Apr 19, 2018  

College Advancement

Foundation Investment Policy
10:02:05 Foundation Investment Policy



  1. Preamble
    1. It is the policy of the Board of Directors (Board) to treat all assets of the Chattanooga State Foundation (CSF), including Funds that are legally unrestricted, as if held by CSF in a fiduciary capacity for the sake of accomplishing its mission and purposes. The following investment objectives and directions are to be judged and understood in light of that overall sense of stewardship. In that regard, the basic investment standards shall be those of a prudent investor as articulated in applicable state laws.
  2. Investment Assets
    1. For purposes of these policies, investment assets are those assets of CSF, which are available for investment in the public securities markets as stocks, bonds, cash, or cash equivalents either directly or through intermediate structures.
  3. Supervision and Delegation
    1. The Board of Directors of CSF has adopted these policies and has formed an Investment Committee, described below, to which it has delegated authority to supervise CSF investments. The Board reserves to itself the exclusive right to amend or revise these policies.
  4. Investment Committee
    1. The Investment Committee ("Committee") is comprised of the Foundation Chair, Treasurer, and three Board Members. The Chair of the Investment Committee shall be elected from within the committee membership. The President of the College shall be invited to attend and participate in all meetings of this committee but shall not have voting privileges. It shall be the responsibility of the Committee to:
      1. Supervise the overall implementation of CSF's investment policies by CSF's outside advisor;
      2. Monitor and evaluate the investment performance of CSF's funds;
      3. Report regularly on CSF investment matters to the Board of Directors;
      4. Grant exceptions as permitted in these policies and recommend changes in approved policy, guidelines, and objective, as needed;
      5. Execute such other duties as may be delegated by the Board of Directors;
  5. Investment Consultant, Advisors, and Agents
    1. The Committee is specifically authorized to retain one or more investment advisors (Advisor) as well as any administrators, custodians, or other investment service providers required for the proper management of CSF's Funds. The Committee may utilize an Advisor as an investment consultant (the "Consultant") to advise and assist the Committee in the discharge of its duties and responsibilities. In that regard, a Consultant may help the Committee to:
      1. Develop and maintain investment policy, asset allocation strategies, risk-based fund objectives, and appropriate investment management structures;
      2. Select, monitor, and evaluate Investment Advisors and/or investment entities;
      3. Provide and/or review quarterly performance reports and assist the Committee in interpreting the results;
      4. Review portfolios and recommend actions, as needed, to maintain proper asset allocations and investment strategies for the objectives of each fund;
      5. Execute such other duties as may be mutually agreed.
    2. In discharging this authority, the Committee can act in the place and stead of the Board and may receive reports from, pay compensation to, enter into agreements with, and delegate discretionary investment authority to such Advisors. When delegating discretionary investment authority to one or  more Advisors, the Committee will establish and follow appropriate procedures for selecting such Advisors and for conveying to each the scope of their authority, the organization's expectations, and the requirement of complete compliance with these Policies.
  6. Investment Objective:
    1. Based on the current asset allocation, the general investment objective for The Chattanooga State Foundation has been determined to be BALANCED APPRECIATION.
    2. A definition of all the Investment Objectives follows:
      1. The All Fixed Income investment objective primarily emphasizes current income generation. Due to its fixed income nature, general stability of principal value should be obtained but not guaranteed. Total return and risk will be affected primarily by changes in current interest rate levels.
      2. The Current Income investment objective strives to maximize current income through an 80% to 100% allocation to primarily high-quality, intermediateterm fixed income securities. A modest allocation to equities in the range of 0% to 20% offers a modest potential for capital appreciation.
      3. The Balanced Income investment objective emphasizes current income through a 60% to 80% allocation to fixed income securities, complemented by a secondary consideration for capital appreciation through an equity allocation in the range of 20% to 40%.
      4. The Balanced investment objective is designed to offer the potential for both capital appreciation and current income through a 40% to 60% allocation to equities and 40% to 60% allocation to fixed income securities.
      5. The balanced Return investment objective is intended to provide long-term total return opportunities through an allocation to both equities and fixedincome investments. The objective is represented by all allocation to equities between 50% to 70% and in fixed-income from 30% to 50%.
      6. The Balanced Appreciation investment objective strives to maximize longterm returns through a focus on capital appreciation. As such, current income is of secondary importance. The asset allocation ranges for portfolios managed in this style is 60% to 80% to equities and 20% to 40% to fixed income securities and 0.0% to 30% to alternative investments.
      7. The Appreciation investment objective emphasizes the maximization of total return and protection against inflation. Equities will constitute 80% to 100% of a portfolio managed in this style. A moderate exposure to fixed income securities-in the range of 0% to 20% - may help to buffer short-term fluctuation in performance while providing a modest level of current income.
      8. The All-Equity investment objective uses only equity securities and represents an aggressive strategy. Long-term growth and maximum capital appreciation are the primary goals. Income is low, and risk is moderated by the use of a well-diversified equity portfolio. While the objective strives for high returns, performance can be volatile from year to year.
  7. Return Objective
    1. Based on the investment objective of the portfolio, the return objective is an annualized expected (average) return of 7.8%. This return however is not guaranteed and may display substantial volatility from year to year, with the most likely scenario falling within a range of -15.4% to +30.9%.
    2. In other words, the portfolio has a 95% likelihood of returning between 30.9% and 15.4%. This suggests a 5% probability that the portfolio's returns could exceed this range and the same probability the portfolio will fall below the stated range.
    3. The composition of these target returns are on a Total Return basis and may include Income, Capital Gains/Losses and Currency Appreciation, among other components of Total Return.
    4. These targets are based on historical monthly returns for representative indices, and assume monthly re-balancing to the stated portfolio allocation weights. These returns should be used to gauge the volatility of the Foundation portfolio; however, they do not represent the actual portfolio's performance. Because indices are a hypothetical investment, the Foundation's performance may differ significantly. Finally, these objectives do not take taxes, contributions, or withdrawals into consideration nor any investment advisory fees, transaction costs or other expenses the Foundation may incur.
  8. Establishing Risk Profiles
    1. 8.1.Investment theory and historical capital market return data suggest that, over long periods of time, there is a relationship between the level of risk assumed and the level of return that can be expected in an investment program. In general, higher risk (e.g. volatility of return) is associated with higher return. Given this relationship between risk and return, a fundamental step in determining the investment policy for the Portfolio is the determination of an appropriate risk tolerance.
    2. There are two primary factors that affect the Foundation's risk tolerance:
      1. Financial ability to accept risk within the investment program, and
      2. Willingness to accept return volatility.
    3. Risk is a multifaceted concept that can be interpreted differently by different individuals. As such, determining risk is as much an "art" as it is a "science."
    4. To arrive at a statement of investment risk for the portfolio, one must consider the relative importance of factors such as:
      1. 8.2.1.Total return - Long Term.
      2. 8.2.2.Income needs
      3. 8.2.3.Total volatility
      4. 8.2.4.Liquidity requirements
      5. 8.2.5.Downside risk - tolerance for negative return in a short period such as 1 quarter and 1 year
  9. Determining Asset Classes and Allocations
    1. Tempering the investment objectives with risk profiles, we derived the general asset classes we wish to utilize within the investment program. Providing background for these decisions, we employed a quantitative evaluation of various portfolio allocations taking into account an asset class' projected returns, its projected volatility and correlation with other asset classes. The major asset classes are equities, fixed income and cash equivalents, as well as alternative investments encompassing private equity, real estate and hedge funds.
    2. The Foundation has been identified as a Balance Appreciation investor. The Trustee(s) recognizes and is able to tolerate that this portfolio will still have income volatility and the potential for capital loss due to economic and interest rate factors.



