BACKGROUND

The Foothill-De Anza Foundation is a 501(c)(3) non-profit auxiliary organization whose mission is to change student lives by raising and investing funds to support the educational excellence of Foothill and De Anza colleges.  The Foothill-De Anza Foundation (the “FHDA Foundation” or “Foundation”) is governed by a volunteer Board of Directors (the “Board”).  The Board is comprised of influential members of the local and college community, who understand the key roles that Foothill and De Anza colleges play in our region. The Board is also committed to raising awareness and generating philanthropic support that has placed both colleges at the top of community colleges throughout the nation.  

PURPOSE OF THE INVESTMENT POLICY  
This investment policy statement (“IPS”) is set forth by the Foothill-De Anza Community Colleges Foundation Board to: 

In general, the purpose of this statement is to outline a philosophy and strategy, which will guide the management of the Foundation’s Investments toward the desired results.  It is intended to be sufficiently specific to be meaningful, yet broad and flexible for functionality. 

RESPONSIBILITY OF ALL INVOLVED PARTIES  

FHDA Foundation’s Investment & Finance Committee Responsibilities:  
 

Board members of the Foothill-De Anza Foundation are fiduciaries and are responsible for directing and monitoring the investment management of Foundation assets. As per the Foundation’s bylaws, the Board shall appoint an Investment and Finance Committee (the “Committee”) which shall recommend professional management firms to invest Foundation assets, monitor the performance of such managers, and report their findings to the Foundation.  
 

As such, the Board is authorized to delegate the following responsibilities to the Investment & Finance Committee. Specifically, the Committee will 

1. Working with the recommendation of the Manger(s), determines the target asset allocation for the IPS;

2. Monitor compliance with the IPS and suggest any revisions;

3. Regularly review the IPS for its continued appropriateness;

4. Make recommendations regarding the engagement and retention of Manager(s), including fees, compensation, and any other related expenses;

5. Establish performance benchmarks and monitor investment performance;

6. Ensure that the asset allocation and investment performance are consistent with the objectives, guidelines and policies of the Investments;

7. Monitor the Investments’ liquidity to ensure that sufficient funds are available to meet any expected or unexpected cash needs;

8. Provide the Manager(s) with a cash flow forecast annually and promptly notify the Manager(s) of any changes in cash flow needs; 

9. Report quarterly to the Board on the following:

   1. Investment performance, net of fees, with comparisons to benchmarks;

   2. Current asset allocation;

   3. Any changes in policy or Manager(s); 

   4. Changes recommended (if any) to the IPS; and

   5. Other pertinent matters

The Committee is authorized to delegate certain functions and responsibilities to professional investment experts. These include, but are not limited to: 

1. Investment Manager(s) - The Manager(s) will purchase, sell, or hold the specific securities to achieve the Foundation’s investment objectives. 

2. 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 the movement of assets to and from the Foundation’s accounts.

3. Additional specialists or consultants such as attorneys, auditors, and actuaries may be employed by the Committee to assist with its functions. 

Investment Manager(s) Responsibilities: 
 
The Investments will be managed by one or more external Manager(s). The Manager(s) will have full discretion to make all investment decisions for the assets placed under its domain, while also operating within the objectives, guidelines, policies, and constraints outlined in this IPS.  Specific responsibilities of the Manager(s) include:

INVESTMENT GOALS AND OBJECTIVES 

The Foothill-De Anza Community Colleges Foundation is a going concern and is intended to exist in perpetuity.  The primary management objective for the Investments is to preserve the real or inflation-adjusted purchasing power (measured by the Higher Education Price Index), while providing a predictable, stable, and constant stream of payment support in real terms to meet the operating expenses of the Foundation. New gifts to the Foundation will be used to enhance the Investments' purchasing power. Performance will be measured by using a composite benchmark that is comprised of the asset class benchmarks (listed under ‘Benchmarks’) and will be weighted according to the target allocation listed in ‘Policies, 1. Asset Allocation Policy’ for each respective fund. 

