|Policy Name:||Investment Policy|
|Review Next:||August 2014|
The Texas Woman's University
This investment policy covers all Texas Woman's University funds and funds held by the University for others excluding endowment funds. The University's endowment funds are covered by the Texas Woman's University Endowment Investment and Distribution Policy.
The Public Funds Investment Act of the State of Texas (Texas Gov't Code 2256) requires the governing body of Texas Woman's University to adopt a written investment policy and strategy, review the policy and strategy not less than annually, appoint an Investment Officer, and adopt internal controls to safeguard the University's funds. The Public Funds Collateral Act (Texas Gov't Code 2257) sets the standards for collateralization of public funds in Texas.
It is the policy of Texas Woman's University to invest its funds primarily in instruments that emphasize the safety of the capital as well as the expected return on the investment. Investment decisions are based on the overall investment strategy of the University rather than the performance of any single investment instrument. The investment policy is governed by the following objectives:
The investment instruments provide a measure of safety that protects the original principal contribution. The primary aim of the investment is the avoidance of the loss of original investment.
The investment instruments provide the necessary liquidity to meet the University's daily operating and planned capital improvement needs, which might be reasonably anticipated.
The investment portfolio will be designed to provide an average yield equal to or greater than the yield on U. S. Treasury securities of comparable maturity to its maximum weighted average maturity. The objective is to maintain a reasonable rate of return on investments through budgetary and economic cycles in line with the University's investment risk constraints and cash flow needs.
Standard of Care
Investments shall be made with judgment and care, under circumstances then prevailing, that a person of prudence, discretion and intelligence would exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived.
The investment strategy includes a portfolio of funds designed to meet the short-term, intermediate-term, and the long-term cash needs of the University yielding a reasonable market return. Adequate diversification of the high credit quality investment instruments is necessary to preserve principal from unnecessary risk of loss. The marketability of investment instruments and staggered maturity dates ensure the liquidity of funds needed to meet the cash needs of the University. This investment strategy applies to all fund groups. In order to meet these goals, the maximum weighted average maturity of the overall portfolio will not exceed five years.
Authorized investment instruments include:
- Obligations of the United States or its agencies and instrumentalities, with a maximum stated maturity of ten (10) years;
- Direct obligations of the State of Texas or its agencies and instrumentalities, with a maximum stated maturity of ten (10) years;
- Collateralized mortgage obligations directly issued by a federal agency or instrumentality and secured by an agency of the United States, with a maximum stated maturity of ten (10) years; excluding:
Interest-only strips ("IO's") and principal-only strips ("PO's") with underlying mortgage-backed security collateral;
Inverse floating collateralized mortgage obligations (CMO's) with interest rates determined by an index which adjusts inversely to the market index;
- Other obligations whose principal and interest are unconditionally backed by the full faith and credit of the State of Texas or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States and with maximum stated maturities of ten (10) years;
- Obligations of states, agencies, counties, cities, and other political subdivisions rated as A or its equivalent by a nationally recognized investment rating firm with maximum stated maturities of ten (10) years;
- Certificates of deposit or share certificates issued by a depository institution that has its main office or a branch in the State of Texas and insured by the Federal Deposit Insurance Corporation, or its successor or the National Credit Union Share Insurance Fund or its successor, or is secured at 102% market value by securities listed as A-E above. Collateral will be held in an independent third party custodian approved by the University.
In addition, certificates of deposit may be purchased by a broker or depository institution that has its main office or a branch in the State of Texas. The broker must be selected and appointed by the University from a list authorized by the Board of Regents or designated investment committee of the University. This list of authorized broker dealers shall be updated no less frequently than annually by the Board of Regents or designated investment committee of the University. The broker or depository institution selected must arrange for the deposit of funds in certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of the University. The full amount of the principal and accrued interest of each of the certificates must be insured by the United States or an instrumentality of the United States. With respect to the certificates of deposit issued for the account of Texas Woman's University, the University shall appoint the depository institution or a clearing broker-dealer registered with the Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 (17 C.F.R Section 240.15c3-3) as custodian for the University;
- Fully collateralized repurchase agreements that have a defined termination date not to exceed three (3) years, and are secured by a combination of cash and/or obligations (including letters of credit) of the United States or its agencies and instrumentalities. Repurchase agreements must be purchased through a primary government securities dealer, as defined by the Federal Reserve, or any financial institution doing business in the State of Texas and executed under a Master Repurchase Agreement. Additionally, the cash or securities purchased must represent 102% in market value and be held in the University's name and deposited with a third party or the University. Repurchase agreements are defined as a simultaneous agreement to buy, held for a specified time, and sold back at a future defined date. The market value of the securities, at the time the funds are disbursed, must not be less than the principal amount of the funds disbursed.
