General Endowment Fund
Investment Policies, Objectives, Guidelines Performance Measurements, Distributions and Reporting
- The driving force of the YMCA Investment Policy for Endowments is the long-term fulfillment of our missional responsibilities.
- Sound stewardship of donor funds is a cardinal goal and a major responsibility of the Investment Committee.
- Our primary goal is to achieve an overall return on the endowment portfolio which will sustain a consistent level of funding of operational needs, based on our spending policy, and which will preserve the long term purchasing power of the fund.
- We anticipate positive cash flow into the fund each year through gifts and earnings, obviating the need for large cash reserves for liquidity and distribution funding.
- The long-term nature of the fund permits us to accept a reasonable degree of volatility on a short-term basis while pursuing our primary long-term goal of maximizing risk adjusted total return.
- Diversification among asset classes and management styles will be a primary strategy to avoid excessive short term volatility in the portfolio and corresponding risk of loss of principal. The Investment Committee is responsible for determining and maintaining suitable asset allocation.
- Good stewardship also requires good performance and cost effectiveness on the part of vendors of investment management, custodianship, accounting and administration, and other investment related services. If vendors of equal quality and value are available, extra consideration will be given to prospective vendors who support the community and the mission of the Y.
YMCA General Endowment Funds Investment Objective and Policy Guidelines
The investment objective for the General Endowment account is to preserve the inflation adjusted value of the fund and to maximize total return (interest and dividend income plus capital appreciation). Achievement of this objective will be measured by achieving an average return over the reporting periods:
- Real Return: At least 4.5% (after fees) above the rate of inflation as measured by the Consumer Price Index;
- Broad Market Index: 70% All World Equity/30% All World Fixed Income
- Broad Proportional Policy Index: 33% Russell 3000; 22% MSCI (net); 20% U.S. Barclays Aggregate Index; 25% Hedge Funds Research Index Fund of Funds -Conservative Index
The return goals and benchmarks may be changed from time to time to reflect current capital markets and changes made by the investment committee in asset allocation policy.
General guidelines include:
- The Endowment Fund will utilize a passive approach for traditional asset classes with exposure to alternatives (which could be passive or active dependent upon the alternative asset)
- Use of active management could occur when potential value exceeds the incremental fees related to the investment
- An allocation of assets may include private capital investment, as available and practicable, as an alternative investment to enhance the portfolio performance if it can be sourced effectively.
- Diversification will be a key strategy of the Endowment Fund to minimize volatility and optimize risk-adjusted returns. Diversification is interpreted to include diversification by type, by characteristic, and by number of investments as well as by investment style of management organization.
The Investment Committee will monitor all investment portfolios in the Endowment Fur.1d to assure appropriate asset quality and diversification is maintained. The Investment Committee will be responsible for establishing an asset allocation plan for the Endowment Fund investment portfolio. The plan will include major classes of assets: U.S. Equity, Non-U.S. Equity, Fixed Income, and Alternatives. Additional sub-categories of assets may be identified within these major classes as appropriate. Minimum and maximum asset percentages and a target percentage will be established for each class.
When Alternative Investments Include Private Capital:
|U.S. Equities||Range: 26% - 42%||Target: 33%|
|Non U.S. Equities||Range: 18% - 28%||Target: 22%|
|All Fixed Income||Range: 16% - 30%||Target: 20%|
|Alternative Investments||Range: 6% - 30%||Target: 25%|
|Cash||Range: 0% - 4%||Target: 0%|
When Alternative Investments Do Not Include Private Capital:
|U.S. Equities||Range: 26% - 42%||Target: 36%|
|Non U.S. Equities||Range: 18% - 28%||Target: 24%|
|All Fixed Income||Range: 16% - 30%||Target: 20%|
|Alternative Investments||Range: 6% - 30%||Target: 20%|
|Cash||Range: 0% - 4%||Target: 0%|
- The Investment Committee will review compliance with the asset allocation minimums and maximums quarterly.
- The YMCA's Chief Financial Officer, in consultation with the Investment Committee Chair or, in the Chair's absence, another Investment Committee Member, is authorized to take the necessary action to maintain the asset allocation of each class within the authorized ranges. Actual placement of trades must be jointly communicated by authorized staff as outlined in the Association's Corporate Signing Resolution.
- Re-balancing of the portfolio should occur at least annually toward the target.
- The Investment Committee will review the adequateness of the asset allocation plan for its ability to achieve the goals and objectives of the endowment fund at least annually.
- When an investment manager is hired (rather than a mutual fund or ETF purchased) each investment manager will be monitored to ensure they stay true to the investment style for which he has management responsibility.
- Up to 25% of the fixed income portfolio could be invested in non-investment grade paper. Fixed income securities shall be considered "investment grade," if rated BBB-/Baa3 or higher. The average credit quality of the investment grade portion of the fixed income portfolio shall be at least A2/A. Short-term investments must be rated A-1 or P-1 or higher to be considered investment grade.
Any investment that has low correlation to the capital markets (both equities and fixed income); or is not a traditional stock or bond; or is not actively traded in public markets; or is in a structure with leverage or limitations on liquidity. These Investments should be expected to have potentially higher returns, reduced volatility, and/or increased portfolio diversification.
Cash will be residual of the overall asset allocation policy rather than a targeted allocation.
Contributed securities will be sold unless held at the discretion of the Investment Committee.
