INVESTMENT POLICY POLICY NO: 0126

Transcription

1 INVESTMENT POLICY POLICY NO:

2 TABLE OF CONTENT LEGISLATIVE FRAMEWORK AND BEST PRACTICES... 4 LEGISLATIVE FRAMEWORK AND BEST PRACTICES... 4 PURPOSE... 4 DEFINITIONS... 5 SCOPE... 7 DELEGATION OF POWERS... 7 INVESTMENT ETHICS... 8 INVESTMENT PRINCIPLES... 8 Principles of risk and return:... 8 Objectives of investments:... 9 Investment mandate:... 9 Borrowing money for reinvestment:... 9 GENERAL INVESTMENT GUIDELINES Appointment of investment managers Applicable investment guidelines EFFECTIVE CASH MANAGEMENT Cash management plan Establishment of the cash surplus TREASURY SURPLUS MANAGEMENT Investment term Cash and money market investments INVESTMENT PRACTICE Payment of commission Professional advice INTERNAL CONTROL OVER INVESTMENTS Portfolio management Updating of accounting records and performance of reconciliations Maintenance of documentation Reporting requirements PERMITTED INVESTMENTS PROHIBITED INVESTMENTS ADOPTION OF POLICY AVAILABILITY OF INVESTMENT POLICY ANNUAL REVISION OF POLICY

3 AMENDMENT AND APPROVAL RECORD TITLE: INVESTMENT POLICY Policy Number 0126 Effective Date From date of approval Next Revision Date 2016 Reviewed 2014 Approved 27/11/2014 ISSUE AMENDMENT DESCRIPTION ORIGINATOR APPROVED BY DATE 01 New Policy DHET College 27/11/2014 Council Department: Responsibility: Prepared and submitted by the Accounting Officer to Council Finance Accounting Officer Authorised by Council (Signed by Chairperson obo Council) Implementation Date: From date of APPROVAL Date: 27/11/2014 Date: 27/11/2014 3

4 1. LEGISLATIVE FRAMEWORK AND BEST PRACTICES 1.1. Key principles contained in the following legislation were applied to develop this policy: FET Colleges Act No.16 of 2006 (as amended) (the Act ); Public Finance Management Act, 1999 (Act No 1 of 1999 as amended by Act 29 of 1999) (PFMA); National Treasury Regulations of March 2005; Guidance in what constitutes sound investment in Government-owned entities as contained in the Municipal Investment and PPP Regulations for the MFMA, published in Government Gazette dated 1 April 2005; Board Notice 80 of 2012 to the Collective Investment Schemes Control Act (use as guide to investments within each asset class) [Appendix A]; and Regulation 28 of the Pensions Fund Act, as a guide to allocation of funds to each asset class [Appendix B] Where this policy is contrary to other legislation applicable to the College, such legislation will override this policy. It is an explicit responsibility of the Accounting Officer of the College to bring such conflicts immediately to the attention of the Council once he/she becomes aware of such conflicts and to propose changes to this Policy to eliminate such conflicts The way in which surplus funds and other monies of affected organisations can be invested, may be regulated by Treasury by means of notices issued in the Government Gazette, or by direction of the Minister of Finance Treasury have established in general regulations that, for organisations permitted to make investments, the organisations shall establish an appropriate and effective cash flow management policy and investment policy in accordance with any framework that may be prescribed by the Minister of Finance.. 2. PURPOSE 2.1. The purpose of this Investment Policy is to ensure that the College effectively supervises, monitors and evaluates the investments of the College The College s investment programme is therefore defined in various sections of this policy by: 4

