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EXECUTIVE
SUMMARY ( top of page )
| Type of Client: |
Tax Exempt, Public Foundation |
| Time Horizon: |
Long term (greater than 5 years) |
| Modeled Return: |
9% (6.5% over CPI) |
| Modeled
Risk Level: |
modeled loss at –10% for a single
year (Statistical confidence level of 95%. Actual
losses may still be greater than the modeled loss.) |
| Asset
Allocation |
Lower
Limit |
Srategic
Allocation |
Upper
Limit |
| |
|
|
|
|
| Cash & Equivalents |
0% |
5% |
15% |
| Fixed-Income (Bonds) |
20% |
30% |
40% |
| Alternative Assets |
0% |
5% |
15% |
| Equities (Stocks) |
|
|
|
| |
Domestic Large Cap |
20% |
30% |
40% |
| |
Domestic Small Cap |
5% |
15% |
25% |
| |
International* |
5% |
15% |
30% |
| |
|
| |
* Emerging markets not to exceed 15% of total
assets at any time |
| Money
Managers |
Private money managers, mutual and/or
exchange-traded funds and fixed-income securities
are expected to be used for implementation. Parts
of the portfolio may be indexed or passively invested. |
| Evaluation
Benchmark |
Portfolio return is expected to be comparable
to a blended benchmark of returns for relevant indices
as indicated in the Control Procedures section below. |
BACKGROUND
and PURPOSE ( top of page )
Mission Statement
The Community Foundation Serving Boulder County exists
to improve the quality of life in Boulder County, now
and forever, and to build a culture of giving.
This Investment Policy Statement (IPS) has been prepared
for the Foundation, a tax-exempt Public Foundation under
IRS Code 501(c)(3). The initial asset allocation strategy
may change depending upon grants, operating expenses
and future contributions.
Key Information
| |
Name
of Foundation: |
Community Foundation
Serving Boulder County |
The purpose of this IPS is to assist the Foundation
and Investment Advisor (Advisor) in effectively supervising,
monitoring and evaluating the management of the Foundation’s
assets. The Foundation’s investment program is
defined in the various sections of this IPS by:
1. |
Stating in a written document the Foundation’s
attitudes, expectations, objectives and guidelines
in the management of their assets. |
2. |
Setting forth an investment structure
for managing the Foundation’s assets. This
structure includes various asset classes, investment
management styles, asset allocation and acceptable
ranges that, in total, are expected to produce an
appropriate level of overall diversification and
total investment return over the investment time
horizon. |
3. |
Establishing formal criteria to select,
monitor, evaluate and compare the performance of
money managers on a regular basis. |
4. |
Encouraging effective communications
between the Foundation, Managers, and interested
parties. |
5. |
Complying with all applicable fiduciary,
prudence and due diligence requirements experienced
investment professionals would utilize, and with
all applicable laws, rules and regulations from
various local, state, federal and international
political entities that may impact the Foundation’s
assets. |
STATEMENT
of OBJECTIVES ( top of page )
The objectives of the Foundation have been
established in conjunction with a comprehensive review
of current and projected financial requirements. The
objectives are:
|
Maintain the purchasing power of the
current assets and all future contributions. The
objective is to maintain the level of services and
programs in relation to the average cost increases.
This requires establishing an equilibrium-spending
rate of 5% (9%- 2.5% inflation – 1.5% expenses). |
2. |
Maintain a constant funding-support
ratio. The desire of the Foundation is to maintain
the level of programs and services currently provided.
This can only be accomplished if sufficient total
return is reinvested and new funds added to keep
pace with cost increases and program expansions. |
3. |
Maximize return within
reasonable and prudent levels of risk. |
4. |
Maintain an appropriate asset allocation
based on a total return policy that is compatible
with a flexible spending policy, while still having
the potential to produce positive real returns. |
Risk Tolerances ( top
of page )
The Foundation recognizes and acknowledges some risk
must be assumed in order to achieve the long-term investment
objectives of the portfolio, and there are uncertainties
and complexities associated with contemporary investment
markets.
In establishing the risk tolerances for this IPS, the
Foundation’s ability to withstand short and intermediate
term variability was considered. The Foundation’s
prospects for the future, current financial condition,
and level of funding in the portfolio suggest collectively
some interim fluctuations in market value and rates
of return may be tolerated with the portfolio in order
to achieve longer-term objectives.
