7-RFQ Vol. 2 SOW Exhibit B ACT Endowment.pdf

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Agency for Community Transit Community Action Grant Program

Endowment

INTRODUCTION AND PURPOSE

On August 15, 2024, the Board of Directors of the Agency for Community Transit, Inc. (ACT), approved Resolution 24-15 Authorizing the Establishment of an ACT Endowment for the Community Action Grants Program. This document is set forth to implement Resolution 24-15 to:

1. Define the investment policies, guidelines and objectives of the Agency for Community Transit Community Action Grant Program (CAGP) Endowment Fund (the "Fund").

2. Create a framework from which the trustees of the Fund (the "Trustees") can evaluate performance, explore new opportunities and make recommendations to enhance the investment portfolio of the Fund.

3. Provide guidance for, expectation of and limitation on all parties bearing investment responsibilities with the Fund.

The intent of this Statement is to design an investment environment with specific parameters that reflects the philosophy of the Trustees, thereby providing Investment Managers with clearly defined policies and objectives to guide the investments of the Fund. Although these policies and objectives are intended to govern the investment activity, they are designed to be sufficiently flexible in order to be practical.

INVESTMENT RESPONSIBILITIES

The Fund was organized exclusively to benefit the endeavors of the Agency for Community Transit CAGP. The Trustees have and will select and retain Consultants and/or Investment Managers in an effort to ensure the investment program is managed in compliance with all applicable fiduciary, prudence, and due diligence requirements that experienced investment professionals would utilize, and with all relevant laws, rules, and regulations issued by local, state, federal and international political entities that apply to the Fund.

Trustees

The Trustees of the Fund shall consist of a minimum of three ACT Director level employees who are appointed by the ACT Board of Directors. Each Trustee shall have one vote when carrying out the Trustee duties for the Fund. The Trustees of the Fund bear the overall fiduciary responsibility for the Fund. As such, the Trustees are ultimately responsible for making the decisions that affect the Fund’s lnvestment Policy, Portfolio Objectives, Policy Asset Allocation and Consultant and/or Investment Managers. They must act prudently, avoid

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The Trustees of the Fund are charged with the responsibility of overseeing the management of assets of the Fund available for investment. They have the responsibility to ensure that the assets of the Fund are managed in a manner which is consistent with the policies and objectives of the Fund. In this regard, the Trustees also have oversight responsibility for full compliance with all applicable laws.

The Trustees shall discharge their duties solely in the interest of the Fund and for the exclusive purpose of meeting the financial needs of the Fund. They are authorized and permitted to engage the services of registered Investment Managers who possess the necessary specialized research facilities and skill to meet the investment objectives and guidelines of the Fund. Accordingly, the Trustees will require the Investment Managers to adhere to any policies adopted by the Trustees.

In carrying out its responsibilities a quorum of the Trustees must be present, either in person or by teleconference. Each member shall be entitled to one vote and each decision of the Trustees shall require the assent of a majority of those present.

The Trustees. relying upon the advice of the Fund's Consultants and Investment Managers, shall undertake the following:

1) Establishing investment policy guidelines and reviewing their compliance;

2) Determining the appropriate policy asset allocation ranges in conformance with Resolution 24-15 or any superseding Resolutions approved by the ACT Board of Directors;

3) Assessing and developing investment objectives, rebalancing strategies, and performance measurement standards which are consistent with the financial needs of the Fund;

4) Reviewing and evaluating investment results in the context of predetermined performance standards and implementing corrective action as needed; and

5) Reporting to the Agency for Community Transit Board of Directors regarding the Funds account balance, asset allocation, performance, and other pertinent items.

Investment Consultant

The Trustees may select and engage a representative of a chartered bank, trust company, or an independent investment consulting firm, ("Consultant") to assist the Fund in the attainment of its objectives and monitor compliance with the stated investment policies.

Investment Managers Each Investment Manager is expected to pursue their own investment strategy within the performance guidelines created for individual managers. Coordination of the guidelines for the individual managers ensures the combined efforts of the managers will be consistent with the overall investment objectives of the Fund.

