Policies & Procedures
Texas State University Development Foundation
STATEMENT OF INVESTMENT POLICY
INTRODUCTION AND PURPOSE
The purposes of the Texas State University Development Foundation are to accept and receive, invest and manage gifts, legacies, and contributions covering both real and personal property for the benefit of Texas State University (the “University”) and for its charitable and educational operation.
This Statement of Investment Policy (“Statement”) is set forth to:
- Define the investment policies, guidelines and objectives of the portfolio (the “Portfolio”) of the Texas State University Development Foundation (the “Foundation”);
- Create a framework from which the Investment Committee (the “Committee”) of the Foundation Board of Trustees (the “Board”) can oversee management of the Portfolio both in compliance with applicable laws and regulations and in accordance with the policies and objectives of the Foundation; and
- Define the roles and responsibilities of all parties involved in investment management of the Portfolio.
ROLES AND RESPONSIBILITIES
The Board has delegated to the Committee the fiduciary responsibility for oversight and investment of the Portfolio. The Committee has the responsibility to ensure that the assets of the Foundation are managed in a manner that is consistent with the policies and objectives of the Foundation and in compliance with all applicable laws.
The Committee members are required to discharge their duties solely in the interest of the University and for the exclusive purpose of meeting the financial needs of the University. The Committee is authorized to engage the services of Investment Consultants and Investment Managers who possess the necessary specialized research capabilities and skill to meet the Investment Policies and Objectives of the Foundation. The Committee will require the Investment Consultants and Investment Managers to adhere to any policies adopted by the Board.
In carrying out its responsibilities a quorum of the Committee must be present, either in person, by teleconference or by proxy. A quorum is at least 50% of the members of the Committee. Each member shall be entitled to one vote and each decision of the Committee shall require the assent of a majority of those voting. The Committee’s responsibilities are to:
- Review, approve and maintain the Statement;
- Select and oversee the custodian, Investment Consultant and Investment Managers;
- Establish the Foundation Total Return Goal;
- Recommend the Foundation Spending Rate Policy;
- Establish the Portfolio’s Asset Allocation Policy;
- Establish the benchmarks appropriate for the Portfolio holdings;
- Establish the Portfolio’s Rebalancing Policy; and
- Make direct investments where the selection of an external, professional investment manager is not appropriate.
The staff at the Foundation provides support to the Committee, and in addition to other duties, has the following specific responsibilities:
- Serve as a general administrator of the Portfolio and as the primary contact for the Investment Consultant, Investment Managers and custodian;
- Maintain a calendar for the Committee that establishes a schedule for the Committee to ensure compliance with all of its fiduciary and other responsibilities;
- Communicate and consult with the Committee on matters relating to the Portfolio;
- Implement investment and other decisions approved by the Committee;
- Prepare proper documentation of Committee meetings and decisions;
- Review and execute investment management agreements and related documentation.
- Ensure proper portfolio accounting is maintained; and
- Engage proactively with the Investment Consultant in managing the Portfolio.
The Investment Consultant shall serve in a fiduciary role to the Committee and is responsible for assisting Foundation Staff and the Committee in all aspects of managing and overseeing the Portfolio’s investments, including without limitation:
- Assist in the development, implementation and maintenance of investment policies, objectives and guidelines for the Portfolio;
- Prepare Portfolio asset allocation analysis and recommend an asset allocation strategy in accordance with the Foundation’s objectives;
- Notify the Committee when asset allocations near the range limits defined by the Committee, and recommend reallocation when necessary;
- Research, recommend and oversee Investment Managers, which shall include appropriate due diligence and prompt notification to the Committee in the event of any significant changes in the Investment Managers;
- Attend periodic meetings of the Committee to present evaluation reports;
- Provide continuing education to the Committee, Foundation Staff and Board on investment matters;
- Review and develop special investment strategies that complement existing asset classes or strategies to be considered by the Committee;
- Notify the Committee immediately in writing of any material changes in its investment outlook, strategy, portfolio-structure, ownership, or senior personnel; and
- Provide ongoing oversight and advice to the Committee, and assist the Committee in special tasks.
The Investment Managers selected by the Committee under the directive guidance of the Investment Consultant are responsible to:
- Invest assets under their management in accordance with the guidelines and restrictions formulated by the Committee;
- Exercise discretionary authority over the assets entrusted to them, subject to any guidelines and restrictions formulated by the Committee;
- Provide timely reporting of portfolio activity, portfolio valuations, performance data, and portfolio characteristics on a quarterly basis in addition to other information as requested by the Committee or Investment Consultant; and
- Vote proxies vigorously in the best interest of the Foundation and University.
