G/3.2 Investments

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3.2.1 Scope
3.2.2 Policy principles
3.2.3 Investment management
3.2.4 Roles and responsibilities
3.2.5 Investment strategy
3.2.6 Investment parameters and credit requirements
3.2.7 Governance and reporting
Related Documents
Modification History

3.2.1 Scope

For the purposes of this policy, investments are defined as arrangements that are undertaken or acquired with the expectation of achieving a financial return through interest, profit or capital growth. The policy applies to the investment of all surplus funds held by the University and undertaken in accordance with the Statutory Bodies Financial Arrangements Act 1982.

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3.2.2 Policy principles

Investments shall be made at the most advantageous rate available at the time for the particular investment type, and in a way that is considered the most appropriate given the circumstances. In order of priority, investment activities shall address

• preservation of capital
• maintenance of liquidity, and
• return on investments.

Investment practices are subject to the provisions of the following legislative instruments and administrative procedures

• Queensland University of Technology Act 1998 (QUT Act)
• Financial Accountability Act 2009
• Statutory Bodies Financial Arrangements Act 1982 (SBFA Act)
• Statutory Bodies Financial Arrangements Regulation 2007
• Financial and Performance Management Standard 2009
• QUT's Financial Management Practice and Procedures Manual.

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3.2.3 Investment management

Prudent person standard

The standard of prudence shall be used when managing the University's investment portfolio. Investments are to be managed with the care, diligence and skill that a prudent person would exercise in managing the affairs of other persons. This includes having in place appropriate reporting requirements to ensure that investments are reviewed and overseen regularly.

Treasury management

The Director, Corporate Finance is responsible for overseeing the active management of short and medium term investment categories. This active strategy ensures an appropriate return on investment aligned to the University's capital requirements and includes asset allocations, financial institution and financial instrument selection.

The QUT Treasury Manager, Finance and Resource Planning is required to manage the University's investment portfolio in accordance with this policy. Documented treasury procedures must incorporate appropriate internal controls and segregation of duties. Speculative transactions are not permitted. The security of capital and income objectives will be the major consideration when making an investment decision.

The investment quantum and duration is aligned to the University's short, medium, and long term cash flow requirements. Information is sourced and separated into three timeframes for cash flow management

• Daily – where a daily cash requirement is projected for 30 days ahead. This information is prepared with inputs from key areas of payroll, accounts payable, accounts receivable and capital, investments and loans
• Monthly – where the monthly cash requirement is projected for 12 months ahead. This information is sourced from Planning and Budget with updates from Facilities Management
• Yearly – where the yearly cash requirement is projected for five years ahead. This information is sourced from the three-year operating budget and five-year Asset Management Plan (AMP).

Investments shall be made at the most advantageous rate available at the time for the particular investment type, and in a way that is considered the most appropriate given the circumstances.

At times where markets are highly volatile and recognising there will always be peaks and troughs over the longer investment cycle, the University will rely on its long term investment manager, Queensland Investment Corporation (QIC), to actively position the long term investment portfolio within Strategic Asset Allocation ranges agreed with the Executive Director, Finance and Resource Planning for the relevant investment pools.

Investment fund managers

The University applies a passive management strategy to long term investment categories by engaging external professional investment managers to actively manage its long term investments. The SBFA Act restricts the appointment of long term investment managers to QIC and Queensland Treasury Corporation (QTC) without separate approval (excluding freehold land and lease arrangements).

QUT has retained QIC and QTC as investment and cash fund managers, and may engage other fund managers from time to time subject to the appropriate approvals.

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3.2.4 Roles and responsibilities

The Treasury Manager, Finance and Resource Planning is responsible for

• ensuring daily cash balances are kept to a minimum whilst maintaining sufficient daily cash balances to meet commitments as they arise
• placing investments with approved fund managers and financial institutions
• ensuring investment practices provide the most attractive rate of return within approved risk parameters
• ensuring appropriate records of each trade are maintained
• adopting investment practices compliant with relevant legislation and University policy.

