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Expendable Funds Policy

Classification number LCG 1134
Framework category Legal, Compliance and Governance
Approving authority Board of Governors
Policy owner Chief Financial Officer
Approval date March 11, 2015
Review date March 2018
Last updated Editorial Amendments, February 18, 2020

Purpose

The purpose of this policy is to define the guidelines governing the investment of Expendable University Funds and to outline the principle objectives and rules by which investments will be managed. 

Definitions

For the purposes of this policy the following definitions apply:

“Expendable Funds” means cash surplus and unspent balances in operating, trust, ancillary, research and capital funds.

“Investment Pool” means funds aggregated from multiple sources for the purposes of investment.

“Manager” means the University's Finance department or an external manager as selected by the Investment Committee.

“Total Return” means the sum of income and capital gains from investments.

Scope and authority

This policy applies to all Expendable Funds at the University. 

The Policy Owner is responsible for overseeing the implementation, administration and interpretation of a Policy Instrument.  The Chief Financial Officer, or successor thereof, is the Policy Owner.

Policy

Portfolio Objectives

  1.  The Expendable Funds Policy outlines the University’s investment objectives and risk guidelines.  Investment objectives are defined in the context of Total Return and the performance expectations set out in this Policy. 
  2. Cash levels of Expendable Funds will be maintained at a minimum level sufficient to meet short term cash requirements. All remaining funds which are not immediately required for their purpose will be invested to optimize interest revenue, maximize earning potential and meet future financial obligations.
  3. Unless otherwise specified by the University, all income earned on Expendable Funds is included in general University operating revenues.
  4. The overall investment objective is to obtain the best possible total return on investments that is commensurate with the degree of risk that the University is willing to assume in obtaining such return.  University investment decisions regarding Expendable Funds are governed by the following objectives:

    1. The primary objective is to preserve capital and minimize risk in order to meet the liquidity needs of the university.
    2. The secondary objective is to obtain a reasonable return on investment commensurate with risk, terms, and liquidity. 

General Guidelines

  1. The University uses the Investment Pool method, except in those instances where funds are precluded under agreement or contract from being pooled for investment purposes.
  2. The acquisition of specific investment instruments outside of authorized Investment Pools requires the approval of the Chief Financial Officer. 
  3. All securities will be registered in the University’s name or in the name of a financial institution that is eligible to receive investments under the University's Statement of Investment Policies. 
  4. All deliveries of investment certificates or other investment type instruments must be made to the University Cashier Office for safekeeping. If the certificate is held at the bank, a confirmation letter must be provided to the University and the investments must be segregated from the bank’s inventory.
  5. The University may or may not directly and internally manage any portion of its Expendable Funds.  The Investment Committee, or its successor committee, will be responsible for selecting external investment managers and/or advisors.

Authorized Investments

  1. Outlined below are the general investment criteria for Expendable Funds as understood by the Investment Committee.  The list of permitted investments includes:

    1. Short-term instruments:

      • Cash;
      • Demand or term deposits;
      • Short-term notes;
      • Treasury bills;
      • Bankers acceptances;
      • Commercial paper; and
      • Investment certificates issues by banks, insurance companies and trust companies.

    2. Fixed income instruments:

      • Bonds;
      • Debentures (convertible and non-convertible); and
      • Mortgages and other asset-backed securities.

Risk Guidelines

All investment of assets must be made within the risk guidelines established in this Policy.  For the purposes of interpreting these guidelines, it is noted that all allocations are based on market values and all references to ratings reflect a rating at the time of purchase, reviewed at regular intervals.   

  1. Short-term Instruments

    Short-term instruments as set out in this Policy must have a rating of at least R1, using the rating of the Dominion Bond Rating Service (“DBRS”) or equivalent.  Investment is limited to 10% of the market value of the portfolio per single issues.

  2. Fixed Income Instruments

a)      Allowable fixed income instruments by credit rating are:

Credit Quality

Maximum in Bond1

Minimum in Bond1

MaximumPosition in a Single Issuer

Government of Canada2

100%

0%

100%

Provincial Governments2

100%

0%

100%

Municipals

10%

0%

10%

Corporates

10%

0%

10%

AAA3

10%

0%

10%

AA3

10%

0%

10%

A3

10%

0%

10%

BBB+

10%

0%

10%

 b)      The market value invested in any one issuer (other than Government of Canada, or Province of Canada) will not exceed 10% of the total portfolio.  The market value of any one fixed income security (other than Government of Canada, or Province of Canada) will not exceed 10% of the total portfolio.

c)       All debt ratings refer to the ratings of Dominion Bond Rating Service (DBRS), Standard & Poor’s or Moody’s.

Performance Expectations

  1. Investment income earned on all Expendable Funds accrues to the investment income account of the operating fund.
  2. An analysis of investment performance will be prepared annually.
  3. The overall objective of investments is to achieve a weighted average rate of return that exceeds the Bank of Canada Prime less 1.75%.  A secondary objective is to achieve a weighted average rate of return that exceeds the 90 day T-Bill rate for our short term investments.

Reporting and Monitoring

  1. A semi-annual report on the overall performance of Expendable Fund investments will be provided for information to the Investment Committee.

Standard of Care

  1. It is the responsibility of the Manager to:

    • Comply, at all times and in all respects, with the code of Ethics and Standards of Professional Conduct as promulgated by the CFA Institute;
    • Manage the assets with the care, diligence and skill that an investment Manager of ordinary prudence would use in dealing with all clients.  The Manager will also use all relevant knowledge and skill that it possesses or ought to possess as a prudent Investment Manager;
    • Manage the assets in accordance with this Policy and will verify compliance with this Policy when making any recommendations with respect to changes in investment strategy or investment of assets; and
    • Provide a letter, at least once annually, to the Investment Committee confirming the Manager’s familiarity with this Policy.  The Manager will, from time to time, recommend changes to the policy to ensure that it remains relevant and reflective of the University’s investment objectives over time. 

Conflict of Interest

  1. All fiduciaries will, in accordance with the University of Ontario Institute of Technology Act, the University's By-laws, and policies on conflict of interest, disclose the particulars of any actual or potential conflicts of interest with respect to the Fund.  This will be done promptly in writing to the Chair of the Investment Committee.  The Chair will, in turn, table the matter at the next Board meeting.  It is expected that no fiduciary will incur any personal gain because of their fiduciary position.  This excludes normal fees and expenses incurred in fulfilling their responsibilities if documented and approved by the Board.  

Monitoring and Review

This Policy will be reviewed as necessary and at least every three years.  The Chief Financial Officer, or successor thereof, is the Policy Lead and is responsible to monitor and review this Policy.

Relevant Legislation

University of Ontario Institute of Technology Act, 2002, SO 2002, c 8, Sch O

By-Law Number 1 of the University of Ontario Institute of Technology

RELATED POLICIES, PROCEDURES & DOCUMENTS

Statement of Investment Policies