Cash Equivalents 1.00% 6.00%
Fixed Income 20.0% 40.0%
Equities 60.0% 80.0%
Real Estate 0.00% 0.00%
Alternative Investments 5.0% 30.00%
  1. Drilling down further, we have established general consolidated guidelines for the sub-asset classes as well:
Cash Equivalents  1.00%  6.00%
Fixed Income 20.0% 40.0%

Treasury Bonds/Agencies/


Investment Grade Corp


High Yield Bonds


Exchange Traded Bond Funds

Equities 60.0% 80.0%

Large Cap Growth


Large Cap Value


Mid Cap Growth


Mid Cap Value


Small Cap Growth


Small cap Value


International Equity


Exchange Traded Funds (ETF)

Real Estate 0.00% 0.00%



Other (LP)

Alternative Investments 0.0% 30.00%

Hedge Funds


Private Equity

  • The Foundation understands that the portfolio may invest in mutual funds, EFT, limited partnerships and/or other "pooled" investment vehicles; that the actual weightings of these mutual funds can and will vary. As a result, the actual allocation may differ from the allocation weights above and actual returns can be higher or lower than those expected.
  • From time to time, it may be desirable to amend the basic strategic asset allocation. When such changes are made, updates will be made to this Investment Policy Statement and a new IPS will be issued. Also, see section XII. Rebalancing Portfolios.
  1.  Defining Asset Class Strategies
    1. Within each asset class, there is a specific strategy as delineated below:
      1. Equities
      2. There are two major segments to the equity portion-core and specialty.
      3. The core segment encompasses the large cap components and is further segmented between core, value, and growth styles.
      4. The specialty segment may include the following asset classes:
      5. Small Cap Equity
      6. Mid Cap Equity
      7. International
      8. Convertibles
  2. Fixed Income