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The Investment Managers' responsibilities are as follows:

1) Assisting in the development and implementation of investment policies, objectives and guidelines;

2) Preparation of an asset allocation analysis and the selection of an asset allocation strategy with respect to the Fund's objectives and the permissible ranges defined by the Trustees;

3) Investing assets under their management in accordance with the guidelines and restrictions formulated by the Trustees;

4) Exercising discretionary authority over the assets entrusted to them, subject to these guidelines and restrictions;

5) Providing written documentation of portfolio activity, portfolio valuations, performance data, and portfolio characteristics on a monthly basis in addition to other information as requested by the Trustees;

6) Voting proxies in the best interest of the Fund;

7) Where applicable, annually provide a copy of the SEC investment advisors disclosure form ADV Part II; and

8) Reviewing and developing special investment strategies that complement existing asset classes or strategies to be considered by the Trustees.

Investment Custodian

The custodians, who may also serve as or be selected by the Investment Managers, are responsible for the safekeeping of the Fund's assets. Their duties and responsibilities are as follows:

1) Providing timely reports detailing investment holdings and account transactions monthly and an annual report summarizing the following to be submitted to the Fund within 21 days following each year ending September 30. The reports will include the following:

a) Statement of all property on hand,

b) Statement of all property received representing contributions to the accounts,

c) Statement of all sales, redemptions, and principal payments,

d) Statement of all distributions from the account,

e) Statement of all expenses paid,

f) Statement of all purchases, and

g) Statement of all income.

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2) Establishing and maintaining account(s) for Investment Manager(s) employed or Mutual Fund(s) held by the Fund,

3) Providing all normal custodial functions including security safekeeping, collection of income, settlement of trades, collection of proceeds of maturing securities daily investment of uninvested cash, etc., and

4) Preparing additional accounting reports as requested by the Trustees.

INVESTMENT POLICIES AND OBJECTIVES

General Investment Philosophy Objectives:

1) Return: The long-term objective of the fund is to accumulate funds and earn a return sufficient to preserve the purchasing power of the fund and to make annual distributions to the Agency for Community Transit CAGP in accordance with the Endowment Fund rules and regulations for generations to come. As a result, the annual return should at least equal or exceed the requirements expressed in the rules and regulations and the annual sum of distributions, inflation, administration costs, net of management fees.

2) Risk: The Fund's portfolio will be permitted to experience an overall level of risk consistent with the risk generally associated with the policy asset allocation. Permissible ranges for policy asset allocation are set forth in Appendix A.

Constraints:

1) Liquidity: The portfolio must offer sufficient liquidity to meet the operating needs of the Fund.

2) Time Horizon: The Fund's intent is to remain in perpetuity, and as such the portfolio should support this goal.

3) Taxes: The Fund is tax exempt according to IRS Section 50l(c)(3)

4) Legal and Regulatory: The State of Illinois has adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). UPMIFA provides relief from two traditional tenets of trust law by specifically permitting an endowment fund to spend a prudent portion of realized gains and to delegate investment discretion to qualified professionals. UPMIFA allows an endowment fund to expend the amount they deem prudent after considering to the extent relevant the following factors:

a) the duration and preservation of the assets;

b) the purposes of the Fund and the assets;

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c) general economic conditions;

d) the possible effect of inflation or deflation;

e) the expected total return from income and the appreciation of investments;

f) other resources of the Fund; and

g) the investment policy of the Fund.

Return Measurement Objectives

The investment objectives of the Fund are based upon a long-term investment horizon allowing interim fluctuations to be viewed in an appropriate perspective. While there cannot be complete assurance that the defined objectives will be realized, it is believed that the likelihood of their realization is enhanced by the Investment Policy Statement of the Fund.

Over time, the Fund will aim to achieve the total fund return goal while maintaining acceptable risk levels. To accomplish this goal, the fund will diversify its assets among several asset classes.

All return objectives described are understood to be net of (after) investment expenses.

1) Total Fund (portfolio) assets should attempt to return, over the time horizon, an annualized nominal rate of return greater than or equal to the long-term return objective, net after all fees and costs.

2) Total Fund (portfolio) assets should attempt to return over rolling twelve-month periods, a nominal rate of return greater than or equal to a composite index created by combining various indices in the same proportion as the Fund's target allocation (described in Appendix A).

