Investment Policy 5.4-1
Category:
Business & Financial Management
Authorizing Body:
Board of Control - BC
Responsible Department:
Admin. & Business Affairs
Applies To:
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Adopted Date:
03/18/2002
Revised Date:
05/11/2013
Print Policy
The purpose of the Investment Policy Statement (“Policy”) is to establish oversight and objectives for investing Saginaw Valley State University’s (“University”) pooled cash investments. The Policy will also discuss standards and benchmarks that will be utilized by the University to evaluate these investments. In addition, the Policy describes the responsibilities of all involved parties. The Policy is intended to be sufficiently specific to be meaningful, yet flexible enough to be practical.
The objective of this Policy is to manage and invest the University Pooled Cash to sufficiently cover short-term needs of the University and to attain a greater return on those assets not needed in the short-term. The primary intention is to provide sufficient liquidity for the needs of the University. Alternatively, by permitting a moderate amount of investments such as intermediate-term fixed income, equities, and alternative investment strategies, the University also aims to produce modestly higher returns than a cash only portfolio would yield over longer periods of time. Three pools (Short-term, Intermediate, Long-Term) of assets have been established with each having its own guidelines and performance standards.
The cash management and investment activities for University Pooled Cash shall be the responsibility of the University Board of Control (“Board”). The Board has delegated oversight responsibility to the SVSU Foundation’s Finance and Investment Committee (“Investment Committee”). The Vice President for Administration & Business Affairs (“VPABA”) should report meaningful decisions made by the Investment Committee to the Board. The Board is responsible for setting the Policy of the University Pooled Cash while the Investment Committee is responsible for making investment decisions and oversight within the parameters of the Policy. The Investment Committee shall delegate the day-to-day oversight of these investments to the VPABA of the University. The VPABA may choose to retain an independent advisor to advise on these assets and to exercise more comprehensive oversight and reporting on the investments. The following will describe further responsibilities of all involved parties. The following groups are considered fiduciaries of the University Pooled Cash. As fiduciaries, these groups should adhere to their defined responsibilities and prudently act in the best interest of the University Pooled Cash.
The Board has responsibility for ensuring that the Policy is prudent and aims to preserve principal while achieving reasonable investment returns. The Board has authority to set investment objectives, set asset allocation parameters, and delegate investment oversight. This includes, but is not limited to, selection of acceptable asset classes, allowable ranges of holdings by asset class and individual investment classes as a percent of total assets, the definition of acceptable securities within each asset class, and investment performance expectations.
The investment policies and restrictions presented in this Statement serve as a framework to achieve the investment objectives at a level of risk deemed acceptable. These policies and restrictions are designed to minimize interference with efforts to attain overall objectives and to minimize the potential of excluding any appropriate investment opportunities.
The Investment Committee is responsible for oversight of the University Pooled Cash. The Investment Committee should review policy compliance, asset allocation, performance, investment managers, and all other pertinent information on a quarterly basis. In addition the Investment Committee is responsible for hiring and terminating investment managers. The Investment Committee will rely on the Vice President of Administration & Business Affairs for information on cash needs and relative information regarding the University
Pooled Cash.
Moreover, in accordance with the State of Michigan’s adoption of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), the Investment Committee will take the following into consideration when making investment decisions but not limited to:
- Duration and preservation of the fund
- Need of the funds to make distributions and preserve capital
- Expected total return from income and appreciation
- The role that each investment plays within the overall portfolio
- General economic conditions
- The possible effect of inflation or deflation
- Other resources of the organization
- Assets of special relationship or special value to the organization
- Expected tax consequences
Vice President for Administration & Business Affairs (VP-ABA)
The VPABA is responsible for the day-to-day management of cash needs of the University. The VPABA should provide future cash flow information to the Investment Committee and investment consultant to support investment decisions. The VPABA should also provide any information to the Investment Committee that is relevant to making investment decisions. The VPABA will report to the University Board of Control’s Finance and Audit Committee high level reports on the Foundation Finance and Investment Committee’s investment performance and substantive decisions.
