|Policy Title||Investment Policy|
|Policy Category||Board of Trustees|
|Original Policy Approval Date||February 18, 2021|
|Responsible Office||Board of Trustees|
|Frequency of Review||One (1) Year|
|Date of Next Review||February 18, 2022|
|Date of Revision|
This Investment Policy (“Policy”) defines the criteria and provides the direction for the management of the assets of the Arcadia University Endowment Fund (“Fund” or “the Fund”). This Policy provides for the continuing management and investment of Fund assets, consistent with the long-term goals of Arcadia University (“University”).
The Fund may consist of cash, securities, and other investments. The use of the assets of the Fund may be restricted or unrestricted. The Fund may receive donor-restricted gifts and bequests to provide a permanent endowment or provide permanent sources of income or term endowments (income for a specified period). The principal of a permanent endowment must be maintained permanently and is classified as permanently restricted net assets. The Arcadia University Board of Trustees (“Board”) may earmark a portion of the University’s unrestricted net assets as a board-designated endowment to be invested to provide income of a long, but unspecified period. The principal of board-designated endowments, which results from an internal designation, is not donor restricted and is classified as unrestricted net assets.
The Board has stipulated that all bequests to the University, not otherwise designated, will be added to the Fund.
The Board has the final authority for approval of this Policy. The Institutional Sustainability Committee of the Board of Trustees (“Committee”), or any designated subcommittee to whom the Committee has delegated investment management responsibility for Fund assets (“Designee”), has the responsibility to establish the investment policy that guides Fund investments and for monitoring the Fund. The Committee is responsible for the hiring, retaining, and releasing of any investment advisors and for monitoring the investment advisors performance. The Committee, or Designee, will work closely with the Vice President of Administration and Finance and Treasurer, along with any investment advisor, to accomplish the objectives of this Policy. The Committee shall report Fund investments and their returns annually to the Board.
The Committee, or any Designee is acting in a fiduciary capacity with respect to the Fund, and is accountable to the Board for overseeing the investment of all assets owned by, or held in trust for, the Fund.
- This Policy sets forth the investment objectives, distribution policies, and investment guidelines that govern the activities of the Committee or any Designee.
- This Policy has been formulated consistent with the University’s anticipated financial needs and in consideration of the University’s tolerance for assuming investment and financial risk.
- The Policy is intended to provide boundaries, where necessary, for ensuring that the Fund’s investments are managed consistent with the short-term and long-term financial goals of the Fund. At the same time, this Policy is intended to provide for sufficient investment flexibility in the face of changes in capital market conditions and in the financial circumstances of the University.
- The Committee will review this Policy at least once per year. Changes to the Policy can be made only by affirmation of a majority of the members of the Committee or its Designee, and written confirmation of the changes will be provided to all Committee members and to any other parties hired on behalf of the Fund as soon thereafter as is practical.
The investment advisor is responsible to the Committee for carrying out this Policy. The investment advisors will invest the Fund assets with investment managers in accordance with this Policy and the investment advisors’ judgment concerning relative investment values and risks.
The investment advisor is responsible for:
- Assisting the Committee, or its Designee in setting investment objectives, asset allocation targets, and investment constraints,
- On-going evaluation and recommendations concerning hiring, retaining and/or terminating investment service vendors, i.e., money managers,
- Providing performance and risk measurement and reporting findings to the Vice President of Administration and Finance and Treasurer and Committee in an accurate and timely fashion,
- Monitor allocations and rebalancing, • Providing day-to-day oversight of the Fund, and
- Providing advice and counsel to the Vice President of Administration and Finance and Treasurer and Committee, as needed.
III. Fund Goals, Investment Objectives, and Spending
The primary Fund goal is to support the mission of the University through Fund growth and to provide a predictable level of endowment spending support to the annual budget. The return objectives are to earn an average annual total real rate of return (adjusted for inflation) in excess of spending requirements, as measured over a 3-5-year market cycle, and to outperform selected weighted market indices. The asset allocation and spending strategies set forth in this Policy will be consistent with the stated goals and objectives of the Fund. See below for key goals and investment objectives:
- The Fund is to be invested with the objective of preserving the long-term, real purchasing power of assets while providing a relatively predictable and growing stream of annual distributions in support of the Institution.
- For the purpose of making distributions, the Fund shall make use of a total return based spending strategy, meaning that it will fund distributions from net investment income, net realized capital gains, and proceeds from the sale of investments.
- The distribution of Fund assets will generally be permitted to the extent that such distributions do not exceed a level that would erode the Fund’s real assets over time, however, consideration will be given to the University’s need for funding to fulfill its mission. The Committee, or its Designee, will seek to reduce the variability of annual Fund distributions by factoring past spending and portfolio asset values into its current spending decisions. The Committee, or its Designee, will review its spending assumptions annually for the purpose of deciding whether any changes therein necessitate amending this Policy, its target asset allocation, or both.
- Periodic cash flow, either into or out of the portfolio, will be used to better align the investment portfolio to the target asset allocation outlined in the asset allocation below.
IV. Asset Allocation
The Board recognizes the importance of the asset allocation decision in meeting the objectives of the Fund. The goal is to diversify investments across a broad spectrum of investment strategies so as to provide a balance that will meet the total return objectives and avoid undue risk concentration in a single asset class or investment category. Because allocation targets may change occasionally, specifics of the current allocation targets and ranges are listed in Exhibit A of this Policy.
V. Spending Rate
As defined under section 5548 (c) and Act 71 of 2020 of the Pennsylvania Nonprofit Corporation Law (Pennsylvania Statute), the University will recognize as endowment income up to a ten (10%) percent return on assets based upon the three-year average market value of the Fund as of the close of the current fiscal year. On an annual basis, the University will set a spending rate for budgeting purposes. The spending rate will be a percentage of assets based upon the three-year average market value of the Fund as of the close of the calendar year preceding its fiscal year. The spending rate should not exceed the rate established under Pennsylvania Statute. All returns, regardless of source, above the spending rate will be retained to enhance the growth of the Fund. The current spending rate is listed in Exhibit A of this Policy.
VI. Monitoring and Evaluating Fund Performance
Investment returns will be measured quarterly. Each strategy’s returns will be compared against a market index. The total portfolio will be compared to a blended index and to the Consumer Price Index. Specifics regarding index comparisons and other comparative guidelines are listed in Exhibit A. The Committee, or its Designee will be expected to meet at least annually, or more frequently as requested by the Committee.
VII. Management Fees and Related Costs
The costs of managing the Fund’s assets should be competitive within the marketplace of similar investment portfolios. All fees will be monitored by the investment advisor to ensure that the Fund is not overpaying for services. Transaction fees, brokerage commissions, and security mark-ups should be within the norms for institutional accounts of similar trading volume. Though the allocation of trades will be left up to the investment advisors, it should be understood that best execution, at the lowest reasonable cost, is expected.
VIII. Effective Date
This Policy is effective when signed by the Chair of the Arcadia University Board of Trustees
IX. Date of Approval
February 18, 2021