Current through all regulations passed and filed through September 16, 2024
(A)
primary governance matters
(1)
Purpose
(a)
Lakeland community college (college) is a political
subdivision of the State of Ohio. The purpose of this statement is to
articulate a comprehensive and disciplined investment and spending program for
the college's endowment funds.
(b)
The portfolio's
investable assets must be managed effectively and prudently. The College
recognizes that matters concerning the investment of the portfolio's assets are
of sufficient importance to merit serious attention and frequent
consideration.
(c)
This statement will need to be reviewed periodically to
ensure that it continues to meet the college's attitudes, expectations, and
objectives.
(2)
Governance, prudence, delegation of authority
(a)
Specific
endowment fund investment decisions shall be made pursuant to the College's
Board of Trustees adopting this investment policy.
(b)
This investment
policy requires all fiduciaries to discharge their duties with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with like
aims.
(c)
Authority to manage the college's endowment fund
investment program as allowed under applicable federal and state laws and
statutes and is delegated to the college's treasurer. The Treasurer is
responsible to establish procedures for the operation of the investment program
consistent with this Investment policy. No person may engage in an investment
transaction except as provided under the terms of this policy and the
procedures established by the treasurer. The treasurer shall be responsible for
all transactions undertaken and shall establish a system of internal control to
regulate those activities.
(d)
The treasurer is
charged to work with the board of trustees as a "committee of the whole" in
reviewing and recommending revisions to the investment policy. Additionally,
the treasurer is required to report investment information and decisions to the
board of trustees, at a minimum, each quarter.
(3)UPMIFA considerations
In accordance with the state of Ohio's
adoption of the Uniform Prudent Management of Institutional Funds Act (UPMIFA),
the treasurer and the board of trustees will take, but not be limited to, the
following criteria into consideration when making both investment decisions and
setting its spending policy:
(a)
Purpose of the college's endowment
funds
(b)
Duration and
preservation of the endowment funds
(c)
Need of the college to make distributions and preserve
capital
(d)
Expected total return from income and appreciation
(e)
The role that each investment plays within the overall
portfolio
(f)
General economic
conditions
(g)
The possible effect of inflation or
deflation
(h)
Other resources
of the organization
(i)
Assets of special relationship or special value to the
charitable purpose
(j)
Any expected tax consequences
(4)
Ethics and conflicts of interest
All individuals involved in the
investment process shall comply with the ethics laws of the state of Ohio and
refrain from personal business activity that could conflict with the proper
execution of the college's investment program, or which could impair their
ability to make impartial investment decisions.
(5)
Statement of investment policy review
To assure the continued relevance of
the guidelines, objective, financial status and capital markets expectations as
established in this investment policy, the college treasurer is charged to
review this statement at least bi-annually with the board of
trustees.
(6)
Utilization of investment management and/or investment
consultant services
(a)
In order to develop and maintain an effective
investment program, the college may engage the services of an investment
manager (manager) and/or investment consultant (consultant). Any agreements
entered into with a manager and/or consultant can allow those firms/individuals
complete investment discretion, provided that these parties agree to adhere to
the college's investment policy statement.
(b)
Each investment
manager has discretion to purchase, sell, or hold the specific securities that
will be used to meet the funds' investment objectives. Each investment manager
will be held responsible and accountable to achieve the objectives herein
stated. While it is not believed that limitations will hamper any investment
manager, the investment manager should request modifications that it deems
appropriate.
(c)
Retaining the services of a qualified manager and/or
consultant requires approval by the college's board of trustees.
(B)
investment policy guidelines
Endowment funds
(1)
Investment
philosophy
The goal for the college's endowment
investment portfolio is to provide a real total return that preserves the
purchasing power of the endowment's assets, while providing an income stream to
support the college's activities. This income stream shall be provided from
both income and dividends earned on the portfolio investments, and liquidation
of non-income producing assets (a total return approach). The endowment's real
total return will be sought from an investment strategy that provides an
opportunity for superior total returns within acceptable levels of risk and
volatility. The college recognizes that risk (i.e. the uncertainty of future
events), volatility (i.e. the potential for variability of asset values), and
the potential loss in purchasing power due to inflation are present to some
degree with all types of investment vehicles. While high levels of risk are to
be avoided, the assumption of a moderate level of risk is warranted and
encouraged in order to allow the investment portfolio the opportunity to
achieve satisfactory results consistent with the objectives and character of
the portfolio.
