Purpose Statement
This procedure identifies the legislative framework under which the Corporation of the Town of Oakville (the town), its agencies and local boards may invest surplus funds. In addition, it establishes the objectives, investment parameters, standards of care, reporting requirements and responsibilities for the prudent management of these funds and investments.
Scope
This procedure applies to all financial assets of the town, its agencies and local boards, held within funds including but not limited to:
- General funds;
- Reserves;
- Reserve funds;
- Funds held in trust with the town
Procedure
Objectives of the town’s investment program
The objectives of the investment program in order of priority are;
- Adherence to statutory requirements;
- Preservation of principal;
- Diversification of the investment portfolio;
- Maintaining liquidity; and
- Earning a competitive rate of return
Eligible Investments and Statutory Requirements
The town’s authority for engaging in investment activities is provided under Section 418(1) of the Municipal Act, 2001, as amended, which states that a municipality may invest money it does not need immediately in securities, in accordance with prescribed rules and regulations. Ontario Regulation 438/97 sets out the prescribed securities that municipalities may invest in as well as the rules for making investments, entering into related financial agreements and reporting on activities.
Investments with respect to trust funds held with the town shall also have regard for the Trustee Act and the Funeral, Burial and Cremation Services Act, 2002, and other legislation where applicable.
Investment Parameters
The portfolio aims for both diversification and near risk-free investments to ensure security of the funds. Emphasis is placed on securities offered by or unconditionally guaranteed by the government of Canada, a province of Canada, or banks listed in Schedule I of the Bank Act.
- Diversification
The town shall diversify its investments to avoid over-concentration in securities from a specific issuer, sector (excluding Government of Canada securities) or maturity date. - Maximum maturities
To the extent possible the town shall match its investments with anticipated cash flow requirements. Reserve, reserve funds and other funds with longer investment horizons may be invested in securities exceeding 10 years if the maturity of such investment is made to coincide as nearly as practicable with the expected use of funds. - Quality ratings
The town shall only invest in securities meeting the ratings prescribed by regulation under the Municipal Act, 2001, as amended. If an investment falls below the minimum rating contained herein, the town will sell the investment within 180 days after the day the investment falls below the standard. - Earning a competitive rate of return
Without compromising other objectives, the town shall maximize the rate of return earned on its portfolio by implementing an investment program being cognizant of trends including but not limited to economic events, interest rates, inflation and foreign exchange rates.
Delegation of Authority
The town’s banking by-law establishes the authority of the treasurer or an agent of the treasurer to make investments on behalf of the town. In addition, the treasurer or an agent of the treasurer is authorized to enter into agency agreements with other municipal organizations as well as arrangements with banks, investment dealers or brokers and other financial institutions for the purchase, sale, redemption, issuance, transfer and safekeeping of securities and further, to execute and sign documents on behalf of the town and perform all other related duties in the day to day operation of the investment program. For the purposes of this procedure the agent of the treasurer is the Deputy Treasurer and Director, Financial Planning. The director may further delegate responsibility for the day-to-day management of the portfolio to subordinate investment officers or employees.
Standards of Care
The standard of prudence to be used by investment officials shall be the “prudent person” standard and shall be applied in the context of managing an overall portfolio. Investment officers and employees exercising due diligence and acting in accordance with the investment policy and procedures 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 the investment policy, procedure and related legislation.
Officers and employees involved in the investment process shall refrain from 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 town.
Safekeeping and Custody
All security transactions entered into shall be conducted on a custodial banking basis. Securities will be held by a third party custodian, designated by the treasurer or agent of the treasurer and evidenced by safekeeping receipts and periodic statements of holdings.
Internal Controls
The investment program shall be subject to annual external and periodic internal audit to ensure adherence to the investment policy and procedure.
All investment purchases and sales are confirmed by signature of two signing officers of the corporation as authorized and designated by the banking by-law then in effect.
All investment transactions are recorded, in accordance with legislation, town practices, policies, and generally accepted accounting principles for Ontario municipalities.
Reporting
A statement of investment activities and results shall be prepared and reported to Council, as a component of the quarterly financial progress report that;
- Contains a statement about the performance of the investment portfolio during the period covered by the report;
- Contains a statement by the designated agent of the treasurer as to whether or not, in his or her opinion, all investments were made in accordance with the investment policy and goals of the corporation;
- If applicable, contains a description of the estimated proportion of the total investments of the town that are invested in its own long-term and short-term securities compared to the total investment of the town and a description of the change, if any, in that estimated proportion since the previous report;
- If applicable, contains a record of the date of each transaction in or disposal of its own securities, including a statement of the purchase and sale price of each security; and
- Contains such other information that the Council may require or that, in the opinion of the treasurer or designated agent of the treasurer, should be included.
If an investment made by the town is, in the treasurer’s or designated agent of the treasurer’s opinion, not consistent with the investment policies and goals adopted by the town, the treasurer shall report the inconsistency to Council within 30 days after becoming aware of it.
Responsibilities
The Deputy Treasurer and Director, Financial Planning is the designated agent of the treasurer responsible for the town’s investment program.
Authority to manage the day to day operations of the investment program is delegated to the designated agent of the treasurer. The agent may further delegate responsibility for the day-to-day management of the portfolio to subordinate investment officers or employees.
Definitions
Diversification: The division of investment funds amongst a range of security types by sector, maturity and quality rating.
Duration: The measure that accounts for all cash flows expected from a bond. It is a weighted average term-to-maturity where the cash flows are in terms of their present value. (also known as a Macaulay duration).
Interest Rate Risk: The risk associated with declines or increases in interest rates that causes an investment in a fixed-income security to increase or decrease in value.
Liquidity: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes.
Market Risk: The risk that the value of a security will rise or fall as a result of changes in market conditions.
Market Value: Current market price of a security.
Maturity: The date on which payment of a financial obligation is due. The final stated maturity is the date on which the issuer must retire a bond and pay the face value to the bondholder. See “weighted average maturity.”
Prudent Person Rule: An investment standard outlining the fiduciary responsibilities relating to the investment practices of public fund investors.
Rate of Return: The yield obtainable on a security based on its purchase price or its current market price. Yield reflects coupon, term, liquidity and credit quality.
Safekeeping: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank’s vaults for protection.
Treasury Bills: A non-interest bearing discounted security issued by the Government of Canada.
Weighted average maturity: The calculated average maturity of all securities contained within an investment portfolio, using as the weighting factor the proportionate balance of each security to the total portfolio.