The Reconciliation Officer, Finance and Resource Planning is responsible for

• recording all trade activity
• matching internal records to external source documents and confirmations
• reporting on the status, compliance and any breaches of the Investment policy.

The Manager, Financial and Capital Management is responsible for

• supervising the Treasury Manager activities
• approving transactions on a day-to-day basis.

The Director, Corporate Finance is responsible for

• oversight of the University's treasury function
• maximising performance
• ensuring compliance with relevant legislation and University policy
• acting as a backup to the Manager, Financial and Capital Management for approving transactions

Transfers of monies from the University's accounts require sign-off from two authorised signatories.

The Executive Director, Finance and Resource Planning is responsible for reporting to Planning and Resources Committee on investment performance, and to Audit and Risk Management Committee on compliance with relevant legislation and University policy.

Planning and Resources Committee is responsible for approval of the investment strategic framework and assessment of investment performance and strategy to support the objectives of the University.

Audit and Risk Management Committee is responsible for evaluating the adequacy and effectiveness of established internal controls and assessing the management of the business risks associated with the University's investment activities.

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3.2.5 Investment strategy

a) Preservation of capital

Preservation of capital shall be the principal objective of the investment portfolio. Investments are to be performed in a manner that seeks to ensure security of the principal balance of the overall portfolio. This includes managing credit and interest rate risk within given risk management parameters and avoiding any transactions that would prejudice confidence in the University or its associated entities.

Credit risk
The Treasury Manager will evaluate and assess credit risk prior to investment. Credit risk is the risk of loss due to the failure of an investment issuer or guarantor. The Treasury Manager will minimise credit risk in the investment portfolio by pre-qualifying all transactions including the brokers / securities dealers with which the University does business, diversify the portfolio and limit transactions to secure investments.

Interest rate risk
The Treasury Manager shall seek to minimise the risk of a change in the market value of the portfolio because of a change in interest rates, by considering the cash flow requirements of the University and structuring the portfolio accordingly. This will avoid having to sell securities prior to maturity in the open market. Secondly, interest rate risk can be limited by investing in shorter term securities.

b) Maintenance of liquidity

Pursuant to section 31 of the SBFA Act, the University maintains a deposit and withdrawal account with an approved financial institution for its day-to-day operating transactions. In addition to the balances held in its bank account for routine operating requirements, the investment portfolio will maintain sufficient liquidity to meet all reasonably anticipated operating cash flow requirements of the University, as and when they fall due, without incurring significant transaction costs due to being required to sell an investment. For these purposes, illiquid investments are defined as investments that are not publicly traded in sufficient volume to facilitate, under most market conditions, prompt sale without severe market price effect.

c) Investment categories

QUT’s investable funds are to be matched to the liability profile and cash flow (liquidity) needs of the University, and fall within the following categories

• Short term (under one year)

The objective of the short term component is to ensure there is sufficient liquidity to meet operating expenses (ie daily calls of Accounts Payable transactions, payroll payments and un-presented cheques), while holding minimal cash in low interest bearing accounts. These investments should be held in cash with QTC or placed in short term cash investments with appropriately rated financial institutions within the approved investment parameters.

• Medium term (one to five years)

The objective of the medium term component is to maintain liquidity to meet the cash demand for operating activities and capital works programs planned to occur within a period of one to five years. These investments should be held in secure financial instruments that are liquid and have negligible chance of loss of capital.

• Long term (above five years)

The objective of the long term component is to improve the financial stability and capacity of the University, to provide strength to the balance sheet and deliver a return in perpetuity which could be reinvested to build a substantial corpus, or be drawn upon to meet specific University funding requirements. This investment category should hold funds for

• endowment funds
• reserves and sinking funds for new facilities and infrastructure and for major equipment and building replacements
• provisions for employees entitlements and other long term liabilities
• other strategic priorities

These investments are primarily placed with the approved investment funds manager (QIC) utilising a combination of investment parcels matched to the chosen risk/return requirements of the investment pools such as endowment funds, provisions or sinking funds.

d) Return on investments

e) Trust monies

Trust monies must be invested in accordance with the requirements of the SBFA Act and the QUT Act (Section 52). Trust monies may be included with other University monies in a common investment fund and income distributed from this fund among the participants in the common fund will be in direct proportion to each contribution.