3) The Investment Manager should attempt to return, over rolling twelve-month periods, a nominal rate of return greater than or equal to the appropriate market index for that investment manager, with no more than commensurate risk.

Volatility and Risk

The Fund believes that the return objectives can be achieved while assuming acceptable risk levels commensurate with "market" volatility. "Market" volatility is defined as the trailing three-year standard deviation of investment returns (based on monthly data) of the benchmark indices deemed appropriate.

The Fund further believes that risk is defined as the probability of failing to meet the Fund's Objectives over the time horizon. Therefore, in order to minimize the probability of failure, thereby minimizing risk, the following variables should be considered in all aspects of the decision-making process with regards to the Fund's investable assets:

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1) Probability of Missing the Goal Return

2) Inflation

3) Asset/Style Allocation

Distribution/Spending Policy

Annual endowment income available for spending is defined as:

• net investment earnings, inclusive of unrealized earnings and income, for the twelve months ending September 30th

• less the fees paid to the Investment Manager

• less an amount to be retained in the endowment and used to preserve the purchasing power of endowment principal against erosion from inflation

The amount to be retained in the endowment shall be calculated as the total portfolio value at September 30th of the preceding year, increased by the percentage increase (if any) in the CPI from the average for the quarter ending June 30 of the current year to the average for the for the quarter ending June 30 of the previous year. If the CPI is decreased during this time frame, no adjustment will be made.

The Trustees shall calculate the amount to be distributed for the next calendar year using the guidelines above and shall then propose the distribution amount to the Agency for Community Transit Board of Directors no later than November 30th of the current year. The Board shall have final approval of the amount to be distributed from the Fund for the CAGP for the following calendar year.

Allocation

The single most important decision made by the Fund is the asset allocation decision.

Investment research has determined that a significant portion of a fund's investment behavior can be attributed to (1) the asset classes/styles which are employed by the fund, and (2) the weighting of each asset class/style. The Trustees, with guidance and recommendations from their Investment Advisors, should review the asset mix on an ongoing basis and recommend revisions as necessary. Current policy asset allocation guidelines and permissible ranges are set forth in Appendix A.

The target asset allocation of the Fund is designed to give balance to the overall structure of the Fund's investment program over a long period of time. However, some factors may impact the target allocation, thereby requiring an asset allocation review and possible rebalancing.

Some of these factors include:

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1) The Trustees' assessment of the intermediate or long-term outlook for different types of asset classes and styles;

2) The Investment Manager's assessment of the intermediate or long-term outlook for different types of asset classes and styles; and

3) Divergence in the performance of the different asset classes and styles.

Portfolio Rebalancing

Since asset allocation is the most critical component of the Fund’s return, it is desirable to rebalance the portfolio periodically to minimize deviations from the Policy Asset Allocation mix.

The Investment Managers may rebalance the portfolio to achieve the Policy Asset Allocation at any time. However, the portfolio shall be rebalanced in the event any individual traditional asset class (equity, alternative, or fixed income) differs from policy by more than 10% of the target weight.

Permissible Investments The target asset allocation of the Fund is expected to include a wide range of asset classes.

These asset classes and their allocation of the assets of the Fund are displayed in Appendix A.

The Investment Managers may propose alternative investments to the Trustees, but no alternative investments shall be placed without written authorization from one of the Fund Trustees. Such authorization shall only be given after approval by a majority of the Fund Trustees.

Procedure for Revising Guidelines All investment policies and performance goals will be reviewed at least annually, or more frequently if deemed necessary by the Trustees. Any policy revisions or amendments will be presented to the Agency for Community Transit Board of Trustees for consideration.

Reporting Requirement

The Investment Manager shall provide the Fund with a monthly investment review detailing holdings, cost basis, market value, projected returns, transactions and the cost of investment activities. This information will be reported monthly to the Trustees.

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APPENDIX A

Policy Asset Allocation Parameters and Guideline Ranges

Asset Class Target Allocation Range

Equities 60% +/- 10%

Fixed Income 35% +/- 10%

Cash 5% +/- 5%

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