Policy 6     Investment

Section 6.5          Other Investment Considerations


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.


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.


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.


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.