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TOWN OF AMHERST POLICY
NUMBER 03600-01
PAGE 1 of 9
DEPARTMENT:
CORPORATE SERVICES
TITLE:
Investment Policy
Minutes reference date:
29 March 2016
1.
POLICY STATEMENT
The Policy of the Town of Amherst is to invest excess and reserve funds in a way that
preserves capital, ensures liquidity, and provides for investment income. All investment
activity will conform to legislative requirements of the Province of Nova Scotia and this
Investment Policy will account for the cash flow requirements of the Town of Amherst.
This Investment Policy applies to activities of the Town of Amherst with regard to investing
cash as it becomes available.
2.
PURPOSE
The purpose of this policy is to guide the investment of the Town of Amherst assets by:
- establishing a clear understanding of the investment goals and objectives of the
Town of Amherst;
- offering guidance and limitations for the investment of municipal assets; and
- ensuring the integrity of the investment management process when investing public
funds.
This policy governs the investment of surplus funds of the Town of Amherst, while funds
held in trust or escrow to complete a transaction or settlement are subject to the Municipal
Government Act.
3.
AUTHORITY
Section 100(1) of the Municipal Government Act provides the Town of Amherst with the
authority to invest funds in a sinking fund, capital reserve fund, utility depreciation fund, or
other fund of the municipality. The Investment Policy has been adopted by the Town of
Amherst pursuant to Section 100(1)(b) of the Municipal Government Act.
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Investment Policy
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4.
OBJECTIVES
The four objectives of the Investment Policy, stated in order of importance, are as follows:
a) Legality
The Municipal Government Act, 1998, c.18, s.100, and the Investment Policy shall
govern all of the Town of Amherst investments.
Investment activity will be conducted in accordance with all Provincial legislation
and regulations and in accordance with the Investment Policy.
b) Preservation of Capital
The investment of funds on behalf of the Town of Amherst shall be conducted in a
manner that preserves capital in the portfolio. This policy prohibits the purchase of
investments which are determined to be inconsistent with the objective of
preserving and protecting capital.
When assessing the suitability of an investment, greater emphasis shall be placed
on the preservation of capital than on liquidity or investment returns.
c) Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating or cash
flow requirements and eliminate the need for temporary borrowing. This shall be
accomplished where possible by structuring investment maturities with anticipated
cash demands, and has the ability to readily converted to cash with minimal price
impact to meet unanticipated cash requirements.
d) Competitive Return on Investments
The investment portfolio shall be designed with the objective of attaining a
competitive and reasonable market rate of return in the context of financial market
conditions prevailing in Canada. Maintaining a return on investment is secondary
in importance to legality, preservation of capital, and liquidity requirements.
5.
STANDARDS OF CARE
a) Prudence
Investments shall be made with judgement and care, under circumstances then
prevailing, which a person of prudence, discretion and intelligence exercises in the
management of their personal investments, considering the necessity of capital
safety and liquidity.
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The standard to be used by investment officials shall be the "prudent person" as
outlined in the Trustee Act, PNS R.S., C497, and shall be applied in the context of
managing the portfolio.
b) Ethics and Conflict of Interest
A conflict of interest occurs when an individual has a private or personal interest
sufficient to appear to influence the objective exercise of their official duties as an
investment officer or employee of the Town of Amherst.
Investment officers and employees shall refrain from personal business activity that
may conflict, or have the appearance of conflict, with the proper execution of the
investment program, or which could impair their ability to make investment
decisions.
Conflicts of interest shall be disclosed immediately to the employee's superiors who
in turn shall notify the Treasurer. Any conflicts of interest noted by the Treasurer
shall be disclosed to the Chief Administrative Officer. A party with a conflict of
interest shall abstain from decision making with respect to the area of conflict. The
Treasurer shall maintain a written record of the conflict.
c) Delegation and Authority
The Council of the Town of Amherst shall be responsible for the approval of the
Investment Policy. Overall management of the portfolio shall be delegated to the
Audit Committee. The Audit Committee may delegate investment decisions to a
professional investment manager/advisor, with such appointment to be approved
by Council. The Audit Committee is responsible for:
i)
the creation of and recommending amendments to the Investment Policy on
an annual basis;
ii)
monitoring the investment portfolio;
iii)
review on an annual basis the compliance of investment practices and
procedures with this policy; and
iv)
consult and give advice to the Council on matters concerning the Town of
Amherst's investments.
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d) Internal Control
The Treasurer shall develop and maintain all operating procedures for the control
and management of investment functions. Such internal controls shall provide
reasonable assurance that the Town of Amherst investments are properly managed
and adequately protected from theft and fraud.
The Treasurer shall generate quarterly reports on the status of the investment
portfolio to be submitted to Council on a quarterly basis.
e) Safekeeping and Custody
Investment transactions shall be in the name of the Town of Amherst and
registered securities shall bear the name of the Town of Amherst. Transactions
entered into by the Town of Amherst shall be conducted on a delivery against
payment basis.
The Treasurer is responsible for the safekeeping of securities. The Treasurer will
ensure that accurate systems and accounts are maintained for investments. If
appropriate, the department will also ensure that an approved custodian accurately
maintains physical securities.
6. SUITABLE AND AUTHORIZED INVESTMENTS
a) Securities
The Town of Amherst may invest in securities authorized by this policy. In
accordance with the primary objectives of the Town of Amherst Investment Policy,
permissible investments are limited to high credit quality bonds, bills, Guaranteed
Investment Certificates, deposit accounts, fixed income, or debt instruments issued
by approved agencies listed in Appendix B. The Treasurer will maintain the list of
approved agencies outlined in Appendix B. For greater clarity, the investment of
Town of Amherst funds in equity investments is not authorized by this Policy.
b) Internal Borrowing
Section 451 of the Municipal Government Act authorizes the Nova Scotia Financial
Reporting and Accounting Manual (FRAM) Sections 3.14(g) and 3.16(d) to state
that the Town of Amherst Council may borrow internally from its funds to fund
capital acquisitions. A resolution of Council prescribing the terms of repayment
including interest, at a rate not less than the interest rate that the Town would pay
to borrow the funds for a similar term from another source is required.