5 Stating the expectations, objectives and guidelines of the College, the PFMA and its regulations Setting forth an investment structure for managing the investment assets of the College and producing a sufficient level of diversification in the management of the investment assets, to enhance the total investment returns over the long term, for the benefit of the College Providing a guideline for the appointment of any committees and/or professional support required by the College in carrying out its responsibilities under this policy Providing guidelines for the appointment of investment managers Providing investment mandates for each investment manager in order to control the level of risk and liquidity assured in that portfolio, so that all assets are managed in accordance with stated objectives Encouraging effective communication between the Council and all other parties involved in the management and oversight of the College s investments Establishing criteria to monitor, evaluate and compare the results achieved by the investment managers on a regular basis Complying with all legal, fiduciary, prudence and due diligence requirements. 3. DEFINITIONS For the purpose of this policy, unless the context indicates otherwise, the following definitions are set out for the terms indicated: 3.1. Accounting Officer means the College Principal Act means the FET Colleges Act No.16 of 2006, as amended Cash comprises cash on hand and demand deposits; 3.4. CFO is the College Chief Financial Officer College is a Public FET College Department is the Department of Higher Education and Training. 5

6 3.7. Investee means an institution with which an investment is placed, or its agent Investment an investment is a monetary asset purchased with the intention that the asset will provide income in the future or appreciate and be liquidated and have the potential of being liquidated without incurring a capital loss Investment manager means a natural person or legal entity that is a portfolio manager registered in terms of the Financial Markets Control Act, 1989 and Stock Exchange Controls Act, 1985 contracted by the College to: advise it on investments; and/or manage investments on its behalf Investment tolerance levels means the investment risk exposure limits per investment institution and investment instruments that the Accounting Officer will permit; JSE is the Johannesburg Stock Exchange; Liquidity means the ability to make funds available to meet all anticipated obligations and maintaining a prudent reserve to meet unanticipated cash requirements. It is also the ability to change an investment into its cash equivalent on short notice; Long term investments means funds not immediately required and invested for a period exceeding one year; Maturity means the date upon which the principal or stated value of an investment becomes due and payable; Minister is the Minister of the Department of Higher Education and Training Risk analysis means that the overall value of funds shall not be diminished in the process of securing and investing those funds over the duration of the investment Short-term investments means funds not immediately required and invested for a period not exceeding one year Surplus funds means all money in excess of projected cash requirements, plus a liquidity buffer, needed to cover unforeseen expenditure during the term of the investment. 6

7 3.19. TVET is Technical, Vocational, Education and Training. 4. SCOPE 4.1. As a public institution and a recipient of public funds, the Council has an obligation to ensure that College resources are managed as effectively as possible and in line with the needs of the College. Council has the responsibility of investing surplus funds with great care and due recognition of the risks and rewards of its decisions The investment policy is aimed at gaining the highest possible return without undue risk, taking into account both the long and short term need for the funds in question, whilst at the same time maintaining an effective cash flow management system. 5. DELEGATION OF POWERS 5.1. This policy should be applied with due observance of the College s policy with regard to delegated powers. Such delegations refer to delegations between the Accounting Officer and other responsible officials as well as between the Council and the Accounting Officer. All delegations in terms of this policy must be recorded in writing The College Council should delegate to the Accounting Officer the power to make investment decisions in accordance with the College s investment policy, subject to any limitations devised by Council The Accounting Officer is accountable for all transactions entered into by his/her delegates The overall responsibility for investments vests with the Accounting Officer. However, the day-to-day handling of investments should be the responsibility of the CFO or his/her delegate All investment documents will require two signatories, namely the Accounting Officer and the CFO or their designated signatories. In this regard, specimen signatures must be lodged with the financial institutions with which the College deals. 7

8 6. INVESTMENT ETHICS The following ethics apply when dealing with financial institutions and interested parties: 6.1. The Accounting Officer and the CFO are responsible for the investment of funds, and must remain independent of outside interference, regardless of whether such interference comes from individual Council members, agents or any institution Under no circumstances may the Accounting Officer and the CFO be, or be seen to be susceptible to coercive measures of any description. No member of staff may accept any gift (other than something insignificant i.e. no gift or benefit of more than R350 should be accepted), regardless of whether such a gift influences him/her in his/her work or is intended to do so. No offer of money must be accepted, regardless of the amount The CFO or his/her delegate must act according to their own discretion and should report any serious cases, i.e. offers of a personal commission or payment in kind, etc. to the Council No College employee or Council member, or their family, may under any circumstances whatsoever, on his or her own behalf or on behalf of any other person, whether directly or indirectly, stipulate, claim or receive any consideration, of whatever nature, in connection with an investment made. 7. INVESTMENT PRINCIPLES 7.1. Principles of risk and return: It is an accepted general principle that the larger the return, the greater risk will be Investments may not be undertaken with a view to speculation and must be governed by the following investment principles: Preservation and safety of principal; Liquidity; Yield; and The time value of money. 8

