IS-1822 Investment Guidelines

Financial Administration

Approval Date: 06/22/21
Revised: 04/18/23
Revised: 03/14/24

Table of Contents

1. Statement of Purpose

The purpose of this Policy is to achieve the following:

  1. Document investment objectives, performance expectations and investment guidelines for the College’s funds.
  2. Establish an appropriate investment strategy for managing the College’s funds, including an investment time horizon, asset allocation targets and ranges to provide sufficient diversification and overall return over the respective time horizons for each Portfolio.
  3. Establish investment guidelines to control overall risk and liquidity.
  4. Establish periodic performance reporting requirements to monitor investment results and confirm that the investment policy is being followed.
  5. Comply with fiduciary, prudence, due diligence and legal requirements for the College’s funds.

2. Statutory Authority and Applicable Laws

The College invests funds in conformity with federal and state laws and regulations, including Internal Revenue Services (IRS) regulations pertaining to tax exempt bonds, bond resolutions and indentures, and other pertinent legal restrictions. These laws and regulations include but are not limited to NMSA 1978, § 6-8-1 et seq. and § 6-10-1 et seq., NMSA 1978; Uniform Prudent Investor Act, NMSA 1978, § 45-7-601 et seq.; Uniform Prudent Management of Institutional Funds Act, NMSA 1978 § 46-9A-1 through § 46-9A-10 NMSA 1978; and Internal Revenue Code on Arbitrage, 26 USC § 148.

3. Investment Responsibility and Control

The College, through its Governing Board and Finance Committee or designees, has the ultimate responsibility for creating and implementing the investment policies as stated herein. Individuals responsible for investment decisions shall exercise reasonable judgment, care, skill and caution to invest and manage as a prudent investor would by considering the objectives, terms, and distribution requirements while preserving capital.

In implementing this policy statement, the College believes it may delegate certain functions to:

  1. The New Mexico State Investment Council (SIC), as investment agent selecting the underlying investment managers that comprise each investment pool available to the College.
  2. A consultant, to assist with periodic review of:
    1. the investment policy statement.
    2. the performance of the investment portfolio.
    3. the asset allocation guidelines including recommendations to rebalance the portfolio as referenced in the "Periodic Re-balancing" section.
  3. Specialists such as attorneys, auditors, and other consultants to assist the Governing Board in meeting its responsibilities and obligations to administer College assets prudently.

4. Investment Funds and Portfolios

4.1 These Investment guidelines provide direction for the investment of all financial assets considered to be part of the College entity and includes the following funds or fund types:

  • Operating Funds;
  • Endowments;
  • Plant Funds and Renewal and Replacement Funds;
  • Benefits Funds;
  • Debt Service Funds and Bond funds are governed by bond ordinances and covenants and are subject to the provisions of the Internal Revenue Code and applicable federal regulations governing the investment of bond proceeds. 
  • Any other funds which have been contractually delegated to the College for management purposes.

The College may add or delete funds as may be required by law or for proper accounting procedures.

4.2 As part of the College’s cash management process, the College will identify funds that will allow for a longer investment period. This analysis will allow staff to segment funds invested under this policy into distinct portfolios that will be managed in accordance with each portfolio’s respective objectives and constraints. A description of the portfolios is included below.

4.2.1 Liquidity Portfolio: The Liquidity Portfolio contains funds needed to address the immediate cash needs of the College. The Liquidity Portfolio will be placed in an allowable pooled investment such as the Local Government Investment Pool (LGIP) with the State Treasurer's Office (STO). The Liquidity Portfolio is expected to have minimal liquidity risk and will invest in short-term (less than one year), fixed income securities and pools that are not exposed to significant market risk. Specifically, funds invested in the Liquidity Portfolio include those funds needed for the current fiscal year’s operations and current projects, bond proceeds, and debt service funds and all other funds not invested in the Core Portfolio.

4.2.2 Core Portfolio: The Core Portfolio contains fund balances that are not necessary to meet the short-term cash flow needs of the College. The Core Portfolio will be segmented into Core: Intermediate and Core: Long-term. The Core: Intermediate portfolio consists of funds that are not expected to be spent within one year but will likely be spent within the next five years. These funds will be invested in treasury securities, certificates of deposits, and/or bonds funds (ETFs or mutual funds) that hold securities permissible under NMSA 1978, § 6-10-10 with an average duration between 1-5 years. The Core: Long-term portfolio consists of funds that are not expected to be spent within the next five years. This portfolio will be placed in allowable pooled investment funds with the State Investment Council (SIC) with an objective to maximize investment income and long-term growth of the portfolio, while, at the same time, minimizing investment risk. As part of the College’s cash management and cash flow process, the College may identify funds that will allow for a longer investment period. These funds comprise the Core Portfolio and include Endowment Funds, and portions of the Unrestricted Fund Balances, Plant Fund Balances, Renewal and Replacement Fund Balances, and Benefit Accounts. 

