BCRUA_R-10-12-15-7A RESOLUTION NO. R-10-12-15-7A
WHEREAS, the Public Funds Investment Act (Texas Government Code, Chapter 2256)
governs local government investment; and
WHEREAS, the Public Fund Investment Act (Section 2256.005a) requires the BCRUA
to adopt an investment policy and investment strategies by rule, order, ordinance or resolution
governing the investment of funds under its control; and
WHEREAS, the Public Fund Investment Act (Section 2256.005e), requires the
governing body to review and adopt that investment policy and investment strategies by rule,
order, ordinance or resolution not less than annually, recording any changes made thereto; and
WHEREAS, the Board has chosen to make a change to the Policy deleting reference to
one pooled portfolio as originally envisioned and replacing it with reference to the three
portfolios created and operating for each type fund and City to separate and represent each
contributing entity's ownership.
NOW,THEREFORE,BE IT RESOLVED
That the BCRUA has complied with the requirements of the Public Funds Investment Act
and the Investment Policy and Strategy, as amended, attached hereto as Exhibit A, is hereby
adopted as the Investment Policy of the BCRUA.
The Board of Directors hereby finds and declares that written notice of the date, hour,
place and subject of the meeting at which this Resolution was adopted was posted and that such
meeting was open to the public as required by law at all times during which this Resolution and
the subject matter hereof were discussed, considered and formally acted upon, all as required by
the Open Meetings Act, Chapter 551, Texas Government Code, as amended.
ZA13CRUA\Board Packets\Packet Documents\121510\Res.BCRUA adopt Investment Policy and Strategy(00209557).DOC
RESOLVED this 15th day of December, 2010.
MITCH L R, President
Brushy Cre onal Utility Authority
TEST:
IrCowman, Secretary
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B RU S Y Cluk E-0 E K'
REGIONAL UTILITY AUTHORITY
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BRUSHY CREEK REGIONAL UTILITY AUTHORITY
INVESTMENT POLICY
Adopted
December 16_2009 Formatted:Underline,Font color:Red
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INVESTMENT POLICY
BRUSHY CREEK REGIONAL UTILITY AUTHORITY
I. Introduction
The Brushy Creek Regional Utility Authority(the"Authority')represents a partnership between the cities
of Cedar Park, Leander and Round Rock, with shared responsibility to provide reliable, cost effective
sources of water for their fast growing jurisdictions. It is the policy of the Authority that giving due
regard to the safety and risk of investment,all available funds shall be invested in conformance with the
Texas Public Funds Investment Act [Texas Government Code 2256 (the "Act's] as amended, all
applicable Bond Ordinance requirements,and this Investment Policy and its Investment Strategies.
Active cash management and dynamic investment strategy will be pursued to take advantage of market
conditions within the Authority's cash flow needs. The Authority's portfolio shall be designed and
managed in a manner responsive to the public trust and consistent with this Investment Policy.
II. Scope
This Investment Policy shall govern the investment of all financial assets of the Authority and shall
include,but not be limited to,the following funds:
• Operating Funds
• Project Construction Fund
• Escrow Funds
• Debt Service Fund
fies may be peeled into a single fund(s) for investment puFpases as long as a pooled acco~g
With the exception of orating fupds three
portfolios will be created for each type fund above to separate and represent each ccntributing_entit�s
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III. Objectives
The primary objectives for the Authority's investment activities shall be:
Safetv
The primary objective of all investment activity is the preservation of capital and the safety of principal in
the overall portfolio. Each investment transaction shall seek to ensure that capital losses are avoided,
whether from security defaults or erosion of market value.
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The Authority shall seek to control the risk of loss due to failure of a security issuer. Such risk shall be
controlled by investing only in the highest credit quality securities as defined in the Policy; by full margin
collateralization, competition on all transactions, and through portfolio diversification by maturity and
market sector.
