Revised: June, 2017
The purpose of this investment policy is to establish the parameters and structure of the investment program for the Catholic Community Foundation of the Archdiocese of Baltimore. The guidelines are designed to allow for sufficient flexibility in the management oversight process to capture investment opportunities as they may occur, while at the same time setting forth reasonable risk control parameters to ensure prudence and care in the execution of the investment program. The assets of this fund include the endowment and funds functioning as endowment assets of many parishes, schools and diocesan agencies (Participants).
The Foundation Investment Program (“Investment Program” or “Fund”) was established to pool the endowment assets of the Participants to achieve expanded diversification, more cost efficient investment services, and professional management that might not be achieved due to limited investment fund size. The Investment Policy shall be reviewed annually by the Investment Committee. The board is responsible for The Foundation’s Investment Policy and may amend it from time to time.
The Foundation has established the Investment Committee to provide oversight and review of the investment program and has entrusted the Committee, subject to the direction and approval of the Board of Trustees of The Foundation, with the authority to retain professional services from Investment Advisors or Consultants and Investment Managers and to delegate certain day-to-day responsibilities accordingly.
The goal of The Foundation Investment Program is to generate total return for the purposes of funding annual distributions and the preservation and growth of principal taking into account economic conditions, the possible effect of inflation or deflation; and expected income and appreciation of fund assets. The funds held by The Foundation are endowment funds and it is not expected that the funds will be needed without substantial prior notice.
The primary objectives:
The Investment Program’s primary objectives are long term growth of capital and generation of income. While the Investment Program’s objectives may not be achieved each quarter or each year, it is expected that they will be achieved over capital market cycles which normally extend over three to five year periods.
On an annualized, net-of-fees basis, the total return of the portfolio is intended to:
Assets shall be invested with skill, care, and prudence taking into account The Foundation’s investment objectives and liquidity requirements. The investment portfolio shall be diversified to minimize the risk of large losses, unless circumstances at any given point in time indicate that diversification is clearly imprudent. Assets are to be fully invested at all times, including idle cash in short-term instruments. It is the desire of The Foundation that direct ownership of securities shall, to the best of its ability, conform to the Social Responsible Investment Guidelines put forth by the United States Conference of Catholic Bishops, the SRI Guidelines, (attached). Recognizing that many corporations have broadly diversified operations, the Investment Committee will endeavor to limit investments in any security that has, as defined by our advisors, any material revenues as determined to be unacceptable as set forth by the SRI Guidelines. Generally, the materiality test shall be that not more than 10% of the Foundation’s investment holdings may be invested in companies that are contrary to Catholic social teaching. Any investments deemed questionable or considered not to be in compliance with these guidelines will be brought to the attention of the Foundation’s leadership, and, if necessary, an appropriate time frame for liquidation will be determined. The Investment Committee will attempt to perform two SRI screening tests each calendar year to measure compliance. Results from these screenings will be provided to the Investment Committee for review and to the Foundation’s Board of Trustees.
The achievement of the investment objectives requires a disciplined, consistent management philosophy that considers the occurrence of all events which might be considered reasonable and probable. They are not consistent with a philosophy which takes extreme positions or employs opportunistic styles.
The assets will be managed on a total return basis. While the Investment Committee recognizes the importance of preservation of capital, it also adheres to the principle that varying degrees of investment risk are generally rewarded with compensating returns. Riskier investment strategies may be pursued if such strategies are in The Foundation’s best interest and are evaluated on a risk-adjusted basis.
The Fund shall be diversified both as to cash, bonds, stocks and alternative investments. Issues shall be thoroughly researched and selected on the basis of proven operating records, sound financial conditions, good marketability and reasonable market valuations. Investments in a single issuer, with the exception of the U.S. Government and its agencies, may not exceed 5% of the total market value of the Fund.
Effective July 1, 2008, no Spendable Income will be awarded for “underwater” funds (those funds where the historic gift value is greater than the market value). In addition, there will be no spending from a fund for the initial 12 months of the fund’s existence.
Effective July 1, 2008, the allowable spending in any fiscal year is equal to 70% of the allowable spending in the prior fiscal year, increased by the rate of inflation, as measured by the Consumer Price Index, for the 12 months prior to the start of the fiscal year and; 30% of the long-term spending rate of 4% applied to the 12 quarter market average of the funds for the period ending December 31 prior to the start of the fiscal year. The effective spending rate should be between 3% and 5%. Notwithstanding the foregoing, the Board of Trustees of the Foundation shall consider the factors set forth in the Maryland Uniform Prudent Management of Institutional Funds Act in determining the prudent amount that may be expended from the funds comprising The Foundation with respect to each fiscal year.
