Acceptable collateral for bank deposits

Alternative samples:

  1. Diversification

It is the policy of the [entity] to diversify its investment portfolios. To eliminate risk of
loss resulting from the over-concentration of assets in a specific maturity, issuer, or class of securities, assets in all [entity] funds shall be diversified by maturity, issuer, and class of security. Diversification strategies shall be determined and revised periodically by the investment committee/investment officer for all funds.

Due to fluctuations in the aggregate surplus funds balance, maximum percentages for a particular issuer or investment type may be exceeded at a point in time subsequent to the purchase of a particular issuer or investment type. Securities need not be liquidated to realign the portfolio; however, consideration should be given to this matter when future purchases are made to ensure that appropriate diversification is maintained.

  1. Mitigating market risk in the portfolio

Market risk is the risk that the portfolio value will fluctuate due to changes in the general level of interest rates. The [entity] recognizes that, over time, longer-term/core portfolios have the potential to achieve higher returns. On the other hand, longer-term portfolios have higher volatility of return. The [entity] shall mitigate market risk by providing adequate liquidity for short-term cash needs, and by making longer-term investments only with funds that are not needed for current cash flow purposes. The [entity] further recognizes that certain types of securities, including variable rate securities, securities with principal paydowns prior to maturity, and securities with embedded options, will affect the market risk profile of the portfolio differently in different interest rate environments. The [entity], therefore, adopts the following strategies to control and mitigate its exposure to market risk:

  • The [entity] shall maintain a minimum of three months of budgeted operating expenditures in short term investments to provide sufficient liquidity for expected disbursements;
  • The maximum percent of callable securities in the portfolio shall be 15%;
  • The maximum stated final maturity of individual securities in the portfolio shall be five years, except as otherwise stated in this policy; and,
  • Liquidity funds will be held in the State Pool or in money market instruments maturing one year and shorter.