This document establishes the investment policies, objectives and operating practices for the Non-Endowed Assets (the “Fund”) of the University of Connecticut Foundation, Inc. The Fund has been established to provide investment returns above those available from treasury bills and short-maturity bonds.
Non-Endowed Assets include:
- Private donations which are donor designated as fully spendable;
- Spending allocations generated from the endowment; and
- Foundation reserves
Earnings from investing non-endowed assets are expected to constitute approximately 15% of annual operating revenues. These assets are callable at any time to support University scholarships, faculty, programs, and Foundation operations.
This policy has been presented to and approved by the Board of Directors of The University of Connecticut Foundation, Inc. The Investment Committee has arrived at this Investment Policy through careful study of the returns and risks associated with various investment strategies in relation to the current and projected needs of the various anticipated future projects. This policy has been chosen as the most appropriate strategy for achieving the financial objectives of the Fund. Those are described in the Objectives section of this document.
The Investment Committee has adopted an intermediate-term investment horizon such that the chances for, and duration of, investment losses are carefully weighed against the long-term potential for appreciation of investments until expenditures are made. This policy and the managers implementing this policy will be reviewed at least annually to determine if any changes are required.
Duties and Responsibilities
The Investment Committee is responsible for managing the investment process in a prudent manner with regard to capital preservation while providing a steady flow of interest income to the Fund. The Investment Committee has authority to retain and/or replace investment managers and to control the asset allocation as long as it remains within approved limits.
The Investment Committee shall recommend for Board approval the investment policy for the Fund. This includes, but is not limited to, selection of acceptable asset classes, allowable ranges of holdings by asset class and individual investment managers as a percent of assets, the definition of acceptable securities within each asset class, and investment performance expectations.
The Investment Committee will communicate the policy and performance expectations to the Investment Managers. The Investment Committee will also review investment performance regularly to assure that the policy is being followed and that suitable progress is being made toward achieving the objectives. The Investment Committee will present its findings and recommendations to the full Board if action is needed.
The Investment Managers shall be responsible for determining investment strategy and implementing security selection and the timing of purchases and sales within the policy guidelines set forth in this statement, and as otherwise provided by the Investment Committee.
In the event that there is a material concern with a holding in the Non-Endowed Portfolio the Investment Committee Chair, after consultation with at least one other Investment Committee member and Chair of the Finance Committee, is authorized to take action to control losses by partially or fully liquidating such holdings up to, but not exceeding, 10% of the cost basis of the value of the Non-Endowed Portfolio at the time of the liquidation. This 10% limit will be reset after each Investment Committee meeting, during which any such actions taken during the previous period must be communicated to the Investment Committee.
The majority of assets are to be invested in short-to-intermediate duration fixed income securities.
A minimum of 2% Cash Equivalents must be held in the portfolio at all times, with a maximum of 20% in Cash Equivalents allowed.
Objectives and Guidelines
The fixed income assets in the portfolio shall be managed with the objective of generating a return of 50 basis points (net of fees) in excess of the Bank of America Merrill Lynch 1-3 Year Treasury Index
The Benchmark for the total portfolio shall be the Bank of America Merrill Lynch 1-3 Year Treasury Index
The portfolio is expected to be managed in a prudent manner with regard to capital preservation while pursuing returns in excess of the benchmark, meeting liquidity needs and providing a steady flow of interest income to the Fund.
Fixed Income Guidelines and Constraints
- Credit quality:
- Minimum Average Portfolio Quality: BBB (S&P), Baa2 (Moody’s), or BBB (Fitch)
- Minimum credit quality at time of purchase: B (S&P), B2 (Moody’s), or B (Fitch)
- In the absence of a security rating, the issuer’s rating will apply
- In case of split ratings, the highest rating shall apply.
- The portfolio should follow the limits set forth below:
Credit Ranges Minimum Maximum US Government Securities 5.0% 100.0% Investment-Grade Securities 0.0 100.0 Below Investment-Grade Securities 0.0 50.0
- Duration / Maturity:
The portfolio shall maintain a duration within +/- 50% of that of the Benchmark
- Permitted Securities:
- Fixed-income instruments of U.S. and non-U.S. issuers, such as:
- Obligations of Governments or their agencies, including (a) developed and (b) developing and emerging market countries;
- Securities guaranteed by such Governments or their agencies;
- Obligations of Supranational entities;
- Corporate securities, including covered bonds and convertible securities;
- Mortgage-backed securities;
- Asset-backed securities;
- Real Estate Investment Trust (REIT) debt obligations;
- Preferred stock, including Bank Trust Preferreds, up to a maximum of 10%
- Bank loans;
- Money-market instruments, including repos, certificates of deposits and commercial paper;
- Obligations of state/province and local jurisdictions of U.S. and non-U.S. countries;
- Commingled funds advised by the manager that invest in securities that are substantially consistent with these guidelines;
- Financial derivative instruments, such as forwards (including currency forwards), futures, options and swaps, to be utilized for hedging, yield curve management, and efficient market exposure; and
- Rule 144(a) securities or Reg S securities, as appropriate, and 4(2) commercial paper.
- Investments shall not be made in securities of the client entity, its subsidiaries, or its affiliates.
- Fixed income securities whose risk characteristics are consistent with benchmark securities.
- Diversification guideline at time of purchase:
Except for US government or agency securities, no more than 3% of the portfolio’s market value will be invested in securities of any single issuer.
The portfolio shall maintain sufficient liquidity such that it could be fully liquidated at reasonable transaction costs within 5 -days under most market environments.
Category: Finance and Administration
Applies to: All staff
Approved by: Board of Directors (Committee: Investment)
Effective Date: June 17, 2016
Contact: Vice President of Finance and Administration
Official Website: www.foundation.uconn.edu/policies
Revision History: March 12, 2015; March 9, 2012; June 10, 2005