This investment policy is set forth by the Foothill-De Anza Colleges Foundation Board to:
In general, the purpose of this statement is to outline a philosophy and stratedgy, which will guide the management of investments toward the desired results. It is intended to be sufficiently specific to be meaningful, yet broad and flexible for functionality.
- Preservation of Capital - Consistent with their respective investment styles and philosophies, Investment Manager(s) should make reasonable efforts to preserve capital, understanding that losses may occur. Risk Aversion - Understanding that risk is present in all types of securities and investment styles, the Investment Committee recognizes that some risk is necessary to produce long-term results in order to meet the Foundation's investment objectives. However, Investment Manager(s) are to make reasonable efforts to control risk and will be evaluated regularly to ensure that risk assumed is commensurate with the given investment style and objectives.
- Adherence to Investment Discipline - The Investment Manager(s) are expected to follow the investment managemant styles for which they were hired. Manager(s) will be evaluated regularly for adherence to their specific investment discipline(s) and performance compared against pre-selected benchmarks.
INVESTMENT OBJECTIVES
The Foundation intends to follow a "total return" policy for management of its long-term endowment assets. This approach defines net investment return as a total change in overall value of funds, including both current income (i.e., interests, dividents, etc.) and (un)realized capital gains and losses less fees.
It is the responsibility of the Investment Committee to consider how the social and ethical goals of the Foundation, as expressed by the Board, should be reflected in the portfolio. In this regard, the Investment Committee may issue periodic restrictions of specific investments or related strategies.
DELEGATION OF AUTHORITY
The Foothill-De Anza Colleges Foundation shall maintain an Investment Committee that is responsible for directing and monitoring the investment of the Foundation's available resources. Accordingly, the Investment Committee is authorized to delegate certain functions and responsibilities to professional investment experts. These include, but are not limited to:
- Investment Management Consultant - The consultant may assist the Investment Committee in establishing investment policy, objectives and guidelines; selecting investment performance; and other tasks as deemed appropriate.
- Investment Manager(s) - The Investment Manager(s) will purchase, sell or hold the specific securities to achieve the Foundation's investment objectives.
- Custodian - The custodian will maintain possession of securities owned by the Foundation. The Custodian will also collect dividend and interest payments, redeem maturing securities and effect receipt/delivery following purchases/sales. The custodian shall perform regular accounting of all assets owned, purchased or sold as well as movement of assets to and from the Foundation's accounts.
- Co-Trustee - The Investment Committee may appoint an outside individual or entity to be Co-Trustee (i.e., bank trust department). The Co-trustee will assume fiduciary responsibility for the administration of the Foundation's invested assets.
- Additional specialists or consultants such as attorneys, auditors and actuaries may be employed by the Investment Committee to assist in meeting its responsibilities and obligations to effectively administer the Foundation's assets in a prudent manner.
The Investment Manager(s) will be held responsible and accountable for achieving the objectives stated herein. While it is not believed that the limitations contained in this policy are restrictive, Investment Manager(s) should request modifications, which are deemed appropriate for any given circumstance.
Responsibility of the Investment Manager(s):
When utilizing a mutual fund or other commingled vehicles, the Foundation will expect adherence to the policies, guidelines, and constraints outlined within the fund's prospectus.
The Investment Manager(s) will have full discretion to make all investment decisions for the assets placed under its domain, while also operating within the policies, guidelines and constraints outlined in this statement. Specific responsibilities of the Investment Manager(s) includes:
- Obligation to buy, sell or hold individual securities in the Foundation's portfolio.
- Report monthly investment performance to the Investment Committee that will in turn report to the Foundation Board, in a timely manner, including a performance comparison against pre-selected benchmarks.
- Communicate major changes in the economic outlook, investment strategy or any other factors, which may impact the Foundation’s investment objectives or outcomes.
- Inform the Investment Committee regarding any qualitative change to the investment Managers’ organization (i.e., changes in portfolio management personnel, ownership structure, investment philosophy, etc.).
- Answer voting proxies on behalf of the Foundation and communicating such actions to the Investment Committee.
Responsibilities of the Investment Consultant(s):
The Investment Consultant's role is to be an objective advisor to the Investment Committee. Primarily the consultant’s role is to provide investment advice regarding the management of the Foundation’s assets. Specific responsibilities of the Investment Consultant(s) include:
- Assist in a periodic review of the investment policy and to recommend suitable changes.
- Conduct searches for Investment Manager(s) when requested by the Investment Committee.
- Monitor the performance of the Investment Manager(s) and provide the Investment Committee insight on the Manager(s) ability to achieve the desired investment objectives.
