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Originally adopted January 19, 1999
This version effective as of July 25, 2011
The purpose of this policy is to identify the policies that will govern the Cuyahoga County, Ohio (the County) investment program. These policies have been adopted by, and can be changed only by, a majority vote of the Investment Advisory Committee.
These policies are designed to ensure the prudent management of public funds, the availability of operating and capital funds when needed, and an investment return competitive with comparable funds and financial market indices.
All participants in the investment process shall act responsibly as custodians of the public trust. Investment officials shall recognize that the investment portfolio is subject to public review and evaluation. The overall program shall be designed and managed with a degree of professionalism that is worthy of the public trust.
Scope of the Investment Policy
This investment policy is a comprehensive one that governs the overall administration and investment management of those funds under the direct authority of the County Treasurer. These funds are described in the Comprehensive Annual Financial Report (CAFR) of the County released each June. These policies apply to all investment transactions involving the financial assets in these funds. Any practice not clearly authorized under these policies is prohibited. The guidance set forth herein is to be strictly followed by all those responsible for any aspect of the management or administration of these funds.
A current copy of this policy shall be on file with The Ohio State Auditor.
The County portfolio shall be managed to accomplish the following hierarchy of objectives:
- Preservation of Principal - The single most important objective of the County investment program is the preservation of principal of those funds within the portfolio.
- Maintenance of Liquidity - The portfolio shall be managed in such a manner that assures that funds are available as needed to meet those immediate and/or future operating requirements of the County.
- Maximize Return - The portfolio shall be managed in such a fashion as to attain a market-average rate of return throughout budgetary and economic cycles, within the context and parameters set forth by objectives 1 and 2 above.
Delegation of Authority
The County Treasurer is responsible to safely invest and reinvest County funds. The Treasurer shall establish written procedures for the operation of the investment program consistent with this investment policy, shall establish a system of controls to regulate the activities of subordinate officials and shall be responsible for all transactions undertaken. Further, the roles and responsibilities of staff assigned to investment management shall be clearly defined through maintenance of formal job descriptions and established chain of command. Employees who directly manage investments will attend a minimum of 6 hours each year of continuing education on public sector investment topics at County costs. Staff shall be bonded in amounts appropriate to levels of responsibility and portfolio characteristics.
Investment Advisory Committee
As stipulated in Ohio Revised Code Section 135.341, The Investment Advisory Committee shall consist of three members; the County Executive, the County Treasurer and a representative of the County Council. The Committee may retain the services of an investment advisor, registered under the Investment Advisers Act of 1940, to assist in performing its duties. The Investment Advisory Committee shall review this policy every three months at regularly scheduled public meetings. The Committee may meet more frequently at the request of any member and add, delete, or amend investment policies at these public meetings.
Standard of Prudence
The standard of prudence to be applied to the investment of the County portfolio shall be the industry standard “Prudent Person Rule”, which states:
“Investments shall be made with judgment and care, under circumstances then prevailing which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.”
Investment staff acting in accordance with this policy or any other written procedures pertaining to the administration and management of the County portfolio and who exercise the proper due diligence shall be relieved of personal responsibility for an individual security’s credit risk or market price changes, provided that these deviations are reported in a timely fashion to the Investment Advisory Committee and that appropriate action is taken to control and prevent any further adverse developments.
Ethics and Conflict of Interest
Members of the Investment Advisory Committee 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 interests in financial institutions with which they conduct business. They shall further disclose any personal finance or investment positions that could be related to the performance of the County portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with which business is conducted on behalf of the County. Employees should keep an accurate record of any social interaction with brokers or agents for future review by supervisors and refrain from securing personal gifts from brokers with which they do County business.
Investment instruments authorized for purchase by the County include those described in Ohio Revised Code (Sections 135.18, 135.181,135.35), as summarized and restricted below:
- U.S. Treasury Obligations. United States Treasury bills, notes, or any other obligation or security issued by the United States Treasury or any other obligation guaranteed as to principal and interest by the United States, or any book entry, zero coupon United States treasury security that is a direct obligation of the United States.
- Federal Agency Obligations. Bonds, notes, debentures, or other obligations or securities issued by any federal government agency or instrumentality. All federal agency securities shall be direct issuances of federal government agencies or instrumentalities.
