403 - University of North Carolina at Chapel Hill Policy on Short Term Investments - Money Market

Reason for Policy

This policy defines the University's short-term investment accounts and names the types of accounts that can be invested in them. It also outlines the parameters of income distribution.

Policy Statement

University institutional trust funds, endowment funds, and special funds accounts meeting the conditions described here, may earn interest on their cash balances by investing in the University Temporary Pool (referred to hereafter as the Temporary Pool) or the State Treasurer Short-Term Investment Fund (STIF). Both funds invest in short- to intermediate-term notes and bonds.

The UNC-Chapel Hill Money Market System is the official University mechanism for recording activity in Temporary Pool and STIF accounts, including purchase and sale transactions, distribution of investment earnings, and report creation by individual accounts. The investment year for both funds runs from June 1 to May 31, with earned income distributed on a quarterly basis during the months of June, September, December and March, for the quarters ended May, August, November, and February, respectively. The University will provide online quarterly statements for each primary and pooled account invested in either pool.

Each quarter, income distribution is determined by multiplying the distribution rate by the average daily invested fund balance. Qualifying accounts in either the Temporary Pool or the STIF account may purchase and sell shares at a fixed value of $1 per share, per day. In most instances, buying and selling shares is only granted for a given period at the beginning of each month.

If, at the end of any month, the cash balance falls below zero for either a Temporary Pool or STIF investment account (causing the account to be overdrawn), all or a portion of the investment may be liquidated by Accounting Services to cover the deficit.

To determine the level of participation in the Money Market System and receive a distribution of income, an authorized departmental representative must determine that the account has an appropriate investable fund balance. For example:

• For funds that are not replenished by a regular source of receipts, the investable fund balance is defined here as the total fund balance less three months' estimated net expenditures.
• For funds that are replenished by a regular source of receipts, the investable fund balance is defined here as the average projected fund balance over the ensuing three months.

I. The Temporary Pool

The University has established and maintains the Temporary Pool, a fixed-income portfolio that operates in conjunction with the established disbursing (bank) account for all special funds, funds received for services rendered by health care professionals, and endowment income funds (internal portion) and funds of affiliated foundations (external portion). Because of the participation in the Temporary Pool by affiliated foundations, it is considered a governmental external investment pool. The Pool invests in high quality notes and bonds ranging from overnight to ten years.

The investment objectives of the Temporary Pool include:

• Generating current income without loss of capital.
• Providing for daily cash flow requirements of pool participants.
• Earning a rate of return equal to or greater than that typically realized from investment of State Funds

Authorized investments for the University Temporary Pool include those listed in GS 147-69.1, Investments Authorized for General Fund and Highway Funds Assets and GS 147-69.2, Investments Authorized for Special Funds Held by State Treasurer.

Types of Accounts That May Be Invested in the Temporary Pool

• GS 116-36.2, Regulation of Special Funds of Individual Institutions Monies received from or for the operation by an institution of its program of intercollegiate athletics and monies held by an institution as fiscal agent for individual students, faculty, staff members and organizations (i.e., agency funds). University affiliated foundations have separate investment agreements with the University for funds on deposit as special funds.
• GS 116-36.1, Regulation of Institutional Trust Funds Moneys received by an institution in respect to fees and other payments for services rendered by medical, dental, or other health care professionals under an organized practice plan approved by the institution or under a contractual agreement between the institution and a hospital or other health care provider.
• GS 116-36, Endowment Funds (Income & Principal) Endowment funds are donations where the principal is to remain intact and is to be invested to produce income which may be expended or reinvested.
• Auxiliary Enterprise Funds. Revenue, bond service, debt service reserve, and bond construction funds may be invested in the Temporary Pool provided the Temporary Pool is listed as a permissible investment in the Bond Resolution or Trust Indenture establishing such funds.

