Investment Policy Statement Sample

Please note that these are samples and should not be used without careful review.  This is not intended to be legal, financial or accounting guidance - but as a guide for your organization to write its own material according to your local needs, requirements and restrictions.  Please consult with your own professional advisors.


PURPOSE

This Investment Policy Statement establishes principles and guidelines for managing the investments of the (organization).   

Responsibilities

Either outline here or refer back to the Investment Committee Charter.

Investment Philosophy

The (governing board’s) investment philosophy is to exercise ordinary business care and prudence in its investment of assets considering the long and short-term needs of the (organization) in carrying out its charitable purposes, its present and anticipated financial requirements, expected total return on its investments, price level trends, and general economic conditions. The (governing board) recognizes that the uncertainty of future events, volatility of investment assets, and the potential loss in purchasing power are present to some degree with all types of investments. While high levels of risk are to be avoided, the assumption of a moderate level risk is warranted and encouraged in order to allow the opportunity to achieve satisfactory results consistent with the objectives and investment philosophy of the (organization).

Modern Portfolio Theory will form the basis of the investment philosophy. Correlation of asset classes will be applied to reduce risk when possible and remain consistent with the portfolio’s investment goal. Future variations may occur as new asset classes become available or as the investment advisor makes moderate adjustments.

 

Investment Guidelines

Objective

The overall investment goal is to build capital for future use with the corresponding obligation to support required asset levels for current obligations and future needs. While shorter term investment results will be monitored, adherence to a sound long-term investment policy, which balances short-term spending needs with preservation of the real (inflation-adjusted) value of assets, is crucial to the long-term success of the institution.

Investment objectives should: (a.) be achieved within acceptable and prudent levels of risk, (b) maximize the principal appreciation plus income and dividends of investment funds, and (c) maintain the liquidity needed to support distributions.

Asset Allocation

Assets shall be diversified across three primary asset classes (domestic equities, foreign equities and fixed income) and within asset classes (e.g. by economic sector, market capitalization and industry). The purpose of diversification is to provide reasonable assurance that no single security or class of securities will have disproportionate impact on the overall asset values and returns.

The following guidelines provide sufficient portfolio diversification and give the approved investment manager(s) full responsibility for security selection and diversification as well as full discretion over their respective portfolio turnover and allocation of holdings among selected securities and industry groups, within the limits described below.

 

ASSET CLASS

Large/Mid-Cap

Small Cap

International Equity

Fixed Income

Cash Equivalents

Operating Range

30-50%

5-16%

0-20%

30-40%

2-10%

Long-Term Optimal

36%

12%

12%

35%

5%

Benchmark

S&P 500

Russell 2000

MSCI EAFE

Barclays Aggregate

T-Bills

 

A. Equities

Objective: Provide both a growing stream of dividend income and appreciation of principal that more than offsets inflation. It is recognized that these objectives entail market variability and risk. It is understood that risk will be mitigated through diversification among economic sectors and industries.

Goal: Total return, net of fees, greater than or equal to [36% S&P500 + 12% Russell 2000 + 12% MSCI EAFE] with consideration to the level risk assumed to achieve this goal.

Equity investments shall be limited to marketable common and preferred stock, equity mutual funds and equity ETF's:

·         A single security must not exceed 10% of the equity investments

·         A single industry must not exceed 20% of its cap-weight in total US equities

·         The ten largest holdings shall not exceed 33% of the total equity investments

·         The manager may not engage in short sales or margin transactions.

B. Fixed Income

Objective: Provide a hedge against severe deflation, to offer portfolio stability and diversification, and to produce current income.

Goal: Total return, net of fees, greater than or equal to the Barclays Aggregate Bond Index.

The fixed income investment portfolio shall move toward the following permissible criteria (current holdings as of this publication may be out of compliance):

·         No more than 5% invested in any single issuer, with the exception of U.S. Government or its agencies.

·         The following permissible qualities:

o   U.S. Government and its agencies

o   Municipal and state government securities

o   Commercial paper, certificates of deposit and other money instruments

o   Domestic corporate bonds and debentures

o   International sovereign and corporate debt restricted to the following:

n  Permissible in bond funds which are composed primarily of domestic bonds

n  Not permissible as individual bond holdings

o   Investment rating standards:

n  Individual bonds must be of investment grade with ratings no lower than Moody's rating of Baa3 and no lower than Standard & Poor's rating of BBB-. In the case of a split rating, the higher rating shall apply. If a downgrade causes a violation of these guidelines, such downgraded security may be held at the manager's discretion with notification to the Investment Committee.

n  Non-investment grade bonds are permitted in mutual funds or ETF's provided the percentage of the portfolio of non-investment grade bonds is less than 20% and holding such securities is not a primary objective of the fund.

·         The manager may not engage in short sales or margin transactions.

C. Mutual and Index Fund Management

For index funds, the return and standard deviation should closely track the appropriate index.

Mutual funds at the time of purchase should be no-load and should have a Morningstar rating of at least 3 stars, unless approved by the Investment Committee.

D. Cash Equivalent Investments

Objective: Maximize the total rate of return while preserving principal and liquidity. 

Goal - exceed the return of the average of money market funds.

Allowable:

·         Instruments issued or fully guaranteed by the U.S. Government, federal agencies, sponsored agencies or sponsored corporations

·         A-1/P-1 Rated Commercial Paper

·         Repurchase agreements secured by U.S. Government or Agency bonds

·         Money Market Funds of domestic investment grade banks or major investment advisors

·         Obligations of U.S. banks with investment grade ratings

E. Other Asset Classes

The following are prohibited without the prior written approval of the Investment Committee:

Individual issues of foreign government and foreign commercial bonds, private placements, unregistered issues, options, futures, derivatives and direct investment in real estate and commodities.

 

Monitoring Objectives and Results

The managed portfolios will be monitored for consistency in application of the investment committee’s stated investment policy; return relative to stated investment philosophy; and investment risk as measured by asset concentrations, relative exposure to adverse economic and financial developments, and market volatility. 

Each asset class is expected to exceed its benchmarks (net of fees) over a full market cycle (3-5 years).  The committee will meet at least annually with the investment advisor / or management consultant to confirm that the factors that led to initial performance expectations remain in place and to confirm that each manager's philosophy is appropriate to the Fund's overall objectives and to monitor any securities that have been downgraded or have otherwise migrated outside of the parameters of these guidelines.

Regular Review

Minimum reporting expectations from an Investment Advisor or Investment Management Consultant:

Annually:        In-person meeting with committee.  All documents, exhibits and other written material for use at this meeting shall be submitted by the investment management consultant at least seven business days in advance of the conference(s).

Quarterly:      Performance reports:  total return net of all fees compared to applicable benchmarks; additions and withdrawals from the account, current holdings at cost and market value, and purchases and sales.  Performance reports should include at least periods of 1, 3 and 5 years.

                        Communication concerning investment strategy and outlook.

As needed:     Other reports or information as appropriate or requested

                        Assist with policy review

Assist with assessment of asset allocation and investment objectives

Investment manager search and evaluation

Report to the Committee any change in firm ownership, organizational structure, significant professional personnel, account profile (e.g., number, asset size, and account minimums) or fundamental investment philosophy of the investment manager(s).

 

 

Conflict of Interest

 

Administrative officers, (governing board) members, and members of the Investment Committee shall disclose in writing at least annually any financial or personal relationship with any manager or any investment held or being considered.  (If practicable) non-board members will have to sign the Conflict of Interest form that is signed annually by (governing board) Members.