Prudent Investing Intended to Provide a New Source of Revenue

Posted: February 27, 2019
Tagged As: Investments, Legislation & Regulation

In order to protect public funds from losing money, Ontario municipalities have been allowed to invest only in securities defined in the Municipal Act (the Legal List)--mostly government bonds.  Unfortunately, in the current low-interest environment, returns on these bonds have been very low.  High quality corporate bonds and Canadian stocks have been permitted in a controlled way through ONE Investment, although very little has been invested this way. 
This approach was used by other global institutional investors until about 40 years ago when prudent investing became more widespread.  This shift reflects evolution in investment theory where controlling the risk of each security is less important and managing the holdings together to create a risk profile for the whole portfolio becomes more important.  Under prudent investing, diversification takes on added importance and allows investors to access securities with higher returns if the risk of the total portfolio is managed.
As of January 1, 2019, regulatory change allows municipalities to invest their long-term holdings prudently, rather than following the Legal List.  There are some key governance provisions involved with making this change, the most onerous of which is setting up an Investment Board (or Joint Investment Board with other municipalities).
For 2019, ONE Investment is creating an investment offering that fills all the requirements, including diversified solutions designed specifically for prudent municipal needs, a Joint Investment Board, staff and Council educational materials and templates for by-laws and orders.  Even Legal List investors can benefit from this new capability, especially the portfolio manager and investment advice.

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