The custodian selected by the Committee as custodian of Foundation assets shall be responsible for the safekeeping of the Foundation’s assets. The principal duties and responsibilities of the custodian are to:
- Perform standard custodial functions, including without limitation security safekeeping, collection of income, settlement of trades, collection of proceeds of maturing securities, daily investment of un-invested cash, and portfolio accounting;
- Provide timely, detailed and accurate reports of investment holdings and account transactions monthly and an annual summary report; and
- Prepare additional accounting reports as requested by the Committee or Investment Consultant.
INVESTMENT POLICIES AND OBJECTIVES
The long term objective of the Foundation is for the Portfolio to earn a return sufficient to preserve the purchasing power of the Foundation for generations, as well as to provide for current university needs. To achieve this objective, the long-term return goal shall consist of a spending rate, an assumed rate of inflation, investment management fees, and any desired real portfolio growth. The long-term return goal of the Foundation is set forth on Appendix A.
Spending Rate Policy
The spending rate policy is recommended by the Investment Committee and approved by the Finance and Audit Committee. Final approval is made by the Executive Committee of the Board of Trustees.
The Committee will permit the Portfolio to experience an overall level of risk consistent with the risk generally associated with the Portfolio Asset Allocation.
Investment risk should be balanced between the Foundation’s long-life and planning horizon and the criticality of the Foundation’s mission; funding university programs and preserving capital.
Return volatility of the Foundation’s portfolio should not materially exceed that of an appropriate composite benchmark.
- Liquidity: The Portfolio must maintain sufficient liquidity to maintain compliance with its Spending Rate Policy.
- Time Horizon: The Portfolio should be managed with a long term time horizon of 30 to 50 years, with priority to provision for the Foundation’s annual needs over the time horizon.
- Tax Status: The Foundation is a tax-exempt entity and no investments should be made that jeopardize the Foundation’s tax-exempt status. In addition, gifts that may produce unrelated business taxable income (UBTI) should be considered carefully due to the potential increase in required tax reporting.
Funds allocated to the Annuity Pool are to be managed consistent with this Statement of Investment Policy. However, the Annuity Pool may have different asset allocations and/or return objectives.
The Committee shall strive to establish a benchmark with the following characteristics:
- Measurable – Benchmarks should be easily calculated on a regular basis.
- Appropriate – Benchmarks should be representatives of the portfolio manager’s investment style, expertise, or strategy.
- Reflective of current investment opinions – Benchmarks should incorporate the manager’s knowledge of security and factor exposures in the benchmark itself.
- Investable –Benchmarks should reflect a passive alternative to active management.
- Specified in advance – Benchmarks must be determined in advance of each calendar year and may not be changed without approval of the Committee.
- Unambiguous – The ideal benchmark will provide names, weights, and factor exposures to all underlying securities in the benchmark.
The benchmarks for the Portfolio are set forth on Appendix B.
Total Foundation assets should achieve an annualized nominal rate of return equal to or greater than that of the long-term return goal set forth on Appendix A. In addition, total Foundation assets should return, over trailing 12 month periods, a nominal rate of return greater than or equal to a composite index created by combining various indices in the same proportion as the Portfolio Asset Allocation.
Active managers will be expected to provide returns greater than their appropriate benchmark, net of fees, while utilizing acceptable risk levels, over moving 36-month periods.
Index, or passive managers, will be expected to provide returns materially consistent with the appropriate benchmark, before reasonable fees, with materially no more volatility than the benchmark.
Risk measures, such as standard deviation, Sharpe Ratio, Sortino Ratio, downside deviation, beta, and other appropriate measures will be reviewed as part of the performance appraisal process.
The following risks will be evaluated with respect to the investment decisions of Foundation assets:
- Market risk: Characterized as the volatility of market returns.
- Inflation risk: The risk of inflation eroding portfolio purchasing power.
- Interest rate risk: The risk of changes in interest rates adversely affecting asset prices.
- Shortfall risk: The risk of a return that does not meet the long-term return goal.
- Various other risks: Country/political risk, Credit risk, Exchange rate risk, Non-systematic risk, etc.
At least annually the Committee will review an attribution analysis prepared by the Investment Consultant with analysis at the asset class level and, as needed, the manager level.
