Statement of Investment Policies and Objectives
Adelphi intends to typically use pooled or mutual funds as the investment managers in the University’s Endowment Fund.
Adelphi intends to typically use pooled or mutual funds as the investment managers in the University’s Endowment Fund. The prospectus or investment management agreement of each fund considered or currently in place as an investment manager will be reviewed periodically to ensure that the stated investment philosophy of the manager is appropriate versus this investment policy. If the investment manager exhibits an investment philosophy or objective inconsistent with those previously approved by the Finance and Investment Committee, such will be taken into consideration by the Committee in its performance monitoring evaluation.
Reason for Policy
The Statement of Investment Policies and Objectives is the result of discussions between the Finance and Investment Committee (“the Committee”) of Adelphi University (“the University”) and Aon Hewitt Investment Consulting, Inc. (“AHIC”). The purpose of this statement is to assist the University and the investment managers in effectively supervising and managing the assets of the Adelphi University Endowment/Quasi-Endowment Fund (“the Endowment”), and Operating Cash pool (“Operating Cash”).
Who Is Governed by this Policy
This Statement of Investment Policies and Objectives sets forth Adelphi University’s plan for effectively supervising and monitoring the investment of the University’s Endowment Fund and Operating Cash assets.
Delegation of Responsibilities
The Finance and Investment Committee has responsibility for formulating Endowment Fund and Operating Cash investment policy, developing investment objectives, retaining and monitoring investment advisors, and allocating assets among the advisors. The Finance and Investment Committee (“the Committee”) will oversee the routine operations of the University’s investment programs and will report its recommendations to the Board of Trustees regarding substantive changes in policies, asset mix, and investment advisors. Day-to-day responsibilities for implementing Endowment Fund and Operating Cash policies will be assigned to University staff, including the Executive Vice President of Finance and Administration.
Endowment Fund Objective
The basic objective of the total Endowment Fund is to maximize total return while adhering to the asset-mix policy guidelines and risk constraints defined herein. The total return objective for the entire Endowment Fund is a “real” (i.e., inflation-adjusted) return of at least 5% per year. Achievement of a 5% per year real return objective will allow the University’s Board of Trustees to approve spending up to 4.5% of assets each year while at least preserving the real value of total Fund assets.
Endowment Fund Components
The total Endowment Fund actually consists of two sub-portfolios, the true Endowment and Quasi-Endowment. For the purpose of this policy statement, both sub-portfolios are combined and have the same investment characteristics, risk tolerance levels, and objectives.
Operating Cash Objective
The basic objective of the Operating Cash pool is to provide a reasonable level of current income while minimizing the likelihood of a capital loss, subject to the asset-mix policy guidelines and risk constraints defined herein. The Operating Cash is a short-term liquidity pool used to meet near-term operating liabilities.
Investment theory and historical capital market return data suggest that, over long periods of time, there is a relationship between the level of risk (i.e., volatility of investment returns) assumed and the level of return that can be expected in an investment program. In general, higher risk is associated with higher expected returns.
Given this relationship between risk and return, a fundamental step in developing investment policies for the University is the determination of the Endowment Fund’s and Operating Cash’s risk posture. The Committee has examined both the risk tolerance, (i.e., the ability of the University to take risk) and its risk preference (i.e., the willingness of the Committee to take risk in the investment programs).
The Committee has examined two important factors that affect its risk tolerance:
- Business and financial characteristics; and
- Liquidity characteristics.
Through an analysis of these factors, the risk tolerance of the University has been determined by the Committee to be average relative to other endowment funds. Any operating surpluses for the next several years will be spent to facilitate building or to maintain strategic spending policies. The balance sheet is reasonably strong and the endowment will remain intact for the foreseeable future.
Business and Financial Characteristics
- Investment earnings and endowment spending represent a moderate proportion of Adelphi’s revenues that decreases, as a percentage of revenues, through the forecast period.
- Adelphi’s statement of financial position is fairly strong.
Based on its financial characteristics, Adelphi’s risk tolerance with respect to its operating and short-term cash is average. With respect to the Endowment assets, Adelphi’s risk tolerance is average.
Adelphi will likely spend any Operating surpluses for the foreseeable future (projected) to build buildings or to maintain strategic spending policies. Adelphi’s liquidity characteristics indicate an average risk tolerance for the Operating Cash pool. The liquidity characteristics also imply an average risk tolerance for the Endowment Fund.
