10:02:05 Investment Policy
- It is the policy of the Chattanooga State Community College Foundation Board of Directors (Board) to treat all assets of the Chattanooga State Community College Foundation (ChSCCF), including Funds that are legally unrestricted, as if held by ChSCCF 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.
- Investment Asset
- For purposes of these policies, investment assets are those assets of ChSCCF which are available for investment in the public securities markets as stocks, bonds, cash, or cash equivalents, either directly or through intermediate structures. Other assets are described in ChSCCF's Gift Acceptance Policies, and are governed by those rules and not by these investment policies.
- Supervision and Delegation
- The Board has adopted these policies and has formed an Investment Committee, described below, to which it has delegated authority to supervise ChSCCF investments. The Board reserves to itself the exclusive right to amend or revise these policies.
- Investment Committee
- The Investment Committee (Committee) is comprised of the Foundation Chair, Secretary and three Board Members. The Chair of the Committee shall be elected from within the Committee membership. The President of the College, Vice President, College Advancement and Public Relations and the College Systems Accountant 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:
- Supervise the overall implementation of ChSCCF's investment policies by ChSCCF's outside advisors;
- Monitor and evaluate the investment performance of ChSCCF's funds;
- Report regularly on ChSCCF investment matters to the ChSCCF Board;
- Grant exceptions as permitted in these policies and recommend changes in approved policy, guidelines, and objectives as needed; and
- Execute such other duties as may be delegated by the Board.
- Whenever these policies assign specific tasks to the Committee, the policies assume that the actual work will (or may) be performed by the Vice President, College Advancement and Public Relations, the College Systems Accountant, or other designated staff members, subject only to the Committee's overall supervision.
- Investment Consultant, Advisors, and Agents
- The Committee is specifically authorized to retain one or more investment advisors (Advisors) as well as any administrators, custodians, or other investment service providers required for the proper management of ChSCCF's Assets (Assets or Fund(s)). The Committee may utilize an Advisor as an investment consultant (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:
- Develop and maintain investment policy, asset allocation strategies, riskbased fund objectives, and appropriate investment management structures;
- Select, monitor, and evaluate Investment Advisors and/or investment entities;
- Provide and/or review quarterly performance reports and assist the Committee in interpreting the results;
- Review portfolios and recommend actions, as needed, to maintain proper asset allocations and investment strategies for the objectives of each fund; and,
- Execute such other duties as may be mutually agreed.
- 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.
- Responsibilities of the Investment Advisors
- Fiduciary Responsibilities - Investment Advisors are expected to manage the ChSCCF's assets in a manner consistent with the investment objectives, guidelines, and constraints outlined in this policy and in accordance with federal and state law.
- Asset Allocation - The assets are expected to operate within an overall allocation strategy, shown below, which has been selected to achieve ChSCCF's investment objectives. This strategy sets a long term percentage target for the amount of the Fund's market value that is to be invested in any one asset class. No guarantees can be given about future performance, and this policy shall not be construed as offering such a guarantee. The Investment Advisors are responsible for advising the Committee on the timing decisions and formulating an acceptable time horizon in which to re-balance the investments, and/or recommending deviations in the policy.
- ChSCCF's primary investment objective is to preserve, protect, and grow itsassets by earning a total return with appropriate consideration given to time horizon, distribution requirements, and risk tolerance.
- The Committee has selected a blended investment approach in order to diversify the entire asset pool. By doing so, it is the Committee's desire to reduce the risk of wide swings in market value from year to year.
- All investments shall be invested in accordance with sound investment practices that emphasize prudent investment fundamentals. The Fund seeks to maintain a moderate level of current income and achieve an average real rate of return of 5% over the long term, net of fees.
