IS-1822 Investment Guidelines

Financial Administration

Approval Date: 06/22/21

1. Statement of Purpose

The purpose of these guidelines is to establish investment guidelines, objectives, permitted investments, investment diversification targets, benchmarks, reporting requirements and approvals. This policy applies to funds held by CNM including, but not limited to, current funds, plant funds, and bond proceeds. These guidelines are set forth in order to achieve the goals of ensuring safety of principal, maintaining adequate liquidity, maintaining public trust for all investment activities, and achieving the best allowable yield, while complying with all applicable laws.

2. Statutory Authority and Applicable Laws

The College invests funds in conformity with federal and state laws and regulations, including Internal Revenue Services (IRS) regulations pertaining to tax exempt bonds, bond resolutions and indentures, and other pertinent legal restrictions. These laws and regulations include but are not limited to NMSA 1978, § 6-8-1 et seq. and § 6-10-1 et seq., NMSA 1978; Uniform Prudent Investor Act, NMSA 1978, § 45-7-601 et seq.; Uniform Prudent Management of Institutional Funds Act, NMSA 1978 § 46-9A-1 through § 46-9A-10 NMSA 1978; and Internal Revenue Code on Arbitrage, 26 USC § 148.

3. Investment Responsibility and Control

Individuals responsible for investment decisions shall exercise reasonable judgment, care, skill, and caution to invest and manage as a prudent investor would by considering the objectives, terms, and distribution requirements while preserving capital.

4. Investment Funds and Portfolios

4.1 These Investment guidelines provide direction for the investment of all financial assets considered to be part of the College entity and includes the following funds or fund types:

  • Operating Funds;
  • Endowments;
  • Plant Unexpended and Plant Renewal and Replacement Funds;
  • Benefits Reserve Funds;
  • Debt Service Funds and Bond funds are governed by bond ordinances and covenants and are subject to the provisions of the Internal Revenue Code and applicable federal regulations governing the investment of bond proceeds.
  • Any other funds which have been contractually delegated to the College for management purposes.

The College may add or delete funds as may be required by law or for proper accounting procedures.

4.2 As part of the College’s cash management process, the College will identify funds that will allow for a longer investment period. This analysis will allow staff to segment funds invested under this policy into distinct portfolios that will be managed in accordance with each portfolio’s respective objectives and constraints. A description of the portfolios is included below.

4.2.1 Liquidity Portfolio: The Liquidity Portfolio contains funds needed to address the immediate cash needs of the College. The Liquidity Portfolio will be placed in an allowable pooled investment such as the Local Government Investment Pool (LGIP) with the State Treasurer's Office (STO). The Liquidity Portfolio is expected to have minimal liquidity risk and will invest in short-term (less than one year), fixed income securities and pools that are not exposed to significant market risk. Specifically, funds invested in the Liquidity Portfolio include those funds needed for the current fiscal year’s operations and current projects, bond proceeds, and debt service funds and all other funds not invested in the Core Portfolio.

4.2.2 Core Portfolio: The Core Portfolio contains fund balances that are not necessary to meet the short-term cash flow needs of the College. The Core Portfolio will be placed in allowable pooled investment funds with the State Investment Council (SIC) with an objective to maximize investment income and long-term growth of the portfolio, while, at the same time, minimizing investment risk. The Core Portfolio consists of funds that make up a portion of the reserve accounts from operating funds, plant funds and benefit reserve funds.

5. Investment Objectives

5.1 The College will manage and invest its cash with four primary objectives: safety, liquidity, yield, and public trust. All investments are designed and managed in a manner responsive to public trust and consistent with all applicable New Mexico statutes, this Policy and any other approved, written administrative procedures. The four objectives of the College's investment activities shall be as follows:

  • Safety of Principal. Safety of principal invested is the foremost objective in the investment decisions of the College. Each investment transaction shall seek to ensure the preservation of capital in the overall portfolio. The risk of loss shall be controlled by investing only in authorized securities as defined in this Policy, by qualifying the financial institutions with which the College will transact, and by portfolio diversification. Safety is defined as the undiminished return of the principal on the College's investments.
  • Liquidity. The College's investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Because all possible cash demands cannot be anticipated, a “liquidity” portion of the portfolio may also be placed in money market mutual funds or local government investment pools which offer same day or next day liquidity for short-term funds.
  • Market Rate-of-Return (Yield). The College's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objective described above. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed.
  • Public Trust. All participants in the College's investment program shall seek to act responsibly as custodians of the public trust. Investment officials shall avoid any transaction, which might involve a conflict of interest or otherwise impair public confidence in the College's ability to govern effectively. All officials of the College having either a direct or indirect role in the process of investing idle funds shall act responsibly as custodians of the public trust.

5.2 The College shall maintain a comprehensive cash management program, which includes collection of accounts receivable, vendor payments in accordance with invoice terms, and prudent investment of available cash. Cash management is defined as the process of managing monies in order to ensure maximum cash availability and maximum yield on short-term investment of pooled idle cash.

