FIN-025: Internal Investment Program for University UnitsDate: 08/21/2009 Status: Final
- Pool Structure
- Qualifying Fund Sources
- Minimum Average Balance Requirements
- Minimum Term Requirements
- Compliance Tracking
- Fees Assessed for not Meeting Minimum Requirements
- Interest Rates
- Advance Notification Requirements
- Making an Investment
The policy establishes guidelines regarding internal investment options available to University units holding surplus cash balances that generally are not needed for at least twelve months.
Operating cash balance before commitments as reported on the Discoverer workbook “GL_Revenue Reconciliation Reports,” not to be confused with budget balance.
State educational and general (“E&G”) funds, generally held at the University or vice presidential level, which are set aside for contingency or one-time initiatives. Examples include vice presidential reserves, central contingency reserves, and deferred maintenance reserves. [Note: Creation of an E&G Reserve requires the approval of the University Budget Office.]
Mechanism established by the Office of Treasury Management through which treasury services are provided to the University’s units. These services include loans, investments, and cash balance management.
Schools and departments within the University, typically represented by a five digit numeric code (i.e., organization code) in the University’s Integrated System.
University units may not invest cash directly with banks or financial institutions. (See policy FIN-020, Establishing and Managing Bank, ATMs, and Other Financial Institution Accounts for University Funds.) University units holding surplus cash balances may invest those funds with the University’s Internal Bank provided the guidelines of the policy are met. University units may choose from two investment pools offered under the Program, provided pool guidelines are met. Investment in multiple pools is permitted. The two pools are designed to offer investors short-term (ST) and intermediate-term (IM) options. In general, larger investments made for a longer term will earn a higher rate of return; however, preservation of the principal is not guaranteed. Treasury Management will oversee the investment pools to assess compliance with minimum balance and term requirements, as well as monitor for operating cash balance deficits.
The Internal Investment Program consists of two pools, each with differing minimum average balance and minimum term requirements as follows:
Pool Minimum Avg. Balance Minimum Term Short-term $10,000 1 year Intermediate-term $500,000 2 years
University units should use these requirements to determine which Internal Investment Pools are appropriate for the surplus cash balances they hold. A University unit that fails to meet the minimum pool requirements may be subject to penalties and/or be required to remove funds from the pool in which they are invested.
Qualifying Fund Sources:
Cash balances eligible to be invested in the Internal Investment Program include:
Qualifying Fund Sources Award Type
Gift & Endowment Distribution Funds DR
Local Plant Funds LP 5045 / 5055 / 5110 / 5215 / 5430 E & G Reserves SP 5212 Auxiliary Operating and Reserve Funds SP
1010 / 1120 / 1140
Unrestricted: Other Sources (Local) IP 1165 Medical Center Operating and Reserve Funds All funds.
[Note: For a detailed description of the award types, see Mapping Prefix to Award Types.]
Minimum Average Balance Requirements:
For the short-term pool, the minimum average balance requirement represents the minimum average daily balance required during a calendar quarter. Investors in the ST Pool are permitted to move money into and out of any ST Pool investment account provided the minimum average balance is maintained.
For the intermediate-term pool, the minimum average balance requirement represents the minimum average daily balance required during a calendar quarter. Investors in this pool must maintain any initial and subsequent investments in the pool for the minimum term described above. Withdrawals made prior to the requirements being met are subject to fees and corrective actions as defined below in Section 6.
An exception may be granted if a University unit is making its first investment into the Program in the middle of a calendar quarter. University units failing to meet the minimum balance requirements may be subject to a fee and/or removal from the pool holding the funds.
Minimum Term Requirements:
Minimum term requirements represent the amount of time an investment, which meets a pool’s minimum average balance requirement, must be kept in the pool. University units failing to meet minimum term requirements may be subject to a fee and/or removal from the pool holding the funds.
Treasury Management will track the following items to monitor compliance with the Program’s guidelines:
- Minimum Average Balance – At the end of each calendar quarter, Treasury Management will review the average daily balance for each investment in the Program for the past quarter to determine if any balance failed to meet the minimum average balance requirement.
- Minimum Term Requirements – At the end of each calendar quarter, Treasury Management will monitor the beginning, ending and average daily balances for investments in the Program to determine if funds have been kept in the Program for the required term.
- Negative Cash Balances – At the end of each calendar quarter Treasury Management will monitor operating cash balances to determine if deficits exist in other accounts held by the investing University unit.
Fees Assessed for not Meeting Minimum Requirements:
The following table lists the fees which may be assessed, and the actions that may be taken, for failure to meet Program requirements:
Minimum Average Balance Forfeiture of the greater of half of the interest earned to date or 1% of the assets redeemed. Reclassification into different pool or removal from pool. Minimum Term Forfeiture of the greater of half of the interest earned to date or 1% of the assets redeemed. Reclassification into different pool or removal from pool. Negative Operating Cash
Potential forfeiture of the greater of half of the interest earned to date or 1% of the assets redeemed if corrective action results in violation of balance and term requirements. Required redemption of investments equal to any negative operating cash balances.
Interest rates offered under the Program will be market-based rates. The rate structure by pool is as follows:
90 day t-bill
Intermediate Pool BoA US TSY 1-5 yr
[t-bill: treasury bill; BoA: Bank of America]
Advance Notification Requirements:
University units investing or redeeming aggregate funds in excess of $10 million within any calendar month are required to provide written notification to Treasury Management at least 45 days in advance of the transactions. In cases where advance notification is not provided, Treasury Management will make a best-efforts attempt to meet the University unit’s request in a timely manner. Treasury Management does not guarantee the preservation of principal invested in the program; however, it does make all attempts to insulate investors from earnings volatility and periods of negative return.
Making an Investment:
Before making an investment, a University unit must decide which pools are appropriate based on the size and term of its investment. University units may invest in multiple pools simultaneously provided the minimum average balance and minimum term requirements are met for each pool. If University units anticipate having a cash balance in excess of $1 million for at least five years, they may wish to consider creating a quasi endowment account (see policy FIN-026, Creating and Managing Quasi Endowment Accounts) after considering the risks inherent in longer-term investments.
Invest in any of the pools by making a journal entry into the Integrated System General Ledger, debiting the appropriate object code based on the table below, using the default organization value (99999). This transaction recognizes the investment asset balance in the appropriate departmental project and creates an offset balance in the Internal Investment Program project.
Minimum Average Balance
ST 1215 $10,000 1 year IM 1216 $500,000 2 years
Divest from the Internal Investment Program by making a journal entry debiting Investments/Pool using the default organization value (99999) and crediting Investments/Pool using the department’s organization code. This effectively transfers the money back into the department project.