Manual of Policies and Procedures

G/3.2 Investments

Contact Officer

Executive Director, Finance Resource Management

Approval Date

12/10/2016

Approval Authority

Council

Date of Next Review

31/10/2017

3.2.1 Purpose
3.2.2 Application
3.2.3 Roles and responsibilities
3.2.4 Investment strategy
3.2.5 Investment parameters and credit requirements
3.2.6 Investment management
3.2.7 Performance and reporting
3.2.8 Definition
3.2.9 Delegations
Related Documents
Modification History

3.2.1 Purpose

This policy outlines how the University undertakes financial investments to support its strategic goals across education, research and community. The University's investments shall from time to time be drawn upon to fund strategic priorities, but the University does not draw upon long term investments to fund recurrent operational expenses.

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 financial circumstances. Investments will not be of a speculative nature. Investment activities shall apply an appropriate assessment and balance of risk with regard to:

  • maintenance of liquidity
  • return on investments, and
  • preservation of capital, and purchasing power for the longer term.
The University recognises its responsibilities for responsible investments and publishes a formal statement outlining its approach.

Top

3.2.2 Application

This policy applies to the investment of all surplus funds held by the University and undertaken in accordance with the Queensland University of Technology Act 1998, Statutory Bodies (Financial Arrangements) Act 1982 and Financial Accountability Act 2009, and associated regulations and standards.

Top

3.2.3 Roles and responsibilities

Position
Responsibility
Treasury Manager, Finance Business Solutions Division
  • ensures daily cash balances are kept to a minimum whilst maintaining sufficient daily cash balances to meet commitments as they arise
  • places investments with approved fund managers and financial institutions
  • ensures investment practices provide the most attractive rate of return within approved risk parameters
  • ensures appropriate records of each trade are maintained
  • adopts investment practices compliant with relevant legislation and University policy
Reconciliation Officer, Finance Operations
  • records all trade activity
  • matches internal records to external source documents and confirmations
  • reports on the status, compliance and any breaches of the Investment policy
Manager, Financial and Capital Management
  • supervises the Treasury Manager activities
  • approves transactions on a day-to-day basis
Executive Director, Finance Resource Management
  • oversees the University's treasury function
  • maximises performance
  • approves new investments within the underlying investment pools offered by Queensland Investment Corporation (QIC)
  • ensures compliance with relevant legislation and University policy
  • acts as backup to the Manager, Financial and Capital Management for approving transactions
Chief Financial Officer
  • prepares reports on investment performance and financing, and on compliance with relevant legislation and University policy
Investments and Borrowings Committee
  • advises Finance and Planning Committee on the University's investments strategy and provides advice to support decisions in relation to financing specific major initiatives and projects
Risk and Audit Committee
  • evaluates the adequacy and effectiveness of established internal controls and assesses the management of business risks associated with the University's investment activities
Finance and Planning Committee
  • approves the investment strategic framework and assesses investment performance and strategy

Top

3.2.4 Investment strategy

a) Maintenance of liquidity

The University maintains a deposit and withdrawal account with an approved financial institution for its day-to-day operating transactions, pursuant to section 31 of the Statutory Bodies (Financial Arrangements) Act 1982 (SBFA Act). 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.

b) Preservation of capital and purchasing power

Preservation of capital and purchasing power are key objectives of the investment portfolio. Short term investments are to be managed in a manner that seeks an appropriate return whilst ensuring security of the principal balance. Long term investments seek to earn an appropriate return that also maintains the purchasing power of the overall portfolio for future generations. This requires 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, diversifying the portfolio and limiting 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.

c) Investment categories and return on investments

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

Short Term Investments

Objective

Ensure there is sufficient liquidity to meet operating expenses over a one to three year time horizon.

Target

An annual absolute return figure set each year.

Source and application of funds

Funds sourced from operating revenue and used for operating expenses.
Included in normal operating budget requirements and reviewed on an annual basis to ensure the level of cash reserves is appropriate.

Investment arrangement

QTC or placed in short term cash investments with appropriately rated financial institutions within the approved investment parameters outlined in Section 3.2.5.