Time Horizon ( top of page )
The investment guidelines for the portfolio are based
upon an investment horizon of greater than five years;
therefore interim fluctuations should be viewed with
appropriate perspective. Short-term liquidity needs
are expected to be minimal, as other funds outside the
scope of this IPS have already been allocated. However,
any unanticipated needs will be met from cash, maturing
bonds, future contributions or rebalancing activities.
Expected Return ( top of page )
In general, the Foundation would like the portfolio
to earn at least a targeted return of 9%. It is understood
an average return of 9% will require superior manager
performance to: (1) retain principal value; and, (2)
purchasing power. Furthermore, the objective is to earn
a long-term rate of return that is at least 6.5% greater
than the rate of inflation as measured by the Consumer
Price Index (CPI).
SOCIALLY CONSCIOUS INVESTMETS
( top
of page )
The Foundation does not employ any socially conscious investment (SCI) criteria in the management of the Investment Pool. A Donor Advised Fund greater than $250,000 may choose to invest in a socially conscious manner. The SCI Pool, which represents a portion of the Investment Pool, incorporates a broad range of social screening criteria in alignment with the Foundation’s mission. The Foundation, in its SCI portfolios, favors investments in enterprises that practice good governance, contribute to a clean, healthy environment, treat people fairly, embrace equal opportunity, produce safe and useful products, and support efforts to promote world peace.
As social screening will affect the composition of a portfolio, the Foundation recognizes that socially screened portfolios are likely to have risk and return characteristics that are somewhat different from a comparable, unscreened portfolio. Nevertheless, the performance of any investment or investment pool being managed using SCI screening criteria is expected to be competitive with non-screened investments or pools with similar risk characteristics.
Proxy Voting
The Foundation considers the right to vote its proxies an important and valuable asset. Whenever possible, the proxies of companies held in Foundation portfolios managed using SCI criteria—whether the underlying investments are in mutual funds, with separate account managers, or directly in the shares of companies—will be voted by the Foundation or its authorized portfolio managers in accordance with the SCI criteria that governs the portfolio. The Foundation may choose to exercise its rights as an owner of corporate equity and file proxy resolutions for the purpose of encouraging more responsible behavior within one or more companies owned in Foundation portfolios, at the discretion of the Investment Committee and Board of Directors.
Community Investing
Community investments direct capital to communities underserved by traditional financial services, providing people who have difficulty accessing capital with opportunities to borrow, save and invest in their own communities. Community investments generally flow through community banks, credit unions, community loan funds and microenterprise development funds providing capital, creating jobs, and building low income housing. Community investments generally provide returns similar to interest earned on money market funds or short-term CDs (certificates of deposit). The Foundation may allow managers to allocate a small portion of an investment pool to community investments of one type or another. However, exposure to community investments inside of an SCI portfolio may not exceed three percent of the market value of the portfolio.
ASSET
CLASS GUIDELINES ( top
of page )
The Foundation believes that long-term investment performance,
in large part, is primarily a function of asset class
mix. The Foundation has reviewed the long-term performance
characteristics of the broad asset classes, focusing
on balancing the risks and rewards.
History shows that while interest-generating investments,
such as bond portfolios, have the advantage of relative
stability of principal value, they provide little opportunity
for real long-term capital growth due to their susceptibility
to inflation. On the other hand, equity investments,
such as common stocks, clearly have a significantly
higher expected return but have the disadvantage of
much greater year-by-year variability of return. From
an investment decision-making point of view, this year-by-year
variability may be worth accepting, provided the time
horizon for the equity portion of the portfolio is sufficiently
long (five years or greater).
| |
The following asset classes
were selected: |
• |
Cash and Cash Equivalents |
• |
Fixed-Income (Dom. Governments, Corps,
High Yield, & International.) |
• |
Equities (Domestic Large & Small
Cap and International) |
• |
Alternative Assets (Real Estate, Commodities,
& TIPs) |
Rebalancing
of Strategic Allocation ( top
of page )
The percentage allocation to each asset class may vary
as much as plus or minus 10% depending upon market conditions
within the judgment of the investment managers. The
upper and lower limits are not intended to impose absolute
limits on asset allocation, but rather to suggest what
ranges around the targets are considered normal. The
allocations may at times drift outside the ranges due
to portfolio performance or, in unusual cases, for tactical
reasons. The limits suggest when portfolio rebalancing
should be considered in order to bring the allocations
closer to the IPS targets.
