Terms of reference – Investment committee

1. Constitution

The Investment Committee will function as a sub-committee of the Board of Directors. All procedural matters in respect of conduct of Investment Committee meetings shall follow the Trust’s Constitution, Standing Orders, Standing Financial Instructions and Scheme of Delegation.

2. Role and duties

The Investment Committee’s role shall be two-fold:

Cash Management

Oversee all operational cash management of the Trust in line with the Treasury Management: Guidance for Investment Committee (set out at Appendix 1). This will include all cash balances held by the Trust including charitable funds (the general power of investment when applied to charitable funds is set out in section 3 of the Trustee Act (2000) and allows trustees to invest in any kind of investment, excluding land).

Investment Management

Oversee all investments and investment associated external trading activities of the Trust in line with the “Investment Oversight: Guidance for the Investment Committee” (set out at Appendix 2).

In fulfilling its role the Investment Committee shall take all reasonable steps necessary to:

• ensure a competitive return on surplus cash within the limits imposed by DH, Treasury and NHSE , with an acceptable risk profile;
• manage the financial risk associated with operational activities,
• ensure the availability of competitively priced funding for working capital with an acceptable risk profile; and
• oversee investments and investment associated with external trading activities of the Trust.

In carrying out its duties the Investment Committee may do anything which appears to it to be reasonably necessary or expedient for the purposes of or in connection with its functions set out in these Terms of Reference. In particular it may:

• set up sub-committees to undertake any part of its functions;
• enter into contracts.

3. Membership

As a minimum, the Investment Committee will comprise two non-executive members of the Board of Directors (including Chair) and the Director of Finance.

The Investment Committee will be chaired by a Non-Executive with a financial and/or commercial background.

When appropriate the following may be invited to attend meetings of the Investment Committee for specific agenda items:

• Other Executive or Non-Executive Directors of the Trust;
• Directors or mangers from bodies corporate or unincorporated associations in which the Trust holds an interest;
• Other Trust employees or subcontractors of the Trust;
• Internal or External Audit; and
• Any other relevant Third Parties.

The Investment Committee is authorised to seek any information it requires and to obtain professional advice where it considers appropriate.

4. Quorum

A quorum shall comprise a minimum of one of the nominated Non-Executive Directors and the Director of Finance, or the nominated deputy of the Director of Finance.

5. Frequency and form of meetings

Meetings will be held at least annually, but may be required more frequently if investment flexibility changes. Ad-hoc meetings may be arranged to discuss specific issues at shorter notice, although as investment decisions and evaluation are part of a longer-term investment cycle, such ad hoc meetings should only be called where appropriate to do so.

Either of the Non-Executive Directors may request a meeting if they consider that one is necessary.

6. Agenda and reporting procedure

The Agenda items will be agreed by the Chair of the Investment Committee in consultation with the Director of Finance.

Agenda papers (and subsequently minutes) for each meeting of the Committee shall be circulated to all members of the Investment Committee and, for information, to the Chair of the Trust’s Board of Directors (the “Board”) and the Chief Executive.

Meetings will be called and conducted in accordance with the Trust’s Standing Orders. The notice period will be a minimum of 10 days or such shorter period deemed appropriate by the Chair of the Investment Committee. Written reports are to be sent to members at least five clear days before the meeting unless agreed otherwise by the Chair.

The minutes of the Investment Committee meetings, together with a summary of decisions made, shall be submitted to the next following Board of Directors meeting.

The Chair of the Investment Committee shall draw to the attention of the Board any issues that require disclosure to the full Board, or require executive action or require a Board decision or require the decision of an officer detailed in the Scheme of Delegation.

The Terms of Reference of the Investment Committee shall be reviewed and approved on an annual basis.

Appendix 1: Treasury management – guidance for the investment committee

This guidance aims to promote fiscal responsibility and prudent investments that do not compromise effective, efficient and economic delivery of services. For the avoidance of doubt, this guidance is not intended to apply to the roles or investments of the Investment Committee set out in the “Investment Oversight Guidance for the Investment Committee” attached as Appendix 2.

