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Augustana College Statement of Investment Policy

Revised: March 4, 2011

I. Introduction

  1. The purpose of this Statement of Investment Policy (“Investment Policy”) is to provide a clear understanding of the investment policies used to guide Augustana College’s Endowment Fund. The Investment Policy is to serve as a blueprint for the structure and supervision of the Program’s assets and to assist Augustana College and its Investment Committee in fulfilling its responsibilities as a steward of the public trust.

II. Delegation of Responsibilities

  1. The Board of Trustees of Augustana College has authorized an Investment Committee to oversee the Program’s assets on an ongoing basis.
  2. The purpose of the Investment Committee is to define and review the Investment Policy and to monitor the Program’s assets on an ongoing basis to ensure that long-term objectives are being achieved.
  3. The Investment Committee will meet regularly. The Investment Committee will review this Investment Policy on a periodic basis, bearing in mind that changing circumstances may require modification to the Investment Policy.
  4. The Investment Committee recommends Investment Policy changes to the Board of Trustees for approval.
  5. The Investment Committee may delegate specific duties and responsibilities to members of Augustana College’s Business and Advancement offices in an effort to fulfill its ongoing duties.
  6. The Investment Committee shall engage outside service providers such as consultants, investment managers, and other service providers to implement and execute the Investment Policy.

III. Endowment Circumstances

  1. The Endowment consists of the Scholarship Endowment Fund and the General Endowment Fund. For Investment Policy purposes, the Investment Committee will treat the Endowments as one entity. Some of these endowments have been permanently restricted by the donor, while others have been board designated (“quasi-endowment”). Quasi-endowment is unrestricted and available for the general purposes of the college, but may be temporarily designated (and un-designated) by the board for specific uses.
  2. >The Endowments’ primary purpose is to provide support to both Augustana College’s general operating budget, to student scholarships and awards, and to support faculty chairs and professorships.
  3. The Endowments are invested with a long-term time horizon.
  4. The Endowment’s spending policy is to distribute up to 5% of assets annually based on a rolling three-year average market value. The endowment spending may be made from interest, dividends, capital appreciation and realized gains or from prior year’s accumulation of same, or from quasi-endowment. If some permanently restricted endowments are underwater, spending shall be determined in accord with Illinois law governing the management of institutional funds. Upon enactment of UPMIFA in Illinois, spending from underwater restricted endowments may occur if Augustana College determines spending to be prudent for the uses, benefits, purposes and duration for which the endowment fund is established. Such determination shall be made after consideration of UPMIFA criteria related to prudent expenditure. The Augustana College’s Business Office tracks the status of underwater permanent endowments.
  5. Augustana College makes its annual appropriation in the fall of the academic year, once the fiscal spending rule has been computed from the prior 12 quarter fair market value. The Board authorizes this appropriation at the Fall Board meeting for the current fiscal year.
  6. Any gifts made to the endowment that are not legally restricted in writing at the time of the gifts are considered quasi-endowment and, therefore, unrestricted in use of principal earnings and appreciation.
  7. For any permanent funds whose spending allocation is restricted by the donor at the time of the gift, the net appreciation and earning in excess of the book value amount shall be classified as temporarily restricted. All other earnings and net appreciation on permanently and temporarily restricted funds will be classified as quasi-endowment and, as such, is unrestricted.

IV. The Program’s Objectives

  1. The Endowments are intended to serve as a long-term source of funds for the College.
  2. The Program’s primary investment objective is to grow the assets on a real (inflation adjusted) basis in excess of the spending policy in order to avoid loss of purchasing power by the Endowments (see Section VI).
  3. The Program will be diversified across asset classes and investments to aid in reducing the volatility of the endowment’s market value and to minimize the risk of permanent loss of capital.

V. Asset Allocation Policy

  1. The Investment Committee has determined an aggregate asset allocation policy to guide the Program. This policy was based upon an analysis of the Endowments’ underlying circumstances and needs.
  2. Asset class
    Target allocation
    Domestic equity 40.0%
    Non-U.S. Equity 27.5%
    Alternative Investments 15.0%
    Fixed Income/Cash 17.5%
    Total 100.0%
  3. A range of plus or minus five percent (+/-5%) has been identified as an acceptable degree of variation around the target allocations. The Investment Committee will review the aggregate portfolio composition periodically and, if deemed necessary, will direct assets to be shifted to bring the Program’s allocation within an acceptable range of the policy target allocation.
  4. The Investment Committee may choose not to rebalance to Target Allocations if they believe market conditions are extreme, or if they believe that rebalancing may jeopardize the ability of Augustana to meet its debt covenants or other financial obligations. Further, should either of the above two circumstances exist, the Investment Committee may choose to reallocate a significant percentage of endowment assets to what it perceives to be the most conservative asset class (usually short-term high quality fixed income investments) for a period it determines is appropriate and reasonable.