Long Term Investments

Objective

Grow the capital base of the University’s investment funds to enable QUT to deliver strategic goals considered over its five year Capital Management Plan.

Target

CPI + 4% per annum over rolling 5 year periods.

Source and application of funds

Current investment balances plus all revenue reinvestment as well as operating margin from annual university budget.
Can be called upon to rebalance Short Term investments.  In periods of weak investment markets, QUT shall be cautious with the level of rebalancing to ensure the capital base of the Long Term investment category is not depleted. In such a situation, a minimum amount shall be redeemed from the Long Term investment category to rebalance the Short Term investment category.
Incomes from these investments do not generally form part of the recurrent operating budget funding pool.

Investment arrangement

Placed with the approved investment manager (currently QIC) utilizing a combination of investment parcels matched to the chosen risk/return profile. The Long Term investment category shall be held in investments with a reasonably high growth component (circa 60-80%) with the objective of enabling the capital base of the investment portfolio to grow above inflation.

Endowment Fund

Objective

Invest the endowments/bequests received by the University which are to be held for very long terms and may have specific requirements regarding their use. 

Target

CPI + 5% per annum over rolling 10 year periods

Source and application of funds

Funds are predominately sourced from philanthropy and QUT matching donations where applicable.  The income from this category will be utilised to fund specific initiatives aligned to the respective endowment objects such as scholarships.
Incomes from these investments do not generally form part of the recurrent operating budget funding pool.

Investment arrangement

Primarily placed with the approved investment manager (currently QIC) utilizing a combination of investment parcels matched to the chosen risk/return profile. To be invested in high growth investments as target is both long term and has a high target margin above CPI.  The capital value in real terms must be maintained and only the excess income above that maintained capital base may be considered for inclusion for distribution through the operating budget. The accounting of the individual endowment accounts within QUT’s books will be managed through periodic balancing across the three investment classes.

d) 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.

e) 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.

f) 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 need to be paid in foreign currencies. These transactions may be hedged to offset exchange rate variations.

Each transaction requires prior approval from the Executive Director, Finance Resource Management, 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 Finance and Planning Committee.

Top

3.2.5 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.

Short Term Rating (S&P)

Institution limit

Maximum % of Total Portfolio

QTC/QIC

100%

100%

A1+

40%

100%

A1

20%

50%

A2

nil

nil

Long Term Rating (S&P)

Institution limit

Maximum % of Total Portfolio

QIC

100%

100%

AAA to AA

40%

100%

AA- or lower

nil

nil

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 Finance and Planning Committee will endorse, on recommendation from the Executive Director, Finance Resource Management, a list of financial institutions meeting the above requirements to which QUT’s investments must be confined

Top

3.2.6 Investment management

Prudent person standard

The standard of prudence must 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 monitored regularly.

Balance Sheet Management

Council on the advice of Finance and Planning Committee, annually approves a rolling three-year Consolidated Operating Budget and five-year Capital Management Plan (CMP). Council considers as part of the Budget process, the mix of assets on the balance sheet the University is expected to hold into the future. Assets fall within various categories but include primarily:

  • Tangible assets - property, plant and equipment
  • Intangible assets - technology developments
  • Financial assets - short term and long term investments held in financial institutions and based on financial markets.

Council endeavours to strategically position QUT with an operating margin and these surpluses become part of the financial assets which provide the University with reserves to deliver strategic goals over a five year Capital Management Plan, as well as manage unexpected, short term internal or external events.
 
Council may periodically, after considering strategic and environmental risks and with appropriate advice provided by management, choose to materially alter the balance sheet asset mix in order to deliver QUT’s strategic goals. This may include various financing options including but not limited to: utilsing existing cash reserves; liquidating financial investments; and various leasing and other external borrowing options.

Treasury management

The Executive Director, Finance Resource Management, is responsible for overseeing the management of investment categories. This 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 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. The investment quantum and duration decisions are aligned to the University's short term, long term, and endowment cash flow requirements. Information is sourced across three timeframes for informing cash flow and investment management decisions, whilst assessing short term liquidity needs and longer term balance sheet considerations:

  • Yearly - where the yearly cash requirement is projected for five years ahead. This information is sourced from the three-year Consolidated Operating Budget and five-year Capital Management Plan (CMP).
  • Monthly - where the monthly cash requirement is projected for 12 months ahead. This information is sourced from the Planning, Reviews and Quality, Facilities Management, and Finance Resource Management departments.
  • 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.