- Communicate to the Foundation Board and/or Investment Committee matters relating to external capital market performance and how these events impact their investment strategies.
PRESERVING THE FOUNDATION’S RESOURCES
The Foothill-De Anza Colleges Foundation is a going concern and will likely exist in perpetuity. However, for the Foundation to remain a viable, healthy entity it recognizes that it must maintain adequate purchasing power. Accordingly, the objective is to increase the aggregate portfolio value at the rate of inflation (including its distributions) over the Foundation's ongoing investment horizon.
PERFORMANCE AND ANTICIPATED RATE OF RETURN
The overall performance objective for the portfolio is to exceed the regional inflation rate (measured by the Bay Area Urban Consumer Price Index) by a minimum of 4% annually, net of management fees. Based on this expectation, it is expected that the portfolio will grow at a rate of 6% to 8% per year before additions and distributions.
UTILIZATION AND ALLOCATION OF AVAILABLE RESOURCES
The amount and timing of contributions to the Foundation are inconsistent and difficult to predict. As a result, the Foundation Board has set an investment strategy with the objective of maintaining purchasing power on its assets before considering future contributions. Accordingly, the Foundation’s annual distributions shall range between 4-8% of the portfolio’s fair market value. This allocation may exceed the aforementioned range in circumstances where either contribution far exceed expectation and/or the investment performance is well beyond its expected rate of return for a given period of time.
DEFINITION OF RISK
The Investment Committee realizes that there are many ways to define risk. It believes that any person or organization involved in the process of managing the Foundation’s assets understands that the assets shall be managed in a manner consistent with the Foundation’s investment strategies and objectives as defined in this statement. The Investment Committee defines risk as:
The probability that the return-on-investment of the Foundation’s assets fails to meet or exceed the rate-of-return for a specific market index (described more fully in this statement). |
LIQUIDITY
To minimize the possibility of a capital loss due to the “premature” sale of a security (i.e., to meet a required disbursement), the Investment Committee will annually provide a cash flow forecast and will immediately notify the Investment Manager(s) of any changes in cash flow needs to allow sufficient time to build-up the required liquidity level.
To ensure the Foundation is able to deal with unplanned cash requirements as they arise, the Investment Committee requires that a minimum of 5% of Foundation’s assets shall be maintained in cash or cash equivalents (highly liquid and not subject to varying market conditions).
INVESTMENT GUIDELINES
Allowable Assets:
- Cash Equivalents:
- Treasury Bills
- Commercial Paper
- Banker's Acceptances
- Money Market Funds
- Certificates of Deposit
- Repurchase Agreement
- County Commingled Fund
- Fixed Income Securities:
- Preferred Stock
- Mortgage Backed Bonds
- Corporate Notes and Bonds
- U.S. Government and Agency Securities
- Equity Securities:
- Common Stocks
- Convertible Preferred Stocks
- Convertible Notes and Bonds
- Stocks of Non-U.S. Companies (Ordinary Shares)
- Mutual Funds:
- That invest in securities as allowed in this statement.
- Guaranteed Investment Contracts (GIC's)
- Real Estate Investments
- Venture Capital Investments
- Limited Partnerships
Derivative Investments:
Derivative securities are defined instruments whose price and cash flow characteristics are based on the cash flows and price movements of other underlying securities. Most derivative securities are derived from equity or fixed income securities and are packaged in the form of options, futures, collateralized mortgage obligations (CMO’s), etc. The Board will take a conservative posture on derivative securities in order to maintain its risk adverse nature. Since it is anticipated that new derivative products will be created each year, it is not the intention of this document to list specific derivatives that are prohibited from investment, rather it will form a general policy on derivatives as follows:
Unless a specific type of derivative security is allowed in this document, the Investment Manager(s) must seek permission from the Investment Committee to include derivative investments in the Foundation’s portfolio. The Investment Manager(s) must present detailed information as to the expected return and risk characteristics of each investment.
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Stock Exchanges:
To ensure marketability and liquidity of its securities, Investment Manager(s) will execute all equity transactions through, but not limited to, the following exchanges: New York Stock Exchange; American Stock Exchange and NASDAQ over-the-counter market. In the event that Investment Manager(s) determine that there is a benefit or a need to execute transactions in exchanges other than those listed in this statement, written approval is required from the Investment Committee.
Prohibited Assets:
Prohibited investments include, but are not limited to the following:
- Options
- Private Placements
- Interest-Only CMO's (IO's)
- Commodities and Futures Contracts
Prohibited Transactions:
It is important for the Investment Manager(s) to stay within these approved Investment Guidelines, except upon receiving an exemption from the Investment Committee.