5. Investment Objectives

5.1 The College will manage and invest its assets in a manner consistent with the following fiduciary standards: (a) all transactions undertaken must be for the sole interest of the beneficiaries, respectively, and (b) assets are to be diversified in order to minimize the impact of large losses from individual investments. All investments are designed and managed in a manner responsive to public trust and consistent with all applicable New Mexico statutes, this Policy and any other approved, written administrative procedures. The four objectives of the College's investment activities shall be as follows:

  • Safety of Principal. Safety of principal invested is the foremost objective in the investment decisions of the College, particularly the liquidity portfolio. Each investment transaction shall seek to ensure the preservation of capital in the overall portfolio. The risk of loss shall be controlled by investing only in authorized securities as defined in this Policy, by qualifying the financial institutions with which the College will transact, and by portfolio diversification. Safety is defined as the undiminished return of the principal on the College's investments.
  • Liquidity. The College's investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Because all possible cash demands cannot be anticipated, a “liquidity” portion of the portfolio may also be placed in money market mutual funds or local government investment pools which offer same day or next day liquidity for short-term funds.
  • Market Rate-of-Return (Yield). The College's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the unique risk tolerance and liquidity needs of the liquidity portfolio and core portfolio. The liquidity portfolio is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed while the core portfolio can tolerate greater risk and therefore seek higher return over a longer time horizon.
  • Public Trust. All participants in the College's investment program shall seek to act responsibly as custodians of the public trust. Investment officials shall avoid any transaction, which might involve a conflict of interest or otherwise impair public confidence in the College's ability to govern effectively. All officials of the College having either a direct or indirect role in the process of investing idle funds shall act responsibly as custodians of the public trust.

5.2 The College shall maintain a comprehensive cash management program, which includes collection of accounts receivable, vendor payments in accordance with invoice terms, and prudent investment of available cash. Cash management is defined as the process of managing monies in order to ensure maximum cash availability and maximum yield on short-term investment of pooled idle cash.

5.3 Time Horizon

  • Liquidity Portfolio: The investment objectives for the Liquidity Portfolio are based on a short-term investment horizon of less than one year. Interim fluctuations should be viewed with appropriate perspective.
  • Core Portfolio: The investment objectives for the Core Portfolio are based on a longer-term investment horizon. The Core: Intermediate portfolio is based on an investment time horizon of 1-5 years whereas the Core: Long-term portfolio is based on an investment time horizon of five years or longer. Interim fluctuations should be viewed with appropriate perspective. The College has adopted a long-term investment horizon such that the risks and duration of investment losses are carefully weighed against the long-term potential for appreciation of assets.

6. Permitted Investments

The scope of authority for the types of investments that may be made with College funds is statutorily defined in NMSA 1978, § 6-10-10 and NMSA 1978, § 6-10-10.1. College funds not immediately necessary for College uses may be invested in any securities permitted by law. Allowable investments include the following: 

  • Liquidity Portfolio: New Mexico Local Government Investment Pool maintained by the State Treasurer’s Office. 
  • Core Portfolio:
    • Core: Intermediate: Treasury securities, certificates of deposit, and/or bonds funds (ETFs or mutual funds) that hold securities permissible under NMSA 1978, § 6-10-10 with an average duration between 1-5 years.
    • Core: Long-term: Pooled Investment Funds managed by the State Investment Officer at the State Investment Council.

Assets of the College may only be invested in the instruments listed below, as authorized by New Mexico State Statute 6-10-10.  If changes are made to State Statute authorizing additional investments, they will not be authorized until this Policy is modified and adopted by the Governing Body.

