Article XII, Section 6: Reserves, Distribution of Net Income, and Investment
- International Monetary Fund
- Published Date:
- May 2007
The Investment Account—Establishment
1. The Fund hereby establishes within the General Department an Investment Account as provided for in Article XII, Section 6(f)(i).
2. The assets of the Investment Account shall be kept separately from the other accounts of the General Department. (EBS/06/57, 4/17/06)
Decision No. 13710-(06/40) IA,
April 28, 2006
Investment Account—Adoption of Rules and Regulations
1. Pursuant to Article XII, Section 6(f)(vi), the Fund adopts the Rules and Regulations for administration of the Investment Account that are set forth in Annex I of EBS/06/57 (4/17/06).
Decision No. 13711-(06/40),
April 28, 2006
Annex I: Rules and Regulations for Administration of the Investment Account (IA)
Objective of the Investment Account
1. The objective of the IA is to provide a vehicle for the investment of a part of the Fund’s assets so as to generate income that may be used to help meet the expenses of conducting the business of the Fund.
Sources of Investment Account Assets
2. The IA will be funded initially through the transfer of currencies from the GRA in an amount equivalent to the total amount of the Fund’s general and special reserves at the time of the decision authorizing the transfer. In addition, and subject to paragraph 3 below, the IA may retain or invest the income from its investments, and may also reinvest the proceeds of assets that mature or that it sells.
Uses of Investment Account Income
3. The IA’s income from investment may be invested, retained in the IA, or used to meet the expenses of conducting the business of the Fund. The Fund will decide on the use of the IA’s income for each financial year, including whether any portion of such income should be transferred to the GRA for use in meeting the expenses of conducting the business of the Fund.
Termination or Reduction of the Investment Account
4. The IA shall be terminated in the event of liquidation of the Fund and may be terminated, or the amount of the currency transferred to the IA may be reduced, prior to liquidation of the Fund by a 70 percent majority of the total voting power. The procedures specified in Article XII, Sections 6(f) (vii), (viii) and (ix) will apply in the event of the termination of the IA or a reduction in its assets.
Guidelines for Investing Investment Account Assets
5. The investment objective of the IA is to achieve investment returns that exceed the SDR interest rate over time while minimizing the frequency and extent of negative returns and underperformance over a 12-month investment horizon. Achieving this objective would help diversify the sources and increase the level of the Fund’s income, thereby strengthening its finances over time.
6. The assets of the IA may be invested only as specified in Article XII, Section 6(f)(iii) of the Fund’s Articles of Agreement. Accordingly:
• A member’s currency held in the IA may be invested only in marketable obligations of that member or in marketable obligations of international financial organizations, provided that the IA may invest only in obligations denominated in special drawing rights (SDRs) or in the currency used for investment. Marketable obligations of a member shall include the obligations of its central bank and official agencies. Marketable obligations of international financial organizations shall include without limitation SDR-denominated deposits with the Bank for International Settlements.
• The IA’s investment in the instruments specified above may only be made directly in the cash markets. Derivative securities—including forwards, futures, options and swaps—may not be used to establish or hedge positions in eligible investments.
• Only long positions may be established in eligible investments. Short selling or any form of leverage is not permitted.
7. The IA’s portfolio will be limited to eligible investments, as described above, that are denominated in SDRs or in the currencies included in the SDR basket. No investment shall be made without the concurrence of the member whose currency is used to make the investment.
Supervision of the Investment Account’s Investment Activities
8. The Managing Director will provide for the supervision of the IA’s investment activities. Such supervision will include negotiating agreements with external investment managers and with custodial agents; ensuring that the IA’s investment and other activities conform with the relevant provisions of the Fund’s Articles of Agreement and with these rules and regulations; establishing investment benchmarks and guidelines for investment managers; placing investments in eligible BIS deposits and in the BIS’ Medium-Term Instruments (MTIs); monitoring the structure and evaluating the performance of the IA’s assets; supervising the management of the IA’s assets, including the hiring and firing of external investment managers and assessing their performance; supervising the custodial arrangements for IA assets; adjusting the allocation of the portfolio in response to market conditions and the Fund’s financing needs; and preparing regular reports to the Executive Board on the investment activities of the IA.
9. The assets of the IA may be held in safekeeping by one or more custodian banks. The custodian(s) will hold the assets of the IA in safekeeping, periodically value the assets held, and hold and invest short-term residual cash balances.
10. In keeping with the IA’s investment objective, the Managing Director will establish specific risk control procedures and put in place a mechanism to monitor their observance by asset managers. The investment guidelines and benchmarks established for asset managers will set explicit limits for the exposure to interest rate, foreign exchange, liquidity, credit and operational risks.
11. The Managing Director will provide semi-annual reports to the Executive Board on the operations and investment activities of the IA. These reports will analyze the operations of the IA in the context of the Fund’s overall financial position and income, including in particular an assessment of the appropriate size of the IA and the disposition of its assets and earnings. These reports will include an analysis of changes in the valuation of IA assets, the investment guidelines and benchmark being followed by asset managers, a discussion of the applicable controls and evaluation of the adequacy of established risk control procedures, and an assessment of market conditions that may affect the valuation of the IA’s assets. Ad hoc reports will be prepared as warranted by market or other developments. The assets of the IA will be audited by the Fund’s external auditors and included in the Fund’s financial statements.
Investment Account—Transfer of Currencies
1. Pursuant to Article XII, Section 6(f)(ii), the Fund shall transfer from the General Resources Account to the Investment Account established pursuant to Decision No. 13710-(06/40) IA, currencies in an amount equivalent to the amount of the Fund’s general and special reserves at April 30, 2006. This transfer of currencies to the Investment Account shall be effected in the context of the Financial Transactions Plan for the quarterly period March through May 2006 and June through August 2006.
2. The currencies transferred to the Investment Account pursuant to this decision shall be used for immediate investment in accordance with the provisions of Article XII, Section 6(f), and in accordance with the Rules and Regulations for administration of the Investment Account adopted pursuant to Decision No. 13711-(06/40). (EBS/06/57, 4/17/06)
Decision No. 13712-(06/40),
April 28, 2006