VI. Investment Return Objective

  1. The Investment Committee has established, as an objective, a real (inflation-adjusted) annualized rate of return over the long-term of at least 5%. This objective is required to protect the Endowments’ purchasing power and accounts for the spending policy and other Endowment expenses. The Investment Committee understands that the Program’s total return during any single measurement period may deviate from the long-term return objective.
  2. The Investment Committee, with input from the investment consultant, has established benchmarks to evaluate the Program’s performance on an ongoing basis. These benchmarks may change occasionally to reflect evolving market conditions or changes in the Program’s portfolio composition. (Included in Appendix A is a listing of the current benchmarks.)

VII. Investment Style Diversification

  1. The Program expects to maintain appropriate diversification among equity, fixed income, and hedge fund allocations. The purpose is to moderate the overall investment risk of the Program.
  2. The style diversification guidelines may change periodically based upon evolving capital market conditions.

VIII. Investment Manager Evaluation Criteria

  1. The Investment Committee intends to use external investment managers to manage the assets of the Program, including a significant allocation to passively managed index funds.
  2. The Investment Committee has established evaluation criteria to select external investment managers for the Program. The criteria are intended to serve as guidelines and may change periodically to reflect the evolving needs of the Program. (Included in Appendix B is a listing of the current investment manager evaluation criteria.)

IX. Investment Monitoring Process

  1. The Investment Committee will review the endowment investments at least quarterly and modify allocations as deemed appropriate to meet its investment’s objectives and where necessary to preserve capital. Quarterly reports will be distributed to the Investment Committee to facilitate this monitoring process.

X. Conflict of Interest

  1. A Trustee or Committee member shall be considered to have a conflict of interest if he or she or any member of his or her family has a direct or indirect interest which might impair or appear to impair his or her independent, unbiased judgment in the discharge of responsibilities of Augustana. No Trustee or Committee member shall vote on any matter under consideration at a Board or Committee meeting in which he or she has a conflict of interest. The minutes of such meetings shall reflect that a disclosure was made and that the individual having the conflict abstained from voting. Annually, all officers and Board members shall disclose any affiliation they have with any sponsor of an investment owned by Augustana.

Appendices to the Augustana College Endowment Fund

Statement of Investment Policy

Appendix A (Revised 5/09)
Augustana College Endowment Fund Investment Program

Refers to Section VI. B.: Investment Return Objective

A. External Market Benchmarks used to evaluate ongoing Total Fund, Equity Segment, Fixed Income Segment and Hedge Funds’ Segment performance include:

 

TARGETS

Market Benchmark

Total
Fund

 

Equity
Segment

Fixed Income
Segment

Alternative
Funds
Segment

 

Wilshire 5000 Index

40.0%

 

59%

0%

0%

 

MSCI EAFE Index

27.5%

 

41%

0%

0%

 

Fixed Income Market
Benchmark

17.5%

 

0%

100%

0%

 

HFRI Fund of Funds Composite Index

15.0%

 

0%

0%

100%

 

Total Program

100%

 

100%

100%

100%

 

Note: The external market benchmarks may not necessarily reflect the Program’s actual asset allocation structure at any point in time. The benchmarks are intended to serve as a market proxy for capital market performance.


Appendix B
Augustana College Endowment Fund Investment Program

 

Refers to Section VIII. B.: Investment Manager Evaluation Criteria

The following criteria are used to evaluate investment managers for the Program. The Investment Committee may choose to override these criteria upon agreement.

  1. The performance and portfolio data submitted by manager candidates should be audited or otherwise verifiable. This is intended to reduce risk of a poor selection based upon incorrect or misleading data.
  2. The performance records submitted must be of sufficient duration to include a variety of economic and market environments
  3. Manager candidates must demonstrate a sufficient record of performance superiority over the average manager in their investment style.
  4. Manager candidates must demonstrate a sufficient record of performance superiority over managers with similar risk characteristics (e.g. style peers, appropriate passive indexes, etc.).
  5. Investment managers must exhibit a consistent investment style and risk profile as defined by the aggregate financial characteristics of the portfolio over a number of measurement periods.
  6. Manager candidates must demonstrate organizational stability and provide evidence indicating that the people, resources and other factors responsible for past superior investment results are still in place. Such evidence increases the probability that past success will be repeated in the future.
  7. For alternative investments, including hedge fund and private equity investments, the emphasis will be on identifying managers (often through the fund of funds) with: a well diversified portfolio, strong risk control procedures, extensive back office and infrastructure capabilities, and reasonable expenses. Because Augustana is responsible for its financial statements, care must be taken to invest only in alternatives which allow Augustana to comply with the AICPA guideline with respect to valuation based on fair value. The Committee and Administration, in consultation with the investment consultant, shall review valuation information provided by the various alternative investments managers and will determine the value at which such investments will be carried on the College’s financial statements.