Arkansas Administrative Code › Agency 045 - Board of Finance › Rule 045.00.19-001 - Rule 2019-2 Arkansas State Treasury Investment Policy

Current through Register Vol. 49, No. 6, June, 2024
I.
General Policy
A.
Mission
The Mission of the Office of the Treasurer of the State of
			 Arkansas is guided by the words of Henry Clay who stated,
"Government is a trust, and the officers of the government
			 are trustees; and both the trust and the trustees are created for the benefit
			 of the people."
Henry Clay, Speech at Ashland, Kentucky (March 1829) in JOHN
			 BARTLETT, FAMILIAR QUOTATIONS 444 (1980).
To fulfill the responsibility of trustee, the State Treasurer's
			 Office shall, within constitutional and statutory constraints, provide the
			 citizens of Arkansas uncompromising safety, operating liquidity, and wealth
			 building yield in the collection, investment and disbursement of their money in
			 the most cost effective manner attainable while maintaining, above all, the
			 highest ethical standards.
B.
Authority
The State Treasurer is an executive officer of the state,
			 established by the Constitution of the State of Arkansas; and, is required
			 pursuant to the Arkansas Code to perform " all . . . duties which may be
			 required of him or her by law." ARK. CONST, of 1874, art. VI, § 1,
amended by
ARK. CONST, amend. VI, § 1; ARK. CODE ANN.
			 §
									25-16-604.
In addition to any other function, power, or duty imposed by law,
			 the State Board of Finance shall establish, maintain, and enforce all policies
			 and procedures concerning the management and investment of funds in the State
			 Treasury and the State Treasury Money Management Trust, including without
			 limitation:
(1) Record keeping and
		  reporting requirements that reflect:
(A)
		  Daily, monthly, and year-to-date balances of all funds, accounts, and groups of
		  accounts within the State Treasury; and
(B) The performance of all deposits and
		  investments compared to the target rate of return established by the
		  board;
(2) A
		  collateralization policy;
(3)
		  Eligibility requirements for a bank depository, an investment depository, a
		  securities broker, and, before accepting an application to hire an investment
		  consultant under subsection (c) of this section, an investment
		  consultant;
(4) An investment
		  policy;
(5) Liquidity requirements
		  for the State Treasury; and
(6)
		  Qualifications, ethical standards, a conflict of interest policy, and criminal
		  background check requirements that are no less stringent than the requirements
		  of ARK. CODE ANN. §
									19-3-705
		  for all employees of the board or Treasurer of State who handle State Treasury
		  funds or participate in decisions concerning the deposit or investment of State
		  Treasury funds.
ARK. CODE ANN. §
										19-3-704.
C.
Objectives
The objectives of the State Treasurer's investment practices, in
			 priority order, will be safety, liquidity and return on investments. To meet
			 these objectives, the State Treasurer and designated investment officers
			 will:
* Seek to ensure the preservation of capital by adhering to all
			 restrictions on the investment of funds established by law and by this
			 policy.
* Maintain liquidity by seeking to match the maturity structure
			 of the portfolio to reasonably anticipated cash requirements, as well as
			 maintaining an adequate portion of the portfolio in readily marketable
			 securities.
* Optimize the return on investments by structuring the portfolio
			 in such a way that a market rate of return is earned through budgetary and
			 economic cycles within the existing constraints of safety and liquidity.
* Strive to meet the target rate of return as set by the State
			 Board of Finance.
D.
Definitions
This investment policy will use the following terms in the manner
			 described in this section.
ARK. CODE ANN.
- Arkansas Code Annotated of 1987,
			 replacements thereof, and supplements thereto.
ARK. CONST. of 1874
- Arkansas Constitution of 1874.
*
CDARS
- Certificate of Deposit Account Registry
			 Service.
*
Total Portfolio
- as referenced in the Treasury
			 Funds section (section II of this policy) means treasury funds available for
			 investing. It does not include trust certificates of deposit, certificates of
			 deposit purchased in accordance with the State Treasury Certificate of Deposit
			 Investment Program, the State Treasury Money Management Trust Act (except for
			 the amount of any Treasury funds deposited therein pursuant to Ark. Code Ann.
