Your Public Library Foundation
Investment Policy
INTRODUCTION
This statement of Investment Policy and Guidelines is set forth in order that:
1) There is a clear understanding by the Board of Directors, the Finance Committee, and any appointed Investment Consultant(s) of the nature, purpose and goals of the Foundation.
2) When used, Investment Consultants will be given guidance regarding the execution of his/her duties on behalf of the Foundation. He/she shall review transactions for conformity to the Objectives and Guidelines.
3) The Board of Directors and the Finance Committee have agreed upon a basis for evaluation of the Investment Consultants’ performance with regard to management of Foundation assets.
It is the intent of this statement to establish an attitude and philosophy that will guide the Finance Committee and any Investment Consultant(s) toward the performance desired. It is intended that the objectives be sufficiently specific to be meaningful, but flexible enough to be practical. It should not be considered a legal document or contractual obligation. It should be viewed as a flexible document whose purpose is to assist all parties in the management of the Foundation’s assets.
1. FIDUCIARY RESPONSIBILITY
a) BOARD OF DIRECTORS
The Board of Directors is charged with the responsibility for the investment of Foundation assets. The Directors shall discharge their duties solely in the interest of the Foundation, with the care, skill, prudence and diligence under the circumstances then prevailing, that a prudent man, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of a like character with like aims.
b) FINANCE COMMITTEE
Consistent with Foundation Bylaws, the Finance Committee will monitor the performance and investment process to assure the Foundation’s objectives and guidelines are maintained and accomplished. The Finance Committee may also be delegated by the Board of Directors the responsibility of overseeing the selection and retention of any Investment Consultant employed to manage assets of the Foundation. When used, an Investment Consultant will assist the Finance Committee to accomplish the objectives and guidelines of the Foundation. The Finance Committee shall report to the Board of Directors quarterly.
c) INVESTMENT CONSULTANT
The Board of Directors requires any Investment Consultant to adhere to the “prudent man rule” under such federal laws as now apply, or may in the future apply, to the investment of any trust assets subject to their control.
2. YPLF INVESTMENT POLICY PHILOSOPHY
The Your Public Library Foundation recognizes that distinct asset classes and investment styles have unique return and risk characteristics. Further, it understands that the combination of asset classes produces diversification benefits in the form of enhancement of expected return at a given risk level and/or reduction of the risk level associated with a specific expected return.
In developing this policy now and when evaluating it in future years, the Foundation should carefully take into account the long-term goals for monies allocated for investment. Items for consideration include the Foundation’s overall financial condition, its liquidity requirements, the nature of its spending requirements and its risk-taking capacity.
The Your Public Library Foundation has concluded that its primary long-term investment goals are the preservation and enhancement of purchasing power, without putting the principal of its investment assets at imprudent risk. These primary goals should be achieved while simultaneously funding growth in the value of the Foundation’s investment assets and maintaining a predictable level of current spending. In other words, the Foundation seeks to achieve an overall return (both income and capital appreciation) which will be sufficient to support a level of current spending that, as a percent of investable assets, will be constant and, in absolute terms, will grow at least as rapidly as inflation. Achievement of these objectives will allow the Foundation to support a consistent real level of library support.
3. INVESTMENT OBJECTIVES
The investment objectives for the Foundation address the Foundation’s investable assets. These investment objectives are:
a) A base return of 5.5% on the original principal, expressed in dollars, increased each year by the prior three-year trailing average of the Consumer Price Index. This total return requirement will include income from bonds, securities, capital gains and losses from transactions and price appreciation on the market value of the underlying portfolio. The return will be adjusted for capital additions received for investment, and for distributions out of the investable assets. The base return will be after all management, custodial, and transaction fees to manage the funds have been deducted.
b) The minimum average annual growth rate of the underlying principal (and capital additions) of at least the three-year trailing average inflation rate, as measured by the Consumer Price Index, after the payment of all fees. Both the Board of Directors and the Finance Committee desire that the principal value of the Foundation’s investable assets and the income generated by them be managed to at least offset any inflationary pressures on them. This establishes conservative minimum objectives.
4. SPENDING POLICY
The spending policy requires a distribution rate of 5.0%, including administrative expenses, and a minimum average annual growth rate equal to the three-year trailing average of the Consumer Price Index. The target distribution rate of 5.0% will be monitored over a trailing three-year period, evaluating the total return achieved by the Foundation’s investable assets and may be adjusted upward at the discretion of the Board of Directors as conditions dictate.
Liquidity: An amount of liquidity must be maintained to provide for the Foundation’s support of library programs and other objectives. The Finance Committee will periodically evaluate an estimate of net cash flow needs for future years.
5. ASSET ALLOCATION
The asset allocation should reflect the long-term objectives and portfolio constraints of the Foundation. Management of the Foundation’s portfolio should focus on satisfying these objectives through the optimal allocation of stocks and bonds. Bonds should be used to satisfy current income requirements and control total portfolio volatility. Common stocks should generate capital and income growth to preserve and enhance the purchasing power of the portfolio. The nature of the assets involved and the long-term objectives of the Foundation suggest using a total return approach to investment management. Specifically, the fund should conform to the following asset allocation guidelines.
