PURPOSE
The purpose of this policy is to set guidelines for the parameters, responsibilities and controls for investment of corporate funds.
OBJECTIVES
The Company’s primary objectives when investing cash are, in order of importance, to:
- Preserve principal
- Maintain liquidity sufficient to meet cash flow requirements
- Maximize total return
- Diversify appropriately
- Provide capital for strategic equity investments
SCOPE
This policy applies to (the “Company”) and all of its wholly owned subsidiaries.
ROLES AND RESPONSIBILITIES
1. Company
The Company’s Board of Directors, Chief Executive Officer or Chief Financial Officer or by any individuals designated by them (each, a “Designee”) will review the Company’s cash flow requirements and determine the amount of liquidity required for working capital and other operational needs. Funds not required for working capital and other operational needs will be invested pursuant to the guidelines set forth below. The Company fully indemnifies such individuals from any loss arising from activities related to investment of the Company’s assets, as long as the investments are made in accordance with this policy and applicable law.
The Designees may employ the services of a registered investment advisor to direct a portion or all of the investment activities of the Company consistent with the guidelines set forth in the investment policy.
The Company will review the investment policy annually.
2. Investment Managers
Investment managers must adhere to this policy as well as any specific limitations, guidelines, attitudes, and philosophies expressed in any written
amendments to this policy or soft policies that may be communicated from time
to time by the Company in light of market conditions, in the form of emails or letters.
INVESTMENT GUIDELINES
1. Approved Investments
- Bank deposits
- Obligations of the U.S. government and its agencies
- Money market instruments including repurchase agreements, commercial paper, and negotiable certificates of deposit
- Money market funds registered according to SEC Rule 2a-7 of the Investment Company Act of 1940; fund size must be at least $1 billion
- Corporate bonds
- Asset-backed securities
- Mutual funds that invest exclusively in securities approved under this policy
- Direct equity investments, so long as they support the Company’s strategic initiatives and are approved by the Board of Directors.
2. Prohibited Investments
- Collateralized debt obligations, collateralized loan obligations
- Structured investment vehicles
- Auction rate securities
- Extendable commercial paper
3. Credit Quality
At the time of purchase, fixed income securities must have minimum short-term credit ratings of A-1/P-1/F1 by at least one of the Nationally Recognized Statistical Rating Organizations (NRSROs) specifically Moody’s, Standard & Poor’s or Fitch. Securities of issuers with a long-term credit rating must be rated A- or A3 at a minimum by at least one NRSRO. Asset-backed securities must be rated AAA or equivalent by at least one NRSRO. Money Market funds must be rated AAA or equivalent by at least one NRSRO.
If securities are downgraded by one of the above rating agencies, notification of the downgrade and recommended action should be sent to the Company within two business days of the downgrade event. If a security’s rating drops below the minimum ratings above, the investment manager will recommend the action to be taken in the downgrade notice, and may hold the security, unless specifically instructed to be sold by the Company.
Repurchase agreements will be at least 102 percent collateralized with securities issued by the U.S. government or its agencies.
4. Diversification
Securities of a single issuer valued at cost at the time of purchase should not exceed the greater of 5 percent of the market value of the portfolio or $1 million. For purposes of this diversification restriction, securities of a parent company, subsidiaries, entities acquired or merged will be combined. Securities issued by the U.S. Treasury and U.S. government agencies as well as any direct equity investments are exempted from these restrictions.
5. Marketability/Liquidity/Trading
No more than 10 percent of the portfolio may be invested in securities lacking an active secondary market.
Issue size must be greater than or equal to $50 million for corporate bonds, although exceptions are permissible with prior approval from the Company. No single position in a corporate bond will equal more than 5 percent of the amount outstanding for that issue at time of purchase.
For accounting purposes, all investments will be designated as “Available for Sale” as defined by FASB Accounting Codification ASC320, “Investments- Debt and Equity Securities.” Thus investments may be sold prior to maturity to preserve capital or to provide required liquidity or for other reasons determined by the Registered Investment Advisor. In addition, trading of securities is permitted by outside investment managers to realize capital gains or losses within the context of maximizing after-tax total return. Direct equity investments are exempted from this requirement.
6. Maturity/Portfolio Duration
At the time of purchase, the final maturity of fixed income securities within the portfolio shall not exceed 24 months. The weighted average maturity of the fixed income portfolio will be no greater than 130 percent of the total number of maximum days of a stated benchmark to be determined the Company at the point when investments are made.
In the case of securities with amortizing assets (i.e., asset backed securities), the average life of the security shall be used to determine the maximum maturity threshold and the weighted average maturity of the portfolio.
With respect to any eligible instrument that has an interest rate that is reset periodically, the reset date shall be used to determine the maximum maturity limit. The reset date should also be used for the weighted average maturity calculation.
7. Performance Measurement and Reporting
The investment manager will meet with the Company no less than annually and will be available on a regular basis and when requested by Company. Investment performance for the portfolios managed by outside investment mangers will be measured against the agreed upon benchmark.
The investment manager will provide statements of transactions and market valuation on a daily and monthly basis for portfolio assets on a security-by- security and portfolio basis including:
- Investment policy compliance verification reporting
- Risk analytics including duration analysis (by security and portfolio), sector exposure, credit ratings and comparisons relative to policy parameters
- Balance sheet, income statement and statement of cash flows summaries
- Interest accrual and amortization/accretion reporting
- Balance sheet classification per ASC 320 and ASC 230, and ASC 820 reporting
- Unrealized and realized gain/loss summaries, including applicable ASC 320 impairment disclosures
- Yield to maturity on cost and market
- Portfolio total return performance versus the agreed upon benchmark
The investment manager must be able to claim compliance with the CFA Institute’s Global Investment Performance Standards (GIPS®) and provide an independent verification of that compliance upon request. Furthermore, the investment manager must provide annually, or upon request, a copy of its SSAE 16 report.
8. Transparency and Verification
Assets managed by outside investment managers are to be held in a segregated third party custodial account with separate custody agreement executed between the custodian and the Company. The custodian will perform the following tasks:
- Provide independent, daily verification of portfolio assets, transactions, and risk characteristics
- Have daily access to all transactions completed by the fund managers
- Perform all redemptions and purchases based on requests from the fund managers
- Hold the Company’s assets
- Aggregate all accounting reports from the fund managers into a single report
- Integrate investment reports for compliance, performance and risk reporting
- Address regulatory and reporting requirements
- Provide SSAE 16 reports annually, or upon request
EXCEPTION MANAGEMENT
Any exceptions to this policy must be approved in writing. For minor exceptions, such as exceeding investment limits on approved investments, the written approval of the Chief Financial Officer is required. For major exceptions, such as expanding the types of permitted investments or exceeding portfolio diversification requirements, the written approval of the Board of Directors is required.
INTERNAL CONTROLS
The following internal controls must be enforced:
- The separation of transaction authority from accounting and record- keeping
- All physical deliveries or book entries of principal and/or interest shall be performed by a third party custodian
- A monthly reconciliation of investment statements to the general ledger accounts shall be performed
- All investment portfolios must be covered by the Company’s liability and crime coverage insurance policies _____. All banks, brokers and custodians must carry adequate liability and crime coverage and provide a detailed review and assessment of their internal controls upon request