Investment Policy | City of Casey
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December 2017

Investment Policy

8.2

Definitions

Council

means Casey City Council, being a body corporate constituted as a municipal Council under the Local Government Act 1989

Councillors                 

means the individuals holding the office of a member of Casey City Council

Council officer

means the Chief Executive Officer and staff of Council appointed by the Chief Executive Officer.

   

Scope

This policy applies to investments made by Council Officers (Finance) in accordance with the requirements of Section 143 of the Local Government Act (the Act). 

Context

This policy affirms section 143 – (Investments) of the Local Government Act 1989 (as amended) and enhances the legislative requirements by providing additional guidelines in managing Council’s investment activities of its surplus funds. Council objective is to maintain the purchasing power of the surplus funds that will be required to fund projects in the future. This policy is to be read in conjunction with Section 143 – (Investments) of the Local Government Act 1989 (as amended), which sets out the requirements in relation to the Financial Institutions with whom a Council may invest.

4.1. A council may invest any money;

  • In Government securities of the Commonwealth
  • In securities guaranteed by the Government of Victoria
  • With an authorised deposit taking institution
  • With any financial institution guaranteed by the Government of Victoria
  • On deposit with an eligible money market dealer within the meaning of the Corporations Act.
  • In any other manner approved by the Minister, after consultation with the Treasurer, either generally or specifically, to be an authorised manner of investment for the purposes of this subsection.

4.2. Pursuant to section 143(f) of the Local Government Act 1989, the Minister for Local Government has approved the following manners of investment to apply generally to all councils:

  • A certificate of deposit, whether negotiable, convertible or otherwise, issued by an authorised deposit taking institution as defined by section3 of the Trustee Act 1958,
  • A bill of exchange, which, at the time of acquisition, has a maturity date of not more than 200 days, and which, if purchased for value, confers on the holder in due course, a right of recourse against an authorised deposit taking institution, as defined by section 3 of the Trustee Act 1958, as the acceptor or endorser of the bill, for an amount equal to the face value of the bill.

4.3. Investments in the Treasury Corporation of Victoria.

4.4. Investments in managed schemes, which:

  • Have a rating of AAm or a rating of AAf from Standard and Poor’s Australian Ratings,
  • Are registered under section 601EB of the Corporations law 2001 (Commonwealth), and
  • Are liquid within the meaning of section 601KA(4) of the Corporations Law 2001 (Commonwealth) and have a constitution that provides for members to withdraw from the scheme.

4.5. Fixed interest securities of an Australian Authorised Deposit taking Institution and shares listed on the Australian Stock exchange, subject to the following terms and conditions:

  • Lodged a report on financial and investment objectives and investment strategies under Section 6 of the Prudential Statement on Investment Powers of Councils, dated February 1998, and
  • Received confirmation from the Department of Treasury and Finance that the council complies with the requirements of the Prudential Statement.
  • Investments in the fixed interest securities of the other Australian States and Territories subject to these securities:

Investments must not be made directly, but only through trust vehicles managed by the Victorian Funds Management Corporation or a private sector fund manager with specialist expertise in investment.

4.6. Investments in the fixed interest securities of the other Australian States and Territories subject to these securities:

  • Being issued and guaranteed by a State or Territory Government, and
  • Having a credit rating equivalent to a Standard and Poor’s rating of AA or better.
  • All investments are to be denominated in Australian dollars

Policy

In addition to the above statutory investment directives, the following requirements are also to be met:

5.1 Council’s Own Direct Investments

  • Maximise the return on funds, taking into account the need to provide payments out of investment funds on a timely basis. Adequate funds should be retained in the current account to meet daily cash flow requirements.
  • A minimum of three quotes will be sought from approved financial institutions before investing or re-investing funds.
  • The best possible investment rate must then be used subject to limits outlined in Table 1. These limits apply at the time of investment.
  • All quoted interest rates and actions taken must be recorded.
  • An evaluation of future cash flow needs and investment strategies must be undertaken bi-monthly.
  • Based on the credit rating, the amount invested with any one financial institution should not exceed the following percentages or term to maturity of total funds invested. When placing investments, consideration should be given to the relationship between credit rating and interest rate.
  • If the credit rating of a financial institution in which Council has funds invested is downgraded so that they no longer fall within the Council’s policy guidelines, they must be divested as soon as practicable or at maturity.
  • If a different level of rating for the Short Term and Long Term rating of a financial institution is applied by one of the Rating Agencies, the lower of the ratings will be ultilised by Council in assessing the rating of that financial institution for investment purposes.
  • Council has an ongoing arrangement with Bendigo Bank to invest $3,000,000 (negotiable certificate of deposit) tied to the Narre Warren South Community Bank branch and $2,000,000 (negotiable certificate of deposit) tied to the Tooradin Community Bank branch. This arrangement will continue until otherwise advised by council.

