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Investments Procedural Directive

Definitions

For purposes of this procedural directive, “investment advisor” means an independent third party contractor who provides services to the district regarding investments.

For purposes of this procedural directive, “investment officer” means the chief financial officer and any designee the chief financial officer deems appropriate and necessary to implement a sound investment strategy.

For purposes of this procedural directive, “liquidity” refers to the ability of the district to convert portfolio assets to cash on an “as needed” basis.

Purpose of the Investment Procedural Directive

This Procedures establishes standards and guidelines for the direction, management and oversight for all of Albuquerque Public Schools (“the District”) investable funds. Funds must be invested prudently to assure preservation of principal, provide needed liquidity for daily cash requirements, and provide a market rate of return.  For purposes of the District’s Investment Policy, safety and liquidity are higher priorities than return on investment.

This Procedures is intended to be broad enough to allow the Investment Officer or authorized designee to function properly within the parameters of responsibility and authority, yet specific enough to adequately safeguard the investment assets.  This policy:

  • Sets out guidelines for the prudent management of District funds;
  • Describes realistic parameters and goals for safely investing those funds;
  • Establishes expectations for generally acceptable returns at a suitable level of risk that matches the purpose of the District's funds;
  • Provides the framework within which the Investment Officer will operate by setting out objectives, guidelines, and structure that include details on the universe of permitted investments and any restrictions of their use.

The Board reserves the right to amend this Procedures as deemed necessary

Scope

This Investment Procedural directive applies to all investment funds of the District.

General Operational Funds

  • Operating and General Funds:  to provide for expenditures and to meet daily liquidity needs of internally dedicated funds

Capital Projects and Bond Funds

  • Capital Improvement Funds:Fund dedicated to specific improvements through House Bill 33 and SB9.
  • Bond Project Funds:  To provide for specific bond projects.

Debt Service Funds

  • Debt Service Funds: Funds to address principal and interest payments. Investments should be scheduled to mature just before payment is due.

 Self-Insurance Fund:

  • Self-Insurance Funds: Funds maintained to provide for short term and long term insurance requirements.

  Other Funds:

  • Dedicated Funds may be established and invested in a manner that meets the specific objectives of the fund.

Objectives

The objective of this Investment Procedural Directive is to invest all money not immediately needed for the operations of Albuquerque Public Schools and to enhance district revenues. The objectives, in order of priority, of the investment activities will be as follows:

Legality: is imperative and shall govern the implementation of the investments in the district and this procedural directive.  New Mexico state statutes, in particular §6-10-1 et. seq. NMSA 1978 and §22-8-37 through §22-8-42 NMSA 1978, shall define the legal investment vehicles for all invested funds.  This procedural directive shall further define the parameters for the different types of funds to be invested investments by the district, as stated in the “Process” subsection of this procedural directive.

Safety: Investments shall be undertaken in a manner that seeks to ensure  preservation of capital in the overall portfolio. To obtain this objective, funds will be diversified, utilizing highly rated securities, by investing in a variety of securities and financial institutions.

Liquidity:The investment portfolio will provide liquidity sufficient to enable the District to meet all operating and capital spending requirements which might be reasonably anticipated.  

Return on Investment: The investment portfolio will be structured with the objective of attaining a market rate of return throughout budgetary and economic cycles, commensurate with the investment risk parameters, and the cash flow characteristics of the portfolio.

Standards of Care

Delegation of Authority

  • Authority to manage Albuquerque Public Schools investment program is derived from the superintendent designation of the Chief Financial Officer to serve as investment officer. The superintendent may authorize an investment advisor possessing discretionary or non-discretionary investment authority to be responsible for the investment of the district’s funds.  
  • Management responsibility for the investment program is hereby delegated to the Chief Financial Officer who shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials and their procedures in the absence of the Chief Financial Officer. No one person may engage in an investment transaction except as provided under the terms of this procedure directive established by the superintendent.
  • Daily operational responsibility for the investment program is hereby delegated to the Chief Financial Officer, who shall establish written procedures for the operation of the investment program consistent with the Investment Policy. Procedures should reference the following: safekeeping, banking contracts, repurchase agreements, wire transfer agreements, depository/custodial agreements, and a glossary of investment terms. Procedures shall also include explicit delegation of authority to individuals responsible for investment transactions.