- Repurchase Agreements. Investments in repurchase agreements if the following conditions are met:
- the contract is fully secured by deliverable U.S. Treasury and Federal Agency Obligations as defined above, having a market value at all times of at least one hundred two percent (102%) of the amount of the contract;
- a master repurchase agreement or specific written, repurchase agreement governs the transaction;
- the repurchase agreement has a term to maturity of no greater than thirty (30) days;
- the repurchase agreement is transacted on a delivery versus payment basis;
- the securities are held free and clear of any lien by an independent third party custodian acting solely as agent for the County and is
- a Federal Reserve Bank, or
- a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $100 million;
- a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the County;
- for repurchase agreements with terms to maturity of greater than one (1) day, the County will value the collateral securities daily unless market conditions warrant more frequent valuation and require that if additional collateral is required then that collateral must be delivered within one business day (if a collateral deficiency is not corrected within this time frame, the collateral securities will be liquidated.);
- Substitutions of collateral will be permitted only with advance written approval of an authorized Treasury employee;
- the County will enter into repurchase agreements only with:
- primary government securities dealers who are members of the National Association of Securities Dealers, report daily to the Federal Reserve Bank of New
- a bank, savings bank or savings and loan association having $5 billion in assets and $500 million in capital and regulated by the Superintendent of Financial Institutions, or through an institution regulated by the Comptroller of the Currency, Federal Deposit Insurance Corporation, or Board of Governors of the Federal Reserve System, or
- diversified securities broker-dealers who are members of the Financial Industry Regulatory Authority (FINRA) having $5 billion in assets and $500 million in capital and subject to regulation of capital standards by any state or federal regulatory agency; and
- Repurchase agreement counter parties must meet the following criteria:
- have short-term credit rating of at least “A1” or equivalent by all of the nationally recognized statistical rating organizations (“NRSRO”) that rate the issuer;
- have been in operation for at least 5 years, and
- be reputable among market participants.
- Commercial paper. Unsecured short-term debt of an entity defined in Division (D) of Section 1705.01 of the Ohio Revised Code if the following conditions are met:
- the maturity is no greater than one hundred eighty (180) days;
- the total holdings of an issuer’s paper does not represent more than two percent (2%) of the issuing corporation’s total outstanding commercial paper;
- the short-term debt rating is at least “A1” or equivalent by all NRSROs that rate the issuer, with no negative credit watch announced by any NRSRO. Under all circumstances, a minimum of two short-term debt ratings must be available; and
- the issuing entity has assets exceeding five hundred million dollars.
- Bankers’ acceptances of any bank insured by the Federal Deposit Insurance Corporation, whether a domestic bank or a federally chartered domestic branch office of a foreign bank, if the following requirements are met:
- the maturity is no greater than one hundred eighty (180) days;
- the securities are eligible for purchase by the Federal Reserve System;
- the issuer has a minimum “AA” long-term debt rating (“AAA” for foreign banks) by a majority of the NRSROs that have rated the issuer, with no negative credit watch announced by any NRSRO. The short-term debt rating must be at least“A1” or equivalent by all of the NRSROs that rate the issuer (minimum of two ratings must be available); and
- the amount invested in any single issuer will not exceed five percent (5%) of the County’s total average portfolio on the date of acquisition.
- Municipal Obligations. Bonds and other obligations of the State of Ohio, the Cuyahoga County Land Reutilization Corporation, or the political subdivisions of the State of Ohio, provided that such political subdivisions are located wholly or partly within Cuyahoga County.
- Bank Deposits. Time certificates of deposit or savings or deposit accounts in an eligible institution defined in Section 135.32 of the Ohio Revised Code. Certificates of Deposit will have a maturity of no greater than one (1) year. Collateralization is required on all deposits of County funds by Section 135.18 or 135.181 of the Ohio Revised Code G.The County may invest in time certificates of deposit at a below-market rate of interest as part of a linked-deposit program as provided for by Section 135.80 of the Ohio Revised Code.
- State Pool. State of Ohio Local Agency Investment Pool (STAR Ohio), if the highest letter or numerical rating provided by at least one nationally recognized rating service is maintained. The County would not be required to divest funds during the initial 180 days following the Treasurer of State’s receipt of notice that the fund is not in compliance with the rating requirements.
