Operations Manual

5.4-1
INVESTMENT POLICY

Purpose

The purpose of the Investment Policy is to establish objectives and guidelines for the investment of University pooled cash. This policy will further discuss standards and benchmarks that will be utilized by the University to monitor investment performance.

General Objectives

University pooled cash for purposes of investment allocation shall be divided into three asset groups as follows:

Short-Term Pool: Cash that is expected to be needed for normal operating expenditures within a one-year period. The primary objective is preservation of principal and liquidity. Maximization of investment income without undue exposure to risk is a secondary objective.

Intermediate-Term Pool: Cash that is expected to be needed within a period of one year to three years. The primary objectives are preservation of principal and maximization of investment income without undue exposure to risk.

Long-Term Pool: Cash not expected to be needed for operational purposes which can be designated as permanent core. The primary investment objective is to achieve consistent long-term growth of principal and income without undue exposure to risk regardless of the direction of equity markets.

Investment Manager

An investment manager may be engaged to invest University assets consistent with this policy. Subject to this policy and a written agreement between the University and the investment manager, the investment manager is provided discretion to select individual securities and make adjustments to the structure of the portfolio.

Asset Allocation Guidelines

Short-Term Investment Pool: The average weighted maturity for a short-term portfolio shall be between one day and one year.

Intermediate-Term Investment Pool: The average weighted maturity for an intermediate-term portfolio shall be between one year and three years

Long-Term Cash Pool: Permanent core cash may be invested in the Commonfund's Absolute Return Fund or a similar fund offered by other financial institutions.

Performance Objectives

The market benchmark for short-term investments shall be total return that meets or exceeds the yield of three month U.S. Treasury securities. The market benchmark for intermediate-term investments shall be total return that meets or exceeds the Merrill Lynch 1-3 Year Government Bond Index. The absolute return market benchmark shall be total return equivalent to the three-month Treasury bill yield plus 200 basis points.

Allowable Fixed Income Securities and Credit Rating Standards

Investments shall be in marketable securities of the following types and with the noted credit ratings:

  1. Debt securities which are rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. or AAA, AA, A or BBB by Standard & Poor's Corporation.
  2. Obligations of, or guaranteed by, the United States of America, its agencies or instrumentalities.
  3. Obligations of, or guaranteed by, national or state banks or bank holding companies, which obligations, although not rated as a matter of policy by either Moody's Investors Service, Inc., or Standard & Poor's Corporation are rated AAA, AA or A by Fitch Investors Service, Inc.
  4. Commercial paper rated Prime-1, Prime-2 or Prime-3 by Moody's Investors Service, Inc.
  5. Bankers' acceptances or negotiable certificates of deposit issued by banks and rated AAA, AA or A by Fitch Investors Service, Inc.
  6. Repurchase agreements secured by securities qualifying under clauses (1) through (5) above.
  7. Commingled funds may be used if they are in compliance with the above guidelines.

Investments in short-term investment pool funds are restricted to U.S. Treasury and government agency securities and high quality corporate securities and commercial and bank paper.

Investments in intermediate-term investment pool funds are restricted to securities which are rated A or better at the time of purchase. At least two-thirds of the holdings of a fund will be in U.S. Government obligations, government agency securities and corporate securities rated AAA.

Allowable Securities (Absolute Return Funds)

Investments in an absolute return fund will consist of securities such as marketable common stocks, fixed income securities and U.S. Government and corporate bonds. The fund must employ low risk, long-short strategies in equities and fixed income securities. Also, the fund must be designed to be market neutral and offer low volatility.

Evaluation of Investment Managers

An investment manager will be reviewed on an ongoing basis and evaluated based upon the following criteria:

  1. Ability to exceed the performance objectives stated in this investment policy.
  2. Adherence to the philosophy and style which were articulated to the University at, or subsequent to, the time the investment manager was retained.
  3. Continuity of personnel and practices at the firm.

An investment manager shall immediately notify University representatives in writing of any material changes in its investment outlook, strategy, portfolio structure, ownership or senior personnel.

Investment Management

The Vice President for Administration and Business Affairs and the University Controller are authorized to manage the investment of University pooled cash assets and to contract with investment managers in accordance with this policy. Other University staff may be delegated specified responsibilities within the context of this policy by the Vice President for Administration and Business Affairs.

 

 

Revised 3/18/02 VP-ABA