Duties of Investment Officer

Duties of the investment officer shall include:

  • Implementation of the Investment Procedural Directive.
  • The timely deposit and safekeeping of all monies of the district.
  • Interaction with the investment advisor regarding any changes in the investment of the district’s available funds.
  • Developing and maintaining an ongoing cash management program to estimate cash balances available for the purpose of investment. 
  • Preparation of monthly investment report, via the investment advisor, which shall include:
    • schedule of investments by type, purchase date, cost, value at par, interest rate, maturity date, yield to maturity, and performance vs. benchmark.
    • current or anticipated issues or topics regarding any investment matters.
    • Review of the investment of funds quarterly with the investment advisor.

Prudence

The standard of prudence to be used by the Chief Financial Officer or any designees in the context of managing the overall portfolio is the prudent person rule which states: 

Investments will 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 in regard to speculation but in regard to the permanent disposition of the funds considering the probable income as well as the probable safety of the capital.

Ethics

It is the Procedures of Albuquerque Public Schools to conduct investment transactions in accordance with the District’s Procedures, which details the Code of Ethics for Board Members, Officers, and Employees. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and Investment Officer(s) shall disclose to the Chief Executive Officer and District Audit and Reporting Committee any material financial interests in financial institutions that conduct business with the District, and they shall also disclose any large personal financial/investment positions that could be related to the performance of the District.

Permitted Investment Instruments

Eligible investments are only those securities and deposits authorized by statute Section 22-8-40,

Direct Securities

  1. US Treasury Obligations: Direct obligations of the United States Treasury.
  2. State of New Mexico Debt Obligations: Direct obligations of the State of New Mexico.

Bank and Credit Union Deposits

  1. Certificates of Deposit: Non-negotiable Certificates of Deposit of financial institutions that are qualified public depositories and have branches within the geographical boundaries of the school district.
  2. Banks and Credit Union Deposits:  Deposits in banks that are fully FDIC insured or Qualified as a depository of public money specified in Section 6-10-16. NMSA 1978.

Investment Pools:

  1. Local Government Investment Pool:Investment Pool managed by the New Mexico State Chief Financial Officer’s Office and organized under 6-10-10.1. The average maturity of the LGIP is maintained under 60 days and invested in US treasury, US Agency and Bank Deposits.

Investment Parameters

Where this section specifies a percentage limitation for a particular security type, that percentage applies only on the date of purchase.  Credit criteria listed in this section refers to the credit rating at the time the security is purchased.  If an investment credit rating falls below the minimum rating required at the time of purchase, the Chief Financial Officer will perform a timely review and decide whether to sell or hold the investment.

Diversification for Total Portfolio

The District will diversify the investment of all funds by adhering to the constraints by issuer type in accordance with the following table:

Allowable Type Maximum % Holding Issuer % per Issue Type Backing
US Treasury Obligations 100% 100% Full Faith and Credit of US
State of New Mexico Bonds 20% 5% Full Faith and Credit of the State of New Mexico
Bank and Credit Union Issuers Maximum % Holding Issuer % per Issue Type Collateralization
Certificates of Deposit 20% 5%

100% Collateralized with US Treasury and Agency Securities including Agency Mortgage Backed Securities

Bank Collateralized Deposits 100% 75% 100% Collateralized with US Treasury and Agency Securities including Agency Mortgage Backed Securities
Investment Pools Maximum % Holding Issuer % per Issue Type Ratings
Local Government Investment Pool 50% None AAAm

 

Maximum Maturity

Maturities shall be based on a review of cash flow forecasts and specific objectives of the investment fund.  Maturities will be scheduled to meet all projected obligations.

