Endowment & Campus Care Fund Investment Policy

I. Scope

This policy shall govern the investments of the Endowment Fund for IWU.  It also applies to the Campus Care Fund with the exceptions noted below in Section J. It is not intended to cover the management of any of the University’s other funds or assets such as real property, life insurance, or other miscellaneous assets.

II. Policy Statement

The long-term investment objective in the management of the Endowment Fund & Campus Care Fund’s investment portfolio is to produce income into perpetuity without taking undue risks which might result in diminished principal and consequently reduced future income. The economic value of the corpus of the Endowment & Campus Care Fund is to be maintained continuously, while net excess investment returns are to be used for the donor’s intended purpose, or if not designated, for the current operations of the university.

The objectives of the Endowment & Campus Care Fund’s investments are:

• To maximize return within reasonable and prudent levels of risk while limiting risk exposure through prudent diversification to various asset classes (e.g. stocks, bonds and cash)

• To maintain an appropriate asset allocation policy.

• To manage adequate cash reserves.

• To monitor fund investments periodically to make timely decisions as to policy and strategy.

• To provide for adequate safeguarding of assets by utilizing independent custodians.

The primary return objective of the Endowment & Campus Care Funds is to achieve a total return, net of fees, equal to or greater than spending, administrative fees, and inflation. Stated as an equation the return objective is:

Return ≥ Consumer Price Index + Spending Policy + Administrative Fees 
                                                     (CPI + 4.5% + .1%) 

Furthermore, the Investment Committee recognizes that over various time periods, the Funds may produce significant deviations relative to benchmarks and inflation.  For this reason, investment returns will be evaluated over a full market cycle (five years).

III. Reason for the Policy

This Investment Policy Statement (IPS) is intended to provide a framework and operational guideline for investments held in the Endowment & Campus Care Funds by Indiana Wesleyan University in a manner that is consistent with its purposes for existence.  The Investment Committee is also charged with oversight of Wesleyan Retirement Corporation but that oversight is not governed by this IPS.

The purpose of this IPS is as follows:

A.  Set forth general investment policy.

B.  Set forth specific investment policy.

C.  Provide the Investment Committee with a framework of operational guideline within which it may exercise oversight of investments.

IV. Procedures

A. INVESTMENT COMMITTEE RESPONSIBILITIES

The Investment Committee is charged with the responsibility for the management of the assets of the Endowment & Campus Care Funds.  The Investment Committee shall discharge duties solely in the interest of the Endowment & Campus Care Funds, with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person, 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.  This is in accordance with the Uniform Prudent Management of Institutional Funds Act (UPMIFA).  

The Board of Trustees shall have the right to require members of the Board, the Investment Committee, and any other persons involved in the investment process, to disclose any material financial interest that could be related to the performance of the investments.  If any potential or actual conflicts arise, the established policy should be consulted and applied.
                                                                                                         
The specific responsibilities of the Investment Committee relating to the investment of Endowment & Campus Care Fund assets include:

1. Adhering to the guidelines in all applicable regulations.
2. Determining the Endowment & Campus Care Fund’s risk tolerance and investment horizon, and communicating these to appropriate parties.
3. Establishing reasonable investment objectives consistent with the Investment Policy Statement and recommend changes to the Investment Policy Statement to the Board of Trustees. 
4. Prudently and diligently selecting a qualified Investment Advisor to provide investment advice.
5. Regularly evaluating the performance of the Investment Advisor to assure adherence to policy guidelines and monitor investment objective progress.
6. Developing and enacting proper control procedures to assure compliance with established guidelines.
7. Reporting regularly to the Board on all material matters relating to the portfolio.  

The Investment Committee is a fiduciary, and is responsible for directing and monitoring the investments of the Endowment & Campus Care Funds.  As such, the Investment Committee is authorized to delegate certain responsibilities to professional advisors.

B. MEMBERSHIP  

The Investment Committee will consist of the Chairman of the Board of IWU as a voting ex-officio member, the President of IWU as a voting ex-officio member, up to seven members appointed by the Board of Trustees, the Vice President for Business Affairs as a non-voting ex-officio member, and the Chair of the Wesleyan Retirement Corporation as a non-voting ex-officio member who will serve in an advisory capacity.