6. Permitted Investments

The scope of authority for the types of investments that may be made with College funds is statutorily defined in NMSA 1978, § 6-10-10 and NMSA 1978, § 6-10-10.1. College funds not immediately necessary for College uses may be invested in any securities permitted by law. Allowable investments include the following:

  • Short term investments: New Mexico Local Government Investment Pool  maintained by the State Treasurer’s Office
  • Long term investments (generally to be held longer than one year): Pooled Investment Funds managed by the State Investment Officer at the State Investment Council

7. Diversification

7.1 To the extent practical, funds should be diversified to reduce the risk of loss resulting from an over-concentration of assets in a specific maturity, a specific issuer, or a specific class of securities. With the exception of U.S. Government securities, as authorized in this Policy, and authorized local government investment pools, no more than fifty percent (50%) of any one investment portfolio will be invested in any one security type. Diversification of the portfolio considers diversification by maturity dates and diversification by investment instrument.

The following diversification limits shall apply to the Liquidity Portfolio:

Allowable Securities

Diversification Limits

Further Limitations

NM LGIP

100%

 

7.2 As part of the College’s cash management and cash flow process, the College may identify funds that will allow for a longer investment period with the State Investment Council. These funds include Plant Unexpended and Plant Renewal and Replacement Funds, Endowments, and Benefit Reserve Accounts. Investment objectives are to maximize investment income and long-term growth of the portfolio while, at the same time, minimizing investment risk. It is the College’s intent to diversify the invested funds as much as possible. Adequate diversification may better control risk and minimize the impact of normal market fluctuations on these Funds’ overall value.

7.3 The following table sets out the asset allocation guidelines for the portfolio that apply to the funds with the State Investment Council. Any temporary cash held within the portfolio under an equities or bond asset class will be considered as part of that asset class and not part of the cash position. Rebalancing of the portfolio will occur twice a year in July and January to ensure compliance with these target allocation ranges as changes in market values may temporarily cause the allocations to exceed the target range.

Asset Class

Long-term  Weight %

Rebalancing Range %

Appropriate benchmark

U.S. Large Cap Equities

35

20 - 50

Russell 1000 Index

U.S. Small/-Mid Cap Equities

15

5 - 20

S&P Small Cap 600 Index

International Equities

10

10 - 30

MSCI World Ex. USA

 Fixed Income

35

25 - 50

Bloomberg Bond Index

Cash

5

0 - 20

3 Month T-Bills

Total

100

 

 

8. General Investment Performance

The College will manage its investment portfolio in accordance with the parameters specified within these guidelines. The portfolio should be designed with the objective to obtain a market rate of return on investments commensurate with investment risk constraints and cash flow requirements of the College. The Investment Portfolios will be compared to an approved benchmark that appropriately models an expected risk and return profile. The benchmark does not represent a hurdle to beat, but instead it provides a reasonable comparison with which to measure the overall performance of the investment portfolios.

9. Endowment Funds

9.1 These spending guidelines are in concert with the long-term endowment management philosophy of the College, which is to preserve the permanent viability of the endowment. The College’s endowment funds support vital programs from the earnings of its endowment. In the future, student scholarships may also be funded from the investment earnings from endowment funds. The distributions to College programs are in concert with provisions established by donors of the endowment.

9.2 Endowment Spending Guidelines

Spending from the endowment must be at levels that does not jeopardize the long-term viability of the endowment. This policy is intended to provide a framework for accomplishing that goal.

Spending Provisions

  • In order to accommodate the annual budgeting process for the following year, the endowment return will be allocated and budgeted for expenditures of the succeeding year. The actual distribution of funds will be made on July 1 for the subsequent fiscal year.
  • Generally spending will be limited to five percent (5%) of the average market value of the endowment over the preceding five (5) calendar years ended December 31.
  • Any excess of total return over the spending allowance shall remain in the spendable portion of the endowment fund whether resulting from appreciation or current yield.
  • Amounts not spent by the individual operating accounts supported by the endowment cannot be carried forward for budgetary use in the next fiscal year. Unspent allocated funds will remain in the spendable portion of the endowment fund.
  • Specific instructions of donors and endowed funds will be adhered to at all times.

10. Reporting

10.1 Monthly Reporting

The Business Office will prepare monthly reports of investment activity, investment balances, and investment returns for review and approval by the Vice President of Finance and Operations.

10.2 Quarterly Reporting

On a quarterly basis, the Business Office staff will prepare an investment report summarizing the investment activity, balances, and investment returns. The Vice President of Finance and Operations, or her/his designee, will present the quarterly investment report to the Finance Committee at the next regular meeting after the report is available.

11. Approval

Annually, these Investment Guidelines will be reviewed and any changes approved by the CNM Executive Team and reported to the Finance Committee of the Governing Board at its regularly scheduled June meeting.