Investment Policy
I. Introduction
This document states the investment policy of the Board of Directors (the “Board”) of Delaware County Foundation (the “Foundation”). It applies to the Foundation’s professionally managed invested assets for both endowed and non-endowed funds as well as those assets managed by donor recommended investment advisors. There are five distinct investment pools covered by this policy: The Endowment Pool, the Cash Pool, the Conservative Growth & Income Pool, the Moderate Growth & income Pool, and the Growth Pool (collectively, the “Pools”).
The Investment Committee (the “Committee”) is empowered by the Board to direct and monitor the investment management of the Pools. This statement has been chosen by the Committee and approved by the Board as the most appropriate policy for achieving the financial objectives of the Pools, which are described in the “Investment Objectives” section of this document.
II. Statement of Purpose
The purpose of this Investment Policy Statement is to establish guidelines governing the various investment accounts of Delaware County Foundation. This statement also incorporates accountability standards that will be used for monitoring the progress of the Pools’ investment program and for evaluating the contributions of the investment professionals hired on behalf of the Foundation.
Quarterly an officer or another member of the Board will report to the full board on the Pools’ past performance, current investment status and any other material information concerning the Foundation.
III. Delegation of Authority and Responsibilities
A) Investment Committee
Appointed by the Foundation board, the Investment Committee may be composed of directors of the board and other volunteers. The Investment Committee is responsible for the development and implementation of the investment policy. This responsibility includes selecting investment professionals, establishing the scope and terms for delegating management of the investment Pools, and establishing guidelines for, monitoring, and evaluating results and performance of each pool. Additionally, the Investment Committee will review and make recommendations to the Board as needed regarding an appropriate distribution rate policy.
B) Board of Directors
The Board shall have final responsibility for ensuring the prudent investment of assets comprising the Pools. The Board shall have the authority to approve or reject the Investment Policy Statement and shall authorize the Committee to implement the Investment Policy Statement and adjust as needed.
C) Foundation President
The Foundation President has daily responsibility for administration of the Pools to include direction of cash flow and treasury functions. The President will serve as primary contact for the Foundation’s Investment professionals. The President has authority to communicate investment information and results to fundholders and key constituents.
D) Foundation Officers
In addition to the President, the Foundation Chairman, Treasurer, or Secretary shall have the authority to execute appropriate contracts, open accounts, and give any other authorizations as needed.
E) Investment Manager
Investment Managers will act as a fiduciary on behalf of the Foundation and perform their duties based on best execution. The specific responsibilities of the Managers include, but are not limited to:
• Exercising full investment discretion with regards to buying, managing, and selling assets in accordance with the guidelines of the Investment Policy.
• Monitoring the appropriateness of each investment strategy given the Foundation’s overall investment strategies, philosophies, and objectives.
• Monitoring and reporting the investment performance of each asset class compared to the established benchmark.
• Meeting with Investment Committee at least once each year, and at other times deemed necessary.
F) Donor Recommended Investment Advisor
Upon special request by a donor, the Foundation may approve an individual investment advisor to manage the donor’s fund (“Donor Recommended Investment Advisor”). Any such advisor will be held to the standards and objectives outlined in this Investment
Policy Statement and follow the Guidelines for Donor Recommended Investment Advisors.
IV. Investment Objective
A) Endowed Fund Pools
The primary investment objective of the Endowment Pool is to provide a relatively stable, inflation adjusted, annual payout to support the defined spending rate. There will be some inevitable volatility in principal value, but it may offer the potential for a sustainable payout plus inflation protection over the long term.
To assist the Foundation in gauging the success of the return on investments, the Foundation shall employ as its investment minimum return goal the following formulas:
- Long Term Rate of Return Objective
Nominal Net of Fee Time-weighted Return – CPI = Spending Rate + Average Administrative Fee
The target return is measured based on a trailing five-year annualized return. This is the period used to gauge whether the portfolio is meeting its objective. The return in any individual period may be more or less than the target. The probability of success of achieving the minimum return goal increases as the length of the evaluation period increases. It is anticipated that there will be periods of time where the five-year trailing calculation will be below the minimum return goal. There must be a tolerance for these periods in order to remain with the long-term strategy and not change at inopportune times.
