Policy # 7204 - Management and Investment of Expendable ( Non-endowed) Funds

Policy #:

7204

Subject:

Management and Investment of Expendable (Non-endowed) Funds

Group:

Institutional

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

Administered by:

Vice-President (Administration)

1 - General

1.1

Purpose

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.

1.2

Scope

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

Components

For the purpose of this Policy, the University's expendable funds are divided into three components as follows.

The first component is Post Retirement Liability Funds and is the amount that has been set aside to meet the University’s post retirement liabilities, in consultation with external actuarial consultants.

The second component is Core Expendable Funds and is the minimum historical balance of expendable funds. The make-up of these funds changes from time to time but may consist of funds from tuition, grants, research grants, donations and other sources. The current minimum historical balance is $3 million.

The third component is Non-Core Funds which is all other expendable funds.

Since the characteristics of these three components of expendable funds vary, this Policy provides separate guidelines for each component.

1.4

Philosophy

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 investments in the Core Expendable Funds and Post Retirement Liability Funds components of expendable funds prior to their dates of maturity. Accordingly, liquidity for these funds is expected to be achieved through the various maturities of the investments in these 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, including the cost of wire transfers or other means to facilitate the logistics of the investment.

1.5

Responsibility

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 • Controller • Assistant Controller
Term to maturity exceeding one year	Any two of the following: • Vice-President Administration • Controller • Assistant Controller

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2 - Investment Guidelines

2.1	Post Retirement Liability Funds
	These funds will be invested in AA Corporate bonds that, subject to the next sentence, match the amount and duration of the University’s post retirement liabilities. If corporate bonds are not available or a precise match of amount and duration is not available, the Controller shall work with its investment dealers to establish a reasonably close implementation of this desired strategy.

2.2	Core Expendable Funds
	These funds will be invested in Guaranteed Investment Certificates (GIC’s) and / or short to medium term investments that are rated AA or better at the time of purchase.

2.3	Non-Core Funds
	These funds, for which liquidity is the primary consideration, will be invested in highly secure, short term investments for periods of less than one year or in pooled money market funds approved by the Finance and Administration Committee on the recommendation of the Controller. 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.

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3 - Eligible Investments

The University's expendable funds may be invested in approved pooled money market funds or in individual bonds, money market securities and other classes of assets subject to the constraints set out below.

3.1

Eligible Investments and Minimum Quality Standards

The University's expendable funds may be invested in assets of the following categories and qualities.

a.	Investments issued by the Canadian government or its agencies, or a money market fund approved by the Finance and Administration Committee.

b.	Investments issued by a federally chartered Schedule I bank, or by the government of any province of Canada, with a commercial paper rating of R-1 Low or better, or in the case of a bank a bond rating of AA or better, as rated by at least two recognized investment rating agencies such as DBRS, Moody’s or Standard and Poors.

c.	Investments issued by a federally chartered Schedule II bank, with a commercial paper rating of R-1 Middle or better, or a bond rating of AA or better, as rated by at least two recognized investment rating agencies such as DBRS, Moody’s or Standard and Poors.

d.	Investments issued by a municipality in Canada, with a commercial paper rating of R-1 High, as rated by at least two recognized investment rating agencies such as DBRS, Moody’s or Standard and Poors.

e.	Investments issued by corporations, with a commercial paper rating of R-1 High, or a bond rating of AA or better, as rated by at least two recognized investment rating agencies such as DBRS, Moody’s or Standard and Poors.

f.	GIC's

3.2

Limitation on the Securities of any Type of Issuer

3.2.1	Post Retirement Liability Funds and Core Expendable Funds
	There are no limits on the percentages of these funds that may be invested in securities by type of issuer.

3.2.2	Non-Core Funds
	There are no limits on the percentages of these funds that may be invested in the securities of issuers in categories (a), (b) and (f) above. A maximum of fifty percent (50%) of these funds may be invested in the securities of issuers in categories (c), (d) and (e) above, on a combined basis. A maximum of twenty-five percent (25%) of these funds may be invested in securities of issuers in category (e) above.

3.3

Limitation on the Securities of any Single Issuer

3.3.1	Post Retirement Liability Funds and Core Expendable Funds
	Corporations will be limited individually to twenty percent (20%) of these funds in either category. GIC’s not issued by a federally chartered Schedule I institution will be limited to $100,000 per issuer.

3.3.2	Non-Core Expendable Funds
	Provinces and Municipalities
	Provincial governments and municipalities will be limited individually to ten percent (10%) of these funds.

	Banks and Other
	Federally chartered Schedule I banks will be limited individually to fifty percent (50%) of these funds, and trust companies, federally chartered Schedule II banks and other corporations will be limited individually to ten percent (10%) of these funds.

	GIC’s
	GIC’s not issued by a federally chartered Schedule I institution will be limited to $100,000 per issuer.

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4 - Monitoring, Rating Downgrades, Recording Income, and Reporting

4.1

Monitoring

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.

4.2

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.

4.3

Recording Income

All income and losses on expendable funds will be recorded in the Operating Fund except as follows:

a)	The difference between income or losses on Core Expendable Funds, and the income or loses that would have occurred if these funds had been invested as Non-Core Funds, will be recorded in a separate unrestricted expendable fund. If losses exceed the balance in that separate unrestricted expendable fund the losses will be recorded in the General Operating Fund.

b)	Income or losses on Non-Core Funds in Special Purpose accounts restricted for capital construction projects with a balance of at least $25,000 will be recorded in the Special Purpose account designated for the capital construction project.

4.4

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 funds to a recognized index and to the median return of a recognized universe of comparable actively managed funds.

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5 - Conflict of Interest Policy

5.1	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.

5.2	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.

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Maintained by the Office of the Vice-President (Administration)
February 18, 2013