Investment Policy

This page provides information about how the Bureau of Trust Funds Administration invests money on behalf of Native American beneficiaries and Tribes. Use the links below to jump to a section:

• Definitions
• Responsibilities
• Standards and Controls
• Investments
• Reporting
• Authority

Definitions

• Account – Tribal and Other Trust Funds and/or the IIM Investment Pool Account.
• Benchmark – A comparative base for measuring an investment portfolio’s performance or risk tolerance.
• Blended Trust Accounts (BTA) – Accounts balancing liquidity and income assets. Generally, the portfolio in a BTA is comprised of more liquid short-term debt and a variety of fixed income debt with medium- to long-term maturities.
• Broker – Generic name for a securities firm engaged in both buying and selling securities on behalf of customers and its own account.
• Bullet Security – A debt security that cannot be redeemed prior to its maturity date.
• Buy and Hold Strategy – An investor buys securities with the intention of holding them until maturity or for a longer period.
• Callable Securities – A debt security that has an option that allows the issuer to redeem the security prior to its maturity date, often after an initial lockout period during which the security cannot be called.
• Certificate of Deposit (CD) – A time deposit with a specific maturity. 
• Collateral – Securities, evidence of deposit, or other property that a borrower pledges to secure repayment of a loan; also refers to securities that a bank pledges.
• Collateralization – The use of valuable assets as collateral to secure an investment.
• Collateralized Mortgage Obligation (CMO) – A security backed by mortgage loans, pools of mortgages, or even existing CMOs; for example, a CMO receives cash flows as borrowers repay the mortgages that act as collateral on these securities.
• CMO Issuer – The legal entity which owns the underlying collateral and issues CMO securities to investors. Also referred to as a Trust.
• CMO Tranches – A collection of mortgage-backed securities that are separated and grouped based on various characteristics; they can have different maturities, credit ratings, and yields or interest rates.
• Coupon Payment – The interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.
• Custodian Bank – A specialized financial institution responsible for safeguarding a firm’s or individual’s financial assets. Also known simply as a custodian.
• Dealer – A person or organization that underwrites, trades, and sells securities.
• Debenture – A bond secured only by the general credit of the issuer.
• Debt Instrument – Assets that require a fixed payment to the holder, with interest. Examples of debt instruments include bonds (government or corporate) and mortgages.
• Discount – The amount by which the sale price of a security is less than the par value. For example, if the par value of a security is $100 and the sale price is $80, the discount is $20.
• Diversification – The process of allocating capital in a way that reduces the exposure to any one particular asset or risk.
• Federal Agency Mortgage-Backed Pass-Through Debt – Investment securities made up of a pool of home and other real estate loans purchased from the issuing banks backed by Government-Sponsored Enterprises (GSE). A servicing intermediary collects the monthly interest payments on these debts from issuers and, after deducting a fee, funnels or passes them through to investors.
• FIMC – The BTFA Financial Investment Management Committee.
• Financial Industry Regulatory Authority (FINRA) – A private American corporation that regulates member brokerage firms and exchange markets.
• Government Sponsored Enterprises (GSE) – Organizations chartered by Congress for the purpose of providing financial services and to enhance the flow of credit to specific sectors of the United States economy. GSE’s are publicly traded companies but continue to operate in accordance with their Congressional charter. Examples include the Federal Farm Credit Bank (FFCB), Federal Home Loan Bank (FHLB), Federal National Mortgage Association (FNMA), Federal Home Loan Corporation (FHLMC), Tennessee Valley Authority (TVA), and (or) Federal Agricultural Mortgage Corporation (FAMC).
• Growth Trust Accounts (GTA) – Accounts focused on long-term growth. Generally, the portfolio in a GTA is comprised mostly of fixed-income debt with long-term maturities.
• IMC – The BTFA Investment Management Committee.
• Income Trust Accounts (ITA) – Accounts focused on generating an optimal market rate of return. Generally, the portfolio in an ITA is often comprised of medium- to longer-term debt obligations.
• Investment Plan – An overall strategy that guides day-to-day and long-term decisions about investing; a blueprint for selecting investments, specifying the mix of investments, and establishing risk tolerance. BTFA generally makes investment decisions in accordance with Investment Plans developed in coordination with beneficiary Tribes.