Selection of investment managers, mutual funds and ETF's will be based on return potential (net of fees), risk/reward relationship, and lack of covariance with other portfolio components.
The Investment Committee will establish benchmarks to compare performance to fund peer groups at least annually and to relevant market indices quarterly. . Investment manager performance shall be monitored and evaluated quarterly based on the following:
- Equity performance shall be compared to the following indices:
U.S. - Russell 3000
Non U.S. - MSCI EAFE
- Fixed Income performance shall be compared to the Barclays Aggregate Index.
- Alternative investment performance will be compared to a benchmark deemed appropriate by the Investment Committee.
- When appropriate, benchmarks will be assigned by the Investment Committee for sub-segments of the portfolio.
- The YMCA's will prepare quarterly reports highlighting asset allocations, historical performance with comparison to the benchmark.
- When active investment managers are utilized, they will prepare quarterly a statement of assets, a statement of account performance, a policy compliance statement and a written account narrative. This report should include comparative statistics (relative performance criteria comparison).
- Periodically, the investment manager will attend a committee meeting presenting the Performance Report, and other portfolio management issues.
- Not less than once each year the Investment Committee will appraise the overall performance of the investment manager(s) and the mutual funds/ETF's and take any actions it deems appropriate.
- Annually, the Finance and Accounting staff will work with the Financial Development staff to prepare reports to be sent to each donor who has established an endowment fund.
- Quarterly, the Chair of the Investment Committee will communicate on performance and status of the Endowment Fund to the Board of Directors.
The YMCA will maintain accounting records for the assets and activity of the Endowment Fund in compliance with generally accepted accounting principles.
Records will be maintained to support the donor designations for contributions to the Endowment Fund. The original amount contributed will be defined as the principal balance. Additionally, due to the merger of the YMCAs of Greater St. Paul and Metropolitan Minneapolis, a "base" amount will be tracked which is defined as the 12/31/11 market value of each fund increased by any contributions to the individual fund after 12/31/11. Annually the Investment Committee will receive a report that documents the principal balance, base and market value of the designated funds within the Endowment Fund.
Endowment Fund Designations
Contributions to the Endowment Fund will be placed into one of two designated funds within the Endowment Fund based on the intent of the donor, as follows:
- Permanently Restricted Funds. Contributions from donors that restrict the use of the contribution to the purpose of establishing an endowment for the YMCA will be placed in the "permanently restricted fund." The principal balance of these contributions must be permanently maintained in the "permanently restricted fund".
- Board Designated Funds. Any other contribution received for support of the YMCA or YMCA programs may be placed in the "board designated fund" of the Endowment Fund. All contributions to the "board designated fund" will be reviewed by the Financial Development Committee and approved by the General Board. The "board designated fund" is not donor restricted and is classified as unrestricted. The General Board has the right at any time to expend the principal of the "board designated fund." However, these funds are invested in the same manner as Permanently Restricted Funds with a long-term investment horizon and are subject to corresponding volatility. Funds expected to be expended in a shorter time frame should be invested in a different manner with emphasis on minimizing volatility and maximizing liquidity
The Investment Committee is responsible for recommending a distribution formula consistent with the objectives of the Endowment Fund as noted above. The Committee will review and recommend the annual distribution from the Endowment Fund to the General Board which has ultimate fiduciary responsibility. The General Board's approval of the Association's budget will signify its approval of the Endowment Fund distribution. Distributions from the Endowment Fund should generally occur at least quarterly rather than accumulating un-invested cash in the endowment fund.
To minimize year over year volatility in distributions to operations, the investment committee has established that the policy payout formula will be calculated at 80% of prior payout plus 20% of market value at the "calculation date" times a payout percentage of 4.5%. This formula will be adjusted as indicated below for underwater funds and contributions received in the two years prior to the "calculation date".
A fund will be considered underwater if the market value as of the "calculation date" is less than its "base". "Base" is determined as follows:
- Funds underwater at 12/31/11, "base" will equal the fund's 12/31/11 market value, plus the cumulative sum of all contributions added to the fund after 12/31/11
- Funds not underwater at 12/31/11, "base" will equal the cumulative sum of all contributions to the fund (aka 'principal')
- Funds established after 12/31/11, "base" will equal the cumulative sum of all contributions to the fund (aka 'principal')
The use of this approach provides a smooth transition from the historical approach in effect for the former St. Paul endowment funds to the new approach which aligns with the goal and objectives of this policy.
If a fund is underwater, the payout will be adjusted as follows:
- Reduce payout by 50% if individual fund's market value at calculation date is between 80 -89.99% of its "base"
- Make no payout if individual fund's market value at calculation date is less than 80% of its "base"
If a fund has received contributions, they will impact the formula as follows: 0% payout in year of gift, 0% payout in first calendar year after gift, 50% of payout in second calendar year of gift going to full payout in third calendar year after gift. (e.g. a gift in 2011 will not have a payout in 2011 or 2012 and 2.25% rather than 4.5% in 2013)
Calculation Date is defined as December 31 of the prior year-end for which market value numbers are available (i.e. Payout is being determined for 2013 during 2012. Calculation Date is 12/31/11)
Implementation of Spending Policy
This is the initial spending policy for the YMCA of the Greater Twin Cities and therefore as a result the spending formula described above adjusts the definition of "80% of prior payout" for 2013 only to correctly true-up differences in former St. Paul and Minneapolis spending policies to ensure the 2013 and future distributions reflect this spending policy going forward.