FMPM 301 Investments

Scope

This procedure sets out the requirements for monitoring and reporting the investment and performance of all monies (including monies held in trust and surplus funds) that are subject to the control of James Cook University.

Definitions

Asset Allocation

Fund Managers

Investment

Restricted Funds

Surplus Funds

Procedure

The University has authority, granted by the Queensland Treasurer, to exercise investment powers under Part 6 of the Statutory Bodies Financial Arrangement Act 1982 (Qld) (SBFA Act). The University’s investing activities may be constrained by such limitations, caveats or restrictions specified by the Queensland Treasurer from time to time and/or such other regulation deemed relevant. Any such limitations in existence at the date of this procedure have been incorporated into this procedure. The procedure will be revised and reissued for any subsequent changes in legislation.

This procedure aims to:

• define and assign responsibilities for investing activities;
• offer guidance and limitations regarding the investment of University funds;
• manage University funds according to prudent standards and consistent with relevant legislation;
• establish the relevant investment horizon for the management of investments; and
• establish a basis of evaluating investment results.

This procedure includes guidelines for:

• asset allocation;
• funds and portfolio management;
• reports on investment performance; and
• determining market benchmarks to assist in tracking and adjusting investment performance targets.

Investment Pools

Surplus Cash

The amount of funds available for investment is limited by the demands on funds for financing and operating activities of the University. Financing or operating decisions may therefore significantly increase or decrease the level of the cash portfolio and hence the potential investment returns to the University.

Management decisions with significant impact on operating cash flows will be evaluated to determine if alternate financing arrangements can be entered into so as to optimise the consequent return from such investment activities net of alternative financing arrangements.

Restricted Funds

Restricted funds are accounted for within the Restricted Fund Pool. This Fund Pool has specific spending requirements each year and funds are invested to meet the requirements for both income and growth.

Objectives

The primary objectives in the investment of assets shall be:

Bank Account:

To provide absolute security and accessibility for regular transactions.

Cash Portfolio:

To provide a high degree of security and accessibility and a competitive interest rate.

Managed Portfolio:

To exceed the Target Rate of Return (see below) over rolling five (5) year periods.

Target Rate of Return

To equal or exceed a return (after fees) of:

Note 1: Asset Class Benchmarks will be determined by the Finance Committee in consultation with the Fund Manager(s); form part of the written contract; and be periodically reviewed.

Note 2: For budgeting purposes, the University may wish, from time to time, to determine an absolute value of realised returns (i.e. a cash sum) which will be communicated to the Fund Manager(s), as necessary, on a timely basis.

Volatility of Returns

The rate of return for managed funds is designed to achieve a balanced return of current income and modest growth of principal in the short to medium term and to emphasise long term growth of principal while avoiding excessive risk. In order to achieve its objectives it is understood that investment will experience volatility and consequently fluctuations in market value. The University will tolerate volatility as measured against the volatility of a comparable market index in each asset class and, for the portfolio as a whole, the volatility of a composite index based on the strategic asset allocation. The indices (e.g. the ASX All Ordinaries index) used as a measure of a Fund Manager’s performance will also be used to benchmark what is acceptable volatility.

Measurement of Rate of Return

Investment Returns are measured on the basis of total performance which captures in a single measure; changes in the capital value of assets held (where applicable), income from managed investment portfolio assets, proceeds of sales of assets sold and cost of assets acquired.

Distribution of Investment Returns

Investment Returns, for internal purposes, are measured on the basis of the aggregate return from realised capital gains/losses and income from all investment portfolio assets less fees and expenses. (Refer FMPM 510: Policy – Internal Interest Distribution).

Surplus Cash

Investment returns generated from cash surpluses are considered to be available for the general purposes of the University and are distributed via the Budget process.

Restricted Funds

There is a difference between the Measurement of Rate of Return convention of the Managed Portfolio and the calculation of internal investment returns defined above. The total return for the Managed Portfolio takes to account unrealised market value gains and losses as at reporting dates based on the market value of the portfolio at that date. However, the internal return takes into account only realised gains or losses i.e. converted into real cash increments/decrements.

Delegation of Authority

Delegations as outlined in the University’s Financial Delegations Register in Table 8: Investments.

In addition Council has delegated to Finance Committee the responsibility for monitoring the investment and performance of all moneys (including moneys held in trust) that are subject to its control.