The Foundation intends to follow a “total return” policy for the management of its Investments.  This approach defines net investment return as the total change in the overall value of funds, including both current income (e.g., interest, dividends, etc.) and (un)realized capital gains and losses less fees. 

As 501.c.3 auxiliary organization of the Foothill-De Anza Community College District, the Foundation is committed to sustainability and has committed to fossil fuel divestment. As such, the Committee has directed the Manager(s) to minimize investments in commingled assets that include fossil fuel companies, defined as companies with the greatest holdings of unburned carbon reserves of coal, oil, and gas.  

INVESTMENT GUIDELINES AND POLICIES 

1. Investments shall be made solely in the interest of the Foundation’s beneficiaries. 

2. 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. 

3. Investments shall be diversified to minimize the risk of capital erosion unless under the circumstances it is clearly inadvisable not to do so.

4. The Committee may recommend one or more investment Manager(s) of varying styles and philosophies to achieve the Foundation’s goals and objectives. 

5. 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. 

POLICIES 

1. Asset Allocation Policy

The Foundation and the Board recognize that the allocation of the Investments across broadly-defined financial asset and sub-asset categories with varying degrees of risk, return, and return correlation will be the most significant determinant of long-term investment returns and Investment value stability. 

The Foundation and the Board expect that actual returns and return volatility may vary widely from expectations and return objectives across short periods of time.  While the Foundation and the Board wish to retain flexibility with respect to making periodic changes to the Investments asset allocation, it expects to do so only in the event of material changes to the Investments, to the assumptions underlying the spending policy, and/or to the capital markets and asset classes included in Investments.  

The investment strategy will be executed with a mix of mostly passively managed index funds.   

Investments will be managed as a balanced portfolio comprised of two major components: equity and fixed income.  Equity investments are expected to maximize the long-term real growth of the Investments, while fixed-income investments are expected to generate current income to support spending needs, provide for more stable periodic returns, and provide some protection against a prolonged decline in the market value of the equity investments. 

Cash investments will be considered as temporary holdings and will be used for liquidity needs or to facilitate a planned program of dollar-cost averaging into investments in either or both of the equity and fixed income asset classes.  

The Investments target for the Foundation’s endowment and expendable funds shall be in accordance with the following guidelines: 

Endowment Fund target asset allocation  

Endowment Fund is defined as permanently restricted or quasi endowed gifts intended to last in perpetuity. 

Expendable Fund target asset allocation 

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 Fund, among others) and funds with donor restrictions that are intended to be completely spent. 

2. Diversification Policy 

The Foundation and the Board expect that diversification across and within asset classes is the primary means to mitigate the risk of incurring large Investment losses over long time periods. The Foundation and the Board will take reasonable precautions to avoid excessive investment concentrations to protect the Investments against unfavorable outcomes within an asset class due to the assumption of large risks.  Specifically, the following guidelines will be in place: 

a. With the exception of fixed-income investments explicitly guaranteed by the U.S. government, no single investment security shall represent more than 5% of total Portfolio assets. 

b. With the exception of broadly diversified market-weighted index funds and ETFs, no single investment shall comprise more than 20% of total investment’s assets. 

c. With respect to domestic investment-grade fixed-income investments, the minimum average credit quality of these investments shall be investment grade (i.e., Standard & Poor’s A or Moody’s A or higher). 

3. Distribution Policies 

For the purpose of making distributions, the Manager(s) shall make use of a total return-based spending policy, and fund distributions from net investment income, net realized capital gains, and proceeds from the sale of investments. 

Periodic cash flow, either into or out of the Investments, will be used to better align the Investments to the target asset allocation. 

