1502 Cash Management Policy
Subject Area: Cash
Responsible Office: Financial Services
Sponsor: Board of Trustees
Originally Issued: July 1988
Revised: February 1999, June 2001, June 2005, January 2010
Refer Questions To: Dana Earles, 773-702-1958
Purpose: To establish policy guidelines which address the management and investment of University operating cash.
The Chief Financial Officer is responsible for the University's cash management system. The Vice President and Chief Investment Officer is responsible for the University's investment activities carried out in accordance with policy established by the Investment Committee of the Board of Trustees.
- Cash Management System - The Budget Office will be responsible for providing input on long term strategic cash needs and the effect on the operating budget. Financial Services is responsible for developing, implementing, and maintaining a cash management system that meets the following objectives:
- Provide the capacity to forecast operating cash requirements and provide an early warning system for potential problems.
- Assist the Investment Office in maximizing the rate of return on the investment of University cash balances by providing cash flow forecasts that establish the amount of cash needed to meet daily working capital requirements as well as the amount of cash that can be committed to long-term rather than short-term investments.
- Identify individual accounts and funds that contribute to negative cash flow situations and recommend corrective action steps.
- Establish and maintain appropriate corporate banking relationships to provide for the receipt and disbursement of all University funds.
- Establish and maintain a bank line of credit to provide for unexpected cash needs.
- Cash Balances Investment Policy - Cash needed to meet daily working capital requirements will be invested in the Custom Cash Fund whereas cash not needed for daily working capital requirements will be invested in the Intermediate Term Capital Fund.
- Custom Cash Fund - The Custom Cash Fund is managed by the Investment Office as a pool of cash equivalent securities. Because the Custom Cash Fund represents cash needed to meet the daily working capital requirements of the University, this Fund invests in high quality securities with maximum liquidity and marketability. Investments will be in shorter maturities (one year or less) and in paper rated no lower than A-1, P-1.
- Intermediate Term Capital Fund - Cash not needed to meet daily working capital requirements will be invested in the Intermediate Term Capital Fund. This Fund is managed by the Investment Office in accordance with the following guidelines:
- Objective - The objective of the Intermediate Term Capital Fund is to produce a higher level of income relative to cash equivalents. While such a program involves a moderate degree of market risk, it is not expected that funds diverted to this portfolio will have to be liquidated in the near future.
- Asset Mix - Approved securities will include U.S. Treasury notes, government agencies, and corporate notes (single A rated or better). Non-government issues will at no time comprise more than 50% of the Fund. Single A rated corporate paper shall not exceed 25% of the Fund. Individual corporate names will be limited to 5% of the Fund.
- Benchmark - The Intermediate Term Capital Fund will be benchmarked to the Lehman Brothers Intermediate Term Government/Credit Index.
- Duration/Maturities - Maturities will range between one and ten years. The portfolio will be managed to target large cash flow requirements. Total return is a secondary objective.
- Reporting - The Investment Office will report on the performance of the Custom Cash Fund and the Intermediate Term Capital Fund at each meeting of the Investment Committee.