HomeMy WebLinkAboutInvestment Policy UpdateDeschutes County Finance Department
Wayne Lowry , Finance Director
1300 NW Wall St, Suite 203, Bend , OR 97701-1960
P.O . Box 6005, Bend, OR 97708-6005
(541) 388-6559 - Fax (541) 749-2909
www.co.deschutes.or .us
Date: December 2, 2013
To: Board of County Commissioners
Tom Anderson, County Administrator
From: Wayne Lowry, Finance Director tt./~
RE: Investment Policy Update
The current Deschutes County investment policy (Board policy F-lO) was last updated September 20,
2012. In order to position the County to comply with the statutes regarding the amounts held in the
local government investment pool and to provide future opportunities for a more active investment
portfolio, I am recommending a major update to the County's investment policy.
The Oregon Short Term Fund Board developed a standard model investment policy for local
governments that incorporates all the features that should be present in such a policy. The model policy
provides a framework for a local government to meet the statutory requirements and to make choices
on the types of investments it will use and how the risks related to credit, liquidity and interest rate are
mitigated.
I have attached a draft investment policy that used the model policy as the starting point. Here are
some highlights of what you will find in the draft policy:
1. Priority of objectives -The primary objectives of the policy include preservation of capital,
liquidity and return, in that order of priority. (section IV, page 1)
2. Criteria for BrokerS/Dealers -The policy establishes minimum criteria and a process for selecting
brokers/dealers that the County will work with. (section VII, page 3)
3 . Authorized Investments -The policy establishes a list of suitable investments consistent with
ORS 294-035 that the County will use in its portfolio. (section VIII, page 6)
4. Mitigation of Credit Risk -The policy establishes diversification and credit requirements in the
exposure constraints and minimum credit ratings table on page 7. The table limits how much of
the portfolio can be invested in each type of instrument and also establishes the minimum
credit rating as applicable. (section lXI, page 7 & 8)
5. Mitigation of Liquidity Risk -this risk is addressed in the portfolio maturity constraint table on
page 8. The table establishes the portion of the portfolio that can be invested at various terms .
Note that the maximum term is proposed to be 5 years. (section IX2, page 8) The old policy
limited investments to a term of 18 months with the exception of 30% of the portfolio that
could be invested to 24 months.
6. Mitigation of Interest Rate Risk -Among other standard protections, this risk is addressed by
limiting the maximum portfolio average maturity to 2 years. This ensures that even though
some securities mature beyond two years, the majority of the portfolio will mature much
earlier. (section IX 3, page 9)
7. Reports -The proposed updated policy establishes the content of monthly investment reports
to measure the performance of the portfolio and compliance with the policy. (section XIII, page
10& 11)
This draft policy was submitted to the Oregon Short Term Fund Board for review in September 2013 and
was reviewed at their meeting on October 10, 2013. Official comments from the Board are included in a
letter to the Finance Director and to each Board member. The letter from the Oregon Short Term Fund
Board is attached. I have attached a response to each of the Board's comments and relevant changes
have been included in the draft policy.
The Deschutes County Investment Advisory Committee met on Thursday, October 24,2013 to consider
the proposed investment policy. The committee concurred with the proposal and their comments have
been reflected in the proposed policy draft.
The proposed draft investment policy is included with this document along with the current investment
policy last updated on September 20, 2012. I will go through the draft policy proposal with the Board at
the work session and answer any questions. The next step in the process is to make any modifications
to the policy and then place it on a Board agenda for approval. Once approved, we will move forward
with implementation of the new policy.
Deschutes County Proposed Investment Policy
I. Purpose
This Investment Policy defines the parameters within which funds are to be invested by
Deschutes County. Deschutes County's purpose is to provide County Level Services for a large
portion of Central Oregon. This policy also formalizes the framework, pursuant to ORS
294.135, for Deschutes County's investment activities to ensure effective and judicious
management of funds within the scope of this policy.
These guidelines are intended to be broad enough to allow designated investment staff to
function properly within the parameters of responsibility and authority, yet specific enough to
adequately safeguard the investment assets.
II. Governing Authority
Deschutes County's investment program shall be operated in conformance with Oregon Revised
Statutes and applicable Federal law. Specifically, this investment policy is written in
conformance with ORS 294.035; 294.040; 294.052; 294.135; 294.145; and 294.810. All funds
within the scope of this policy are subject to these statutes and regulations established by the
State of Oregon. Any revisions or extensions of these sections of the ORS shall be assumed to
be part of this Investment Policy immediately upon being enacted.
III. Scope
This policy applies to activities of Deschutes County with regard to investing the financial assets
of all County funds including County Service Districts and Trust Funds. Investments of
employees' retirement funds, deferred compensation plans, and other funds are not covered by
this policy. The amount of funds falling within the scope of this policy over the next three years
is expected to range between $90 million and $170 million.
IV. General ObJectives
The primary objectives, in priority order, of investment activities shall be:
1. Preservation of Invested Capital
Investments shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. The goal is to mitigate credit risk and interest rate risk.