1. Treasury management

The key responsibilities of Treasury Management roles within the Trust are detailed below:

Trust Board of Directors

• Approve external funding arrangements and overall treasury policy
• Delegation of responsibility for approval of the Trust’s treasury procedures, controls and detailed policies to the Investment Committee

Investment Committee

• Approve the Trust’s investment and borrowing strategy and policies
• Ensure that the Trust’s investment and borrowing strategy is applied with a view to mitigating risk
• Approve the Trust’s interest rate risk management strategy and policies
• Approve the relevant benchmarks for measuring performance of investments
• Review and monitor investment and borrowing policy and performance against the relevant benchmarks in respect of all Trust funds (revenue, capital and charitable)
• Ensure proper safeguards are in place for security of the Trust’s funds by:
  • Agreeing a list of permitted institutions
  • Setting Investment limits for each permitted institution
  • Agreeing permitted investment types, and
  • Ensuring approved bank mandates are in place for all accounts and they are updated regularly for any change in signatories and authority levels
• Monitor compliance with treasury policies and procedures on investment/borrowing in respect of limits, approved counterparties and types of investments
• Ensure bank mandates are in place for all accounts and that such mandates are updated for changes in signatories and authority levels
• Approve external funding arrangements within delegated authority
• Delegate responsibility for treasury management operations to the Director of Finance and Information
• Promote good financial practice throughout the Trust
• To approve any draw down of the Working Capital Facility or Prudential Borrowing Limits

Director of Finance

• Approve subsidiary cash budgets and cash management systems
• Define the Trust’s treasury management approach for approval by the Investment Committee
• Ensure treasury activities are reported on a timely and accurate basis to the Investment Committee
• Manage key banking relationships
• Manage treasury activities within agreed policies and procedures
• The Director of Finance and Information will hold regular meetings with the Treasury Management team to discuss issues and consider any points that should be brought to the attention of the Investment Committee

Deputy Director of Finance (in conjunction with the Head of Financial Services)

• Ensure treasury activities are reported on a timely and accurate basis to the Director of Finance and Information
• Manage key banking relationships
• Manage treasury activities within agreed policies and procedures
• Ensure accurate and timely recording of the accounting records of all treasury transactions, undertake bank reconciliations and match

The overall objectives of the Investment Committee in relation to operating treasury management are to:

• Ensure a competitive return on surplus cash, within an acceptable risk profile
• Manage the financial risk associated with operational activities such as interest rate risk, and
• Ensure availability of competitively priced funding for working capital with an acceptable risk profile.

This guidance focuses primarily on the objectives outlined in 1.2.

2. Cash Investments

This guidance sets out to explain the powers and duties of the Investment Committee when investing funds.

Under sections 46 and 47 of the National Health Service Act 2006, NHS Foundation Trusts have wide discretion to invest money for the purposes of, or in connection with,
their functions. While this freedom offers greater opportunity to improve patient care, it should be managed carefully to avoid financial and/or reputational risks.

This guidance focuses on investment of surplus operating cash likely to be needed within 12 months to support on-going operations. These investments need to be safe and liquid, so that the risk to invested capital is minimised and the investments can be realised quickly. This guidance describes guidelines that are intended to ensure adequate safety (manageable risk profile) and liquidity (accessibility of funds at short notice) of all investments while generating a competitive return.

This guidance aims to promote fiscal responsibility and prudent investments that do not compromise effective, efficient and economic delivery of services. For the avoidance of doubt, this guidance is not intended to apply to the roles or investments of the Investment Committee set out in the “Investment Oversight Guidance for the Investment Committee” attached as Appendix 2.

3. ‘Safe Harbour’ investments (stated on the Department of Health website)

The Trust maintains a risk averse stance to investing cash surplus balances and as a consequence forbids speculative trading/investment. In order to be considered to be sufficiently safe and liquid the safe harbour is required to meet all of the following criteria:

1. [Meet permitted rating requirement issued by a recognised rating agency;]
2. Held at a permitted institution;
3. Have a defined maximum maturity date;
4. Are denominated in sterling;
5. Pay interest at a fixed, floating or discount rate,and;
6. [Are within a preferred concentration limit.]

Table 2:Criteria for ‘Safe Harbour’ Investments – highlighted below elaborates on the criteria outlined above (3.1).

The Committee will identify a ‘cap’ for investments with each safe harbour based on their respective credit rating and will ensure that unless otherwise agreed by the Board of Directors no more than £2,000,000 (or 25% of the proposed investment) is placed with any one institution other that of the National Loans Fund (NLF).