Asset Class
/Minimum
/ Maximum / PreferredEquities / 25% / 65% / 65%
Fixed Income / 15% / 50% / 30%
Cash & Equivalents / 0% / 10% / 5%
These percentages will be based on the market value of the investments.
It is anticipated that a reasonable cash reserve will be established to meet the Foundation’s ongoing cash needs for program distributions and Foundation expenses. The balance of the assets will be allocated as outlined above. The above asset allocation guidelines are exclusive of any real estate or other miscellaneous property which the Foundation may hold.
6. INVESTMENT RESTRICTIONS
A. INVESTMENT CATEGORIES
In order to provide the Finance Committee the freedom to invest within the guidelines of this policy statement, the following security classifications are permissible and suitable investments.
1. Equity Securities: Publicly traded common stocks, ADR’s (American Depository Receipts), preferred stocks, convertible preferred stocks, and convertible debentures. Equity securities may be chosen for the New York Stock Exchange, Regional exchanges, and the National Over the Counter Markets, foreign equity exchanges. All assets must have readily ascertainable market values and be fully liquid and marketable.
2. Debt Instruments: United States Government and Agency Obligations. Corporate Obligations must have BBB or better agency rating by Standard & Poors or a similar rating agency. Maturity structure will be left to the discretion of the Finance Committee.
3. Cash and Equivalents: Cash reserves may consist of individual fixed income securities such as Commercial Paper, U.S. Treasury Bills, and other similar instruments with less than one year to maturity and money market funds. Cash reserves should be free from risk and instantly liquid.
B. ALLOWABLE INVESTMENTS
1. Cash Equivalents
· Treasury Bills
· Money Market Funds
· STIF Funds
· Commercial Paper
· Banker’s Acceptances
· Repurchase Agreements
· Certificates of Deposit
2. Fixed Income Securities
· U.S. Government and Agency Securities
· Corporate Notes and Bonds
· Mortgage Backed Bonds
· Preferred Stock
· Fixed Income Securities of Foreign Governments and Corporations
· Planned Amortization Class Collateralized Mortgage Obligations (PAC CMOs) or other “early tranche” CMOs
3. Equity Securities
· Common Stocks
· Convertible Notes and Bonds
· Convertible Preferred Stocks
· American Depository Receipts (ADRs) of Non-U.S. Companies
· Stocks of Non-U.S. Companies (Ordinary Shares)
4. Mutual Funds
· Mutual Funds that invest in securities as allowed in this statement.
C. Prohibited Investments
Prohibited investments include, but are not limited to the following:
· Commodities and Futures Contracts
· Private Placements
· Options
· Limited Partnerships
· Venture-Capital Investments
· Interest-Only (IO), Principal-Only (PO), and Residual Tranche CMOs
D. Prohibited Transactions
Prohibited transactions include, but are not limited to the following:
· Short Selling
· Margin Transactions
7. PERFORMANCE EVALUATION AND MONITORING
Investment monitoring will be completed by the Finance Committee on an annual basis evaluating the performance of the plan’s assets in relation to the stated investment objectives. Overall review will be completed after three years, and annually thereafter on a trailing four-year basis.
The investment performance will be monitored and results measured against absolute and relative return objectives. In reviewing performance, it will be recognized that managers are subject to market forces, which historically have created market cycles lasting from three to five years. It is the objective of the Board to establish challenging but achievable investment return objectives. It is expected that investment managers will attain the following objectives:
a) The annual total return of each investment manager should equal or exceed that produced by an unmanaged market index consisting of the Wilshire 5000 Stock Index or the Shearson Lehman Intermediate Government/Corporate Bond Index weighted in the same proportions as the investment manager’s assets under management.
b) The annual total return of each investment manager should place the investment manager in the top 50% of all managers with comparable objectives. The specific manager universe will be selected by the Foundation.
It is recognized that the real return objectives may be difficult to achieve in every five-year period, but should be attainable over the majority of five-year periods.
8. REVIEW MEETING
It is the desire of the Finance Committee to meet quarterly to discuss the following:
a) Review of the ongoing investment policy and any changes thought advisable for the coming year.
b) Develop an understanding of the asset allocation strategy and security selection tactics.
c) Review of the current and anticipated economic environment and its effect on the fund’s assets.
d) Address any major shifts in strategy that may have taken place since the previous meeting.
e) Review the performance of the portfolio(s) with respect to the investment objectives and policy.
f) Prepare a Quarterly Report for the Board of Directors
The Finance Committee recognizes that performance for an interval as short as one year or less is not a fair basis for the evaluation of invested assets. In the event of significantly unexpected results, the Committee reserves the right to change any investment management service or program.
Your Public Library Foundation – Investment Policy Adopted:
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