EL PASO COUNTY HOSPITAL POLICY: F-11
DISTRICT POLICY EFFECTIVE DATE: 04/91
LAST REVISION DATE: 11/164
INVESTMENT
POLICY
n It is the policy of El Paso County Hospital District d.b.a. University Medical Center of El Paso (EPCHD) to invest public funds in a manner which will emphasize safety of principal and liquidity; provide the highest investment return with the maximum security while meeting the daily cash flow demands of the EPCHD and conform to all state and local statutes governing the investment of public funds. The EPCHD will be in complete compliance with local law and the Texas Public Funds Investment Act (hereafter, the “Act”). The earnings from the investments will be used in a manner that best serves the public trust and interest of the EPCHD.
n The primary objectives, in priority order, of the EPCHD’s investment activities shall be:
Safety – Safety and soundness of principal is the foremost objective of the investment program. Investments of the EPCHD shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the EPCHD will diversify its investments by investing funds among a variety of securities that offer independent returns.
Liquidity – The EPCHD’s investment portfolio will remain sufficiently liquid to enable the EPCHD to meet all operating requirements, which might be reasonably anticipated.
Yield – The EPCHD’s Investment Policy shall be designed with the objective of attaining a benchmark rate of return throughout budgetary and economic cycles commensurate with the EPCHD’s investment risk constraints and the cash flow characteristics of the portfolio.
RESPONSIBLE
Board of Managers
President and Chief Executive Officer
Chief Financial Officer
Fiscal Services
POLICY REFERENCE
CP-42 Conflict of Interest Policy and Certification Form
DEFINITIONS
Benchmark – A comparative base for measuring the performance or risk tolerance of an investment portfolio. A benchmark should represent a close correlation of the level of risk and the average duration of the portfolio’s investments.
Certificate of Deposit (CD) - also called a time deposit, this is a certificate issued by a bank or thrift that indicates a specified sum of money has been deposited. A CD has a maturity date and a specified interest rate, and can be issued in any denomination. The duration can be up to five years.
Demand Deposits - Checking accounts that pay no interest and from which funds can be withdrawn upon demand.
Delivery Versus Payment - A transaction in which the buyer's payment for securities is due at the time of delivery (usually to a bank acting as agent for the buyer) upon receipt of the securities. The payment may be made by bank wire, check, or direct credit to an account.
Diversification – Dividing investment funds among a variety of securities offering independent returns.
Federal Farm Credit Bank (FFCB) – The Federal Farm Credit Bank System is the oldest of the government sponsored enterprises, created by an Act of Congress in 1916. Its mission is to provide a reliable and low cost source of funds to support agriculture in the United States. FFCB debt obligations are highly liquid and its senior debt is rated AA+.
Federal Home Loan Banks (FHLB) – The Federal Home Loan Bank was created by an act of Congress in 1932 as a system of 12 regional banks that provide funds to its member banks. FHLB’s primary mission is to support residential and community lending. Its membership of more than 8,000 financial institutions includes savings banks, commercial banks, credit unions and insurance companies active in housing finance. FHLB debt obligations are highly liquid and its senior debt is rated is AA+.
Federal Home Loan Mortgage Corporation (Freddie Mac) – Freddie Mac was created by an act of Congress in 1970 as a shareholder-owned company to further expand the secondary market for mortgage loans in the United States. Freddie Mac buys existing mortgages and pools them together to create mortgage backed securities that can then be sold to investors, thereby providing liquidity to lenders who can then make additional loans. Along with Fannie Mae, Freddie Mac was placed into government conservatorship in September 2008 but continues full operations under government control and has been instrumental in the government’s attempts to revive the housing sector. Freddie Mac securities are highly liquid and its senior debt is rated AA+
Federal National Mortgage Association (Fannie Mae) – Fannie Mae was created by an act of Congress in 1938 under the Federal National Mortgage Association Act to provide a secondary market for mortgage loans in the United States. It does this by purchasing existing home loans and pooling them together to create mortgage backed securities that can then be sold to investors, along with a guaranty of the timely payment of principal and interest on the underlying loans. Fannie Mae was privatized in 1968 and operated as a private stockholder owned company for 40 years before the housing market collapse forced them into federal government conservatorship in September 2008. Fannie Mae debt obligations are highly liquid and its senior debt is rated AA+
Investment Officer – The Chief Financial Officer (CFO) upon designation by the Board of Managers is the person responsible for the investment of EPCHD funds in accordance with this policy.
Investment Official - Any one of the following individuals who, acting under the authority of the Investment Officer, engage in investment transactions: Controller/Director of Fiscal Services, Assistant Controller or Accountant.
No-Load Mutual Fund - An open-end investment company whose shares are sold without a sales charge. There can be other distribution charges, however, such as Article 12B-1 fees. A true no-load fund has neither a sales charge nor a distribution fee.
Overnight Repurchase Agreement - A repurchase agreement with a term of one day.
Rate of Return – The total annualized income, including coupon interest as well as any amortization or accretion expressed as a percentage of original cost.
Repurchase Agreement -An agreement with a commitment by the seller (dealer) to buy a security back from the purchaser (customer) at a specified price at a designated future date. Also called a repo, it represents a collateralized short-term loan where the collateral may be a Treasury security, money market instrument, federal agency security, or mortgage-backed security. From the purchaser's (customer's) perspective, the deal is reported as a reverse repo.