2. Liquidity
The investment portfolio shall remain sufficiently liquid to meet all reasonably anticipated
operating requirements. Furthermore, the portfolio should consist largely of securities with
active secondary or resale markets. A portion of the portfolio also may be placed in the
Oregon Short Term Fund which offers next-day liquidity. Where possible and prudent, the
portfolio should be structured so that investments mature concurrent with anticipated
demands.
3. Return
The investment portfolio shall be designed with the objective of attaining a market rate of
return throughout budgetary and economic cycles, taking into consideration the safety and
liquidity needs of the portfolio. Although return consists of both principal return (gains and
losses due to market value fluctuations) and income return (yield), this policy discourages
Page 1 of 12
active trading and turnover of investments. Investments should generally be held to
maturity
V. Standards of care
1. Prudence.
The standard of prudence to be used by investment officials shall be the "prudent person"
standard and shall be applied in the context of managing an overall portfolio. Investment
officers acting in accordance with written procedures and this investment policy, and
exercising due diligence shall be relieved of personal responsibility for an individual
security's credit risk or market price changes, provided deviations from expectations are
reported and appropriate action is taken to control adverse developments within a timely
fashion as defined in this policy.
The "prudent person" standard states:
"Investments shall be made with judgment and care, under circumstances then
prevailing, 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."
2. Ethics and Conflicts of Interest.
Officers and employees involved in the investment process shall refrain from personal
activity that could conflict with the proper execution and management of the investment
program, or that could impair their ability to make impartial decisions. Employees and
investment officials shall disclose any material interests in financial institutions with which
they conduct business. Disclosure shall be made to the governing body. 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 individual with whom business
is conducted on behalf of the County. Officers and employees shall, at all times, comply
with the State of Oregon Government Standards and Practices code of ethics set forth in
ORS Chapter 244.
3. Delegation of Authority and Responsibilities
i. Governing Body
The Board of County Commissioners will retain ultimate fiduciary responsibility for
invested funds. The governing body will receive reports, pursuant to, and with
sufficient detail to comply with ORS 294.085 and 294.155.
ii. Delegation of Authority
Authority to manage investments within the scope of this policy and operate the
investment program in accordance with established written procedures and internal
controls is granted to the Finance Director/Treasurer, hereinafter referred to as
Investment Officer, and derived from the following: ORS 294.035 to 294.053,
294.125 to 294.145, and 294.810.
No person may engage in an investment transaction except as provided under the
terms of this policy and the procedures established by the Investment Officer. The
Page 2 of 12
Investment Officer shall be responsible for all transactions undertaken and shall
establish a system of controls to regulate the activities of subordinate officials.
All participants in the investment process shall seek to act responsibly as custodians
of the public trust. No officer or designee may engage in an investment transaction
except as provided under the terms of this policy and supporting procedures.
iii. Investment Committee
The Deschutes County Board of County Commissioners established an investment
advisory committee on April 19, 1995 by resolution 95-12520 to provide guidance to
the Investment Officer and monitor investment policy compliance.
iv. Investment Adviser
The Investment Officer may engage the services of one or more external investment
managers to assist in the management of the County's investment portfolio in a
manner consistent with this investment policy. Investment advisers may be hired
on a non-discretionary basis. All investment transactions by approved investment
advisers must be pre-approved in writing by the Investment Officer and compliant
with this Investment Policy. If the Investment Officer hires an investment adviser to
provide investment management services, the adviser is authorized to transact with
its direct dealer relationships on behalf of Deschutes County.
VI. Transaction Counterparties, Investment Advisers and Depositories
1. Broker/Dealers
The Investment Officer shall determine which broker/dealer firms and registered
representatives are authorized for the purposes of investing funds within the scope of this
investment policy. A list will be maintained of approved broker/dealer firms and affiliated
registered representatives.
The following minimum criteria must be met prior to authorizing investment transactions.
The Investment Officer may impose more stringent criteria.
i. Broker/Dealer firms must meet the following minimum criteria:
A. Be registered with the Securities and Exchange Commission (SEC);
B. Be registered with the Financial Industry Regulatory Authority (FINRA).
C. Provide most recent audited financials.
D. Provide FINRA Focus Report filings.
ii. Approved broker/dealer employees who execute transactions with Deschutes
County must meet the following minimum criteria:
A. Be a registered representative with the Financial Industry Regulatory
Authority (FINRA);
B. Be licensed by the state of Oregon;
C. Provide certification (in writing) of having read; understood; and agreed to
comply with the most current version of this investment policy.
Page 3 of 12
iii. Periodic (at least annual) review of all authorized broker/dealers and their
respective authorized registered representatives will be conducted by the
Investment Officer. Factors to consider would be:
A. Pending investigations by securities regulators.
B. Significant changes in net capital.
C. Pending customer arbitration cases.
D. Regulatory enforcement actions.
2. Investment Advisers
A list will be maintained of approved advisers selected by conducting a process of due
diligence.
i. The following items are required for all approved Investment Advisers:
A. The investment adviser firm must be registered with the Securities and
Exchange Commission (SEC) or licensed by the state of Oregon; (Note:
Investment adviser firms with assets under management> $100 million
must be registered with the SEC, atherwise the firm must be licensed by the
state of Oregon)
B. All investment adviser firm representatives conducting investment
transactions on behalf of Deschutes County must be registered
representatives with FINRA;
C. All investment adviser firm representatives conducting investment
transactions on behalf of Deschutes County must be licensed by the state of
Oregon;
D. Certification, by all of the adviser representatives cond ucting investment
transactions on behalf of Deschutes County, of having read, understood and
agreed to comply with this investment policy.
ii. A periodic (at least annual) review of all authorized investment advisers will be
conducted by the Investment Officer to determine their continued eligibility within
the portfolio guidelines. Factors to consider would be:
A. Pending investigations by securities regulators.
B. Significant changes in net capital.
C. Pending customer arbitration cases.
Regulatory enforcement actions.
