Investment Program for Public Funds

Governments have a fiduciary responsibility in managing their funds, including the ongoing management and monitoring of investment activity. A government’s investment program should derive from the entity’s Investment Policy.

Developing a public funds investment program is essential to effective financial management, and it sets the foundation for creating protocols and internal controls, constructing and managing the portfolio, navigating changing economic conditions, and communicating information to stakeholders. While different types and sizes of governments require differing levels of complexity in their investment programs, all governments need to recognize their fiduciary responsibility. Having an established public funds investment program provides the structure to effectively set policy, make decisions, and safeguard a government’s financial assets.

1. Review all applicable laws and regulations – Research all applicable federal, state/provincial, and local laws and regulations to become familiar with required parameters that may have been established by an overlapping entity.
2. Establish an investment leadership team – The investment leadership team should provide oversight, set policy and strategy, and identify appropriate individuals to administer the program. Typically, this investment leadership team may include senior-level representatives from finance, administration, risk, legal, and representatives of the governing body. This team will participate in establishing the public funds investment program.
3. Create an investment policy – Create a written investment policy, which will be adopted by the governing body. The investment policy documents key guidelines and expected outcomes during the process of establishing the public funds investment program, as well as other criteria, such as NACHA.
4. Determine the portfolio management team – Decide if the investment portfolio will be managed using internal staff and/or if the government will engage an external investment consultant. Governments should carefully consider if internal staff has the knowledge and ongoing training opportunities to perform portfolio management tasks in house.  When using investment consultants (including registered investment advisors), governments should ensure that these professionals have significant experience and expertise in public funds investing, and have gone through an appropriate vetting and selection process.
5. Establish risk and return objectives – Establish a risk profile that is consistent with the government’s risk tolerance and a process for evaluating portfolio risk and a return objective in accord with the entity’s risk tolerance, and subject to investment constraints.
6. Identify the funds being invested and develop a cash flow forecast for each – Determine which funds will be invested and whether they are excess operating funds, bond proceeds, pension fund assets, or some other type of funds. To establish the proper investment parameters for each classification of funds, estimate how frequently they will be used; this will require an understanding of cash flow requirements and preparation of an appropriate forecast.