MONTANA BOARD OF HOUSING INVESTMENT POLICY
Board Reviewed August 22, 2011
The Investment Policy of the Board of Housing is as follows:
- Investment Committee:
- The Board shall have an Investment Committee which shall be responsible for oversight of the Investment of the assets of the Montana Board of Housing.
- Membership of Committee:
All Board members will be on the committee with the Board Chairman designating the Chairman of the committee.
- Frequency of Meetings:
The committee shall meet at least once a year.
- Functions of the Investment Committee of the Board shall be:
- To review compiled investment reports;
- To review the functioning of the investment policy for potential enhancement;
- To review the return on assets of the Board; including reviewing a report that shows the status of any negative or positive rebate earnings for each bond series.
- To address any staff concerns regarding investments or the investment policy; and,
- To monitor compliance with the investment policy.
- Section 90-6-104, Montana Code Annotated, which outlines the general powers of the Board, includes subsection 13 which states:
“The Board may invest any funds not required for immediate use, subject to any agreements with its bondholders and note holders, as provided in Title 17, Chapter 6, except all investment income from funds of the Board less the cost for investment as prescribed by law shall be deposited in the housing authority enterprise fund.” (Emphasis added)
- All investments shall be made in accordance with the prudent expert rule as contained in Chapter 17, Part 6, Montana Code Annotated, the requirements of the particular indenture, and the Internal Revenue Code.
- Permissibility of investments, security, liquidity and rate of return on investments are of primary concern. The Board has a responsibility in the investment of funds to seek the highest rate of return available in the market consistent with the legality, security, liquidity, cash flow and programmatic requirements of each fund for which they are invested. The Board also has a responsibility to diligently monitor and calculate (or cause to be calculated) any arbitrage rebate required to be remitted to the federal government.
- The Board shall not invest in leveraged investments, including but not limited to derivative investments which involve leveraging. Investments are to be made with the expectation that they will be held to maturity; investments are not to be made with the intention of participating in trading activities to generate investment return.
Sales of securities should be limited to the following:
- A sale and subsequent purchase would improve the quality or yield of the portfolio.
- Liquidity needs of the portfolio require that the security be sold.
- A sale of an investment is necessary as a result of refunding a bond issue. Sales other than the abovementioned should be approved by the Executive Director.
- The Board may invest in the following securities providing such securities meet the requirements of Section 17-6-103, MCA:
A. Direct obligations of or obligations guaranteed by the United States of America, which includes certificates of ownership in the guaranteed portion of loans guaranteed by the Rural Housing and Community Development Service of the United States Department of Agriculture (formerly the Farmers Home Administration), participation certificates in obligations of the General Services Administration, obligations guaranteed by the U.S. Maritime Administration pursuant to Title XI, Small Business Administration guaranteed participation certificates and guaranteed pool certificates, mortgage-backed securities and pool certificates guaranteed by the Government National Mortgage Association, transit bonds guaranteed by the Washington Metropolitan Area Transit Authority, and Veterans Administration guaranteed REMIC securities and pass-through certificates;
- Obligations, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following:
- Farm Credit System or predecessors (the Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives);
- Federal Home Loan Bank System;
- Export-Import Bank of the United States;
- Federal National Mortgage Association, (only senior debt obligations or mortgage-backed securities, but excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts and excluding interest-only strips);
- Federal Home Loan Mortgage Corporation, (only senior debt obligations and participation certificates, but excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts and excluding interest-only strips);
- Tennessee Valley Authority;
- Student Loan Marketing Association (only SLMA letter of credit backed issues and senior debt obligations, but excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at a maturity or call date);
- Federal Financing Corporation;
- Resolution Funding Corporation.
- Certificates of deposit issued by, or time deposits with any financial institution (including a trustee, a lender or a paying agent) insured by the FDIC and provided further that such time deposits or certificates of deposit, to the extent not insured by the Federal Deposit Insurance Corporation, are fully secured by obligations of the type specified in parts A and B above which have a market value, exclusive of accrued interest, at least equal to the amount of such deposits. In no case shall the investment result in a reduction of the ratings by Standard & Poor’s Rating Services or by Moody’s Investors Services on the applicable bond series.