C. INVESTMENT ADVISOR & OTHER EXPERTS

Investment Advisor Responsibilities

The Investment Advisor’s role is that of a discretionary fiduciary advisor to the Investment Committee of the Endowment & Campus Care Funds.  Investment advice concerning the investment management of Fund assets will be offered by the Investment Advisor, and will be consistent with the investment objectives, policies, guidelines and constraints as established in this statement.  Specific responsibilities of the Investment Advisor include:

1. Assisting in the development and periodic review of investment policy. 
2. Conducting specific fund manager searches when requested by the Investment Committee. Fund managers, as defined in this document, represent the managers of the investment vehicles selected by the investment advisor.  They may include managers of any of the securities discussed in Section G. 
3. Providing “due diligence”, or research, on the fund managers.
4. Monitoring the performance of the fund managers to provide the Investment Committee with the ability to determine the progress toward the investment objectives.
5. Communicating matters of policy, manager research, and manager performance to the Investment Committee. 
6. Reviewing Fund investment history, historical capital markets performance and the contents of this investment policy statement to any newly appointed members of the Investment Committee.
7. Specific duties and responsibilities as detailed in the investment services contract established with the investment advisor. 

Other Experts

Additional specialists or experts such as attorneys, auditors, consultants, and others may be employed by the Investment Committee to assist in meeting its responsibilities and obligations to administer Endowment & Campus Care Fund assets prudently.  All expenses for such experts must be customary and reasonable and will be borne by the Endowment & Campus Care Fund as deemed appropriate and necessary.

D. SPENDING POLICY

The economic value of the corpus of Endowment & Campus Care Funds is to be maintained continuously, while net excess investment returns are to be used for the donor’s intended purpose, or if not designated, for the current operations of the university. 

Since expected investment returns from “riskier” portfolios are not consistent and predictable, the Investment Committee feels that shorter-term spending in dollar terms must be flexible enough to endure periods of underperformance without excessive deterioration of real principal.  Therefore, this Endowment may tend toward a more “aggressive” investment strategy seeking higher long-term investment returns than would be the case if spending from year to year were less flexible.  The spending policy will be reviewed biennially.

Total Return Approach
The Board has adopted a “total return” approach to calculating investment returns. 
In recognition of these facts, the Committee will consider the Endowment’s total return from both income and net realized and unrealized capital gains when recommending the Spending Rule Policy. When distributions are made, they will be withdrawn from the Endowment regardless of the portion of the total return from capital gains or income.

Commingling and Unitizing
Assets of the Endowment Fund shall be commingled except 1) when a donor specifically directs a gift be separately invested, and 2) when a gift is in a form that does not have a ready market, is illiquid or for other reasons that make the asset an unacceptable holding in the Fund. Each new gift added to the Endowment Fund shall receive units in the fund based upon the market value of the gift and the unit value of the Endowment Fund for the preceding quarter. The unit value of the Endowment Fund shall be determined quarterly. Income determined under the policy statement’s spending policy will be calculated on a unit basis for distribution purposes.

Spending
The primary purpose of the endowment for the University is to provide a continuing source of current income, principally for the purpose of student scholarships and operating support.  To meet this purpose over the long-run, and to maintain the purchasing power of the assets, the net asset value of the existing portfolio must grow even without gift additions.  In order to accomplish this growth, the Investment Policy provides that the Endowment & Campus Care Funds be invested in a diversified mixture of asset classes collectively expected to provide an acceptable level of return for an acceptable level of risk over an extended time horizon. 

This Policy limits the amount the endowment shall distribute annually 4.5 % of a twelve (12) quarter moving average of the market value.  The average computation is to include the nearest quarter preceding the budget and financial aid planning process for the following fiscal year. The final calculation quarter included in the computation may be adjusted according to the budgetary planning needs of the university based on the direction of the Executive Vice President and Chief Financial Officer.  

Endowment Administrative Fees

It is the goal of Indiana Wesleyan University to support the Advancement operational effort by assessing an Endowment Administrative Fee.  The fee is calculated as a percentage fee (not to exceed 1.75%) applied to a twelve-quarter moving average of market value of the endowment excluding the Campus Care Fund.  This fee shall be reviewed regularly and is subject to the approval of the Investment Committee.

A fee of no more than $150,000 per year will be charged to the endowment to offset the IWU personnel costs in Business Affairs related to the management and record-keeping of the endowment, endowment software costs, and fees for the investment consultant.