3. Depositories
i. All financial institutions who desire to become depositories must be qualified
Oregon Depositories pursuant to ORS Chapter 295.
4. Competitive Transactions
i. The Investment Officer shall obtain and document competitive bid information on
all investments purchased or sold in the secondary market. Competitive bids or
offers should be obtained, when possible, from at least three separate
Page 40f12
brokers/financial institutions or through the use of a nationally recognized trading
platform.
ii. In the instance of a security for which there is no readily available competitive bid or
offering on the same specific issue, the Investment Officer shall document
quotations for comparable or alternative securities.
iii. When purchasing original issue instrumentality securities, no competitive offerings
will be required as all dealers in the selling group offer those securities at the same
original issue price. However, the Investment Officer is encouraged to document
quotations on comparable securities.
iv. If an investment adviser provides investment management services, the adviser
must retain documentation of competitive pricing execution on each transaction
and provide upon request.
VII. Administration and Operations
1. Delivery vs. Payment
All trades of marketable securities will be executed (cleared and settled) by delivery vs.
payment (DVP) to ensure that securities are deposited in the County's safekeeping
institution prior to the release of funds.
2. Third-Party Safekeeping
Securities will be held by an independent third-party safekeeping institution selected by the
County. All securities will be evidenced by safekeeping receipts in the County's name. Upon
request, the safekeeping institution shall make available a copy of its Statement on
Standards for Attestation Engagements (SSAE) No. 16.
3. Internal Controls.
The investment officer is responsible for establishing and maintaining an adequate internal
control structure designed to reasonably assure that invested funds are invested within the
parameters of this Investment policy and, protected from loss, theft or misuse. Specifics for
the internal controls shall be documented in writing. The established control structure shall
be reviewed and updated periodically by the Investment Officer.
The concept of reasonable assurance recognizes that the cost of a control should not exceed
the benefits likely to be derived and the valuation of costs and benefits requires estimates
and judgments by management.
The internal controls shall address the following points at a minimum:
i. Compliance with Investment Policy
ii. Control of collusion.
iii. Separation of transaction authority from accounting and record keeping.
iv. Custodial safekeeping.
v. Avoidance of physical delivery of securities whenever possible and address control
requirements for physical delivery where necessary.
vi. Clear delegation of authority to subordinate staff members.
vii. Confirmation of transactions for investments and wire transfers in written or
digitally verifiable electronic form.
Page 50f12
viii. Dual authorizations of wire and automated clearing house (ACH) transfers
ix. Staff training
x. Review, maintenance and monitoring of security procedures both manual and
automated.
4. An external auditor in conjunction with the annual County audit shall review compliance
with Oregon state law and Deschutes County policies and procedures.
VIII. Suitable and Authorized Investments
1. Permitted Investments
The following investments are permitted pursuant to ORS 294.035, 294.040, and ORS
294.810. (Note: Permitted investments may be more restrictive than ORS 294.035 and
294.810).
• US Treasury Obligations: U.S. Treasury and other government obligations that carry the
full faith and credit guarantee of the United States for the timely payment of principal
and interest
• US Agency Obligations: Senior debenture obligations of us federal agencies and
instrumentalities or U.s. government sponsored enterprises (GSE).
• Oregon Short Term Fund.
• Corporate Indebtedness
1. Commercial Paper issued under the authority of section 3(0)2 or 3(0)3 of the
Securities Act of 1933.
2. Corporate Bonds
• Municipal Debt
• Bankers Acceptonces
• Qualified Institution Time DepOSits/Savings Accounts/Certificates of Deposit
2. Approval of Permitted Investments
If additional types of securities are considered for investment, per Oregon state statute they
will not be eligible for investment until this Policy has been amended and the amended
version adopted by Deschutes County.
3. Prohibited Investments
i. Private Placement or "l44A" Securities
Private placement or "144A" securities are not allowed. For purposes of the policy,
SEC Rule 144A securities are defined to include commercial paper privately placed
under section 4(a)(2) ofthe Securities Act of 1933.
ii. US Agency Mortgage-backed Securities
US agency mortgage-backed securities such as those securities issued by FNMA and
FHLMC are not allowed.
iii. Securities Lending
The County shall not lend securities nor directly participate in a securities lending
program.
4. Demand Deposits and Time Deposits
Page 60f12
i. All demand deposits and time deposits (Examples of time deposits are: certificates
of deposit and savings accounts) shall be held in qualified Oregon depositories in
accordance with ORS Chapter 295.
ii. Demand deposits in qualified depository institutions are considered cash vehicles
and not investments and are therefore outside the scope and restrictions of this
policy. Pursuant to ORS 294.035(3)(d), time deposits, certificates of deposit and
savings accounts are considered investments and within the scope of this policy.