B) Non-Endowed Fund Pools
There are four distinct and separate investment pools available for non-endowed funds; Cash Pool, Conservative Growth & Income Pool, Moderate Growth and Income Pool, and Growth Pool. These investment pools are designed with the objective to accommodate the differing time horizons and risk and return requirements needed for non-endowed funds.
1) Cash (0-3 years)
The primary investment objective of this Pool is stability of principal. This Pool will invest exclusively in cash and cash equivalents and will have no risk of loss of capital. Donors with immediate liquidity needs or no expectations of growth of capital should consider this strategy.
2) Conservative Growth & Income Pool (3+ years)
The primary investment objective of this Pool is to provide modest growth while limiting fluctuation to less than the overall stock market. This Pool will invest primarily in a fixed income, with some equity, cash and cash equivalent assets. This Pool is appropriate for donors who have a time horizon of more than three years.
3) Moderate Growth & income Pool (4+ years)
The primary investment objective of this Pool is to provide a moderate level of risk and a mixture of equities, fixed income, and an occasional allocation to cash. This Pool may experience moderate year to year volatility. This Pool is generally appropriate for donors with an intermediate time horizon of more than three years.
4) Growth Pool (7+ years)
The primary investment objective of this Pool is capital appreciation. There will be some inevitable volatility in principal value in this Pool, but it may offer the potential for higher returns over the long term. This Pool is appropriate for donors with a time horizon of more than seven years.
V. Distribution Policy
The Foundation has adopted this investment policy and a stand-alone spending policy for endowment assets, consistent with the Uniform Prudent Management of Institutional Funds Act (UPMIFA). These policies work in tandem in an attempt to provide a predictable stream of funding to programs supported by endowment funds while maintaining the purchasing power of the endowment assets. In determining the amount appropriate for spending, or accumulation, the Foundation shall consider, if relevant, all the following factors:
• The duration and preservation of the endowment fund,
• The purposes of the foundation and the fund,
• General economic conditions,
• Effects of inflation and deflation,
• Expected total return from income and appreciation,
• The foundation’s other resources, and
• The foundation’s investment policy.
VI. Investment Consultant and Investment Managers
It is expected that the Foundation will delegate to an Investment Consultant (“Investment Consultant”) to manage the Pools in accordance with this Investment Policy Statement. The Investment Consultant will perform such duties as the selection of asset allocation within the ranges specified in this Investment Policy Statement. In addition, the Investment Consultant will be expected to support the Committee’s quarterly meetings by providing appropriate materials and commentary related to the pools and their investments. In certain cases, the Investment Consultant may be also be expected to participate in the Committee’s presentation to the Board.
Those Investment Managers selected by the Investment Committee shall have discretion to make investments within the established guidelines of the Investment Policy Statement to achieve the stated investment objectives.
Investment Managers shall act as a fiduciary, as defined and regulated by the Securities and Exchange Commission (SEC), FINRA or other state securities regulators, and acknowledge that all advice and decisions rendered must reflect first and foremost the best interests of the Foundation.
Upon special request by a donor, the Foundation may approve an individual investment advisor to manage the donor’s fund (Donor Recommended Investment Advisor). Any such advisor will be held to the same standards of this Investment Policy Statement and follow the Guidelines for Donor Recommended Investment Advisors.
VII. Fees
The impact of fees on the long-term performance shall be an important consideration of the Foundation. The foundation board will review, at least annually, the cost for services with the objective of ensuring they are fair, reasonable, and competitive.
The Foundation will seek to achieve net expenses of any underlying Investment Managers that are equal to or below the median expense level of its appropriate peer group. No mutual funds or other investment vehicles with front-end or deferred sales charges shall be allowed. All fee information should be adequately disclosed.
VIII. Eligible Investments
Assets should be invested in the securities of publicly owned companies or through the use of separately managed accounts, mutual funds and/or other U.S.-domiciled commingled vehicles. Except for pre-approved illiquid investments assets must be accessible in 90 days or less.