- Asset Allocations
- Actual asset allocations will be established and maintained by the ChSCCF on the advice of its Consultant and/or Advisors, within the ranges provided in the following table:
Asset Class: Minimum Target Maximum
Total Equities 40%* 60% 80%
Domestic Large Cap 20% 29% 50%
Domestic Mid Cap 3% 7% 15%
Domestic Small Cap 3% 7% 15%
International Common Stocks 5% 11% 25%
Alternative Strategies 0% 6% 20%
Fixed Income 20%* 40% 60%
Domestic Inv Grade Bonds 25% 36% 55%
High Yield 0% 3% 6%
Cash Equivalents 0% 1% 20%
*Cash positions up to 20% of Portfolio Value could warrant Total Equity or Total Fixed
Income allocations to fall below the minimum targets.
When appropriate, specific objectives for a Fund, including specific asset allocation parameters and performance standards, may be reflected in an appendix attached to these policies.
- Rebalancing Procedures
- The Committee will monitor the asset allocation based on reports provided by ChSCCF's Consultant and/or Investment Advisors. The portfolio will be rebalanced quarterly unless the asset value exceeds 5 percent of the allowable range. In that case, rebalancing will be done as soon as possible. The ChSCCF Board recognizes the evolving nature of the Investment world and the Committee is authorized to approve imbalances in the portfolio asset allocation if it deems the potential rewards outweigh the incremental risk. To achieve rebalancing, ChSCCF may either move money from one asset class to another or may direct future contributions and expenditures from particular classes as is most convenient.
- Performance Standards
- Benchmarks - The Committee will consider performance to be adequate if the following policy index is surpassed, net of fees:
|Domestic, Large Cap
||Standard & Poor's 500 Index
|Domestic Mid Cap
||Russell Mid Cap Index
|Domestic, Small Cap
|| Russell 2000 Index
||EAFE GDP Index
||Lehman Aggregate Index
||ChSCCF Policy Index
*Large Cap Benchmark Index includes 6% allocation for allowable Alternative Investments
In order to achieve the investment objective of preserving the purchasing power caused by inflation, the performance target is to exceed a benchmark of 5% on an inflation adjusted (real) basis over a three and five-year time period, net of fees.
- Monitoring of Objectives - Investment Advisors will be monitored for consistency of investment philosophy, return relative to objectives, and investment risk (as measured by asset concentration, exposure to extreme economic conditions and volatility). The Committee, on an ongoing basis, will monitor the portfolio, with results evaluated over a full market cycle. The Committee will make regular reviews of the Advisors in order to confirm that 5 the factors underlying the performance expectations remain in place.
- Performance Monitoring - The performance of the funds will be monitored on an ongoing basis and it is at the Committee's discretion to take corrective action by replacing an advisor if they deem it appropriate. An evaluation may be initiated if agreed upon performance objectives are not met. An evaluation may include the following steps:
- Analysis of portfolio characteristics to determine the cause for underperformance or to verify a change in style;
- Contact with the advisor for inquiries regarding organizational changes and any changes in strategy or discipline;
- A formal review of gathered information leading to a decision to either (a) retain the asset/investment in a normal capacity; (b) retain subject to a "watch list" status; or, (c) terminate.
- A formal review of gathered information leading to a decision to either (a) retain the Advisors in a normal capacity; or, (b) terminate.
- Watch List - Investments and/or Advisors falling short of plan guidelines are to be placed on a watch list for further analysis and monitoring. The analysis process is outlined above and should be performed whenever funds fail to meet Investment Policy Statement (IPS) guidelines.
- Process Evaluation - The Committee acknowledges that fluctuating rates of return characterize the securities markets, particularly during short-term time periods. Recognizing this, the Committee intends to evaluate fund performance from a long-term perspective.
- The Committee will review this IPS at its meetings to determine if the target asset allocation continues the feasibility of achieving investment objectives. 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, but a thorough review of the IPS should be conducted annually.
- The Advisors will timely inform the Committee of any changes in firm ownership, organizational structure, key professional personnel, or fundamental investment philosophy.