• Investment Portfolio – Investment services to Native American beneficiaries who earn trust income from judgment awards and activities on lands (surface and subsurface) that the United States holds in trust or restricts status for the benefit of one or more Federally recognized Tribes or individual Indians. BTFA is responsible for funds held in both Individual Indian Moneys (IIM) accounts and in Tribal accounts.
• Liquidity – The ability to convert an asset to cash quickly. Liquid assets have maturities up to 1-year and may include money market deposits, bank deposits, and U.S. Treasury Bills.
• Liquidity Trust Accounts (LTA) – Accounts focused on maintaining sufficient funds that are readily available to meet immediate operating needs or required distribution.
• Long-Term Debt – Maturities range from over 7 years to 30 years.
• Master Repurchase Agreement – A written contract covering all future transactions in which a party repurchases securities, and which establishes each party’s rights in the transactions.
• Medium-Term Debt – Maturities range from over 2–7 years.
• Mortgage-Backed Securities (MBS) – Securities issued by institutions such as Fannie Mae and Freddie Mac, whose cash flows are derived from underlying mortgage loans.
• Mortgage Pools – A group of mortgages held in trust as collateral for the issuance of a mortgage-backed security.
• Par Value – The amount of money the bond issuers agree to repay at the bond’s maturity. Also referred to as the nominal value or face value of a bond.
• Premium – The amount by which the sale price of a security is greater than the par value.  For example, if the par value of a security is $100 and the sale price is $120, the premium is $20.
• Real Estate Mortgage Investment Conduit (REMIC) – A debt instrument that pools mortgage loans and issues Mortgage-Backed Securities (MBS).
• Relative Value – A measure of a bond’s value relative to other bonds or pricing benchmarks.
• Repurchase Agreement (Repo) – A form of short-term borrowing. Under a repo, a broker sells an asset that is then held as collateral until the seller repurchases the asset at a premium. For example, BTFA executes a short-term investment with an approved broker/dealer and earns a negotiated rate according to an agreed upon term.
• Reverse Repurchase Agreement (Reverse Repo) – Repos and reverse repos represent the same transaction but are titled differently depending on BTFA’s side of that transaction. Under a Reverse Repo, a broker purchases an asset and holds it as collateral until the seller repurchases it at a premium. For example, BTFA sells a security as collateral to an approved broker/dealer and receives cash in return. BTFA then pays a negotiated interest rate when it repurchases the security.
• Secondary Market – The market where previously issued securities are bought and sold.
• Secretary – The Secretary of the Department of the Interior.
• Securities Lending – The loan of a security in exchange for another security. The borrower in a securities lending transaction lends a security as collateral and borrows different securities in exchange. The party on the opposing side of the transaction receives a fee and/or a stated interest rate as compensation.
• Settlement Date – The date when the seller must deliver securities and the buyer must pay for delivery of securities.
• Short-Term Debt – Maturities not to exceed 24 months.
• Statement on Standards for Attestation Engagements 18 (SSAE18) – An auditing standard developed by the American Institute of Certified Public Accountants (AICPA), which contains the rules for conducting an attestation of a service organization’s internal controls and issuing a System and Organization Controls’ (SOC) report.
• Trade Date – The date when a customer executes a trade.
• Treasury Inflation-Protected Security (TIPS) – A Treasury bond that is indexed to an inflationary gauge to protect investors from the decline in the purchasing power of their money. The principal value of TIPS rises as inflation rises while the interest payment varies with the adjusted principal value of the bond.
• US Treasury Overnighter – A liquid guaranteed short-term investment option offered by the US Treasury.
• Yield-to-Call – The return a bondholder receives if the bond is held until the call date, which occurs sometime before it reaches maturity.
• Yield-to-Maturity – The percentage rate of return for a bond assuming the investor holds the asset until its maturity date.
• Yield Spread – A difference between the quoted rate of return between debt instruments that often have varying maturities, credit ratings, and risk.
• Yield-to-Worst – A measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract. Typically used with reference to a callable bond where the lower of the bond’s yield-to-call or the yield-to-maturity would be the yield-to-worst.
• Zero Coupon Bond – A debt security that does not pay interest, but trades at deep discount, offering full face value (par) income at maturity. 

