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University Guidelines

3.8.A     ¹û¶³´«Ã½ÊÓƵ SHORT TERM FIXED INCOME PORTFOLIO - INVESTMENT GUIDELINES

Issued:     May 2020

Replaces:  April 2019

Objectives and Purpose

The goal is to construct a portfolio that emphasizes safety of principal, maintaining liquidity, and will outperform the BofA Merrill Lynch US 3-Month Treasury Bill Index (the “Benchmark”).  Active management is expected to provide increased income and total return to Southern Illinois University.  These guidelines should be reviewed periodically by Southern Illinois University, its investment consultant and PFM Asset Management LLC to assure that the University's objectives are being achieved.

In addition to the guidelines outlined below, the investment manager will adhere to the Southern Illinois University Statement of Investment Policy, the Illinois Public Funds Investment Act, other applicable state laws and applicable federal laws.  The guidelines below are intended to provide additional direction specific to the short term portfolio.

Eligible Securities

Investments may be made in any of the following fixed income securities, subject to credit, diversification and marketability guidelines below.  All securities must be authorized investments under the Illinois Public Funds Investment Act including the following:

1. Obligations issued or guaranteed by the United States of America, its agencies, and its instrumentalities.
2. Certificates of deposit, time deposits or any other investments constituting direct obligations of any bank as defined by the Illinois Banking Act.
3. Obligations of U.S. corporations with assets exceeding $500 million. Such obligations shall have a maturity of 3 years or less, be rated the highest short term or three highest long term rating classifications by at least two standard rating services, and not exceed 10% of the corporation’s outstanding obligations.
4. U.S. Agency mortgage-backed securities (MBS); provided weighted average life is equal to or less than 3 years.  No “derivative” MBS such as Interest Only (IO), Principal Only (PO), and inverse floaters will be allowed.  Mortgage “to be announced” (TBAs) securities, and passthrough Planned Amortization Class Securities (PACS) are allowed.  At no time shall the portfolio to be subjected to leverage.

Duration Exposure

The average weighted duration of portfolio security holdings will be managed to meet the University cash flow expectations.

Credit Quality

In all categories of investments, emphasis will be on high-quality securities and the weighted average of portfolio holdings will not fall below AA-/Aa2 long term or A-1/P-1 short term.  Portfolio holdings are subject to the following limitations:

1. Rated Securities:  At the time of purchase, all securities must be rated in accordance with the minimum rating requirements as noted in Table A.       

2. Downgrade Securities:  Securities which fall below the stated minimum credit requirements subsequent to initial purchase may be held at PFM Asset Management LLC but must be approved by the University.  The University will be notified of all such downgrades in writing.

Diversification  

1. Maturity: Securities must be equal to or less than 3 years to maturity.  In the case of MBS, average life will be used as a proxy for maturity. See Table A for additional maturity limitations.

      2.   Sector: The portfolios managed by PFM Asset Management LLC will at all times be diversified among the major market sectors,subject to the limitations outlined in Table A.

       3.  Issuer:  Holdings are subject to the following limitations outlined in Table A.
 

Marketability

All holdings will be of sufficient size and held in issues that are traded actively enough to facilitate transactions at minimum cost and accurate market valuation.

Performance Measurement and Objectives

Total portfolio return will be calculated each calendar month and reported at the end of each calendar quarter.  The manager will be evaluated on an after-fees basis against the ICE BofA Merrill Lynch US 3-Month Treasury Bill Index (the “Benchmark”).

The manager shall aim to meet or exceed the ICE BofA Merrill Lynch US 3-Month Treasury Bill Index (the “Benchmark”) over a complete economic cycle.

Reporting

Formal management reporting will include:

1. A monthly accounting statement showing portfolio income, holdings and transactions;
2. A monthly total return computation; and
3. A quarterly market outlook and investment strategy.

Table A

¹û¶³´«Ã½ÊÓƵ – Short Term Portfolio Guidelines: Investment Limits and Specifications