Investment policy

NCCF INVESTMENT POLICY STATEMENT

Click here to download a PDF of the Investment Policy (Part 1, Part 2, Part 3)

The purpose of this statement is to establish a clear understanding between the Finance Committee of the North Carolina Community Foundation (hereto referred as the Finance Committee and NCCF) acting on behalf of the Board of Directors of NCCF and the Asset Manager(s) hired to invest assets of the Foundation under conditions set forth herein.  This statement will outline for all stakeholders an overall philosophy that establishes specific expectations, but allows sufficient flexibility for changing economic and securities market conditions.  This policy will provide guidance and limitations for the Asset Manager(s) and outline procedures for policy and performance review. 

Investment Objectives

The overall investment objective of the Foundation is to preserve and protect fund principal while achieving a rate of return of 5% above the rate of inflation, as measured by the CPI index, over a complete market and economic cycle (generally 3 to 5 years).  Achieving these objectives will require assuming a moderate level of risk, a long-term investment horizon and asset diversification.

Earnings from the investment portfolio will provide for annual grantmaking.  Funds available to grant are calculated on a calendar year basis based on 5% times the average of the previous 12 quarter-ending balances by fund as of 9/30.

The Foundation administers two types of funds:  1) Endowed Funds and 2) Non-endowed Gift Funds.  Endowed funds are those in which a percentage is distributed for charitable purposes each year but whose corpus is intended to remain in tact in perpetuity with normal fluctuation due to market cycles.  Non-endowed funds are those that are to be used for charitable purposes with little or no principal remaining to the Foundation.

The primary objectives of the investments of each of these types of funds will be:

  1. Growth & Income Model – Endowed Funds provide long-term growth of principal and income, without undue exposure to risk.  These funds may experience greater return and volatility relative to Non-endowed Funds.
  2. Liquidity & Stability Model – Non-endowed Gift Funds provide for the preservation and stability of principal through investment in high quality, liquid investments (cash/cash equivalents).

 The Finance Committee will consider investment of endowment funds in a manner other than the Growth & Income Model on a fund-by-fund basis after review of the charitable objectives of the fund.  The Finance Committee, upon approval of an alternative investment option, will have the investments adjusted and monitored to meet the objectives of that specific fund.

Asset Allocation Guidelines

Management of NCCF assets shall be monitored to the asset allocation guidelines provided in the table on the following page.  Each Asset Manager may have their direct allocation attached through addenda.  

VIEW ALLOCATION GUIDELINES TABLE

NOTES TO THE ASSET ALLOCATION GUIDELINES TABLE

  1. Bolded Indices in Asset Allocation Guidelines Table are employed to determine an overall weighted NCCF portfolio benchmark.  If there are no investments in a particular asset style, its target percentage will be applied to another style’s benchmark in calculating the overall benchmark.
  2. The Finance Committee may employ Asset Managers whose disciplines require investments outside the established asset allocation guidelines.  However, taken as a component of the aggregate fund, such disciplines must fit within the overall asset allocation guidelines established in this statement.  If the Committee wishes to consider assets not approved in this policy, they may do so only with the approval of the Board of Directors.
  3. In the event that the above aggregate asset allocation guidelines are violated, for reasons including but not limited to market price fluctuations, the Finance Committee will work toward bringing the aggregate portfolio(s) into compliance with these guidelines (rebalance) by the end of the 1st quarter following year-end.
  4. Alternative Investments may only be purchased/managed by specialty Asset Managers approved by the Investment Consultants or the Finance Committee.