The following types of investments are authorized:

  • Demand Deposits: Deposits (liquid deposits, such as DDAs, savings accounts and market rate accounts) are allowed in certified and designated New Mexico financial institutions, in accordance with the New Mexico State law, whose deposits are insured by an agency of the United States. All deposits will comply with state statute and Section XII of this Policy regarding collateral requirements.
  • Certificates of Deposit: Certificates of Deposit are allowed in certified and designated New Mexico financial institutions, in accordance with New Mexico State law, whose deposits are insured by an agency of the United States. All deposits will comply with state statute and Section XII of this Policy regarding interest rates and collateral requirements not to exceed five (5) years to stated maturity. 
  • United States Treasury Obligations: Securities that are issued by the United States government that are either direct obligations of the United States or that are backed by the full faith and credit of the United States government.  Investments shall be limited to a maximum maturity of five (5) years at time of purchase.
  • United States Agency and Instrumentality Obligations: Securities issued or guaranteed by U.S. Government agencies, instrumentalities or sponsored enterprises.  Investments in U.S. Government Agency and Instrumentality Obligations shall be limited to a maximum stated maturity of five (5) years at time of purchase. 
  • Obligations of State and Local Governments and Public Authorities: These include bonds or negotiable securities of the State of New Mexico or a county, municipality or school district located in New Mexico that has a taxable valuation of real property for the last preceding year of at least one million dollars ($1,000,000) and that has not defaulted in the payment of any interest or sinking fund obligation or failed to meet any bonds at maturity at any time within five years last preceding.  If rated, such obligations shall be rated at least A (long-term) or A1 (short-term) or their equivalents by at least one nationally recognized rating agency and not to exceed three (3) years to stated maturity.
  • The New Mexico State Treasurer’s Local Government Investment Pool.
  • SEC Registered, AAA-rated Government Money Market Mutual Funds: A qualified money market mutual fund must: 
    • be registered with the United States Securities and Exchange Commission; 
    • comply with the diversification, quality and maturity requirements of Rule 2a-7, or any successor rule, of the United States Securities and Exchange Commission applicable to money market mutual funds; 
    • assess no fees pursuant to Rule 12b-1, or any successor rule, of the United States Securities and Exchange Commission, no sales load on the purchase of shares and no contingent deferred sales charge or other similar charges, however designated, provided that the College shall not, at any time, own more than five (5) percent of a money market mutual fund's assets; 
    • be invested only in United States Government and Agency Obligations and repurchase agreements secured by such obligations; and 
    • be rated AAAm or equivalent by a nationally recognized rating agency.
  • Repurchase Agreements (Repo): Contracts for the simultaneous purchase and resale, at a specified time in the future, of specific securities at specified prices at a price differential representing the interest income to be earned by the College. The contract at the time of purchase shall be fully secured by the Authorized Collateral described in Section XII having a market value of at least one hundred two percent (102%) of the amount of the contract.   The Repurchase Agreement must have a stated maturity date not to exceed one (1) year to maturity. Flexible repurchase agreements may only be used for bond proceeds with a maturity not to exceed the expenditure plan of the funds.
  • Shares of a Diversified Investment Company and Individual or Collective Trust Funds of Banks or Trust Companies: These include shares of a company or trust pursuant to the federal Investment Company Act of 1940 that invests in fixed-income securities or debt instruments that are listed in a nationally recognized, broad-market, fixed-income-securities market index; provided that the investment company or manager has total assets under management of at least $100,000,000 and provided that the Investment Policy of the College may allow reasonable administrative and investment expenses associated with the investment company to be paid directly from the income or assets of these investments.
  • Investment types, asset classes and sectors not explicitly permitted under Section 6-10-10 (NMSA 1978 annotated) are not permissible by the College. 
  • Any investment held by the College that does not meet the guidelines of this Policy shall be liquidated as soon as possible. Proceeds shall be reinvested only as provided by this Policy. 
  • Securities which do not meet Policy requirements because of an adopted change in the Policy shall be reviewed by the Investment Advisory Group to decide on appropriate action to be taken to hold to maturity or liquidate.  Liquidation is not mandatory. 
  • Securities which do not meet Policy rating requirements because of a change in credit rating shall be reviewed by the Investment Advisory Group to decide on appropriate action to be taken to hold to maturity or liquidate.  Liquidation is not mandatory. 

7. Diversification

7.1 Liquidity Portfolio: To the extent practical, funds should be diversified to reduce the risk of loss resulting from an over-concentration of assets in a specific maturity, a specific issuer, or a specific class of securities. With the exception of U.S. Government securities, as authorized in this Policy, and authorized local government investment pools, no more than fifty percent (50%) of any one investment portfolio will be invested in any one security type. Diversification of the portfolio considers diversification by maturity dates and diversification by investment instrument.

