Policy 6. Investment
Section 6.1 Investment Introduction
The mission of the University of North Georgia Foundation (the “Foundation”) is to support the University of North Georgia by promoting philanthropy from all constituents, managing and investing its assets responsibly, providing financial assistance for students, faculty and staff, and serving in an advisory role to the President of the University.
The Investment Committee ("the committee") is charged with the following:
maintain the assets of the foundation in perpetuity
achieve acceptable investment returns compared to industry benchmarks
keep sufficient liquidity for short term funding needs
manage risk
General Principles
This Investment Policy Statement (together with its Appendices, the “Statement”) sets forth policies and procedures that shall guide the Board of Trustees (the “Trustees”) and any of its delegates in supervising, implementing, evaluating and monitoring the investable assets of the Foundation. The following six general principles shall apply:
Investments of the Foundation shall be diversified unless the Trustees, or their lawful delegates, after appropriate deliberation, reasonably determine that because of special circumstances the purposes of the Foundation are better served without diversification.
The Foundation shall be managed in accordance with applicable standards of fiduciary duty and in compliance with applicable laws and regulations, including the Uniform Prudent Management of Institutional Funds Act (Ga. Code §44-15).
Standards for return, asset allocation, and diversification shall be determined primarily from a strategic perspective and measured over both short and long time periods.
Foundation funds are by definition perpetual pools of capital and as such a long-term view in setting investment policy and strategy should be taken.
Taking into consideration the long-term nature of the Foundation assets, maintaining a bias towards risk assets, which have historically produced higher long-term returns, is appropriate.
The Foundation is exempt from taxation. It is the policy of the Foundation to treat all assets of the organization, including those funds that are legally unrestricted, for the purpose of accomplishing the organization’s tax-exempt mission. As such, the policies described in this Statement are to be interpreted in light of that overall sense of stewardship.
Section 6.2 Delegation of Responsibilities
If the Board of Trustees elects to oversee investment matters directly, it shall undertake the roles and responsibilities of the Investment Committee (“Committee”) as outlined in this Statement. Otherwise, the Committee shall implement the management process and monitor the Foundation in accordance with this Statement. The Committee is the governing body responsible for (i) developing this Statement; (ii) monitoring compliance of the investment program with this Statement; (iii) overseeing the Foundation Staff in the discharge of their responsibilities as outlined below; (iv) retaining, monitoring and terminating Investment Managers, and Advisors – collectively referred to as external investment partners (“Partners”) as appropriate; and (v) approving the terms upon which Partners manage the Foundation assets, including without limitation, the terms of investment management agreements, asset allocation guidelines, fees and compensation, and performance measurement benchmarks. At least annually, the Committee shall review this Statement to ensure that the policies contained herein remain current and appropriate.
The Foundation Staff is responsible for communication with the Committee, acting as liaison with Partners, monitoring investments, and administration of the Foundation assets.
Subject to specific legal limitations or other restrictions in a gift instrument, the Committee may hire and prudently delegate to Partners the management of some or all of the Foundation’s assets. The Committee will act in good faith, with the care that an ordinary prudent person in a like position would exercise under similar circumstances in:
Selecting Partners.
Establishing the scope and terms of the delegation, consistent with the purposes, goals, and mission of the Organization.
Periodically reviewing the Partners’ actions in order to monitor the Partner’s performance and compliance with the scope and terms of any delegated activities.
In this regard, the Committee shall engage qualified external professional Partners that have demonstrated competence in their respective areas of expertise. The duties and responsibilities delegated to Partners will be defined by specific contracts, applicable laws, and regulation.
Section 6.3 Investment Objective
The primary investment objective of the Foundation is to preserve and enhance the purchasing power of the Organization’s assets.
In furtherance of this objective, the Foundation will generally diversify the portfolio among various asset classes and securities with the goal of reducing the investment portfolio’s volatility and its non-systematic, single issuer, principal risk.
