|Approved by||University Council, 17 April 2012|
|Date Policy Took Effect||30 April 2012|
|Last Approved Revision||12 September 2017|
|Sponsor||Chief Financial Officer|
|Responsible Officer||Treasury Accountant|
|Review Date||12 September 2022|
The purpose of this policy is
To ensure investments and borrowings are made in accordance with legislative requirements including the Crown Entities Act 2004, the Education and Training Act 2020 and the Public Finance Act 1989.
To provide a framework within which the University can effectively manage and safeguard its financial resources.
To maximise the income from the investment of working capital, and to minimise investment risk to the University.
This policy applies to the University of Otago.
- Bank investments or deposits
- All bank term deposits excluding the current and on call accounts.
1. Investments Permitted by Legislation
- The Public Finance Act 1989 (section 65I - Investment of public money) requires that the University, as a Crown Entity, invests funds in accordance with the rules applying to the Treasury’s investment of public money. This allows Crown Entities to invest in bank deposits (whether in New Zealand or elsewhere) approved by the Minister of Finance for the purpose; and in public securities that the Minister may approve for the purpose. The Minister can grant exemptions to these criteria.
2. Investments Permitted by Exemption to the Legislation
- Subsequent to an exemption granted by the Minister of Finance, on 2 May 2011, to the University under section 65I of the Public Finance Act 1989 and section 203(4) of the Education Act 1989 (see section 305(4) of the current Education and Training Act 2020), investments can be made by the University or Otago Innovation Limited in debt or equity securities in companies, in New Zealand or overseas, that are developing and commercialising intellectual property created by or on behalf of the University.
- The aggregate face value of all these investments (either in cash or cash equivalent) shall not exceed 2% of the equity of the University group, measured against the most recent audited group financial statement for the University.
- There must be no contingent liabilities associated with any investment by the University, either by way of uncalled shares, guarantees or otherwise.
- Investments made by the University under this exemption must be approved by the Vice-Chancellor up to the limit of the Vice-Chancellor’s delegated financial authority for capital expenditure and by the University Council for amounts above this.
- Investments made by Otago Innovation Limited under this exemption must be approved as follows:
- Amounts up to and including $250,000 in value - by the Board of Directors of Otago Innovation Limited;
- Amounts above $250,000 and up to and including $1,000,000 - by the Board of University of Otago Holdings Limited;
- Amounts above $1,000,000 – by the University Council
3. Investments Permitted as Not Covered by the Legislation
- The Office of the Auditor General, Treasury and the Tertiary Education Commission have agreed that equity holdings or loans in companies involved primarily in providing teaching and research related activities are not “investments” under the Act. The University shall rely on this arrangement to make such investments.
- Investments made by the University under this arrangement must be approved by the Vice-Chancellor up to the limit of the Vice-Chancellor’s delegated financial authority for capital expenditure and by the University Council for amounts above this.
- Investments made by University subsidiaries under this exemption must be approved by the Board of Directors of the investing company subject to the condition that investments above $250,000 must be approved by the Board of University of Otago Holdings Limited. Investments above $1,000,000 must be approved by the Board of University of Otago Holdings Limited and by the University Council.
4. Investment in Bank Term Deposits
- Bank deposits may only be held in accounts with banks approved under clause 1 above.
- A new bank account may only be opened, and an existing bank account may only be closed, with the approval of both the Chief Financial Officer and the Chief Operating Officer.
- All investments of University working capital must comply with the University Investment Procedure.
- Any investments of a subsidiary’s working capital in bank term deposits must be approved by the Chief Executive Officer of the company making the investment.
- For Tier 1 investments, approved counterparties will be New Zealand registered banks with a credit rating at least equivalent to one of:
- Standard & Poor’s (“S&P”) A+
- Fitch A+
- Moody’s A1
- For Tier 2 investments, approved counterparties will be New Zealand Registered banks with a credit rating at least equivalent to:
- Standard & Poor’s (“S&P”) BBB
- Fitch BBB
- Moody’s Baa2
- At any one point in time the University’s financial exposure with any single registered bank must not exceed:
At Tier 1 – one third of the total University’s bank deposits (plus an additional margin of 10% of that one third for rebalancing purposes), provided that where total bank funds fall below
- $50 million, then funds may be held across two banks
- $25 million, then funds may be held in one bank
- At Tier 2 – 5% of the total University’s bank deposits.
- At any one point in time, no more than 5% of the University’s total bank term deposits should be held in registered banks at Tier 2.
5. Investments in New Zealand Government Stock
- Up to 100% of total University investments may be held in New Zealand Government Stock.
- Any investments of University working capital in Government Stock must be approved by any one of the Chief Financial Officer, the Financial Controller or the Treasury Accountant.
- Any investments of a subsidiary’s working capital in Government Stock must be approved by the Chief Executive Officer of the company making the investment.
6. Investments in Companies
- Equity investments and loans to companies that are not subsidiaries of the University must only be made if they comply with the conditions and approvals outlined in clauses 2 and 3 above.
7. Ethical Investing
- The University of Otago has a commitment to ethical, or socially-responsible, investing. Therefore any investment made must consider social good as well as financial return.
- The University should not invest directly in companies that are primarily involved in the production or distribution of alcohol, tobacco or munitions, or in the exploration and extraction of fossil fuels. A measured approach should be taken with materiality issues considered.
8. Reporting and Review
- The Chief Financial Officer will provide a report at each Finance and Budget meeting on the performance of the investment portfolio against predetermined limits and benchmarks, and against compliance with this policy.
- This Policy will be reviewed every two years.
Related Policies, Procedures and Forms
- Crown Entities Act 2004
- Education Act 1989
- Education and Training Act 2020
- Public Finance Act 1989
- Investment Procedure
Contact for Further Information
If you have any queries concerning this Policy or require further information, contact the Treasury Accountant on firstname.lastname@example.org