BASICS OF INVESTING. Ohio Township Association Annual Winter Conference AGENDA

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BASICS OF INVESTING Ohio Township Association Annual Winter Conference February 2, 2018 Presented by Eileen Stanic, CTP Senior Public Funds Advisor Meeder

1 BASICS OF INVESTING Ohio Township Association Annual Winter Conference February 2, 2018 Presented by Eileen Stanic, CTP Senior Public Funds Advisor Meeder Investment Management 1 AGENDA Ohio Investment Law Developing an Investment Policy Permissible Investments Collateralization of Public Deposits Service Providers 2 1

2 Ohio Investment Law 3 3 MAJOR EVENTS Ohio savings & loan crisis Derivatives SAFE program SENATE BILL 81 effective 9/27/96 4 2

3 SENATE BILL 81 Landmark legislation effective 9/27/96 Prohibited investment in derivatives, reverse REPOs, strips and local investment pools other than STAR Ohio Prohibited the use of leverage or purchasing an investment that do not reasonably expect can be held to maturity Required investment in any federal agency or instrumentality security to be a direct issuance of the federal agency or instrumentality Mandated investment training Required filing of investment policy with Auditor of State Established maximum maturity of 5 years Expanded list of permissible investments to include commercial paper and bankers acceptances Established criteria for entering into a repurchase agreement (REPO) 5 CURRENT OHIO INVESTMENT LAW ORC : Schools, Townships, statutory Cities, Libraries and other local governments ORC : Mainly Counties or other agencies Charter City: May choose to not follow state guidelines 6 3

4 Developing an Investment Policy 7 INVESTMENT POLICY A plan for investment related decision making Requirements Create, adopt and file with Auditor of State Not required if annual average portfolio of investments is $100,000 or less Service providers sign off Best Practice Review annually Stay current with changes in Ohio law 8 4

5 COMPONENTS OF AN INVESTMENT POLICY 1. Purpose & Scope 2. Objectives 3. Delegation of Authority 4. Authorized Investments 5. Maturity Limits & Diversification Guidelines 6. Internal Controls & Reporting 7. Selection of Providers 9 OBJECTIVES Safety Liquidity Return 10 5

INTERNAL CONTROLS & DUE DILIGENCE Proper Administrative Systems Identify potential weaknesses in investment functions Procedures to Select Service Providers Organizational Structures Who performs

6 INTERNAL CONTROLS & DUE DILIGENCE Proper Administrative Systems Identify potential weaknesses in investment functions Procedures to Select Service Providers Organizational Structures Who performs specific investment functions? Training Programs Does each employee receive annual training? Periodic Internal Audits Check procedures of outside investment professionals 11 SIMPLE INVESTMENT POLICY EXAMPLE This document, in conjunction with the Ohio Revised Code, as amended, will govern the investment activities of. The purpose of the investment activities is to generate income consistent with market rates of return while maintaining the safety of the portfolio s principal value and liquidity necessary for ongoing operations. The Fiscal Officer or other designated person will conduct all investment activities. A current list of individuals or investment providers authorized to transact securities trades for the township will be maintained with this policy. The Fiscal Officer will be permitted to invest in any security specifically authorized by the Ohio Revised Code, Section , as amended, or other relevant sections. The Fiscal Officer or designee should normally seek to diversify its holdings of investments by avoiding concentrations of specific issuers. Under the guidelines of this policy, no security will be purchased that has a remaining term to final maturity of more than five (5) years unless matched against a specific liability as per the Ohio Revised Code. Investment securities will be safekept with a third party custodian subject to a written custodial agreement. The Fiscal Officer shall periodically provide a report of investment activity to the Board of Trustees. A copy of this policy will be filed with the Auditor of State. The effective date of this policy is, Approved: 12 6

7 Permissible Investments 13 STAR OHIO Administered by TOS Similar to a money market fund Daily liquidity AAAm rated by Standard & Poors (highest) 14 7

