Texas Counties 96 TH A NNUAL C OUNTY J UDGES AND C OMMISSIONERS A SSOCIATION OF at Their Best! T EXAS C ONFERENCE 96th Annual County Judges and Commissioners Association of Texas Conference Wednesday, Oct. 10, 2018 October 8-11, 2018 The Woodlands Waterway Marriott Hotel & Convention Center 1 – 1:50 p.m. Montgomery Ballroom “4.003 County Investment Policies” Mr. G. Murphy Davis, Chairman, Sentry Management, Inc.
Sentry Management, Inc. County Investment Policies Murphy Davis, Sr. CFA 10/10/2018 I. Public Funds Investment Act Title 10 General Government Subtitle F. State and Local Contracts and Funds Management Chapter 2256 Public Funds Investment 1
2256.005 Investment Policies; Investment Strategies; Investment Officer Investment Policy ‐ must be written to be compliant with the Act, but applicable to the county Review and approve policies and strategies annually Investment officer must be designated Avoid conflicts of interest if possible Note: Selection of third party entities for investments does not relieve the municipality(county) of responsibility for monitoring investments to assure compliance with the investment policy III. 2256.006 Standard of Care All investment funds are governed by: Preservation and safety of principal 1. Liquidity 2. Yield 3. 2
IV. 2256.007 Investment Training An investment officer shall attend a training session not less than once each state biennium New Investment Officers ‐ Receive at least 10 hours of instruction related to responsibilities within 12 months of taking office. VI. Authorized Investments A. Guaranteed Obligations(full faith and credit) of the United States or its agencies and instrumentalities B. Obligations of states, agencies, counties, and cities of other political subdivisions of the state with a rating of A or better…or its equivalent. C. Certificates of Deposit and Share Certificates…guaranteed by the FDIC or NCUSI insurance. D. Repurchase Agreements ‐ fully collateralized with a defined terminations date 3
VI. Authorized Investments (Cont.) E. Banker’s Acceptances ‐ must have a maturity date of 270 days or fewer F. Commercial Paper 1. Stated maturity of 270 or fewer 2. Rated A ‐ 1/P ‐ 1 or higher 3. Irrevocable letter of credit from a US bank VI. Authorized Investments (Cont.) Mutual Funds ‐ No ‐ load mutual funds with several G. individual requirements per 2256.014 Guaranteed Investment Contracts ‐ multiple H. requirements per 2256.015 Investment Pools ‐ multiple requirements per I. 2256.016 4
VI. Authorized Investments (Cont.) Note: Several additional(less utilized) investments are legal(approved) for Texas county investments per section 2256. While an investment option may be “legal”, its legality may have little to do with the suitability of the county considering the investment. Many times, more complicated investments increase potential risk to the county…”caveat emptor” Chapter 2256, Government Code 009. Authorized Investments: Obligations of, or Guaranteed by Government Entities The following are not Authorized Investments: Interest only Mortgage ‐ Backed Collateral Securities Principal only Mortgage ‐ Backed Collateral Securities Collateralized Mortgage Obligation with a stated maturity greater than 10 years Inverse Floater (indexed securities that adjust opposite to changes in a market index) Collateralized Mortgage Obligations 5
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The Public Funds Investment Act, Chapter 2256 of the Texas Government Code, requires the investment officer to prepare and submit a written report of investments to the governing body of the entity not less than quarterly 7
See Public Funds Investment Act Compliance Checklist attached Current Investment Macro Considerations 8
TED Spread 8/2008‐8/2018 New Home Sales 8/2008‐8/2018 9
CRY Index 8/2008‐8/2018 Euro vs. Dollar 8/2008‐8/2018 10
Unemployment Rate 8/2008‐8/2018 Labor Force Participation 8/1973‐8/2018 11
S&P Index 8/2008‐8/2018 Federal Funds Rate 8/2008‐8/2018 12
10 Year Treasury 8/2008‐8/2018 13
COUNTY INVESTMENT POLICY OBJECTIVES: The objectives of the County (the County) Investment Policy shall be: To set forth methods, means, and goals of financial investment and debt management operation for the County. To insure the financial security and optimum liquidity of the County's funds at all times. To assist the County in achieving the maximum total investment of the County's funds in a prudent manner at all times. To assist the County in achieving the maximum interest yield on the County's funds at all times through methods allowed under Federal and State Law and in accordance with the current County's Bank Depository Contract. STANDARD OF CARE: The County's investments shall be made with judgment and care under circumstances then prevailing that 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 and optimum liquidity required for operations in the County. Safety shall be the first priority, adequate liquidity the second, and yield, the third priority. Individual investments shall be made in a manner consistent with this Policy. INVESTMENT STRATEGY: The County maintains portfolios which utilize the following investment strategy considerations designed to address the unique characteristics of the fund groups represented in the portfolios. General Operating Funds
INVESTMENT POLICY PAGE 2 The County's investment strategy for General Operating Funds shall be made to ensure that anticipated cash flows are matched with adequate investment liquidity. Bond Operating Funds The County shall utilize an investment policy for Bond Operating Funds to generate a dependable revenue stream for the appropriate debt service funds consistent with the County's Investment Policy and state law. Debt Service Funds The County shall utilize as the primary objective for the investment of Debt Service Funds adequate liquidity to cover the debt service obligation of the County on required payment dates. Investments shall not have a stated final maturity date which exceeds the appropriate debt service payment date. Special and Trust Funds The County shall invest Special and Trust Funds in accordance with state law and the County's Investment Policy to the maximum ability that such investments may benefit the County directly, or utilize said funds in a method that such funds may benefit the County indirectly. County Clerk’s Trust Funds County Clerk Trust funds are received by court order from either Commissioners Court, County Courts at Law, or County Courts. These funds must be deposited in the County depository and then invested according to the court orders. A court order is required from the County Courts and County Courts at Law prior to disbursement of the funds. District Clerk Trust Funds District Clerk Trust funds are received by court order from the District Courts. These funds must be deposited in the County depository and then invested according to the court orders. A court order is required from the District Courts prior to the disbursement of the funds. General Strategy
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