Distribution Rate effective September 2009

The rate paid to Institutional Trust Fund Accounts, Endowment Fund Accounts, and Special Fund Accounts with balances equal to or greater than $1 million, and invested in the Temporary Pool will be changed from the STIF rate of return to two-thirds of STIF rate of return until further notice. The rate paid on eligible accounts invested in the STIF will be changed to two-thirds of the STIF rate of return until further notice. This rate change is effective beginning with quarterly distribution in September 2009. The rate paid to Special Fund Accounts with balances less than $1 million invested in the Temporary Pool will remain unchanged.

Distribution Rates prior to September 2009

The Temporary Pool has two distribution rates, both set by the Vice Chancellor for Finance and Operations or his designee. One rate is determined by the classification of the account (whether it is an institutional trust fund, a special fund, etc.) and the second rate is determined by the investable fund balance.

Accounts that are classified as Institutional Trust Funds (GS 116-36.1)(g)(7)), or as Special Funds, Endowment Funds, and Debt Retirement Funds with balances equal to or greater than $1 million or more will earn a rate that over time equals or exceeds that realized from the investment of State funds generally. When determining distribution rate to accounts falling into this category, the following factors will be taken into consideration:

• The realized income, gains, and losses earned on the Temporary Pool portfolio less investment management expenses and certain operating expenses.
• The level of income required by the Chancellor to meet ongoing commitments from unrestricted sources.
• The rate paid out by the State Treasurer Short-Term Institutional Fund.
• The current level of interest rates.
• The last user's distribution rate and the current year's targeted rate (the rate expected to be earned by the Temporary Pool as of the beginning of the fiscal year).
• The level of unrealized portfolio gains and losses and the portfolio's expected future rate of the return.
• The level of funds set aside in any earnings reserve and stabilization funds in past years.

Special Fund and Endowment Fund Accounts with balances less than $1 million will earn a rate over time that equals the yield on three-month U.S. Treasury Bills, plus 0.25%. This rate may be changed by the Vice Chancellor for Finance and Operations in order to provide the Chancellor with sufficient income to meet ongoing commitments from unrestricted sources.

II. State Treasurer Short-Term Investment Fund (STIF)

The State Treasurer of North Carolina has established and manages the STIF account. Investments in the fund are made pursuant to GS 147-69.1.

STIF Authorized Investments

Investments authorized for Trust funds deposited with the State Treasurer pursuant to GS 116-36.1 are listed in GS 147-69.2.

STIF Invested Funds

Institutional trust funds are defined in GS 116-36.1 and include sponsored research funds and trust funds. All institutional trust funds, except for those contained in subsection (g)(7) of the statute must be deposited with the State Treasurer, who shall hold them in trust in separate accounts in the name of the University. Those trust funds defined in (g)(7) may be deposited and invested with an official depository other than the State Treasurer. Trust funds or the investment income therefrom shall not take the place of State appropriations, and shall be used to supplement State appropriations, to improve and increase the University's areas of service.

STIF Distribution Rates

The distribution rate to eligible accounts invested in STIF is generally the quarterly compounded rate of return earned by the State Treasurer of the fund, as reported by its office in the short-term investment fund income statement received monthly. However, the rate may be changed by the Vice Chancellor for Finance and Operations in order to provide sufficient income to meet ongoing commitments from unrestricted sources.

Exclusions

1. University-affiliated foundations have separate investment agreements regarding special funds.
2. Funds receiving allocations are not eligible to receive a distribution of income from unrestricted funds.

Special Situations

While contract and grant funds and trust funds are maintained separately by the University, both are defined as institutional trust funds, according to State legislation. Both contract and grant funds and institutional trust funds are required to be deposited with the State Treasurer, who will place them in separate accounts in the name of the University. The investment income from these funds does not take the place of State appropriations, but is used instead as earned income to supplement State appropriations, to the benefit of the University's mission.

Procedures

• Finance Procedure 403.1 - University of North Carolina at Chapel Hill Procedure on Purchase and Liquidation of Investments in Money Market

Related Data

• Finance Policy 401 - University of North Carolina at Chapel Hill Policy on General Guidelines for Investments of Funds on Deposit

Contacts

History

Revised:

• January 18, 2018 - Changed "Finance and Administration" to "Finance and Operations."
• February 8, 2010
• September 1, 2009