General

  1. The assets will be invested by a Bank, Trust Company, Insurance Company, and/or Registered Investment Advisors in compliance with the Investment Advisors Act of 1940 as amended and its fiduciary standards.
  2. The Finance Committee expects each Asset Manager to manage assets with the care, skill, prudence and diligence that a “prudent person” acting in a like capacity and familiar with such matters would use in the investment of a fund of like character with similar aims according to the "Prudent Man" rule as defined in the Employee Retirement Income Security Act of 1974 (ERISA).
  3. The Finance Committee’s selection of an Asset Manager shall be based on prudent due diligence procedures.  A qualifying Asset Manager must be a Registered Investment Advisor under the Investment Advisors Act of 1940, Bank, Trust Company, or Insurance Company or other approved entity by the Board of Directors.
  4. The Finance Committee may employ one or more Asset Managers of varying styles and philosophies to attain the Finance Committee’s long-term performance objectives and may employ Investment Consultant(s) to provide oversight, advisory and reporting functions.  Asset Managers may be hired to manage an asset class specialty i.e. large cap value, large cap growth, international, fixed income, etc.  Each such Specialty Asset Manager will have their investment parameters specified in an addendum to this investment policy.
  5. The Finance Committee defines risk as:  Risk measurement will be obtained for each Investment Manager by observing the long-term statistics of BETA and STANDARD DEVIATION, which will measure volatility vs. the Asset Manager’s appropriate index.  These measurements, over a rolling three to five year periods, are expected to indicate value added by each Asset Manager (ALPHA).

Portfolio Guidelines and Restrictions

Asset Managers (with the exception of Asset Managers of alternatives) must adhere to the portfolio guidelines and restrictions.  Alternative investments are exempt from these restrictions due to the nature of the acceptable alternative investment strategies.  The prohibited assets and prohibited transactions apply to all other asset classes, investment styles, and the activities of the Asset Managers of such assets, unless otherwise approved by the Finance Committee:

Prohibited Assets

Prohibited Transactions

 Including, but not limited to:

  1. Commodities and Futures Contracts
  2. Private Placements
  3. Purchasing Options
  4. Limited Partnerships
  5. Derivatives
  6. Interest-Only (IO), Principal-Only (PO), and Residual Tranche CMOs
  7. Individual Mortgages
  8. Lettered stock or other non-marketable securities
  9. Unregistered Stock

 Including, but not limited to:

  1. Short Selling
  2. Margin Transactions
  3. Currency Hedging

 

Guidelines for Equity Investments

For prudent portfolio diversification, equity investments should adhere to the following guidelines, unless otherwise approved by the Finance Committee:  (except for funds invested in mutual funds)

  1. Individual equity purchases cannot exceed 5% of the manager’s equity portfolio value at cost and 10% of market value.
  2. The market value of an investment in any one industry sector should not exceed 2 times the benchmark’s sector weighting.
  3. For benchmark sectors less than 15%, the manager may exceed a double weighting up to a maximum of 30%.

Guidelines for Fixed Income Investments

Fixed income securities will be managed with the purpose of lowering volatility and producing current income.  The following are limitations for fixed income investing for the Foundation: (except for funds invested in mutual funds)

1.   No issues may be purchased with more than 30 years to maturity.

2.   Investments in securities of a single issuer (with the exception of the U.S. Government and its agencies) must not exceed five percent (5%) of market value.

3.   Only corporate or governmental debt issues that meet or exceed a credit rating of BBB from Standard & Poor's and/or a BAA rating from Moody's, may be purchased.  (Must be investment grade quality)

Guidelines for Exchange Traded Funds

Investment in Exchange Traded Funds (ETFs) should be limited to those that are generally designed to replicate the price and yield performance of a broad market (i.e. S&P 500) or should be used in conjunction with other investments in order to achieve the target asset allocation strategy outlined in the “Asset Allocation Guidelines”.

Guidelines for Alternative Investments

In recognition of the increasing opportunity in today’s investment universe, the Finance Committee may consider alternative investment vehicles, if deemed prudent.

