G8.04 Investment Policy
The statutes of the State of Missouri, Section 174.457 R.S. Mo. (1995), authorize Missouri State University (MSU) to invest monies not needed for the daily operation of the University. The MSU Board of Governors sets policy regarding the investment of University funds. Responsibility for the day-to-day administration of this policy has been assigned by the MSU Board of Governors to the Chief Financial Officer and those persons he/she shall designate to have the authority for investing MSU’s funds.
All participants in the investment process shall act responsibly as custodians of the public trust. The standard of prudence to be applied by the Chief Financial Officer and his/her staff shall be the “prudent investor” rule, which states: “Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.”
Ethics and Conflicts of Interest
Personnel involved in the investment process shall refrain from personal business activity that could create an appearance of impropriety or could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the Board of Governors any material financial interest in financial institutions that conduct business within Missouri, and they shall further disclose any large personal/investment positions that could be related to the performance of the MSU portfolio.
MSU’s primary objectives for managing its investment portfolios are legality, safety, liquidity, appropriateness and yield. The maturities will be structured to meet the needs of the various fund groups.
MSU may seek to enhance total portfolio return by means of active portfolio management. The prohibition of speculative investments precludes pursuit of gain or profit through unusual risk. However, investment trading in response to changes in market value or market direction is warranted under active portfolio management.
The portfolio should produce, over a period of time, book yields in excess of a low risk passive benchmark. For management purposes the total rate of return will be calculated for the portfolio and compared to appropriate security market indexes on an annual basis.
Investments will be made through banks or securities dealers which have been approved by the Chief Financial Officer. All purchases and sales will be through a competitive bid process. Such securities dealers and banks shall have been subjected to an appropriate investigation by the staff of the Chief Financial Officer's office, which shall include, among other things, a written review of the firm’s financial statements and the background of the sales representative. All approved dealers must be fully licensed and registered NASD Broker/Dealers or exempt banks. Criteria used to select securities dealers will include:
- Financial strength and capital adequacy of firm
- Services provided by firm
- Research services available
- Resume, reputation and qualifications of sales representative
- Due diligence and firm references
- State government expertise
Permissible Investments and Guidelines
Only legal investments will be purchased for the investment portfolio. These include:
- Certificates of Deposit
- Certificates of deposit shall be collateralized in accordance with Missouri statutes. All depositories must have a signed depository agreement with MSU.
- A financial institution will be eligible to receive total deposits in an amount not to exceed their equity capital.
- U.S. Treasury and Federal Agency Securities
This includes U.S. Government securities, U.S. Government Agency securities and U.S. Government guaranteed securities, including but not limited to: all direct obligations of the U.S. Government, Federal Farm Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Resolution Funding Corporation, and Student Loan Marketing Association.
- Repurchase Agreements.
- Repurchase agreements may be entered into for periods of 90 days or less.
- Repurchase agreements must be purchased through approved broker/dealers. All approved broker/dealers must have a signed Public Securities Association Master Repurchase Agreement on file with the Office of the Chief Financial Officer.
- All collateral will be delivered to an approved third party custodian.
- Repurchase agreements must be collateralized 101% with approved securities. The market value of the collateral will be computed and reviewed at least weekly by the staff of the Chief Financial Officer to determine collateral adequacy.
- Corporate Bonds
Investment grade corporate bonds, which require a rating of A or better by Standard & Poor’s Ratings Group and Moody’s Investors Services.
- Commercial Paper
Commercial paper with credit ratings of A1 and P1 received from Standard & Poor’s Ratings Group and Moody’s Investors Services.
- Bankers’ Acceptances
Bankers’ acceptances may be purchased only from banks which are on the approved broker/dealer list. The credit ratings must be A1 and P1 received from Standard & Poor’s Ratings Group and Moody’s Investors Services.
- Money Market Funds
Money market funds which are SEC 2a-7 compliant and have received the highest possible rating by at least two Nationally Recognized Statistical Ratings Organizations.
The maximum percentage of the total investment funds held in each instrument listed above shall be:
- No more than 15% of the total portfolio will be held in any one bank, unless a safekeeping/custody agreement is in place per the provisions below.
- No restriction on direct obligations of the U. S. Government, U.S. Government Agency issues or U.S. Government guaranteed securities.
- No restriction for repurchase agreements which are fully collateralized by U.S. Government securities.
- No more than 20% of the portfolio to be held in corporate bonds, with no more than 5% of the portfolio to be held with any one issuer.
- No more than 30% of the portfolio to be held in commercial paper, with no more than 5% of the portfolio to be held with any one issuer.
- No more than 20% of the portfolio to be held in bankers’ acceptances, with no more than 5% of the portfolio to be in holdings of any one issuer.
- No more than $5,600,000 to be held in money market funds invested in U.S. Treasury / Government obligations.
Safekeeping and Custody
All securities will be held by a third-party providing safekeeping or custodian services in a fiduciary capacity in the name of Missouri State University designated by the Chief Financial Officer and evidenced by appropriate CUSIP documentation.
Internal Controls Summary
The Chief Financial Officer has established a system of internal controls designed to prevent losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees of the office of the Chief Financial Officer. Controls deemed most important include: separation of duties (which includes initiation of transactions, custody of assets and record keeping, and documented approval by the Chief Financial Officer or the President and/or his designee of all sales and purchases of investments); custodial safekeeping; clear delegation of authority; written confirmation of telephone transactions; minimizing the number of authorized investment officials; documentation of transaction strategies; and code of ethics
The staff of the Chief Financial Officer shall report monthly to the Chief Financial Officer on the present status of the investment portfolio. The information provided will include realized securities gains and losses, weighted average maturities and yields, and the market valuation of the investment portfolio. (Bd. Min. 1-9-96; Res. Policies and Procedures No. 23-96.)
Line of authority
Responsible administrator and office: Financial Services
Contact person in that office: Chief Financial Officer
Approved by Board of Governors: December 16, 2021