2014-06-26 Budget Meeting Attachment H

Section 2

STRATEGIC POLICY – 2014/15 INVESTMENT POLICY


Delegation of authority
Authority for implementation of the Investment Policy is delegated by Council to the Chief
Executive Officer in accordance with the Local Government Act 2009, Section 257 (1) (b) –
delegation of local government powers.

Authority for the day-to-day management of Council’s Investment Portfolio is to be delegated by
the Chief Executive Officer to the Director Corporate Services and to the Manager Financial
Services in accordance with section 259 of the Local Government Act 2009, and subject to regular
reviews with the Director Corporate Services and Chief Executive Officer.

Preservation of Capital
Preservation of capital shall be the principal objective of the investment portfolio. Investments are
to be performed in a manner that seeks to ensure security of principal of the overall portfolio. This
would include managing credit and interest rate risk with given risk management parameters and
avoiding any transactions that would prejudice confidence in Council or its associated entities.

Maintenance of Liquidity
The investment portfolio will maintain sufficient liquidity to meet all reasonably anticipated
operating cash flow requirements of Council, as and when they fall due, without incurring
significant transaction costs due to being required to sell an investment.

Return on Investments
The portfolio is expected to achieve a market average rate of return and take into account
Council’s risk tolerance and current interest rates, budget considerations, and the economic cycle.
Any additional return target set by Council will also consider the risk limitations, prudent investment
principles and cash flow characteristics identified within this Investment Policy.

The following table shows the credit ratings and counterparty limits for Council:

Short Term Rating (Standard & Poor’s) or equivalent             Individual          Total Limit
                                                                Counterparty
                                                                Limit
A1+ - Financial Institutions                                    35%                 100%
A1+ - Bond Mutual Funds                                         30%                 50%
A1 – Financial Institutions                                     30%                 30%
A2 – Financial Institutions                                     10%                 30%
A3 – Financial Institutions                                     5%                  10%
Unrated                                                         Nil                 Nil
QIC / QTC Pooled Cash Management Fund                           100%                100%

It is noted that for the purposes of this investment portfolio, the percentage limits apply effective
from the date of purchase as a percentage of the market value of the portfolio. No more than 20
per cent of the portfolio is to be invested in Floating Rate Notes.

Comparison of Performance
For performance purposes, the portfolio will be compared to the UBS Australia Bank Bill Index
and/or the Bank Bill Swap Reference Rate over a rolling one-year period. The UBS Australia Bank
Bill Index has a modified duration of 45 days and comprises thirteen 90 Day Bank Bills. The
benchmark target is to be set equal to or above the benchmark yield and consider the expected
types of securities held in each portfolio.




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Section 3

STRATEGIC POLICY – 2014/15 INVESTMENT POLICY


Investable funds
For the purposes of this policy, investable funds are the moneys available for investment at any
one time and include the Council’s bank account balance. Included in this balance is any moneys
held by Council on behalf of external parties (for example developer contributions).

The investable funds should be matched against the cash flow needs of Council deemed by the
Manager Financial Services after preparing Council’s budget. Once the Manager Financial
Services has determined that the cash flow forecast can be met, if required, funds may be invested
for the required term. In this regard, it is appropriate for the Manager Financial Services to be
conservative (i.e., it is unlikely that investments are be broken to meet cash flow obligations).

It is the responsibility of the Manager Financial Services to assess the cost of direct investment
management by Council relative to the return generated. This should be compared with the cost of
investing funds with a capital guaranteed cash fund, for example QTC Capital Guaranteed Cash
Fund.

The maturity structure of the investment portfolio will reflect a maximum term to maturity of no
longer than twelve (12) months.

Authorised investments
Without specific approval from Council or the Treasurer, investments are limited to those
prescribed by Section 6 of the Statutory Bodies Financial Arrangements Act 1982 for local
governments with Category 1 investment power, which include:
   deposits with a financial institution;
   interest bearing deposits;
   commercial paper;
   bank accepted/endorsed bank bills;
   bank negotiable certificates of deposit;
   short term bonds;
   floating rate notes;
   QIC Cash Fund; and
   QTC Capital Guaranteed Cash Fund, Debt Offset Facility, Fixed Rate Deposit (up to 12
    months) and QTC Working Capital Facility.


Prohibited investments
This Investment Policy prohibits any investment carried out for speculative purposes. The Manager
Financial Services may include a prohibited investments list within the Investment Guidelines and
Approved Lists.

The following investments are prohibited by this investment policy:
 derivative based instruments (excluding floating rate notes);
   principal only investments or securities that provide potentially nil or negative cash flow;
   stand-alone securities issued that have underlying futures, options, forward contracts and
    swaps of any kind; and
   securities issued in non-Australian dollars.




