Requirements of Section 2.5 of the Public Funds Investment Act
- A listing of all authorized investments;
- A “Prudent Person” rule, establishing the standard of care that must be maintained by the person(s) investing the public funds;
- A Statement of Purpose, along with investment guidelines that are appropriate to the nature of the funds, and amount of public funds within the investment portfolio;
- A policy on the diversification of the investment portfolio;
- Guidelines on collateral requirements, if any, for the deposit of public funds in a financial institution and, if applicable, guidelines for contractual arrangements for custody and safekeeping of that collateral;
- A system of internal controls,
- Identification of the Chief Investment Officer responsible for establishing internal controls and written procedures for operation of the investment program;
- Development of performance measures appropriate to the nature of the fund;
- A schedule for periodic review of the Investment Portfolio,
- A policy establishing at least quarterly written reports of the investment activities by the public agency’s Chief Financial Officer for submission to the governing body and its Chief Executive Officer. The reports shall include: information regarding securities in the portfolio by class or type; book value; income earned; and market value as of reporting date;
- A policy regarding the selection of financial advisors, institutions, and managers; and
- A statement on Ethics and Conflict of Interest.
The purpose of these monies is set by the Legislature, the elected Treasurer or the local governing body for the operation of the fund and the preservation of principal is of utmost consideration. The implementation of a policy and the naming of a Chief Investment Officer is the responsibility of an elected Treasurer and, in the absence of such, the local governing body.
The following are considered suitable and authorized investments and meet the goal of preservation of principal.
- Securities issued with the full faith and credit of the United States of America as to the principal and interest;
- Repurchase Agreement of securities that have the full faith and credit of the United States of America;
- Money Market Mutual Funds registered under the Investment Company Act of 1940, provided that the portfolio is limited to 1.) and 2.) above;
- The Public Treasurer’s Investment Pool, commonly known as The Illinois Funds, established under Section 17 of the State Treasurer Act.
The investments of the fund should be sufficiently diversified mitigating credit risk and maintaining liquidity which will ensure the preservation of principal.
- There is no limit in the percentage of the fund held in securities issued with the full faith and credit of the United States of America as to the principal and interest;
- Repurchase Agreements will be limited to no more that 75% of the balance in the fund;
- No more than 10% of the balance of the fund may be invested in any Money Market Mutual Funds registered under the Investment Company Act of 1940;
- No more than 25% of the balance of the fund may be invested in aggregate in all Money Market Mutual Funds registered under the Investment Company Act of 1940;
- There is no limit to the percentage of the fund invested in The Public Treasurer’s Investment Pool, commonly known as The Illinois Funds.
The elected Treasurer or governing body shall establish a set of benchmarks for which performance of the fund is to be measured against. In the absence of establishing a benchmark, the fund will be measured against the return of the 1-month U.S. Treasury yield.
A system of procedures and Internal Controls shall be established by the elected Treasurer or governing body of the fund which at a minimum includes standards set by the Governmental Accounting Standards Board.
Every financial advisor and manager will be chosen following the procurement rules established and governed by the laws of the State of Illinois. Financial Institutions must have an Illinois presence and be in good standing with the Illinois Department of Financial and Professional Regulation as well as the appropriate federal regulator and have no enforcement action existing.
All advisors, managers and institutions must be approved to do business with the fund at least annually as well as maintained on a list available to the general public and published on the website of the fund/fund’s sponsor if it exists.
The Chief Investment Officer will provide the elected Treasurer or governing body with reports that show at a minimum; investment holdings of the fund, rate of return of investments, change in balance and a distribution of investments.
The elected Treasurer or governing body must review the investments of the fund quarterly, at a minimum. The policies and procedures must be reviewed and approved annually and published as prescribed by Illinois Law.
The elected Treasurer or governing body, as well as all members of the fund’s staff, will refrain from personal business activities that conflict with the proper operation of the fund. Further, they will subordinate their personal investment transactions to that of the fund’s, in particular, with regard to time of purchase and sale.
In all manners of operation and dealings on behalf of the fund, the elected Treasurer or governing body as well as members of the fund’s staff, will make decisions, investments, and actions only that a “prudent person” would make.
An investment policy is an important tool to guide governments and entities with the management of their investable assets--providing managers, trustees & directors, and the general public, with the confidence that the Board has establised boundaries and controls on those assets. It is also important for governments to review those policies periodically (our office reviews our Investment Policy Statements annually).
The Office of the Illinois State Treasurer has developed a template for investment policies designed for local governments. The following template is for reference and optional use.
This policy establishes governance of all monies held outside of the State Treasury for which no formal policy exists. It does not serve as legal or financial advice.