Investment Policy Statement for Operating Cash
|Approved By:||Board of Trustees|
|Oversight Unit:||FINANCE & ADMIN, VICE PRES|
Northern Michigan University is an educational institution that challenges its students and employees to think independently and critically, develop lifelong learning habits, acquire career skills, embrace diversity and become productive citizens in the regional and global community.
The University’s Operating Cash assets are intended to provide maximum financial resources for the
University, balancing risk and return, and in recognition of the fiduciary responsibilities of the Board of Control. While the University will be sensitive to social and political concerns, it will not invest the funds in order to foster a particular social or political action.
The purpose of this Investment Policy Statement is to establish a clear understanding of the philosophy and the investment objectives for Northern Michigan University (hereinafter, "University) Short-Term, Intermediate-Term and Long-Term portfolios. It is meant to assist the Finance Committee and its Agents in effectively supervising and monitoring the investments of the University.
The Board of Trustees has delegated the management of the University’s investment portfolio to the Finance Committee (“Committee”). This policy applies to all assets included in the University’s Operating Cash investment portfolio.
III. Roles & Responsibilities
A. Board of Trustees
The Board of Trustees is responsible for the University’s Operating Cash investment portfolio. To implement these responsibilities, the Board sets and approves the investment policy statement and delegates responsibility to the Finance Committee for implementation and ongoing monitoring.
B. Finance Committee
The Committee is responsible for implementing the Investment Policy. This responsibility includes approving investment strategy, hiring and firing investment managers, monitoring performance of the investment portfolio on a regular basis (not less than annually), maintaining sufficient knowledge about the portfolio and its managers so as to be reasonably assured of their compliance with the Investment Policy Statement. The Committee will submit Performance Reports to the Board periodically, but no less than annually.
C. University Management
The Vice President of Finance has responsibility for administration of the Fund’s investment portfolio and will consult with the Committee and/or the Board on all matters relating to the
investment of the portfolio. The Vice President of Finance will serve as the primary contact for the Fund’s investment consultant and custodian.
D. Investment Consultant
Northern Michigan may choose to hire an investment consultant. Investment advice concerning the management of investment 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 would include items such as assisting in the development and periodic review of the investment policy and the asset allocation strategy, conducting investment manager searches when determined appropriate by the investment consultant and monitoring the performance of the investment manager(s) to provide University Management and/or the Committee with the ability to determine the progress toward the investment objectives. With respect to the investment manager review/monitoring process, the investment consultant will notify University Management as soon as practical, and include in their regular report, if an investment manager is removed from its qualified list of recommended managers.
E. Investment Custodian
Northern Michigan may hire a custodian for the University’s investments to establish and maintain direct account relationships with each investment manager and perform standard custodial functions including security safekeeping, collection of income, settlement of trades, collection of proceeds for maturing securities, distribution of income and daily investment of cash. The custodian will provide monthly account statements and other reports as requested by staff and the investment consultant.
F. Investment Managers
Northern Michigan will delegate the selection, purchase and sale of individual securities to qualified industry experts. Each individual investment manager will exercise discretion over assets in accordance with specified investment guidelines.
Investment managers that utilize a separate account to manage University assets will adhere to specific investment manager guidelines established with the assistance of the investment consultant.
Investment managers that utilize a mutual fund, commingled trust fund or limited partnership structure will have discretion to manage the assets in accordance with policies and guidelines outlined in the respective mutual fund’s prospectus, commingled fund’s offering memorandum or limited partnership’s private placement memorandum.
The investment managers shall communicate frequently and openly with the Northern Michigan and/or Investment Consultant on all matters of significance regarding changes in management organization/structure.
IV. Investment Objectives
The following investment pools and objectives have been established for the University Operating Cash assets:
V. Investment Policies
To achieve the University’s Operating Cash investment objective, the pools, in aggregate, will be allocated among a number of assets to ensure proper diversification. Investment diversification is important to limit risks that include return volatility and magnitude of potential losses. Equity investments will be diversified by market capitalization, style, industry and geographic region. Fixed income investments will be diversified by market sector, maturity, credit quality and issuer.
Risk management of the investment program is focused on understanding both the investment and operational risks to which the University is exposed. The objective is to minimize operational risks and require appropriate compensation for investment risks, which the University is willing to accept.
Northern Michigan intends to maintain the asset class allocations within the target ranges outlined below. Allocations will be reviewed quarterly and will generally be rebalanced if any asset class is outside its range.
D. Asset Allocation
Based upon the underlying needs and circumstances for each pool of capital, Northern Michigan has determined the following asset allocation targets:
Global Equity 12% 5%-17%
Northern Michigan will determine the appropriate size for each pool based on the University’s operating environment, recommendations from University Management and input from the Investment Consultant.
IV. Implementation & Evaluation
Long term objectives have been established against which the performance of the investment policy is to be measured. Because the capital markets fluctuate, the viability of the asset allocation is to be judged over a period of a full market cycle.
A. Investment pool performance will be measured against:
B. Investment Manager Performance
It is the intent to hire investment managers specializing in market segments to achieve the target asset allocation. Each manager is closely reviewed to ensure the investment process remains consistent and the organization remains stable. Any deviations of such qualitative factors will be brought to Northern Michigan’s attention by the investment consultant for further review. The University seeks to attain investment results over a full market cycle. Northern Michigan understands that an investment manager’s total return during any single measurement period may deviate from the long-term return objective.
The individual manager’s investment performance will be measured against:
It is expected within each asset class that actively managed investment strategies should match or exceed the passive index (net of fees) and should be above median against the appropriate peer group universe over a full market cycle. Passively managed strategies should closely track the performance of their relevant benchmarks.
ASSET ALLOCATION GUIDELINES
Investment management of the assets shall be in accordance with the following asset allocation guidelines.
INVESTMENT MANAGER EVALUATION CRITERIA
The following criteria are used to evaluate investment managers. Northern Michigan may choose to override these criteria upon agreement.
1. The performance and portfolio data submitted by investment managers should be audited by a third party to ensure compliance with the Global Investment Performance Standards (GIPS) published by the CFA Institute or subjected to other appropriate standards. In reviewing such data, the Investment Consultant may rely upon the veracity of such data.This is intended to reduce risk of a poor selection based upon incorrect or misleading data.
2. The performance records submitted must be of sufficient duration to include a variety of economic and market environments.In general, a five-year performance history is deemed to be the minimum acceptable history.
3. Actively managed investment managers must demonstrate a sufficient record of performance superiority after fees over the average manager in their investment style.
4. Actively managed investment managers must demonstrate a sufficient record of performance superiority after fees over managers with similar risk characteristics (i.e. appropriate passive indexes, style universes, etc.).
5. Passive manager candidates must exhibit a sufficient record of approximating the appropriate market benchmark with limited tracking error.
6. Investment managers must exhibit a consistent investment style and risk profile as defined by the aggregate financial characteristics of the portfolio over a number of measurement periods.
7. Investment managers must demonstrate organizational stability and provide evidence indicating that the people, resources and other factors responsible for past superior investment results are still in place.Such evidence increases the probability that past success will be repeated in the future.
8. Minority owned investment managers shall be considered in each manager selection process.They will be upheld to the same standards as all other investment managers.
9. Investment managers must be completely independent from the investment consultant.The investment manager and the investment consultant seek to avoid all potential conflicts of interest. There should be no shared economic interests between the two parties.