Repurchase agreements include direct security repurchase agreements and reverse security repurchase agreements. The term of a reverse security agreement is limited to a maximum of 90 days. Money received under the terms of a reverse repurchase agreement must be used to purchase additional authorized investments. The term of those investments must not be later than the expiration date of the reverse repurchase agreement;
- Bankers' acceptances that meet the following criteria. The acceptance has a maturity date of 270 days or less from the issuance date. The acceptance is liquidated in full at maturity. It is eligible for use as collateral for borrowing from a Federal Reserve Bank. It is accepted by a bank organized under the laws of the United States or any state. The short term obligations of the bank or its largest subsidiary, if a bank holding company, are rated A-1 or P-1 by at least one nationally recognized credit rating agency;
- Commercial paper with a maturity date of 270 days or less from the issuance date and is rated A-1 or P-1 by both Moody's and Standard and Poor's;
- Money market funds which are registered with and regulated by the Securities and Exchange Commission (SEC), provides the University with a prospectus and other information required by the Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.) or the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), have a dollar weighted average stated maturity of 90 days or less, and have an investment objective of a stable asset value of one dollar for each share. No-load money market mutual funds may not represent more than 80 percent of the University's investment fund, excluding bond proceeds and reserves and other funds held for debt service;
- Mutual funds which are registered with the SEC, have a dollar weighted average stated maturity of less than two years, are invested exclusively in obligations approved by the Texas Public Funds Investment Act, are rated not less than AAA or its equivalent, and conform to the requirements of eligibility of investment pools under the Act. Bond proceeds and reserves may not exceed more than 15 percent of the University's monthly average fund balance excluding bond proceeds and reserves and other funds held for debt service. The University investment may not exceed 10 percent of the total assets of the mutual fund;
- Guaranteed Investment Contracts for bond proceeds, if the guaranteed investment contract: 1) has a defined termination date; 2) is secured by obligations of the United States or its agencies or instrumentalities in an amount at least equal to 102% market value of the amount of bond proceeds invested under the contract; and 3) is pledged to the University and deposited with the University or with a third party selected and approved by the University.
Bond proceeds, other than bond proceeds representing reserves and funds maintained for debt service purposes, may not be invested in a guaranteed investment contract with a term of longer than five years from the date of issuance of the bonds. To be eligible as an authorized investment: 1 ) the Board of Regents of the University must specifically authorize guaranteed investment contacts as an eligible investment in the order, ordinance or resolution authorizing the issuance on bonds; 2) the University must receive bids from at least three separate providers with no material financial interest in the bonds from which the proceeds were received; 3) the University must purchase the highest yielding guaranteed investment contract for which a qualifying bid is received; 4) the price of the guaranteed investment contract must take into account the reasonable expected drawdown schedule for the bond proceeds to be invested; and 5) the provider must certify the administrative costs reasonably expected to be paid to third parties in connection with the guaranteed investment contract;
- Investment pools that are an entity created to invest public funds jointly on behalf of the entities that participate in the pool. The investment pool must invest in instruments that are authorized under the Act, meet the disclosure and reporting requirements of the Act and calculate yield according to the rules and regulations governing open-end management companies under the Investment Company Act of 1940. Public fund investment pools that function as a money market mutual fund must mark their investment portfolio to market on a daily basis. The fund must also sell its holdings so as to maintain a ratio of between 0.995 and 1.005. Investment pools are required to establish advisory boards composed of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise. In the case of public fund investment pools, created under Chapter 791, Texas Government Code, and managed by a state agency, the Board participants must be qualified to advise the investment pool and be composed equally of participants in the pool and persons having no business relationship with the pool. A public fund investment pool must be (continuously) rated AAA or AAA-m or at an equivalent rating by at least one nationally recognized rating service;
- Cash management and fixed income funds sponsored by organizations exempt from income tax under Section 501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501 (f));
- Corporate bonds, debentures, or similar debt obligations rated by either Moody's (and) or Standard and Poor's in one of the two higher long-term rating categories without regard to gradations within those categories.
All investment transactions must comply with the policies and procedures established in this policy. Cash is invested so that un-invested cash, which earns little or no interest, is minimized.
A security purchased by the University shall be delivered to the custodial bank selected by the University. The delivery shall be made under normal and recognized practices in the securities and banking industries, including the book entry procedure of the Federal Reserve Bank. Settlement of all investment transactions, except investment pools and mutual funds, must be on a delivery versus payment basis.
Ratings of applicable investments will be monitored on a monthly basis through the custodian, nationally recognized credit rating agencies or other means. If a rating drops below the established minimum of this policy, the Investment Officer, the Vice President for Finance and Administration and the University's Investment Manager will review the investment and make a decision regarding the liquidation of that investment.
Investments that were authorized at the time of purchase and are now prohibited investments need not be liquidated before their stated final maturity date.
Securities donated to the University, including stocks, will not be governed by this policy but will be reported as part of the overall portfolio.
The weighted average maturity of the entire portfolio shall be maintained at no more than five years calculated on stated maturity and book value basis.
The performance of the overall diversified portfolio shall be benchmarked against the Merrill Lynch (AA-rated or higher) Intermediate Government/Credit Index.
