INVESTMENT POLICY STATEMENT For Investment Funds of All Saints’ Episcopal Church, Carmel CA
PURPOSE OF THE INVESTMENT POLICY STATEMENT This Investment Policy Statement is designed to: A. Establish investment objectives and overall standards for the management of the assets held in the Parish Investment Fund (Vestry Fund) of the All Saints’ Episcopal Church, Carmel CA (Parish). B. Provide an environment that favors a stable and prudent investment strategy consistent with the goal of the Parish to have a reliable source of investment income. C. Define overall risk and return objectives of the portfolio. D. Establish a philosophy, policies and procedures, and identify and maintain any existing restrictions that will guide the Investment Committee of the Parish in decisions regarding the management of portfolio assets. E. Establish a methodology for monitoring and evaluating performance of the portfolio.
BACKGROUND INFORMATION A. The Parish Investment Fund of the All Saints’ Episcopal Church, Carmel CA, (referred to herein as “the Vestry Fund”), authorized by and reporting to the Vestry of the Parish, is operated under the Investment Fund Plan of All Saints’ Episcopal Church, a 501c(3) non-profit public benefit organization, with accumulated investment assets from earnings, donations and/or bequests. The Vestry Fund investment portfolio is administered by the Investment Committee at the direction of the Vestry of All Saints’ Episcopal Church, Carmel CA (Vestry). B. The investment portfolio covered by this Investment Policy Statement currently consists of real estate, art, stocks, bonds, mutual funds, exchange traded funds and money market funds. C. In addition to the funds addressed in II-B, and outside of the publicly traded securities in the managed portfolio, the Vestry Fund may also hold an equity ownership investment in the Rector’s residence and other such resources deemed consistent with the philosophy and policies of the Vestry Fund and the needs of the Parish. D. All Saints’ Episcopal Church (Parish) also benefits from the endowed proceeds of a fund known as the Foundation Trust Fund of All Saints’ Episcopal Church (a 509a3 entity, “Trust Fund”). Although its purpose is solely to benefit the Parish according to its policies and bylaws, the Trust Fund is separately governed and managed by a 1|Page
Board that is independent of the Parish and its Rector, Wardens and Vestry. This policy statement contemplates that the governance and management of the Trust Fund will continue to be independent of the Parish although it also anticipates that the Trust Fund and the Parish will continue to collaborate toward the good and benefit of the Parish and its mission. III.
INVESTMENT PHILOSOPHY The Investment Committee is charged with creating a management process with sufficient flexibility to capture investment opportunities as they may occur, yet maintaining reasonable parameters to ensure a stable and prudent investment strategy for the investment program, consistent with the goal of the Parish to have reliable sources of investment income.
INVESTMENT GOAL The overall investment goal of the Vestry Fund is to preserve the purchasing power of these assets for future use as needed and to maximize the return of the portfolio within reasonable and prudent levels of risk. A. The Vestry Fund will be managed and invested under the leadership of an Investment Committee to be comprised of the Foundation Trust Fund Board members. The Foundation Trust Fund Board members will continue to be solely responsible for the investments within the Trust Fund. B. The Vestry Fund will be managed in a manner consistent with the Uniform Prudent Management of Institutional Funds Act (UPMIFA). In accordance with UPMIFA, the Investment Committee considers the following factors in making a determination to appropriate or accumulate donor-restricted investment funds: 1. The duration and preservation of the fund, 2. The purposes of the organization and the donor-restricted investment fund, 3. General economic conditions, 4. The possible effect of inflation and deflation, 5. The expected return from income and the appreciation of investments, 6. Other resources of the Parish 7. The investment policies of the Parish
INVESTMENT OBJECTIVES In order of importance, the Vestry Fundâ€™s investment objectives will be: ď‚ˇ
Safety of principal 2|Page
Long term growth of capital
RISK A. Total investment risk refers to the volatility of the Return on Investment strategy employed. It is defined as the unpredictability of investment returns, the chance that actual returns of individual investments are different from expected returns and the possibility that overall portfolio performance does not match target expectations. B. Working closely with the Vestry Fund’s investment manager and using survey tools available to investment managers, the Investment Committee, in communication with the treasurer and the Finance Committee of the Parish, will prepare a Risk Assessment from time to time in order to ascertain the current risk tolerance of the Vestry Fund leadership. It is anticipated that The Vestry Fund has a conservative to moderate tolerance for risk. As such, it is willing to accept some volatility in the portfolio in order to achieve its return objectives. C. The Investment Committee and the Vestry understand that the actual level of risk as well as returns may be higher or lower than the Vestry Fund’s stated risk tolerance and return objective.