Table 1

ShortTermRating

Long Term Rating

MaximumPercentageof Total Funds With One Financial Institution

MaximumTerm to Maturity

MaximumPercentageofTotal Investments

Standard                 

& Poor’s

Moody’s                 

Standard                 

& Poor’s

Moody’s                 

A1+

P1

AAA AA-

to

Aaa to Aa2

40%

5 years

3 years

40%

100%

A1

P1

A+ to A-

Aa3 to A1

30%

2 years

1 year

25%

60%

A2

P1 P2

to

BBB+ BBB-

to

A2 to A3                 

10%#

1 year

180 days

10%

20%

# - A 15% maximum limit will apply toBendigo and Adelaide Bank, whilst it has its current S&P Rating of A2/A-, noting the Council commitment to support the Community Bank branches in Narre Warren South and Torradin.

5.2 Council’s Investments with Fund Managers

  • Managed cash, enhanced cash funds and fixed interest funds are to have a minimum credit rating of AAm or AAf respectively, by Standard and Poor’s.
  •  
  • Limits apply to the amount of Council’s investment funds that can be invested with a fund. No one AAA rated fund should hold more than 40%, and no one AA rated fund should hold more than 30% of Council’s total amount of average funds.
  •  
  • Investment Advisors utilised by Council to select and identify recommended Managed Fund investments must be licensed by the Australian securities and Investments Commission.
  •  
  • The combined average weighted days to maturity and the overall volatility of any managed funds should be appropriate to Council’s investment objectives and long term financial plan, consistent with the guidelines provided in table 2.

Table 2

Minimum Time Horizon of Investments

 

MinimumTime

Maximum%

Type of Fund

Horizon

Total Investments

Cash (m)

0 – 90 days

0 – 100

Enhanced Cash

3 – 12 months

0 – 90

Fixed Interest (f)

3 – 5 years

0 – 25

5.3 Minimise the Costs

The offset balance of Council’s linked bank accounts, where possible, should be retained in positive Funds, unless directed by the Chief Executive officer.

5.4 Produce Reports

A quarterly report must be produced showing the breakup of investments into “at call funds”, “short term funds” (up to six months) and “managed funds), bench marking average interest rates received for each category against:

Type of Investment

Benchmark

Cash / ‘At Call’

11am Indicative Cash Rate

‘Short Term’ / Managed Funds

Bloomberg AusBond 90 Day

Bank Bill Index

Fixed Interest

Bloomberg AusBond Composite

Bond Index

The above rates can be sourced from either the curve Securities daily Rate Sheet or the Bloomberg website. 

  • A monthly report must be produced, reconciling the investments register to the general ledger.
  • A monthly report must be produced detailing the percentage exposure of the portfolio, comparing actual investments held with investment policy limits.

5.5 Accountability

An officer with delegated authority is responsible for the daily monitoring of cash and investments and for meeting the requirements of this policy.

5.6 Authority and Delegation

The Chief Financial Officer has responsibility for managing and reviewing Council’s cash balances and investment decisions in accordance with this Policy.

The Chief Financial Officer is responsible for presenting investment information to the Executive Management Team and council on a periodic basis.

Administrative updates

It is recognised that, from time to time, circumstances may change leading to the need for minor administrative changes to this document. Where an update does not materially alter this document, such a change may be made administratively. Examples include a change to the name of a Council department, a change to the name of a Federal or State Government department, and a minor update to legislation which does not have a material impact. However, any change or update which materially alters this document must be by resolution of Council.

Review

The next biennial review of this document is scheduled for completion by 28 February 2018.

Breaches

Any breaches of this policy will be reported to the Audit and Ethics Committee.

Council policy documents change from time to time and it is recommended that you consult the electronic reference copy at www.casey.vic.gov.au/policiesstrategies to ensure that you have the current version. Alternatively you may contact Customer Service on 9705 5200.