Liggidity
The investment portfolio will remain sufficiently liquid to meet the cash flow requirements that might bea
reasonably anticipated. Liquidity shall be achieved by matching investment maturities with forecasted
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cash flow requirements; investing in securities with active secondary markets; and maintaining
appropriate portfolio diversification.
A security may be liquidated to meet anticipated cash requirements, to re-deploy cash into other '
investments expected to outperform current holdings,or otherwise to adjust the portfolio.
Diversification
The portfolio shall be diversified by maturity and market sector in an effort to minimize avoidable risk zi .. :r" •-
from over-concentration in specific security types or individual financial institutions. z
The Authority shall seek to earn a fair market yield on its investment at all times consistent with
recognized risk constraints and known cash flow characteristics. To best achieve this,the Authority shall
obtain competitive bids on all of its investments. For bond proceeds to which arbitrage restrictions apply,
the primary objectives shall be to obtain a fair market yield and to avoid negative arbitrage on such funds
within the constraints of the investment policy and applicable bond covenants.
IV. Delegation of Authority
The Authority's Board of Directors shall designate the General Manager as Investment Officer who will
assume primary responsibility for the investment of Authority funds. The Board may approve additional
persons, or a registered investment adviser, to act as investment officers but no person may engage in
an investment transaction on behalf of the Authority or control Authority funds unless designated and
formally approved as an Investment Officer by the Board.
V. Standard of Care
As per the Act,the standard of care for designated Investment Officers shall be the"prudent person rule"
and shall be applied in the context of managing the overall portfolio:
"Investments shall be made with judgment and care, under circumstances then prevailing,that a person
of prudence, discretion and intelligence would exercise in the management of their own affairs, not for F=
speculation, but for investment,considering the probable safety of capital and the probable income to be
derived." I
The designated Investment Officers shall perform their duties in accordance with the adopted Investment
Policy and internal procedures. In determining whether an Investment Officer(s)has exercised prudence
with respect to an investment decision, the investment of all funds over which the Investment Officers
had responsibility rather than the prudence of a single investment shall be considered. Investment
Officers acting in good faith and in accordance with these policies and procedures shall be relieved of
personal liability.
VI. Required Investment Training
As required by the Act,Investment Officers of the Authority must receive 10 hours of investment related
training from an independent source(s)approved by the Board within 12 months of taking office. Every
succeeding two year period, an additional 10 hours of investment education is required. Appropriate
topics to fulfill this requirement include investment controls, security risks, strategy risks, market risks, t•,
and compliance with the Act.
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VII. Internal Controls
A system of internal controls shall be established and documented in writing by the Investment Officers ... .
and must include specific procedures designed to protect against losses of funds arising from fraud,
employee error, misrepresentation by third-parties, unanticipated changes in financial markets, or
imprudent actions by employees and officers of the Authority. Controls deemed most important include:
• Separation of transaction authority from accounting, recordkeeping and electronic
transfer of funds,
■ Procedures related to banking and movement of funds.
• Procedures and documentation relating to safekeeping of securities.
• Clear delegation of authority.
• Documentation of dealer questionnaires, quotations and bids, evaluation, transactions
and rationale.
VIII. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from any personal business
activity that would conflict with the proper execution and management of the investment program or that
would impair their ability to make impartial decisions. Employees and Investment Officers shall disclose
any material interests in financial institutions with which they conduct business. They shall further
disclose any personal financial/investment positions that could be related to the performance of the
investment portfolio. Employees and officers shall refrain from undertaking personal investment
transactions with the same firm with which business is conducted on behalf of the Authority.