Cash investments in excess of the asset allocation ranges outlined in Section IX of this policy will, under normal circumstances, only be considered as temporary Fund holdings, and will be used for the Foundation’s liquidity needs or to facilitate dollar-cost averaging into other approved asset classes. Dollar cost averaging will be at the discretion of the advisor/consultant or special request of the Investment Committee.
Illiquid Alternative Investments shall be considered an appropriate asset class at the discretion of the Board but limited by the ranges set forth in the Asset Allocation section. This category is comprised of Private Equity, Private Real Estate and Hedge Funds. When and where appropriate, the Committee and Board reserve the right to approve other non- traditional assets classes as Alternative Investments. Special care should be taken to ensure that the terms of each investment align with the short- and long-term goals, objectives and liquidity needs of the overall Foundation and the assets in the Pool.
Illiquid investments such as those described above (among others) may NOT be purchased by the Investment Consultant without the recommendation of the Committee and approval of the Board. Existing illiquid investments will be reported on by the Investment Consultant.
IX. Asset Allocation
The Foundation believes that strong, consistent investment returns are best produced by maintaining a disciplined investment process over time. The guiding principles underpinning the investment process emphasize a well-diversified asset allocation strategy, use of highly talented investment managers, and a long-term point of view.
The Foundation’s investment pools are constructed in such a way as to achieve return objectives while minimizing volatility to the degree possible. This is best accomplished by utilizing a well-diversified asset allocation strategy. The Foundation has adopted a strategic asset allocation for each pool, as well as a Target for reference as outlined below. Adherence to these guidelines is expected.
Donor Recommended Investment Advisors will be expected to manage within the limits of the portfolio type selected by the donor. The Foundation board reserves the right to approve allocations outside of these guidelines as well as other restrictions including liquidity and concentration issues when and where appropriate.
Endowment Pool:
| Lower Limit | Target | Upper Limit | Benchmark | |
| Total Equity: | 60% | 70% | 80% | – |
| US Equity | 40% | 55% | 70% | Wilshire 5000 |
| International Equity | 5% | 15% | 25% | MSCI EAFE |
| Fixed Income: | 20% | 28% | 40% | Barclays Cap US Aggregate |
| Alternative Investments: | 0% | 0% | 15% | – |
| Cash and equivalents: | 0% | 2% | 5% | S&P 0-3 Mo US T-Bill |
Non-endowed Pools:
- Cash Pool:
| Lower Limit | Target | Upper Limit | Benchmark | |
| Total Equity: | 0% | 0% | 0% | – |
| US Equity | 0% | 0% | 0% | Wilshire 5000 |
| International Equity | 0% | 0% | 0% | MSCI EAFE |
| Fixed Income: | 0% | 0% | 0% | Barclays Cap US Aggregate |
| Alternative Investments: | 0% | 0% | 0% | – |
| Cash and equivalents: | 100% | 100% | 100% | S&P 0-3 Mo US T-Bill |
- Conservative Growth & Income Pool:
| Lower Limit | Target | Upper Limit | Benchmark | |
| Total Equity: | 20% | 25% | 30% | – |
| US Equity | 16% | 21% | 25% | Wilshire 5000 |
| International Equity | 3% | 4% | 5% | MSCI EAFE |
| Fixed Income: | 60% | 75% | 90% | BBG BARC S/T Govt/ Corp |
| Alternative Investments: | 0% | 0% | 0% | – |
| Cash and equivalents: | 0% | 2% | 10% | S&P 0-3 Mo US T-Bill |
- Moderate Growth & Income Pool:
| Lower Limit | Target | Upper Limit | Benchmark | |
| Total Equity: | 25% | 35% | 50% | – |
| US Equity | 18% | 25% | 35% | Wilshire 5000 |
| International Equity | 7% | 10% | 15% | MSCI EAFE |
| Fixed Income: | 50% | 65% | 75% | Barclays Cap US Aggregate |
| Alternative Investments: | 0% | 0% | 0% | – |
| Cash and equivalents: | 0% | 0% | 15% | S&P 0-3 Mo US T-Bill |
- Growth Pool
| Lower Limit | Target | Upper Limit | Benchmark | |
| Total Equity: | 60% | 70% | 80% | – |
| US Equity | 40% | 55% | 70% | Wilshire 5000 |
| International Equity | 5% | 15% | 25% | MSCI EAFE |
| Fixed Income: | 20% | 30% | 40% | Barclays Cap US Aggregate |
| Alternative Investments: | 0% | 0% | 15% | – |
| Cash and equivalents: | 0% | 0% | 10% | S&P 0-3 Mo US T-Bill |
In the event of severe economic or market conditions which would negatively impact the Foundations assets, investment managers may deviate from the above stated asset structure upon notifying the Investment Committee and receiving approval for such deviation. Any such decision by an investment manager shall be explained in writing to the Investment Committee immediately thereafter.
