PURPOSE OF THE INVESTMENT POLICY
This investment policy is set forth by the Foothill-De Anza Colleges Foundation Board to:
1. Define and assign the responsibilities of all involved parties.
2. Establish a clear understanding of the Foundation’s investment goals and objectives.
3. Offer guidance and limitations to the Investment Manager(s) regarding the investment of available resources.
4. Establish a basis for monitoring investment activity and evaluating investment results.
5. Oversee the management of the investment of available resources by the Investment Manager(s).
6. Establish the relevant investment horizon for which the available assets will be managed.
In general, the purpose of this statement is to outline a philosophy and strategy, 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.
Investments shall be made solely in the interest of the Foundation’s beneficiaries.
The assets shall be invested with the care, skill, prudence and diligence under the circumstances that a prudent person would use in the investment of assets with like character and similar goals.
Investment of the assets shall be diversified to minimize the risk of capital erosion, unless under the circumstances it is clearly inadvisable not to do so.
The Investment Committee may employ one or more investment managers of varying styles and philosophies to achieve the Foundation’s goals and objectives.
Cash shall be invested in a productive manner through the use of short-term instruments that provide safety, liquidity and a reasonable yield, considering prevailing market conditions.
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 the 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 management 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.
The Foundation intends to follow a “total return” policy for management of its long-term endowment assets. This approach defines net investment return as the total change in the overall value of funds, including both current income (i.e., interest, dividends, 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 Board 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 managers; reviewing such managers over time; measuring and evaluating 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 may 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) include:
Obligation to buy, sell or hold individual securities in the Foundation’s portfolio.
Report monthly investment performance data. Quarterly reporting to the Investment Committee will include 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.).
Any conflict of interest on the part of the investment manager, or any member of the immediate family of the manager (spouse and children, including adult children) or anyone occupying the same household as the manager, shall be disclosed by the manager to the investment committee promptly, as soon as the conflicting relationship is established, and thereafter, at least annually, as long as it exists; such disclosure shall be made a matter of record with the secretary and/or documented within the meeting minutes. The investment manager shall disclose all compensation received by investments made on behalf of the Foothill-De Anza Foundation.
Answer voting proxies on behalf of the Foundation and communicating such actions to the Investment Committee.
Responsibility of the Investment Consultant(s):
The Investment Consultant's primary role is to provide objective investment advice regarding the management of the Foundation’s assets to the Investment Committee. 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 is intended to 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 least 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 educational inflation rate (measured by the Higher Education Price Index) by a minimum of 4% annually, net of management fees. Based on this expectation, it is anticipated that the portfolio will grow at an average annual rate of 6% to 8% net of fees before additions and distributions.
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 portfolio of assets fails to meet or exceed the performance objective (described above).
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 if necessary.
INVESTMENT GUIDELINES, POLICES, and RESTRICTIONS
The investment policies, guidelines and restrictions in this policy statement are a framework to help the Fund and its Investment Manager(s) achieve the investment objectives at a level of risk deemed acceptable. The Fund will be diversified both by asset class and within asset classes. Within each asset class, securities will be diversified among economic sector, industry, quality, and size. The purpose of diversification is to provide reasonable assurance that no single security or class of securities will have a disproportionate impact on the performance of the total fund. As a result, the portfolio risk level is reduced compared to an undiversified portfolio.
Environmental sustainability is critically important to the Foothill-De Anza Community College District, the State of California, and the nation. Reducing carbon dioxide emissions from the burning of fossil fuels is central to this objective. The District is committed to stewardship of the environment and to reducing the District’s dependence on non-renewable energy sources.
As an auxiliary organization of the Foothill-De Anza Community College District, the
Foothill-De Anza Foundation Board of Directors is committed to sustainability. As
such, the Foundation Board will cease any new direct investments in fossil fuel companies.
Furthermore, the Finance Committee will direct the Foundation’s current asset managers
to minimize investments in commingled assets that include fossil fuel companies. We
define “fossil fuel companies” as companies with the greatest holdings of unburned
carbon reserves of coal, oil and gas. In practice, we currently are using the top
200 companies on the Carbon Tracker list as published by the Fossil Free website.