When necessary and/or available, cash inflows/outflows
will be deployed in a manner consistent with the strategic
asset allocation of the Portfolio. If the Foundation
judges cash flows to be insufficient to bring the Portfolio
within the strategic allocation ranges, the Foundation
shall decide whether to effect transactions to bring
the strategic allocation within the threshold range.
The investment committee will review the allocation
of the Portfolio quarterly.
DUTIES
and RESPONSIBILITIES ( top of page )
Foundation
Board of Trustees
| |
As a fiduciary, the primary
responsibilities of the Foundation are: |
1. |
Prepare and maintain an investment
policy statement. |
2. |
Prudently diversify the accounts assets
to meet an agreed upon risk/return profile. |
3. |
Prudently select investment options. |
4. |
Control and account for all investment,
record keeping and administrative expenses associated
with the accounts. |
5. |
Monitor and supervise all service vendors
and investment options. |
6. |
Avoid prohibited transactions and conflicts
of interest. |
Investment
Committee ( top
of page )
The Investment Committee is a standing committee comprised
of representatives from the Board, staff, and the Community. The Investment Committee serves at the pleasure of the Board of Trustees and makes recommendations to the Board which retains ultimate responsibility for investment recommendations. They are responsible for the oversight of all investment accounts and publicly traded assets. They are not responsible for private equity, partnerships, real estate and other illiquid assets or the money market pool. They shall act solely in the best interest of the Foundation and in concert with the mission of the Foundation. The Investment Committee’s responsibilities
include:
a. |
Setting and revising investment policies
that the Board must approve. |
b. |
Developing investment objectives, asset
allocation strategies and performance guidelines. |
c. |
Recommending Investment Consultants, Advisors,
Money Managers and Custodians to the Board. |
d. |
Reviewing and evaluating investment
results. |
e. |
Providing periodic performance reports
to the Board. |
f. |
Responsible for oversight of all investment accounts utilizing publicly traded assets. |
Investment
Managers ( top
of page )
As distinguished from the Board or Investment Committee,
who are responsible for managing the
investment process, investment managers are co-fiduciaries
responsible for making investment decisions
(security selection and price decisions). The specific
duties and responsibilities of each investment manager
are:
1. |
Manage the assets under their supervision
in accordance with the guidelines and objectives outlined in their respective Prospectus or Investment Agreement. |
2. |
Exercise full investment discretion
with regards to buying, managing, and selling assets
held in the portfolios. |
3. |
If managing a separate
account (as opposed to a mutual fund or a commingled
account), to seek approval from the Foundation prior
to purchasing and/or implementing the following
securities and transactions:
• |
Letter stock and other unregistered
securities; commodities or other commodity
contracts; and short sales or margin transactions. |
• |
Securities lending; pledging or
hypothecating securities. |
• |
Investments in the equity securities
of any company with a record of less than
three years' continuous operation, including
the operation of any predecessor. |
• |
Investments for the purpose of
exercising control of management. |
|
4. |
Vote promptly all proxies and related
actions in a manner consistent with the long-term
interest and objectives of the Accounts as described
in this IPS. Each investment manager shall keep
detailed records of the voting of proxies and related
actions and will comply with all applicable regulatory
obligations. |
5. |
Communicate with the Foundation all
significant changes pertaining to the fund it manages
or the firm itself. Changes in ownership, organizational
structure, financial condition, and professional
staff are examples of changes to the firm in which
the Foundation is interested. |
6. |
Effect all transactions for the Portfolio
subject "to best price and execution."
If a manager utilizes brokerage from the Portfolio
assets to effect "soft dollar" transactions,
detailed records will be kept and communicated to
the Foundation. |
7. |
Use the same care, skill,
prudence, and due diligence under the circumstances
then prevailing that experienced investment professionals
acting in a like capacity and fully familiar with
such matters would use in like activities for like
Portfolios with like aims in accordance and compliance
with Uniform Prudent Investment Act and all applicable
laws, rules, and regulations.
|
Custodian ( top
of page )
Custodians are responsible for the safekeeping of the
Portfolio’s assets. The specific duties and responsibilities
of the custodian are:
1. |
Maintain separate accounts by legal
registration. |
2. |
Value the holdings. |
3. |
Collect all income and dividends owed
to the Portfolio. |
4. |
Settle all transactions (buy-sell orders)
initiated by the Investment Manager. |
5. |
Provide monthly reports that detail
transactions, cash flows, securities held and their
current value, and change in value of each security
and the overall portfolio since the previous report. |
INVESTMENT
MANAGER SELECTION
( top of page )
The Foundation will apply the following due diligence
criteria in selecting each individual investment option.