IX. Investment Parameters
1. Credit Risk
Credit risk is the risk that a security or a portfolio will lose some or all of its value due to a
real or perceived change in the ability of the issuer to repay its debt. Credit risk will be
mitigated by the following guidelines:
i. Diversification
It is the policy of Deschutes County to diversify its investments. Where appropriate,
exposures will be limited by security type; maturity; issuance, issuer, and security
type, Allowed security types and Investment exposure limitations are detailed in the
table below.
ii. Recognized Credit Ratings
Investments must have a rating from at least two of the following nationally
recognized statistical ratings organizations (NRSRO): Moody's Investors Service;
Standard &Poor's; and Fitch Ratings Service as detailed in the table below. Ratings
used to apply the guidelines below should be investment level ratings and not issuer
level ratings.
iii. Portfolio Average Credit Rating
The minimum weighted average credit rating of the portfolio's rated investments
shall be Aa/M/AA by Moody's Investors Service; Standard & Poor's; and Fitch
Ratings Service respectively.
iv. Exposure Constraints and Minimum Investment Credit Ratings.
The following table limits exposures among investments permitted by this policy.
US Treasury Obligations 100% None
US Agency Securities
Per D.a,;>nr'V
Oregon Short Term Fund
100%
33%
Maximum allowed
per ORS 294.810
Bankers' Acceptances 2 Al+/Pl/F1+
Time Deposits/Savings
Accounts/Certificates of Deposit(2)
50%
Page 70f12
Per Institution 25%
Corporate Debt (Total) 25%(3)
Corporate Commercial Paper
Per Issuer A1/Pl/Fl
Corporate Bonds
Per Issuer A/A/A
Municipal Debt 25%
Municipal Bonds Aa/AA/AA
(1) 25% Maximum per ORS 294.035(0)
(2) As authorized by ORS 294.035(3)(d)
(3) 35% Maximum per ORS 294.035(0)
(4) 5% Maximum per ORS 294.035(0)
v. Restriction on Issuers With Prior Default History
Per ORS 294.040, the bonds of issuers listed in ORS 294.035 (3)(a) to (c) may be
purchased only if there has been no default in payment of either the principal of or
the interest on the obligations of the issuing county, port, school district or city, for
a period of five years next preceding the date of the investment.
2. Liquidity Risk
Liquidity risk is the risk that an investment may not be easily marketable or redeemable.
The following strategies will be employed to mitigate liquidity risks:
i. The value of at least 10% of funds available for investing or three months of
budgeted operating expenditures will be invested in the Oregon Short Term Fund,
with a qualified depository institution, or investments maturing in less than 30days
to provide sufficient liquidity for expected disbursements.
ii. Funds in excess of liquidity requirements are allowed for investments maturing in
greater than one year. However, longer~term investments tend to be less liquid
than shorter term investments. Portfolio investment maturities will be limited as
follows:
Total Portfolio Maturity Constraints:
Maturity Constraints Minimum % of Total Portfolio
Under 30 days 10% or three months Estimated
Operating Expenditures
Under 1 year 25%
Under 5 years 100%
Weighted Average Maturity of Portfolio 2.0 years
iii. Reserve or Capital Improvement Project funds may be invested in securities
exceeding the maximum term if the maturities of such investments are made to
coincide as nearly as practicable with the expected use of the funds.
iv. Larger issuance sizes enhance liquidity as there are likely to be a greater number of
investors. Issuance sizes above a minimum amount qualify a corporate or
Page 80f12
municipal debt bond issuance for index eligibility. Index eligible bonds have a
significantly larger investor base which improves liquidity.
v. Limiting investment in a specific debt issuance improves secondary market liquidity
by assuring there are other owners of the issuance.
US Agency Securities 50%
Corporate Debt
Corporate Commercial Paper 25%
Munici
rnlrnrlr~1r". Bonds 25%
25%
3. Interest Rate Risk
Longer-term investments have the potential to achieve higher returns but are also likely to
exhibit higher market value volatility due to the changes in the general level of interest rates
over the life of the investment(s). Interest rate risk will be mitigated by providing adequate
liquidity for short term cash needs, and by making longer-term investments only with funds
that are not needed for current cash flow purposes. Certain types of securities, including
variable rate securities, securities with principal pay-downs prior to maturity, and securities
with embedded options, will affect the interest rate risk profile of the portfolio differently in
different interest rate environments. The following strategies will be employed to control
and mitigate adverse changes in the market value of the portfolio due to changes in interest
rates:
i. Where feasible and prudent, investment maturities should be matched with
expected cash outflows to mitigate market risk.
ii. To the extent feasible, investment maturities not matched with cash outflows,
including liquidity investments under one year, should be staggered to mitigate re
investment risk.
iii. No commitments to buy or sell securities may be made more than 14 days prior to
the anticipated settlement date, or receive a fee other than interest for future
deliveries.
iv. The maximum percent of callable securities in the portfolio shall be 25%;
v. The maximum stated final maturity of individual securities in the portfolio shall be
five years, except as otherwise stated in this policy.
vi. The maximum portfolio average maturity (measured with stated final maturity) shall
be 2.0 years.