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.

With respect to any new investment within the underlying investment pools offered by Queensland Investment Corporation (QIC), approval from the Executive Director, Finance Resource Management, alone is sufficient, as QIC as the 'investment manager' has already been approved for investment purposes by Finance and Planning Committee.

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

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 by the Queensland State Treasurer.

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.

QUT has Category 3 investment power under the SBFA Act and Regulation, which lists approved investment arrangements managed or offered by QTC and QIC at Schedule 7 Part 1 and 2. QUT also has access to additional QIC investment products where approved by the Queensland State Treasurer.

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, QIC, to actively position the long term investment portfolio within Strategic Asset Allocation ranges agreed for the relevant investment pools.

Top

3.2.7 Performance and reporting

Performance measurement

The short term investments will be benchmarked against an appropriate Queensland Treasury Corporation index.

The long term investment and endowment portfolios 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. The University's Investment Manager (QIC) will measure and benchmark themselves against other institutional multi-asset class, multi-manager funds. Finance and Resourcing Planning will conduct periodic meetings throughout each year with the QIC investment team to ensure the quantitative and qualitative aspects of the manager are closely monitored and are tracking to expectations.

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, Finance and Planning Committee may review 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 Executive Director, Finance Resource Management immediately. Action must be taken to resolve the breach within 24 hours of the breach being detected. The Chief Financial Officer will report the breach and actions taken to address the breach to the next meeting of Risk and Audit Committee.

Reporting

The Chief Financial Officer reports to:

  • Investment and Borrowings Committee and Finance and Planning Committee, periodically throughout each year, the investments and financing strategies and performance.
  • Risk and Audit Committee, at least annually, on compliance with relevant legislation and the University's investment policy.

Finance and Planning Committee and Risk and Audit Committee reports to Council on investment issues relevant to their terms of reference as required.

Top

3.2.8 Definition

Investments are defined as arrangements that are undertaken or acquired with the expectation of achieving a financial return through interest, profit or capital growth.

Top

3.2.9 Delegations

Refer to Appendix 3 Schedule of Authorities and Delegations (VC145, VC146).

Top

Related Documents

MOPP G/3.4 Borrowings

MOPP Appendix 3 Schedule of Authorities and Delegations

QUT Finance Manual

QUT Statement on Responsible Investment

Financial Accountability Act 2009

Financial and Performance Management Standard 2009

Queensland University of Technology Act 1998 (QUT Act)

Statutory Bodies Financial Arrangements Act 1982 (SBFA Act)

Statutory Bodies Financial Arrangements Regulation 2007

Top

Modification History

Date

Sections

Source

Details

26.11.19 All Vice-Chancellor and President Revised policy to include department name change from Institutional Planning and Performance to Planning, Reviews and Quality
09.01.19 G/3.2.6 Director, Governance and Legal Services Revised policy to include department name change from Planning and Performance to Institutional Planning and Performance
10.07.18 All Vice-Chancellor and President Revised policy to include department name changes - Corporate Finance to Finance Resource Management and Planning and Budget to Planning and Performance
12.10.16 All Council Revised policy
07.08.13 G/3.2.5 Council Revised to clarify investment categories and arrangements
05.12.12 G/3.2.7 Council "Breach of policy" reporting changed from Planning and Resources Committee to Audit and Risk Management Committee

23.02.11

All

Council

Revised policy

09.12.09

All

Council

Revised policy

13.09.06

All

Acting Chair, Planning and Resources Committee

Revised policy (endorsed by Planning and Resources Committee 30.08.06)

06.09.05

All

Executive Director, Finance and Resource Planning

Policy reviewed (minor amendment to G/3.2.5 to reflect current reporting processes) and renumbered (formerly G/3.1)

07.07.04

All

Planning and Resources Committee

Revised policy

Top