The investment consultant is responsible for providing information and analysis to assist the Investment Committee and VPABA with the following:
- Reviewing asset allocation and investment strategy to determine if the current strategy meets the needs of the University and is maximizing the long-term total return of the assets;
- Recommending strategic and tactical changes to asset allocation from time to time, both between and during regularly scheduled review meetings, following the investment process of the firm;
- Reviewing all separately managed accounts to ensure that each investment manager is adhering to the issued policy guidelines;
- Communicating with all investment managers on a quarterly basis to determine portfolio composition and ascertain information
concerning organizational change. (Each portfolio will be reviewed for style drift through portfolio holdings and returns-based style analysis. Additionally, each portfolio to be reviewed for prohibited investments); - Providing a quarterly performance evaluation report and assessment of the assets;
- Reviewing asset allocation on a quarterly basis to determine if the current levels are consistent with the asset allocation policy stated in this document;
- Providing information for the investment manager selection process;
- Monitoring the performance of each investment manager retained by the Foundation to determine how the investment product is performing relative to the established benchmarks over a specific quarter and rolling 3- and 5-year periods; and
- Monitoring the performance of the total portfolio to determine if the collective investment strategy is outperforming the established benchmarks over rolling 3- and 5-year time periods.
Each investment manager has discretion to purchase, sell, or hold the specific securities that will be used to meet the University’s investment objectives. Each investment manager will be held responsible and accountable to achieve the objectives herein stated.
While it is not believed that the limitations will hamper any investment manager, the investment manager should request modifications that it deems appropriate.
The custodian will physically maintain possession of securities owned by the University, collect dividend and interest payments, redeem maturing securities, and affect receipt and delivery following purchases and sales. The custodian shall also perform regular accounting of all assets owned, purchased, or sold, as well as movement of assets into and out of the University accounts. The custodian is also responsible for providing monthly statements to the University and investment consultant. Access to online balances and statements should be made available.
Additional specialists such as attorneys, auditors, and others may be employed by the University to assist in meeting its responsibilities and obligations to administer the University Pooled Cash. All expenses for such experts must be customary and reasonable, and will be borne by the University as deemed appropriate and necessary.
The University Pooled Cash should provide for both short and longer-term needs. Short-term obligations of the University are the primary concern. It is also understood that there may be assets in excess of what would satisfy short-term cash needs that could be exposed to reasonable amounts of risk to support the longer term missions of the University. Asset will be separated into three investment pools, short-term, intermediate-term, and long-term. These investment pools directly relate to the investment time horizon of those assets. There should be more short-term investments than the forecasted need to error on the side of caution for unforeseen obligations. This Policy will detail specific guidelines and objectives of each investment pool.
The ranges between the three investment pools have been established in order to maintain ample liquidity while allowing for a portion to be invested in longer-term investments. As a result, these pooled cash assets will be positioned to appreciate over time. Due to the dynamic nature of these three pools, performance will be separately monitored.
It is the responsibility of the VPABA to periodically, but not less than annually, determine the appropriate allocation between the three investment pools. Allocation decisions between investment pools will be made in accordance with an assessment of the University’s short- and intermediate-term cash and liquidity needs.
Allowable ranges between pools:
Short-Term Pool 0% - 100%
Intermediate Pool 0% - 70%
Long-Term Pool 0% - 30%
Objective:
The objective of the short term pool is to preserve capital and cover the short-term operating needs of the University. This pool also looks to maximize income without taking on any undue risk. Preservation of capital overrides any contemplation of appreciation of
principal. All cash and equivalent investments should be made with concern for quality and liquidity.
Investment Time Horizon:
The investment time horizon for these investments is less than one year.
Guidelines:
- All investments must be convertible into cash at anytime without any significant loss of principal.
- Any instrument issued by, guaranteed by, or insured by the U.S. Government, agencies, or other full faith instruments of investment grade are permitted.
- Commercial paper issued by domestic corporations which is rated both "P-1" and "A-1" by Moody's and Standard & Poor's, respectively, may be included.
- Also permitted are certificates of deposit, bankers acceptances, or other such irrevocable primary obligations from a list of approved banks.
- Commingled and short-term cash reserve mutual funds may be used if they comply with this document.
- All cash and equivalent investments should be made with concern for quality and liquidity. High return is desirable, but
the highest possible investment return should be sacrificed where quality is considered questionable. - Diversification must be maintained and, with the exception of securities guaranteed by the U.S. Government, the securities of single issuer should not exceed 10% of the market value of the manager’s portfolio responsibility.
Objective: The objectives for the intermediate-term pool are to preserve capital and earn a greater return than the short-term
pool. This investment pool should deliver reasonable liquidity should additional funds be required by the University above what had been allocated to the short-term pool.