STAR PLUS Linked to STAR Ohio account Next day liquidity Balance split amongst individual bank demand deposits 100% FDIC insured 15 BANK DEPOSITS Savings and

8 STAR PLUS Linked to STAR Ohio account Next day liquidity Balance split amongst individual bank demand deposits 100% FDIC insured 15 BANK DEPOSITS Savings and money market savings accounts Certificates of deposit (CD or CDARS) Purchase direct or through a broker/dealer Requirements for safety FDIC insurance Collateral 16 8

9 CERTIFICATES OF DEPOSIT 17 CERTIFICATES OF DEPOSIT 18 9

CERTIFICATES OF DEPOSIT CDs bought at $250,000 Account carried with National Financial Services LLC, Member NYSE, SIPC 19 U.S. TREASURY SECURITIES Full faith and credit of the U.

10 CERTIFICATES OF DEPOSIT CDs bought at $250,000 Account carried with National Financial Services LLC, Member NYSE, SIPC 19 U.S. TREASURY SECURITIES Full faith and credit of the U.S. Government Highly liquid Purchase direct from U.S. Treasury or through a broker/dealer 20 10

11 GOVERNMENT SECURITIES Full faith and credit or implied backing of the U.S. Government Customized structures callable types and steps Best practice Compare price amongst various dealers Know the difference between yield and coupon rate 21 COMMERCIAL PAPER Need additional training approved by TOS Short term debt issued by U.S. companies Highest rating category from two rating agencies (Moody s, S&P, Fitch) Limited to 40% of total investment portfolio Maximum of 5% of total investment portfolio in any issuer at time of purchase Maximum maturity restricted to 270 days 22 11

12 BANKERS ACCEPTANCES Need additional training approved by TOS FDIC insured banks back repayment Limited to 40% of total investment portfolio Maximum maturity restricted to 180 days 23 MUNICIPAL SECURITIES Need additional training approved by TOS Limited to general obligations of the State or political subdivisions of the State Must be rated in three highest categories Limited to 20% of total investment portfolio Cannot be the sole owner of an entire issue 24 12

13 REPURCHASE AGREEMENTS (REPO) Term loan with collateral in the form of securities Maximum maturity restricted to 30 days Master Repurchase Agreement outlines procedures Reverse repo enables investment officer to leverage the portfolio PROHIBITED 25 MONEY MARKET MUTUAL FUNDS Registered Investment Company Sponsored by a mutual fund company and regulated by Securities & Exchange Commission (SEC) Limited to No load money market funds invested in: Government securities Repurchase agreements collateralized by government securities Purchase only from banks Need to read prospectus 26 13

14 Collateralization of Public Deposits 27 COLLATERAL OF PUBLIC DEPOSITS Ohio public depositories must provide collateral comprised of securities, bonds or letter of credit Methods of collateralization Specific Pooled Bank must select one method of collateralization for all public depositors 28 14

15 SPECIFIC COLLATERAL Ohio Revised Code Collateral held in separate account for each public depositor Market value of collateral equal to or greater than 105% of uninsured public deposit Public depositor responsible for monitoring 29 OHIO POOLED COLLATERAL PROGRAM Ohio Revised Code Effective July 1, 2017 Lien perfection required Ohio Pooled Collateral System (OPCS) TOS sole regulator and monitor of program Market value of collateral equal to or greater than 102% of uninsured public deposits, or Amount determined by rules adopted by TOS Website access for reporting of collateral to public depositor 30 15

Service Providers 31 WHO WILL HELP YOU INVEST Know the Types of Service Providers STAR Ohio/Plus Banks Investment Advisors Brokers STAR Ohio Know the investments of STAR Ohio Look over the annual

16 Service Providers 31 WHO WILL HELP YOU INVEST Know the Types of Service Providers STAR Ohio/Plus Banks Investment Advisors Brokers STAR Ohio Know the investments of STAR Ohio Look over the annual report STAR Plus Understand how program works Monitor deposit Banks Make sure they understand nuances of public entities Work with banks you know and trust Acts as a fiduciary in the client s best interest Who do they work with? What are their credentials? Check them out: Recommends suitable investments Who do they work with? What do they do and how much do they charge? Check them out: Perform the Due Diligence Before Investing 32 16