Operational Responsibility

Council

The specific responsibilities of Council relating to investment management includes:

• determine the risk profile of the University.

Finance Committee

The specific responsibilities of Finance Committee relating to investment management include:

• approving investment strategy, policy and procedures, objectives, guidelines, asset allocations and the rate of return, and tolerance to volatility that will direct investment activities;
• approving the appointment of external investment professionals specifically including Fund Manager(s);
• monitoring and reviewing the performance of Fund Manager(s) to assure compliance with policy and procedures;
• monitoring investment performance; and
• reviewing quarterly investment reports.

Deputy Vice Chancellor, Services and Resources

The Deputy Vice Chancellor, Services and Resources provides information and reporting to Finance Committee with respect to all aspects of the investing activities including but not limited to:

• investment strategies;
• policies and procedures;
• investment performance; and
• external investment advisors.

Fund Managers

The University’s contract with the Fund Manager can be terminated at any time without penalty based upon the conditions specified below. Each Fund Manager appointed by the University will be provided with a copy of this procedure and must acknowledge, in writing, its acceptance of responsibility for investing University funds.

Each Fund Manager agrees to comply with the requirements of the University’s FMPM 300: Policy - Investments, FMPM 301: Procedure - Investments and FMPM 302: Authorised Limits - Investments as annexed to their contract including any alterations thereto as agreed between the parties. Fund Managers are not responsible for ensuring discretionary investments managers comply with the FMPM requirements.

The terms of appointment of each Fund Manager will allow the Fund Manager to provide investment advice and recommendations either on an advisory or discretionary basis for the assets placed under its jurisdiction while observing and operating within this procedure.

Specific responsibilities of the Fund Manager(s) include:

• investment management including advice on strategic and tactical asset allocation and decisions to buy or sell individual securities, within the asset allocation limitations set out in this procedure and FMPM 302: Authorised Limits - Investments, by either one or both of the following investment strategies:
  • direct investment in securities; and/or
  • investment via underlying discretionary investment managers,

• providing the rationale, in writing, prior to action being taken, for decisions to hold or sell investments where the potential investment gain or loss exceeds the limits set out in FMPM 302: Authorised Limits - Investments (Gain or Loss) and an assessment of the impact of these decisions on investment returns;
• reporting, on a timely basis, of quarterly investment performance results;
• providing quarterly (or on an ad hoc basis as required by the University) valuation of the investment portfolio based on the quarter (or relevant period) end closing prices;
• disclosing details of any fees, trails, commissions or like, earned from sources other than the University by virtue of the investment holdings (past or current) of the University;
• communicating any major changes to the economic outlook, investment strategy, or any other factors that may affect investments, or investment objectives;
• informing the University, in writing, of any substantial and/or material qualitative change in the Fund Manager’s organisation. Examples include changes in portfolio management personnel, ownership structure, investment philosophy etc;
• investment transactions must be settled on the due date to ensure the University does not incur losses because a settlement has not been made on time. The University will ensure necessary resources, systems infrastructure and appropriate control frameworks to minimise the risk of losses(reputation and monetary) due to settlement failure; and
• advising the Deputy Vice Chancellor, Services and Resources and Chief Financial Officer, prior to any purchase of securities for which the Fund Manager’s organisation is conducting an initial public offering (“IPO”) or placement of shares and for a period of six (6) months after the IPO or placement, outlining the rationale for the investment. This responsibility does not apply where an underlying discretionary investment manager purchases securities for which the Specialist Fund Manager’s organisation is conducting an initial public offering (“IPO”) or placement of shares.

Performance Reporting, Review and Evaluation

Reporting

Fund Manager(s)

Performance reports shall be compiled at least quarterly by Fund Managers. The report, including commentary, will, as a minimum, be required to contain the following:

• asset allocation information – asset market values and asset class percentages versus target allocation and ranges;
• investment performance – investment returns versus performance benchmarks;
• compliance with this procedure – a statement that each portfolio conforms to the guidelines or identification and explanation for variances;
• ESG ratings;
• forward earnings and capital appreciation projections;
• where available, Snail Charts or similar information on individual investments.

Investment Reports (excluding appendix) will not usually exceed 8 pages in length.