The purpose of rebalancing is to maintain the Program’s asset allocation within the targeted ranges while controlling portfolio risk. It is The Foundation’s policy to monitor portfolio allocations regularly and to rebalance as needed, and in a cost-effective manner, to remain in compliance with the policy.
Tactical rebalancing, which represents opportunistic portfolio positioning away from the asset allocation targets, is also permissible as long as the trades do not violate the stated ranges for each asset class and do not cause undue expense to the portfolio.
The Investment Committee may enter into an agreement with an Investment Advisor that allows the Investment Advisor to execute rebalancing transactions in the Fund on a discretionary basis. The Investment Advisor may not execute rebalancing transactions that would result, as of the date of the investment, in a commitment to a new illiquid investment program or an allocation outside the allowable asset allocation ranges defined in this investment policy statement without the prior approval of the Investment Committee.
The Foundation Board has delegated primary responsibility for the investments of the Fund to the Investment Committee. In carrying out its responsibilities, the Investment Committee shall perform the following duties with care, skill, prudence, and diligence:
In the management of The Foundation assets, Management will:
The Investment Committee may utilize and Investment Advisor or Consultant to advise and assist the Investment Committee in its duties and responsibilities. The Investment Advisor will have discretion to develop and execute the investment program within the constraints of this Policy. In its advisory capacity, the Investment Advisor will:
To ensure diversification and to achieve the Fund’s investment objectives, the Fund shall be allocated across a number of investment classes. The following table defines the Fund’s target asset allocation and the minimum and maximum allocation limits of each asset class:
Target Asset Allocation Table
|Asset Class||Min Wt.||Target Wt.||Max Wt.||Representative|
|Fixed Income||10%||15%||30%||Bloomberg Barclays U.S. Aggregate Bond Index|
|Directional / Relative Value||0%||12%||20%||HFRI Fund of Funds Conservative Index|
|Real Assets||0%||13%||25%||Weighted Average Real Assets benchmark*|
Illiquidity Target as measured by commitments to various illiquid partnerships: 25% (this includes Private Equity, Venture Capital, Distressed Debt, Private Real Estate, Private Natural Resources)
*Weighted Average Real Assets benchmark: 23% Bloomberg Barclays U.S. Treasury Inflation Linked Bond Index, 38.5% NCREIF ODCE (Lagged) Index and 38.5% S&P Global LargeMidCap CommodResource Index
|Policy Benchmark:||60% MSCI ACWI, 15% Bloomberg Barclays U.S. Agggregate Bond Index, 12% HFRI FOF Conservative Index, 13% Weighted Average Real Assets benchmark*|
|Traditional Benchmark:||75% MSCI ACWI, 25% Bloomberg Barclays U.S. Aggregate Bond Index|
Donor Advised Funds:
Certain donors may wish to segregate their funds from the broader Foundation investments. In such cases, there is the ability to invest in a Donor Advised Multi Asset (asset allocation detailed in Exhibit A) and/or a Donor Advised Cash Portfolio (asset allocation detailed in Exhibit B).
The investment policies, guidelines and restrictions presented in this policy statement serve as a framework to help the Fund and its Investment Manager(s) achieve the investment objectives at a level of risk deemed acceptable. The Fund will be diversified both by asset class and within asset classes. Within each asset class, securities will be diversified among economic sector, industry, quality, and size. The purpose of diversification is to provide reasonable assurance that no single security or class of securities will have a disproportionate impact on the performance of the total fund. As a result, the risk level associated with the portfolio investment is reduced.
The purpose of equity investments, both domestic and international, by the Fund is to provide capital appreciation, growth of income, and current income, with the recognition that this asset class carries with it the assumption of greater market volatility and increased risk of loss. This component includes domestic and international common stocks, American Depository Receipts (ADRs), preferred stocks, and convertible stocks traded on the world’s stock exchanges or over-the-counter markets.
Public equity securities shall generally be restricted to high quality, readily marketable securities of corporations that are traded on the major stock exchanges (including NASDAQ), over-the-counter exchanges or similar networks. Equity holdings must generally represent companies meeting a minimum market capitalization requirement of $50 million with reasonable market liquidity. Decisions as to individual security selection, number of industries and holdings, current income levels and turnover are left to broad manager discretion, subject to the standards of fiduciary prudence. However, no single major industry shall represent more than 20% of the Fund’s total market value, and no single security shall represent more than 5% of the Fund’s total market.
Private capital investments are typically done through limited partnerships or limited liability corporations offered by professional Investment Managers. Private capital strategies may include venture capital, private equity, direct lending, natural resources and distressed investments. The Fund will only make illiquid investments using a fund-of-funds approach.
Within the above guidelines and restrictions, the Investment Manager(s) has complete discretion over the timing and selection of equity securities.
