Noblesville First United Methodist Church Foundation. Investment Policy Statement

Transcription

1 Noblesville First United Methodist Church Foundation Investment Policy Statement Adopted November 23, 2004 Revised November10, 2005 Revised August 31, 2015 Revised November 11, 2018

2 Table of Contents I. Introduction II. III. IV. General Investment Objectives Types of Funds Held Time Horizon V. Risk Tolerance VI. VII. VIII. IX. Marketability of Assets Liquidity Diversification Investment Selection, Monitoring and Control X. Monitoring Performance NFUMC Foundation 1

3 I. Introduction The First United Methodist Church Foundation of Noblesville, Inc. (FUMC Foundation) was established to help broaden the outreach of Noblesville First United Methodist Church (NFUMC). That foundation currently does business as (dba) Noblesville First United Methodist Church Foundation (NFUMC Foundation). The primary objective of the NFUMC Foundation is to preserve the real purchasing power of the NFUMC Foundation Endowment Fund, in order to provide a predictable, stable, and constant stream of support for the ministries and facilities of Noblesville First United Methodist Church. This statement outlines the philosophy and perspective, which will guide the investment management of NFUMC Foundation assets. It is intended to be sufficiently specific to be meaningful, yet flexible enough to be practical. Specifically, this policy Sets forth the Foundation s expectations regarding the investment goals and objectives of the marketable securities ( portfolio ) within the account. Establishes reasonable expectations, objectives, and guidelines in the investment of the portfolio s assets. Creates the framework for a well-diversified asset mix that can be expected to generate acceptable long term returns at a level of risk suitable to NFUMC Foundation, including: Ø Describing an appropriate risk posture for the investment of the portfolio; Ø Specifying the target asset allocation policy; Ø Establishing investment guidelines regarding the selection of investments or investment managers, permissible securities and diversification of assets; Establishes a basis for monitoring and evaluating investment results. Ensures that NFUMC Foundation maintains a long-term perspective when short-term market movements may be distressing and its investment strategy might otherwise be questioned. Ensures that NFUMC Foundation assets are managed according to the Prudent Investor standards as established in common trust law. This policy reflects NFUMC Foundation's current status and philosophy regarding the investment of the portfolio. The policy will be reviewed and revised as required to ensure it adequately reflects any changes related to the portfolio, to NFUMC Foundation, or to the capital markets. NFUMC Foundation 2

4 II. General Investment Objectives Preservation of Purchasing Power To achieve annual returns in excess of administrative and investment fees, and the rate of inflation, as benchmarked to the most recent three-year average of the Consumer Price Index. Risk control is an important element in the investment of NFUMC Foundation assets. Long-term Growth of Capital To emphasize long-term growth of principal while avoiding excessive risk. Short-term volatility will be tolerated in as much as it is consistent with the volatility of comparable market indices. General Policies 1. It is the policy of NFUMC Foundation to be conservative in its investments. The investment policy of NFUMC Foundation is to emphasize total return; that is, the aggregate returns from capital appreciation and dividend and interest income. It is the intent of NFUMC Foundation that only the income from the Endowment will be used to assist the church and therefore, the principal will not be exposed to unnecessary risk. It is also the intent of the NFUMC Foundation that the real purchasing power of the Endowment is preserved, as outlined in the Endowment Spending Policy. 2. The portfolio shall be invested with the care, skill, prudence and diligence under the circumstances prevailing from time to time that a prudent investor acting in a like capacity and familiar with such matters would use in the investment of assets of like character. 3. The investment of the portfolio assets shall be diversified in order to minimize the risk of losses, unless under particular circumstances it is clearly prudent not to diversify. 4. The Investment Manager retained will be given full investment discretion consistent with the investment objectives and guidelines provided herein regarding the purchase and sale of individual securities. 5. Subject to the restrictions following, and consistent with the Investment Objectives and Purpose of the portfolio, the Investment Manager shall have full discretion as to the diversification among individual securities, economic and industry sectors, selection of individual equity, fixed and cash equivalent securities and instruments as well as portfolio turnover. NFUMC Foundation 3

