Investment Policy of
American Baptist Homes
of the West and its Combined Affiliates including
American Baptist Homes Foundation of the West
STATEMENT OF
OBJECTIVES & GUIDELINES
Reviewed by Management and Provided to Board Subcommittee in June 2007
Updated September 2009
TABLE OF CONTENTS
GENERAL INFORMATION...... 3
Scope of This Investment Policy...... 3
Purpose of This Investment Policy Statement......
INVESTMENT POLICY......
Definitions......
Definition Of Risk......
Conflict of Interest......
DELEGATION OF AUTHORITY......
NATURE OF RESPONSIBILITY......
Responsibility of the Investment Consultant(s)......
Responsibility of the Investment Manager(s)......
GENERAL INVESTMENT PRINCIPLES......
Liquidity......
Allowable Assets......
Prohibited Assets......
Prohibited Transactions......
INVESTMENT MANAGEMENT POLICY......
INVESTMENT PORTFOLIO......
Spending Policy for Charitable Distributions from Foundation Funds......
Method of Calculation of Spending Policy......
Specific Investment Goals for Foundation’s Funds......
Asset Allocation Guidelines......
Corporate Reserves Portfolio......
BSAM Portfolio......
Memorial Funds Portfolio......
American Baptist Homes of the West Properties Portfolio......
DIVERSIFICATION FOR INVESTMENT MANAGERS......
SELECTION OF INVESTMENT MANAGERS......
INVESTMENT MANAGER REVIEW AND EVALUATION......
INVESTMENT CONSULTANT REVIEW AND EVALUATION......
INVESTMENT POLICY REVIEW......
GENERAL INFORMATION
Scope of This Investment Policy
This statement of investment policy is intended to reflect the policy, objectives, protocols and constraints of the fiscal aspects of the American Baptist Homes of the West and its Combined Affiliates referred to as ABHOW. Principal assets under this policy are owned by ABHOW, American Baptist Homes Foundation of the West (ABHFOW), American Baptist Properties (ABP) and Baptist Senior Adult Ministries (BSAM). In the aggregate atMarch 31, 2007, funds encompassed under this policy approximated $111 million. Fiduciary oversightover retirement funds including the 457(f) Plan, 457(b) Plan, Defined Benefit Plan and the 401(k) Retirement Plan whose assets other than the 457(f) are not included in the ABHOW combined financial statements are covered in a separate management policy. In addition, restricted assets held by trustees for debt service reserve funds and undisbursed bond fund proceeds are not covered by this policy as they are invested in accordance with the bond indentures. Throughout the document “ABHOW” is intended to mean ABHOW and its combined affiliates including ABHFOW.
Management isresponsible for this policy for the selection and direction of financial advisors and overseeing the investments of its assets; monitoring budgetary issues and spending policies; monitoring the financial status of ABHOW and ABHFOW throughout the fiscal year; and making policy recommendations on fiscal policies and procedures. The ABHOW and ABHFOW Boards are responsible for reviewing the quarterly information provided to the Board and other information considered necessary for their monitoring function over management’s compliance with the executive limitations, ends and means established by the Board for investments.
Management isresponsible for evaluating the target total return on investment portfolios, and making recommendations for the policy to select professional Investment Consultants to handle the actual investments according to the Investment Policies stated herein. Management is also responsible for reporting to the Board at a minimum on an annual basis, evidence of compliance with this policy and/or any changes to this policy.
Purpose of This Investment Policy Statement
This statement of investment policy is set forth to:
1.Define and assign the responsibilities of all involved parties.
2.Establish a clear framework and statement for all involved parties of the investment goals and objectives of ABHOW assets.
3.Offer guidance and limitations to all Investment Consultants and Managers regarding the
investment of ABHOW assets.
4.Establish a format for evaluating investment results.
5.Establish the relevant investment horizon for which ABHOW assets will be managed which may be different for each portfolio and will influence the asset allocation.
6. In general, the purpose of this statement is to outline the philosophy and policies, which will guide the financial and investment management of ABHOW/ABHFOW assets toward desired results. It is intended to be sufficiently specific to be meaningful, yet flexible enough to be practical.