9 7.2. Objectives of investments: Where surplus funds are invested, the nature and time frame of the use must determine the investment objectives in terms of risk and return. The investment instruments selected must clearly meet the objectives of the investment for each investment made Investment mandate: The College Council must create an investment mandate for each investment objective, and the mandate must state: The investment objective; The time horizon over which the investment will be realized; The speed with which the investments will have to be realised when the need arises; The risks to which the capital may be exposed, i.e. the importance of preserving capital, and the need for growth over time; The asset classes deemed acceptable to meet the objective; and The maximum amount of funds, or percentage of the total funds committed to that objective, that may be allocated to any one asset class The mandate shall be agreed by the Finance Committee of the Council before any funds are invested, and any changes must be agreed by the Finance Committee before implementation The mandate must at all times comply with the general investment guidelines as specified in paragraph 8, and should the College appoint an external party to manage the portfolio, the mandate must make explicit reference to these guidelines Borrowing money for reinvestment: All College borrowings must be approved by the Minister. The College shall not borrow any money, including an overdraft facility, for investment purposes An investment may be made only if the investment is denominated in rand and is not indexed to, or affected by, fluctuations in the value of the rand against foreign currency. 9

10 8. GENERAL INVESTMENT GUIDELINES 8.1. Appointment of investment managers Any funds managed by an institution on behalf of the College must be managed in terms of the College mandate for those funds, as approved by the College Council in terms of paragraph Any institution managing funds for the College must be an institution approved by the College Council Any institution managing funds for the College must be an institution licensed by the Financial Services Board as an investment manager Provided the College Council has approved the mandate for the funds to be invested, and approved all the institutions under consideration to manage the funds, the CFO must follow the standard procurement process for a new mandate, or allocate the funds to an existing institution under an existing mandate Applicable investment guidelines The College acknowledges that the Financial Services Board has developed investment guidelines for the appropriate management of regulated investment portfolios and that it updates these guidelines as and when required. The College has determined that these guidelines are both appropriate for its investments and that the Financial Services Board will ensure that its regulations are always up to date Accordingly, the College has adopted Board Notice 80 of 2012 to the Collective Investment Schemes Control Act as its investment guidelines for each asset class in an investment portfolio. All mandates must adhere to the appropriate chapters of Notice 80 for the instruments allowed in the portfolio in terms of the mandate While Notice 80 determines suitable instruments and the limits applicable to investments in specific instruments, it does not determine an applicable allocation to asset classes. In this regard, the overall College investment surplus, being a composite of all the 10

11 investment portfolios of the College under individual mandates, will be bound by the overall asset class limits as laid out in terms of Regulation 28 of the Pensions Fund Act. 9. EFFECTIVE CASH MANAGEMENT 9.1. Cash management plan Adequate and efficient cash management is one of the main functions of the CFO. It is imperative that a cash management plan be established and adhered to at all times. Sound cash management may result in cash surpluses being generated Establishment of the cash surplus Before any money can be invested, the CFO, or his/her delegate, should determine whether there will be surplus funds available When compiling monthly cash flow estimates, it is essential that the CFO is aware of the timing of all expected cash inflows and outflows, as far as both the operational budget and the capital budget are concerned Surplus cash flow shall first be regarded as working capital or treasury cash surpluses, and thereafter, reserves, or investible cash surpluses. The treasury cash surplus shall be the cash surplus up to 25% (twenty-five percent) of the annual budgeted expenditure. The investible cash surplus is that surplus over and above the treasury surplus When the treasury surplus drops below the 25% level, funds must be drawn down from the investible surplus to maintain this balance. The investible surplus must therefore be liquid enough to access within not longer than 21 days of the breach occurring The investible surplus should be invested in terms of paragraph 7 above. 10. TREASURY SURPLUS MANAGEMENT Investment term 11