An Investment Officer who has any personal business relationship with a business organization offering
to engage in an investment transaction with the Authority shall file a statement disclosing that personal
business interest. An Investment Officer who is related within the second degree of affinity or
consanguinity to an individual seeking to sell an investment to the Authority shall file a statement
disclosing that relationship with the Board and with the Texas Ethics Commission
IX. Authorized Investments
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The Authority shall limit its investment to the following security types as further defined by the Act:
1) Obligations of the United States or its agencies and instrumentalities, excluding mortgage
backed securities,with p stated maturity not to exceed three years._ Formatted:Not Highlight
2) Direct obligations of the State of Texas or its agencies and instrumentalities; obligations of
states, agencies, counties, cities, and other political subdivisions of any state rated as to
investment quality by a nationally recognized investment rating firm not less than AA or its
equivalent with a stated maturity not_to.exceed_two,years.
Formatted:Not HigNight
3) Fully insured or collateralized certificates of deposit("CD's pr share_certificates issued by a Formatted:Not Highlight
financial institutions doing business in the State of Texas,guaranteed or insured by the FDIC
or its successor,and fully collateralized in accordance with this Policy,not to exceed one year Formatted:Not Highlight
to stated maturity. w __ ---- .
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4) Fully collateralized repurchase agreements(Repo)that have a defined termination date, are
secured in accordance with this Policy, held in the Authority's name,and deposited with the
Authority or an acceptable third party custodian, and placed through a primary government ...
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securities dealer as defined by the Federal Reserve,or a financial institution doing business in
Texas not to exceed one year to stated maturity i
Bond proceeds may be invested in "flex"repos beyond a one year maturity but matched to
the estimated expenditure schedule of the bonds.
5) AAA-rated no-load money market mutual funds that:
a. Are registered with and regulated by the Securities and Exchange Commission;
b. Provide the Authority with a prospectus and other information required by the Securities
and Exchange Act of 1934 (15 U.S.C. 78a et seq) or the Investment Company Act of
1940(15 U.S.C.80a-1 et seq.)
c. Have a dollar weighted average stated maturity of 90 days or fewer;and
d. Include in their investment objectives the maintenance of a stable net asset value of$1
for each share(Gov't Code 2256.014)
6) A constant dollar, local government investment pool meeting the requirements of the Act, if
the Board authorized the investment in the particular pool by resolution.
Diversification
The portfolio(s) shall be diversified to minimize risk resulting from over-concentration of assets.
Diversification parameters by sector type shall be set by maximum percent of the total portfolio:
Max%of Portfolio
US Treasury Obligations 800/0
US Agencies/Instrumentalities 75%
State Obligations 20%
Certificates of Deposit 40% z
In any one bank 10%
Repurchase Agreements 50%
%with one dealer 20%
Flex in CIP Funds 100% -
Local Government Investment Pools 100%
%ownership of Pool 10%
Money Market Funds 100%
%in any one fund 20%
Competitive Bidding Requirement
All securities, including certificates of deposit, will be purchased only after at least three (3) offers are
taken to assure fair market values.
Delivery versus Payment Requirement
All security transactions, including collateral for repurchase agreements shall be conducted on a Delivery
versus Payment(DVP)basis.
X. Unauthorized Investments
The following investments are not authorized for investment:
• Obligations whose payment represents the coupon payments on the outstanding
principal of the underlying mortgage backed security collateral and pays no principal.
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• Obligations whose payment represents the principal stream of cash Flow from the
underlying mortgage backed security collateral and bears no interest.
• Collateralized mortgage obligations that have a stated final maturity date of greater than
ten years.
• Collateralized mortgage obligations the interest rate of which is determined by an index
that adjusts opposite to the changes in a market index.[Go✓t. Code 2256.009(6)]
XI. Credit Downgrade Provision
An investment that requires a minimum rating does not qualify as an authorized investment during the
period the investment does not have the minimum rating.The Authority shall take all prudent measures
that are consistent with its Investment Policy to liquidate an investment that does not have the minimum
rating.
XII. Safekeeping and Custody
All cash and investments of the Authority shall be held by an independent third party agent approved by
the Authority.The Authority shall retain clearly marked receipts providing proof of ownership or pledge.
XIII. Change in Law
The Authority is not required to liquidate investments that were authorized investments at the time of
purchase.