INVESTMENT POLICY
Definitions
1."Administrative Fee" shall refer to the percent ABHOW assesses to a fund on an annual basis for administration, including management and reporting, throughout the year. The fee is calculated and assessed on a monthly basis. For those funds which have a Fund Agreement, the administrative fee is defined in that agreement.
2."ABHOW Board" shall mean the Board of Directors of the American Baptist Homes of the West and “ABHFOW Board” shall mean the Board of Directors of the American Baptist Homes Foundation of the West.
3. “Custodian” refers to a bank or financial institution that has custody of stock certificates and other assets of a mutual fund, individual, corporation, or institution. Custodians hold assets in safekeeping, collect income on securities in custody, settle transactions, invest cash overnight, handle corporate accounting, and provide accounting reports.
4. “Foundation Restricted Fund” refers to a fund wherein the donor intent is that the principal amount of gifts and bequests are accepted subject to a requirement that the principal be held in perpetuity and not invaded for grantmaking. Once sufficient assets have accumulated to achieve a designated purpose, they may be spent, subject to the Foundation’s spending policy, to the extent that accumulated earnings are available.
5."Fiduciary" shall mean any individual or group of individuals that exercises discretionary authority or control over ABHOW management or any authority or control over management, disposition or administration of the assets of ABHOW.
6. “Fund Agreement” shall mean the instrument a living donor executes defining their intent as to the terms, investment and grantmaking, which a fund they are creating is subject to.
7. “Fund Accounting” refers to the dynamic of each fund being defined as an economic entity. Each fund has its own chart of accounts and every transaction is accounted for at the fund level.
8."Investment Horizon" shall be the time period over which the investment objectives, as set forth in this statement, are expected to be met.
9."Investment Manager" shall mean any individual, or group of individuals, employed to manage the investments of all or part of ABHOW assets.
- "Investment Consultant" shall mean any individual or organization employed to provide advisory services, including advice on investment objectives and/or asset allocation, manager search, and performance monitoring.
11."Securities" shall refer to the marketable investment securities, which are defined as
acceptable in this statement.
- “Spending Policy” shall refer to the policy established (calculation procedures) to provide assurance that grantmaking dollars are available for ABHFOW funds. The intent of the policy is to preserve the fund value such that benevolence and memorial distribution dollars will be available, as a donor intends, in perpetuity.
Definition Of Risk
Management realizes that there are many ways to define risk. Management believes that any person or organization involved in the process of managing the ABHOW assets should understand how risk is defined so that the assets are managed in a manner consistent with ABHOWobjectives and investment strategy as set forth in this statement of investment policy. Management defines risk as:
The possibility of not meeting ABHOW objectives, including loss of principal.
Conflict of Interest
It is the policy of management and the Board to avoid conflicts of interest in its operations and in the selection of investment managers or funds. Therefore, ABHOW administrative officers or Board members shall not have a material financial relationship in any manager or fund being considered. No independent investment consultant retained by ABHOW, or any entity, in which such consultant may have an interest, shall be a part to any transaction with, or have a financial or other interest in, any investment manager providing services to ABHOW or any fund in which ABHOW has an investment.
DELEGATION OF AUTHORITY
The ABHOW Boards are fiduciaries and are responsible for monitoring managements’ compliance with this policy. Management is authorized to delegate certain responsibilities to professional experts in various fields. These include, but are not limited to:
1.Investment Consultant. The consultant may assist Management in: establishing investment policy, objectives, and guidelines; selecting investment managers; reviewing such managers over time; measuring and evaluating investment performance; and other tasks as deemed appropriate.
2.Investment Manager. The investment manager has discretion to purchase, sell, or hold the specific securities that will be used to meet the ABHOW’s investment objectives.
3.Custodian. The custodian will physically (or through agreement with a sub-custodian) maintain possession of securities owned by ABHOW, collect dividend and interest payments, redeem maturing securities, and effect receipt and delivery following purchases and sales. The custodian may also perform regular accounting of all assets owned, purchased, or sold, as well as movement of assets into and out of ABHOW accounts.
