## Rules and Regulations for the Investment Account

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**Canonical URL:** [Rules and Regulations for the Investment Account](https://www.imf.org/-/media/files/publications/pp/2019/ppea2019033.pdf)

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### I. General Provisions
- Objective: provide a vehicle for investment of part of the Fund’s assets to generate income to meet the expenses of conducting the business of the Fund; diversify sources and increase level of the Fund’s income.
- Sources of IA assets:
  - (a) currencies transferred from the General Resources Account (GRA) in accordance with Article XII, Section 6(f)(ii) of the Articles;
  - (b) placement of profits from the sale of pre-Second Amendment gold in accordance with Article V, Section 12(g) of the Articles, in amounts up to the total amount of the Fund’s general and special reserves at the time of any decision authorizing such transfers;
  - (c) transfer of profits from the sale of post-Second Amendment gold in accordance with Article V, Section 12(k) of the Articles;
  - (d) income from the IA investment that is not transferred to the General Resources Account to meet the expenses of the Fund (Article XII, Section 6(f)(iv)).
- Subaccounts:
  - IA shall have a Fixed-Income Subaccount and an Endowment Subaccount; each has its own investment objective and shall be managed in accordance with Sections I and II, and I and III, respectively.
  - Transfers of assets between subaccounts require Executive Board approval.
- Managing Director responsibilities:
  - Implement investment policies set out in these Rules.
  - Establish effective decision-making and oversight arrangements.
  - Adopt measures, policies and procedures to avoid actual or perceived conflicts of interest.
  - Establish specific risk control measures and mechanisms to monitor observance by asset managers.
  - Consult with the Executive Board regarding key conflict of interest policies and arrangements and key aspects of the investment strategy for the actively managed portion of the Endowment Subaccount (paragraph 30).
  - Provide annual reports to the Executive Board on IA investment activities; prepare ad hoc reports as warranted.
- External asset managers:
  - All IA assets to be managed by external asset managers, except the Managing Director may manage: (a) investments in obligations of the Bank for International Settlements (BIS) and central bank deposits; and (b) other assets on an interim basis following termination of an external asset manager pending transfer to another external asset manager.
  - Selection standard: only select external asset managers of the highest professional standards; consider proven skills and track record.
- Custody: Managing Director shall establish adequate measures for safekeeping and custody of IA assets.
- Use of IA income: income may be invested, retained in the IA, or used to meet Fund expenses; the Fund shall decide on the use of IA income for each financial year, including transfers to the GRA.
- Termination or reduction:
  - IA shall be terminated in event of liquidation of the Fund.
  - IA may be terminated, or investment amount reduced, prior to liquidation by a 70 percent majority of the total voting power.
  - Procedures in Article XII, Sections 6(f)(vii), (viii) and (ix) apply for termination or reduction.
  - Decision to reduce investments shall specify subaccount from which assets shall be used.
- Audit: IA assets shall be audited by the Fund’s external auditors and included in the Fund’s annual financial statements.
- Review: Executive Board expected to review these Rules and relevant conflict of interest policies every five years.

### II. Fixed-Income Subaccount
- Investment objective:
  - Achieve investment returns in SDR terms that exceed the 3-month SDR interest rate over time while minimizing the frequency and extent of negative returns and underperformance over an investment horizon of three to four years.
- Asset allocation and tranches:
  - (a) Two tranches: Tranche 1 (shorter-duration) and Tranche 2 (longer-duration).
  - (b) Tranche 1: managed actively against a 0–3 year government bond benchmark index, weighted to reflect the currency composition of the SDR basket. Eligible asset classes: Group 1 and Group 2.
  - (c) Tranche 2: managed buy-and-hold against a 0–5 year government bond benchmark index, weighted to reflect the currency composition of the SDR basket. Eligible asset classes: Group 1.
  - (d) Asset transfers between Tranche 1 and Tranche 2 and allocation of future inflows/outflows determined by the Managing Director.
  - (e) Tranche 2 assets shall be phased over a five-year period; phasing modalities determined by the Managing Director; phasing may be suspended or extended up to one year in case of exceptional market conditions.
- Eligible investments (paragraph 18):
  - Group 1 asset classes limited to:
    - i. debt obligations issued by national governments of members or their central banks;
    - ii. debt obligations issued by national agencies of the members whose currencies are in the SDR basket;
    - iii. debt obligations issued by international financial institutions;
    - iv. obligations issued by the BIS, including without limitation deposits with the BIS and MTIs;
    - all denominated in SDR or the currencies included in the SDR basket.
  - Group 2 asset classes limited to:
    - i. debt obligations issued by national governments of members or their central banks denominated in non-SDR currencies selected by the Managing Director or, upon authorization by the Managing Director, by external managers, provided currency selection based on ex-ante criteria determined by the Managing Director;
    - ii. debt obligations denominated in SDR or SDR-basket currencies, comprising: (A) securities issued by subnational governments;
    - iii. (B) mortgage-backed and other asset-backed securities; (C) covered bonds; and (D) short-dated unsecured corporate bonds;
    - iv. cash-equivalent investments with maturities of one year or less, denominated in SDR or SDR-basket currencies.
  - Managing Director shall establish parameters for determining eligible investments within these categories.
- Limits and constraints:
  - Up to the maximum 35 percent of the total value of the Fixed-Income Subaccount assets may be invested in Group 2 asset classes; breach requires prompt action to restore limit.
  - May temporarily hold uninvested cash balances, including in short-term instruments of custodians.
  - Minimum credit rating: except for BIS obligations, central bank deposits and uninvested cash, all assets must have a credit rating equivalent to at least A (based on Standard & Poor’s long-term rating scale) at time of acquisition. Managing Director may set higher ratings for individual asset classes.
  - If asset not directly rated, Managing Director may infer a credit rating consistent with market practice.
  - Divestment: any eligible investment that ceases to meet rating threshold or becomes ineligible after acquisition shall be divested within three months; corporate bonds failing rating threshold may be divested or retained per Managing Director modalities.
  - Managing Director shall establish adequate safeguards against short selling and financial leverage.
  - Exchange rate risk for eligible investments denominated in non-SDR currencies shall be hedged back into SDR basket currencies to preserve SDR basket composition; hedging may be used for SDR basket replication or achieving overall currency exposure in line with SDR basket.
  - Derivatives may be used for managing interest rate risk, currency hedging, or reducing costs in context of portfolio balancing, benchmark replication, and market access.

