Statement of Investment Policies and Objectives for the Fund
This Investment Policy governs the investment management of the assets of the Barrington Area Community Foundation (“BACF”). These assets are referred to as the “BACF Fund” (“Fund”). The purpose of this policy is to direct and coordinate the actions of The Foundation’s Investment Committee so that The Foundation’s investment objective for the Fund is achieved. This policy is intended to be flexible and may be amended to reflect material changes in either the financial condition of the Fund, the financial condition of The Foundation, the economic environment or the opportunities available in the capital markets.
The Investment Fund is a tax-exempt fund that is qualified under Section 501(c)(3) of the Internal Revenue Service Code (the “Code”). As such, the individuals responsible for the Fund are required to adhere to the requirements of the Code, as amended from time to time.
II. INVESTMENT OBJECTIVES
The primary financial objectives of the Fund are to (1) provide a stream of relatively stable and constant total returns in support of annual budgetary needs; and (2) preserve and enhance the real (inflation-adjusted) purchasing power of the Fund.
The long-term investment objective of the Fund is to attain a real total annualized return of at least 5%, net of investment expenses, on average, over a ten year period. Secondary objectives are to (1) outperform the Fund’s custom benchmark; and (2) outperform the median return of a pool of funds with broadly similar investment objectives and policies.
The Investment Committee should attempt to achieve these objectives within acceptable risk levels defined by this Statement.
III. SPENDING POLICY
The Fund is managed according to the “total return” concept, which envisions the sources of spending as being from interest, dividends, and capital gains. In the event that capital gains are insufficient to meet the difference between the spending amount and the total of interest and dividends, then that difference shall be withdrawn from the fund.
The spending policy for each fiscal year will be determined by the BACF Spending Policy.
IV. INVESTMENT COMMITTEE RESPONSIBILITIES
A. Develop portfolio objectives and monitor the achievement of these objectives.
B. Establish the asset allocation policy.
C. Establish suitable benchmarks for asset/strategy composite and total portfolio performance.
D. Monitor effects of the spending policy on the Fund and recommend modifications, as necessary.
E. Selection of investment managers that are registered investment advisors under the Investment Advisors Act of 1940; FDIC insured bank or regulated insurance company.
F. Monitor the portfolio for adequate liquidity
G. Quarterly performance reviews and communication from the investment manager/custodian
H. The Investment Committee shall review the Investment Policy Statement and make recommendations as appropriate to the Board for consideration.
I. The Investment Committee shall ask for Board approval of any material changes to the Investment Policy Statement.
V. PORTFOLIO ASSET ALLOCATION AND RISK
The asset allocation of the Fund should reflect the proper balance of the Foundation’s need for liquidity, preservation of purchasing power, and risk tolerance. The goal is that investment returns for any investment strategy exceed the rate of return of the specified index.
The Fund’s investments shall be diversified by asset class and investment strategy (e.g. equities, bonds, and diversifying strategies) and within asset classes (e.g. within equities by economic sector, industry, quality, and size). The purpose of diversification is to provide reasonable assurance that no manager, class of securities, or individual holding will have a disproportionate impact on the Fund’s aggregate results.
To achieve its long-term investment objective, the Fund shall be invested primarily in various forms of equity (including domestic stocks and foreign stocks). The Fund shall be managed to provide a stream of current income and appreciation of principal that more than offsets inflation. It is recognized that pursuit of this objective could entail the assumption of significant variability in price and returns; to hedge against deflation and provide liquidity.
In addition to equity investments, the Fund may also invest in other diversifying strategies. The use of a diversifying strategy. (i.e. alternative investments) is intended to provide investment returns with low correlation to the existing BACF portfolio. The Fund may invest in a broad range of alternative strategies including but not limited to: commodities, hedge funds, hedge fund of funds, real estate (i.e. REIT’s), and private equity.
The Fund will also invest in various forms of fixed income securities (i.e. US Treasury securities, corporate bonds and foreign bonds). Their purpose is (1) provide a stabilizing effect on the value of the total portfolio and (2) to provide ready liquidity. Fixed income investments must be assigned a rating of AAA to BBB by Standard & Poor’s or Fitch’s Investors service. ( Moody’s Investor’s Service assigns ratings of Aaa and Baa, respectively. )
Short term cash or cash equivalent securities (i.e. Commercial Paper rated A1 or better and money market funds) shall contain securities whose credit rating would be rated investment grade by S & P, Moody’s or Fitch.
VI. ASSET ALLOCATION GUIDELINES
|Cash and Equivalents||5%|
September 8, 2014