12 An investment made from the treasury surplus should be less than 12 months. Prior to making investments for any fixed term, it is essential that cash flow estimates be compiled for at least the next twelve months Daily cash flow estimates will provide for daily call investments and investment withdrawals, whereas longterm investments need to be based on projections further into the future Cash and money market investments The overriding principle is to limit the cash in the current account to the absolute minimum but always taking into account the cash management plan and monthly cash flow estimates. In general, more beneficial rates could be obtained with regard to longer, fixed term investments The College may manage the treasury surplus itself, subject to being able to fulfill the following steps: Selecting counter-parties through the analysis of credit risk; Establishing investment limits per investment institution (in accordance with paragraph 7.2.8); Establishing investment limits per investment instrument; Monitoring investments against limits; Reassessing the investment policy on a regular basis; Assessing investment instruments based on liquidity requirements; and Taking absolute and prudent steps, consistent with the investment policy and according to the investment tolerance levels, to diversify its investment portfolio across accredited institutions, types of investment and investment maturities Before making any call or fixed deposits, the Accounting Officer, or the CFO shall obtain quotations from at least three financial institutions. Quotations may be obtained telephonically or by All quotations obtained shall be recorded in an appropriate register indicating the name of the institution, the name of the person contacted, the 12

13 relevant terms and rates offered by such institution, as well as any other information which may be relevant Once the best investment terms have been identified, written confirmation of the telephonic quotation must be immediately obtained (by facsimile or ). Confirmation must include the name of the institution, the name of the person contacted, and the relevant terms and rates offered by such institution, as well as any other information which may be relevant (for example, whether the interest is payable monthly or only on maturity) Any deviation, if such best offer is not accepted, must be documented Once the investment has been made, the Accounting Officer shall ensure that the College receives a properly documented receipt or certificate for such investment, issued by the institution concerned in the name of the College Funds should be invested with more than one institution in order to limit the risk exposure of the College in the following circumstances: Where the treasury surplus exceeds ten million rand, the College will adhere to the requirements pertaining to Money Market Funds as contained in Board Notice 80 of 2012, to the Collective Investment Schemes Control Act Where the treasury surplus exceeds one million rand, the College will ensure that no more than 50% of the available funds should be placed with a single institution. In this case, it should be noted that a group of financial institutions under the same holding company would be treated as a single institution. This arrangement excludes money deposited on call accounts, provided that it is invested with a financial institution with a long term A1 rating Where the treasury surplus is below one million rand, the College may place the funds at a single institution, provided that it is invested with a financial institution with a long term A1 rating. 13

14 The treasury surplus shall be invested to achieve a modified duration of at least 30 days, based on the length of maturity of the instruments in the portfolio Where legislation allows, and it is appropriate in terms of the objectives in the mandate, the College must try to plan the distribution of its investments to cover a range of money market investment instruments The College may select a registered Money Market Collective Investment Scheme into which it places the treasury surplus should it not be able to manage the requirements of paragraphs to INVESTMENT PRACTICE Payment of commission The financial institution where a fixed deposit is made must issue a certificate with regard to each investment, when the investment is made, in which it states that the financial institution has not or will not pay any commission, except where the Council has decided to appoint a go-between/agent/consultant and the fee/commission has been decided and approved by the Council before any investment is made Any fees payable to a broker, agent or investment manager or consultant must be clearly stated on the application form and approved by Council Professional advice The CFO should seek professional advice whenever there is a degree of uncertainty regarding investment opportunities that he/she evaluates The College may elect an investment consulting firm to advise it on the construction of mandates, or on the selection of investment managers The selection of professionals must follow the existing College procurement processes. 12. INTERNAL CONTROL OVER INVESTMENTS Portfolio management 14