The identification of surplus cash balances for investment with a safe harbour is undertaken by monitoring the following information:

• Daily cash reports showing surplus cash available for investment;
• Investment proposals comparing relative interest rates of the approved financial institution and in accordance with the Trust’s Investment Policy;
• Short term cash-flow reports, and ;
• Longer term month by month cash-flow reports for a rolling 12 month period.

Investments that do not fulfil the criteria for safe harbour are higher risk instruments and include:

• Bonds;
• Equities;
• Commodities (and products based on them);
• Derivatives (such as futures, options, swaps and contracts for differences);
• Investments linked to other trade instruments;
• Index-linked investments;
• Private equity or venture capital investments;
• Leveraged investments;
• Hedge funds, and;
• Foreign currency linked investments.

4. Treasury management

The principal role of treasury management is to maintain liquidity, to mitigate and manage risk and to ensure a competitive return within an acceptable risk profile. The objectives of treasury management are to undertake the following key objectives:

1. To ensure the availability of flexible competitively priced funding from alternative sources to meet the Trust’s current and future requirements.
2. Identifying and managing the financial risks arising from operational activities.
3. Develop and maintain strong, long-term relationships with a core group of quality banks that can meet current and future funding requirements.

The guidance will specifically consider the objectives outlined above.

5. Funding (A)

From a funding perspective the key objective is to ensure the availability of flexible and competitively priced funding from alternative sources to meet the Trust’s current and future requirements.

The Trust will continue to maintain a risk-averse approach to funding, recognising the on-going requirements to have committed funds in place to cover existing business cash flows and to provide flexibility for seasonal cash-flows and capital expenditure programmes. As a consequence:

• Approval is required from the Board of Directors prior to obtaining any proposed funding facilities;
• Forbids entering trading positions or purely speculative trading, and;
• Forbids pre-financing in anticipation of potential projects.

6. Identifying and managing operational risk (B)

The regular reporting of treasury activities is crucial in allowing all relevant parties to be aware of transactions undertaken and to appreciate the Trust’s financial position.

The treasury controls proposed are designed to ensure the Trust’s treasury activities are undertaken in a controlled and a properly reported manner. The key components will include:

• Clearly defined roles and responsibilities in treasury activities for the Board, the Investment Committee and the Director of Finance;
• Regular reporting of treasury activities;
• Controls on who can operate bank accounts and authorisation limits, and;
• Segregation of duties between those who deal, those who initiate payment and those who account for treasury activities;

The Trust’s treasury procedures will be subject to periodic review by both internal and external audit and any significant deviations from agreed policies and procedures will be reported, where appropriate, to the Investment Committee.

7. Banking relationships and cash management (C)

The development and maintenance of strong banking relationships is an important factor in enhancing the availability of debt to potentially fund the Trust’s [future expansion]. Moreover, the provision of efficient cash management systems throughout the Trust would ensure that banking requirements are serviced at optimal cost.

The key objectives for the Trust should be to:

• Ensure the cost paid for banking services is competitive;
• Minimise the cost of borrowing and maximise the return on cash surpluses within acceptable risk parameters by maintaining efficient cash management systems;
• To develop and maintain strong relationships with a number of key banks;
• To monitor and ensure compliance with banking covenants.

The Trust’s approach is to develop long-term relationships with a core of quality banks. A transactional approach, without the development of relationships, may result in the Trust being unable to rely on the support of the banks in the event of deterioration in financial strength of the Trust. The benefit of relationship banks is to establish a high degree of confidence and commitment between the parties so that banks are prepared to meet funding requirements at crucial times and at short notice.

The Director of Finance will be responsible for managing all banking relationships, ensuring consistency in relationships across all banking services to achieve the optimum benefit for the Trust.

The Director of Finance & Information will meet all banks on a regular basis to discuss services provided and any new improved products of potential interest to the group and report back to the Investment Committee. Furthermore, as the Trust expands the banking structure will be reviewed on an on-going basis, with the Director of Finance & Information responsible for the integration of new businesses into the banking structure.