The types of stock and market
capitalization of the companies purchased for the portfolio are within the
discretion as only limited by the objectives as expressed in this
document.
(2)
Investment objective
For the long-term (defined as a rolling
five-year period), the primary investment objective for the endowment portfolio
is to earn a total return (net of portfolio management and custody fees) within
prudent levels of risk, which is sufficient to maintain in real terms the
purchasing power of the endowment's assets and support a desired annual
spending policy of 4.5
per cent of the five-year average of the market value of the
endowment portfolio.
The overall investment objective is a
long-term rate of return on total assets that is at least
five hundred
basis points greater than the rate of inflation as measured by the Consumer
Price Index. This target rate of return for the invested Endowment Funds has
been based upon the assumption that future real rates of return will
approximate the historical long-term rates of return experienced for each asset
class. The use of the CPI (which has been greater than zero for the past 50
years) plus
five hundred basis points is indicative of the College's
preference for an absolute return orientation over that of relative
returns.
The college recognizes that market
performance varies and that achieving real rates of return may not be achieved
during some periods. The college also recognizes that historical performance is
no guarantee of future performance.
The investment policies and
restrictions presented in this investment policy serve as a framework to
achieve the investment objectives at a level of risk deemed acceptable. These
policies and restrictions are designed to minimize interference with efforts to
attain overall objectives and to minimize the potential of excluding any
appropriate investment opportunities.
(a)
Asset
allocation
The college's endowment asset
allocation guidelines will be reviewed periodically. The portfolio's major
allocation guidelines will allow an allocation of the portfolio to be invested
in equity securities. Remaining portfolio funds may be invested in either fixed
income or cash equivalent securities.
(b)
Strategic asset
allocation:
(i)
The college's endowment assets shall be invested in a manner
consistent with the asset allocation guidelines specified in this policy
. This asset
allocation details the percentages at market value of total assets invested in
various asset classes. The strategic target is simply a long-term
target and will at times not reflect actual asset allocation as this is
dictated by current market trends and/or conditions, independent actions of the
college's board of trustees, manager, and/or Consultant, as well as required
cash flows to and from the assets or funds.
(ii)
The
tactical range reflects and anticipates fluctuation and provides
flexibility to vary around the target without the immediate need for
rebalancing. Such variations are most likely to occur based on the relative
attractiveness of various asset classes. Deviations outside of the tactical
range shall require the pre-approval of the college treasurer. As material cash
flows into and out of the portfolio this may result in a deviation from the
targeted range. In this situation, it is acceptable to rebalance the portfolio
within a reasonable period of time after the occurrence of the cash flow
change. Additionally, market changes may also contribute to deviations from the
acceptable range. In such case, it is acceptable to rebalance the portfolio at
least quarterly.
|
Portfolio Allocation -
Strategic Target & Tactical Range
|
|
Low
|
Target
|
High
|
|
Equities
|
60%
|
67%
|
80%
|
|
Fixed Income
|
20%
|
26%
|
40%
|
|
Alternatives
|
0%
|
5%
|
10%
|
|
Cash Equivalents
|
0%
|
2%
|
10%
|
|
100%
|
(c)
Equity
allocation:
The following equity asset classes may
be held in the portfolio with the following strategic target and tactical
ranges as a percentage of total market value.
|
Portfolio Allocation -
Strategic Target & Tactical Range
|
|
Low
|
Target
|
High
|
|
Large/Mid Cap U.S.
Equities
|
30%
|
40%
|
56%
|
|
Small Cap U.S.
Equities
|
3%
|
10%
|
20%
|
|
International
Equities
|
10%
|
17%
|
26%
|
Any desired deviations from the equity
allocation guidelines established herein shall require the approval of the
college's treasurer prior to implementation.
