Subject: Management and Investment of Expendable (Non-endowed) Funds
Approved by: The Board of Regents
Approval date: April 5, 2002
Effective date: May 1, 2002
Revised: September 26, 2008; February 10, 2012; February 15, 2013; October 14, 2016
Administered by: Vice-President (Administration)
1 — GENERAL
It is the purpose of this Policy to set out the principles and practices to be followed in the investment of the University's expendable funds to facilitate their effective management.
This Policy covers all of the University's expendable or non-endowed funds whether they are operating funds, research funds, special purpose funds or spending allocations on endowed funds.
1.3 Nature of Expendable Funds
For the purpose of this Policy, the University's expendable funds include an amount set aside to meet the University’s post retirement liabilities, as calculated by the University’s external actuarial consultant. The makeup of expendable funds varies from time to time, but includes funds from tuition, grants, research grants, donations and other sources.
A portion of the expendable funds (even in excess of the amount set aside for the University’s post retirement liabilities) could remain invested indefinitely. The Controller shall periodically, at least annually, conduct cash flow analysis, to determine liquidity requirements, specifically identifying when large sums of funds will be required and the portion of the expendable fund which appears to be perpetual in nature.
It is also recognized that additional liquidity is available to the University by drawing on the annual spending allocations from the endowed funds (typically withdrawn at the end of the fiscal year) or through the University’s credit line.
The selection of investments will be made with regard to security of principal so that the risk that the principal will be lost is reasonably small; with regard to liquidity so that the funds will be available when required; and with regard to net yield so that the highest possible net yield will be achieved after first giving consideration to the requirements of principal protection and liquidity needs.
The University does not expect to sell the portion of the expendable funds which is perpetual in nature. Accordingly, a longer term investment approach is acceptable for this portion of the expendable funds.
In evaluating the net yields of investment options, consideration will
be given to all of the costs associated with each option at purchase and at
redemption, and the impact of early redemption penalties or short borrowing
costs in the event the funds are required before the maturity date of an
The Controller and Assistant Controller are responsible for investing expendable funds in accordance with this Policy. The investments will be made through established investment dealers who are able to provide an appropriate level of service. Investments made must receive the following approvals prior to the execution of each transaction:
Term to maturity of less than one year
Any one of the following:
- Vice-President Administration
- Assistant Controller
Term to maturity exceeding one year
Any two of the following:
- Vice-President Administration
- Assistant Controller
2 — INVESTMENT GUIDELINES
The perpetual portion of the expendable funds may be invested in any of the following:
- Investment grade bonds (those rated BBB or higher) with an average rating of at least A;
- Guaranteed Investment Certificates (GICs) with a term greater than one year;
- Pooled funds investing in investment grade bonds or high quality private bonds;
- Pooled funds investing in commercial mortgages; and
- Pooled money market funds.
The non-perpetual portion of
expendable funds (that portion which is expected to be needed to meet cash flow
needs in the next 12 months) shall be invested in highly secure, short term
investments for periods of less than one year or in pooled money market funds. However, if
the funds relate to a capital or long term project, they may be invested in
terms that would match the expected outflows of cash related to the project. .
Investments such as pooled funds will be approved by the Finance and Administration Committee on the recommendation of the Controller.
3 — MONITORING, RATING DOWNGRADES, RECORDING INCOME, AND REPORTING
The level of each component of the funds will be monitored at least annually. The rating of individual securities held by the University will be reviewed each quarter.
3.2 Rating Downgrades
If the rating of a security is downgraded by one category, the security will continue to be held but the rating will be monitored monthly until the security matures or is upgraded. If the rating of a security held by the University is downgraded below investment grade (BBB), the security will be liquidated as soon as practicable.The Controller will report on the status of the ratings in each quarterly Review of Results to the Finance and Administration Committee.
3.3 Recording Income
All income and losses on expendable funds will be recorded in the Operating Fund unless required otherwise by accounting standards.
3.4 Rates of Return Reporting
While expendable funds are not managed in the conventional sense they are nevertheless expected to provide a reasonable return. The Controller will report these returns annually to the Finance and Administration Committee. This report will compare the returns of the perpetual and short term portions of the expendable funds to recognized indices deemed most relevant to each portion of the expendable funds.
4 — CONFLICT OF INTEREST POLICY
4.1 Limitation on the Exercise of Powers
No person, directly or indirectly responsible for the investment of expendable funds, will knowingly permit personal interests, or the interests of a third party, to conflict, or potentially conflict, with their entrusted duties and powers in respect of these funds.
4.2 Duty to Disclose
Any person directly or indirectly responsible for the investment of expendable funds shall disclose in writing to the next higher level of University authority, or orally if the knowledge of the duty to disclose arises in the course of discussions at a meeting, immediately upon first becoming aware of the conflict or potential conflict, the nature and extent of the conflict or any circumstances that would result in any conflict with regard to the investment of the University's expendable funds.