X. Investment of Proceeds from Debt Issuance
1. Investments of bond proceeds are restricted under bond covenants that may be more
restrictive than the investment parameters included in this policy. Bond proceeds shall be
invested in accordance with the parameters ofthis policy and the applicable bond
covenants and tax laws.
Page 9 of12
2. Funds from bond proceeds and amounts held in a bond payment reserve or proceeds fund
may be invested pursuant to ORS 294.052. Investments of bond proceeds are typically not
invested for resale and are maturity matched with outflows. Consequently, surplus funds
within the scope of ORS 294.052 are not subject to this policy's liquidity risk constraints
within section IX (2).
XI. Investment of Reserve or Capital Improvement Funds
1. Pursuant to ORS 294.135(1)(b), reserve or capital Improvement project funds may be
invested in securities exceeding three years when the funds in question are being
accumulated for an anticipated use that will occur more than 18 months after the funds are
invested, then, upon the approval of the governing body of the county, the maturity of the
investment or investments made with the funds may occur when the funds are expected to
be used.
XII. Guideline Measurement and Adherence
1. Guideline Measurement
Guideline measurements will use par value of investments.
2. Guideline Compliance:
i. If the portfolio falls outside of complia nce with adopted investment policy
guidelines or is being managed inconsistently with this policy, the Investment
Officer shall bring the portfolio back into compliance in a prudent manner and as
soon as prudently feasible.
ii. Violations of portfolio guidelines as a result of transactions; actions to bring the
portfolio back into compliance and; reasoning for actions taken to bring the
portfolio back into compliance shall be documented and reported to the Board of
County Commissioners.
iii. Due to fluctuations in the aggregate surplus funds balance, maximum percentages
for a particular issuer or investment type may be exceeded at a point in time.
Securities need not be liquidated to realign the portfolio; however, consideration
should be given to this matter when future purchases are made to ensure that
appropriate diversification is maintained.
XIII. Reporting and Disclosure
1. Compliance
The Investment Officer shall prepare a report at least monthly that allows the Board of
County Commissioners to ascertain whether investment activities during the reporting
period have conformed to the investment policy. The report will also be provided to the
investment advisory committee. The report will include, at a minimum, the following:
i. A listing of all investments held during the reporting period showing: par/face value;
accounting book value; market value; type of investment; issuer; credit ratings; and
yield to maturity (yield to worst if callable).
ii. Average maturity of the portfolio at period-end.
Page 10 of 12
iii. Maturity distribution of the portfolio at period-end.
iv. Average portfolio credit quality of the portfolio at period-end.
v. Average weighted yield to maturity (yield to worst if callable investments are
allowed) of the portfolio.
vi. Distribution by type of investment.
vii. Transactions since last report.
viii. Distribution of transactions among financial counterparties such as broker/dealers.
ix. Violations of portfolio guidelines or non-compliance issues that occurred during the
prior period or that are outstanding. This report should also note actions (taken or
planned) to bring the portfolio back into compliance.
2. Performance Standardsl Evaluation
At least annually, the Investment Officer shall report comparisons of investment returns to
relevant alternative investments and comparative Bond Indexes. The performance of the
portfolio should be compared to the performance of alternative investments such as
available certificates of deposit; the Oregon Short Term Fund; US Treasury rates; or against
one or more bond indices with a similar risk profile (e.g., Bond indexes comprised of high
grade investments and maximum maturities of three years).
When comparing performance, all fees and expenses involved with managing the portfolio
shall be included in the computation of the portfolio's rate of return.
3. Marking to Market.
The market value of the portfolio shall be calculated at least monthly and a statement of the
market value of the portfolio shall be included in the monthly report.
4. Audits
Management shall establish an annual process of independent review by the external
auditor to assure compliance with internal controls. Such audit will include tests deemed
appropriate by the auditor.
XIV. Policy Maintenance and Considerations
1. Review
The investment policy shall be reviewed at least annually to ensure its consistency with the
overall objectives of preservation of principal, liquidity and return, and its relevance to
current law and financial and economic trends.
The annual report should also serve as a venue to suggest policies and improvements to the
investment program, and shall include an investment plan for the coming year.
2. Exemptions
Any investment held prior to the adoption of this policy shall be exempted from the
requirements of this policy. At maturity or liquidation, such monies shall be reinvested as
provided by this policy.
3. Policy Adoption and Amendments
Page 11 of 12
This investment policy and any modifications to this policy must be formally approved in
writing by the Board of County Commissioners.
This policy must be submitted to the Oregon Short Term Fund (OSTF) Board for review if:
i. This policy allows maturities beyond 18 months unless the funds are being
accumulated for a specific purpose, including future construction projects, and upon
approval of the Board of County Commissioners, the maximum maturity date
matches the anticipated use of the funds (ORS 294.135(1)(b) and 294.135(3)).
And either:
A. This policy has never been submitted to the OSTF Board for comment;
Or
B. Material changes have been made since the last review by the OSTF Board.
Regardless of whether this pOlicy is submitted to the OSTF Board for comment, this policy
shall be re-submitted not less than annually to the Board of County Commissioners for
approval.