E. CUSTODY OF INVESTMENT FUNDS

All investment securities, excluding assets held at the Wesleyan Investment Foundation, shall be held in custody by an investment company, broker, federally insured bank or other financial institution as selected by the Investment Committee.  The Investment Committee shall exercise appropriate due diligence in selecting the custodian(s).  In no event shall the Investment Committee or Indiana Wesleyan University act as custodian of any investment funds except for those funds designed as Cash-Operating/Checking funds.  Additionally, the Investment Advisor shall not act as custodian of any of the funds.  

F. REPORTING AND MONITORING OF INVESTMENT FUNDS

Investment performance shall be measured based on total return; that is, the aggregate return from capital appreciation and dividend and interest income.  Performance reports generated by the Investment Advisor shall be compiled at least quarterly and submitted to the Investment Committee for review.  The investment return on the investment portfolio will be measured against commonly accepted performance benchmarks and standard market indices.  Consideration shall be given to the extent to which the investment results are consistent with the investment objectives, goals, and guidelines set forth in this statement.

The Investment Committee reserves the right to terminate the services provided by the Investment Advisor for any reason including the following:

1. Investment performance which is significantly less than the established benchmark given the discipline employed and the risk parameters established, or unacceptable justification for poor performance.
2. Failure to adhere to any aspect of this Investment Policy Statement including communication and reporting requirements.
3. Significant qualitative changes with the Investment Advisor’s organization.                                 

G. INVESTMENT POLICY, ASSET ALLOCATION TARGETS AND REBALANCING

Time Horizon

The time horizon for the investment of these funds is indefinite considering that the production of income is expected in perpetuity.  Therefore, interim fluctuations should be viewed with appropriate perspective.  The Investment Committee understands the volatility of returns in the short-term and has agreed to view cyclical fluctuations with appropriate perspective.  Similarly, the Endowment & Campus Care Fund’s strategic asset allocation is based on a long-term perspective.  It is expected that sufficient liquid reserves will be available for distributions.

Risk Tolerance
The Investment Committee recognizes the difficulty of achieving the investment objectives in light of the uncertainties and complexities of contemporary investment markets.  The Investment Committee also recognizes that risk must be assumed to achieve long-term investment objectives.  Financial research has demonstrated that risk, defined as return volatility, is best minimized through diversification of assets.  Risk measurement tools will be provided by the Investment Advisor and reported to the Investment Committee. In establishing the risk tolerance for investments, the ability and necessity to withstand short and intermediate term variability is accepted.

Asset Allocation
The Investment Committee believes that the Endowment & Campus Care Fund’s risk and liquidity posture are, in large part, a function of asset class mix.  The Investment Committee has reviewed the long-term performance characteristics of various asset classes, focusing on balancing the risks and reward of market behavior.  We acknowledge that risk must be assumed in order to achieve our long-term objectives.  Based on the Endowment Fund & Campus Care Fund’s time horizon, risk tolerances, performance expectations and asset class preferences, strategic asset allocation targets are as follows:

1.   Aggregate Strategic Fund Asset Allocation Guidelines (at market value)

 

Asset Class	Minimum	Maximum
Equities – Domestic	35%	55%
Equities - International	20%	35%
Fixed Income	15%	45%
Cash Equivalents	0%	25%
Alternative Inv. (*)	0%	20%

    (*)  As defined in Section H, Securities Guidelines.

2. Asset allocation and return benchmarks may be adjusted within the minimum and maximum guidelines prescribed in the chart above by action of the Investment Committee. The currently approved allocation and return benchmarks are attached as Exhibits A and B to this policy statement.  

3. Fund asset allocation will be reviewed quarterly, or more frequently if necessitated by volatile market conditions.  In the event that the above aggregate asset allocation guidelines are violated, for reasons including but not limited to market price fluctuations, the Investment Advisor will bring the portfolio into compliance with these guidelines as promptly and prudently as possible.

4. Tactical Re-allocation.  The Strategic Aggregate Fund Asset Allocation above provides broad guidelines / range for long-term management of Fund assets.  Market conditions may dictate different interim weightings within each asset class.  The Investment Advisor will provide active (tactical) asset allocation recommendations.  The Fund asset allocation will be re-allocated to the tactical recommendation provided the strategic guidelines / ranges are not violated.  Tactical allocation will pertain to both traditional asset classes and alternative investments as allowed and defined in Section H, Securities Guidelines.

