____________________________________________________________________
FISCAL MANAGEMENT OPERATIONS GUIDE
Institutional Funds Investment Policy
The objective of the Institutional Funds Investment Program is to maximize investment yield consistent with the preservation of principal, the maintenance of adequate liquidity, and the maximization of earnings from the full investment of all funds. Investments shall be diversified among the two system authorized investment categories.
Delegation of Authority:
The Investment Officer (Business Manager) shall have the authority to purchase or to sell among the two approved investment categories as established by this policy. In the absence of the Investment Officer, the Director of Accounting or the Associate Vice President for Financial Affairs have the authority to approve the purchase or selling of any of these investments.
Office of Primary Responsibility
The Vice President for Business Affairs.
Implemented Authorized Investments
UT System Institutions have two alternatives for operating reserves, the Short Term Fund (STF) and the Intermediate Term Fund (ITF). Eligible Institutions with at least $5 million of Non-Endowment Funds on the last day of a calendar month and a current financial condition rating from the System Administration Office of the Controller of “Watch” or better will invest in the ITF pursuant to the U.T. System Allocation Policy for Non-Endowment Funds (“Allocation Policy”). The target allocation of each eligible Institution’s allocation for the operating reserves is 10% in the STF and 90% in the ITF, with an allocation range of 5%-15% STF. The Allocation Policy sets forth the asset allocation guidelines for operating reserves and is intended to ensure that sufficient liquidity is available at all times to meet the needs of the Institutions and System Administration, while ensuring that all funds not needed for short-term liquidity purposes are invested with an appropriate time horizon to enhance the total return of the operating funds.
STF Investment Guidelines
The STF must be invested at all times in strict compliance with applicable law.
Investment guidelines include the following:
General
· All investments will be U.S. dollar denominated assets.
· Investment policies of any unaffiliated liquid investment fund must be reviewed and approved by the chief investment officer prior to investment of STF assets in such liquid investment fund.
· No securities may be purchased or held which would jeopardize the STF’s tax-exempt status.
· No investment strategy or program may purchase securities on margin or use leverage unless specifically authorized by the UTIMCO Board.
· No investment strategy or program employing short sales may be made unless specifically authorized by the UTIMCO Board.
Cash and Cash Equivalents
Holdings of cash and cash equivalents may include the following:
· Unaffiliated liquid (Money Market Funds) investment funds rated AAAM by Standard & Poor’s Corporation.
· Commercial paper, negotiable certificates of deposit, and Bankers’ Acceptances must be rated at least A-1 by Standard & Poor’s Corporation and P-1 by Moody’s Investors Service, Inc.
· Floating rate securities, if they meet the single security duration criteria and are based on a spread over or under a well known index such as LIBOR or a Constant Maturity Treasury index. No internally leveraged floating rate securities are permitted (i.e., a coupon equivalent to a formula that creates a multiplier of an index value). The following types of floating rate securities are not eligible for investment; inverse floaters, non-money market based floaters, interest only or principal only floaters, non-dollar based floaters, and range note floaters.
· Repurchase agreements and reverse repurchase agreements must be transacted with a dealer that is approved by UTIMCO and selected by the Federal Reserve Bank as a Primary Dealer in U.S. Treasury securities and rated A-1 or P-1 or the equivalent.
- Each approved counterparty shall execute the Standard Public Securities Association (PSA) Master repurchase agreement with UTIMCO.
- Eligible Collateral Securities for repurchase agreements are limited to U.S. Treasury securities and U.S. Government Agency securities with a maturity of not more than 10 years.
- The maturity for a repurchase agreement may be from one day to two weeks.
- The value of all collateral shall be maintained at 102% of the notional value of the repurchase agreement, valued daily.
- All collateral shall be delivered to the STF custodian bank. Tri-party collateral arrangements are not permitted.
- The aggregate amount of repurchase agreements with maturities greater than seven calendar days may not exceed 10% of the STF’s total assets.
- Overnight repurchase agreements may not exceed 50% of the STF’s total assets.
ITF Investment Objectives
The ITF consists of intermediate and long-term funds held by the U. T. System Board of Regents, as a fiduciary, for the benefit of U. T. System institutions, U. T. System Administration, and other affiliated funds. ITF assets are pooled for efficient investment purposes and managed by UTIMCO over the intermediate to longer term.
The primary investment objective of the ITF is to preserve the purchasing power
of ITF assets by earning a compound annualized return over rolling three-year
periods, net of all direct and allocated expenses, of at least inflation as
measured by the Consumer Price Index (CPI-U) plus 3%. The ITF’s success in
meeting this objective depends upon its ability to generate higher returns in
periods of low inflation that will offset lower returns generated in years when
the capital markets under-perform the rate of inflation.
The secondary ITF objective is to generate a return, net of all direct and allocated expenses, measured monthly by the independent custodian and reported at least quarterly, in excess of the approved Policy Portfolio benchmark over rolling three-year periods. The Policy Portfolio benchmark will be maintained by UTIMCO and will be comprised of a blend of asset class indices reported by the independent custodian and weighted to reflect ITF’s approved asset allocation policy targets as defined in Exhibit A.
Limiting factors are that prudent diversification within each approved asset class must be maintained at all times; and a portfolio risk profile within the approved Policy Portfolio risk range, as defined in Exhibit A and measured at least monthly by UTIMCO’s risk model, must be sustained at all times. Liquidity of the ITF will be governed by the Liquidity Policy, overseen by the Risk Committee of the UTIMCO Board.
ITF return, asset allocation, and risk targets are subject to adjustment from time to time by the U. T. System Board of Regents.
Investment Management
Investment decisions and compliance with policy are the responsibility of the Chief Business Officer, which is delegated to the Investment Officer (Business Manager) specifically; the Business Manager shall have discretionary investment authority for investments in the two approved UT System investment options.
Investment Committee
The Institution's ongoing investment strategy and planning is developed through an Investment Committee. This Investment Committee consists of:
This committee meets periodically to review portfolio status and to discuss current and future cash asset management and investment objectives. These meetings culminate in a general plan which is to be followed up by the Investment Officer regarding liquidity, risk, and portfolio structure. Investment Committee meetings are periodically attended by the Chief Business Officer.
Reporting Requirements
The Investment Officer shall generate monthly reports for management purposes which will include information on maturity structure, average yields, and portfolio changes from the prior period. The Cash Manager is responsible for transmitting all necessary information to the Office of Asset Management in order to permit periodic reporting by System Administration to the Board of Regents.
Standard of Care
Investments should be made with judgment and care, under circumstances then prevailing, that persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.
Background
The investment of funds of or under the control of the Institution is governed by:
This policy is written in compliance with section 5 of the Public Funds Investment Act of 1987 which requires that investments be made in accordance with written policies approved by the governing body of an institution of higher education.