TRUST & ENDOWMENT FUNDS, Statement of Investment Policies and Guidelines for

Policy Category: 
Financial
Approved By: 
Board of Governors
Effective Date: 
February 2001 [Reviewed 1 Feb 2013; Revised 1 Oct 2015]
 
A.  INTRODUCTION

This Statement of Investment Policies and Goals (the "Statement") replaces the Statement of Investment Policy and Goals for the Trust and Endowment Funds (the "Funds") of Lakehead University (the "University"). This policy statement is issued for the guidance of Fund fiduciaries, and investment managers.  It is intended to be consistent with all federal and provincial legislation applicable to investments of the Trust and Endowment Funds.
 
The purpose of this policy statement is to provide guidelines for the segregation of funds held as trusts and endowments and for the investment, monitoring and reporting on the management of these funds.
The responsibilities of the Finance and Operations Committee (the "Committee") relating to the investment of Fund assets are included in the "Administrative Guidelines for the Finance and Operations Committee of the Lakehead University Trust and Endowment Funds" which is set forth in Appendix I.

This Statement will be reviewed annually and may be revised to reflect changes in objectives, Fund risk characteristics, and business and financial market conditions.
 
This Statement was revised as part of an exercise reviewing the overall asset mix of the Funds.

B. IDENTIFICATION OF FUND TYPE AND LIABILITIES
The Trust and Endowment Funds of Lakehead University comprise the following three funds which are described below:

Donor Endowment Fund:
Funds received and invested for the purpose of financing an ongoing scholarship, award or other commitment from annual earnings, such as a donation designated to provide a scholarship award out of the earnings derived from the investment of the donation money.

Other Donations Fund:
Funds received and invested for the purpose of meeting certain commitments not to be considered as endowments, such as donations to directly pay a scholarship award.

University Fund:
Funds received and invested from general revenues, capital, or other resources for purposes determined by the Board of Governors, such as the prior accumulation of excess University capital monies designated for scholarship purposes.
 
C. RISK TOLERANCE
The University's tolerance for risk with respect to the Funds can be defined as 'slightly below average', where average is defined as a typical 60% equity / 40% fixed income portfolio.  A permanent loss of capital is the most important risk to be managed.

D. OBJECTIVES
The Fund's objective is to maintain purchasing power after spending, inflation, and applicable fees.  Emphasis should be placed on downside protection in the management of the Funds.  The Funds have a long-term investment horizon and are to be managed on a going concern basis.  Further details on the way in which the Funds are established, maintained, and administered are outlined in the University's 'Endowment Management Policy' which applies to all University endowments unless specifically exempted by the Board.
 
Success of the investment program is to be measured in both terms of relative performancce versus appropriate benchmarks and absolute performance.  Specific performance goals are outlined in Section F.

D. LIQUIDITY
The funds require a level of liquidity necessary to meet the annual spending requirements as determined by the Board of Governors and is subject to change from time-to-time.
 
Spending must be sourced from ongoing income and capital gains.  The original principal cannot be used for spending requirements.

E. ASSET ALLOCATION AND REBALANCING
Asset allocation or mix refers to the allocation assets of the Funds among the major asset classes, including, but not limited to, Canadian and global equities, Canadian bonds and cash.  The Funds are currently invested in a balanced pooled fund and as a result this Statement adopts the target mix and permissible ranges outlined in the pooled fund's policy statement.  Asset classes, asset allocation targets and permissible ranges for the Fund are set forth below.

 

Asset Class
Target*
Permissible Ranges*
Canadian Equities
22%
10 - 40%
  US Equities
16%
10 - 50%
  International Equities
16%
0 - 40%
Bonds
40%
30 - 50%
  Cash Equivalents
6%
0 - 20%
* As a percentage of the Total Fund
 
In instances where the Funds are invested in a balanced pooled fund, the investment manager is responsible for rebalancing the pooled fund as necessary to ensure the minimum and maximum thresholds are not breached.  In cases where pooled funds of multiple managers are invested in to create a balanced portfolio, rebalancing will be performed by the custodian with the assistance of the investment consultant.

F. PERFORMANCE GOALS
The absolute return objective of the Fund is to achieve a rate of return equal to or greater than the level of inflation (defined as the Canadian Consumer Price Index or 'CPI') after disbursements and expenses.
 
The benchmark relative return objective of the Funds is to exceed by 0.50% the rate of return that would have been earned by the passive management of the Policy Benchmark:
 
 Asset Class
Policy Mix
Asset Class Benchmark
Canadian Equity
22%
S&P/TSX Composite Index
US Equity
16%
S&P 500 in C$
International Equity
16%
MSCI EAFE (net dividend withholding tax) in C$
Canadian Bonds
40%
FTSE TMX Canada Universe Bond Index
Cash
6%
FTSE TMX Canada 91 Day T-Bill Index
Total Benchmark
100%
Blended Return
 
Where appropriate, the investment options and underlying components should match or exceed the rate of return achieved by the median investment manager in a universe of comparable peers.