Page 12 of 12
OREGON SHORT TERM
FUND BOARD
JSO WINTER STREET NE . SUITE 100
SALEM. OREGON 973 10 ·0840
(503) 376·4633
FAX (503) all-11 79
OREGON SHORT TERM FUND BOARD
November 25, 2013
Board of County Commissioners
Deschutes County
1300 NW Wall Street
Suite 200
Bend, OR 97701
SUBJECT: DESCHUTES COUNTY INVESTMENT POLICY REVIEW
Dear Board of County Commissioners,
Deschutes County's investment policy was submitted by Wayne Lowry to the Oregon Short Term Fund
("OSTF") Board (the "Board") for review.
The OSTF Board's statutory obligation is to "review and comment to the governing body" (ORS
294.135(a)) on the written investment policy submitted to the Board. To assist in the policy revision
process, the Board developed a model policy laying out the elements that it believes are important in
policies. These are also the elements against which submitted policies are reviewed. As part of the
local government investment policy review process, resources of the Office of the State Treasurer's
staff are provided to assist as needed on policy revisions or development.
The Oregon Short Term Fund Board reviewed Deschutes County's investment policy at the OSTF Board
meeting on October 10, 2013, and the Board is pleased to inform you that the statutory policy review
requirement has been satisfied.
During the review, the OSTF Board offered the following comments:
• Page 4 of 27, iii: "On" should not be capitalized.
• Page 10 of 27, ii: By stating that Investments must have a rating from at least two nationally
recognized statistical ratings organizations, Farmer Mac is automatically excluded. Clarification
is recommended unless it was intended to exclude Farmer Mac. It was recommended that the
language in this section be reworked to achieve clear intent.
• Page 2 of 27, II: Fourth line shoufd read," All funds within the scope of this policy are subject to
these statutes and regulations established by the State of Oregon."
Should any member of Deschutes County's Board of County Commissioners wish to discuss the policy,
please call Tom Lofton at the Office of the State Treasurer. The phone number is (503) 378-4155.
cc: Alan Unger, Commissioner
Tammy Baney, Commissioner
Tony DeBone, Commissioner
Wayne Lowry, Finance Director
Tom Lofton, Oregon State Treasury
Deschutes County Finance Department
Wayne Lowry, Finance Director
1300 NW Wall St , Suite 203 , Bend , OR 97701-1960
P.O . Box 6005, Bend , OR 97708-6005
(541) 388-6559 -Fax (541) 749-2909
www.co.deschutes .or .us
Board of County Commissioners
Tom Anderson, County Administrator
1300 NW Wall Street, Suite 200
Bend, Oregon 97701
Response to Comments from the Oregon Short Term Fund Board
The County's draft investment policy was submitted to the Oregon Short Term Fund Board for review in
accordance with ORS 294 .135{a) at their meeting dated October 10, 2013 . The Board reviewed the draft
policy and issued a letter to the Commissioners dated November 25, 2013 . The letter includes three
comments related to the policy draft. The County Finance Department responses are included below:
1. Section V, 3, iii has been corrected.
2. Section X, I, ii -The draft Investment policy is intended to preclude "Farmer Mac" as it is an
unrated agency security and it is on the list of "less appropriate" agency securities for local
governments estab lished by the state Treasurers office. No change to policy language.
3. Section II -the recommended correction has been made to the second to the last line.
Sincerely
d4-A ~7.~:wry
Finance Director
Deschutes County Administrative Policy No. F-IO
Effective Date: January 7, 2008
Revised Date: June 24, 2009
Revised Date: September 20, 2012
INVESTMENT POLICY GUIDELINES
STATEMENf OF POLICY
All Deschutes County investments must be made in accordance with State Law and in accordance with
the Deschutes County Investment Policy. Investment policies must be approved by the State of Oregon
Short-Term Fund Board. This policy is modeled on the investment policy recommended by the Oregon
Short-Term Fund Board and incorporates State Law requirements and restrictions.
APPLICABILITY
This policy applies to all Deschutes County investments.
POLICY AND PROCEDURE
The Deschutes County Treasurer is the portfolio manager. It is the policy of Deschutes County to invest
public funds in a manner which will provide the maximum security while providing liquidity to meet the
daily cash flow demands and receive the highest investment return while conforming to all State Statutes
governing the investment of public funds and this Investment Policy.
SCOPE: This investment policy applies to activities of Deschutes County with regard to investing the
financial assets of all funds for which investment authorization has been given, including but not limited
to the following funds:
A. General Fund
B. Special Revenue Funds
C. Capital Project Funds
D. Enterprise Funds
E. Debt Service Funds
F. Internal Service funds
G. Trust and Agency Funds
Funds held and invested by trustee or fiscal agents are excluded from these rules; however such funds are
subject to the regulations established by the State ofOregon.
Funds of Deschutes County will be invested in compliance with ORS 294 and other applicable statutes.
Investments will be in accordance with this policy and any written administrative procedures. Investment
of any tax-exempt borrowing proceeds and any debt service funds will comply with the "arbitrage"
restrictions of Section 148 of the Internal Revenue Code of 1986.