(d)
Alternatives
allocation:
The following alternative asset classes
may be held in the portfolio with the following strategic target and tactical
ranges as a percentage of total market value.
|
Portfolio Allocation -
Strategic Target & Tactical Range
|
|
Low
|
Target
|
High
|
|
Real Estate
|
0%
|
2%
|
5%
|
|
Commodities
|
0%
|
2%
|
5%
|
|
Absolute Return
Strategies
|
0%
|
1%
|
5%
|
|
5%
|
Any desired deviations from the
alternatives allocation guidelines established herein shall require the
approval of the college's treasurer prior to implementation.
(3)
Investment performance
(a)
Portfolio
performance against accepted benchmarks will be presented on a periodic basis.
In that respect investment performance shall be evaluated over a long-term
planning period on a total portfolio return basis. Performance will be
calculated on time-weighted basis that is in compliance with industry standards
for the total account as well as for each asset segment. The most relevant time
horizon for evaluating performance is a rolling five-year period since this
typically encompasses an entire market cycle.
(b)
The endowment
portfolio will be measured against a blended benchmark that is reflective of
the established long-term asset allocation targets. In that regard, it is
important to recognize and understand that in certain periods performance
returns of the endowment portfolio may be less than established
benchmarks.
(c)
The overall endowment benchmark shall be weighted as
follows:
(i)
fourty five
per cent assigned to the S&P 500 idex;
(ii)
nine per cent assigned to the Russell 2000
idex;
(iii)
thirteen per
centassigned to the MSCI EAFE idex;
(iv)
twenty six per cent cassigned to the Lehman aggregate
bond idex;
(vi)
two per cent
assigned to the Wilshire RE operating company idex;
(vii)
two cent Goldman sachs natural resources index,
and
(viii)
three per
cent assigned to the
ninety one day Treasury Bill.
(d)
By selecting a
blended benchmark to measure manager performance, the College is able to judge
both:
(i)
the contribution to return of individual investments,
as well as
(ii)
the value added by the manager resulting from tactical
asset allocation weightings relative to long-term strategic targets. In
addition, individual fund investments will be compared with relevant benchmarks
and peer universes that most closely resemble the style and discipline of the
manager(s)/fund(s).
(e)
Diversification,
marketability, yield, and quality consideration
(i)
Cash equivalents
component
(a)
*
It is desirable that interest-bearing money market funds and other cash
equivalent securities with a maturity of
thirty days or less be
used.
(ii)
Equity component
(a)
The portfolio's equity exposure to any one industry
group within a Standard & Poor 500 sector may not exceed
fifteen percent
of the market value of the total endowment funds portfolio.
(b)
The equity holding in any one company, at the time of
its purchase(s), may not exceed five (5) percent of the market value of the
total Endowment Funds portfolio.
(c)
In addition to individual stocks, mutual funds may be
used as a means of enhancing the diversification of the portfolio, provided
such investments are consistent with the asset allocation guidelines
established herein.
(iii)
Fixed Income
Component
(a)
Portfolio diversification requirements do not pertain
to investments in debt securities issued by the United States Treasury (bills,
notes, bonds), or in securities issued by the United States Government agencies
and instrumentalities.
(b)
For non United States Treasury obligations, there
should be a wide discretion in the diversification of fixed income securities
by maturity, sector, and geography.
(c)
Fixed income securities will only be purchased and held
with a credit quality of investment grade "BBB" or higher. In the event of a
split rating, the lower rating shall apply (i.e. an issue that is split-rated
BBB/BB is not permissible).
(d)
The portfolio's fixed income holding of any one
industry may not exceed ten per cent of the market value of the total Endowment
Funds portfolio. Fixed income holdings of any one company, including its
affiliates and subsidiaries, may not exceed five percent of the market value of
the total Endowment Funds portfolio. Fixed income holdings in any one company,
including its affiliates and subsidiaries, may not be duplicated in another
fund.
(e)
In addition to individual fixed income securities,
mutual funds may be used as a means of enhancing the diversification of the
portfolio, provided such investments are consistent with the asset allocation
guidelines established herein.
