Montgomery County Community College

Board Operations

Board of Trustees Policy

Purpose

It shall be the policy of the Montgomery County Community College to optimize its return through investments of its cash balances in such a way as to minimize non-invested balances and to maximize return on investments.

Policy

The primary objectives of investment activities shall be:

1. Legality—All investments shall be made in accordance with applicable laws of the Commonwealth of Pennsylvania and applicable federal laws.
2. Safety—Safety of principal shall be of highest priority. Preservation of capital in the portfolio of investments shall be achieved through the mitigation of credit risk and interest rate risk.
3. Liquidity—Investments shall remain sufficiently liquid to meet all operating requirements that are reasonably anticipated.
4. Yield—Investments shall be made with the objective of attaining a market average rate of return throughout the budgetary and economic cycles, taking into account investment risk constraints and liquidity needs. Return on investments shall be of secondary importance compared to the safety and liquidity objectives described above.
5. Diversification—Investments must be diversified to avoid incurring unreasonable risks associated with specific securities or financial institutions.

Authority

The Board of Trustees is responsible for adopting and maintaining investment policies that are consistent with the Board’s role as stewards of public dollars and the collective philosophy of the Board with respect to investment asset risk and liquidity. The College management team is responsible for the investment of operating funds under the policies established by the Board of Trustees. No person may engage in an investment transaction except as provided under the terms of the policy. Specific responsibilities include:

1. The Board will establish and maintain reasonable and consistent investment objectives, policies and guidelines which will direct the investment of the operating funds.
2. College management will prudently and diligently identify and recommend to the board qualified investment professionals, including investment management consultant(s), custodian(s), and trustee(s).
3. College management will regularly evaluate the performance of the investment managers to assure adherence to policy guidelines and monitor investment objective progress. An annual review of this performance shall be submitted for Board approval no later than ninety (90) days after adoption of the annual budget.
4. The Board will monitor the investment strategies and rates of return to ensure compliance with Board-established guidelines.

Requirements and Responsibilities of the Investment Manager

Investment managers must be a registered investment advisor under the Investment Advisors Act of 1940, or a bank. Each investment manager must acknowledge in writing its acceptance of responsibility as a fiduciary. Specific responsibilities of the investment managers include:

1. Discretionary investment management including decisions to buy, sell or hold individual securities while observing and operating within all policies, guidelines, constraints and philosophies as outlined in this statement. Any deviation requires written approval from the President or the Vice President for Finance and Administration.
2. Monthly reporting on a timely basis of account valuations and investment performance results. This report should communicate significant events that have occurred in the portfolio and what actions were taken as well as a general narrative discussing the portfolio’s activities and direction.
3. Communicating any major changes to economic outlook, investment strategy, or changes within the investment management organization, or any other factors which affect implementation of investment process or their progress toward investment objectives.
4. Complying with any legislative or regulatory states and stipulations.
5. On an annual basis, the investment provider shall be required to submit any or all of the following.
   1. audited financial statements on a quarterly, semi-annual and annual basis
   2. proof of National Association of Securities Dealers (NASD) certification
   3. proof of SEC and/or Pennsylvania Securities Commission registration
   4. proof of Commonwealth registration
   5. signed affidavit stating the funds are invested in accordance with the Board’s approved investment program
6. All investment advisors, investment service providers and investing entities are required to disclose to the Community College all situations where they have a material interest in the investment instrument recommended to the Community College.

Operational Approval Requirements

Shifts of investments to cash, cash to investment or between categories of investment of $2,000,000 or greater must be pre-approved by the Finance Committee of the Board of Trustees. In the event of an emergency or unplanned situation which requires liquidation of investment to cash in order to meet operating requirements, this liquidation may occur at the discretion of the President or the Vice President for Finance and Administration, but must be brought before the Finance Committee of the Board of Trustees for retroactive approval at the next available meeting.

Approval of Investment Agreements

All investment agreements must be approved by the Community College solicitor and the Board of Trustees prior to investment of funds. All changes to investment options and/or advisors must be approved by the Community College solicitor and the Board of Trustees.
Investment agreements must be signed by the Board Chairman, Board Secretary, and College President.

Investment Objectives and Guidelines

The College views its funds in three broad categories.

1. Short-term (Temporary) Investments – investments which have a date to maturity of twelve (12) months or less, or 397 days or less. The short-term portfolio shall be maintained at a level sufficient to fund the College’s operations plus an amount to cover an emergency. Cash flow forecasts should be maintained and updated on an ongoing basis.
2. Mid-term Investments – investments which have a date to maturity longer than short-term investments but not exceeding forty-eight (48) months in duration.
3. Long-term investments – investments which are intended to be held for a period in excess of forty-eight (48) months.

Safety of principal and liquidity are the top priorities for the investment of the College’s short and mid-term funds. Within those guidelines income optimization should be pursued. Long-term funds may be invested in a wider range of assets in order to produce higher returns while still minimizing risk to principal.

All securities shall be purchased in the name of the Community College, with the exception of all permissible pooled investments, and custody of the securities shall be specified within the investment agreements of the Community College.