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Section 4

STRATEGIC POLICY – 2014/15 INVESTMENT POLICY


Approved lists
The Manager Financial Services shall prepare and maintain the following approved counterparty
lists for the investment of funds:
 approved banks;
 approved commercial paper and medium term note issuers;
 approved brokers/dealer and direct issuers for purchase or sale of security with a minimum
     credit rating of A+; and
 approved credit unions.

New investment products
A new investment product requires a full risk assessment by the Manager Financial Services
(including compliance with the Act) and requires approval by the Director Corporate Services.

Breaches
Any breach of this Investment Policy is to be reported to the Director Corporate Services and
Manager Financial Services and rectified within 24 hours of the breach occurring.

Where Council holds an investment that is downgraded below the minimum acceptable rating
level, as prescribed under regulation for the investment arrangement, Council shall within 28 days
after the change becomes known to the local government, either obtain Treasurer’s approval for
continuing with the investment arrangement or sell the investment arrangement (including, for
example, withdrawing a deposit).

Where limits for different risk categories or where counterparty limits are breached, the Manager
Financial Services will bring the matter to the attention of the Director Corporate Services with a
recommendation on potential options (e.g. continuing with the investment through until maturity, or
withdrawing a deposit).

Safekeeping and custody
Each transaction will require written confirmation by the broker/dealer/bank. Council will hold
security documents, or alternatively a third party custodian authorised by the Manager Financial
Services and evidenced by safekeeping receipts may hold security documents.

Criteria of authorised dealers and broker
Council will maintain a list of authorised financial institutions and securities brokers that the
investment officers may deal with. These financial intermediaries must have a minimum long term
rating of at least either A+/A1/A+ from Standard and Poor’s, Moody’s or Fitch IBCA.

All transactions undertaken on behalf of the investment portfolio of Council will be executed either
by Council directly, or through securities brokers registered as Australian Financial Service
Licensees (ASIC) with an established sales presence in Australia, or direct issuers that directly
issue their own securities which are registered on Council’s approved list of brokers/dealers and
direct issuers.


ROLES AND RESPONSIBILITIES
The Director Corporate Services and the Manager Financial Services are authorised to invest
Council’s operating funds at their discretion in investments consistent with this Investment Policy
and legislation.

The Manager Financial Services will report to Council for investment guidelines, approved lists and
oversight of investment activities for the purposes of this Investment Policy.




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Section 5

STRATEGIC POLICY – 2014/15 INVESTMENT POLICY


The Manager Financial Services in consultation with the Director Corporate Services shall
establish internal controls and processes that will ensure investment objectives are met and that
the investment portfolios are protected from loss, theft or inappropriate use. The internal controls
will be subject to periodic reviews by Council’s Internal Audit function to verify compliance with the
Investment Policy and legislation.

The established processes will include monthly and quarterly reporting (including compliance
reporting), as well as an annual review of the Investment Policy.

Definitions
BBSW – Bank Bill Swap Rate – This is the daily calculation of the yields on bank bills of 1, 2, 3, 4,
5, and 6 month maturities used for the setting of financial arrangements.
Ethical Investment Principles – Investment in companies or industries that promote positive
approaches to environmental, social and corporate governance issues; or the avoidance of
investment in industries deemed harmful to health or the environment. These principles have been
recognised by the United Nations Principles for Responsible Investment. 1
Financial Institution is defined as an authorised deposit-taking institution within the meaning of
the Banking Act 1959 (Cwlth), Section 5.2
Investments are defined as arrangements that are undertaken or acquired for producing income
and apply only to the cash investments of Council.
Market Value of the portfolio is the book value of fixed term fixed interest deposits plus a market
value assessment of commercial paper, bank bills, and bonds or floating rate notes.
QIC – Queensland Investment Corporation.
QTC – Queensland Treasury Corporation.
UBS Bank Bill Index – widely considered to be the industry benchmark for short term cash fund
performance and is used by market participants as a means of comparing the returns generated by
the various cash funds available in the market.


RELEVANT LEGISLATION
Statutory Bodies Financial Arrangements Act 1982
Statutory Bodies Financial Arrangements Regulation 2007
Local Government Act 2009
Banking Act 1959 (Cwlth)




Version control:
    Version    Reason/ Trigger                    Change (Y/N)     Endorsed/ Reviewed by          Date

    1.1        Annual Review                      Y                Wayne Jensen                   19/06/2014

    1.0        Create new on de-amalgamation       Y               Wayne Jensen                   22/12/2013
               from Sunshine Coast Regional
               Council




1
  Further information on the United Nations Principles for Responsible Investment, including a schedule of Australian
signatories, can be obtained from the following website http://www.unpri.org/principles/
2
  For a list of authorised deposit taking institutions, refer to the website of the Australian Prudential Regulation
Authority: http://www.apra.gov.au/adi/.
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