Investment Objectives: Safety, Liquidity, and Yield

Investment Strategies
Learning Objectives:
■ Understand investment policies and guidelines
Roles and responsibilities of the legislature and the governing board
Policy statement
■ Discuss short-term investment strategies
Issues with short-term investment
Key short-term investment vehicles
■ Explain long-term investment strategies
Issues in long-term investment
Key long-term investment vehicles
Governments and other public organizations often have idle operating funds and operating reserves. They may also accumulate longer-term capital funds and may manage fiduciary funds for third parties. For instance, tax collections may result in governments having high short-term cash balances on hand, and employee pension funds can be substantial, especially for large public entities. These financial resources need to be managed and often invested for safety, liquidity, and returns. This module discusses investment policies, programs, and potential issues. The module is broken into three sections:
1. An introduction to the governing structure and a discussion of investment principles and guidelines, which are often presented in a policy statement
2. A discussion of short-term investments, focusing on the objectives and strategies of managing operating reserves
3. A survey of long-term investments, addressing issues and concerns that arise when the investment term lasts longer than 1 year.
Governing Authority and Investment Policy
Given the size and significance of governmental financial resources, the legislative body of a jurisdiction—in the form of a legislative branch or governing board—bears the overall responsibility for managing public funds in compliance with federal, state, and other laws. The legislative body of a jurisdiction discharges its investment administration responsibility first of all by coordinating the development and overseeing the implementation of investment policies.
Investment Policy
Investment policy is front and center in managing the investment programs of public organizations. This is due to the fiduciary relationship of government to public funds, which come from taxpayers and other public sources. National professional organizations, such as the Government Finance Officer Association of the United States and Canada (GFOA), provide guidance and support for the establishment of investment policies for government organizations. Each government develops investment policy in the context of its jurisdiction and institutionalizes it in the form of an investment policy statement.