Trust monies shall be held in capital secure and liquid investment types.

f) Direct investments

QUT may on occasions receive direct investments such as shares or property through donations, bequests or as a result of research and commercialisation activities. The University's intention is to divest itself of such investments as soon as practicable, though in limited circumstances direct investments may be held for strategic purposes. All sales should be conducted with the objective of maximising investment returns for the University and ensuring arms length transactions are maintained.

g) Derivatives (hedging foreign currency exchange rate risk)

The University may enter into derivative transactions, for known purchases only, to hedge against foreign currency exchange rate risk subject to the requirements of the SBFA Act (Part 7). Speculative transactions are not permitted.

Foreign currency transactions are generally performed based on a daily spot rate provided by the University's foreign currency supplier. In limited circumstances large planned transactions, such as annual library transactions or large equipment purchases, may be required to be paid in foreign currencies. These transactions may be hedged to offset exchange rate variations.

Each transaction requires prior approval from the Director, Corporate Finance and must be reported each month to the Treasurer of Queensland with sufficient details as required in the SBFA Act (Section 55). All hedging transactions will be included in the regular report to Planning and Resources Committee.

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3.2.6 Investment parameters and credit requirements

For investments at call or for a fixed term of not more than one year the University is permitted, under sections 44 and 45 of the SBFA Act, to use investments with a financial institution rating by Standard and Poor's (Australia) Pty Ltd (S&P) of A1+, A1, AAm or AAAm.

For investments at call or for a fixed term of greater than one year but not more than three years the University is permitted, under section 45 of the SBFA Act, to use investments with a financial institution rating by S&P of AA, AA+ or AAA.

The following tables show the credit ratings and counterparty limits for the University.

For the purposes of QUT’s investment portfolio, the percentage limits apply effective from the date of purchase as a percentage of the market value of the portfolio.

On an annual basis Planning and Resources Committee will endorse, on recommendation from the Director, Corporate Finance, a list of financial institutions meeting the above requirements to which QUT’s investments must be confined.

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3.2.7 Governance and reporting

Performance measurement

The short and medium term investments will be benchmarked against an appropriate QTC index.

The investment return for the University’s long term investment portfolio shall be measured using the market value of the portfolio (including withdrawals and deposits, and total performance of the portfolio), compared to the Consumer Price Index (CPI) plus a benchmark target return. This is to include changes in the capital value of assets held (where applicable), income from managed investment portfolio assets, proceeds of assets sold and cost of assets acquired. The market value of the portfolio is to be calculated and adjusted in the financial accounts to coincide with monthly financial management reporting.

Responding to abnormal or extraordinary events

Where issues are identified outside of the normal budget cycles, arising from either internal requirements or external influences, and have the capacity to materially impact on the University's plans and budgets, Planning and Resources Committee may revisit QUT's investments strategy to facilitate alignment and achievement of the University's operational and strategic plans.

Breach of policy

Any breach of this investment policy must be reported to the Director, Corporate Finance immediately. Action must be taken to resolve the breach within 24 hours of the breach being detected. The Executive Director, Finance and Resources Planning will report the breach and actions taken to address the breach at the next meeting of Planning and Resources Committee.

Reporting

The Executive Director, Finance and Resource Planning reports:

• to Planning and Resources Committee, on a quarterly basis, on investment status and performance; and
• to Audit and Risk Management Committee, at least annually, on compliance with relevant legislation and the University's investment policy.

Planning and Resources Committee reports to Council on investment status and performance as required.

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Related Documents

MOPP G/3.4 Borrowings

MOPP Appendix 3 Schedule of Authorities and Delegations

Financial Management Practice and Procedures Manual

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Modification History

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