CONTRIBUTIONS (BEQUESTS AND GIFTS) The entire Vestry Fund will be accounted for under Generally Accepted Accounting Principles as defined by the American Institute of Certified Public Accountants’ rules on fund accounting. According to these rules, the chart of accounts will be organized in three major fund categories, those being: (i) Unrestricted, (ii) Temporarily Restricted, and (iii) Permanently Restricted. These restrictions may be established by donors either through written statement, in the case of a living donor, or by Testamentary Device, in the case of a deceased donor, at the time the gift is made. The Vestry reserves all rights of acceptance or non-acceptance at the time the gift is made. Contributions to the Vestry Fund will be accepted in accordance with the Gift Acceptance Policies and Procedures (Section 2 of the Investment Fund Plan) and generally will be assigned to one of the following funds: A. General Fund: to support the General Operation of the Parish, with no restrictions. B. Foundation Trust Fund, managed solely by the Foundation Trust Board under its own bylaws, policies and procedures. C. Worship Fund: to support the stated Parish vision and goals for excellence in worship, including liturgy, preaching and music. 3|Page
D. Community Fund: to support the stated Parish Community vision and goals. E. Discipleship Fund: to support the stated Parish Discipleship vision and goals. F. Outreach Fund: to support the stated Parish vision and goals for Outreach beyond the congregational community. G. Capital Improvements Funds: to support the stated Parish capital improvement goals, and including: a. Grounds Fund, especially including gardens, including plants and hardscape. b. Building Fund, to include funds periodically transferred from the Foundation Trust Fund. The Building Fund will be used for new building and construction as well as for maintenance and repairs on existing buildings. H. Term Endowment Fund for Strategic Initiatives: A “Term Endowment” is an account established by a donor whose principal will be fully distributed over a pre-determined term of years, not to exceed ten (10), following a pre-determined schedule. The term and purpose of the “Term Endowment” will be agreed upon between the donor and the Vestry and the agreement will be recorded in writing. A minimum donation of $100,000 is required in order to establish a “Term Endowment”. I. Establishment of a new endowment would need to be in accordance with the Gift Acceptance Policy. The above distribution purposes of each Fund can be changed from time to time by a 60% vote of the Vestry, after consultation with the Finance Committee and the Investment Committee. The funds will be accounted for under General Accepted Accounting Rules for Not-forProfit-Organizations. Each fund described above will be organized in accordance to the stated wishes of donors and accounted for accordingly, as shown below:
Unrestricted Accounts – These are accounts that are given by the donor either inter-vivos or through testamentary means that are intended to be used by the Parish according to the direction of the Vestry. They are completely unrestricted and unencumbered except must be used for the good of the Parish as stated in this document. Distributions from these accounts will be determined annually by the Vestry.
Temporarily Restricted Accounts – These are accounts established by donors either inter-vivos or through testamentary means that place a certain restriction on the use of the funds towards a specific purpose which, when met, can be lifted and the funds flow to the Parish in an unrestricted fashion. These accounts are commonly used to meet donor wishes during campaigns. The Gift Acceptance Policies mentioned in this document apply to these and all gifts. Distributions from these accounts will be determined annually according to a report from the 4|Page
Finance Committee to the Vestry demonstrating the lifting of the restriction due to full compliance with the donor’s restrictive request.
Permanently Restricted Accounts – These are accounts, sometimes known as endowments, established by donors either inter-vivos or through testamentary means which place a permanent restriction on the use of the Corpus of the gift and restrict the account to distribute earnings only for the use of the Parish and according to the stated purpose of the endowment.
DISTRIBUTIONS (SPENDING RULES) Distributions from the portfolios will be made in accordance with the Spending Rules, established for each Fund and in accordance to General Accepted Accounting Principles. A. Parish Permanently Restricted Fund: This Fund will pay on a rate ranging from 3% to 5%. The rate will be set annually by the Investment Committee in consultation with the Finance Committee and will be based on several factors, including: prevailing rates, prior year investment performance of the Vestry Fund, and needs of the Parish. Returns will be reported to the Investment Committee and the Vestry annually. The above distribution limits of this Fund can be changed from time to time by a 60% vote of the Investment Committee but only with the consultation of the Finance Committee and the endorsement, by a majority vote, of the Vestry. B. Foundation Trust Fund: Neither the Investment Committee nor the Vestry have management control of the Trust Fund. Under current Trust Fund Board bylaws, the Trust Fund pays at a rate of 4.5% of the value of the securities portfolio.