5 6. The investment options must adhere to the various statutes, rules and regulations of the State of Indiana and Securities and Exchange Commission. III. Types of Funds Held Permanent Endowment Funds Permanent endowment funds carry donor imposed restrictions that stipulate that the original asset be maintained permanently, but permit the NFUMC Foundation to spend all or part of the income derived from the donated assets. There are two types of permanent endowment funds: A Designated Endowment is an endowment in which the donor has restricted the use to benefit a field of interest or specific activity of Noblesville First United Methodist Church. A designated endowment must be funded for a minimum of $10,000, unless such restriction is waived by the NFUMC Foundation governing board. An Undesignated Endowment is likewise endowed by the donor, but carries no restriction on the use of the income. Unrestricted Funds (a.k.a. Board Restricted) Unrestricted funds are composed of assets and contributions that are not endowed or restricted by donors or for which restrictions are expired. Unrestricted funds can be used for any purpose the NFUMC Foundation governing board sees as appropriate and in line with the current funding priorities that it has established. IV. Time Horizon Capital values do fluctuate over shorter periods, and NFUMC Foundation should recognize that the possibility of capital loss does exist. However, historical asset class return data suggest that the risk of principal loss over a holding period of at least 20 to 30 years can be minimized with the long-term investment allocation employed under this IPS. V. Risk Tolerance 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 (i.e., volatility of return) is associated with higher return. There are two primary factors that affect the Investor risk tolerance: Financial ability to accept risk within the investment program; and Willingness to accept return volatility. NFUMC Foundation 4

6 VI. Marketability of Assets It is the desire of the NFUMC Foundation to maintain maximum flexibility with portfolio investment options. To accomplish maximum flexibility, the NFUMC Foundation has determined that all assets under this IPS should be invested in liquid, long-term and short-term investments. Investment options may include private portfolio management, mutual funds and exchange traded funds. VII. Liquidity Liquidity requirements of the portfolio shall be reviewed regularly to ensure that the investment strategies of the portfolio will accommodate changing liquidity needs. Given the current estimate of cash flow, an allocation to cash equivalents should be sufficient to meet the portfolio s liquidity needs in the short-term. VIII. Diversification Investment of funds should be limited to individual marketable securities or packaged products (for example, mutual funds, exchange traded funds or unit investment trusts) in the following categories: Permitted Asset Classes 1. Cash and cash equivalents; 2. Fixed Income-Domestic Bonds; 3. Equities-US; 4. Equities-Non-US; 5. Equities-Emerging Markets. 6. Non-Traditional Assets (excluding gold and managed futures) Permitted Security Types 1. Mutual Funds and Exchange Traded Funds including: Stocks, Bonds, Money Market Funds. 2. Individual Stocks, as long as they are traded on the New York, American or NASDAQ Stock Exchanges. 3. Individual Bonds, as long as they are investment grade and traded on major US exchanges 4. Bank certificates of deposits. 5. In the event NFUMC Foundation is the recipient of a gift of real estate, the real estate value shall not be used in determining the investment allocation identified in Section E. NFUMC Foundation 5

7 6. In the event NFUMC Foundation is the recipient of specific securities, such securities shall be transferred to the Investment Manager who shall determine whether or not to retain or sell the specific securities. Should the FUMC Foundation direct the Investment Manager to retain certain securities that do not the meet the manager s investment criteria, those specific securities shall be held as unsupervised assets and shall not be used in the computation of the investment allocation under Section E. *Mutual Funds must be registered under the Investment Act of Prohibited Assets Classes and or/security Types 1. Precious metals; 2. Venture capital; 3. Short sales; 4. Purchase of letter stock, private placement, or direct payments; 5. Leveraged transactions; 6. Commodities transactions; 7. Puts, calls, straddles, or other option strategies, except as permitted above; 8. Passive investment limited partnerships; 9. Insurance-based products except as permitted above. Minimum Number of Investment Categories The minimum number of asset classes for this portfolio may not be less than three. A. Cash and Cash Equivalents 1. Diversification The Investment Manager may invest in bankers acceptances, commercial paper, repurchase agreements, Treasury Bills, certificates of deposit, and money market trusts to provide income, liquidity for expense payments, and preservation of the account s principal value. 2. Liquidity and Quality All such assets must represent maturities of one year or less at the time of purchase. Commercial paper must be rated A-1 by Standard & Poor s or P-1 by Moody s. 3. Concentration By Issuer With the limitation mentioned above, the Investment Manager has complete discretion to allocate and select short term cash and equivalent securities. In the case of certificates of deposit, the NFUMC Foundation 6