Performance Review The Committee shall review the performance of the Investment Consultants on an annual basis and report its findings to the Board. The Committee shall evaluate the Investment Consultant based upon the following criteria:
- Ability to meet or exceed the performance objectives in the Statement or as otherwise set by the Committee;
- Adherence to the philosophy, style, and service deliverables the Investment Consultant described to the Committee or Board at, or subsequent to, the retention of the Investment Consultant; and
- The performance of the Investment Consultant’s responsibilities set forth in the Statement.
Quarterly – The Committee will meet at least quarterly to review Portfolio performance information.
Annually – The Committee, or its designee, will report Portfolio performance information to the Board at least annually.
It is the responsibility of the Committee to identify the asset allocation for the Portfolio (the “Portfolio Asset Allocation”) that offers the highest probability of achieving the Foundation’s long-term return goal while satisfying the Portfolio risk objective and applicable constraints. The Committee, with guidance from the Investment Consultant, shall review the asset allocation on an ongoing basis and authorize revisions to the Portfolio Asset Allocation as it deems necessary and appropriate.
The Committee shall determine the Portfolio Asset Allocation based on a comprehensive asset allocation study completed by the Investment Consultant and reviewed at least annually by the Committee.
A change to the Portfolio Asset Allocation and/or rebalancing may result from an ongoing assessment by the Investment Consultant and the Committee of the comparative intermediate or long-term outlook for all available asset classes and styles. Furthermore, the Committee will recognize the following factors when developing the Portfolio Asset Allocation:
- Diversification across industries, geographies, and asset classes reduces risk at a given level of return.
- Equities are generally a source of long-term capital appreciation.
- High-quality fixed-income securities tend to be a source of low volatility.
The Portfolio Asset Allocation, as set forth on Appendix C (Appendix D for the Annuity Pool), is designed to maximize the probability of attaining the long-term return goal while meeting the risk objectives and satisfying the Foundation constraints.
There are certain investments that the Foundation is prohibited from investing in as set forth on Appendix E.
The Committee recognizes the importance of periodically rebalancing the Portfolio Asset Allocation, namely to ensure that variation in returns among assets do not create outsized deviations from target allocations that cause Portfolio performance to diverge from expected policy performance.
The Committee shall review the Portfolio Asset Allocation at its quarterly meetings. The Committee has the authority to rebalance the Portfolio to achieve the desired Portfolio Asset Allocation at any time.
The Investment Consultant shall notify the Committee to address rebalancing in the event any primary individual asset class (equity, alternatives, or fixed income) exposure differs from policy by a level of [5%] or more beyond the upper or lower limit of the specified range as measured at the end of the month. In the event rebalancing is necessary between Committee meetings, the Investment Consultant shall consult with the Executive Director and the Committee Chair and develop a plan to rebalance asset allocation within target ranges.
In the event of cash contributions to the Foundation the Foundation Staff and Investment Consultant are permitted to invest these cash inflows according to the Asset Allocation promulgated at the time the funds are received.
CONFLICTS OF INTEREST
The Board and Committee members are charged with the responsibility for recommendations and decisions that, in their judgment, best serve the long-range interests and objectives of the Foundation. In discharging this obligation, the Board and Committee members should diligently avoid placing themselves or the Foundation in any situation involving an actual or perceived conflict of interest.
If the Board or Committee takes up for consideration any matter in which Board or Committee members, or persons affiliated with them, have a direct or indirect financial interest, the Board or Committee, as applicable, shall resolve questions of real or apparent conflict of interest by adopting the following procedures:
- Board or Committee members must disclose to the Board or Committee any relevant facts that might give rise to a conflict of interest with respect to any matter to be considered by the Committee;
- Board or Committee members affected by an actual or perceived conflict of interest must abstain from the Committee’s discussion of such matter unless the Board or Committee specifically requests information of them, and such abstention shall be recorded in the Board or Committee meeting minutes; and
- If requested to do so by any other Board or Committee member, the affected members must withdraw from the meeting during the Board or Committee’s deliberations and vote.
PROCESS TO REVISE THE STATEMENT
This Statement shall remain in effect unless or until modified by the Board of Trustees. This Statement shall be reviewed by the Executive Director and the Committee at least annually. The Committee may recommend modifications to the Statement as it deems necessary and appropriate. With the exception of responsibilities delegated to the Investment Committee and described in section 2.1, the Board must approve any material changes to the Statement.
The Effective Date of this Statement of Investment Policy is October 24, 2014.