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Investment Policy 09-23-96CITY OF SHOREWOOD, MINNESOTA INVESTMENT POLICY ADOPTED 9/23/96 SCOPE: This investment policy applies to activities of the City of Shorewood, Minnesota with regard to investing the financial assets of all funds, including the following: • General Fund • Special Revenue Funds • Debt Service Funds • Capital Project Funds • Enterprise Funds • Internal Service Funds • Trust and Agency Funds OBJECTIVES: Investments of the City of Shorewood shall be in accordance with Minnesota Statutes 475.66 and this policy shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that losses on individual securities do not exceed the income within the entire portfolio. The City will seek to place all of its deposits and investments with Minnesota depositories and/or broker/dealers. A market average rate of return will be sought throughout budgetary and economic cycles. The investment strategy will take into account the constraints on risk and cash flow characteristics of the investment portfolio. All officials and employees that are part of the investment process shall seek to act responsibly as custodians of the public trust. The investment portfolio shall be designed and managed with a high degree of professionalism worthy of the public trust. The City, however, recognizes that in a diversified portfolio, occasional measured losses are inevitable and must be considered within the context of the overall portfolio's investment return, provided adequate diversification has been implemented. POOLING OF INVESTMENTS: For purposes of making the maximum amount of funds available for investment, cash assets for all City funds may be pooled in an investment account. Interest earnings are allocated among the various funds based upon their monthly cash balance. DELEGATION OF AUTHORITY: In accordance with Minnesota Statutes 471.56, the responsibility for conducting investment transactions resides with the Finance Director/Treasurer and, in the absence of the Finance Director/Treasurer, the City Administrator (hereafter called "investment officers"). The investment officers are authorized to make investments of public funds. No person may engage in an investment transaction except as provided in this policy. PRUDENCE: Investments shall be made with judgment and care. The standard of prudence, as defined by Minnesota Statutes 356A.04, meaning not for speculation and with consideration of the probable safety of the capital as well as the probable investment return, derived from assets, will be applied in all investment transactions. The investment officers, acting in accordance with this written policy and exercising due diligence, shall not be held personally responsible for a specific security's credit risk or market price changes, provided that these deviations are reported immediately and that appropriate action is taken to control adverse developments. INTERNAL CONTROLS: Internal controls are designed to prevent loss of public funds due to fraud, error, misrepresentation, unanticipated market changes or imprudent actions. Before the City of Shorewood invests any surplus funds, an analysis of possible investments shall be conducted. If a specific maturity date is required, either for cash flow purposes or for conformance to maturity guidelines, quotations will be requested for instruments which meet the maturity requirement. If no specific maturity is required, an analysis of various options will be conducted to determine which maturities would be most advantageous. Quotations will be requested from financial institutions for various options with regards to term and instrument. The City of Shorewood will accept the option which provides the highest rate of return within the maturity required and within the limits of these policies. The investment officer shall generate monthly reports which will include data on investment instruments being held by the City. The investment portfolio shall be reviewed by the City Council on a quarterly basis. Investment records of the City shall be reviewed by independent auditors as part of the City's annual audit for compliance with state statutes and this policy. ETHICS AND CONFLICTS OF INTEREST: Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the investment program, or which could reasonably cause others to question or doubt their ability to make impartial investment decisions. PARTICULAR PROVISIONS OR RESTRICTIONS: In selecting depositories, the credit worthiness of the institution shall be considered and the investment officers shall conduct a comprehensive review of prospective depository credit, characteristics, services available, and financial history. Selection will be in accordance with Minnesota Statutes 118.005 and 118.01 Before engaging in investment transactions with the City of Shorewood, the supervising officer at the securities broker/dealer shall submit a certification. The document will state that the officer has reviewed the investment policies and objectives, as well as applicable state law, and agrees to disclose potential conflicts of interest or risk to public funds that might arise out of business transactions between the firm and the City of Shorewood. All financial institutions shall agree to undertake reasonable efforts to preclude imprudent transactions involving the City of Shorewood's funds. INSTRUMENTS: The City of Shorewood will only invest in instruments which are in accordance with Minnesota Statutes 475.66. Investment is allowable in any mortgage derivative product which is not "high risk" per Minnesota Statutes 475.66. Documentation of such compliance with at least the results of three separate independent statutory "impact99 2 tests all of which indicate that the security is not "high risk" is required. Test results will be kept on file for audit purposes. At the time of purchase of any mortgage or mortgage related security, the investment officer will obtain documentation of compliance with this policy. CUSTODIAL RISK: The investment officer shall structure all investments, deposits, and repurchase agreements so that the custodial risk is at all times in category # 1 or # 2 under GASB Statement # 3. All investments are placed in safekeeping at financial institutions. DIVERSIFICATION/MATURITIES: It is the policy of the City of Shorewood to diversify its investment portfolio to eliminate the risk of loss resulting from over- concentration of assets in a specific maturity, a specific issuer or a specific class of securities. The maturities selected shall provide for stability of income and reasonable liquidity.