PART 1: INTRODUCTION AND OBJECTIVE
This Rule provides the regulatory framework and procedural requirements applicable to the university’s investment transactions, including prudent investment of cash balances, and maximization of the efficiency of the university’s cash management system. The manager of banking, investment, and tax (investment manager) will perform investment management responsibilities outlined in this Rule. Except for non-discretionary funds defined in Part 3, the goal of the university’s investment program is to achieve a rate of return on investments at least equal to the average rate of return on the one-year U.S. Treasury bill for the reporting period, or other appropriate performance measures as determined by the senior vice president for administration and finance (SVPAF).
PART 2: PERMITTED AND PROHIBITED INVESTMENTS
A. Permitted Investments
Permitted Investments are only those securities and deposits specifically authorized by statute and not contrary to §6-10-10 and §§46-9A-1 through 46-9A-10 NMSA 1978, other investment statutes, existing bond covenants or any other externally placed The investment manager may invest cash balances not required for immediate disbursement, including non-discretionary bond proceeds, in specific types of money market accounts and in the following investments subject to acceptable underlying investment grade ratings in Part 6:
- Cash at Banks, Savings and Loan Associations or Credit Unions whose deposits are insured by an agency of the United States;
- Securities issued by the United States government;
- Securities issued or guaranteed by United States government agencies or Government Sponsored Enterprises (GSE);
- Corporate Bonds issued by corporations that are organized and operating in the United States;
- The Local Government Investment Pool;
- Securities issued by the State of New Mexico, it’s agencies, institutions, counties, municipalities, school districts, community college districts or other subdivisions of the state, or as otherwise provided by law;
- Securities issued by states other than New Mexico or governmental entities in states other than New Mexico;
- FDIC-insured Bank CD’s; or
- Repurchase agreements. Repurchase agreements involve the sale of a security combined with an agreement to repurchase the same security at a higher price at a future date.
- Repurchase agreement transactions are subject to the following restrictions:
- Transactions will be conducted only with approved dealers, the fiscal agent bank, approved counterparties under a secure lending arrangement, or the master custodial bank;
- Counterparties will have an Investment Grade Rating as provided in this rule;
- Transactions with any single counterparty will not exceed 35% of total repurchase agreements (see Part 7); and
- The maximum term of any repurchase agreement will be one (1) year.
- Securities accepted as collateral for repurchase agreements will be subject to the following additional restrictions:
- Securities placed as collateral for repurchase agreements, with maturity under ten (10) years, will be priced at 102% of market value, plus accrued income;
- Securities with a final maturity of 10 years or greater placed as collateral for repurchase agreements will be priced at 103% of market value, plus accrued income;
- Agency mortgage-backed securities placed as collateral for term repurchase agreements with a maturity longer than seven days will be priced at 105% of market value, plus accrued income;
- Term repurchase agreements with a maturity date that is longer than seven days are required to have daily pricing of collateral; and
- Only treasury and agency securities will be utilized as collateral for repurchase agreements.
- Repurchase agreement transactions are subject to the following restrictions:
B. Prohibited Investments
To provide for the safety and liquidity of funds, the following investments are prohibited:
- Short Sales;
- Whole Loan Mortgage Obligations;
- Reverse Repurchase Agreements, except under a securities lending arrangement;
- Inverse Floating Rate Notes;
- Equity Securities; or
- Swaps and Derivatives.
PART 3: NON-DISCRETIONARY FUNDS
Non-discretionary funds are externally restricted to specific types of investments. They include, but are not limited to: bond proceeds; endowments managed by the university; and other sponsored project or gift funds with specific investment requirements.
