Section 3.8.B Financial Services: Treasury – Investment Guidelines
Issued: August 2016
Replaces: April 2015
3.8.B SIU INTERMEDIATE FIXED INCOME PORTFOLIO - INVESTMENT GUIDELINES
Objectives and Purpose
The goal is to provide a portfolio that emphasizes safety of principal and total return and provides a modest element of liquidity as necessary. Active management is expected to provide increased income and total return to Southern Illinois University. These guidelines should be reviewed periodically by Southern Illinois University, its investment consultant and PFM Asset Management LLC to assure that the University's objectives are being achieved.
In addition to the guidelines outlined below, the investment manager will adhere to the Southern Illinois University Statement of Investment Policy, the Illinois Public Funds Investment Act, applicable state laws and applicable federal laws. The guidelines below are intended to provide additional direction specific to the intermediate portfolio.
Investments may be made in any of the following fixed income securities, subject to credit, diversification and marketability guidelines below. All securities must be authorized investments under the Illinois Public Funds Investment Act including the following:
- Obligations issued or guaranteed by the United States of America, its agencies, and its instrumentalities.
- Certificates of deposit, time deposits or any other investments constituting direct obligations of any bank as defined by the Illinois Banking Act.
- Obligations of U.S. corporations with assets exceeding $500 million. Such obligations shall have a maturity of 270 days or less, be rated the highest rating classification by at least two standard rating services, and not exceed 10% of the corporation’s outstanding obligations.
- U.S. Agency mortgage-backed securities (MBS); provided weighted average life is equal to or less than 10 years. No “derivative” MBS such as Interest Only (IO), Principal Only (PO), and inverse floaters will be allowed. Mortgage “to be announced” (TBAs) securities, and passthrough Planned Amortization Class Securities (PACS) are allowed. At no time shall the portfolio to be subjected to leverage.
The average weighted duration of portfolio security holdings shall not vary from that of the Barclays Capital Intermediate U.S. Government Bond Index, (the “Benchmark”) by more than 25%.
In all categories of investments, emphasis will be on high-quality securities and the weighted average of portfolio holdings will not fall below AA- or equivalent. Holdings are subject to the following limitations:
- Rated Securities: All securities must be rated at least as high as the minimum acceptable rating, noted in the table below, of at least two of the following Nationally Recognized Statistical Rating Organizations (NRSRO).
|Minimum Acceptable Rating for Securities||Minimum Acceptable Rating for Commercial Paper|
|Standard & Poor’s||A-||A-1|
2. Split Rated: Securities rated at or above the foregoing minimum acceptable ratings by two or more NRSRO and below the foregoing minimum acceptable ratings by two or more NRSRO are permissible only if PFM Asset Management LLC, based on its independent research, assigns the security the higher rating.
3. Downgrade Securities: Securities which fall below the stated minimum credit requirements subsequent to initial purchase may be held at PFM Asset Management LLC but must be approved by University staff. The University’s staff will be notified of all such downgrades in writing.
- Maturity: Securities must be equal to or less than 10 years to maturity. In the case of MBS, average life will be used as a proxy for maturity.
- Sector: The portfolio will at all times be diversified among the major market sectors, subject to the following limitation.
a) Maximum 33% in short-term corporate obligations. This limitation shall apply to all funds managed by PFM Asset Management LLC on a combined basis.
3. Issuer: Holdings are subject to the following limitations:
a) Obligations issued or guaranteed by the U.S. government, its agencies and its instrumentalities are eligible without limit.
b) Obligations of other issuers are subject to a 5% of the market value of the portfolio limit to any single issuer excluding investments in commingled vehicles.
All holdings will be of sufficient size and held in issues that are traded actively enough to facilitate transactions at minimum cost and accurate market valuation.
Performance Measurement and Objectives
Total portfolio return will be calculated each calendar month and reported at the end of each calendar quarter. The manager will be evaluated on an after-fees basis against the Barclays Capital Intermediate U.S. Government Bond Index (the “Benchmark”).
The manager shall aim to meet or exceed the Barclays Capital Intermediate U.S. Government Bond Index (the “Benchmark”) over a complete economic cycle.
Formal management reporting will include:
- A monthly accounting statement showing portfolio income, holdings and transactions;
- A monthly total return computation; and
- A quarterly market outlook and investment strategy.
Randy J. Dunn Date