Safekeeping – A service typically provided by a bank whereby investment securities are held on behalf of clients in a separate security account by the bank. All securities held in safekeeping should be registered in client name and segregated from the assets of other clients and bank assets.
U.S. Treasury Bills - Debt obligations of the U.S. Treasury with maturities of one year or less. Maturities for T-bills are usually 91 days, 182 days, or 52 weeks.
U.S. Treasury Bonds - Debt obligations of the US Treasury with maturities of 10 years or more.
U.S. Treasury Notes - Debt obligations of the US Treasury with maturities of more than 2 years but less than 10 years.
Yield – The rate of annual income on an investment, expressed as a percentage. The yields expressed in the EPCHD’s investment reports are yield-to-maturity at the time of purchase.
PROCEDURE
A. Investment of the EPCHD’s available funds shall be made within the following guidelines:
1. Scope
This Investment policy applies to all funds of the EPCHD. These funds are accounted for in the Annual Financial Audit report and include the General Fund accounts (Depository Account, Operating Account, Payroll Account, Depreciation Account, Interest and Sinking Account, Flexible Benefits), the Special Purpose Fund accounts, and the Trust and Agency Fund Accounts (Employee Health Benefit, Worker’s Compensation, Professional Liability, Bond Construction and the Agency Trust Account). The EPCHD shall adopt a separate written investment strategy for each of these funds pursuant to section 2256.005(d) of the Texas Government Code. UMC Foundation funds are governed by the separate investment policy adopted by the UMC Foundation Board, which adopts the prudent investor standards of the Uniform Prudent Management of Institutional Funds Act.
2. Prudence
Investments shall be made with judgment and care - based on best information available - which 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.
The standard of prudence to be used by the Investment Officer and investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. The Investment Officer and investment official acting in accordance with written procedures and the Investment ppolicy and exercising due diligence shall be relieved of personal responsibility for changes in an individual security’s credit risk or market price, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.
3. Delegation of Authority
Authority to manage the EPCHD’s investment program is derived from the Board of Managers and the President and Chief Executive Officer (CEO). The Board of Managers shall designate by resolution the CFO as the Investment Officer responsible for investment of EPCHD funds. The CFO shall establish written procedures for the operation of the investment program consistent with this Investment policy. Procedures should include reference to: safekeeping, wire transfer agreements, banking service contracts and collateral/ depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the CFO. The CFO shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate investment officials.
In the exercise of its powers, the Board of Managers may contract with an investment management firm registered under the Investment Advisers Act of 1940 or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control (the “Investment Advisor”). Such contract will not extend for a term beyond two years and a renewal or extension of the contract will be made by the Board of Managers by order or resolution.
4. Ethics and Conflicts of Interest
Investment Officials involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Investment officials shall disclose to the CEO and the CFO, any material financial interests in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the EPCHD, particularly with regard to the time of purchases and sales.
The CFO, as Investment Officer, shall file a statement disclosing a personal business interest in an entity, when that entity is seeking to sell an investment to the EPCHD. If the CFO is related within the second degree by affinity or consanguinity as determined under Chapter 573 of the Texas Government Code, to an individual seeking to sell an investment to the EPCHD, he/she shall file a statement disclosing the relationship. A statement required under this subsection must be filed with the Texas Ethics Commission and the Board of Managers of the EPCHD.
An investment official has a personal business relationship with a business organization if:
a. The officer or employee owns 10 percent or more of the voting stock or shares of the business organization or owns either 10 percent or $5,000 or more of the fair market value of the business organization; or
b. Funds received by the officer or employee from the business organization exceed 2% of his/her gross income for the previous year; or
c. The officer or employee holds an equitable or legal ownership in real property with a fair market value or $2,500 or more; or
d. The officer or employee has acquired from the business organization during the previous year investments with a book value of $2,500 or more for his/her personal account; or
e. The officer or employee is related in the second degree by affinity or consanguinity or affinity to someone who has a substantial interest as outlined in Sections A 4(a) through A 4(d) above.
5. Authorized Financial Dealers and Institutions
Not less than annually, the CFO, as Investment Officer, shall submit to the Board of Managers for approval a list of qualified brokers for investment transactions. The Board of Managers will receive the list 30 days prior to Board approval. The CFO may authorize investment transactions only with brokers that have been approved by the Board of Managers.
The CFO shall maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved security broker/dealers selected by credit worthiness who are authorized to provide investment services in the State of Texas. These may include “”Primary Dealers” or regional dealers that qualify under Securities & Exchange Commission Rule 15C3-1 (uniform net capital rule). No public deposit shall be made except in a qualified public depository as established by state laws.
The CFO shall issue to any person seeking to sell to the EPCHD an authorized investment a copy of this Investment policy.
All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the CFO with the following as applicable: audited financial statements, proof of Financial Industry Regulatory Authority (FINRA) certification, trading resolution, proof of state registration, completed broker/dealer questionnaire, and certification of having read the EPCHD’s Investment policy and assurance against imprudent investment activities. The investment officer may not buy any securities from a person or entity who has not delivered to the EPCHD the required certification.
An annual review of the financial condition and registrations of qualified bidders will be conducted by the CFO.
A current audited financial statement is required to be on file for each financial institution and broker/dealer in which the EPCHD invests.