- Registered Investment Companies (Mutual Funds.) Shares in open-end, no-load money market mutual funds provided such funds are registered under the Federal Investment Company Act of 1940 and invest exclusively in the securities defined above as U.S. Treasury Obligations and Federal Agency Obligations as required by Section 135.35 of the Ohio Revised Code. The fund must be rated “AAm” or “AAm-G” or better by Standard & Poor’s Corporation, or an equivalent by another NRSRO. The fund must also be properly registered for sale in the State of Ohio and be purchased through eligible institutions defined in Section 135.32 of the Ohio Revised Code. Such institutions must also be designated as a depository bank of the County. At no time will the County’s investment in a fund represent more than 25% of the total net assets of that fund.
- Corporate Notes. Notes issued by corporations that are incorporated under the laws of the United States and that are operating within the United States, or by depository institutions that are doing business under authority granted by the United States or any state and that are operating within the United States, provided both of the following apply:
- The notes are rated in the second highest or higher category by at least two nationally recognized rating services at the time of purchase.
- The notes mature not later than two years after purchase.
- Foreign Notes. Debt instruments rated at the time of purchase in one of the three highest categories by two nationally recognized standard rating services and issued by foreign nations diplomatically recognized by the United States government, provided the following apply:
- All interest and principal shall be denominated and payable in United States funds.
- The debt instrument is backed by the full faith and credit of that foreign nation, there is no prior history of default, and the debt instrument matures not later than five years after purchase.
- Delinquent Tax Collection Anticipation Notes: Securities as defined in Section 133.082 of the Ohio Revised Code issued by Cuyahoga County in anticipation of the collection of current year delinquent taxes provided the following apply:
- The collection of current year delinquent taxes is pledged as security for repayment of the notes;
- The proceeds of the sale of the Delinquent Tax Collection Anticipation Notes shall be used to advance the collection of current delinquent taxes to taxing units in Cuyahoga County.
The portfolio shall be structured to diversify investments to reduce the risk of loss resulting from over-concentration of assets in a specific maturity, a specific issuer or a specific type of investment. The maximum percentage of the total average portfolio permitted in each eligible investment is as follows:
| A. U.S. Treasury
|| 100% maximum
| B. Federal Agency (Fixed Rate)
|| 100% maximum
| C. Federal Agency (Callable)
|| 20% maximum
| D. Repurchase Agreements
|| 50% maximum*
| E. Commercial Paper and Bankers' Acceptances combined
|| 25% maximum
| F. Certificates of Deposit
|| 20% maximum
| G. Bank Deposits (excluding CDs)
|| 20% maximum*
| H. Municipal Obligations
|| 10% maximum
| I. STAR Ohio and Money Market Mutual Funds combined
|| 50% maximum
| J. Corporate Notes
|| 15% maximum
| K. Foreign Notes
|| 01% maximum
| L. Delinquent Tax Collection Anticipation Notes
|| 15% maximum
The County’s Portfolio will be further diversified to limit the exposure to any one issuer. No more than 5% of the County’s total average portfolio will be invested in the securities of any single issuer with the following exceptions:
| U.S. Government Obligations
||100% maximum (U.S. Treasury and Federal Agency Securities; with no one Federal Agency to exceed 40% of the portfolio)
| Repurchase Agreements Counterparties
|| 25% or $150 million, whichever is less
| Mutual Funds
|| 25% maximum
For purposes of this Policy, the County’s total average portfolio will be equal to the average investment balance for the 12 month period ending one month prior to the current month, except for the following cash equivalent investments, indicated by an * (Overnight Repurchase Agreements, Bank Deposits (excluding CDs), STAR Ohio, and Money Market Mutual Funds), where the total average portfolio will be equal to the prior day's portfolio market value.
Maintenance of adequate liquidity to meet the cash flow needs of the County is essential. Accordingly, the portfolio will be structured in a manner that ensures sufficient cash is available to meet anticipated liquidity needs. Selection of investment maturities must be consistent with the cash requirements of the County in order to avoid the forced sale of securities prior to maturity.
For purposes of this investment policy, assets of the County shall be segregated into two categories based on expected liquidity needs and purposes — short-term funds and the long-term portfolio. Assets categorized as short-term funds will be invested in permitted investments maturing in six (6) months or less. The average weighted maturity of the short-term assets will not exceed 30 days. The long-term portfolio will be invested in permitted investments with a stated maturity of no more than 5 years from the date of purchase unless the security is matched to a specific obligation or debt of the County. The purchase of any security with a maturity of greater than five (5) years must be approved in advance by the Investment Advisory Committee. To control the volatility of the long-term portfolio, the County Treasurer will determine a duration target for the portfolio, not to exceed three years.