Maturity Constraints Minimum % of Total Portfolio
Under 30 days 10%
Under 1 year 25%
Under 5 years 100%
Maturity Constraints Maximum of Total Portfolio in Year
Total Weighted Average Maturity 3.00

 

Cash Flow Management

An annual review of cash flow requirements will be conducted to ensure that liquidity balances are available to meet those needs.

Risk Management

The District shall seek to mitigate credit risk and interest rate risk.

  • Credit Risk: The District will minimize credit risk, the risk of loss due to the financial failure of the security issuer or backer by:
    • Pre-qualifying the financial institutions, broker/dealers and advisors with which the District conducts business.
    • Diversifying the investment portfolio so that potential losses on individual securities will be minimized.
    • Actively monitoring the investment portfolio holdings.
  • Interest Rate Risk: The District will minimize risk that the market value of securities in the portfolio will decline due to changes in market interest rates, by: 
    • Structuring the investment portfolio to provide enough liquidity to meet cash flow needs.
    • Maintaining a conservative duration target.
    • Structuring the portfolio to consist largely of securities with active secondary or resale market.

Prohibited Investments

  • Government Sponsored Enterprise – Agency Securities
  • Directly in Mortgage-backed securities
  • Derivative Products
  • Securities that leverage the portfolio or are used for speculation of interest rates such as reverse repurchase agreements
  • Mutual Funds
  • Equities  

Strategic Allocations by Funds

Investment strategies are developed for each fund based on the specific fund objectives, liquidity requirements, time-horizon and risk tolerance.  The strategic plans are not reactive to short-term changes in interest rates, but recognize the benefits to investment performance over a complete market cycle. The District may establish new dedicated funds to an investment strategy based on the criteria listed in the strategic allocation table.

Strategic Allocation Table by Fund Objective

 

 

Tier 1 - Liquidity

Tier II- Intermediate

Tier III - Long Term

Fund Objective

Operating, project and short term reserves that provides for daily cash flow and dedicated cash flows

Unrestricted operating excess liquidity funds and internally restricted reserves.

Internally and externally restricted funds with long time horizons.

 

 

 

 

Purpose

Daily liquidity

Provides secondary liquidity 

Fund long term liabilities

 

 

 

 

Strategy

Ensure adequate cash for operations through investing in Pool funds, Bank Deposits and short term securities. Utilize a benchmark that is consistent with the underlying assets.

Match maturities to known liabilities and match duration exposure based on interest rate risk tolerance.    Utilize an intermediate market benchmark to manage the risk and return of the portfolio.

Utilize a longer term benchmark to manage the risk and return components of the portfolio.

 

Fund Type

Strategy

Asset Allocation

 Benchmarks

Weighted Duration Target

Single Issue Maturity in Years

Operational

Tier 1&2

 Govt, Bank Deposits and LGIP

 Index 0-3 Year

 1.5 years

3

Capital Projects

Tier 1&2

 Govt, Bank Deposits and LGIP

 Index 0-3 Year

 1.5 years

3

Debt Service

Tier 1

 Govt, Bank Deposits and LGIP

 Index 0-1 Year

 6 months

1

Self-Insurance

Tier 3

 Govt ,Bank Deposits and LGIP

 Index 0-5 Year

2.25 years

5

 Safekeeping  and  Custody of Investments

Delivery Versus Payment

All trades of marketable securities will be executed (cleared and settled) on a delivery vs. payment (DVP) basis to ensure that securities are deposited in the District’s safekeeping institution prior to the release of funds.

Third Party Safekeeping

The Investment Officer shall designate all safekeeping arrangements and an agreement of the terms will be executed in writing.  The third-party custodian shall be required to provide a monthly statement to the District listing at a minimum for all securities: CUSIP, description, purchase date, maturity date, par value, market value, and book yield.

Investment Pools

The Investment Officer shall maintain information on the LGIP Pool fund:

  • A description of eligible investment securities and a written statement of investment policies and objectives,
  • A description of interest calculations and how they are distributed and how gains or losses are treated,
  • A description of how investments are safeguarded, including the settlement processes, safekeeping of securities, participant parameters, and frequency of pricing, and how the program is audited,
  • A schedule for receiving statements and investment listings,
  • A fee schedule and when and how it is assessed,
  • Whether the pool is eligible for the acceptance of bond proceeds and if it will accept such proceeds, and
  • A description of experiences of the portfolio manager(s).