Section 6.4 Asset Allocation and Investment Policy
The single most important investment decision is the allocation of the Foundation’s funds to various asset classes. The primary purpose of the Foundation’s asset allocation policy is to provide a strategic mix of asset classes which produces an acceptable investment return within a prudent risk framework that meets the long-term goals and objectives of the Foundation. Each asset class should not be considered alone but in the context of the overall structure of the portfolio. How the different asset classes relate and interact with each other is the key to making asset allocation decisions within the context of the required risk and return trade-offs.
As stated earlier, a core fundamental investment belief of the Foundation is that a bias toward investing in risk asset, which produce higher long-term returns, should be maintained.
GENERAL ASSET ALLOCATION STRUCTURE
The basic framework for developing the asset allocation mix for the Foundation is to consider the universe of investments fitting into two broad categories – risk assets and risk control assets. Risk assets are generally the return drivers of the portfolio, provide portfolio diversification benefits during stable capital market conditions, but tend to see their diversification benefits diminish (as a result of rising correlations) during stressed capital market environments. As a result of their lower and more stable correlations (even in stressed capital market conditions), especially in relation to risk assets, risk control assets provide a dependable diversification benefit during all market environments. By optimizing and controlling the overall portfolio mix between risk assets and risk control assets, a more stable, risk managed portfolio results – especially during stressed capital market environments. What follows is a review of the risk assets and risk control asset segments approved for use in portfolio construction.
RISK ASSETS:
U.S Capital
International Developed & Emerging Market Capital
High Yield Bonds
International Market Bonds
Real Estate & Infrastructure
Natural Resources & Commodities
Hedge Funds
Private Capital
RISK CONTROL ASSETS:
U.S. Investment Grade Bond
Inflation Protected Bonds (IPB)
Cash
ASSET ALLOCATION GUIDELINES:
The Committee will establish and approve a set of customized asset allocation guidelines for each discrete pool of investible capital being managed for the Foundation. Each customized set of asset allocation guidelines will be aligned to support the underlying goals and objectives of each separate pool of investible capital. The asset allocation guidelines will include a Policy Normal Level, representing the strategic asset allocation mix for the pool of Foundation assets being managed. The asset allocation guidelines will also include an approved target range that: (i) recognizes various asset classes may be under- and over-weighted due to the trading, settlement, and timing delays associated with fully implementing an investment program; (ii) recognizes it may be prudent and necessary for its Partners to operate outside the Policy Normal Levels when the financial markets are stressed and subject to extreme levels of volatility; and (iii) allows its Partners to deliberately over- and under-weight the investment program’s asset classes within prescribed target ranges as set out in the investment policy guidelines. The approved asset allocation guidelines for all of the Partners, when considered together, will reflect the overall liquidity needs and risk tolerance of the Foundation and will, in the judgment of the Committee, represent the asset mix likely to satisfy the Foundation’s long-term investment objectives.
Exhibit A to the Investment Policy Statement, which is also an integral part of each Partner’s Investment Services Agreement, provides the asset allocation guidelines currently in effect for the Foundation (See Appendix).
REBALANCING
Rebalancing is a critical element in controlling the long-term asset allocation of the Foundation. The portfolio rebalancing policy will be implemented in a systematic and disciplined fashion using policy guidelines.
In general, the Partners are expected to review the portfolios at least quarterly to determine if any rebalancing activities are required. The Foundation’s assets will be allocated in a manner consistent with the asset allocation guidelines, as determined by the Investment Committee and the Partners given prevailing market conditions, with variations around the expected long-term policy normal allocation levels permitted within the ranges set in the asset allocation guidelines.
INVESTMENT PERFORMANCE EXPECTATIONS:
The Committee will establish and approve investment performance expectations for the Partners. Such expectations will vary by asset class and will be based on appropriate index returns, composites or other recognized industry performance standards deemed appropriate by the Committee.
PERFORMANCE REVIEW AND EVALUATION:
The Partner will review and evaluate investment performance periodically in the context of both the current investment environment and the long-term investment horizon of the Foundation. Performance evaluation will be conducted for the total portfolio and for each asset and sub-asset class. All performance results will be reported net of all fees and expenses.