- Repurchase agreements or guaranteed investment agreements but only if:
- The agreement is fully collatoralized in an amount equal to 102% of the principal and interest of the agreement, by obligations of the type specified in A, B or C above and which collateral is delivered out and held by the Trustee or its agent, and the collateral is marked to market at least weekly; and
- The agreement is with (i) a financial institution as described under part C above (and including the subsidiary of a foreign bank) organized under the laws of the United States of America or any state thereof and subject to supervision by the appropriate authorities of either the United States of America or the state under which whose laws it is organized, or (ii) a financial institution (i.e. banks, insurance companies, etc.) organized under the laws of the United States of America or any state thereof and either (a) whose unsecured obligations are rated in either of the two highest rating categories by the agency or agencies rating the indenture or (b) whose obligations under such agreement are unconditionally guaranteed by such a financial institution which is rated as provided in 2(ii)(a).
- In no case shall the investment result in a reduction of the ratings by the agency or agencies rating the applicable bond series; and
- The Agreements shall be written to give the Board the maximum practical flexibility in the case of a downgrade in the rating of the provider.
E. Any investments permitted for State funds, but only with respect to the investment of Board moneys held by the State Treasurer in the Housing Authority Enterprise Fund.
All Funds invested with the State that are not needed for current operating expenses shall be invested in the State’s Short-Term investment pool.
VII. In no case may the Board or a trustee invest in any one financial institution an amount in excess of the net worth of that financial institution or its guarantor.
- 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 interest 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 and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the Montana Board of Housing. Employees and officers shall disclose any material interest in financial institutions to the Executive Director and/or the Board within 30 days of acquiring a material interest. The Board and/or the Executive Director shall be updated as changes in material interests occur.
- Authority to manage the investment programs is granted to the Accounting & Finance Officer. The Executive Director, Single Family and Multifamily Program Managers are authorized to handle investments in the absence of the above mentioned individual. Responsibility for the operation of the investment program is hereby delegated to these officers, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy. No person may engage in an investment transaction except as provided under the terms of this policy. The Accounting & Finance Manager shall have the primary responsibility for all investment transactions and shall establish a system of controls to regulate the activities of subordinate officials.
- The Accounting & Finance Manager is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the Montana Board of Housing are protected from loss, theft or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. 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 Accounting & Finance Manager 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
- Separation of transaction authority from accounting and record keeping
- Written confirmation of transactions for investments
XI. Funds received by the Montana Board of Housing or its Trustees will be deposited as soon as possible upon receipt. Uninvested balances held by financial institutions will be kept as low as is practical, typically under $1 per account. Sweep accounts will be used to facilitate overnight investments of funds not invested in individual securities or in investment agreements. Funds in the sweep accounts will be invested as soon as loan prepayment transfers have been completed by the trustee.
XII. The Accounting & Finance Manager shall prepare, and present to the Board, an investment report at least quarterly, including a management summary that provides an analysis of the status of the current investment portfolio transactions made over the last quarter. The summary will be prepared in a manner which will allow the Board to determine if the investment activities during the reporting period have conformed to the investment policy. The report should include:
- Listing of individual securities held at the end of the reporting period
- Average weighted yield to maturity of the investment portfolio
- Listing of investments by maturity date
- Percentage of total portfolio which each type of investment represents
XIII. Investment officers acting in accordance with these investment Guidelines shall be relieved of personal responsibility for an individual security's credit risk or market price changes provided that deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.
XIV. It is the responsibility of those Agency staff authorized to direct investments, and primarily the Accounting & Finance Manager, to keep abreast of the latest developments within the investment community. Particular attention should be paid to both interest rate trends and items relating to the credit of and the Montana Board of Housing's exposure to various dealers, banks and securities.
XV. Each trustee and rating agency will be furnished copies fo this policy, and any amendments to it.