Authorized Counterparties

Broker / Dealer

The Investment Officer shall maintain and review annually a list of all authorized broker/dealers that are approved to transact with the District for investment purposes.

The Investment Officer may utilize the investment advisor’s approved broker/dealer list in lieu of the District’s own approved list.  The advisor must submit the approved list to the District annually and provide updates throughout the year as they occur.  The advisor must maintain documentation of appropriate license, professional credentials and financial statements of broker/dealers on the list. 

Investment Advisers

The District may contract with an external investment adviser to assist with the management of the District’s investment portfolio in a manner that is consistent with the District’s objectives and this policy. Advisers must be registered under the Investment Advisers Act of 1940 and must act in a non-discretionary capacity, requiring approval from the District prior to all transactions.

The advisor may be authorized through the contracted agreement to open accounts on behalf of the District with the broker/dealers on the approved broker dealer list.  The District will receive documentation directly from the brokers for account verification and regulatory requirements.

 

Internal Controls and Due Diligence

Internal Controls Process

The Director of Accounting shall establish an annual process of independent review by an external auditor.  This review will examine internal controls over investment activities for compliance with policies and procedures.

Accounting Method

The District shall comply with all required legal provisions and Generally Accepted Accounting Principles (GAAP). The accounting principles are those contained in the pronouncements of authoritative bodies including but not necessarily limited to  the Governmental Accounting Standards Board (GASB)

Competitive Transactions

  • The Investment Officer shall obtain and document competitive bid information on all investments purchased or sold. Competitive bids or offers should be obtained, when possible, from at least three separate brokers/financial institutions or through the use of a nationally recognized trading platform.
  • In the instance of a security for which there is no readily available competitive bid or offering on the same specific issue, then the Investment Officer shall document quotations for comparable or alternative securities.
  • When purchasing original issue securities, no competitive offerings will be required as all dealers in the selling group offer those securities as the same original issue price. However, the Investment Officer is encouraged to document quotations on comparable securities.
  • If an Investment Adviser provides investment transaction services, the adviser must retain documentation of competitive pricing execution on each transaction and to the Investment Officer.

Reporting Requirements

Reports to the Board of Education

The chief financial officer shall report the status of district investments to the Board of Education at least quarterly.  The report shall, at a minimum, include information regarding the return on investments in the immediately preceding quarter, the stability and success of the overall investment program and the strategic plan for investments in the immediately following quarter.  The Board of Education may take action to approve, amend or deny the strategy for the next quarter.

Reporting

The Investment Officer will provide the Chief Financial Officer with monthly investment reports. Quarterly reports will be provided to the District’s Audit and Reporting Subcommittee. Included in the quarterly reports will be an executive summary, benchmark comparison, total return and duration analysis, market overview, portfolio performance analysis, interest revenue year-to-date, Procedures compliance and ongoing investment strategy guidelines.

Performance Standards

The portfolio shall be managed to obtain a fair rate of return and earnings rate that incorporates the primary objectives of protecting the District's capital and assuring adequate liquidity to meet cash flow needs. Investment portfolio performance may be tracked against a market index or a customized benchmark. The benchmark will represent the maturity structure and risk profile of the fund.

Investment Procedure Directives Adoption and Review

 

Name:                _________________________________

 

Title:                  _________________________________

 

Date:                  _________________________________

Administrative Position: Chief Financial Officer

Department Director: Executive Director of Accounting

References

Legal Cross Ref.:

  • §6-10-1 et. seq. NMSA 1978
  • §22-8-37 through §22-8-42 NMSA 1978

Board Policy Cross Ref.:

Procedural Directive Cross Ref.:

NSBA/NEPN Classification: DA

Introduced: July 19, 2011
Adopted: August 19, 2011
Reviewed: December 12, 2016
Revised: December 12, 2016

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