Responsibilities

• The Secretary – Responsible for the management of Tribal and Other Trust Funds and IIM Investment Pool Account pursuant to and in accordance with applicable Federal law.
• BTFA – Responsible for the investment and management of Tribal and Other Trust Funds and IIM Investment Pool Account entrusted to the Secretary.
• FIMC – Responsible for providing oversight over the investment program.
• IMC – Responsible for reviewing investment accounts, at least annually.
• OTFI –
  • Director of Trust Funds Investments – Directs the investment program.
  • Investment Officers – Collaborate with Tribal beneficiaries to formulate an investment strategy.

Standards and Controls

Prudent Investment

BTFA will make investments in a prudent manner under prevailing circumstances including, but not limited to, the general economic conditions and anticipated distribution needs of Tribes and IIM accounts. Prudent investment should incorporate risk mitigation and return objectives reasonably suitable for each investment account (Uniform Prudent Investor Act of 1994).

Controls

• Internal Controls - OTFI’s Director will maintain a system of internal controls, which will be documented in writing and reviewed periodically.
• Custody - An independent third-party custodian will hold debt instruments that BTFA holds in trust. The custodian will provide BTFA with an annual copy of their most recent report on internal controls according to SSAE 18 standards.
• Authorized Financial Institutions, Depositories, and Broker/Dealers - OTFI maintains a broker/dealer list authorizing qualified firms to provide broker/dealer services. IMC and FIMC will annually review, update, and approve the list. OTFI staff are required to use broker/dealers who are listed on the most current approved broker/dealer list.

Ethics and Conflicts of Interest

Employees involved in the investment process who conduct investment transactions on behalf of DOI with a specific firm, individual, or other party will not conduct personal investment or other financial transactions with the same firm, individual, or other party.

Investments

Investment Policy

It is BTFA’s policy to ensure that we invest Tribal funds in a manner consistent with the individual Tribe’s objectives and the Secretary’s fiduciary trust responsibility to ensure that Tribal trust funds are properly maintained and invested. Selection of the appropriate investment strategy is undertaken after either consultation with the Tribe or documented attempts to consult with the Tribe and evaluation of their plans for the funds in each account. However, as the Trustee, BTFA has the ultimate decision-making authority regarding investments. In making investment decisions, BTFA will balance safety, liquidity, and investment return, which are as follows:

• Safety: Investment portfolios will be composed of debt and (or) other obligations that are permissible under applicable Federal law.
• Liquidity: BTFA will maintain an adequate portion of the portfolio in investments that can be converted to cash, if necessary, to meet disbursement requirements.
• Investment Return: BTFA manages portfolios with a goal to generate an optimal, market rate of return, while establishing prudent risk levels. BTFA invests portfolios in permissible debt, including U.S. Treasuries, Agency debt, and other debt instruments in-line with OTFI quality, safety, and liquidity requirements.

Investment Strategies

In accordance with the policy in above, BTFA will use the following four strategies: liquidity, blended, income, or growth to invest trust funds.

Investment Plans

It is BTFA policy to develop an investment plan for each Tribal account according to the Tribe’s needs. Instruments that BTFA purchases under an investment plan will consist of the following:

Permissible Short-Term Instruments

For BTFA purposes, short-term investments are categorized as debt-bearing maturities not to exceed 24 months. Examples of permissible short-term investments include:

• U.S. Federal Government Instruments, such as the U.S. Treasury Overnighter and U.S. Treasury Bills.
• Federal Agency Debt, including but not limited to the following:
  • Federal Farm Credit Banks Consolidated Systems (FFCB)
  • Federal Home Loan Banks (FHLB)
  • Federal Home Loan Mortgage Corporation (FHLMC)
  • Federal National Mortgage Association (FNMA)
  • Federal Agricultural Mortgage Corporation (FAMC)
• Other Qualifying Short-term debt, including:
  • U.S. Financial Institution deposit account or CD that the Federal Deposit Insurance Corporation (FDIC) Federally insures; BTFA gives preference to Native-owned banks and additional preference to Native-owned banks participating in the Community Development Financial Institution (CDFI) program as long as interest rates are competitive with other Federally insured banks (https://www.cdfifund.gov/).
  • U.S. Credit Union deposit account or CD that the National Credit Union Administration (NCUA) Federally insures.
  • Investment Pools and Mutual Funds that are invested in Treasury and/or Government Sponsored Enterprise debt (GSE).

Permissible Medium-Term to Long-Term Instruments

For BTFA purposes, medium- to long-term investments are categorized as investment instruments with maturities exceeding 24 months. Medium-Term maturities range from 2–7 years and Long-Term maturities range from 7–30 years. Examples of permissible medium- and long-term debt include:

• U.S. Treasury Debt:
  • Treasury Notes
  • Treasury Bonds
  • Treasury Inflation Protection Bonds (TIPs)
• U.S. Federal Agency Debt:
  • FFCB
  • FHLB
  • FHLMC
  • FNMA
  • FAMCA
  • Private Export Funding Corporation (PEFCO)
  • Government National Mortgage Association (GNMA)
  • Small Business Administration (SBA)
  • Tennessee Valley Authority (TVA)
• Federal Agency Mortgage-Backed Pass-Through Debt. BTFA will invest in Federal Agency Mortgage-Backed Pass-through debt if final maturities do not exceed 30 years and the Weighted Average Life (WAL) of the security, at the date of settlement, will not exceed 15 years. OTFI’s director must approve all trades prior to trade execution. Examples include:
  • FNMA
  • FHLMC
  • FHLB
  • GNMA
  • FAMCA
• Collateralized Mortgage Obligations (CMO) and Real Estate Mortgage Investment Conduits (REMIC). BTFA will invest in CMOs and REMIC if the stated maturity of the CMO tranche will not exceed 30 years, and the WAL, at the date of settlement, will not exceed 15 years. Permissible CMO and REMIC investment structures are:
  • Sequential Pay
  • Callable Sequential Pay
  • Planned Amortization Class
  • Targeted Amortization Class
  • Delegated Underwriter/Service
  • Index Amortization Note

Permissible Investment Pools/Mutual Funds

Pursuant to 25 US Code 162a, the Secretary of the Interior is authorized to invest Indian trust funds, or any part there-of, in guaranteed or public debt obligations of the United States or in a mutual fund, otherwise known as an open-ended diversified investment management company, if:

• The portfolio of such mutual fund consists entirely of public-debt obligations of the United States, or bonds, notes, or other obligations that United States unconditionally guarantees as to both interest and principal, or a combination thereof.
• The trust funds for BTFA to invest exceed $50,000.
• The Securities and Exchange Commission (SEC) registers the mutual fund.
• The Secretary is satisfied with respect to the security and protection that the mutual funds provide against loss of the principal of such trust funds.

Under the Secretary’s authority, BTFA may invest in Investment pools, such as money market mutual funds, that hold solely permissible debt that includes U.S. dollar denominated Treasuries, Agency debt, Repos, and Reverse Repos.

Permissible Repurchase Agreements

BTFA may invest in certain Repurchase Agreements. Examples include:

• Repurchase Agreement (Repo)
• Reverse Repurchase Agreement (Reverse Repo)
• Securities Lending
• Other Permissible Investment Types
• BTFA may invest in other investments, including:
• Certificate of Deposit (CD)
• Demand Deposit Account (DDA)
• Money Market Deposit Account (MMF)

Investment Parameters

• Collateralization Requirement: BTFA will ensure that all deposits with depository institutions in excess of FDIC insurance will be secured by approved assets as collateral. TIPS and all MBS products (such as CMO’s and Mortgage Pools) will not be accepted as collateral.
• Diversification: BTFA will diversify our investment portfolios to mitigate concentration risk, when possible.
• Maturity Restrictions: BTFA will attempt to match our investments with anticipated Tribal cash flow requirements for each investment account. BTFA has a 30-year maximum maturity restriction. Any permissible security (excluding mortgage related securities) with maturities greater than 15 years requires approval by the Principal Deputy Bureau Director.
• Portfolio Duration: BTFA may employ analysis, modeling, and historical market information to assist in managing the portfolios according to applicable benchmark durations.
• Credit Quality: BTFA invests in suitable securities/bonds/debts while studying the financial strength of a bond issuer. This assists BTFA to understand an issuer's ability to make timely interest payments and to repay the loan principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate the issuer pays because the risk of default is lower.
• Mark to Market: BTFA will calculate the market value of its portfolios consistent with accepted Mark-to-Market Practices.

Risk Objectives

BTFA will manage risk in accordance with this Investment Policy Statement.

Rebalancing Portfolios

BTFA generally holds assets to maturity. However, in some economic circumstances, BTFA may rebalance a portfolio’s assets to optimize income.

Reporting

OTFI will prepare periodic investment reports for BTFA leadership and beneficiaries.

Authority

1. 25 U.S.C § 161a – Tribal funds in trust in Treasury Department; investment by Secretary of the Treasury; maturities; interest; funds held in trust for individual Indians.
2. 25 U.S.C. § 162a – Requires affirmative action for the deposit of Tribal funds in banks; bond or collateral security; investments; collections from irrigation projects, and other activities.
3. 25 U.S.C. § 4001, et seq. – The American Indian Trust Fund Management Reform Act of 1994, Public Law 103-412 provides the trust responsibilities of OST to individual and Tribal account holders. (Although the statutes refer to OST, OST’s accounting functions transferred to BTFA on October 1, 2020).
4. 25 CFR § 115.001 – Trust Funds for Tribes & Individual Indians.
5. 25 CFR § 1200 – American Indian Trust Fund Management Reform Act of 1994.