INVESTMENT VEHICLES/ASSET ALLOCATION The portfolio will be managed and invested guided by the underlying philosophy and principles stated in Sections I through VI above. The management of the portfolio will be influenced by market trends and conditions as well as cash flow needs and other requirements of the various funds within the Vestry Fund. The Investment Committee will use the principles below to guide their investment decision-making. The portfolio will be invested and managed as a whole, and accordingly, the Investment Manager will be apprised of liquidity needs for each of the Funds. A. Fixed Income Securities – Fixed income securities may include the following: U.S. Treasury obligations, federal agency obligations, marketable corporate bonds, commercial bank certificates of deposit, preferred stocks and money market funds. 1. Bonds will be selected and managed so as to assure appropriate balance of quality, maturity and coupons consistent with current money market and economic conditions. 5|Page
2. At time of purchase, all bonds will be investment grade (no rating lower than BBB) as rated by the bond services. The weighted average quality of the fixed income portfolios will be AA or better. B. Equity Securities (Stocks) 1. Stocks are defined to include convertible issues as well as common stocks and/or stock mutual funds and Exchange Traded Funds (ETFs). All equity securities within the Vestry Fund must be traded on at least one of several major exchanges. 2. Investments in any one security should not exceed 5% of the portfolio’s equity investments based on market value at the time of purchase. C. Other Assets donated to and accepted by the Vestry of All Saints’ Parish in accordance with the procedures of Section 1.1.10 and 2 of the Investment Fund Plan, are also managed by the Investment Committee under the direction of the Vestry. The Investment Committee may manage them directly, or may delegate their management to a qualified investment manager. That manager may be the same as used for the management of the financial assets, or may be one or more different ones, depending on available expertise, cost of administration, and other relevant considerations. The Investment Committee will report to the Vestry on the management of these assets at the time of any substantial change of these assets and at least annually. D. Prohibited Transactions Only investments consistent with ‘Prudent Investor’ strategies will be allowed. E. Asset Allocation 1. The Investment Committee will define the strategic asset allocation among various asset classes given the Vestry Fund’s objectives, time horizon, constraints and risk tolerance. 2. The Investment Committee will meet with the investment managers to review their proposed sub-asset allocation policy and determine its correlation to current risk tolerance protocols as well as investment results, and make adjustments accordingly. 3. The asset allocation policy shall be expressed in terms of a percentage range of acceptable weights in the portfolio and for a specific period of time. The investment manager will have discretion to target the weight within the range. 4. Assets may be temporarily invested in short-term U.S. treasury/agency obligations and/or money market funds. Cash balances will normally be kept at a minimum. 6|Page 1/15/2012
5. These initial grade specifications and allocations among investment vehicles may be changed from time to time by a 60% vote of the Investment Committee. The Investment Committee will advise the Vestry of such changes as they occur. F. Rebalancing Policy 1. There will be periodic deviations in actual asset weights from the policy asset weight specified above due to market movements, cash flows and varying asset class performance 2. The Investment Committee authorizes the investment manager to evaluate the need to rebalance the portfolio when necessary, and at least annually, to ensure adherence to the Investment Policy. X.
TRANSACTIONS The investment manager will determine and report to the Investment Committee its portfolio turnover rates, and keep them consistent with the Vestry Fund objectives.
PERFORMANCE EVALUATION A. Investment returns will be measured on a total return basis, which includes income and both realized and unrealized gains/losses. Rates of return will be calculated based on a time-weighted rate of return formula as recommended by the Chartered Financial Analyst Instituteâ€™s Global Investment Performance Standards (GIPS) and will be reported net of all fees and costs. B. Appropriate benchmarks for performance evaluation will be selected and reported. C. Performance of the portfolio will be measured over a three to five year time period and reported quarterly.
DISCRETIONARY INVESTMENT AUTHORITY Subject to the guidelines of this policy statement, the investment manager retained by the Parish will have full discretionary authority over the assets of the Vestry Fund and shall invest the assets in a manner that is consistent with Uniform Prudent Management of Institutional Funds Act.
AMENDMENTS Amendments to this Policy Statement except for Section IX may only be made under the procedure defined in Section 1.5 of the Investment Fund Plan. Amendments to Section IX may be made by a positive vote of the Investment Committee operating under its rules in Section 1.1.4 of the Investment Fund Plan.
Approved: ______________________________________________________________________________ Senior Warden (for the Rector, Wardens and Vestry) Date ____________________________________ Parish Secretary/Clerk