XIV. Financial Counter-parties
All investment transactions shall be made through financial institutions or broker/dealers and a list of
these broker/dealers shall be approved and adopted by the Board no less than annually. A list of not less
than six broker/dealers shall be maintained to assure a competitive process.
Authorized broker/dealers and financial institutions may include:
• Federally insured banks doing business in Texas
• Security dealers reporting to the Market Reports Division of the Federal Reserve Bank of
NY,known as"primary dealers',
• Secondary institutional broker/dealers registered with the State,the SEC and FINRA.
Financial institution and broker/dealers who desire to transaction business with the Authority must supply
the following documents to the Investment Officer or Investment Adviser(as applicable).
• Current year audited financial statements
• Financial Institutions Regulatory Agency(FINRA) certification and its Central Depository
Registration number(CRD#),and
• Proof of Texas State Securities registration.
Policy Review Certification
Each authorized financial institution and broker/dealer must be provided a copy of the current Investment
Policy to assure that they are familiar with the goals and objectives of the investment program. The
authorized representative of the firm shall sign a written certification, in a form acceptable to the
Authority,substantially to the effect that the firm has:
• Received and reviewed the Policy,and
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• Acknowledges that the firm has implemented reasonable controls and procedures in an
effort to preclude investment transactions with the Authority that are not authorized by
the Policy. 51 i
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No investment transaction shall be executed with a firm which has not delivered this written certification.
Material changes in this Policy will require re-certification by all counter-parties.
The Authority is under no obligation to transact business with any financial institution. The Authority's
depository bank will not be used as a broker/dealer in order to perfect delivery versus payment controls.
The Board shall, on an annual basis, review, revise and adopt a list of qualified counter-parties(broker,
dealer,banks, pools)that are authorized to engage in investment transactions with the Authority.
The Investment Officer may not acquire or otherwise obtain an investment from a financial organization
that has not signed the certification as described above. $ ,,;
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Xv. Collateralization t
Time and Demand Bank Deposits Pledged Collateral
Collateralization is required on all bank time and demand deposits over the applicable FDIC insurance
coverage. Securities pledged to the Authority for these deposits shall be held by an independent third
institution outside the holding company of the pledging bank.
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In order to anticipate market changes and provide a level of additional security for all funds,the market
value of the collateral will be maintained at 102%of deposits'total principal and accrued interest. The
depository will be responsible for monitoring and maintaining the collateral and margins daily. The
custodian will provide the monthly reports to the Authority detailing the collateral. The custodian or
pledging institutions shall provide current market value.
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Collateral will be pledged under the terms of a written depository agreement executed under the terms of .•
FIRRFA. If the custodian is the Federal Reserve, the Authority will execute a Circular 7 Pledgee
Agreement and append it to the depository agreement The agreement will be approved by resolution of
the Bank Board or Bank Loan Committee.
Acceptable collateral shall include only:
• Obligations of the US Government, its agencies and instrumentalities including mortgage
backed securities passing the bank test
• Obligations of any state or US Government entity dual rated as A or better by two
nationally recognized rating agencies.
Repurchase Agreement Owned Collateral
Collateral under a repurchase agreement is owned by the Authority. It will be settled delivery versus
payment and held by an independent third party custodian approved by the Authority under an executed -_
SIFMA Master Repurchase Agreement. Collateral with a market value totaling 102%of the principal and
accrued interest is required and the counter-party is responsible for the monitoring and maintaining of
collateral and margins daily.
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XVI. Investment Reports
Monthly and quarterly, the Investment Officers (or Investment Adviser) shall prepare and submit to the
Board a written report of investment transactions for all funds within a reasonable time after the end of
the period.The report must:
• Contain a detailed description of the investment position of the Authority on the date of
the report;
• Be prepared jointly and signed by all Investment Officers;and
• Contain a summary statement for each pooled fund group (i.e., each internally createdrM
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fund in which one or more accounts are combined for investment purposes).