15 The investment portfolios, both for the treasury surplus and for the investible surplus shall be valued at the end of every month, and statements should be received from all institutions holding or managing funds on behalf of the College Each investment manager must provide a full set of standard investment portfolio reports to the College on a quarterly basis, and shall present an overview of the portfolio and its performance to the College on an annual basis Updating of accounting records and performance of reconciliations The Accounting Officer shall ensure that proper records are kept of all investments made by the College An investment register must be maintained of all investments of the College The investment register must include, at least, the following details: Name of institution; Type of investment; Currency; Capital invested; Capital withdrawn; Date invested; Term of investment; Interest rate; Maturity date; Interest earned, interest received and interest capitalised; Capital repaid; Balance invested; and If the investment is liquidated at a date other than the maturity date, such date shall be indicated The investment register and accounting records must be reconciled and reviewed on monthly basis The Accounting Officer shall ensure that all interest and capital properly due to the college are promptly received, and shall take appropriate steps, or cause such appropriate steps to be taken, if interest or capital is not fully or promptly received. 15

16 12.3. Maintenance of documentation The Accounting Officer should ensure that all investment documents and certificates are properly secured in a fireproof safe with segregated control over the access to such safe, or are otherwise lodged off-site for safekeeping with suitably accredited custodians The following documents must be adequately safeguarded: Fixed deposit letter or investment certificate; Receipt for capital invested; Share certificate; and Any other documents of title Reporting requirements There shall at all times be transparency and accountability in respect of every investment made and of the College s investment portfolio In this regard, the Accounting Officer must within 10 days of the end of each month, prepare a report describing, in accordance with Generally Recognised Accounting Practice (GRAP), the investment portfolio of the College as at the end of the month. Such reports shall be tabled with the Audit Committee and Council via the Finance Committee, at each scheduled quarterly meeting The report must reflect by mandate, at least: The market value of each portfolio as at the beginning of the reporting period; Capital changes to the investment portfolio during the reporting period; The market value of each portfolio as at the end of the reporting period; Fully accrued interest or yield for the reporting period; and The investment performance of the portfolio, and a comparison to the benchmark over 1 month, rolling 12 months and rolling 36 months where possible. 13. PERMITTED INVESTMENTS The College shall only invest funds in the following instruments or investments: 16

17 13.1. Securities issued by the national government Listed corporate bonds with an investment grade rating from a nationally or internationally recognised credit rating agency Deposits with banks registered in terms of the Bank Act, 1990 (Act No.94 of 1990) Deposits with the Public Investment Commissioners as contemplated by the Public Investment Commissioners Act, 1984 (Act No. 45 of 1984) Deposits with the Corporation for Public Deposits as contemplated by the Corporation for Public Deposits Act, 1984 (Act No. 46 of 1984) Banker s acceptance certificates or negotiable certificates of deposits of banks registered in terms of the Banks Act, Repurchase agreements with banks registered in terms of the Banks Act, Equities listed on the JSE Unit trusts REITS (Real Estate Investment Trusts) listed on the JSE. 14. PROHIBITED INVESTMENTS The College shall not be permitted to make the following investments: Investments in unlisted shares Investments in stand alone derivative instruments Foreign investment is permitted only to the extent that the investment is denominated in rand and is not indexed to, or affected by, fluctuations in the value of the rand against any foreign currency Investments in endowment policies Investments in venture capital Investments in private equity funds Investment property. 15. ADOPTION OF POLICY This policy is effective from the date on which it is adopted by the Council. 16. AVAILABILITY OF INVESTMENT POLICY A copy of this policy and other relevant documentation should be made available on the College website. 17

18 17. ANNUAL REVISION OF POLICY This policy will be subject to an annual review by College management to ensure its relevance. Colleges should forward any inputs and recommendations to the TVET Branch of the Department for possible consideration during the annual review process. Any recommended changes to the Investment policy should be presented to the College Council for approval. 18