Adelphi’s risk preference (i.e., its willingness to accept risk) is average. The University is willing to accept some short-term volatility to achieve higher long-term rates of return. The University is also focused on the long-term viability of the Endowment/Quasi-Endowment in real purchasing terms, rather than short-term absolute returns. Additionally, the University is willing to be somewhat different than its peers (in terms of overall asset allocation) if circumstances dictate.
The University’s annual operating needs are financed partially by distributions from the Endowment Fund. The University’s endowment spending policy is predicated on the following principles:
- Preservation of Capital —The Endowment’s purchasing power, at a minimum, must be preserved in perpetuity. Therefore, the Endowment will be invested in a diversified asset portfolio that is expected to produce an average annual total return that at least equals inflation plus endowment spending without assuming undue risk.
- Intergenerational Equity—A balance must be maintained between the needs of today and those of tomorrow to ensure endowment spending for current and future generations is equitable.
- Stability—To provide a measure of predictability in year-to-year distributions and to mitigate the short-term volatility inherent in the financial markets, annual spending will be based on the Endowment’s trailing 5-year average market value. This will facilitate development of long-term strategies and financial plans. Over time, the goal is for annual spending to increase at least by inflation. The Endowment’s asset allocation investment strategy is consistent with this goal.
In the context of these principles, annual spending from the total Endowment Portfolio will be targeted to be 4.5% of its average market values over the trailing 5-year period. The Endowment Portfolio will make quarterly distributions based on its stated spending policy.
In the event the University’s budgetary needs cannot be met by the above spending policy, at its discretion, the Finance and Investment Committee may recommend to the Board of Trustees an appropriate course of action. Similarly, if the University’s budgetary needs are fully met without any spending from the endowment, earnings will be reinvested and no supplemental draw will be taken.
The Operating Cash pool is available for the immediate cash flow needs of the University. Its balance is expected to vary with the University’s revenue and expense cycle.
Asset Allocation Policy
Over the long term, asset allocation policy will be the key determinant of the returns generated by the Endowment Fund and Operating Cash and the associated volatility of returns. In particular, the level of equity exposure is the key element within the University’s investment policies.
In developing asset allocation policies for its Endowment Fund and Operating Cash, the Committee examined asset projections to evaluate possible results over the next ten years. These projections examined the risk/return tradeoffs of alternative asset classes, as well as alternative levels of equity exposure. Through incorporating the results of these projections with its risk posture, as well as considering typical practices and practical investment issues, the Committee has developed the following asset mix guidelines:
|Percentage of Total Endowment Fund|
|Total International Equities||19%||24%||29%|
|Alternatives (i.e., Hedge Funds, Distressed Debt, etc.)||0%||10%||15%|
The Committee reviewed the above asset allocation targets in March 2017 and the target portfolio allocation remained the same. The target allocation above reflects the Committee’s desire for growth in the Endowment assets at a reasonable level of risk. The Committee will review its asset mix at least annually and rebalance its portfolio mix at any time that an asset class(es) reaches the minimum or maximum allocation specified above. In rebalancing, the University will allocate assets back to the target mix over a reasonable period of time. (Note: The primary focus in rebalancing will be on overall equity exposure.)
Percentage of Total Endowment Fund
|Short-Term Fixed Income||0%||100%|
Investment Manager Structure
To implement its asset allocation policies, the Committee has developed the following investment manager structure for the Endowment Fund:
|Vanguard||S&P 500 Index Fund|
|Fiduciary Management Inc. of Milwaukee||Large Cap Equity|
|Rothschild Asset Management||Small/Medium Cap Equity|
|Vanguard||Total International Stock Index|
|Franklin Templeton||Foreign Equity Series|
|Oaktree||Emerging Markets Equity|
|Shenkman||Energy Opportunity Fund Ltd.|
|Commonfund||Global Distressed Debt Fund Series 2|
|Baird||Aggregate Bond Fund|
|Reams||Scout Core Plus Bond|
|PIMCO||Diversified Income Fund|
|iShares||TIPS Bond ETF|
|TD Bank||Money Market Fund|
The investment manager structure for the Operating Cash pool is as follows:
|TD Bank||Money Market Fund|
|Merill Lynch||WCMA Money Fund Class I|
Investment Manager Guidelines
The following guidelines have been developed to be used in the management of the University’s Endowment assets. Where mutual or commingled funds are used, it is expected that the portfolios generally conform to these guidelines, though the Committee recognizes that the prospectus or guidelines of the fund supersede those of the University.
U.S. Equity Portfolios
- Equity holdings in any single company (including common stock and convertible securities) must not exceed 8 percent of the manager’s portfolio measured at market value.
- A minimum of 20 individual stocks should be held within the equity segment of the portfolio.