On an annual basis and at the time of mid-year reporting, the Fund Managers will provide a “health check” report of their own organisation including:

• Rating;
• ESG rating;
• Qualifications;
• Years of Experience; and
• Reputation.

Cash Portfolio

All major cash flows arising from financing or operating decisions which impact (favourably or adversely) on available funds for investment are to be reported to Finance Committee.

An investment Report of Tertiary Portfolio Funds including a section - Cash Portfolio Funds -  detailing the performance of the Cash Portfolio will be prepared by the Chief Financial Officer and submitted quarterly to Finance Committee in line with scheduled meetings..

Review and Evaluation

The investment performance of total portfolios, as well as asset class components, will be measured against the performance of the Asset Class Benchmarks agreed with the Fund Manager(s).

The Finance Committee will consider the extent to which the investment results are consistent with the investment objectives, goals and guidelines set forth in this procedure.

Fund Manager(s) shall be reviewed over at least a three-year (3) rolling period regarding performance, personnel strategy, research capabilities, organisational and business matters, and other qualitative factors that may impact their ability to achieve the desired investment results. The University reserves the right to terminate a Manager for any reason including but not limited to the following:

• Investment performance that is significantly outside the agreed performance benchmarks taking into account the risk and volatility parameters or unacceptable justification of poor results;
• Failure to comply with any aspect of this procedure, including communication and reporting requirements; or
• Significant qualitative changes to the investment management organisation, for example staffing; ownership; research capabilities etc.

Asset Allocation

Asset Allocations are used in this procedure to describe a preferred mix of classes of investments toward which the portfolio is aimed.

From time to time the actual mix may vary from that approved by Finance Committee. A temporary variance of up to 5% will be tolerated. Variances which continue for more than 2 quarters shall be reviewed by the Finance Committee to determine whether:

• to re-adjust back to the determined asset allocation as market conditions allow and prudence dictates; or
• to determine adjusted asset allocations taking into account the overall objectives of the fund.

The allocation between asset classes as approved by Finance Committee is specified in FMPM 302: Authorised Limits - Investments.

Investible Funds

The investible funds should match the cash flow needs of the University deemed by the Chief Financial Officer after preparing the University’s budget. Once the Chief Financial Officer has determined that the cash flow requirements can be met, funds may be invested for the required term. In this regard, it is appropriate for the Chief Financial Officer to be conservative (i.e where possible, the investments should not be broken to meet cash flow obligations).

It is the responsibility of the Chief Financial Officer to assess the cost of direct investment management by the University relative to the return generated. This should be compared with the cost of investing funds with a capital guaranteed cash fund (for example, the QTC Capital Guaranteed Cash Fund).

Sustainable Investments

In making managed fund investment decisions (i.e. managed funds), the University will aim to engage a fund manager(s) which:

• has adopted a ‘Sustainable Investment Policy’ whereby decision making and ownership practices for funds consider Environmental, Social and Governance Factors (ESG);
• ensures that its appointed investment managers, consultants and other relevant service providers are informed about its expectations in relation to ESG and investment governance;
• provides portfolio oversight on systemic risks or thematic opportunities linked to sustainability;
• monitors the carbon footprint of its investments, wherever possible, and seeks to reduce it over time,
• considers investments that provide a solution to climate change or other sustainability challenges, particularly as these impact the tropics, where consistent with its investment objectives;
• undertakes annual reviews of its investment managers ESG ratings and seeks to improve the ESG ratings through engagement with existing managers during the monitoring process and in the selection of new managers;
• applies principles of active ownership and investment stewardship, including voting and engagement.

In order to mitigate the University’s exposure to ESG risks within managed funds, the University will:

• communicate openly with the fund manager(s) about the implementation of ESG criteria within the portfolio;
• provide regular advice regarding the views of the University surrounding socially responsible investments;
• monitor its investments annually for any unsustainable or irresponsible practices. Where any such practices are uncovered, the University expects its fund manager to engage on its behalf to redress such issues.

Related Policy Instruments

Statutory Bodies Financial Arrangement Act 1982 (Qld)

For enquiries in relation to this FMPM Procedure please contact corporatefinance@jcu.edu.au

Administration

NOTE: Printed copies of this policy are uncontrolled, and currency can only be assured at the time of printing.

Approval Details

Revision History