Notwithstanding these limitations, in no case will the assets in either category be invested in securities with a term to maturity that exceeds the expected disbursement date of those funds. These maturity limits shall not be construed to limit agreements made pursuant to the county's heritage home loan program to renew certificates of deposit linked to eligible loans having a maturity of up to ten years.
Prohibited Investments and Investment Practices
The County is expressly prohibited from the following investments and investment practices. This is not an exclusive list.
- Borrowing funds for the sole purpose of reinvesting the proceeds of such borrowing;
- Issuing taxable Tax or Current Revenue Anticipation Notes for the sole purpose of investing the proceeds;
- Investment in reverse repurchase agreements;
- Short sales (selling a specific security before it has been legally purchased);
- Pair-offs (buying a security and selling it before the settlement date);
- Speculative trading (repetitive buying and selling of the same or similar securities for the purpose of capital gains); and
- Investment in securities commonly known as derivatives, structured notes, or trusts collateralized by Treasury obligations. A treasury inflation-protected security shall not be considered a derivative, provided the security matures not later than five years after purchase.
Monitoring and Adjusting the Portfolio
Those responsible for the day-to-day management of the County portfolio will routinely monitor the contents of the portfolio, as detailed in the Cuyahoga County Treasurer’s Cash Management Procedures Manual, the available markets and the relative values of competing instruments, and will adjust the portfolio as necessary to meet the investment objectives listed above. It is recognized and understood that this non-speculative active management of portfolio holdings may cause a book loss on the sale of an owned investment. It is the policy of the County to charge any such loss against the interest income account during the month in which the loss was booked. Losses shall be allocated to the various funds based on the proportionate fund equity in the total portfolio based on the average daily balance during the month in which the sale occurred. Losses shall only be posted to those funds that can legally accept them.
The County Treasurer shall establish and be responsible for monitoring a system of internal controls governing the administration and management of the County portfolio, and these controls shall be documented in writing. Such controls shall be designed to prevent and control losses of the County funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by any personnel. The internal controls will address: control of collusion, separation of duties, separating transaction authority from accounting and record keeping, custodial safekeeping, clear delegation of authority, written confirmation of telephone transactions, minimizing the number of authorized investment officials and documentation of investment transactions.
As part of the annual audit of County government, the County Treasurer shall have the investment program reviewed by the Auditor of the State of Ohio or other qualified auditing firm. This audit will be designed to establish asset and liability valuations and measure compliance with the County investment policies and procedures. The results of each audit will be disclosed at an open meeting of the Board of County Commissioners. The Board of County Commissioners may periodically seek additional examinations of the investment program at its discretion. The County Treasurer at his or her discretion may contract with an independent firm to audit the County Investment Program.
Bank Selection and Review
The County shall select a depository bank and a custodial bank after issuing a request for proposals and evaluating the ability of proposing banks to provide necessary services, adequacy of capital or net worth of the financial institutions as well as pricing for individual services. The depository shall provide collateral for the County deposits in accordance with requirements for public funds deposits in Ohio. The selected depository and custodial banks shall provide updated financial information to the County on an as requested basis and, at least, annually.
Eligible Banks and Broker/Dealers
The Investment Advisory Committee will establish and maintain a list of eligible brokers, dealers, and banks with which investment transactions can be made. These financial institutions will be selected by creditworthiness (minimum capital requirement of $10,000,000 and at least five years of operation, or, if the firm has its primary place of business in Cuyahoga County, minimum capital as required by Securities and Exchange Commission Rule 15C3-1 and at least ten years in operation). Qualified firms will be limited to “primary” dealers and other dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule.) Written procedures will describe the selection process.
All brokers, dealers and other financial institutions conducting investment business, initiating transactions, or executing transactions initiated by the County, having read this policy shall sign the Investment Policy thereby acknowledging their comprehension and receipt. Current financial statements of eligible banks and broker/dealers shall be kept on file at the County. In addition, all financial institutions interested in transacting securities trades with the County are required to complete a “Broker/Dealer Request for Information” as detailed in the Appendix to this policy.
