies and procedures established by
the Treasurer.
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7. Suitable and Authorized Investments
The Municipality may invest in certain securities as set out by Ontario Regulation 438/97 to
the Municipal Act, 2001, as amended from time to time. The Trustee Act regulates
investment of trust fiends. However, in keeping with the primary objective of the
Municipality's investment policy, namely the preservation of capital, permissible
investments have been restricted to those of high credit quality and reasonable liquidity.
Subject to the limitations of the policy, staff will invest at the highest interest rate available.
Consequently, investment officers are permitted to invest only in fixed income instruments of
the following issuers:
a) The Govermnent of Canada
b) The Provinces of Canada
c) Ontario Municipal Goverrunents as defined in the Municipal Act, 2001
d) Schedule I and Schedule II banks
8. Limitations and Diversification
The Municipality shall diversify its investments to the best of its ability based on type of
fiends invested and the cash flow needs of those funds. Diversification can be by type of
investment, number of institutions invested in and length of maturity. Investment in a
municipal investment pool as allowed by Ontario Regulation 438/97, such as the One
Investment Program should be considered an appropriate method of investment
diversification.
Below is a table noting the investment grade ratings for high to upper medium grade rates of
the qualified bond rating services—Dominion Bond Rating Service, Moody's, Standard &
Poor's and Fitch.
Table 1 —Investment Grade Ratings
DBRS Moody's S&P Fitch
Investment Long Short Long Short Long Short Long Short
Grade Term Term . Term Term Term Term Term Term
High Grade AAA R-1 H Aaa PI AAA A-1+ AAA F l+
AA Aa 1 AA+ AA+
High Aa2 AA AA
AA Aa3 AA- AA-
AA Low
Upper A High R-1M Al P2 A-1, A+ Al
Medium A R-1 L A2 A-2 A A2
Grade A Low A3 A-
Page 3 of 5
The following limitations shall be placed on investments with any one financial institution
based on the measure of the investment according to the rating supplied by the qualified bond
rating service (DBRS or equivalents of Moody's/S&P/Fitch), taking into account the overall
value of the investment portfolio.
Tablet —Investment Limitations —By Investment Source
Investment Institution Limit
Governinent of Canada No Limit
Province of Ontario Maximum 40 % of portfolio
Other Provinces of Canada Maximum 30 % of portfolio
Schedule I Banks Maximum 30 % of portfolio per bank
Schedule II Banks Maximum 10 % of portfolio per bank
Ontario Municipal Govermnents Maximum 20 % of portfolio
Municipal Investment Pools Maximum 30 % of portfolio
The mix of investment holdings in the portfolio shall be maintained with the following
limitations:
Table 3 —Investment Limitations—By Rating
Limitation Long Term (> 1 year) Short Term (< 1 year)
Minimum of 20 % AAA RAH
Maximum of 70 % AA High to AA Low RAM
Maximum of 10 % A High to A Low R-11,
9. Maximum Maturity
To the extent possible, the municipality shall attempt to match its investments with
anticipated cash flow requirements. The municipality will not directly invest in securities
maturing more than 10 years from date of purchase.
Investments will meet the following limitations:
• Investments maturing within a year shall not be less than 10% of the total portfolio as
of December 31 (irrespective of the purchase date)
• Investments maturing greater than 5 years but less than 10 years at date of purchase
shall not exceed 10% of the total investment portfolio
It is the intent of the Municipality to hold all investments for the fiill term until maturity.
However, the investments held by the Municipality as per the Investment Policy have'a high
liquidity and can be sold in active secondary or resale markets. In the unlikely scenario, if
circumstances dictate (such as unpredictable cash demands) and with approval of the
Director of Finance/Treasurer, investments may be sold before maturity in the market
through the qualified investment brokerage house and financial institutions.
Page 4 of 5
i
10. One Fund
The One Investment Municipal Investment Program is a pooled investment program
designed specifically for the municipal and broader Ontario public sector. It was established
in 1993 and is jointly operated by LAS (a subsidiary of AMO) and CHUMS Financing Corp.
(a subsidiary of the Municipal Finance Officers' Association of Ontario). In 2000, the
Municipality of Clarington invested in the Bond Fund and in 2007, invested in the Equity
Fund, as approved by Council.
11. Reporting
The Treasurer shall provide a quarterly statement of investments outstanding to Municipal
Council as part of the Quarterly Financial Update Report.
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