- Investment Guidelines
- To accomplish its investment objectives, ChSCCF is authorized to utilize any legal investment structure including separately managed portfolios, mutual funds, exchange traded funds, limited partnerships, and other commingled investment entities. This authority is subject to the requirements and restrictions contained in these policies.
- When utilizing mutual funds or other commingled entities, the Committee shall 6 see that ChSCCF's Consultant, and/or Investment Advisors have selected the investment entity appropriately based on the strategies and provisions contained in the entity's prospectus. In that event, the terms and conditions of the prospectus are deemed to control the entity's internal asset allocation, asset quality, diversification, and other requirements.
- For separately managed portfolios, the following additional requirements shall apply:
- Asset Quality
- Common stocks -- The Advisor may invest in any unrestricted, publicly traded common stock that is listed on a major exchange or a national, over-thecounter market, and that is determined appropriate by the asset managers for the portfolio objectives, asset class, and/or investment style.
- Convertible preferred stock and convertible bonds -- The Advisor may use convertible preferred stocks and bonds as equity investments. The quality rating of convertible preferred stock and convertible bonds must be BBB or better, as rated by Standard & Poor's; or BAA or better, as rated by Moody's; the common stock into which both may be converted must satisfy the standard of Section A, above.
- Fixed-income securities -- The quality rating of bonds and notes must be Investment Grade or better, as rated by Standard & Poor's or Moody's; The Advisor may not utilize derivatives without the prior permission of the Committee.
- Short-term reserves -- The quality rating of commercial paper must be A+I, as rated by Standard & Poor's; P+1, as rated by Moody's; or better. The assets of any money market mutual funds must comply with the quality provisions for fixed-income securities or short-term reserves.
- Other securities -- The Advisor may invest in real estate investment securities (REITs), international securities traded in the United States directly or as depositary shares, international securities traded on recognized foreign exchanges, and any other publicly traded investments that the Committee determines to be appropriate.
- Asset Diversification
- The Advisor will maintain reasonable diversification at all times. The equity securities of any one company should not exceed 5 percent of the portfolio at the time of purchase and the combined debt and equity securities should not exceed 10 percent of the portfolio at any time. The Advisor shall also maintain reasonable sector allocations. In that regard, the maximum allocation to any one economic sector shall be 150 percent of the sector's weighting, as defined in the published index used for measuring the portfolio's performance (e.g., S&PS00, Russell 1000, etc.). These restrictions do not apply to U.S. Government securities.
- Proxy Voting
- Subject to specific instructions received from ChSCCF, each Advisor shall vote proxies according to their firm's established procedures and shall provide a copy of such procedures to the Committee upon request.
- Custody and Securities Brokerage
- The Committee will establish such custodial and brokerage relationships as are necessary for the efficient management of ChSCCF's Funds. Whenever the Committee has not designated a brokerage relationship, then ChSCCF Investment Advisors may execute transactions wherever they can obtain best price and execution.
- Cash Flow Requirements
- ChSCCF will be responsible for advising the Consultant and each Advisor in a timely manner of ChSCCF's cash distribution requirements from any managed portfolio or Fund. Each Advisor is responsible for providing adequate liquidity to meet such distribution requirements.
- Investment Restrictions
- ChSCCF's investment assets are to be managed with regard to the following restrictions for tax, risk, or mission purposes:
- Tax-Based Restrictions
- ChSCCF is a charitable organization reader § 501(c)(3) of the Internal Revenue Code. Consequently, its income is generally exempt from Federal and State income tax with the exception of income that constitutes Unrelated Business Taxable Income (UBTI). Since UBTI can be generated by leveraged investments (resulting in "debt-financed income"), ChSCCF will not utilize margin, short selling, or other leveraged investment strategies unless the Investment Committee grants a specific exception as described below.
- Risk-Based Restrictions
- ChSCCF will not engage in commodities transactions or option strategies (puts, calls, straddles) nor will it invest in any non-publicly traded securities including but not limited to managed futures funds, hedge funds, or private equity funds unless approved by the Committee as provided below.