X. Rebalancing
It is understood that the Fund’s actual asset allocation may from time to time fall outside the ranges specified above due to varying periodic returns. Investment managers will act to rebalance the portfolio with available cash flow and/or proceeds from sales/liquidation of investments within a reasonable period of time, not to exceed one quarter.
XI. Liquidity
The Foundation will take reasonable precautions to avoid excessive investment concentrations as liquidity and cost constraints allow. To help in managing portfolio-level risk, investments should be diversified as follows:
Except for fixed income investments explicitly guaranteed by the U.S. government, no single investment security shall represent more than 5% of the Pool’s fixed income assets.
Except for balanced managers and passively managed investment vehicles seeking to match the returns on a broadly diversified market index, no single investment shall comprise more than 30% of total Pool’s assets.
It is understood that allocations to Alternative Investments will by nature have limited liquidity. Special care will be taken to ensure this lack of liquidity is appropriate and aligned with the goals, objectives and needs of the Foundation.
XII. Performance Measurement
The Foundation, with reports and narrative provided by the Investment Managers, should review performance results of the Pools at least quarterly. Performance results should be reviewed net of all investment and advisor related fees. If the performance does not meet expectations over two consecutive quarters, this will result in a formal review, which could result in termination.
Performance will be reported against and reviewed along three dimensions:
- Against the minimum return goal across full market cycles as determined by the following formula: * For Endowment Pools Only
Nominal Net of Fee TWRR – CPI = Spending Rate + Average Admin Fee
- Compared to a relevant reference point or index selected by the Advisor based upon the underlying investment strategy being employed.
- Compared to a static allocation of indexes in line with the target allocation of each investment pool. This will allow the Foundation to assess the effectiveness of asset allocation decisions.
In addition to these three dimensions, the Investment Consultant will be asked to report along a fourth dimension listed below:
- Compared to a reference index built on indexes allocated in a similar fashion across asset allocation and size and style as the pool. This should be updated each quarter to reflect any changes made to the overall portfolio and will give insight as to the effectiveness of manager selection by the Investment Consultant.
XIII. Manager Evaluation
In addition to meeting or exceeding the performance objectives, each investment manager will be reviewed annually by the Investment Committee and evaluated upon criteria it establishes, including the following:
• Avoidance of regulatory actions against the firm, its principals, or employees
• Adherence to the guidelines and objectives of this Investment Policy Statement
• Application of the articulated investment philosophy and process. In assessing this criteria, the evaluation should be performed with reference to the manager’s original stated investment philosophy and process
• Turnover in investment manager/professionals and changes in the ownership structure of the firm.
XIV. Other
Without express written consent from the Foundation the Investment Consultant, Donor Recommended Investment Advisors and Managers are prohibited from the following:
- Purchasing or selling derivative securities for speculation or leverage.
- Pledging any securities for loans
At any time, the Foundation may decide to exclude or negatively “screen” investments in the securities of companies or industries if in the judgement of the Foundation such investments would be in conflict with the overall mission of the Foundation. The Foundation will instruct the Investment Consultant or Donor Recommended Investment Advisor to comply with any exclusions or screens within a reasonable period, not to exceed 6 months.
Approved by Board of Directors 11-24-20