- Equity holdings should represent at least 90 percent of the portfolio at all times.
- Equity holdings in any one economic sector (as defined by the Global Industry Classification Standard) should not exceed the lesser of three times its weighting in the Standard & Poor’s 500 Index or 30 percent of the portfolio for large capitalization portfolios.
- Equity holdings in any one economic sector (as defined by the Global Industry Classification Standard) should not exceed the lesser of three times its weighting in the Russell 2500 Index or 30 percent of the portfolio for small to medium capitalization portfolios.
- Marketable common stocks, preferred stocks convertible into common stocks, S&P 500 futures contracts, and fixed income securities convertible into common stocks are the only permissible equity investments.
- Securities of foreign (non-U.S. domiciled) entities denominated in U.S. dollars that trade on a U.S. stock exchange are permitted. Securities denominated in currencies other than the U.S. dollar are permissible investments up to 20% of the manager’s portfolio measured at market value.
International Equity Portfolio
- Equity holdings in a single company (including common stock and convertible securities) should not exceed 8 percent of the manager’s portfolio measured at market value.
- A minimum of 25 individual stocks should be held.
- Equity holdings in any one industry (as defined by the Global Industry Classification Standard) should not exceed 25 percent of the manager’s portfolio measured at market value.
- A minimum of 50 percent of the countries within the MSCI EAFE Index should be represented within the portfolio. The allocation to an individual country should be limited to the lesser of 35 percent or 4 times the country’s weighting within the MSCI EAFE Index. Where allocations to non-EAFE countries are used, they should not exceed 35 percent in total.
- Currency hedging decisions are at the discretion of the investment manager.
Fixed Income Portfolios
- The duration of the market duration fixed income portfolio should be targeted to that of the Bloomberg Barclays Aggregate Index (“BAGG”). The duration may range from plus or minus 2 years of the duration of the BAGG.
- The duration of the short-term fixed income portfolio should be targeted to that of the Bloomberg Barclays 1-3 Year Government Index. The duration may range from plus or minus 1 year of the duration of the benchmark.
- Fixed income holdings in a single security (excluding obligations of the United States Government and its agencies) should be limited to 6 percent of the manager’s portfolio measured at market value.
- At least 80% of fixed income investments should be limited to “investment grade” securities, i.e., securities with ratings of BBB- (Standard & Poor’s) or Baa3 (Moody’s) or higher or unrated securities which the investment manager deems to be investment grade.
- Securities of foreign (non-U.S.) entities denominated in U.S. dollars are limited to 20 percent of the manager’s portfolio, measured at market value. Securities denominated in currencies other than the U.S. dollar are limited to 20 percent of the manager’s portfolio.
- For securities bought or held for the University’s portfolio, the investment manager should consider not only the University’s portion but the aggregate holdings among all the manager’s accounts in assessing the amount of liquidity and the impact of the security’s price.
- The hedge fund investment managers may make investments which utilize both traditional assets (stocks, bonds, cash) and additional alternative assets which are aligned to their particular strategy.
Distressed Debt Investments
- The distressed debt fund(s) invests in securities that are often illiquid and trade at distressed prices. This manager may utilize both traditional assets (stocks, bonds, cash) and additional alternative assets.
Cash Equivalent Investments
- Managers generally are expected to utilize a high quality, broadly diversified commingled fund or other vehicle made available by the custodian bank. Managers also may use alternative money market funds or vehicles that meet the strong standards of quality, safety, and diversification.
Prohibited Investments or Strategies
- Investments may not be made in margin purchases, use of leverage, short sales, options, commodities, oil, gas or mineral leases, mineral rights, royalty contracts, letter stock purchases, , leasebacks, land loans or other direct loans. The exemption to this policy is for the hedge managers, private equity or debt managers and the commodities manager, who through various investments may invest in prohibited investments or strategies.
Policy for Utilization of Futures and Options and Leveraging
- Futures and options positions will be permitted in the management of the Endowment assets but should be limited to covered hedges or equitization of cash balances only. The notional balances for all futures and options positions should be limited to 10 percent of the portfolio’s market value. Leveraging portfolio positions through borrowing, short sales, or other encumbrances of the University’s assets is prohibited. The hedge fund, private equity, real estate, infrastructure or debt managers, and the commodities manager are exempt from the above restrictions.
Policy for Utilization of Investment Manager Affiliated Securities
- The investment manager shall not purchase any securities of its organization or affiliated entities.