- Exceptions to the Investment Restrictions
- The Board recognizes the evolving nature of the investment world and that, under some circumstances, ChSCCF may wish to utilize newer or more complex investment strategies. Therefore, the Investment Committee is authorized to grant exceptions to the foregoing restrictions. For tax-based restrictions, the Committee is to determine if a particular strategy or investment will generate UBTI, for which it may rely on advice of counsel. When granting exceptions, the Committee must determine that the potential rewards outweigh the incremental risks. All such exceptions shall be made in writing and shalI be communicated to the Board as part of the next regular Investment Committee report.
- Reporting Requirements
- Monthly -- The ChSCCF Staff will obtain monthly statements. Such statements should contain all pertinent transaction details for each account that holds all or a portion of any ChSCCF investment funds.
- Quarterly-- The Committee should obtain from its Consultant and/or Advisors, a detailed review of ChSCCF's investment performance for the preceding quarter and for longer trailing periods as appropriate. A complete report of fees, expenses and other costs associated with the portfolio shall also be provided. Such reports should be provided as to each investment asset and as to ChSCCF investment assets in the aggregate. As to each investment asset, the Committee should establish with its Consultant and/or Advisors the specific criteria for monitoring performance including the index or blend of indices that are appropriate for the objectives of each and for the investment style or asset class of each. The Committee shall meet with the Consultant to conduct such reviews to the extent it deems necessary.
- Periodically-- The Committee should meet with its Consultant at least annually to review all aspects of ChSCCF's investment assets. Such a review should include (1) strategic asset allocation, (2) manager and investment entity performance, (3) anticipated additions to or withdrawals from investment accounts, (4) future investment strategies, and (5) any other matters of interes to the Committee.
- Assets Not Under Management
- This section pertains to ChSCCF assets not placed with Managers including:
- certificates of deposit, money market accounts, interest bearing demand deposits, or similar accounts which are insured by the Federal Deposit Insurance Corporation (FDIC);
- notes, bills, bonds, or similar evidences of indebtedness, which are insured by the Federal Deposit Insurance Corporation (FDIC);
- money market mutual funds
- In order to minimize risk and expenses associated with a checking account, a minimum average monthly balance of $35,000 and a maximum average monthly balance of $300,000 will be maintained. ChSCCF does not qualify for participation in the State of Tennessee Local Government Investment Pool. Therefore, amounts exceeding the FDIC maximum are not insured.
- Other Property
- Property donated to the ChSCCF, including but not limited to equities, real property and equipment, may be retained as an asset of the ChSCCF until such time as the sale or transfer of the asset appears to be reasonable and prudent.
Approved by the ChSCCF Board of Directors: April 26, 2016.
Revision approved by ChSCCF Board of Directors to remove obsolete title on July 29, 2019.
This appendix is applicable to those funds held by the ChSCCF which are entitled Focus on Completion funds. Investment guidelines applicable to these funds are set forth in the Code of Federal Regulations, Title 34, Subtitle B, Chapter VI, Part 628, Subpart E, Section 628.43, as follows:
Endowment Challenge Grant Investment Guidelines (§ 628.43)
(a) A grantee shall invest, for the duration of the grant period, the endowment fund established under this part in savings accounts or in low-risk securities in which a regulated insurance company may invest under the law of the State in which the Institution is located.
(b) When investing the endowment fund, the grantee shall exercise the judgment and care, under the circumstances, that a person of prudence, discretion and intelligence would exercise in the management of his or her own financial affairs.
(c) An institution may invest its endowment fund in savings accounts permitted under paragraph (a) of this section such as-
(1) A federally insured bank savings account
(2) A comparable interest bearing account offered by a bank; or
(3) A money market fund
(d) An institution may invest its endowment fund in low-risk securities permitted under paragraph (a) of this section such as-
(1) Certificates of deposit;
(2) Mutual funds;
(3) Stocks; or
(e) An institution may not invest its endowment fund in real estate.
Foundation Board approved July 2016