The report must be prepared in compliance with generally accepted accounting principles and must state:
• Beginning market value for the reporting period;
• Additions and changes to the market value during the period;
• Ending market value for the period;and
• Fully accrued interest and net earnings for the reporting period. .
• Book value and market value of each separately invested asset at the beginning and end '
of the reporting period by the type of asset and fund type invested.
• Maturity date of each separately invested asset that has a maturity date.
• Fund or pooled fund group for which each individual investment was acquired.
• Compliance of the investment portfolio as it relates to the written Investment Policy and
strategy.
Security prices used to calculate market values shall be obtained monthly from reliable independent
sources which may include financial/investment publications and electronic media, available software for
tracking investments, depository banks, commercial or investment banks, and representatives/advisors
on investment pools or money market funds.
The quarterly report shall be formally reviewed at least annually by the Authority's independent auditor .
and the result of the review shall be reported to the Board by that auditor.
XVII. Performance and Risk Measurement
The Authority will invest its operating and escrow portfolios with a maximum dollar-weighted average
maturity of one year. As a result, an appropriate benchmark to gauge relative performance shall be the
average of the one-year Treasury Bill yield during the comparable reporting period.
XVIII. Fund Strategies
Each fund strategy shall adhere to stated policy objectives of safety, liquidity,diversification,and yield. In
order to minimize risk of loss due to interest rate fluctuations, investment maturities shall be guided by
the anticipated cash flow requirements of the funds.Investment strategies by fund type are as follows:
a. Operating Fund
Investment strategies for operating funds have as their primary objective to assure that anticipated cash
flows are matched with adequate investment liquidity. The secondary objective is to create a portfolio
structure which will produce reasonable yield and experience minimal volatility during economic cycles.
This may be accomplished by purchasing quality,short to medium term securities which will complement
each other in a laddered structure.The dollar weighted average maturity will be limited to 365 days or
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less while final maturity for any security shall be limited to a maximum of two years.Any security listed in
this policy is suitable for investment of operating funds.
b. Project Construction Fund
The investment maturity of bond proceeds shall generally be guided by the anticipated cash flow
requirement or the"temporary period"as defined by Federal tax law. During the temporary period,which
is generally three years for capital projects,bond proceeds may be invested at an unrestricted yield.After
the expiration of the temporary period, bond proceeds are subject to yield restriction and shall be
invested considering the anticipated cash flow requirements of the funds and market conditions to
achieve compliance with the applicable regulations. The maximum maturity for all securities shall be
three years. Interest in excess of the allowable arbitrage earnings will be segregated and made available
for necessary payments to the US Treasury. Any security authorized within this policy is suitable as a
construction fund investment
C. Debt Service Funds
Investment strategies for Debt Service Funds shall be to ensure adequate funding for each consecutive
debt service payment. The Investment Officers shall invest in such a manner as not to exceed an
"unfunded" debt service date with the maturity of any investment. An unfunded debt service date is
defined as a coupon or principal payment date that does not have cash or investment securities available
to satisfy said payment.Any security listed in this Policy is suitable for investment of debt service funds.
d. Escrow Funds
The anticipated cash requirements of Authority escrow funds will govern the appropriate maturity mix.
Appropriate portfolio strategy shall be determined based upon market conditions and cash flow needs.
Policy compliance, financial condition, and other risk return constrains will be considered when
formulating investment strategy. Maximum maturity shall not exceed three years and each fund's
weighted average maturity shall not exceed one year.
XIX. Annual Review
The Investment Policy and Investment Strategies shall be reviewed and adopted by the Board not less y
than annually. The Board resolution shall state that it has reviewed the Policy and Strategies and the
resolution so adopted shall record any changes made to either the Investment Policy or Investment
Strategies.
The Authority's Investment Policy is hereby adopted by resolution of the Board on December 16, 2009 in
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accordance with the Act.
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