5. Rebalancing – Fund rebalancing will occur annually at a minimum, or more frequently if, at quarter’s end, any asset class varies from the tactical current recommended percentage of the portfolio by greater than 5%.

Diversification
The investment portfolio shall be diversified to the extent that no single equity shall make up more than 5.0% of the total equity segment of the portfolio after any purchase of such single equity.  However, should same increase in value, solely due to market appreciation, so as to exceed the 5.0% limit, such excess is allowable provided that in no event shall such single equity exceed 8.0% of the entire equity segment of the portfolio.

H. SECURITIES GUIDELINES

1. Specifically allowable investments

a.  Cash Equivalents

• Treasury bills

• Money Market funds

• Commercial paper

• Repurchase agreements

• Certificates of Deposit

• Interest-bearing checking and savings accounts

b.  Publicly traded fixed income securities (*) 

• U.S. Government and agency securities

• Corporate notes and bonds

• Mortgage-backed securities

• Preferred stock

• Fixed income securities of foreign governments and corporations

c.  Publicly traded equity securities

• Common stocks

• Convertible notes and bonds

• Convertible preferred stocks

• American Depository Receipts of non-U.S. companies

d.  Mutual funds which invest in securities that are allowed in this  

     statement

e.  Exchange Traded Funds (ETFs)

f.  Alternative Investments (**)

g.  Other investments not explicitly excluded herein

(*) In the fixed income section of the portfolio, no more than 35% shall be allocated to holdings which are rated below investment grade (typically those below BBB in rating). 

(**) Alternative investments may include various “alternative” or “non-traditional” investment strategies. Such strategies may include but shall not be limited to, REITS (for real estate exposure), hedge funds (including multi-strategy hedge funds of funds), private equity, venture capital, natural resources, and non-traditional/alternative strategy mutual funds. Investment Committee authorization must be obtained prior to placing Endowment Fund assets into any alternative strategy or into a basket of permitted investment instruments that employ “alternative” or “non-traditional” strategies.
                                                                                                                                                
2. The following securities are only authorized for purchase through authorization within a mutual fund prospectus, through ETFs or with prior, written approval from the Investment Committee:

• Debt financed investments, including margin purchases

• Short-selling

• Options and futures contracts

• Restricted stock

• Unregistered securities

• Closely-held companies

• Real estate (through mutual funds, ETF’s, or REIT’s) 

• Partnerships

• Loans to individuals or businesses (except specifically allowed fixed income securities as previously defined)

• Artwork or collectibles

• Other non-marketable hard-to-value assets

• Equipment leases

• Commodities or other commodity contracts 

It is possible that the Endowment or Campus Care Fund could end up owning a security or other position that is not authorized for purchase.  This would most likely come about through a gift to the Endowment or Facilities Reserve Fund of such an asset.  In the event that this takes place, the Investment Committee will then decide on appropriate action and could decide to hold such an asset as long as they think is prudent.

Securities shall not be purchased with trading or speculation as the dominant criterion for the selection of the security.  However, as long as the original investments can be justified by their expected total return, trading in response to changes in market value may occur and is recognized as a requisite of ongoing portfolio management.

Furthermore, as a Christ-centered academic community, we will not knowingly permit direct investments in companies which are clearly opposed to our moral beliefs. In practice, this means we would not knowingly hold a specific individual stock or individual bond for such a company. If there was an occasion where we might be offered a gift in such a company, or inadvertently end up with individual security of this type in our portfolio, an appropriate response would be developed and implemented.

I. CONTROL PROCEDURES

The Investment Committee will receive and review the reports requested from the Investment Advisor as often as the committee deems necessary.

To ensure continued relevance to the guidelines, objectives, financial status and capital market expectations as established in this statement, the Investment Committee intends to review this Investment Policy Statement as least biennially.

Finally, the Investment Committee may retain the services of an independent third-party consultant to assist in the review of the primary investment advisor retained for management of the endowment.  This consultant will review for performance against benchmarks, compliance with the Investment Policy Statement, and fee competitiveness. 

J. CAMPUS CARE FUND

The purpose of the Campus Care Fund is to reserve money for the future maintenance needs of the campus. Annual deposits will continue to be made, and the funds will be invested. 

The IPS shall apply to investing the assets of the Campus Care Fund with the following exceptions.