(iv)
Alternatives
Component
Alternative investments are limited to investments in real
estate, commodities and absolute return (long/short) funds. Investments in
alternative asset classes may only be done in the form of a publicly traded
security, which is priced daily (i.e. a mutual fund).
Investments may be made in securities
that employ the use of leverage or short selling as a strategy.
(2)
Liquidity
The investment manager(s) may be
expected to provide funds for distribution. In the event investment income is
insufficient to meet any withdrawal requirements, the investment manager(s)
will be instructed to sell securities and remit required funds. The Treasurer,
or their designee, shall provide the investment manager(s) with a schedule of
any required withdrawals in advance of their required date of
receipt.
(3)
Prohibited transactions for all college funds
The following transactions are strictly
prohibited unless the Treasurer receives prior approval from the board of
trustees:
(a)
Purchase of individual stocks or bonds on margin (or
lending or borrowing money), naked call options, and short sales transactions.
Such strategies may only be employed by mutual funds that are part of the
alternatives allocation.
(b)
Letter stock, private placement or direct
placement.
(c)
The use of real estate, unlisted limited partnerships,
or venture capital loans as fixed income investment vehicles. Investments in
real estate may only be done through mutual funds that are part of the
alternatives allocation.
(d)
Stock ownership of the asset manager, the custodian,
their parent or subsidiaries (excluding proprietary/common fund
products).
(e)
Direct investments in contracts of financial futures,
arbitrage, commodities, and currency exchange. Strategies in these areas may
only be employed by mutual funds that are part of the alternatives
allocation.
(f)
Direct investment in derivative
contracts.
(g)
Physical ownership of precious metals, gems, or other
collectibles.
(h)
Non-marketable securities.
(C)
spending policy for college endowment funds
(1)
The College
spending policy is based on a total return approach in order to maintain stable
cash flows over an extended period of time, to protect endowment funds against
inflation, and to preserve the purchasing power of endowment funding by
improving investment growth and management.
(2)
The college's
spending Policy is designed to determine the maximum amount of assets that may
be removed from the Endowment portfolio. Spending up to a maximum of 4.5
percent of the five -year average market value of a designated endowment fund
of the College is allowable. Spending may include net realized gains earnings
over that five-year period, and is offset by any previously designated spending
amounts. All returns (gains, loses, and income - net of external and internal
fees and previously designated spending amount) above 4.5 per cent will be
reinvested in the endowment funds portfolio.
The endowment funds spending policy of
the college will be closely monitored, and a thorough review will occur each
fiscal year for recommendations as to future spending
levels.
(D)
further responsibilities
(1)
Responsibilities of appointed manager and/or consultant
(a)
The
manager and/or consultant has the following responsibilities:
(i)
Discretion and authority for security selection and
timing consistent with the Investment Policy. The College expects the purchase
and sale of its securities to be made in a manner designed to receive the
combination of best price and execution.
(ii)
Comply with all legislation and regulations that
involve the assets and/or responsibility as a fiduciary.
(iii)
Vote proxies on securities in the assets and or funds
in the portfolio. Unless the Investment Committee provides information on how
to vote a specific proxy, the investment manager shall vote the proxies in a
manner consistent with maximizing shareholder returns.
(iv)
Meet with the College on request to report on current
portfolio status, performance, and future prospects.
(v)
Provide account statements on a monthly basis, or as
requested by the Treasurer.
(vi)
Seek to meet or exceed established performance
standards.
(b)
The Manager and/or Consultant shall advise the
Treasurer promptly of any event that is likely to adversely impact, to a
significant degree, the management, professionalism, integrity or financial
position of that individual / organization including, but not limited to,
events such as:
(i)
Loss of one or more key individuals.
(ii)
Significant
change in investment philosophy.
(iii)
Appointment of
a new portfolio manager to assets and/or fund accounts.
(iv)
Change in
ownership or control (whether through acquisition, disposition, merger, spin
off or otherwise).
(c)
The Manager is
required to obtain approval from the Treasurer prior to purchasing an
investment that is proprietary to the Manager.
(2)
Selection of investment managers
Set forth below are the considerations
and guidelines employed in fulfilling this fiduciary
responsibility.