8. Reporting investment activities

The regular reporting of treasury activities is crucial in allowing all relevant parties to be aware of transactions undertaken and appreciate the Trust’s financial position and assess the on-going appropriateness of treasury objectives. With this in mind, the Trust will prepare and circulate treasury reports as follows so that all relevant persons have the necessary information available for their roles and so that treasury activities remain transparent. The reports to be produced are shown in Table 3 below:

Daily report

Produced by: Head of Financial services

Details all payments to and receipts from accounts and investments (including maturity dates and value of investments);

Circulation: [Associate Director of Finance]

Weekly report

Produced by: Head of Financial services

• Facilities available at each facility/safe harbour
• Net cash/borrowings position (including finance leases);
• Investments and maturity dates;
• Interest rate exposure;
• Record of previous five end of day positions;
• Cash requirement for the next month split into constituent weeks.

Circulation: Director of Finance [Associate Director of Finance]

Monthly report

Produced by: Deputy Director of Finance (in conjunction with the Head of Financial Services)

• Cash flow position and forecast for forthcoming 12 months;
• Analysis of cash/borrowings;
• Details of facilities committed and uncommitted;
• Market commentaries (as appropriate);
• Interest rate exposure;
• Bank relationships;
• Counterparty risks;
• Adequacy of working capital;
• Effectiveness of the treasury function;

Circulation: Director of Finance, Investment Committee and for inclusion in the Board of Directors financial statement.

Performance management framework will be adopted as the mechanism for the Investment Committee to approve policy and to monitor the effectiveness of that policy.

The metrics used to measure performance may be both qualitative and quantitative. [Significant] over or under-achievement against the benchmarks for a period of time will be scrutinised by the Investment Committee.

9. Investment and treasury management controls

The overall objective of the Committee is to ensure both Investment and Treasury activities are undertaken in a controlled manner, thereby ensuring that the Trust is not exposed to undue operational risks. This will be achieved by ensuring:

• Segregation of duties is specified between those who deal, those who initiate payments and those that account for transactions;
• Confirmation of transactions will be requested from all counterparties and subsequently reviewed;
• All transactions are recorded within the Oracle General Ledger system and supported by appropriate instruction/confirmation;
• All payment instructions/confirmations will require two authorised signatories in accordance with the approved bank mandates; and
• Bank mandates are regularly reviewed and sent to all counter-parties.

When entering into investment transactions, will give consideration to the Trust’s total exposure by a counter-party. All of the banks with whom transactions are conducted are considered to be creditworthy counterparties and based on the permitted rating requirement (which are reviewed on a quarterly basis) and approved by the Investment Committee.

All bank mandates are maintained within the finance department with each mandate being approved by the Investment Committee as to signatories and appropriate limits.

Appendix 2: Investment oversight – guidance for the investment committee

For the avoidance of doubt, this guidance is not intended to apply to the roles or investments of the Investment Committee set out in the “Treasury Management: Guidance for the Investment Committee” attached as Appendix 1.

1. Investment oversight

The key responsibilities of Investment Oversight within the Trust are detailed in Table 1 below:

Trust board

• consideration and approval of investment proposals including the formation or participation in forming bodies corporate or otherwise acquiring Trust membership in bodies corporate.
• consideration and approval of investment proposals relating to the formation of participation in forming unincorporated bodies and associations.
• delegation of responsibility for oversight of the Trust’s investment and trading activity relating thereto.
• nominate executive or non-executive director or officer of the Trust to a role within one of the above organisations.

Investment Committee

• regularly assess and report and monitor all existing investments of Trust.
• oversee and monitor performance of Trust Directors performing management or director roles on behalf of the Trust.
• set up sub-committees to undertake any part of the Investment Committee’s functions where expedient to do so.
• Ensure the professional management of all investments.

2. Powers of the investment committee

The Investment Committee shall be entitled to:

• Investigate any concerns it has in relation to any investment or investment related trading activities where it feels it is appropriate to do so.
• To report on the outcome of any investigations referred to above to the Trust Board of Directors and make any recommendations it feels appropriate.

3. Responsibilities of the investment committee

In carrying out its powers the Investment Committee shall:

• regularly assess and monitor investment and commercial trading activities.
• regularly report on all existing investments of the Trust.
• oversee and monitor performance of Trust Directors performing management or director roles on behalf of the Trust.
• set up sub-committees to undertake any part of the Investment Committee’s functions where expedient to do so.
• Ensure the professional management of all investments.
• Seek professional advice or input where appropriate.