Funds of other agencies, jurisdictions, district or entities for which the County Treasurer serves as
custodian will not be invested without written authorization from their governing body, and the
Deschutes Board of County Commissioners.
Policy #F-I 0, Investment Policy Guidelines Page I of7
OBJECTIVES:
Deschutes County's Investment Objectives are:
Preservation of capital and the protection of investment principal.
Conformance with Federal, State and other legal requirements.
Maintenance of sufficient liquidity to meet operating requirements.
Diversification to avoid incurring unreasonable risks regarding specific security type or individual
financial institutions.
Attainment of a market rate of return throughout budgetary and economic cycles.
DELEGATION OF AUTHORITY:
The County Treasurer is designated as the Investment Officer for Deschutes County and is responsible
for investment decisions and activities. The investment officer shall be responsible for all transactions
undertaken and shall establish a system of controls to regulate the activities of subordinate officials. The
administration of the cash management program is handled by the County Treasurer who is responsible
to manage the day-to-day operations of the County's investment portfolio, place purchase orders and sell
orders with dealers and financial institutions and prepare reports as required.
INVES1MENT LIMITATIONS:
Specific investment types shall not exceed the percentage of the total investment portfolio indicated
below. All securities are also included on the list of "U.S. Government Agency Securities for Local
Government Investments under ORS 294.035 and 294.040." This list is maintained by the Office of the
Oregon State Treasurer.
Securities issued by a single financial institution (Banker's Acceptance and Certificates of Deposit) will
be limited to 30% ofthe total portfolio.
SUITABLE AND AUTHORIZED INVESTMENTS
The following investments will be permitted by this policy, ORS 294.035 and
294.810:
• U.S. Treasury Obligation (bills, notes and bonds)
• U.S. Government Agency Securities and Instruments of Government
Sponsored Enterprises
• Banker's Acceptances (BA's) from qualified institutions
• State of Oregon Investment Pool
• Certificates of Deposits (CD's)
(Subject to ORS 295 collateralization)
• Certificate of Deposit Account Registry Services (CDARS)
Policy #F-IO, Investment Policy Guidelines Page 20f1
• Repurchase Agreements
• State and Local Government Securities
• Corporate Indebtedness
PORTFOLIO DIVERSIFICATION
Diversification will be sought within the following guidelines with the purpose of reduction of overall
portfolio risk. The investments shall be diversified by investment type, issuer and maturity:
u.s. Treasury
us Government Agencies
State of Oregon Investment Pool
Certificates of Deposit
Banker's Acceptances
Commercial Paper
State & Local Government Securities
Repurchase Agreements
Corporate Indebtedness
100%
75%
50% in any single government sponsored enterprise
100010 or the maximum imposed by statute
25% of total portfolio
30% in any single qualified financial institution
25% of total portfolio
30% in any single qualified financial institution
20% of total portfolio
5% in anyone corporation, subsidiaries or affiliates
25% of total portfolio
25% of total portfolio
10% in any single qualified financial institution
10% of total portfolio
Maximum 24 month maturity
Note: These limits apply to the total portfolio at the time the Investments are purchased.
COMPETITIVE SELECTION OF BIDS OR OFFERS:
Before the investment officer invests funds, competitive offers or bids will be sought from at least two
institutions, or a decision to invest will be based on data received from at least two institutions. The most
favorable offer or bid will be awarded the transaction.
MATURITY SCHEDULING:
Poljcy #F-\ 0, Investment Policy Guidelines Page 3 of7
To the extent possible, the County will attempt to match its investments with anticipated cash flow
requirements.
No investment security shall have a maturity of more than 24 months at the time of purchase, but such
investments are limited to 30% ofthe total portfolio.
The investment portfolio operates on a policy of buying securities and holding them until their specified
maturity date, but during certain market conditions when it becomes advantageous, the Portfolio Manager
may sell securities prior to their maturity date.
SAFEKEEPING AND COLLATERALIZA TlON:
Investment securities purchased by the Portfolio Manager will be in safekeeping with the bank's
Investment Division Safekeeping Department. If it is felt necessary to safe keep with a third party, the
Trust Department of the bank will be considered to be a third party for the purpose of safekeeping of
securities purchased from that bank. Another permissible option would be to use a third party bank to
provide safekeeping for all purchased securities. The purchase and sale of all securities will be on a
payment versus delivery basis. The custodian shall issue a safekeeping receipt to the Treasurer listing
the specific instrument, rate, maturity and other pertinent information. All other repurchase agreements
shall require safekeeping and a master repurchase agreement.
Deposit-type securities (Le. certificates of deposit) shall be collateralized through the Collateral Pool
Manager as required by ORS 295.015 for any amount exceeding FDIC coverage. Other investments will
be held by the custodian as evidenced by safekeeping receipts.
QUALIFIED INSTITUTIONS:
The investment officer shall maintain a list of all authorized broker/dealers and financial institutions
which are approved for investment purposes or investment dealings. Any firm is eligible to make an
application to Deschutes County and upon due consideration and approval will be added to the list.
