HomeMy WebLinkAboutInvestment Policy Statement (March 2016)INVESTMENT POLICY STATEMENT
Airlie Gardens Foundation
(Ratified on March 17, 20 )
As a fiduciary, the Board is responsible for directing and monitoring the investment management of
Foundation assets. The primary purpose of this investment policy statement is to outline an investment strategy
designed to address this responsibility. More specifically, this policy statement outlines a strategy for achieving the
Foundation's long-term goal of growth of capital.
The Board should carefully review the information presented here for accuracy and clarity. Once it agrees that
the strategies presented below accurately reflect its investment objectives, the Board can implement the plan. Review
of this statement should occur annually or whenever a significant change occurs in the Foundation such as a major gift
or a change in operating procedures.
OBJECTIVE:
Return Requirement: The Foundation has a growth objective of ultimately becoming totally independent of
funding from New Hanover County. Currently, the Foundation's asset base is approximately $3 million. In order to
become self-sufficient, that asset base needs to grow to approximately $15 million in real purchasing power. Assuming
inflation of 3 percent, a real return of of 7-8 percent (nominal return 10-11 percent) would mean achieving the goal of
$15 million would likely take several decades.
While equities are appropriate for long-term appreciation, they are more volatile than bonds, real estate, and
natural resources. Since the mid-1920s, large -cap U.S. stocks have generated an average nominal total return (income
plus growth, unadjusted for inflation) of approximately 10 percent. International stocks have generated a slightly higher
return. Bonds have historically generated a return of b percent, but with lower risk than stocks. Assuming a
continuation of this historical experience and based on the asset allocation presented below, the Board should expect to
achieve a real return of approximately 7-8 percent return over the long-term. The Board should understand this strategy
does not guarantee results.
Risk Tolerance: On a risk rating scale from 0 (no risk) to 10 (high risk), a real return goal of 7-8 percent
suggests a risk rating of 7, which requires the portfolio tilt toward equities. While a tilt toward equities is justified by a
growth objective, global political and military instability combined with normal business cycle pressures will cause
short-term to intermediate -term fluctuations in global equity markets that cannot be avoided.
When investing in equities, the implied bet is that capitalism will continue to provide a reward to risk takers,
just as it has in the past, and that democracy will work throughout the world. Threats to capitalism and democracy
represent the greatest risks to any growth strategy. Although somewhat riskier than US equities, non -US equities
represent an excellent method for generating growth and should be included in the Foundation's growth strategy.
INVESTMENT CONSTRAINTS:
Liquidity: The Foundation's on -going need for working capital requires it to hold a certain amount of cash
plus a cushion for emergencies in its checking account throughout the year. Excess cash above this total amount should
be put to work in the investment account since holding excessive cash is detrimental to a growth objective. Exchange
Traded Funds (ETFs) that are actively traded on national exchanges —see "Policy" below —give the Board ready
access to additional cash if necessary.
Time Horizon: One of the most important constraints affecting the achievement of the Foundation's
investment objective is its time horizon. Because time horizon is long term (significantly greater than 5 years), the
Foundation should expect to experience fluctuations in the value of its portfolio over short periods of time and not be
alarmed when this happens. If the Board is mentally prepared for this eventuality, it will not be inclined to changing
this investment strategy. Quick changes in investment strategies in an attempt to time the market rarely, if ever,
succeed. Maintaining a long-term perspective is vital to a successful investment plan.
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Regulatory and Legal: The Foundation must adhere to IRS and New Hanover Country rules and regulations
while operating as a non-profit organization. An audit by an outside accounting firm is conducted annually.
Tax Considerations: The Foundation is tax-exempt.
Overview: The Board should review this policy statement annually. The Finance Committee should formally
review portfolio performance quarterly with the assistance of its financial adviser.
POLICY (Asset Allocation):
Asset Class
% of Investible
Assets
Initial Target
Equities (US)
50% - 70%
60%
Bonds/Fixed Income
10% - 30%
10%
Real Estate (REITs)
;Natural Resources
10% - 20%
15%
Equities (non -US)
10%-20%
15%
Cash*
0% - 5%
0%
Total
1 100%
0 Cash excluding liquidity needs (see above).
Diversification: Given a growth objective, diversification across multiple asset classes is the primary driver of
this policy. The portfolio should be comprised of a broad selection of cost-efficient Exchange Traded Funds (ETFs)
actively traded on US national exchanges complemented with the possible use of closed -end investment companies.
Economic analysis including inflation expectations, changes in Central Bank policies, and business cycle evaluations
should be used in an attempt to capture the highest possible rate of return within the Foundation's risk tolerance while
adhering to the Asset Allocation above.
Portfolio Review: The portfolio should be rebalanced quarterly to insure that asset class percentages fall
within tolerable ranges of investible assets as stated above. Quarterly returns will be compared to a benchmark
comprised of Vanguard Total Stock Market, VTI (75%) + Vanguard Total Bond Market, BND (25%).
Spending Policy: The Foundation has never historically withdrawn funds from the investment account. Should
the Board need to consider a withdrawal to support capital improvements, it may make a withdrawal only if the account
has achieved a total return (nominal) of at least 6 percent over the prior twelve months as of the end of the most recent
calendar quarter. The withdrawal shall not exceed the total return for the prior 12 months and may occur only once
each calendar year. The full Board must approve all withdrawals.
Example: A total return of 6 percent over the prior 12 months means the Board could withdraw no more than 6 percent
of the account in any year. A total return of 7percent means the Board could withdraw no more than 7percent, and a
total return of 5 percent means the Board could not make any withdrawal that year.
Prepared by,
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Ronald E. Copley, Ph.D., C.F.A.
President of the
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Date
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Treasurer of the Board Date
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