The purpose of equity investments, both domestic and international, in the Fund is to provide capital appreciation, growth of income, and current income. This asset class carries greater market volatility and hence increased risk of loss, but also provides a traditional approach to meeting portfolio total return goals. This component includes domestic and international common stocks, American Depository Receipts (ADRs), preferred stocks, and convertible stocks traded on the world’s stock exchanges or over-the-counter markets.
Public equity securities shall generally be restricted to high quality, readily marketable securities of corporations that are traded on the major stock exchanges, including NASDAQ and have the potential for meeting return targets. Equity holdings must generally represent companies meeting a minimum market capitalization requirement of respective asset class profiles with reasonable market liquidity where customary. Decisions as to individual security selection, number of industries and holdings, current income levels and turnover are left to broad manager discretion, subject to the standards of fiduciary prudence. However, no single major industry shall represent more than 20 percent of the Fund’s total market value, and no single security shall represent more than five percent of the Fund’s total market, unless approved by the Committee.
Within the above guidelines and restrictions, the Investment Manager(s) has complete discretion over the timing and selection or sale of equity securities.
Fixed Income Securities
Domestic and International fixed income investments provide diversification and dependable sources of current income. Diversification within fixed income investments will be flexibly allocated among maturities of different lengths according to interest rate prospects and the goals of the fund. Fixed income instruments should reduce the overall volatility of the Fund’s assets, and provide a deflation or inflation hedge, where appropriate.
Fixed income includes both the domestic fixed income market and the markets of the world’s other economies. It includes, but is not limited to, U.S. Treasury and government agency bonds, non-U.S. Dollar denominated securities, public and private corporate debt, mortgages and asset-backed securities, and non-investment grade debt. Fixed income also includes money market instruments, including, but not limited to, commercial paper, certificates of deposit, time deposits, bankers’ acceptances, repurchase agreements, and U.S. Treasury and agency obligations. The Investment Manager(s) must take into account credit quality, sector, and duration and issuer concentrations in selecting an appropriate mix of Fixed Income securities. Investments in fixed income securities should be managed actively to pursue opportunities presented by changes in interest rates, credit ratings, and maturity premiums.
Within the above guidelines and restrictions, the Investment Manager(s) has complete
discretion over timing the sale, purchase, and selection of fixed income securities.
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 manager will report to the committee on an annual basis or as requested by the committee the approximate percentage of holdings of derivatives in their investments and provide examples of the current types of derivatives being used.
In order to minimize risk and volatility, each manager using derivatives shall (1)
exhibit expertise and experience in utilizing such products; (2) demonstrate that
such usage is strategically integral to their security selection, risk management,
or investment processes; and (3) demonstrate acceptable internal controls regarding
Cash and Equivalents
The Investment Manager(s) may invest in the highest quality commercial paper, repurchase agreements, Treasury Bills, certificates of deposit, and money market funds to provide income, liquidity for expense payments, and preservation of the Fund’s principal value. No more than 5% of the Fund’s total market value may be invested in the obligations of a single issuer, with the exception of the U.S. Government and its agencies.
Within the above guidelines and restrictions, the Investment Manager(s) has complete discretion over timing the purchase, sale, and selection of cash equivalent securities.
Current Investment in Alternatives:
Marketable Alternative Strategies (Hedge Funds) - Investments may include equity-oriented or market-neutral hedge funds (i.e. Long/Short, Macro Event Driven, Convertible Arbitrage, and Fixed Income strategies), which can be both domestic and international market oriented. These components may be viewed as equity-like or fixed income-like strategies as defined by their structures and exposures.
Real Estate - Investments may include equity real estate, held in the form of professionally
managed, income producing commercial and residential property. Such investment may
be made only through professionally managed pooled real estate investment funds, as
offered by leading real estate managers with proven track records.
Alternatives Defined Which Are Not Current Investments:
Private Capital Partnerships - Investment allocations may include venture capital, private equity and international private capital investments, held in the form of professionally managed pooled limited partnership investments. Such investments must be made through funds offered by professional investment managers.