The following diversification limits shall apply to the Liquidity Portfolio:

Allowable Securities

Diversification Limits

Further Limitations

NM LGIP

100%

 --

7.2 Core Portfolio: As part of the College’s cash management and cash flow process, the College may identify funds that will allow for a longer investment period. These funds include portions of the Unrestricted Fund Balance, Plant Fund Balance, Renewal and Replacement Fund Balance, Endowments Funds, and Benefit Accounts. Investment objectives are to maximize investment income and long-term growth of the portfolio while, at the same time, minimizing the risk of long-term investment losses. Consequently, the Core Portfolio will be constructed and maintained to provide diversification with regard to the concentration of holdings in individual issues, issuers, countries, governments or industries.

The following table sets out the asset allocation guidelines for the Core: Intermediate Portfolio.

Allowable Securities Diversification Limits Further Limitations 
Treasury Securities 100% -
Certificates of Deposit (up to 5 years) 100% -
Bond Funds (ETFs or mutual funds) 100% -

The following table sets out the asset allocation guidelines for the Core: Long-term Portfolio funds with the State Investment Council. Any temporary cash held within the portfolio under an equities or bond asset class will be considered as part of that asset class and not part of the cash position. The asset allocation range established by this Policy represents a long-term perspective. As such, rapid unanticipated market shifts or changes in economic conditions may cause the asset mix to fall outside Policy ranges. When allocations breach the specified ranges, the College will rebalance the assets within the specified ranges. The College will also rebalance the portfolio to strategic targets twice a year in July and January to ensure compliance with these target allocation ranges as changes in market values may temporarily cause the allocations to exceed the target.

Asset Class

Target Weight %

Rebalancing Range %

Appropriate Benchmark

U.S. Large Cap Equities

21.5

16.5  - 26.5

Russell 1000 Index

U.S. Small/-Mid Cap Equities

11

6 - 16

S&P Small Cap 600 Index

Non- U.S. Developed Equities

12.5

7.5 - 17.5

MSCI ACWI ex-U.S.

Non- U.S. Emerging Equities

5

0 - 10

MCSI Emg Mkts Index (Net)

Fixed Income

50

45 - 55

Bloomberg US Unv. Bond Index

Total

100

 -

 -

8. General Investment Performance

The College will manage its investment portfolio in accordance with the parameters specified within these guidelines. The portfolio should be designed with the objective to obtain a market rate of return on investments commensurate with investment risk constraints and cash flow requirements of the College. Each individual Investment Portfolio will be compared to an approved benchmark that appropriately models an expected risk and return profile. The benchmark does not represent a hurdle to beat, but instead it provides a reasonable comparison with which to measure the overall performance of the core portfolio with the SIC over the intermediate term, three years, and long-term, five years or longer. Over the long-term, five years or longer, the performance objective for the Core Portfolio will be to achieve an average total annual rate of return of 6%. 

9. Spending Policy

9.1 Core Portfolio—Endowment Funds: These spending guidelines are in concert with the long-term endowment management philosophy of the College, which is to preserve the permanent viability of the endowment. The College’s endowment funds support vital programs from the earnings of its endowment. In the future, student scholarships may also be funded from the investment earnings from endowment funds. The distributions to College programs are in concert with provisions established by donors of the endowment. 

Spending from the endowment must not jeopardize the long-term viability of the endowment. This policy is intended to provide a framework for accomplishing that goal. 

Spending Provisions

  • In order to accommodate the annual budgeting process for the following year, the endowment return will be allocated and budgeted for expenditures of the succeeding year. The actual distribution of funds will be made on July 1 for the subsequent fiscal year. 
  • Generally spending will be limited to five percent (5%) of the average market value of the endowment over the preceding five (5) calendar years ended December 31. 
  • Any excess of total return over the spending allowance shall remain in the spendable portion of the endowment fund whether resulting from appreciation or current yield. 
  • Amounts not spent by the individual operating accounts supported by the endowment cannot be carried forward for budgetary use in the next fiscal year. Unspent allocated funds will remain in the spendable portion of the endowment fund. 
  • Specific instructions of donors and endowed funds will be adhered to at all times. 

10. Reporting

10.1 Monthly Reporting

The Business Office will prepare monthly reports of investment activity, investment balances, and investment returns for review and approval by the Vice President of Finance and Operations. 

10.2 Quarterly Reporting

On a quarterly basis, the Business Office staff will prepare an investment report summarizing the investment activity, balances, and investment returns.  The Vice President of Finance and Operations, or designee, will present the quarterly investment report to the Finance Committee at the next regular meeting after the report is available, in addition to a fiscal year annual report to the Governing Board regarding investment activities engaged in during the prior year. 

11. Approval

Annually, these Investment Guidelines will be reviewed and any changes approved by the CNM Executive Team and reported to the Finance Committee of the Governing Board at its next regularly scheduled meeting.