- Compliance with External Restrictions: All non-discretionary funds will be invested in compliance with accepted external
- Permitted Investment of Non-Discretionary Funds: Except as may be prohibited by law, non-discretionary funds may be invested in:
- Obligations, the interest on which is excluded from gross income of the recipient for federal tax purposes, and any other instrument which does not constitute investment property under section 148 of the Internal Revenue Code, as amended from time to time, which is rated in any of the three highest major Rating Categories by any nationally recognized rating agency; or
- Any other investment specifically permitted by bond resolution authorizing the issuance of the bonds or other securities or set forth in a resolution, escrow agreement or trust agreement, relating to the bonds or other
PART 4: INVESTMENT MANAGEMENT RESPONSIBILITIES
A. Delegation of Authority to Manage University’s Investment Program
Responsibility for the day-to-day management of the university’s investment program is delegated through the SVPAF to the treasury services department of that The manager of the treasury services department shall act as the investment manager for the university.
B. Responsibilities of Investment Manager
The investment manager shall:
- Monitor cash flow and select investments to meet anticipated cash requirements, and provide adequate liquidity to meet university obligations.
- Manage the university’s investment portfolio, including all purchases, sales and trading activities to meet the university’s portfolio objective. Portfolio management includes responsibility for timely deposit and safekeeping of all cash balances of the university, and the direct responsibility for placing specific investments with financial institutions in accordance with this
- Recommend investment guidelines to the SVPAF and designees, including recommended investment
- Present short-term and long-term investment recommendations for new monies to the associate
- Prepare a comprehensive set of reports designed to keep the SVPAF and designees fully apprised of all investment transactions and current status of the university’s investment
- Maintain a system of internal controls to guarantee the integrity and security of the university’s investment portfolio and cash
- Analyze continually the risk/reward relationships existing in the marketplace with particular emphasis given to the following factors when selecting a specific security for inclusion in the university’s portfolio:
- Relative Yield-to-Maturity: comparison of return available from alternate investments for comparable maturity
- Marketability: analysis of relative marketability of alternate investments in case of forced sale and/or possibility of future trade.
- Intermarket Yield Analysis: analyze the spread relationship between sectors of the market, g., Treasury Bill vs. Discount Notes, to take advantage of yield differentials.
- Yield Curve Analysis: analyze the slope of the yield curve to determine most attractive maturities for earning maximum return with minimum
- General Economic and Interest Rate Outlook: review and analyze current literature on interest rate projections to assist in timing transactions and selecting appropriate
PART 5: MATURITY RESTRICTIONS
- The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity).
- The investment manager will not commit any discretionary funds to maturities longer than ten (10) years from the date of purchase.
- Funds will only be committed to maturities longer than five (5) years from the date of purchase if directly related to a specific capital or other long-term project.
- Investment of non-discretionary funds will reflect maturity dates not to exceed the final maturity dates established within the funds’ restrictive purposes
- The following maturity limits shall apply to investment portfolio:
|Allowable Securities||Maturity Limits|
|Certificates of Deposit||3 years|
|Municipal Bonds||3 years|
|Repurchase Agreements||1 year|
|All other Securities||5 years|
PART 6: DIVERSIFICATION
A. Diversification Requirement
The investment manager will diversify its use of investment instruments to avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions or
B. Parameters for Investments
With regard to the Investment Type table below: 1) the university’s investment portfolio shall be structured within the parameters of the tolerance level amounts noted, and 2) with the exception of S. Treasury securities and authorized pools, and in accordance with the issuer limits, no more than 50% of the total investment portfolio will be invested in a single security type or with a single financial institution or at a single maturity.
|Investment Type||Quality Criteria||Tolerance Level Amount||Issuer Limits (within corresponding tolerance level)|
|US Treasuries||Full faith and credit of United States||100% of portfolio||Unlimited|
|U.S. Government Agencies guaranteed by full faith and credit of the U.S.||Full faith and credit of United States||100% of portfolio||Not to exceed 50%|
|U.S. Government Agencies (non-full faith and credit)||Limited to Investment Grade Ratings defined in this rule||50% of portfolio||Not to exceed 50%|
|FDIC-insured Bank CD’s||Within the current FDIC insurance limit||100% of portfolio||Within the current FDIC insurance limit|
|Corporate Bonds||Limited to Investment Grade Ratings defined in this rule||20% of portfolio||Lesser of 5% or $5M|
|Municipal Securities||Limited to Investment Grade Ratings defined in this rule||25% of portfolio||Lesser of 5% or $5M|
|Repurchase Agreements||Limited to Investment Grade Ratings defined in this rule||50% of portfolio||35% per counterparty|
C. Investment Grade Ratings
The following are the acceptable underlying Investment Grade Ratings:
|Rating Agency||Long Term||Short Term|
|Standard & Poor’s||A to AAA||A-1|
|Fitch||A to AAA||F1|
|Moody’s||A2 to Aaa||P-1|
D. Issuer Credit Rating Limits
The following are the Issuer Credit Rating limits which shall apply to investment portfolio:
|Short Term Credit Rating||A-1, P-1, F1, MIG-1 or better|
|Long Term Credit Rating||A/A2 or better|
PART 7: BOND SALE
- Bond Sale: Bonds shall not be sold prior to maturity subject to the following exceptions:
- A bond with declining credit may be sold early to minimize loss of principal.
