Millions from the sale of OCH Regional Medical Center could shape Oktibbeha County’s future, but a set of legal and ethical guidelines will determine how supervisors manage the funds.
While the board remains divided over whether to place the estimated $55 million to $58 million into a long‑term trust or spend some of the money on immediate needs, officials have already begun drafting legislation that would allow the county to invest beyond the strict limits imposed by state law and establish a structure for long‑term growth.
The ‘Prudent Investor’ standard
Lowndes County took a similar path after its hospital sale, establishing a reserve and trust fund in 2013. The initial $30 million investment there has grown to about $40 million with nearly $10 million having been withdrawn for capital improvements.
If Oktibbeha County follows suit, supervisors and trustees would be bound by a set of legal and ethical obligations designed to protect public funds, the first of which is the Uniform Prudent Investor Act, said Don Fruge Jr., who serves as legal counsel for the Oxford and Lafayette County reserve and trust funds.
“It establishes that basically the default rule is being a prudent investor,” Fruge told The Dispatch on Wednesday. “That’s kind of where you start off, and then there’s standards of care as an investment steward or committee.”
Under the act, trustees are expected to look at the fund as a whole, balancing risks and returns to meet long‑term objectives rather than chasing individual gains. Those expectations are typically spelled out in trustees’ investment policy statement, which Fruge calls a “road map” to help guide trustees’ decisions and monitoring.
Lowndes County’s investment policy authorizes management companies to make investment decisions without notifying the board, giving each manager a target of investing 2% of the funds in cash, 58% of the funds in bonds and 40% of the funds in stocks, though each investment strategy has an allowable range the companies’ can adhere to. The policy also requires the fund performance to be reviewed annually.
Layered on top of those guidelines are fiduciary duties designed to ensure decisions are made solely in the public’s best interest. Fruge said those duties include good faith, loyalty and care.
“The overall guidance would be to act in the best interest of the client,” Fruge said. “That’s kind of your top-down first step.”
The duty of good faith prohibits self-dealing or conflicts of interest, meaning trustees cannot invest in ventures from which they would personally benefit. Duty of loyalty requires that all decisions, including how funds are invested and who manages them, be made exclusively for the benefit of the county. The duty of care obligates trustees to exercise reasonable skill, caution and diligence in their decision-making, something that is particularly relevant when delegating responsibilities, Fruge said.
Trip Hairston, president for the Lowndes County Board of Supervisors, said part of upholding those duties is keeping their equities investments conservative.
“We’re very conservative with the funds obviously because this is not my … 401(k) or any of the other supervisors’ investment retirement accounts,” Hairston said. “This account belongs to the citizens, and we’ve been placed in touch to manage it as such. We don’t want to be overly conservative where we’re not being good stewards of the money, but we certainly don’t want to put that at risk because it’s such a benefit to the county.”
Delegating tasks, not responsibility
In the case of Lowndes County, Lafayette County and Oxford, trustees conducted thorough searches to hire third-party investment managers to handle day-to-day fund management. Lowndes County’s trust is split evenly between Renasant Wealth Management and Stifel.
Still, hiring experts to manage the funds doesn’t absolve trustees of their public duty.
“You can delegate responsibility, but you don’t really ever delegate fiduciary duties,” he said. “… The trustees still have an active role as a fiduciary and have to do the best for the county since it’s part of the county. That doesn’t really ever go away.”
Those fiduciary obligations also carry over to the third-party managers.
“They have a duty of care, duty of good faith and fair dealing (to) make good investment decisions for that client, and to act in the best interest of that client,” Fruge said. “So if it’s a bank, or if it’s a third party firm or (Securities and Exchange Commission) adviser, they would still have the fiduciary duty, but the trustees continue to have fiduciary duty as well.”
That dual layer of responsibility means both trustees and managers can be held accountable if proper procedures aren’t followed. The investment policy, as well as the local and private legislation creating the trust, guide a process that typically includes asset allocation, public meetings and scheduled performance reports by investment managers.
Fruge said liability is more closely tied to following those processes than to investment performance itself.
“As a political body, you have two sides of the coin,” he said. “You can be reckless or you can be a fiduciary (and be) prudent. … It’s hard to have a breach of fiduciary duty if you follow your own process. … If you didn’t have a semi road map, then it’s hard to benchmark, how are you doing? How are they doing? Are they doing what they need to be doing?
“If someone decided to go invest in a whole bunch of farmland or do something that’s not in the document, then we’d have potential problems,” he added.
There is no single certification required to serve as a fiduciary, Fruge said, but it is part of the trustees’ duty of care to evaluate their qualifications.
In Oxford and Lafayette counties, trustees also follow additional guidelines set forth by a financial planning firm, which helps define roles and responsibilities, establish objective criteria for evaluating managers and conduct regular performance and compliance reviews.
“Part of this, having an investment steward … overlay kind of gives you those criteria that you’re looking for (in a search),” he said. “That would be something you’d always go back to to see. … What are my criteria? What am I looking for as a committee?”
Fruge said banks and investment firms registered with the Securities and Exchange Commission are often a good place to start when selecting an adviser.
“If you hired your best friend … (who) had no skill, … no experience in money management, … then they would still be a fiduciary, but you would definitely have some arguments that they aren’t qualified to serve as a fiduciary because they don’t have the skill or experience to perform that function of investment management,” Fruge said. “… Going through a search process for a third party firm, it is involved, but it provides that level of scrutiny and due diligence to hire somebody that knows what they’re doing in the endowment-foundation world to manage assets that way.”.
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Quality, in-depth journalism is essential to a healthy community. The Dispatch brings you the most complete reporting and insightful commentary in the Golden Triangle, but we need your help to continue our efforts. In the past week, our reporters have posted 26 articles to cdispatch.com. Please consider subscribing to our website for only $2.30 per week to help support local journalism and our community.