4. Rebalancing Policies  

The Investments’ actual asset allocation may vary from their target asset allocation because of the varying periodic returns earned on investments in different asset and sub-asset classes.  The Investments will be re-balanced to their target asset allocation in the following manner: 

a) Incoming cash flow (contributions) or outgoing money movements (disbursements) of the Investments will be used to realign the current weight is closer to the target weights.

b) The Investments will be reviewed quarterly to determine the deviation from target weights. During each quarterly review, the following parameters will be applied: 

i. If any asset class (equity or fixed income) within the portfolio is +/- 5 percentage points or greater its target weight, the Investments will be rebalanced.
ii. The Manager(s) may provide a rebalancing recommendation at any time. 
iii. The Manager(s) shall act within a reasonable period to evaluate deviation from these ranges. 

5. Other Investment Policies 

Unless expressly authorized by the Board or Committee, the Investments and its Manager(s) are prohibited from: 

a. Purchasing securities on margin or executing short sales. 

b. Pledging or hypothecating securities, except for loans of securities that are fully collateralized. 

c. Purchasing or selling derivative securities for speculation or leverage. 

d. Engaging in investment strategies that have the potential to amplify or distort the risk of loss beyond a level that is reasonably expected given the objectives of their portfolios  

PERFORMANCE REPORTING AND MANAGER(S) EVALUATION

The Committee will receive performance reports monthly and asset class components will be measured against a benchmark consisting of the market indices weighted according to the Investment target asset allocation.  The Manager(s) will present quarterly reports to the Committee. The Committee expects to meet in person with the Manager(s) at least annually to review portfolio structure, strategy, and investment performance. 

Consideration shall be given to the extent that investment results are consistent with the investment objectives, goals, and guidelines as set forth in this IPS.  The Committee intends to evaluate Investments and Manager(s) performance on a rolling 3, 5- and 10-year basis but reserves the right to recommend to the Board to terminate a Manager(s) for any reason including:    

1. Investment performance which is significantly less than anticipated, given the discipline employed and the risk parameters established. 

2. Failure to adhere to any aspect of this statement of investment policy, including timely communication and reporting requirements. 

3. Significant qualitative changes to the investment Manager(s)’s organization. 

4. Unacceptable justification of poor results. The Manager(s)(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.

Benchmarks

Manager(s) performance will be compared to the following industry benchmarks (or other benchmarks as deemed appropriate by the Committee): 

Account Reviews 

The Manager(s) is expected to be available to meet with the Committee as necessary to review portfolio structure, strategy, and investment performance at least quarterly. 

This IPS is recommended by the Committee to the Board for approval and is provided to the Manager(s).  The Committee will review this IPS with the Manager(s) regularly to confirm their continuing relevance or revise as appropriate. 

Either the Committee or the Manager(s) may suggest revisions at any time if it is felt to be in the best interests of the Foundation investments. 

Custody of Investment Assets 

All investable securities will be held at Vanguard. Investment assets can be removed from the Foundation account(s) only on written authority of the Foundation. The custodian should have adequate financial resources for protection against business failure and against liabilities relating to loss or theft of securities. They should also provide adequate performance in delivery systems, accuracy, timeliness of reporting, ease of access, and income and principal collection.  

INVESTMENT POLICY IMPLEMENTATION AND OPERATIONS 

The implementation of this policy for the day-to-day operations of deposits, withdrawals, interactions with investment Manager(s) and the colleges, and timely reports to the Committee and the Foundation, is delegated to the Foundation’s Executive Director and the District’s Vice-Chancellor for Business Services.  

INVESTMENT POLICY APPROVAL 

This Investment Policy and any changes to it will be recommended by the Committee to the Foothill-De Anza Colleges Foundation Board of Directors and approved by the Board. 

ENVIRONMENTAL SUSTAINABILITY 

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. 

Restrictions

The Board 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 Manager(s) and the investment strategy involved. An addendum supporting such investments will be maintained as a permanent record of the Foundation.  

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 approved by Foundation Board September 28, 2016 

Revisions by Finance Committee April 27, 2022 

Revisions approved by Foundation Board May 25, 2022 

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