19-01 - DRAFT Investment Policy.pdf

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MASSBAY COMMUNITY COLLEGE INVESTMENT POLICY STATEMENT

Approved by the Board of Trustees [Insert Date Here]

PURPOSE

Carefully managed and maintained, the Operating Reserves Fund and Board Designated Fund (the Funds) should provide a permanent source of support for MassBay and the community we serve. The Funds may be used to support operating expenses, capital spending, or other needs as determined by the annual budget process. The Funds may also be used as collateral for a loan if required for MassBay programs.

MassBay’s Operating Reserve Fund shall be managed to accomplish the following priorities:

• Provide for planned cash flow needs over a 3-5 year budget forecast, which will be updated at least annually

• Preservation of the purchasing power of the funds

• Generate additional income that can supplement cash flow needs to the extent this is consistent with the preservation of principal

MassBay’s Board Designated Fund shall be managed to accomplish the following priorities:

• Protection against substantial and unforeseen financial distress

• Preservation of the purchasing power of the funds

• Contribution of reliable annual income to supplement the budget

It shall be the policy of MassBay to treat Funds that are legally unrestricted as if held in a fiduciary capacity for the sake of accomplishing its mission and purposes. The following investment policy is to be understood in light of that overall sense of stewardship. In that regard, the basic investment standards shall be those of a prudent investor as articulated in applicable state laws.

SUPERVISION & DELEGATION

The Board of Trustees of MassBay has adopted these policies and has delegated authority to the Finance, Compliance, Personnel, & Audit Committee (FCP&A) to supervise MassBay’s investments. The Board reserves to itself the exclusive right to amend or revise these policies.

The FCP&A serves at the pleasure of the Board and has the responsibility to:

1. Supervise the overall implementation of MassBay’s investment policies by MassBay’s executive staff and outside advisors;

2. Monitor and evaluate the investment performance of MassBay’s Funds;

3. Report regularly on MassBay investment matters to the Board of Trustees;

4. Grant exceptions as permitted in these policies and recommend changes in approved policy, guidelines, and objectives as needed; and,

5. Execute such other duties as may be delegated by the Board of Trustees.

Whenever these policies assign specific tasks to the Committee, the policies assume that the actual work may be performed by MassBay’s designated staff members, subject only to the Committee’s overall supervision. The Committee is also authorized to retain one or more investment advisors as well as any administrators, custodians, or other investment service providers required for the proper management of MassBay’s Funds.

In discharging this authority, the Committee can act in the place and stead of the Board and may receive reports from, pay compensation to, enter into agreements with, and delegate discretionary investment authority to such advisors. When delegating discretionary investment authority to one or more advisors, the Committee will establish and follow appropriate procedures for selecting such advisors and for conveying to each the scope of their authority, the organization’s expectations, and the requirement of full compliance with these Policies.

INVESTMENT POLICY

Investment Objectives

The Operating Reserve Fund should be invested to provide principal preservation and income, as is consistent with investing in a diversified portfolio of high-quality, short-term fixed income securities and other appropriate investment vehicles including limited exposure to high-quality stocks.

The Board Designated Fund should be invested to provide current income and capital appreciation, as is consistent with investing in a diversified portfolio of high-quality stocks and convertible securities; and in high quality fixed income securities and other appropriate investment vehicles.

Assets of the Funds shall be invested to ensure that principal is preserved over time, both in real and nominal terms. Total return shall be defined as the sum of (a) capital appreciation or capital depreciation, plus (b) interest and dividends earned on such capital investments. Total return, consistent with prudent investment management and the guidelines expressed herein, is the primary goal of the Funds. Given the long time horizon, the Funds shall be managed for long-term results rather than short-term performance.

The Funds may keep a reasonable amount of funds in high-quality money-market securities for use as a temporary investment or for payment of account expenses and disbursements requested for MassBay expenses and capital projects.

Investment Guidelines

Investment Manager Discretion:

Full discretion, within the parameters of the investment policy guidelines described herein, is granted to the investment manager regarding the tactical asset allocation, the selection of securities, and the timing of transactions.

Investment Income:

The Investment Manager will reinvest all income unless instructed to do otherwise by Committee

Asset Allocation:

The Fund shall be diversified both by asset class and within each asset class. The purpose of diversification is to provide reasonable assurance that no single security or class of securities will have a disproportionate impact on the Fund.

The proportion of each asset class in the Fund shall be termed the asset allocation. Each account will be managed toward a long term strategic asset allocation target with tactical asset allocation ranges around the target. The midpoint of the allocation range determines the benchmark allocation for performance measurement:

Board Designated Fund Operating Reserve Fund Equities: 50-70% 10-30% Fixed Income: 30-50% 70-90%* Cash: < 10% 70-90%*

* The Fixed Income and Cash allocations of the Operating Reserve Fund will total 70-90%, with the allocation of cash dependent upon liquidity needs over the next year based on regularly updated cash flow projections.

The purpose of equity investments is to provide capital appreciation and current income, with the recognition that this class of investment carries with it the assumption of potentially high market volatility over some periods.

The purpose of fixed income investments is to generate current income, provide for more stable periodic returns, and provide some protection against a prolonged decline in the market value of equity investments, and to supplement income derived from equity investments.

These target asset allocation ranges will be reviewed at least annually by the FCP&A Committee.

