PD11 Investments

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 procedural directive 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 procedural directive, safety and liquidity are higher priorities than return on investment.

This procedural directive 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 procedural directive:

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 of Education reserves the right to amend this investment procedural directive 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
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 that 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 the 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 procedural 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 this investment procedural directive.. 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 the Investment Officer

Duties of the investment officer shall include:

Implementation of the Investments 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 that 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 procedure 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 superintendent and district Audit 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

US Treasury Obligations
Direct obligations of the United States Treasury.
US Agency Obligations
Securities issued by departments of the United States Government, which include: Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB) Federal Home Loan Mortgage Corporation (FHLMC), and Federal National Mortgage Association (FHMA).
State of New Mexico Debt Obligations
Direct obligations of the State of New Mexico.

Bank and Credit Union Deposits

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.
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 and Money Market Mutual Funds

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.
Money Market Mutual Funds (Government Only)
Shares of an open-ended diversified investment company that: a) is registered with the United States Securities and Exchange Commission; b) complies with the diversification, quality and maturity requirements of Rule 2a-7, or any successor rule, of the United States Securities and Exchange Commission applicable to money market mutual funds; and c) assesses no fees pursuant to Rule 12b-1, or any successor rule, of the United States Securities and Exchange Commission, no sales load on the purchase of shares and no contingent deferred sales charge or other similar charges, however designated, provided that the county or municipality shall not, at any time, own more than five percent of a money market mutual fund’s assets.

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
US Agency Obligations	100%	35%	Full Faith and Credit of US Government Agency
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
Money Market Mutual Funds- Government Only	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

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
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: Committee on Uniform Securities Identification Procedures (CUSIP), description, purchase date, maturity date, par value, market value, and book yield.

Investment Pools

The investment officer shall maintain information on the Local Government Investment Pool (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 who 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 Finance Committee.. 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.

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.:

Conflict of Interest

NSBA/NEPN Classification: DA

Introduced: July 19, 2011
Adopted: August 19, 2011
Reviewed: December 12, 2016
Revised: December 12, 2016
Reviewed: October 21, 2019
Revised: November 1, 2019

This page was last updated on: August 22, 2011.