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7. DIVERSIFICATION
The Town of Amherst shall diversify its portfolio holding to minimize investment risks,
meet cash flow needs, and achieve the optimal balance between risk and return.
Diversification may be achieved through investment type and eligible institutions.
Diversification will also be achieved by spreading investments between different time
horizons. The Treasurer will maintain the diversification requirements outlined in
Appendix A of this document.
8. INVESTMENT INCOME
Investment income shall include interest earned and dividends declared paid. In
accordance with Section 100(2) of the Municipal Government Act, income arising from
the investment of a fund is part of that fund unless otherwise provided by the Town of
Amherst Council.
9. REPORTING
The Treasurer shall record all investment transactions. Each month the Treasurer
shall assess the Town of Amherst's portfolio and generate a written report for internal
purposes that contains:
- all investment activity by class or type;
- maturity of investments;
- book value, interest rate, and income earned;
- portfolio compliance with the parameters outlined in the Investment Policy; and
- any other pertinent information deemed necessary.
Each year the Treasurer shall provide the Council of the Town of Amherst and the
Investment Committee with a report on investment activity, returns, and compliance
with the Investment Policy.
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Appendix A: Portfolio Diversification
This portfolio diversification requirement was developed through a review of various
municipal portfolios throughout Nova Scotia, Ontario, Alberta and British Columbia.
The Town of Amherst's portfolio shall be diversified in accordance with the following
requirements: see Appendix C for clarification of credit rating limits.
Issuer
Portfolio Limit *
Individual Issuer
Limit
Minimum Credit
Rating Limit
Cash and Cash
Equivalents (<1 year)
100%
Government of
Canada
100%
100%
N/A
Province of Nova
Scotia
100%
100%
N/A
Other Province of
Canada
40%
10%
R-1 (Mid)
Schedule I Banks
75%
25%
R-1 (Mid)
Schedule II Banks
10%
5%
R-1 (Mid)
Fixed Income (>1
year)
75%
Government of
Canada
100%
100%
N/A
Province of Nova
Scotia
100%
100%
N/A
Other Provinces
25%
50%
A (High)
Municipal Government
25%
5%
A (High)
Schedule I Banks
30%
15%
AA (Low)
Schedule II Banks
10%
5%
AA (Low)
*Note: Portfolio limits are calculated at the time of investment. In the event of a change in the total portfolio,
investments need not be sold to comply with the percentage maximums.
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Appendix B: Approved Investment Institutions
The Treasurer is authorized to purchase investments from the following institutions subject
to the provisions of the Investment Policy:
- the Government of Canada;
- the Province of Nova Scotia;
- the governments of other Provinces;
- Canadian municipalities or collective Canadian municipalities with a minimum credit
rating of A (High);
- Chartered banks and trust companies with a credit rating of AA (Low) or better;
- Credit unions insured by the Nova Scotia Credit Union Deposit Insurance
Corporation, up to insured amount;
- Deposits covered by the Canadian Deposit Insurance Corporation, up to insured
amount;
- Any other investments approved by the Minister of Municipal Affairs
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Appendix C: Credit Rating System
Investments with a credit rating of BBB - or higher are considered to be investment
grade whereas investments with credit ratings below BBB- are considered speculative
(junk).
Long Term Debt Credit Rating Systems
Investment Quality
Moody's
Standard and
Poor's
DBRS
Fitch
Highest Quality
Aaa
AAA
AAA
AAA
Substantial Payment
Capacity
Aa1
Aa2
Aa3
AA+
AA
AA-
AA(High)
AA(Middle)
AA(Low)
AA+
AA
AA-
High Payment Capacity
A1
A2
A3
A+
A
A-
A(High)
A(Middle)
A(Low)
A+
A
A-
Adequate Payment
Capacity
Baa1
Baa2
Baa3
BBB+
BBB
BBB-
BBB(High)
BBB(Middle)
BBB(Low)
BBB+
BBB
BBB-
Payment Capacity
Vulnerable to Adverse
Changes
Ba1
Ba2
Ba3
BB+
BB
BB-
B(High)
BB(Middle)
BB(Low)
B+
B
B-
Payment Capacity Not
Protected Against
Adverse Changes
B1
B2
B3
B+
B
B-
B(High)
B(Middle)
B(Low)
B+
B
B-
Substantial Default Risk
Caa1
Caa2
CCC+
CCC
CCC(High)
CCC(Middle)
CCC(Low)
CCC
Very High Default Risk
Caa3
Ca
CCC-
CC
C
CC(High)
CC(Middle)
CCC(Low)
CCC
In Default
C
D
D
DD
D
D
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Short Term Debt Credit Rating System
Investment
Quality
Moody's
Standard and
Poor's
DBRS
Fitch
Highest Quality
P-1
A-1
R-1(High)
F1
Good Quality
P-2
A-2
R-1(Mid)
R-1(Low
F2
Adequate Credit
Quality
P-3
A-3
R-2(High)
R-2(Mid)
R-2(Low)
F3
Payment Capacity
Vulnerable to
Adverse Changes
Not Prime
B-1
B-2
B-3
R-3
B
High Default Risk
Not Prime
C
R-4
R-5
C
Under Regulatory
Supervision
Not Prime
R
-
-
In Default
Not Prime
D
D
D