### III. Endowment Subaccount
- Investment objective:
  - Achieve a long-term real return target of 3 percent in U.S. dollar terms.
  - Real return calculated using the Global External Deflator (GED) used for the Fund’s administrative budget, provided that the U.S. consumer price index (U.S. CPI) component of the GED shall be adjusted to use the actual U.S. CPI instead of the projected U.S. CPI.
- Strategic asset allocation and investment strategy:
  - No less than 90 percent of Endowment Subaccount assets shall be managed passively (the “passively managed portion”), with up to 10 percent managed actively (the “actively managed portion”).
  - Passively managed portion SAA benchmark:
    - 15 percent in developed market sovereign bonds;
    - 20 percent in U.S. Treasury Inflation-Protected Securities (US TIPs);
    - 15 percent in developed market corporate bonds;
    - 5 percent in emerging market bonds;
    - 25 percent in developed market equities;
    - 10 percent in emerging market equities;
    - 5 percent in infrastructure debt;
    - 5 percent in real estate investment trusts (REITs).
  - Managing Director shall establish parameters for determining eligible investments for SAA asset classes and modalities for appropriate passive investment approaches.
  - Actively managed portion:
    - May be invested only in same asset classes as the SAA benchmark.
    - Allocation: 60 percent in fixed-income instruments and 40 percent in equities (including REITs).
    - Permitted maximum deviation of ±15 percentage points for each of the two categories (fixed-income and equities), but no specific allocation requirements for each asset class within these categories.
    - Managing Director, in consultation with the Executive Board, shall determine investment strategy and arrangements for actively managed portion, including selection criteria and risk parameters for external managers, benchmark indices, scope and instruments for currency hedging, phasing, policy bands, rebalancing procedures, and measures to avoid actual or perceived conflicts of interest.
  - Asset allocation benchmarks do not apply to uninvested cash balances, including short-term custodian instruments.
- Rebalancing:
  - Passively managed portion shall be rebalanced at least annually to minimize deviation from the SAA benchmark specified above, or more frequently in event of significant deviation.
- Minimum credit ratings:
  - Fixed-income assets subject to the following minimum credit rating requirements at time of acquisition by a major credit rating agency (based on Standard & Poor’s long-term rating scale):
    - (a) BBB- for corporate bonds and infrastructure debt, provided Managing Director may establish modalities for allowing limited investment in infrastructure debt rated below BBB- at time of acquisition;
    - (b) BBB+ for remaining assets.
  - If asset not directly rated, Managing Director may infer a credit rating consistent with market practice.
- Divestment:
  - Any eligible investment that ceases to meet the rating threshold or becomes ineligible after acquisition shall be divested within three months; corporate bonds and infrastructure debt failing rating threshold may be divested or retained per Managing Director modalities.
- Limits on investment activities and hedging:
  - Managing Director shall establish adequate safeguards against short selling and financial leverage.
  - Exchange rate risk for fixed-income securities denominated in developed market currencies vis-à-vis the U.S. dollar shall be hedged for the passively managed portion.
  - Currency hedging is not permitted for other assets of the passively managed portion.
  - For the passively managed portion, derivatives may be used for managing interest rate risk, currency hedging operations required under paragraph 37, or reducing costs in context of portfolio balancing, benchmark replication and market access.
  - For the actively managed portion, currency hedging and derivatives may be used as determined by the Managing Director subject to adequate risk control parameters.

*International Monetary Fund — Rules and Regulations for the Investment Account (August 2019).*

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_Source: https://www.imf.org/-/media/files/publications/pp/2019/ppea2019033.pdf_