(approved: July 10, 2018)

Transcription

1 (approved: July 10, 2018) I. INTRODUCTION The purpose of this policy statement is to establish written guidelines and a statement of objectives for investing the assets of the First Lutheran Endowment Fund. Specifically, the investment policy has been formulated to provide the following: A. A clear understanding on the part of the First Lutheran Endowment Fund and the Investment Manager relating to the investment objectives, guidelines and expectations for the assets. B. A basis for the First Lutheran Endowment Board to monitor the investment processes and evaluate the performance of the assets under management by the Investment Manager. II. RESPONSIBILITIES AND MANAGEMENT A. Endowment Board The Endowment Board (with the assistance from the Investment Manager, when appropriate) will be responsible for the following: 1. Recommending to the Church Council the selection of an investment manager. 2. Establishing reasonable investment objectives. 3. Developing sound and consistent investment policy guidelines. 1

2 4. Monitoring and evaluating performance results in consideration of the Investment Policy objectives and expectations. 5. Reviewing investment programs and strategies as they relate to changing economic and market conditions. 6. Reviewing the Investment Policy on an annual basis or more often if conditions warrant. 7. Notifying the Investment Manager of any ongoing cash needs on as timely of a basis as possible. 8. Notifying the Investment Manager of any special circumstances surrounding the investments on as timely of a basis as possible. B. Investment Manager 1. The Investment Manager will be responsible for making all investment decisions regarding the assets of the Endowment Fund and will be accountable for the objectives and expectations set forth in this Investment Policy. Within the framework of the guidelines and restrictions set forth herein, the Investment Manager is expected to exercise complete investment discretion. 2. The Investment Manager is responsible for communicating with the Endowment Board on all significant matters pertaining to the investment of the assets of the Endowment Fund. The Endowment Board should be consulted before the Investment Manager acts on any major changes in investment outlook, investment strategy and other matters broadly affecting policy. The Endowment Board recognizes that the capital markets are dynamic and that any statement of guidelines and objectives at any one point in time may not, in the future, be totally appropriate, applicable or meaningful. Whenever the Investment Manager believes that any particular guideline is too broad or too restrictive, requires further definition, or should be altered or deleted, it is the responsibility of the Investment Manager to initiate communication with the Endowment Board. 3. The Investment Manager will provide the Endowment Board with quarterly and annual reports of account holdings, transaction activity and performance reviews. 2

3 III. INVESTMENT PHILOSOPHY AND OBJECTIVES A. The overall investment philosophy adopted for the Endowment Fund is that the long-term growth of the fund should be balanced with the need to withdraw income to fund Endowment programs. The Endowment Board s current intention is to notify the Investment Manager of all disbursement needs as estimated on an annual basis. B. Market risk is viewed as the long-term erosion of capital with the possibility of high degree of fluctuation in the value of the Foundation s assets over a full market cycle of approximately 5 years. The Investment Manager should not attempt to anticipate and take advantage of market swings (timing the market). C. Based upon historic results and future expectations, equity investments (primarily common stocks) are expected to produce higher total rates of return than fixed income investments (primarily bonds) over long periods of time. As a result, a longterm equity orientation is appropriate and should be maintained. D. To achieve appropriate diversification, the Fund should be invested in a broad list of individual equity and fixed income securities, although mutual funds are allowable investments and will be utilized to gain access to specialty asset categories. E. The primary objectives and expectations applicable to the Endowment Fund s assets are: 1. Capital appreciation within acceptable risk tolerance. 2. Maintenance of capital base through adequate safety measures and diversification. 3. Production of income as an additional objective. 4. The asset categories will have an overall target return that is above the weighted average of the relevant indexes (as identified below under Investment Performance ) over a full market cycle of approximately 5 years or longer. F. To invest in a socially responsible way within the guidelines of the ELCA church. IV. INVESTMENT GUIDELINES 3

4 A. Investment Type and Quality 1. Equity Funds a. Equity fund investments are to be established based on potential for above average returns, over the long-term, from investment quality and growth and value oriented common stocks and mutual funds. Diversified real estate mutual funds and exchange traded funds are permitted as a minority portion of the equity fund investments. In general, individual stocks and funds should be selected which invest in higher quality companies with positive and growing earnings, a conservative use of debt and ample market liquidity. b. Permitted equity securities and funds allow for investments in foreign securities, subject to the limitations set forth below under Diversification. c. Emphasis should be on stocks of domestic corporations limiting exposure to stocks of foreign corporations in the international market to 35% of the portfolio s stock allocation. d. No investments should be made in funds investing in venture capital, letter stock, short positions, calls, puts, futures, oil and gas partnerships, master limited partnerships (MLPs) or direct investment in real estate. Diversified commodity investments via mutual funds or exchange traded funds may be considered as a minority portion of the equity fund investments. 2. Fixed Income a. Fixed income securities and funds should be invested in securities of, or guaranteed by, the U.S. Government, its agencies or instrumentalities (US Government Securities), and readily marketable debt securities having a Standard and Poor s rating of A (or equivalent Moody s rating) or higher. Securities that are downgraded below investment grade will not be required to be sold, but will be closely monitored and reported to the Endowment Board on an ongoing basis. However, bonds being held in the portfolio will 4

5 be sold if they drop below a BBB rating by either of the rating agencies. Holdings of US Government Securities must be 30% or higher of the portfolio s total bond allocation. International and high yield fixed income investments are permitted in a diversified form (via mutual funds or exchange traded funds), not to exceed 20% and 7%, respectively of the non-us Government Securities portion of the portfolio. b. The maturity of debt securities included in the fixed income assets selected will be in the discretion of the Investment Manager. It is the intention to maintain holdings of an intermediate term maturity level. 3. Cash Reserves The Investment Manager may maintain reserves and cash equivalents in such amounts as are necessary. Unless otherwise approved in advance by the Finance Committee, the investments shall be limited to the following: a. U.S. Treasury obligations or issues of agencies guaranteed by the U.S. Government, the maturity of which should not exceed 1 year. b. U.S. Government based money market mutual funds. c. Money market mutual funds that have exposure to commercial paper with a Standard & Poor s rating of A-1 or a Moody s rating of P-1 or higher. d. Commercial paper rated both A1/P1. e. Certificates of Deposit (CD s) fully insured by the FDIC. B. Diversification 1. Asset Allocation. Because safety and diversification are overriding investment objectives, it is necessary to place limitations on the amount that may be invested in any one investment type. The amounts invested in the 5

6 various types of investments based on market value shall be within the following ranges: Investment Type Acceptable Range Target Equities 40% to 75% 65% Fixed Income 25% to 60% 35% Cash Reserves 0% to 20% 0% 2. Mutual Fund Trading. With the exception of cash reserves, the portfolio is to be invested long-term, which is defined as an approximately 5-year period. Mutual funds should not be purchased with the intent of attaining short-term gains. Mutual funds may be traded to improve yields, quality, maturity dates or composition of the portfolio. Trades should be based on prudent investment strategy. V. INVESTMENT PERFORMANCE Portfolio performance will be reviewed by the Endowment Board minimally on an annual basis emphasizing adherence to the objectives and guidelines established in this Investment Policy. Equity and Fixed Income assets will be analyzed in consideration of the effects of market cycles due to the long-term nature of the investments. Performance will be evaluated on a time weighted average basis in comparison with the indexes agreed upon between the Endowment Board and the Investment Manager. VI. COMMUNICATION It is the responsibility of the Investment Manager to meet with the appropriate committee as required by the Endowment Board. At a minimum, the investment manager expects to meet with the appropriate individuals once a year, with meetings as frequent as once a quarter as appropriate. 6