4.Additional specialists such as attorneys, auditors, actuaries, retirement plan consultants, and others may be employed by Management to assist in meeting its responsibilities and obligations to administer ABHOW assets prudently.
With the exception of specific limitations described in these statements, the Boards or ABHOW management will not reserve any control over investment decisions. Managers will be held responsible and accountable to achieve the objectives herein stated. While it is not believed that the limitations will hamper investment managers, each manager should request modifications as deemed appropriate.
If such experts employed are also deemed to be fiduciaries, they must acknowledge such in writing. All expenses for such experts must be customary and reasonable, and will be borne by ABHOW as deemed appropriate and necessary.
NATURE OF RESPONSIBILITY
Responsibility of the Investment Consultant(s)
The Investment Consultant's role is that of an advisor to management and the ABHOW Boards. Investment advice concerning the investment management of ABHOW assets will be offered by the Investment Consultant, and will be consistent with the investment objectives, policies, guidelines and constraints as established in this statement. Specific responsibilities of the Investment Consultant include:
1.Assisting in the development and periodic review of investment policy, including active asset allocation and portfolio optimization.
2.Conducting investment manager searches when requested by Management.
3.Providing "due diligence", or research, on the Investment Manager(s).
4.Monitoring the performance of the Investment Manager(s) to provide Management with the information necessary to determine conformance with the investment objectives.
5.Communicating matters relating to policy, manager research, and manager performance to Management.
6.Reviewing ABHOW investment history, historical capital markets performance and the contents of this investment policy statement for any newly appointed Management personnel or interested Board members.
Responsibility of the Investment Manager(s)
Each Investment Manager will have full discretion to make all investment decisions for the assets placed under his/her jurisdiction, while observing and operating within all policies, guidelines, constraints, and philosophies as outlined in this statement. Specific responsibilities of the Investment Manager(s) include:
1.Discretionary investment management including decisions to buy, sell, or hold individual securities, and to alter asset allocation within the guidelines established in this statement.
2.Reporting, on a timely basis, quarterly investment performance results.
3.Communicating any major changes to economic outlook, investment strategy, or any other factors that affect implementation of investment process, or the investment objective of the Manager as a participant inABHOW overall management of its investments.
4.Informing the Investment Consultant regarding any qualitative change to investment management organization: Examples include changes in portfolio management personnel, ownership structure, investment philosophy, etc.
GENERAL INVESTMENT PRINCIPLES
1.Investments shall be made solely in the interest of ABHOW.
2.ABHOW assets shall be invested with care, skill, prudence, and diligence with the goal of producing returns equal to or exceeding prevailing standards among organizations of similar asset size and allocation methodology.
3.Investment of ABHOW assets shall be diversified as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.
4.Management may employ one or more investment managers of varying styles and philosophies to attain ABHOW objectives (details under “Delegation of Authority” herein).
5.Cash is to be employed productively at all times, by investment in short-term cash equivalents to provide safety, liquidity, and return.
Liquidity
To minimize the possibility of a loss occasioned by the sale of a security forced by the need to meet a required payment,Management will periodically provide investment counsel with an estimate of expected net cash flow. Management will notify the Investment Consultant in a timely manner, to allow sufficient time to build up necessary liquid reserves. Management will also have the responsibility of including these estimates and judgments in Board reporting.
To maintain the ability to deal with unplanned cash requirements that might arise,Management requires that a minimum of 2% of ABHOW assets shall be maintained in cash or cash equivalents outside of the managed portfolio. These cash equivalents can include money market funds or short-term U.S. Treasury bills or through a short term working capital credit facility. In addition, additional fixed income short term duration instruments (such as commercial paper with our existing bank relationships) will be employed to provide for significant upcoming capital expenditures.