Investment Time Horizon: The investment time horizon for these investments is one to five years.
Guidelines:
- Fixed-income investments may include U.S. and Non-U.S. issues of Government and Agency obligations, marketable corporate
bonds, mortgage or asset-backed bonds, and preferred stocks with sinking funds as deemed prudent by the investment managers. - Fixed-income portfolio maturity, as measured by portfolio duration, should be in the range of 80% to 120% of the applicable benchmark.
- Fixed-income investments shall be made primarily in those rated “BAA” (investment grade) or better by Moody’s and BBB (investment grade) or better by Standard & Poor’s with emphasis toward “A” or better issues. However, up to 20% of the fixed income investments can be made in below investment grade debt (high yield).
- Fixed income investments may include U.S. and Non-U.S. issues, including high yield, global fixed income and emerging market debt instruments.
- Diversification must be maintained and, with the exception of securities guaranteed by the U.S. Government, the securities of single issuer should not exceed 10% of the market value of the manager’s portfolio responsibility.
- No equity exposure is permitted within the intermediate term pool.
- The Investment Committee may also implement a laddered bond portfolio that is diversified by holdings and maturities that emphasizes higher quality. The intent of this structure would be to alleviate duration risk as the bonds would be held to maturity and then reinvested. If the Investment Committee implements this structure, the duration guideline above would not apply.
Objective: The objective of the long-term investment pool is to provide long-term growth to funds that are not needed for
expenditure over the next five years. It is the intention of the University to diversify this long-term pool between fixed income, equity, and alternative investments. This long-term pool is intended to enhance the overall performance of the University Pooled Cash.
Investment Time Horizon: The investment time horizon for these investments is greater than 5 years.
Asset Allocation Guidelines:
Asset Class Allowable Range
Cash 0% - 10%
Fixed Income 20% - 40%
Domestic Equity 30% - 50%
International Equity 15% - 25%
Alternatives 0% - 20%
Guidelines:
- Investment in fixed income may include up to 20% of below investment grade bonds. This primarily applies to high yield and
global fixed income strategies. - Investing on foreign exchanges or through ADR shares are permitted within international equities. Alternative investments are intended to provide diversification, risk reduction, as well as enhance the performance of the asset pool.
- Alternative investment strategies may also include any one or more of the following investments in hedge funds or fund-of-funds that invest in public market investments in market-neutral, long/short, risk arbitrage, convertible arbitrage hedge funds, commodities, currency or a combination of some or all strategies. In addition, alternatives investment strategies may include tactical asset allocation and real estate strategies.
- Investments in direct private equity are prohibited from the portfolio. Private equity exposure within a hedge fund-of-fund structure should be evaluated by the Investment Committee for appropriateness.
- Commingled and mutual funds may be used if they comply with this document.
- Stocks included in the portfolio should emphasize companies with total market capitalizations normally exceeding $100 million. Investments may include a prudent participation in smaller and newer companies of outstanding investment attraction.
- Cash equivalents may be included in the equity portfolios at each manager’s discretion.
- Assets under each manager’s direction may include the use of equity commingled funds.
- In a separately managed equity account, an individual common stock commitment at the time of purchase will not represent more that 7% of the market value of the manager’s portfolio responsibility, nor shall an industry or sector group exceed
more than 30%. - Security trading is to emphasize best execution, i.e., the highest proceeds and lowest costs, net of all transaction expenses.
Performance will be evaluated every quarter but an emphasis will be given towards three- and five-year rolling periods.
Short-Term Pool:
Merrill Lynch 91-day T-Bill Index
Intermediate-Term Pool:
Barclays Capital Intermediate Government/Corporate Bond Index
Long-Term Pool:
The benchmark is a blended benchmark based on the asset allocation for the Long-Term Pool:
- 40% Russell 3000 Index
- 20% MSCI EAFE Index
- 30% Barclays Capital Aggregate Bond Index
- 10% (TBD – Alternatives)
The total portfolio will be constructed and maintained to provide prudent diversification with regard managers, styles, regions, sectors, and number of holdings.
Statement of Investment Policy Review
To assure the continued relevance of the guidelines, objectives, financial status and capital markets expectations as established in this Statement of Spending and Investment Policy, the Board plans to review this statement annually, or as deemed necessary.
The Board requires that University Pooled Cash be primarily invested in liquid securities, defined as securities that can be transacted quickly and efficiently for the University with minimal impact on market price.