The County Treasurer may enter into a written investment or deposit agreement that includes a provision under which the parties agree to submit to non-binding arbitration to settle any controversy that may arise out of the agreement including the loss of public moneys resulting from investment or deposit.
Competitive Selection of Investment Instruments
It will be the policy of the County to transact all securities purchase/sales only with approved financial institutions through a formal and competitive process requiring the solicitation and evaluation of at least three bids/offers. The County will accept the offer which (a) has the highest rate of return within the maturity required; and (b) optimizes the investment objective of the overall portfolio. When selling a security, the County will select the bid that generates thehighest sale price. If there is a tie bid between one or more brokers, the County Treasurer will award the winning bid to the brokers on a rotating basis.
It will be the responsibility of the personnel involved with each purchase/sale to produce and retain written records of each transaction including the name of the financial institutions solicited, rate quoted, description of the security, investment selected, and any special considerations that had an impact on the decision. If the lowest priced security (highest yield) was not selected for purchase, an explanation describing the rationale will be included in this record.
Primary fixed price Federal Agency offerings may be purchased from the list of qualified broker/dealers without competitive solicitation. However, before purchasing any primary fixed price agency offering, the County Treasurer will evaluate the appropriateness of the offering as it relates to comparable investments. If it is determined that agency obligations meeting the County's requirements are available in the secondary market at a higher yield, then the outstanding obligation shall be purchased following competitive bidding procedures.
In making investment decisions, all other things being equal and subject to compliance with any applicable Internal Revenue Code requirements for bond proceeds, investment in corporations and financial institutions doing business in the State of Ohio will be given preference over other investment options.
Investment of Bond Proceeds
The resolutions providing for the payment of presently outstanding debt of the County impose certain restrictions on the investment of funds pledged to the payment of principal, interest and other costs associated with the bonds. Those funds established by the provisions of the bond resolutions will be managed in accordance with the terms and conditions of the bond covenants if those requirements are more restrictive than this investment policy.
The County intends to comply with all applicable sections of the Internal Revenue Code of 1986, Arbitrage Rebate Regulations and bond covenants with regard to the investment of bond proceeds.
Safekeeping and Custody
All investment securities purchased by the County or held as collateral on either deposits or investments shall be held in third-party safekeeping at a financial institution (to be designated as the “Custodian”) qualified to act in this capacity. All securities held for the County account will be held free and clear of any lien and all transactions will be conducted on a delivery-vs.-payment basis. All purchases and sales will be transacted on a cash, regular (next day) or “skip-day” settlement basis. The Custodian shall issue a safekeeping receipt to the County listing the specific instrument, rate, maturity and other pertinent information. On a monthly basis, the custodian will also provide reports which list all securities held for the County, the book value of holdings and the market value as of month-end.
Appropriate County officials and representatives of the Custodian responsible for, or in any manner involved with, the safekeeping and custody process of the County shall be bonded to such a degree as to protect the County against losses from malfeasance and misfeasance.
The investment portfolio shall be designed and managed with the objective of obtaining a market rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and cash flow needs of the County. Short-term funds will be compared to the return on the three-month U. S. Treasury Bill and an institutional money market mutual fund with comparable investment restrictions. The long-term portfolio will be compared to an index of U. S. Treasury securities having a similar duration or other appropriate benchmark.
The County Treasurer shall maintain accurate, complete, and timely records of all investment activities. Within ten (10) business days of the end of the month, the County Treasurer shall submit an investment report to the Investment Advisory Committee and the Working Group of the Investment Advisory Committee each month. This report shall include: (i) a listing of the existing portfolio in terms of investment securities, amortized book value, maturity date, return, market value and other features deemed relevant and (ii) a listing of all transactions executed during the month. The market values presented in these reports will be consistent with accounting guidelines in GASB Statement 31 pertaining to the valuation of investments and the treatment of unrealized gains/losses. The report will also include a statement that the investment of the County portfolio is in compliance with this Policy and any applicable bond resolutions.
The County Treasurer shall also prepare quarterly and annual reports in sufficient detail to provide full disclosure of all investment activities to the Board of County Commissioners, the Investment Advisory Committee and the general public.
Investment Policy Adoption
This policy is adopted this 19th day of January 1999.
Approved by the Investment Advisory Committee