Michipicoten Settlement Trustee Investing September 21, 2012 Heather Richardson, Executive Trust Officer
Trustee Investing The Trustee must: n Ensure that to the extent possible, funds held in each account are invested appropriately n Clause 10. 1 of the Michipicoten Settlement Trust provides that “Upon receipt of a Council Resolution so directing, the Trustee shall hire one or more Investment Counsellors selected and approved by Council. n Clause 10. 2 authorizes and empowers the Trustee to delegate the ability to make decisions on the types and timing of the purchase and sale of Authorized Investments to the Investment Counsellor. 2
Trustee’s Responsibilities The Trustee carries responsibility to: n Hire Investment Counselors with the approval or on the direction of Council n Ensure an Investment Management Agreement is in place n Develop and Review the Investment Policy Statement and advise of an conflicts n Obtain periodic compliance reports from the Investment Counselors and review with the set Investment Policy n Notify Council of any non- compliance n If requested by Council, evaluate the performance of the Investment Counselor against industry standards 3
Need for Investment Why invest trust funds? n To generate the income to fund community or business projects n To increase the value of the Trust - to keep pace with inflation and help preserve the real value of the assets over time 4
3 Principal Investment Objectives: 1. Safety 2. Income 3. Growth No portfolio can be invested to simultaneously maximize all 3 objectives 5
Risk and Return in Investing High Risk Higher Potential Return Derivatives Real Estate Equities (Stocks) Corporate Bonds Government Bonds Money Market Low Risk Low Return Cash & Bank Accounts 6
A Word about Risk Investment Management is about managing risk, not avoiding it. n Goal is to generate returns by taking appropriate risk and avoid losses from uncontrolled risks n Controlling risk requires strategies that prevent a single error from having a major negative impact n Risk can be controlled through diversification, an appropriate time horizon and staying fully invested 7
Elements of Trustee Investing n The unrestricted power of a trustee to invest the trust funds in any type of investment is nevertheless subject to overriding duties and considerations and in particular the “Prudent Investor Rule”. n The Prudent Investor rule: Trustees must exercise their investment powers according to a reasonably prudent investment strategy by having regard to accepted investment criteria, including the overall suitability of the investments for the particular trust, balancing risk and return and considering the need for diversification. n The standard of care applied by Trustees should be applied to investments not in isolation but rather in the context of the investment portfolio as a whole, and as part of an overall investment strategy that should incorporate risk and return objectives. n The emphasis is on the overall investment strategy rather than the nature of each individual investment. 8
The Investment Policy Statement n The investment strategy should be fully documented in an Investment Policy Statement. n An IPS (Investment Policy Statement) is a written contract between the Investment Counselor and the Trustee that guides the investment management relationship and acts as a foundation for all future investment decisions establishing a framework that helps ensure the Trust’s goals will be obtained. n An IPS contains: Investor Profiles Recommended Portfolio Investment Preferences Investment Time Horizon Risk Tolerance Liquidity Requirements 9
The Investment Policy Statement Cont. n During the peaks and troughs of market cycles, an IPS helps maintain focus on the long terms. n Rather than headlines and short-term events, the IPS guides the buy and sell decisions. n The IPS is a dynamic working documents that will be reviewed at a minimum annually. 10
Questions? Thank You! Chi Miigwetch Heather Richardson Executive Trust Officer TD Waterhouse | Private Trust 11
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