The Custodian shall vote the proxies for separately managed accounts on behalf of the University. When mutual funds are used, the fund company will vote proxies.
When separate accounts are used, the Investment Committee expects the purchase and sale of securities to be made in a manner designed to receive the combination of best price and execution.
Selection of Investments and Managers
The Investment Committee has the responsibility to hire and monitor investment managers to carry out the objectives of the University Pooled Cash. Some or all of the following attributes should be considered when selecting an investment manager:
- The institution should be a bank, insurance company or investment management company or an investment adviser under the
Registered Investment Advisers Act of 1940. - The institution should be operating in good standing with regulators and clients, with no material pending or concluded
legal actions. - The institution should provide detailed additional information on the history of the firm, its investment philosophy and approach, and its principals, clients, locations, fee schedules and other relevant information.
Assuming the minimum criteria are met, the particular investment manager under consideration should meet the following standards for selection:
- Performance should be equal to or greater than the median return for an appropriate, style-specific benchmark and peer group over a three to five year period.
- Performance reporting should be in compliance with the CFA Institute’s Global Investment Performance Standards (GIPS).
- Specific risk and risk–adjusted return measures should be established and agreed to by the Investment Committee and the investment consultant and be within a reasonable range relative to an appropriate, style-specific benchmark and peer group.
- The investment manager should demonstrate adherence to the stated investment objective.
- Fees should be competitive compared to similar investments.
- The investment manager should be able to provide all performance, holdings, and other relevant information on a quarterly basis.
The investment manager performance will be reviewed on a monthly and quarterly basis and a report will be provided by the investment consultant. The manager will be welcomed to provide any suggestions regarding appropriate adjustments in this statement or the manner in which investment performance is reviewed. Investment manager results will be reviewed quarterly with an emphasis on longer term performance and also measured over rolling three and five year periods.
Each investment manager must advise the Investment Committee and the investment consultant concerning any changes in their investment philosophy and of changes in ownership, personnel or any other matter that may impact the performance of the portfolio.
Removal of an Investment Manager
Taking into account many factors, along with advice from the investment consultant, the Investment Committee has the authority to remove an investment manager. Following are the general guidelines which may give reason to remove an investment manager:
- Failure to comply with this Statement.
- Failure to meet any of the investment return benchmarks, as established by the investment consultant and Investment Committee.
- Failure to comply with investment restrictions as defined for the manager by the Investment Committee.
- Significant qualitative changes to the investment management organization.
Each investment manager shall be reviewed at a minimum annually regarding performance, personnel, strategy, research capabilities, organizational and business matters, and other qualitative factors that may impact its ability to achieve the desired investment results.
If the investment manager has consistently failed to adhere to one or more of the above conditions, it is reasonable to presume a lack of adherence going forward. Failure to remedy the circumstances of unsatisfactory performance by the investment manager, within a reasonable time, shall be grounds for removal.
Any recommendation to remove an investment manager will be treated on an individual basis, and will not be made solely based on quantitative data. In addition to those above, other factors may include professional or client turnover, or material change to investment processes. Considerable judgment must be exercised in the removal decision process.
A manager shall be removed using one of the following approaches:
- Remove and replace with an alternative manager.
- Freeze the assets managed by the manager and direct new assets to a replacement manager.
- Phase out the manager over a specific time period.
- Continue with the manager but add a complementary manager.
- Remove the manager and do not provide a replacement manager.
For purposes of this Statement, the following definitions apply: “University Pooled Cash” refers to cash and non-Foundation investment assets used for operational and long-term needs of the University.
- “Fiduciary” shall mean any individual or group of individuals that exercise discretionary authority or control over foundation management or any authority or control over management, disposition or administration of the University Pooled Cash.
- “Investment Manager” shall mean any individual, or group of individuals, employed to manage the investment of all
or part of the University Pooled Cash. An investment manager shall be responsible for determining investment strategy, implementing selection of investments and the timing of purchases and sales of investments within the policy guidelines set forth in this Statement and as otherwise provided by the Board. - “Investment Consultant” shall mean any individual or organization employed to provide advisory services, including
advice on investment objectives and/or asset allocation, manager search, and performance monitoring. - “Securities” shall refer to the marketable investment securities that are defined as acceptable in this Statement.
- “Investment Horizon” shall be the time period over which the investment objectives, as set forth in this Statement, are expected to be met.