Policy 6     Investment


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.