The performance review at the asset class level will evaluate asset class performance versus the appropriate benchmarks as outlined in Exhibit A.
Section 6.5 Other Investment Considerations
USE OF DERIVATIVES:
Certain investment strategies employed will be permitted to use derivative investments. Derivative investments are those securities whose value is related, or derived, from that of another security, index, or financial instrument. Investments in derivatives include (but are not limited to) futures, forwards, options, warrants, swaps, etc. No derivative positions can be established that have the effect of creating portfolio characteristics that would ordinarily be prohibited by the Statement.
Derivatives can be used in prudent ways including hedging market, currency, or interest rate risk, maintaining exposure to a desired asset class while making asset allocation changes, gaining exposure to an asset class when it is more cost-effective than the cash markets, and adjusting duration within a fixed income portfolio. When using derivative investments, the investment manager responsible for the position needs to carefully monitor the creditworthiness of any third parties involved in the transaction.
Each investment manager using derivatives shall exhibit expertise and experience in utilizing such products; demonstrate that such usage is strategically integral to their security selection, risk management, or investment process; and demonstrate acceptable internal controls regarding these investments.
LIQUIDITY MANAGEMENT:
The Foundation may have liquidity needs for operational commitments, need cash to meet annual payout requirements or participant benefit payments, or for the management of its legal commitments to draw down funds for certain private investments. Additionally, the portfolio needs to be able to respond to changing market conditions allowing the portfolio to be shifted modestly to take advantage of the relative or absolute attractiveness of certain asset classes over time. To address all of these needs, care must be given to the level of liquid assets in the portfolio, the anticipated funding needs, and the level of future funding commitments while providing additional liquidity for unplanned or emergency needs. In particular, there should be an awareness of how liquidity can change in periods of capital market stress.
Nevertheless, the permanent nature of the Foundation’s capital should enable it to accept lower levels of liquidity in instances where capital is likely to earn a sufficient return premium.
As a general test of overall portfolio liquidity, the value of illiquid assets (i.e., defined as investment positions which cannot be converted into cash within a six month holding period) plus any future unfunded commitments cannot exceed the total of all liquid assets held in the portfolio. For this test, liquid assets are defined as those assets which can be converted into cash within thirty business days or less and have no limitations – no “gates” – imposed on their liquidity. Note that in determining this calculation, some assets will not fit the above, strict definition of “liquid” or “illiquid” assets. Those positions are considered semi-liquid and will be ignored for this basic liquidity test. To the extent the Foundation’s investment portfolio meets or exceeds this basic liquidity test, there are no liquidity restrictions imposed on the management and operation of the portfolio. To the extent the Foundation’s investment portfolio fails this basic liquidity test, a more sophisticated cash flow monitoring and liquidity plan must be developed, implemented, and monitored by the Investment Committee.
USE OF LEVERAGE:
While the Foundation may invest in investment funds and vehicles that utilize differing forms of leverage, the portfolio as a whole is to remain unlevered. In terms of this section of the Statement, unlevered refers to the fact that the total notional exposure of the portfolio should not exceed 100% of the assets of the Foundation.
Subject to any legal or regulatory limitations, and requiring specific Trustee oversight and approval, the Committee may approve the creation of a line of credit to be utilized in unusual situations to address temporary liquidity needs in an amount not to exceed 10% of assets.
EXCEPTIONS TO POLICY:
The Committee may waive or modify any of the restrictions in this Statement given appropriate circumstances. Any such waivers or modifications shall be made only after a thorough review of the situation. Any such waiver or modification should be documented in writing and maintained as a permanent record. All such waivers and modifications shall be reported to the Trustees at the meeting immediately following the granting of the waiver or modification.
Section 6.6 Documentation and Reporting
Statements will be provided monthly to the Foundation summarizing the prior period’s activity, market value, and asset allocation mix. On a quarterly basis, the Foundation will be provided a performance report for the prior period and longer term trailing periods. The performance report will contain industry standard benchmarks that are relevant for evaluating the performance of the portfolio and its sub components.