Investment Performance Objectives
To facilitate ongoing review and evaluation of the Endowment Fund and Operating Cash, the Committee believes that specific investment performance objectives are appropriate. These performance objectives are designed to provide a quantitative basis to judge the effectiveness of the investment programs and their investment managers.
Total Endowment Fund Performance Objectives
The total Endowment Fund investment program is structured so that it offers a reasonably high probability of meeting a real return objective of at least 5% per year over a period of five to ten years. The Endowment Fund’s real return will be, in part, a function of the capital market environment in which the Endowment’s investment managers operate. Therefore, regardless of whether or not the market environment permits the achievement of substantial real returns, the University expects any active investment managers that it retains to produce results that are above average relative to other actively-managed funds and relative to passive alternatives. Investment managers should cover the fees paid and provide a return increment that justifies the risk assumed in active management.Over a three- to five-year period, the annualized total return of the portfolio should exceed the annualized total return of the Adelphi Revised Custom Index which reflects the underlying asset allocation and the benchmarks associated with the respective investment manager accounts. These are rebalanced every calendar quarter.
The Committee will use some or all of the following means to monitor the performance of its investment managers:
- Periodic meetings with the investment managers;
- Investment manager reports;
- Custodial statements (including transactions costs); and
- Performance evaluation reports.
With a long-term perspective toward three- and five-year time horizons, the Committee will evaluate whether each manager has:
- Performed satisfactorily when compared with the specific objectives for its portfolio;
- Produced results that compare favorably to other investment management organizations managing similar portfolios;
- Exceeded the returns of appropriate market indices;
- Made portfolio management decisions that were reasonable and effective in view of capital market developments; and
- Adhered to the relevant policies and objectives.
Among the events that the Committee will examine closely in its review of its investment managers are:
- Poor results relative to objectives over a fairly short period of time (i.e.., one year);
- Poor absolute performance over a three- to five-year period;
- Poor performance relative to objectives over a three- to five-year period;
- A change in the portfolio manager assigned to the University or a departure of one or more key individuals;
- Violation of an investment guideline; and
- A change in the ownership or control of the investment management organization.
The Committee will evaluate investment managers and events in light of the current situation and other related factors then present.
Responsibilities of the Investment Managers
The duties and responsibilities of the investment managers include:
- Investing the assets of the University’s Endowment Fund and Operating Cash with the care, skill, prudence, and diligence that a prudent professional investment manager, familiar with such matters and acting in like capacity, would use in the investment of such assets, consistent with guidelines outlined herein.
- Adhering to the investment policies and guidelines prescribed by the University.
- Initiating written communication with the University whenever the investment manager believes the guidelines should be changed. The Committee recognizes that such changes may be necessary from time to time given the dynamic nature of capital markets.
- Informing the University regarding all significant matters pertaining to the investment of its assets. These matters include:
- Substantive changes in investment strategy or portfolio structure; and
- Significant changes in the ownership, affiliations, organizational structure, financial condition, and professional staffing of the investment management organization.
- Submitting at least quarterly reports describing portfolio holdings, performance results (on an after-fee basis), and transactions activities (including brokers used, commissions directed to each broker, and “soft dollars” generated).
- Informing the University of the “soft-dollar” arrangements between the manager and the brokers (and describing the services that are purchased with the “soft-dollars”) generated by the University’s Endowment Fund and Operating Cash assets. This information should be updated on a periodic basis, especially when significant changes occur in the “soft-dollar” relationships. The manager also should regularly inform the University of the turnover within the portfolio and be prepared to document rationale for significant changes in portfolio turnover.
- Voting all proxies after careful assessment of the issues involved. The managers should pay particular attention to items that may reduce the economic value of stockholders’ rights of ownership and thereby impact adversely the performance of the University’s assets.
- Investment manager should meet with the University. The Committee (or its designated representatives) expects to meet with the investment managers on a periodic basis. During such meetings, the managers will be expected to explain their current investment strategies and the rationale for them, and comment on performance.
This policy does not have definitions associated with it at this time. Upon periodic policy review this area will be evaluated to determine if additional information is needed to supplement the policy.
This policy does not have forms associated with it at this time. Upon periodic policy review this area will be evaluated to determine if additional information is needed to supplement the policy.
This policy does not have related information at this time. Upon periodic policy review this area will be evaluated to determine if additional information is needed to supplement the policy.
- Last Reviewed Date: October 16, 2017
- Last Revised Date: October 16, 2017
- Policy Origination Date: Not known
Who Approved This Policy
Robert DeCarlo, Chief Financial Officer & Associate Vice President
Michael J. McLeod, Director of Financial Operations and Associate Vice President