Investments shall be diversified to minimize the risk of loss resulting from unauthorized concentration of assets in a specific maturity, specific issuer, or specific class of securities. Investment ranges and investment policy limitations without regard to collateralized mortgage obligations acquired prior to September 1, 1995, gifts of stocks to the University, and guaranteed investment contracts are as follows:
Category Maximum U.S. Treasury Securities and securities having principal and interest guaranteed by the U.S. Government 100% U.S. Government agencies, instrumentalities and government-sponsored enterprises (excluding mortgage-backed securities) 50% Federal Agency Mortgage-backed Securities 35% Fully-insured or Collateralized Certificates of Deposit 25% Bankers' Acceptances 25% Commercial Paper 25% Repurchase Agreements 25% No-load Mutual Funds 20% Approved Investment Pools 75% Cash Management and Fixed Income Funds sponsored by organizations exempt from income tax under Section 501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f)) 50% Corporate Bonds 50%
On a book-value basis, no more than five percent of the portfolio can be invested in any one company and no more than twenty percent of the portfolio can be invested in any one industry, as defined by Standard and Poor's broad categories.
Board, VPFA and Investment Officer Responsibility
The Board delegates authority to the Vice President for Finance and Administration to manage Texas Woman's University's investment portfolio. The Vice President for Finance and Administration will appoint the Investment Officer for the University and may acquire the services of an investment management firm. The authority to deposit, withdraw, invest, transfer, or manage the University's investment portfolio is effective until rescinded or until the termination of the Investment Officer's employment. The VPFA and Investment Officer shall attend training not less than once each state fiscal biennium. The Investment Officer shall prepare a report on changes in the Public Funds Act for the Board within 180 days of the end of each regular session of the Legislature.
The University's designated Investment Officer will initiate and administrate a process for the selection by the Board of a qualified firm to serve as Investment Manager. The Process will solicit proposals from firms that are qualified by the Securities and Exchange Commission under the U.S. Investment Advisors Act of 1940. This qualification provides assurance that the firm chosen to serve as investment manager does compliance with Texas Government Code Section 2256.005 (b)(3) concerning the quality and capability of investment management. The term of the contract with an investment management firm shall be two years, and may provide for two additional one-year extensions to the original term.
The VPFA and the Investment Officer must disclose to the Texas Ethics Commission and the Board any personal business or family relationship with any business organization offering to engage in an investment transaction with the University. Any relationship that conflicts with or impairs judgment concerning the investment portfolio must be reported. Relationships such as ownership of ten percent or more of the voting stock or shares of the business organization or ownership of $5,000 or more of the market value of the business organization, or funds received by the VPFA or Investment Officer from the business organization exceed ten percent of the VPFA or Investment Officer's gross income for the previous year, or the VPFA or Investment Officer has acquired from the business organization during the previous year investments with a book value of $2,500 or more for the personal account of the VPFA or Investment Officer are considered reportable relationships. Family relationships within the second degree by affinity or consanguinity, as defined under Chapter 573, require disclosure.
The Investment Officer will not be held personally liable for fluctuations in market value or loss on the portfolio if this Policy and all procedures are followed.
Each member of the Board shall receive, not less than quarterly, reports that describe investment activity and changes in market value of all investments. The Board shall review the annual compliance audit of management's controls for investments and adherence to investment policy.
The Board shall review and approve, not less than annually, its Investment Policy and strategy.
It is the responsibility of the Investment Officer in conjunction with the investment management firm to manage the University's investment portfolio in the manner outlined in this policy. The Investment Officer may establish procedures to conduct the transactions necessary to perform their duties and provide records of the transactions.
The Investment Officer in conjunction with the investment management firm must prepare and submit signed quarterly reports to the Board, the President, and the Vice President for Finance and Administration that include:
A detailed description of the investment position of the University,
A summary statement of each pooled fund group which includes the beginning market value, ending market value, and the fully accrued interest for the reporting period,
The book value and market value of each separately invested asset at the end of the reporting period by type of asset and fund type invested,
Maturity date of each separately invested asset,
Statement of compliance with the investment policy and strategy,
Statement of account and fund group or pooled fund group for each investment acquired.
The prices used for establishing market value on the portfolio will be obtained or verified from an independent source.
If investments are made in other than money market mutual funds, investment pools or accounts offered by its depository bank in the form of certificates of deposit, or money market accounts or similar accounts, the reports shall be formally reviewed at least every two years by an independent auditor, and the result of the review shall be reported to the Board by that auditor.
Information on each broker/dealer with which the University transacts business will be maintained by the University or the investment manager. The Investment Officer may not engage in an investment transaction with a business organization unless a qualified representative of the business organization submits a written instrument stating that:
A qualified representative has received and reviewed the University's investment policy and;
The business organization has implemented reasonable procedures and controls to preclude investment transactions conducted between the University and organization that are not authorized by the University's investment policy.
The Board or the designated investment committee of the University shall, at least annually, review, revise and adopt a list of qualified brokers that are authorized to engage in investment transactions with the University.
The Investment Officer is responsible for all investment transactions undertaken and shall control access to investments through a system of controls that regulate the activities of subordinates. The Investment Officer may not establish procedures that abrogate any portion of this policy or the authorizing statute.
No person may engage in an investment transaction for the University except as provided under the terms of this policy and the procedures established by the investment officer.
page last updated 11/25/2013 10:22 AM