8 Investment Manager will limit investment in any one institution to no more than $100,000. B. Fixed Income Investments Investments in fixed income securities will be managed in accordance with the NFUMC Foundation stated objective. The Investment Manager may select from appropriately liquid preferred stock, corporate debt securities, mortgage backed securities and obligations of the US. Government and its agencies, and securities convertible to equities. These investments will be subject to the following limitations: 1. Marketable bond investments will generally be confined to issues rated A or higher by Moody s or Standard & Poor s rating service with the exception of issues not so rated if, in the opinion of the Investment Manager, the issue is of appropriate quality to comply with the prudent investor rule. 2. Investments in securities of a single issue (with the exception of the U.S. Government and its agencies) must not exceed 10% of the market value of the fixed income portfolio. 3. The Investment Manager is prohibited from investing in private placements, from speculating in fixed income or interest rate futures. 4. The maximum maturity for issues shall be 20 years. The duration of the fixed income portfolio shall approximate that of the Citigroup Intermediate Index. 5. The maximum exposure to corporate issues shall be 50% of the fixed income assets of the portfolio. The maximum for mortgages shall be 20%. The maximum exposure to any corporate issuer is 15%. 6. The minimum allocation to U.S. Government issues (Treasury and agencies) shall be 30% of the fixed income portfolio. Within the above restrictions, the Investment Manager has complete discretion over timing and selection of fixed income securities. C. Equity Investments These investments may include common and preferred stocks of good quality. These may also include equity mutual funds and exchange traded funds. Mutual funds must be listed exchange funds. 1. Diversification NFUMC Foundation 7

9 The equity portfolio should be well diversified to avoid undue exposure to any single economic sector, industry group, or individual security. 2. Quality and Marketability Common and convertible preferred stocks should be of good quality and listed on either the New York or American Stock Exchange, traded on the Over-The-Counter with the requirement that such stocks have adequate market liquidity relative to the size of the investment. 3. Concentration By Issuer a. No more than 10% of the market value of the equity portfolio shall be invested in the securities of any one issuing corporation. b. No more than 25% of the market value of the common stocks within the equity portfolio shall be invested in any one industry. D. Non-Traditional Assets Non-Traditional Assets includes mutual funds and exchange traded funds that invest in asset classes and/or strategies outside of traditional long only equity and fixed income securities portfolios. These investment classes include but are not limited to: convertible securities, convertible arbitrage, long/short equity, real estate investment trusts, foreign bonds and senior bank loans. Permitted holdings include those open and/or closed-end mutual funds, and exchange traded funds included on the investment managers Approved Lists. The foundation investment committee would like to restrict non-traditional investments in commodities, precious metals, & managed futures. NFUMC Foundation 8

10 E. Asset Mix Policy The investment of the assets of the FUMC Foundation shall be made in accordance with the maximum and minimum range for the asset category as stated below, and reviewed annually: MAXIMUM TARGET MINIMUM Fixed Income/Cash 40% 30% 20% Equities 70% 60% 50% Non-Traditional 20% 10% 0% IX. Investment Selections, Monitoring and Control Procedures It is the intent of the NFUMC Foundation to retain the services of an investment manager to invest the cash assets for the portfolio. The Investment Manager retained will have full investment discretion consistent with the investment objectives and guidelines provided herein regarding the purchase and sale in individual securities. Reporting 1. The NFUMC Foundation shall receive monthly reports from the custodian showing activity for the portfolio. If there is no activity during a particular month, a report may not be distributed. 2. NFUMC Foundation shall receive no less frequently than on a quarterly basis and within 30 days from the end of each said quarter the following reports: a) Portfolio performance results for year to date, 1 year, 3 years and 5 years and since inception; b) Performance results of comparative benchmarks for the same periods; c) An economic and market overview. Meetings and Communication between NFUMC Foundation and the Investment Manager As a matter of course, the investment manager is expected to keep NFUMC Foundation apprised of any material changes in the performance of the various investments or any material tax or regulatory issues which may affect the portfolio s investment choices. In addition, the manager shall meet with the FUMC Foundation governing board no less than annually to review and explain the portfolios investment results, tax issues and any related issues. NFUMC Foundation 9

11 X. Monitoring Performance At a minimum the following indexes will be used to monitor performance of each asset class: Asset Class Fixed Income Securities Equities Non-US Equities Benchmark Citigroup Treasury/Agency 1-10 Index S&P 500 Index MSCI All-Country World ex U.S. Noblesville NFUMC Foundation Signature Date NFUMC Foundation 10