Additions or deletions to the list will be made at the Portfolio Manager's discretion. At the request of
Deschutes County, the firms performing investment services shall provide their most recent financial
statements or Consolidated Report of Condition (call report) for review. Further, there should be in
place, proof as to all the necessary credentials and licenses held by employees of the broker/dealers who
will have contact with Deschutes County as specified by but not necessarily limited to the National
Association of Securities Dealers (NASD), Securities and Exchange Commission (SEC), etc. Deschutes
County shall conduct an annual evaluation of each firm's credit worthiness to determine if it should
remain on the list. Securities broker/dealers not affiliated with a bank shall be required to have an office
located in Oregon and/or be classified as reporting dealers affiliated with the Federal Reserve as primary
dealers.
PRUDENCE:
The standard of prudence to be used by the County Treasurer in the context of managing the overall
portfolio shall be the prudent investor rule, which states, "Investments shall be made with judgment and
care, under circumstances then prevailing, which persons of prudence, discretion and intelligence
exercises 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."
Policy #F-I 0, Investment Policy Guidelines Page4of7
INDEMNITY CLAUSE:
The County shall defend and indemnify the County Treasurer and staff from personal liability for losses
that might occur pursuant to administering this investment policy as long as the County Treasurer and
staff exercise prudence in accordance with this policy, and act within the boundaries of this Policy.
ETHICS & CONFLICTS OF INTEREST:
Officers and employees involved in the investment process shall refrain from personal business activity
that could conflict with the proper execution and management of the investment program, or that could
impair their ability to make impartial decisions. Employees and investment officials 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, officers and their families shall refrain from undertaking personal investment
transactions with the same individual with whom business is conducted on behalf of the County.
Officers and employees shall, at all times, comply with the State of Oregon Government Standards and
Practices code of ethics set forth in ORS 244.
PERFORMANCE EVALUATION:
The performance of the County's portfolio shall be measured against the performance of the Oregon
Local Government Investment pool, and the three-month and twelve-month Treasury Bills.
ACCOUNTING METHOD:
Deschutes County shall comply with all required legal provisions and Generally Accepted Accounting
Principles (GAAP). The accounting principles are those contained in the pronouncements of
authoritative bodies including but not necessarily limited to, the American Institute of Certified Public
Accountants (AICPA); the Financial Accounting Standards Board (FASB); and the Government
Accounting Standards Board (GASB).
An investment fee of 5% of the total interest earned on all invested funds will be deducted and credited
to the County Finance Internal Service Fund each month. After deducting the investment fee, interest
earnings will be credited on the last day of each month to the funds from which the investments were
made based on the average daily balance in the fund.
INTERNAL CONTROLS
The investment officer is responsible for establishing and maintaining an adequate internal structure
designed to reasonably protect the assets of the County from loss, theft or misuse. The concept of
reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be
derived and (2) the valuation of costs and benefits requires estimates and judgments by management.
Accordingly, the investment officer shall establish a process for an annual independent review by an
external auditor to assure compliance with policies and procedures. The internal controls shall address
the following points:
-Control of collusion.
Policy #F-lD, Investment Pol icy Guidelines Page 5 of7
-Separation of transaction authority from accounting and record
keeping.
-Custodial safekeeping
-Avoidance of physical delivery of securities whenever possible
and address control requirements for physical delivery where
necessary.
-Clear delegation of authority to subordinate staff members.
-Written confinnation of transactions for investments and wire
transfers.
-Compliance and oversight with investment parameters including
diversification and maximum maturities.
REPORTING REQUIREMENTS:
The Deschutes County Treasurer will provide a monthly report to the County Commissioners and the
County Administrator. This report will include but not necessarily be limited to: portfolio activity,
individual securities held at the end of the reporting period, average weighted yield to maturity of
portfolio on investments as compared to applicable benchmarks, and investments by maturity date.
Additionally, in accordance with Generally Accepted Accounting Principles, investments are reported in
the County's Comprehensive Annual Financial Report at market value.
REVIEW:
This policy shall be reviewed and modified, if appropriate, by the Deschutes County Board of
Commissioners or if market changes warrant review. Annual readoption by the reviewing authority is
required by ORS 294.l35a. In addition an Investment Committee consisting of five members wi1l meet
and review any changes to this Policy. This committee will consist of one County Commissioner and
four additional members with backgrounds such as a Banker, Security Broker, Controller/ChiefFinancial
Officer, or Government Finance Manager.
AUTHORIZED FINANCIAL INSTITUTIONS:
BANKS
Bank of America -Merrill Lynch
Bank of the Cascades
Chase Bank
Columbia State Bank
Home Federal Bank
Key Bank
Premier West Bank
Sterling Savings Bank
South Valley Bank & Trust
Policy #F-lD, Investment Policy Guidelines Page 6 of7
Umpqua Bank
Union Bank
US Bank
Wells Fargo
OTHER
CastleOak Securities, L.P.
Oregon Local Government Investment Pool
Piper Jaffray
RBC Wealth Management
Seattle-Northwest Securities Corporation
UBS Financial Services
Approved by the Deschutes County Board of Commissioners September 24,2012.
~A
Erik Kropp ~
Interim County Administrator
Policy #F-IO,lnvestment Policy Guidelines Page 7 of7