			 §
									19-3-603(3)
			 ), or funds invested pursuant to the Tobacco Settlement Proceeds Act.
*
Authorized or designated investment officers
-
			 means officers designated by the State Treasurer as being authorized to carry
			 out investment functions on behalf of Treasury.
*
Authorized dealers
- means those dealers who
			 are:
A. Specifically approved by the
		  State Board of Finance, or;
B.
		  Approved by the State Treasurer in accordance with eligibility requirements as
		  established by the State Board of Finance.
*
Financial institution
- means a "bank" and/or
			 "savings and loan association" as defined in ARK. CODE ANN. §
										19-3-502.
E.
Standards of Care
Prudence.
The State Treasurer and
			 designated investment officers will perform their duties in a manner consistent
			 with the standard of a "prudent investor," as set forth by the Arkansas
			 Code:
The State Treasurer shall apply the prudent investor rule while
			 serving in a fiduciary capacity for fund participants. The prudent investor
			 rule means that, in making investments, the fiduciaries shall exercise the
			 judgment and care under the prevailing circumstances that an institutional
			 investor of ordinary prudence, discretion, and intelligence exercises in the
			 management of large investments entrusted to it, not for speculation but for
			 investment, considering the permanent disposition of funds, and the probable
			 safety of capital as well as probable income.
ARK. CODE ANN. §
									19-3-605 ).
Ethics and Conflicts of Interest.
The State Treasurer and investment officers authorized by Treasury shall seek
			 to act responsibly as custodians of the public trust. They will refrain from
			 personal business activity that could conflict with proper execution of the
			 investment program or which could impair their ability to make impartial
			 investment decisions. They will adhere to the laws regarding ethics, conflicts
			 of interest, and disclosure requirements contained in Title 21, Chapter 8 of
			 the Arkansas Code. ARK. CODE ANN. §
									21-8-101
et. seq.
Authorized Financial Dealers and
			 Institutions.
The State Treasurer will select financial dealers
			 and institutions authorized to provide investment services to the state.
			 Authorized financial dealers or institutions will be qualified as one or more
			 of the following:
* financial institutions authorized by ARK. CODE ANN. §
									19-3-507
			 and;
* dealers who are:
A.
		  specifically approved by the State Board of Finance, or;
B. approved by the State Treasurer in
		  accordance with eligibility requirements as established by the State Board of
		  Finance.
Each authorized dealer or institution will regularly submit
			 semiannual and annual reports, including audited financial statements, and
			 other information as determined by the State Treasurer.
F.
Professional
		  Services
The State Treasurer may contract for professional services as
			 necessary for the efficient management of investments.
G.
Internal Controls
The State Treasurer will maintain internal controls to protect
			 against the loss of public funds arising from negligence, theft, or misuse.
			 These controls will include, but not be limited to:
* the use of third-party custody and safekeeping;
* the execution of all securities transactions on a delivery
			 versus payment basis;
* the clear and limited delegation of investment
			 authority;
* the separation of transaction authority from record
			 keeping;
* frequent reconciliation of the investment ledger with the
			 general ledger;
* the use of objective criteria in selecting financial
			 institutions and dealers authorized to provide investment services to the
			 state; and,
* the use of objective criteria in awarding investment purchases
			 and sales to authorized financial institutions and dealers.
The State Board of Finance shall serve as the investment policy
			 committee and shall review and approve revisions to this policy as
			 necessary.
H.
Reporting
The State Treasurer will prepare quarterly reports summarizing
			 investment activity and performance. Reports and records shall be adequate to
			 ensure that transactions are authorized and executed in accordance with this
			 policy. Reports will be distributed to appropriate state officials and agencies
			 and will be readily available upon request. The reports may include performance
			 of invested funds, composition of invested funds, performance against
			 appropriate benchmarks, investment activity, and any other report as may be
			 deemed necessary.