Investment in alternative investment assets is limited to not more than 10% of the value of the total assets of the portfolio at the time of initial investment.  An investment shall be deemed Private Equity, Buyout or Venture Capital funds if it results in the acquisition of equity or debt interests, or a combination thereof, in a business which is expected to grow substantially in the future and in which the interests are not secured solely by real estate.  A Private Equity, Buy Out or Venture Capital investment may be made if, in the judgment of the Finance Committee, the investment is likely to enhance the performance and diversification of the Foundation’s investment portfolio.  In determining whether the investment meets the standard or prudence, the Finance Committee may consider the actual and/or expected risk and return characteristics of a universe of similar investments or appropriate benchmarks.  An investment shall be deemed Hedge Fund if it is in pursuit of “absolute return” in that it has a goal to generate a positive return regardless of whether asset prices are rising or falling.  To achieve absolute return the Manager may engage in non-traditional investment practices otherwise restricted from use by more traditional money managers as outlined under “Portfolio Restrictions”.

Asset Manager(s)

Responsibilities of the Asset Manager(s)

Asset Managers will have full discretion to make all investment decisions within the limitations set forth in this Policy Statement.  Specific responsibilities of the Asset Manager(s) include:

  1. Perform discretionary investment management including decisions to buy, sell, or hold various securities.
  2. Provide the Investment Consultant with copies of all statements, documents, and reports in a timely manner after the close of each period.  The Finance Committee or Foundation staff can provide the contact information of the Investment Consultant.
  3. Communicate to the Investment Consultant and/or to the Finance Committee any major changes to economic outlook, investment strategy, or any other factors, which would affect their expected performance or process.
  4. When appropriate, vote proxies and keep all records that will be governed by the Asset Manager’s client agreement.
  5. Assure compliance with applicable law, report any discrepancies, and notify the Investment Consultant and/or the Finance Committee of any legal action taken against the Asset Manager(s), any arbitration involving the Asset Manager(s), or any judgments against the Asset Manager(s) or any of its employees.
  6. Implement this investment policy to achieve the investment objectives.
  7. Notify the Investment Consultant and/or Finance Committee should circumstances occur which the Asset Manager believes this Policy Statement needs to be modified to achieve the desired long-term objectives.
  8. Notify the Investment Consultant and/or the Finance Committee regarding any material change in the investment management personnel or ownership of the Investment Manager, within 45 days of occurrence.

Asset Manager Performance Review and Evaluation

Performance reports generated by the Asset Managers will be compiled quarterly and communicated to the Finance Committee for review.  The investment performance of total portfolio, as well as asset class components, is measured against commonly accepted performance benchmarks (refer to page 2 for benchmark comparisons).  The Finance Committee intends to evaluate the portfolio(s) over complete market cycles (at least three-year rolling periods), but reserves the right to terminate a manager for any reason at any time, including the following:

  1. Investment performance that is significantly less than anticipated given the discipline employed and the risk parameters established, or unacceptable justification of poor results.
  2. Failure to adhere to any aspect of this Investment Policy Statement that is applicable to the Manager.
  3. Significant changes to the Asset Manager organization.

Communications

The Asset Manager and/or the Investment Consultant is required to give the Finance Committee quarterly account reviews detailing investment performance against predetermined benchmarks (time-weighted), market outlook, account value, and comparisons with established benchmarks.  In addition, the Finance Committee and/or Investment Consultant must receive information about changes in the Asset Manager's investment philosophy, management, ownership, and key personnel, within 45 days from the change.

Meetings may be held on an as-needed basis between the Finance Committee, the Asset Manager, and/or the Investment Consultant.  Topics to be discussed may include:

1.   The Asset Manager's relative investment performance and risk levels in light of the stated policies and objectives.

2.   The Asset Manager's views on important developments within the economy and the securities markets, and their potential effect on investment strategy, asset allocation, and account performance.

3.   The effects of changes within the Asset Manager's organization on investment philosophy, strategy, and performance.

4.   Proposed amendments to the policies and objectives presented in this Investment Policy Statement.

The Finance Committee and/or the Investment Consultant may choose to meet more frequently with the Asset Manager if significant concerns arise about the Asset Manager's performance, strategy, personnel, and organization structure.

 

 


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