4. Regulating activity

Companies established and/or invested in by the Trust must also be monitored by the Investment Committee. In particular it is the Investment Committee’s responsibility to ensure that all corporate entities set up by the Trust:

Are set up in accordance with the Companies Act 2006 and other relevant legislation;

Have functions no wider than the functions of the Trust;

Have the minimum of directors, determined by the Trust Board of Directors;

Adhere to all applicable laws and NHS guidance including the Public Contracts Regulations 2006 as and when the same apply;

Ensure appropriate insurance is in place, in particular:

• Directors and Officers Insurance;
• Employers Liability;
• Public Liability;
• All other relevant insurance;

Apply the proceeds of any investment for the benefit of the Trust;

Cash balances of North Tees & Hartlepool Solutions LLP and Optimus Limited Company are retained in the Lloyds bank account and balances will be monitored by the Investment Committee. Surplus cash balance investments made by the Trust will not include the cash balances of the LLP or Optimus as separate legal entities.

Are set up in accordance with all applicable legislation;

Have functions no wider than the functions of the Trust;

Have the minimum directors determined by the Trust Board of Directors;

Adhere to all applicable laws and NHS guidance including the Public Contracts Regulations 2006 as and when the same apply;

Ensure appropriate insurance is in place, in particular:

• Directors and Officers Insurance;
• Employers Liability;
• Public Liability;
• All other relevant insurance;

Apply the proceeds of any investment for the benefit of the Trust;

Unincorporated Associations established by and/or participated in by the Trust must also be monitored by the Investment Committee. In particular it is the Investment Committee’s responsibility to ensure that all unincorporated entities set up or participated in by the Trust:

Are set up in accordance with all applicable legislation;

Have functions no wider than the functions of the Trust;

Have the minimum directors determined by the Trust Board of Directors;

Adhere to all applicable laws and NHS guidance including the Public Contracts Regulations 2006 as and when the same apply;

Ensure appropriate insurance is in place, in particular:

• Directors and Officers Insurance;
• Employers Liability;
• Public Liability;
• All other relevant insurance;

Apply the proceeds of any investment for the benefit of the Trust;

5. Oversight of directors/partners/managers in entities established or approved by the Board

The Investment Committee must assure itself that Trust Directors acting as a director, partner, manager or leader of a relevant entity, act:

• in accordance with the Trust’s Standing Orders;
• in accordance with the Trust’s Scheme of Delegation;
• as a Director of the Trust; and
• as required by all applicable laws applying from time to time.

The Investment Committee shall check that Trust Directors acting in the above manner shall have no greater powers in any entity approved/set up by the Board than the powers allocated to them by the Trust’s Scheme of Delegation unless otherwise agreed by the Board.

The Investment Committee shall check that Trust Directors acting in the above manner shall comply with their duties under relevant legislation including but not limited to Chapter 2 of Part 10 of the Companies Act 2006.

6. Conflicts of interest

The Investment Committee shall ensure that in accordance with the Companies Act 2006 and/or other relevant legislation where appropriate and with the general duties under the NHS Act 2006 Directors of any company set up by the Trust shall adhere to their duty to avoid conflicts of interests and conflicts of duty.

The Investment Committee shall ensure that directors, partners, managers or leaders of any entity set up or invested in by the Trust who are also Directors of the Trust shall at all time adhere to the Trusts Standing Orders and Terms of Authorisation and if such an interest arises shall disclose that interest to the members of the Board of Directors as soon as he becomes aware of it. The Standing Orders for the Board of Directors shall make provision for the disclosure of interests and arrangements for the exclusion of a director declaring any interest from any discussion or consideration of the matter in respect of which an interest has been disclosed.

7. Reporting

The regular reporting of investment activities is crucial in allowing all relevant parties to be aware of transactions undertaken. The Investment Committee shall prepare and circulate investment reports to the Trust Board of Directors so that all parties have the necessary information available for their roles and so that investment activities remain transparent.

8. Formalities

The Investment Committee shall oversee and ensure that any corporate entity set up by the Trust adheres to all required filing and administrative duties.