(a)
The College intends to retain investment managers with
some or all of the following attributes to manage the asset pool:
(i)
The institution should be a bank, insurance company or
investment management company or an investment adviser under the Registered
Investment Advisers Act of 1940.
(ii)
The institution should be operating in good standing
with regulators and clients, with no material pending or concluded legal
actions.
(iii)
The institution should provide detailed additional
information on the history of the firm, its investment philosophy and approach,
and its principals, clients, locations, fee schedules and other relevant
information.
(b)
Assuming the minimum criteria are met, the particular
investment manager under consideration should meet the following standards for
selection:
(i)
Performance should be equal to or greater than the
median return for an appropriate, style-specific benchmark and peer group over
a specified time period.
(ii)
Performance reporting should be in compliance with the
Association of Investment Management and Research Performance Presentation
Standards (AIMR PPS).
(iii)
Specific risk and risk-adjusted return measures should
be established and agreed to by the Committee and the investment consultant and
be within a reasonable range relative to an appropriate, style-specific
benchmark and peer group.
(iv)
The investment manager should demonstrate adherence to
the stared investment objective.
(v)
Fees should be competitive compared to similar
investments.
(vi)
The investment manager should be able to provide all
performance, holdings, and other relevant information on a quarterly
basis.
(3)
Removal of an Investment Manager
(a)
There may be
circumstances which provide the College reason to consider the removal of an
investment manager. Following are the general guidelines which may give reason
to remove an investment manager:
(i)
Failure to follow this Statement of Investment Policy
after written notification from the College to the investment manager
identifying the violation with a specific time frame to comply with
policy.
(ii)
Failure to meet any of the investment return
benchmarks, as established by the investment consultant and the
College.
(iii)
Failure to comply with investment restrictions as
defined for the manager by the College.
(iv)
Significant qualitative changes to the investment
management organization.
(b)
Each investment manager shall be reviewed at a minimum
annually regarding performance, personnel, strategy, research capabilities,
organizational and business matters, and other qualitative factors that may
impact its ability to achieve the desired investment results.
(c)
If the investment manager has consistently failed to
adhere to one or more of the above conditions, it is reasonable to presume a
lack of adherence going forward. Failure to remedy the circumstances of
unsatisfactory performance by the investment manager, within a reasonable time,
shall be grounds for removal.
(d)
Any recommendation to remove an investment manager will
be treated on an individual basis, and will not be made solely based on
quantitative data. In addition to those above, other factors may include
professional or client turnover, or material change to investment processes.
Considerable judgment must be exercised in the removal decision
process.
(e)
A manager shall be removed using one of the following
approaches:
(i)
Remove and replace with an alternative
manager.
(ii)
Freeze the assets managed by the removed manager and
direct new assets to a replacement manager.
(iii)
Phase out the manager over a specific time
period.
(iv)
Continue the manager but add a competing
manager.
(v)
Remove the manager and do not provide a replacement
manager.
(4)
Responsibilities of appointed custodian
(a)
The custodian
shall be a national bank authorized to accept and execute trusts and do
business in the state of Ohio under the authority granted by the Comptroller of
the currency, and in compliance with the Ohio Revised Code.
(b)
Securities held
in safekeeping by the custodian will be evidenced by a monthly statement
describing such securities. The custodian may safekeep securities in
(i)
federal reserve bank book entry form;
(ii)
depository trust company (DTC) book entry form in the
account of the custodian or the custodian's correspondent bank;
or
(iii)
non-book entry
(physical) securities held by the custodian or the custodian's correspondent
bank. All securities transactions will settle using standard delivery vs.
payment (DVP) procedures.
(c)
The
responsibilities as custodian shall also include:
(i)
Ensures accuracy in reporting portfolio
values.
(ii)
Timely invests cash to avoid non-invested
accounts.
(iii)
Collects all income and principal realizable and
properly reports same in period statements.
(iv)
Reports to the college treasurer situations where
security pricing is either not possible or subject to considerable
uncertainty.
(5)
Appointment of additional providers
Additional specialists such as
attorneys, auditors, actuaries, and others may be employed by the College to
assist in meeting its responsibilities and obligations to administer the funds
prudently.