1. A separate spending policy applies based on the recommendation and approval of the Investment Committee. 

2. The asset allocation will be reviewed annually to meet the liquidity needs of the fund. 

3. The Campus Care Fund shall be invested in its own account and not co-mingled with other Endowment Fund assets covered by this policy.  Additionally, it may have asset allocation and return benchmarks that differ from the Endowment Fund.  

EXHIBIT A 

IWU ENDOWMENT FUND: ALLOCATION TARGETS AND GUIDELINES

OVERALL ASSET ALLOCATION TARGETS

Equity 80%

Fixed Income 20%*

Total 100%

*Currently, no more than 35% of the Fixed Income portion of the portfolio may contain securities below investment grade of BBB. 

REFERENCE POINTS AND BENCHMARKS

Simple Benchmark

Equity – Domestic 45% S&P 500 Index

Equity – Foreign 35% MSCI All Cap World Index Ex-U.S.

Fixed Income 20%   Barclays Inter. US Gov’t / Credit

Total 100%

Blended Benchmark

A reference point will be selected for each asset class included in the current portfolio.  An appropriate weighting will be applied to each reference point to calculate a blended benchmark return.  This return is meant to approximate the return available in the financial markets based on the asset classes comprising the current portfolio.

 

Asset Class	Reference Point	Weight
U.S. Large Value	CRSP US Large Cap Value Index	8.00%
U.S. Large Blend	S&P 500 Index	8.00%
U.S. Mid Growth	Russell Mid Cap Growth Index	12.00%
U.S. Small Value	Russell 2000 Value Index	12.00%
Foreign Large Blend	MSCI All Cap World Index Ex-U.S.	9.80%
Foreign Small Blend	MSCI EAFE Small Cap Index	8.40%
Emerging Markets	MSCI Emerging Markets Index	9.80%
Real Estate	MSCI US REIT Index	4.00%
Energy	S&P Global 1200 Energy Sector Index	4.00%
Health Care	DJ U.S. Health Care Index	4.00%
Ultra-Short Bond	Barclays Gov’t / Corp 1 Year Duration Index	3.00%
Short Term Bond	Barclays U.S. Gov’t / Credit 1-5 Year Index	10.00%
Interm. Term Bond	Barclays U.S. Aggregate Bond Index	4.00%
Bank Loan	S&P/LSTA Leveraged Loan Index	3.00%
	Total	100.00%

 

EXHIBIT B

IWU CAMPUS CARE FUND: ALLOCATION TARGETS AND GUIDELINES

OVERALL ASSET ALLOCATION TARGETS

Equity 75%

Fixed Income 25%*

Total 100%

*Currently, no more than 35% of the Fixed Income portion of the portfolio may contain securities below investment grade of BBB. 

REFERENCE POINTS AND BENCHMARKS

Simple Benchmark

Equity – Domestic 40%   S&P 500 Index

Equity – Foreign    35%   MSCI All Cap World Index Ex-U.S.

Fixed Income        25%   Barclays Inter. US Gov’t / Credit

Total 100%

Blended Benchmark

A reference point will be selected for each asset class included in the current portfolio.  An appropriate weighting will be applied to each reference point to calculate a blended benchmark return.  This return is meant to approximate the return available in the financial markets based on the asset classes comprising the current portfolio.   

 

Asset Class	Reference Point	Weight
U.S. Large Value	CRSP US Large Cap Value Index	7.50%
U.S. Large Blend	S&P 500 Index	7.50%
U.S. Mid Growth	Russell Mid Cap Growth Index	11.25%
U.S. Small Value	Russell 2000 Value Index	11.25%
Foreign Large Blend	MSCI All Cap World Index Ex-U.S.	9.19%
Foreign Small Blend	MSCI EAFE Small Cap Index	7.87%
Emerging Markets	MSCI Emerging Markets Index	9.19%
Real Estate	MSCI US REIT Index	3.75%
Energy	S&P Global 1200 Energy Sector Index	3.75%
Health Care	DJ U.S. Health Care Index	3.75%
Ultra-Short Bond	Barclays Gov’t / Corp 1 Yr. Duration Index	3.75%
Short Term Bond	Barclays U.S. Gov’t / Credit 1-5 Yr. Index	12.50%
Interm. Term Bond	Barclays U.S. Aggregate Bond Index	5.00%
Bank Loan	S&P/LSTA Leveraged Loan Index	3.75%
	Total	100.00%