Natural Resources – Investments may include oil, gas, and timber investments, held in the form of professionally managed pooled limited partnership investments. Such investments must be made through funds offered by professional investment managers and should be consistent with the Foundation’s fossil fuels guidelines.
The Investment Committee may waive or modify any of the restrictions in these guidelines in appropriate circumstances. Any such waiver or modification will be made only after a thorough review of the Investment Manager(s) and the investment strategy involved. An addendum supporting such investments will be maintained as a permanent record of the Investment Committee. All waivers and modifications will be reported to the Board of Trustees at the meeting immediately following the granting of the waiver or modification.
Any investment that is made in a mutual funds and/or commingled funds will be reviewed
and approved by the Investment Committee on a case by case basis and if approved,
may vary from this Policy. For mutual and other commingled funds, the prospectus or
Declaration of Trust documents of the fund(s) will govern the investment policies
of the fund investments. While the Investment Committee understands that such funds
have their own stated guidelines, which cannot be changed for individual investors,
in principle and spirit, those guidelines should be similar in nature to the guidelines
stated above. To the extent that a fund allows any or all of the above stated restrictions,
the Investment Committee must be aware of their possible use and be confident that
the Investment Manager(s) thoroughly understands the risks being taken, has demonstrated
expertise in their usage of such securities, and has guidelines in place for the use
and monitoring of those securities.
Asset Allocation Guidelines:
Asset allocation of the Foundation’s investments for the endowment and the expendable funds shall be in accordance with the following guidelines:
1. Aggregate Asset Allocation Guidelines for the Endowment Fund (at market value)
Asset Class Minimum Maximum Preferred
Equities 66% 76% 71%
Fixed Income & Cash 24% 34% 29%
Endowment Fund is defined as gifts that are restricted, either permanent or quasi endowed. These gifts are intended to last in perpetuity.
2. Aggregate Asset Allocation Guidelines for the Expendable Fund(at market value)
Asset Class Minimum Maximum Preferred
Equities 66% 76% 71%
Fixed Income & Cash 24% 34% 29%
Expendable Fund is defined as money that is temporarily restricted or unrestricted. These funds include dollars contributed without donor restrictions (for example, Educational Excellence Fund and Chancellor’s Circle among others) and funds with donor restrictions that are intended to be completely spent.
3. Aggregate Asset Allocation Guidelines for Cash and Equivalents (at market value)
For asset allocation purposes, monies held at the Santa Clara County Treasury are the cash and equivalents portion of the asset allocation. This is the Foundation’s checking account, which is used to pay the operating costs and program and scholarship expenditures each year.
4. 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.
5. In the event that the investment committee becomes aware 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.
6. The preferred asset mix may be periodically modified by the investment committee while
remaining within the established minimum and maximum ranges stated above.
The purpose of rebalancing is to maintain the long-term policy asset allocation within the targeted ranges while contributing to controlling portfolio risk. The portfolio will be evaluated quarterly by the members of the Committee charged with the oversight of the portfolio’s investments and rebalanced at least annually. Tactical rebalancing of asset classes within their ranges is also permissible to take advantage of near-term market conditions as long as the changes or reallocations do not cause undue risk or expense to the portfolio.
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.
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 typical market cycle usually a five 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 (or other benchmarks as deemed appropriate by the investment committee):
|Domestic Large Cap Equities||S&P 500 Index|
|Domestic Small Cap Equities||Russell 2000 Index|
|International Large Cap Equities||MSCI EAFE Index|
|International Small Cap Equities||MSCI EAFE Small Cap Index|
|Emerging Markets Equities||MSCI Emerging Markets Index|
|Domestic REITs||FTSE NAREIT Equity REIT Index|
|International REITs||S&P Developed Ex U.S. BMI Property Index|
|Cash Equivalents||Citi 1-Month CD|
|Fixed Income||Barclays Capital U.S Intermediate Government/Credit 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:
1. 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
2. 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
Revised by Finance Committee September 2010
Revisions approved by Foundation Board September, 22 2010
Revisions by Finance Committee August 2016
Revisions approve by Foundation Board September 28, 2016