The Public Funds Investment Act is a law in Texas that regulates how government entities can invest public funds. In 2020, there were some key amendments made to this act that impacted public funds investment regulations in Texas. These changes modernized the allowable investments and updated governance requirements for investing public money. The amendments aim to provide more flexibility and diversification options for public funds investments while still emphasizing safety and liquidity. This article will summarize the key changes to the Public Funds Investment Act in Texas in 2020 and analyze their potential impacts on public funds investing and management.
Expanded Allowable Investment Types for Public Funds in Texas
One of the major changes in the 2020 amendments was expanding the types of securities that Texas government entities can invest public funds in. The updated Public Funds Investment Act increased the allowable investment options to include more types of commercial paper, corporate bonds, and municipal bonds. For instance, it raised the maximum allowable maturity for commercial paper from 270 days to 365 days. It also added highly-rated corporate bonds and allowed investing in municipal bonds from other states. These changes give public fund managers more flexibility and opportunity to diversify investments across different asset classes to balance risks. With more investment choices available, public funds can be invested in a broader range of securities to meet their specific needs and investment objectives.
Higher Limits for Public Funds Invested in Certain Securities
In addition to expanding the eligible investment securities, the amended Public Funds Investment Act in 2020 also increased the maximum percentage limits that Texas public funds can invest in some types of securities. For example, it raised the limit on corporate bonds, money market mutual funds, and public funds investment pools from 25% to 50% of the total public funds. This change enables public funds to allocate more capital into corporate bonds and mutual funds to tap their higher return potential while still meeting the safety requirements. With higher percentage limits, public fund managers can more freely manage asset allocation and diversification without exceeding regulatory thresholds.
Updated Governance Requirements for Public Funds Investing
The 2020 updates to the Public Funds Investment Act also included new governance and oversight requirements for investing public funds in Texas. It mandated the creation of investment policies that formally define investment strategies, objectives, and procedures. The policies need to be reviewed and adopted annually. This ensures investment regulations keep pace with the evolving financial markets. The amendments also required performance reporting on investments and fund managers at least quarterly. Additionally, they mandated annual audits of investment practices to verify compliance with regulations and policies. These governance changes hold public fund managers more accountable and promote prudent investment decision-making.
Focus on Safety and Risk Mitigation of Public Funds
While expanding investment options, the amended Public Funds Investment Act still emphasizes safety as the top priority. It only allows investments in high quality and highly rated securities. The act also requires diversification across investments, fund managers, and financial institutions to mitigate concentration risks. Public fund managers need to consider total return and risks together rather than merely chasing higher yields. Proper due diligence must be exercised before investing in new asset classes or securities. Public funds need to maintain sufficient liquidity as well. The updates balance providing more investment flexibility with enforcing thoughtful risk management policies to protect public money.
The 2020 amendments to the Public Funds Investment Act in Texas modernized the regulations governing investing of public funds to provide more diversification flexibility while maintaining an emphasis on safety. Key changes included expanding allowable investments, increasing percentage limits for certain securities, updating governance requirements, and strengthening risk mitigation policies. These updates aim to enable prudent and productive investing of taxpayer dollars by public fund managers.