Prohibited Investments

Speculative investment activity and any investments not specifically authorized within this policy are prohibited. This includes, but is not limited to, investing in asset classes such as:

• Commodities and Futures Contracts
• Private Placements
• Options
• Venture Capital
• Real estate
• Tangible personal property
• Art
• Precious metals
• Leverage
• Short sales
• Margin transactions
• Oil and Gas Payments/Drilling Partnerships
• Collateralized Mortgage Obligations (CMOs) and mortgage pass-through securities
• Letter Stocks
• Unlisted securities
• Instruments issued in any country where such investments are prohibited by local, state or federal policies

Short and Mid-Term Funds

These funds shall be invested and reinvested in the following types of instruments with qualifications as provided.

1. United States Government Securities, which includes obligations issued or guaranteed by the United States Treasury, United States Federal Agencies, and United States Government Sponsored Enterprises. At all times, at least 20% of the market value of the investment portfolio shall be invested in U.S. Government Securities including repurchase agreements
2. Repurchase Agreements
1. Such agreements shall require that underlying collateral be direct obligations of the United States Treasury, and the collateral be in the custody of the College or its agent. At all times, the market value of the collateral plus the accrued interest on the security to the date of valuation must equal at least 102% of the invested principal.
2. Reverse repurchase agreements, used to take advantage of unique market opportunities, where the relative value of securities with similar terms can be exchanged for gain only, and not to leverage the investment portfolio or speculate on interest rate directions. Proceeds of this transaction are to be reinvested in accordance with this policy.
3. Repurchase agreements and reverse repurchase agreements may be entered into only with parties having a net capital position of $50 million or more. No more than 5% of the market value of the investment portfolio may be invested with a single repurchase agreement dealer.
3. Commercial Paper, which shall mean unsecured promissory notes issued either in discount or interest-bearing form by any corporation or partnership and which must bear Moody’s Credit Service “Prime One Rating” or the equivalent by Standard and Poor’s or Fitch’s Rating Service, provided that no more than 5% of the market value of the investment portfolio shall be invested in any single direct issuer of commercial paper at any given time.
4. Certificates of Deposit and Bank Notes from commercial banks with a maturity of up to and including four years, provided that any such issuing bank shall have a Moody’s Credit Service “Prime One Rating” or the equivalent by Standard and Poor’s or Fitch’s Rating Service. No more than 5% of the market value of the investment portfolio shall be invested in any single issuer of certificates of deposit.
5. Bankers Acceptances, defined as short-term financing agreements secured by the accepting bank and the goods purchased, which shall be limited to banks whose parent companies bear a Moody’s Credit Service “Prime One Rating” or the equivalent by Standard and Poor’s or Fitch’s Rating Service, provided that no more than 5% of the total investable short-term funds shall be invested in any single issuer or guarantor of Bankers Acceptances
6. Municipal Bonds with a long-term debt rating of “Aa” or better by Moody’s Credit Service, or the equivalent rating by Standard and Poor’s. Investments in municipal bonds will not exceed 20% of the market value of the investment portfolio. No more than 5% of the market value of the investment portfolio shall be invested in any single issuer or 10% of the market value of the investment portfolio shall be exposed to a single guarantor.
7. Corporate Bonds with a long-term debt rating of “Aa” or better by Moody’s Credit Service, or the equivalent rating by Standard and Poor’s. The total of corporate bonds shall not exceed 20% of the market value of the investment portfolio.

In all securities types, variable rate notes are allowed. The interest rate on the notes must be reset at least annually. The interest rate must be based on a well-known, readily published, generally accepted index such as the London Inter Bank Offer Rate (LIBOR), U.S. Treasury Bills, or Fed Funds. The interest rate must be directly related to the index, not leveraged, deleveraged or inversely related.

Long-Term Funds

The investment objective for long-term funds is to produce a higher rate of return than on short and mid-term funds while still minimizing risk to principal. In addition to the investments outlined above, long-term funds may be invested in:

1. Corporate equities in American companies which have at least 5,000,000 shares outstanding and at least $100,000,000 in equity market value

Equity holdings are restricted to corporations listed on the New York Stock Exchange, the American Stock Exchange and the NASDAQ National Market or exchange-traded mutual funds. At no time can equities comprise more than 20% of the market value of the long-term funds.

Disclosure

Designated board officers and employees involved in the investment process of the Community College shall disclose any personal business activity that could conflict with the proper execution and management of the investment program or could impair their ability to make impartial decisions.

An investment advisor, broker/dealer, depository institution or underwriter engaged to provide a service to the Community College may not own or receive compensation from an entity which is providing an instrument to the Community College unless such relationship has been disclosed in writing to the Community College.

Audit

The Board of Trustees requires that all investment records be subject to annual audit by the independent auditors of the Community College. In addition, the Community College shall perform an audit of the established investment policy of the Community College and its compliance with the laws relevant to investments.

The audit shall include, but not be limited to, independent verification of all investments and corresponding collateral, and of amounts and records of all transactions as deemed necessary by the independent auditors.

It shall be the responsibility of the investment advisor, investment service provider and/or investing entity to maintain the necessary documents to permit independent audit of the investments of the Community College.

Investment Agreements

All investment agreements must be approved by the Community College solicitor and Board of Trustees prior to investment of funds.

All new investment options and/or advisors must be approved by the Community College solicitor and Board of Trustees.

All investment agreements must be signed by the Board Secretary and the President of the College.