Allowable Assets
1.Cash Equivalents
Treasury Bills
Money Market Fund
STIF Fund
Commercial Paper
Banker's Acceptances
Repurchase Agreements
Certificates of Deposit
2.Fixed Income Securities
U.S. Government and Agency Securities
Corporate Notes and Bonds
Mortgage Backed Bonds
Preferred Stock
Maximum maturity for a single bond issue is 30 years
Maximum average maturity of the entire portfolio may not exceed 15 years
3.Equity Securities
Common Stocks
Convertible Notes and Bonds
Convertible Preferred Stocks
American Depository Receipts (ADRs) of Non-U.S. Companies
Stocks of Non-U.S. Companies (Ordinary Shares)
4.Mutual Foundations
Mutual Funds, which invest in securities as allowed in this statement.
5.Other Assets
GIC's
Prohibited Assets
Prohibited investments include, but are not limited to the following:
- Private Placements
- Venture-Capital Investments
- Real Estate Properties
- Interest-Only (IO), Principal-Only (PO), and Residual Tranche CMOs(excludes Alternatives)
Prohibited Transactions
Prohibited transactions include, but are not limited to the following:
1. Short Selling(excludes Alternatives)
2. Margin Transactions(excludes Alternatives)
INVESTMENT MANAGEMENT POLICY
1.Preservation of Capital - Consistent with their respective investment styles and philosophies, investment managers should make reasonable efforts to preserve capital, understanding that losses may occur in individual securities.
2.Risk Aversion - Understanding that risk is present in all types of securities and investment styles, Managementrecognizes that some risk is necessary to produce long-term investment results that are sufficient to meetABHOW objectives. However, the investment managers are to make reasonable efforts to control risk, and will be evaluated regularly to ensure that the risk assumed is commensurate with the given investment style and objectives.
3.Adherence to Investment Discipline - Investment managers are expected to adhere to the investment management styles for which they were hired. Managers will be evaluated regularly for adherence to investment discipline.
INVESTMENT PORTFOLIO
Foundation InvestmentPortfolio
The objective of Foundation funds is that the principal gift(s) of the fund will be held in perpetuity even though there may not be a legal requirement to do so. Charitable distributions will be spent from a fund’s net earnings according to the Foundation’s spending policy stated herein. The investment strategy of the ABHFOWwill utilize “total return;” that is, the aggregate return from capital appreciation and dividend and interest income.
Spending Policy for Charitable Distributions from Foundation Funds
The ABHFOW spending policy currently requires a target total return of 7.3%. The target-spending rate, currently 4%, will be applied to a 12 quarter moving average to determine the distribution amount. Management must recommend, the ABHFOW Board must approve and the ABHOW Board is informed of any change to the spending percentage. (Current Rate of Return 7.3% = 3.8% spending policy +administration fees 1.0% + 2.5% consumer price index).
This spending policy is set forth by Management in order to:
1.Define the general parameters for fund eligibility to spend available dollars in distributions or grantmaking.
- Manage Foundation assets and spending in accordance with standards as established by common trust law.
3.Establish a clear understanding for all involved parties of the calculation of distribution dollars for a given year.
In general, the purpose of this statement is to outline the philosophy and procedures, which will guide the dollars available for distribution from endowed funds toward the desired result. It is intended to be sufficiently specific to be meaningful, yet flexible enough to be practical.
Method of Calculation of Spending Policy
Management has adopted, the ABHFOW Board has approved and the ABHOW Board has been informed of the following calculation for dollars available for distribution or grantmaking from ABHFOWmemorial funds:
1) The calculation for dollars available for distribution or grantmaking for the upcoming calendar year will be based on the average balance of the twelve moving quarters as of the March 31 balance.
2) Unless a donor requests otherwise, a fund will not participate in spending (grantmaking) for the next calendar year, until the fund has been in existence for a minimum of four (4) quarters.
3) If a fund has no Accumulated Earnings at the time of calculation for the upcoming year, that fund will not be able to participate in grantmaking for the upcoming year.
Example: Fund A: On 3/31/05, Fund A has a total historic gift balance
of $100,000 and negative accumulated earnings to date of ($2,500). The total
balance of the fund is $97,500. There are no accumulated earnings available on