17 EXTERNAL MANAGERS ADVISOR Provides investment advice Fiduciary responsibility May or may not have direct control (discretionary vs. non discretionary) Executes purchases/sales Manages or provides advice on overall portfolio May coordinate safekeeping (3 rd party custodian) Definition of Fiduciary - fi du cia ry - noun In law, a person in a position of authority whom the law obligates to act solely on behalf of the person he or she represents and in good faith. Source: Merriam-Webster 33 EXTERNAL MANAGERS BROKER/DEALER Provides investment advice No fiduciary responsibility Does not have direct control Acts as a broker when executing orders on behalf of clients Acts as a dealer when trading from its own account May provide safekeeping 34 17

18 BENEFITS OF USING EXTERNAL MANAGERS Professional manager that is their business Greater access to investment markets/information Broker network potentially more sources to receive best price execution of trades Enhanced credit research available for unsecured investments (i.e., commercial paper) Can complement internal resources or personnel Could increase internal control and separation of duties Be careful and know what role the provider is playing 35 THIRD PARTY CUSTODIAN OHIO TOWNSHIP Funds TOWNSHIP S ACCOUNT WITH BANK TRUST DEPARTMENT Trade details ADVISOR OR FISCAL OFFICER Securities Execute trades Improved safety Centralized reporting Facilitates reconciliation On line account access BROKER/DEALERS 36 18

19 SUMMARY Ask questions Know the details Protect yourself follow the law Seek help when appropriate ULTIMATELY IT IS YOUR RESPONSIBILITY! 37 THANK YOU Eileen Stanic, Senior Public Funds Advisor Direct:

20 Disclosure MEEDER PUBLIC FUNDS (WHICH ALSO DOES BUSINESS AS PRODUCTIVE CAPITAL MANAGEMENT) AND MEEDER ASSET MANAGEMENT (BOTH SUBSIDIARIES OF MEEDER INVESTMENT MANAGEMENT) ARE REGISTERED INVESTMENT ADVISERS WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) UNDER THE INVESTMENT ADVISERS ACT OF THE OPINIONS EXPRESSED IN THIS PRESENTATION ARE THOSE OF MEEDER INVESTMENT MANAGEMENT AS OF 1/29/2015. THE MATERIAL PRESENTED HAS BEEN DERIVED FROM SOURCES CONSIDERED TO BE RELIABLE, BUT THE ACCURACY AND COMPLETENESS CANNOT BE GUARANTEED. ANY RATES AND YIELDS SHOWN ARE FOR ILLUSTRATIVE PURPOSES ONLY. ANY SECURITIES SHOWN ARE FOR ILLUSTRATIVE PURPOSES ONLY AND SHOULD NOT BE ASSUMED TO BE ELIGIBLE INVESTMENTS FOR YOUR ENTITY. YOU SHOULD REVIEW ANY INVESTMENT S ELIGIBILITY BASED ON OHIO REVISED CODE AND YOUR ENTITY S INVESTMENT POLICY. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. OPINIONS AND FORECASTS ARE ALL SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS, AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY SPECIFIC SECURITY. INVESTING IN SECURITIES INVOLVES INHERENT RISKS, INCLUDING THE RISK THAT YOU CAN LOSE THE VALUE OF YOUR INVESTMENT. THERE IS NO ASSURANCE THAT THE INVESTMENT PROCESS WILL CONSISTENTLY LEAD TO SUCCESSFUL RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO AN INVESTOR S SHARES OR UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST

INVESTMENT TIPS AND TECHNIQUES

INVESTMENT TIPS AND TECHNIQUES Ohio Township Association Annual Winter Conference February 2, 2018 Presented by Eileen Stanic, CTP Senior Public Funds Advisor Meeder Investment Management 1 AGENDA Cash