Stock Investments:

Stocks are restricted to publicly traded issues, for which a ready market exists through a recognized stock exchange, of companies with proven histories and potential for long term appreciation. No position shall be held which represents control or management of the company.

An investment in an individual security should not exceed 5% of the total equity portfolio.

Industry Concentration:

No more than 30% of the endowment assets shall be invested in a single economic sector, as defined by Standard & Poors.

Bond Investments:

Bonds are restricted to publicly traded obligations for which a ready market exists issued by the US Government, US Government Agencies, corporations, commercial and residential mortgage-backed securities, and asset backed securities. Fixed income securities are to be selected and managed to ensure appropriate balances in qualities and maturities consistent with current economic conditions. “Active” bond management is encouraged, as deemed appropriate by the investment manager.

Fixed income issues held in a portfolio should have a maturity of 10 years or less and an investment grade credit rating (a rating of BBB/Baa by one of the major rating services). Up to 10% of the fixed income portfolio may be invested in bonds with credit ratings below investment grade, provided they are held within an open or closed end mutual fund or exchange traded fund to enhance liquidity and diversification.

Preferred stock shall be treated as a category of bond and shall be subject to the same restrictions. Bonds convertible into common stock shall meet the requirements for both stocks and bonds. Open and closed end mutual funds and exchange traded funds may be included in the portfolio, but the underlying securities must meet the investment criteria described herein.

Issuer Concentration:

No investment may be held which represents more than 10% of any class of securities of any one issuer except US Government obligations. No more than 10% of the value of the Fund may be invested in any one issuer except the US Government.

Cash:

Cash shall include appropriate short-term investments including Commercial Paper, Certificates of Deposit, Treasury and Agency Notes, etc., all having a rating of A-1/P-1 or equivalent and for which a ready market exists.

Liquidity requirements:

• Operating Reserve Funds: MassBay will update cash flow projections at least annually so that withdrawals expected in the next year can be set aside in liquid short term investments or cash equivalents.

• Board Designated Funds: There are no ongoing requirements for short-term liquidity beyond the spending policy. MassBay is responsible for advising the investment manager in a timely manner of any change in liquidity requirements.

Investment Prohibitions:

The following are not appropriate investments for the Funds and are prohibited:

• Direct investments in real estate, oil/gas/mineral exploration or their development rights

• Private placements, limited partnerships

• Derivatives or commodities contracts

• Margin purchases

• Arbitrage

• Short sales transactions

Any uncertainty as to the appropriateness of a particular security should be presented to the FCP&A Committee for approval prior to purchase.

Evaluation of Investment Performance

The portfolio will be monitored on a continual basis for consistency in investment philosophy, return relative to objectives, and investment risk. The total return objective is to realize a rate of return over a market cycle of 3 – 5 years that exceeds:

• For the Board Designated Fund: 4% over the inflation rate and a blended benchmark constructed using unmanaged indices with a similar mix of asset classes as the Fund

• For the Operating Reserve Fund: the inflation rate and a blended benchmark constructed using unmanaged indices with a similar mix of asset classes as the Fund

Investment returns should be calculated according to the Global Investment Performance Standards as published by the CFA Institute. The investment manager’s performance will be compared by the FCP&A Committee against appropriate benchmarks (as an example, the S&P 500, the MSCI World ex US, the Barclays Intermediate Government/Credit Bond index) at least quarterly. The Committee is aware that there may be short-term deviation from these objectives.

The following standards will be used in evaluating investment performance:

• The compliance of the investment manager with the guidelines as expressed herein.

• The extent to which the total rate of return of the Fund achieves or exceeds the targeted goals, as well as a comparison to the performance of the stated indices.

If at any time the investment manager believes that any policy guideline inhibits investment performance, it is the manager’s responsibility to clearly communicate this view to the FCP&A Committee.

The investment manager will meet with the FCP&A Committee for a comprehensive portfolio review at least annually or as requested by the Committee. The investment manager will also make the following information available to all Trustees at least quarterly: total return, additions and withdrawals from the account, current asset allocation, current holdings at cost and market value, and purchases and sales for the quarter.

SPENDING POLICY

Disbursements from the Fund may be used for operating and capital needs, as determined as part of the annual budgeting process. No funds may be withdrawn without approval of the Board of Trustees.

It is the intention of MassBay to increase the value of the Board Designated Fund over time, so the annual withdrawal rate from this fund is not to exceed 4% of the average market value as of the last day of the past 12 calendar quarters (March 31, June 30, September 30, December 31).

Annual withdrawals from the Board Designated Fund in excess of this amount require a three fourths vote of approval by the Board of Trustees.

PROXY POLICY

MassBay shall vote all proxies.

GIFT POLICY

Gifts will be sold within five (5) business days of receipt.

ADMINISTRATION

Policy Approval/Amendment This Investment Policy will be reviewed and reaffirmed or amended at least annually by the Finance, Compliance, Personnel, & Audit Committee. The Board of Trustees must ratify amendments other than those of a technical nature.

Investment Representative or Committee

The Finance, Compliance, Personnel & Audit Committee Chairperson will select an Investment Representative or representative Investment Committee from among the current FCP&A Committee members to act as principal administrative liaison with the Investment Manager for purposes of communication and reporting.

Periodic Reporting

The custodian shall provide view-only account access to the FCP&A Committee and additional Trustees as requested, along with monthly reports listing Fund ownership positions, current market valuations, investment transactions, and any distributions.