1. |
Regulatory oversight: Each investment manager should be a regulated bank,
an insurance company, a mutual fund organization,
or a registered investment adviser. |
2. |
Assets under management: The manager should have at least $75 million under
management. |
3. |
Expense ratios/fees: The manager’s fees should be competitive with
fees provided to similar non-profit organizations. |
4. |
Stability of the organization: There should be no perceived organizational problems
– the same portfolio management team should
be in place for at least two years. (This may be
waived in some circumstances; such as for funds
managed by teams or for funds where prior performance
histories of separate accounts are considered relevant.) |
CONTROL
PROCEDURES ( top
of page )
Performance Objectives
The Foundation acknowledges fluctuating rates of return
characterize the securities markets, particularly during
short-term time periods. Recognizing short-term fluctuations
may cause variations in performance, the Foundation intends
to evaluate manager performance from a long-term perspective.
The Foundation is aware the ongoing review and analysis
of the investment managers is just as important as the
due diligence implemented during the manager selection
process. The performance of the investment managers will
be monitored on an ongoing basis and it is at the Foundation's
discretion to take corrective action by replacing a manager
if they deem it appropriate at any time.
Monitoring of Investment
Managers ( top
of page )
The Foundation has determined it is in the best interest
of the Portfolio's participants that performance objectives
be established for each investment manager. Manager results
will be periodically evaluated and compared to appropriate
indices (or peer-performance benchmarks) such as the following:
Asset
Category |
Primary
Index |
Investable
Benchmark |
| Cash & Equivalents |
30-Day Money
Market Yield |
|
| Equities |
|
S&P 500 |
iShare S&P 500 |
|
Russell 2000 |
iShare Russell 2000 |
|
MSCI EAFE |
iShare EAFE |
| Fixed Income |
|
Salomon 1-5 Yr. Treasury |
iShares Lehman 1-3 Yr. Treas. |
|
Lehman Aggregate Bond |
Vanguard Total Bond Market |
| Alternative Investments |
|
Lehman Treas. Inflat. Notes |
Vanguard Inflation Prot. Secs. |
The risk associated with each manager’s portfolio,
as measured by the variability of quarterly returns
(standard deviation), should not exceed that of the
benchmark index or peer group without a corresponding
increase in performance above the benchmark. It is understood
that there are likely to be short-term periods during
which performance deviates from market indices and managers
should not be terminated for this reason alone.
Measuring Costs ( top
of page )
The Foundation will periodically review all costs associated
with the management of the Portfolio’s investment
program, including:
1. |
Expense ratios of each investment option
against the appropriate peer group |
2. |
Custody fees: The holding of the assets,
collection of the income and disbursement of payments. |
3. |
Whether the manager is demonstrating
attention to "best execution" in trading
securities. |
Review ( top of page )
The Foundation will review this IPS every five years to
determine whether stated investment objectives are still
relevant and the continued feasibility of achieving the
same. It is not expected that the IPS will change frequently.
In particular, short-term changes in the financial markets
should not require adjustments to the IPS.
Addendum 1.5.2
This Addendum is written to clarify certain details for the Community Foundation’s IPS, adopted July 2001.
- Regarding individual securities and limitations on holdings thereof:
- It is currently the policy of the Foundation not to invest in individual equity securities.
- Individual fixed income securities are acceptable investments within the following parameters:
- Ratings should be “Investment Grade”. A bond that whose rating is lowered from investment grade should be sold unless authorization is given by the Investment Committee to retain ownership.
- Non-rated securities should not be purchased without approval of the Investment Committee.
- No corporation should constitute more than 3% of assets if its rating is A1 or higher.
- No corporation should constitute more than 1% of assets if its rating is below A1.
- No individual U.S. Treasury or U.S. Government Agency bond should constitute more than 5% of assets
- The average maturity of the bond portfolio should not exceed 10 years.
- No individual bond should exceed 20 years in maturity.
- Direct investment in options or futures is not allowed. Mutual funds that utilize these strategies are allowed.
Approved on June 25, 2004
Addendum approved July 22, 2005
Amendment approved November 8, 2006
Amendment approved February 22, 2008
Amendment approved May 2, 2008
by Board of Trustees
Any change to this policy should be communicated in
writing on a timely basis to all interested parties.
|