Fixed Income Securities
The purpose of fixed income investments, both domestic and international, is to provide diversification, and a predictable and dependable source of current income. It is expected that fixed income investments will not be limited to the long-term bond market, but will be flexibly allocated among maturities of different lengths according to interest rate prospects. Fixed income instruments should reduce the overall volatility of the Fund’s assets, and provide a deflation hedge.
Fixed income includes both the domestic fixed income market and the markets of the world’s other developed economies. It includes, but is not limited to, U.S. Treasury and government agency bonds, U.S. Treasury inflation-indexed securities, foreign government and supranational debt, non-U.S. dollar denominated inflation-indexed securities, public and private corporate debt, mortgages and asset-backed securities, and non-investment grade debt. Fixed income also includes money market instruments, including, but not limited to, commercial paper, certificates of deposit, time deposits, bankers’ acceptances, repurchase agreements, and U.S. Treasury and agency obligations. The Investment Manager(s) must take into account credit quality, issuer concentrations, and maturity in selecting an appropriate mix of Fixed Income securities. Investments in fixed income securities should be managed actively to pursue opportunities presented by changes in interest rates, credit ratings, and maturity premiums.
Within the above guidelines and restrictions, the Investment Manager(S) has complete discretion over the timing and selection of fixed income securities.
Cash and Equivalents
The Investment Manager(s) may invest in the highest quality commercial paper, repurchase agreements, Treasury Bills, certificates of deposit, and money market funds to provide income, liquidity for expense payments, and preservation of the Fund’s principal value.
Un-invested cash reserves shall be kept to a minimum since short term, cash equivalent securities are usually not considered an appropriate investment vehicle for long-term investments. However, such vehicles are appropriate as a depository for income distributions from longer-term investments, or as needed for temporary placement of funds directed for future investment to the longer-term capital markets. Also, such investments are the standard for contributions to the current fund or for current operating cash.
Within the above guidelines and restrictions, the Investment Manager(S) has complete discretion over the timing and selection of cash equivalent securities.
Private Capital Partnerships: Investments may also include venture capital, private equity, international private capital investments, direct lending, natural resources, distressed debt and private real estate held in the form of professionally managed pooled limited partnership investments. Such investments must be made through funds offered by professional Investment Managers.
Commodities: Investments may also include commodities markets, which include (but are not limited to) futures, options on futures and forward contracts on exchange traded agricultural goods, metals, minerals, energy products and foreign currencies.
Distressed Debt Partnerships: Investments may also include partnerships focused primarily on investments in securities and other obligations of distressed businesses and financially troubled companies that are priced at significant discounts to their original value.
Real Estate: Investments may also include equity real estate, held in the form of professionally managed, income producing commercial and residential property. Such investment may be made only through professionally managed pooled real estate investment funds, as offered by leading real estate managers with proven records of superior performance over time.
Natural Resources: Investments may also include oil, gas, clean energy, services and timber investments, held in the form of professionally managed pooled limited partnership investments. Such investments must be made through funds offered by professional Investment Managers.
Derivatives and Derivative Securities: Certain of the Fund’s managers may be permitted under the terms of their specific investment guidelines to use derivative instruments. Derivatives are contracts or securities whose market value is related to the value of another security, index, or financial instruments. Investments in derivatives include (but are not limited to) futures, forwards, options, options on futures, warrants, and interest-only and principal-only strips. No derivative positions can be established that create portfolio characteristics outside of portfolio guidelines. Examples of appropriate applications of derivative strategies include hedging market, interest rate, or currency risk, maintaining exposure to a desired asset class while making asset allocation changes, gaining exposure to an asset class when it is more cost-effective than the cash markets, and adjusting duration within a fixed income portfolio. All derivative positions must be fully collateralized. Investment Managers must ascertain and carefully monitor the creditworthiness of any third parties involved in derivative transactions.
Each manager using derivatives shall (1) exhibit expertise and experience in utilizing such products; (2) demonstrate that such usage is strategically integral to their security selection, risk management, or investment processes; and (3) demonstrate acceptable internal controls regarding these investments.
Reports will include investment returns, an asset allocation summary relative to targets, and summary of fees and benchmark performance . The Investment Firm(S) will provide, within 30 days following the close of the quarter, the above directly to the Treasurer of the Board, the Chair of the Investment Committee and the Director of the Foundation.
Meetings will be held at the request of The Foundation Board.
CHANGES TO INVESTMENT OBJECTIVE AND POLICY STATEMENT
Changes to these general objectives and policies may be made by the The Foundation’s Investment Committee, subject to the consent of The Foundation Board and shall be distributed to the Fund Managers and Advisors.
Revised by the Catholic Community Foundation Board of Trustees (June, 2017).