Asset Allocation Guidelines:
Asset allocation of the Foundation’s investments shall be in accordance with the following guidelines:
- Aggregate Asset Allocation Guidelines (at market value)
| Asset Class | Minimum | Maximum | Preferred |
| Equities | 30% | 75% | 60% |
| Fixed Income | 20% | 60% | 30% |
| Cash and Equivalents | 5% | 40% | 10% |
- The Investment Committee may employ Investment Managers whose investment disciplines require investment outside the established asset allocation guidelines. However, taken as a component of the aggregate, such disciplines must fit within the overall asset allocation guidelines established in this statement.
- In the event that the above aggregate asset allocation guidelines are violated, for reasons including but not limited to market price fluctuations, the Investment Committee will instruct the Investment Manager(s) to bring the portfolio into compliance with these guidelines as promptly and prudently as possible.
Diversification for Investment Managers:
The Investment Committee does not believe it is necessary or desirable that securities held in the Foundation’s portfolio represent a cross section of the economy. However, in order to achieve a prudent level of diversification, the securities of any one company should not exceed 5% of the total fund and no more than 10% of the total fund should be invested in any one industry.
Guidelines for Fixed Income and Cash Equivalents:
- Foundation assets may be invested only in investment grade bonds rated BBB+ or better.
- Foundation assets may be invested only in commercial paper rated Al or better.
- Fixed income maturity restrictions are as follows:
| Maximum maturity for any single security is 15 years. |
| Weighted average portfolio maturity may not exceed 5 years. |
- Money Market Funds selected shall contain securities whose credit rating at the absolute minimum would be rated investment grade by Standard and Poor’s and/or Moody's.
SELECTION OF INVESTMENT MANAGERS
The Investment Committee's selection of Investment Manager(s) must be based on prudent due diligence procedures. A qualifying investment manager must be a registered investment advisor under the Investment Advisors Act of 1940, bank or insurance company. Additionally, the Investment Committee requires that each investment manager provide in writing acknowledgment of its fiduciary responsibility to the Foundation.
INVESTMENT MANAGER PERFORMANCE REVIEW AND EVALUATION
Performance reports shall be compiled at least quarterly and presented to the Investment Committee for its review at least every six months. The portfolio’s investment performance and asset class components will be measured against commonly accepted benchmarks. Consideration shall be given to the extent that investment results are consistent with the investment objectives, goals and guidelines as set forth in this statement. The Investment Committee intends to evaluate the portfolio over a two year period, but reserves the right to terminate a Manager for any reason including:
- Investment performance which is significantly less than anticipated, given the discipline employed and the risk parameters established.
- Failure to adhere to any aspect of this statement of investment policy, including timely communication and reporting requirements.
- Significant qualitative changes to the investment manager’s organization.
- Unacceptable justification of poor results.
The Investment Manager(s) shall be reviewed regularly regarding performance, personnel, strategy, research capabilities, organizational and business matters and other qualitative factors that may impact their ability to achieve the desired investment results.
Investment Manager(s) performance will be compared to the following industry benchmarks:
| &bull | Domestic Equities | S&P 500 |
| &bull | Foreign Equities | EAFE |
| &bull | Cash Equivalents | 90 Day Treasury Bills |
| &bull | Fixed Income | Lehman Gov't/Corporate Bond Index |
The investment goals in “PERFORMANCE AND ANTICIPATED RATE OF RETURN” above are the objectives of the aggregate portfolio and are not meant to be the benchmark for each Investment Manager(s) account. The goal of each Investment Manager shall be to:
- Meet or exceed the market index or blended market index, selected and agreed upon by the Investment Committee that corresponds to the style of investment management.
- Display an overall level of risk in the portfolio that is consistent with the risk associated with the benchmarks specified above.
INVESTMENT POLICY IMPLEMENTATION AND OPERATIONS
The implementation of this policy for the day-to-day operations of deposits, withdrawals, interactions with investment managers and the colleges, and timely reports to the Investment Committee and the Foundation Board is delegated to the Foundation’s Executive Director and the District’s Vice Chancellor for Business Services.
INVESTMENT POLICY REVIEW
To assure continued relevance of the guidelines, objectives, financial status and capital markets expectations as established in this statement, the Investment Committee plans to review this investment policy on an annual basis.
INVESTMENT POLICY APPROVAL
This Investment Policy and any changes to it will be recommended by the Investment Committee to the Foothill-De Anza Colleges Foundation Board of Directors and approved by that Board.
Established by the FHDA Foundation on June 30, 1997
Revisions approved by Foundation Board October 2006