    1. 10.2.1.The purpose of fixed income is to provide current income and preserve principal value. As well, it is intended to mitigate volatility or risk of the portfolios.
    2. 10.2.2.The fixed income segment can include but is not limited to the following asset classes.
      1. Treasury & Agency Bonds
      2. Bonds
      3. Stock
      4. Bonds
  3. Cash Equivalents
    1. The liquidity would be maintained in a money market mutual fund.
    2. Cash balances may be invested in securities with generally 1-year maturities and may take advantage of many available instruments.
  4. Alternative Investments
    1. The alternative investment asset classes in which the Foundation may invest are:
      1. Funds
      2. Equity
      3. Estate
    2. The purpose of alternative investments is to promote diversification by combining low correlated assets to the portfolio. Allocation to this asset class should not exceed 10%.
  5. Portfolio Constraints
    1. Time Horizon for the CFS's investment funds is long term.
    2. The time horizon assumed for all Asset Allocation inputs and risk/return expectations involves multiple market cycles, typically not less than 10 years and frequently considerably longer than that. Investors with shorter time horizons should be aware that capital values do fluctuate more over shorter periods and the investor should recognize that the possibility of capital loss does exist.
  6. Liquidity

    1. Liquidity within the Foundation's accounts will be maintained as described in section 9.2, and any change in the Foundation's liquidity requirements must be communicated immediately to the Board President and Investment Committee Chair.
    2. Specific additional liquidity needs have been identified by the Trustee (s) and are as follows:
      1. Annual Distribution currently on as needed basis (generally less than 5%)
      2. Fees and other expenses
    3. Unique Needs and Circumstances
      1. Concentrated holdings of individual securities, sector weightings, and industry weightings can pose a heightened level of investment risk to a portfolio. In order to deal with this we generally recommend diversifying concentrated holdings.
      2. The Foundation does not currently have a material concentration (i.e. >10% in one equity holding).
      3. At this time, The Trustee(s) have not indicated a desire to avoid any specific security or market sectors.
  7. Monitoring Investment Performance
    1. The Trustee(s) receives a statement monthly, which includes information such as a listing of the holdings, cost basis if available, beginning and ending balances, transactions, asset allocation, and benchmark comparison. For portfolios utilizing certain investment managers, quarterly performance reports will be provided to the Trustee(s) on specific accounts, which will allow us to monitor the performance and the progress towards the Foundation's specific goals.
    2. Semi-annually, the asset allocation will be reviewed versus the target, and rebalancing adjustments may be made if appropriate. Adjustments may include changes to the target asset allocation due to the Foundation's investment objectives changing, or re-balancing the current portfolio towards the target due to market conditions.
    3. Communicating with Advisors
      1. The Trustee(s) will be contacted in the event of any material change in the management of their portfolio (examples may include but are not limited to manager change, change in manager's outlook, strategy or tactics).
      2. The Advisors will contact the Trustee(s) no less frequently than quarterly to review performance of the Foundation's portfolio and reevaluate the client's Risk Tolerance and Objectives.
      3. The Trustee(s) should contact the advisors if there is any change in the Foundation's Risk Tolerance and Objectives.
  8. Re-balancing Portfolios
    1. From time to time, market conditions may cause the Portfolio's investment in various asset classes to vary from the established allocation. To remain consistent with the asset allocation guidelines established by the Investment Policy Statement, the Advisor will review the portfolio at least quarterly and each asset class in which the Portfolio is invested. If the actualweighting falls below the indicated "Lower Range" or rises above the "Higher Range" for a significant period of time, the Advisor will initiate steps to rebalance the portfolio back to the recommended weighting.
    2. Some re-balancing may also take place for liquidity considerations.
    3. In the event that there are unexpected withdrawals from the account that exceed the cash balance, we will make an effort to liquidate securities in a manner that we believe to be beneficial to the Foundation, specifically taking into account such considerations as cost basis / tax consequences, asset liquidity, volatility and overweight, when compared to the allocation in sections 8.1 and 8.2, among others.
    4. Similarly, in the event that there are unexpected cash contributions to the account, the contribution will be first held in the money market account referenced in Section 9.2 of this Investment Policy Statement. Then, when appropriate, the excess cash will be used to purchase securities in a manner consistent with the Foundation's investment objectives.

Approved: Executive Staff, 05/20/09
Approved: President's Cabinet, 05/20/09
Approved: President, 05/20/09
Reviewed and Revised by Department, May 4, 2009