- A bond swap that would adjust the portfolio (quality, yield, or duration) in a manner that would allow it to better fulfill the investment objectives. A bond swap is a debt swap involving the exchange of a new bond issue for similar outstanding debt.
- Liquidity needs of the portfolio require that the bond be sold.
- When a bond call is imminent and the early sale of the bond results in the bond being sold at a premium.
- Loss Recordation: In many yield pickup transactions (particularly when interest rates are rising), a book loss must be recorded at the time of the sale of the owned It is the policy of the university to charge the loss against the interest income account, recognizing that this loss will be fully recovered, and an incremental gain will be earned, over the life of the original investment.
PART 8: SAFEKEEPING AND COLLATERALIZATION
- Safekeeping Receipts: All investment securities, other than local financial institution Certificates of Deposit purchased by the university, will be held in the university’s name by a third-party custodian approved by university All transactions will be evidenced by safekeeping receipts.
- Collateralization: Deposit-type securities will be collateralized in accordance with the collateral policy of the State of New Mexico’s Board of Finance.
PART 9: AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
- Authorization of Financial Institutions and Security Broker/Dealers: The investment manager will maintain a list of financial institutions authorized to provide investment In addition, a list will be maintained of approved security broker/dealers selected by credit-worthiness. These may include primary dealers or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform, net capital rule) and a member of FINRA and SIPC.
- Annual Review of Financial Institutions and Security Broker/Dealers: An annual review of the financial condition and registrations of qualified dealers and institutions will be conducted using FINRA Broker Check services by the investment manager. A current audited financial statement is required to be on file for each financial institution and broker/dealer with which the university deposits and invests monies.
- Local Preference: The investment manager may give preference to investment with local dealers and institutions within the guidelines of this R Investment with out-of-state dealers and institutions will require prior approval of the SVPAF or designees.
PART 10: INVESTMENT POOLS AND INTEREST ALLOCATION
- Pooling of Investments and Monthly Accrual of Earnings: Except as noted below, the investments of the university (including amounts held in interest-bearing demand and time deposits) are pooled in order to determine a weighted average monthly interest earnings rate. In order to compute this rate, all such investment earnings are accrued monthly, including amortizing premiums and crediting discounts on short and long-term investments.
- Allocation of Monthly Interest Earnings: The monthly earnings on these pooled investments are allocated to various university accounts in accordance with externally mandated requirements (e.g., bond resolutions) and other internal designations. Nothing herein shall prohibit separation of bond proceeds, reserve funds, or other non-discretionary funds from the pooled investment fund. The SVPAF approves all such internal designations. The allocation is based upon the monthly cash balance in each of these university funds, with the remaining balance of the pooled earnings being allocated to the unrestricted current fund.
- Percentage of Cash Balance Invested; Discretion of SVPAF: Under this method, all of these designated university funds (other than the current unrestricted fund) will be presumed to have 100% of their cash balances invested in the pooled investment account, unless the SVPAF determines that lesser percentage is to be utilized for a given fund.
- Separation of Investment Accounts; Discretion of SVPAF: At the discretion of the SVPAF separate investment accounts may be set up at external institutions and utilized to adequately monitor the earning of certain university These separate funds are also restricted to investments that are permitted under this Rule.