G. INVESTMENT GUIDELINES
Allowable investments include all permitted securities outlined in the policy statements of the pooled funds that the University is invested in.  Investment managers must comply with, and attest to compliance with, the policy statements of the pooled funds invested in by the Funds.
 
 
H. PERFORMANCE MONITORING AND REVIEW
The Committee will monitor the performance of the Funds, relative to the objectives and performance goals specified in the Statement no less than quarterly.  The risk profile will also be monitored as measured by the standard deviation of monthly returns as well as risk-adjusted returns as measured by the Sharpe Ratio.
 
If an investment manager fails to achieve the performance goal over six consecutive quarters, the Committee will place the investment manager 'on watch' and consider if a review is required.
 
The Committee will also consider reviewing an investment manager when one or more of the following circumstances prevail:
  • the investment manager's short-term underperformance is found to be a result of a change in the investment manager's investment style, process or discipline or a change in the key investment personnel;
  • there is a significant chnage in the risk profile of the investment manager;
  • the investment manager's investment style is no longer appropriate given the Funds' requirements;
  • the investment manager's reporting and client service are unsatisfactory; or
  • the Committee has concerns regarding the investment manager's ethics.

Notwithstanding the above, the Committee may recommend to the Board of Governors that a manager be terminated for any reason that the Committee deems appropriate.  The Board of Governors may terminate a manager for any reason in the Board's sole discretion.

A formal review triggered by any of the above criteria will be conducted by the Committee, or a delegated party, and the process will include the following:

  1. A qualitative review of the manager will be prepared addressing the following criteria;
  • Organizational structure / changes
  • Personnel changes
  • Investment style / process
  • Risk Controls

         ii.  A quantitative report will be prepared considering risk and return performance relative to any                            appropriate benchmarks and peer universes:

         iii. The Committee will consider whether the benchmark objective(s) continue to be appropriate;

         iv.  The Committee will decide whether there has been a fundamental change at the investment                              manager's operation which renders them no longer appropriate for the Fund's mandate: and

          v.  If required, the Committee will conduct an investment manager search for the identified asset class.

I. SECURITIES LENDING
A Securities Lending Program may be permitted, subject to review of the procedures and processes of the Custodian and the investment manager(s).

J. CONFLICT OF INTEREST
The assets of the Funds shall not be used for the purpose of making loans, including loans to officers or employees of the Employer or their family members.

The Trustees have responsibility to oversee, disclose and correct any actual or perceived conflicts of interest on the part of all parties associated with the Fund or the investment of the assets of the Fund.

The Administrator and any of its officers and employees engaged in the administration of the Funds, or any Trustee or agent appointed by the Administrator or by the Trustees, shall not knowingly permit his or her interest to conflict with his or her duties or powers relating to the Funds or the investment of the assets of the Funds.  Any actual or perceived conflict of interest shall be reported to the Trustees immediately and the Trustees shall be the sole arbiter in determining whether the conflict of interest exists and, if so, shall take the necessary measures to remedy the situation.

K. ADOPTION
Subsequent to a recommendation from the Finance and Operations Committee, the foregoing Investment Policy was adopted by the Board of Governors at its meeting held on February 15, 2001, retroactive to November 8, 1999 and amended on October 1, 2015.
Board Secretary                           

ADMINISTRATIVE GUIDELINES
FOR THE FINANCE AND OPERATIONS COMMITTEE OF THE LAKEHEAD UNIVERSITY TRUST AND ENDOWMENT FUNDS
The Finance and Operations Committee is responsible to the Board of Governors of Lakehead University.  The Committee's purpose is to oversee the investment management and related administration of the Trust and Endowment Fund of Lakehead University.
 
The functions and responsibilities of the Committee with respect to the Trust and Endowment Fund are to:
·    -->Identify providers of investment management, custody, and/or fund record-keeping.  Such services may be provided by a single organization or by multiple vendors, and after due consideration the Committee shall select and recommend to the Board of Governors the most appropriate offerings for the Plan.
·    -->Identify investment vehicles, whether segregated or pooled or mutual funds, that will satisfy the requirements of the Fund given investment preferences and tolerances for risk.
·    -->Recommend to the Board of Governors the appointment of an investment performance measurement service to monitor the performance of the managers on a periodic basis.
·    -->Recommend to the Board of Governors the replacement of investment managers or vehicles if managers have not performed satisfactorily or are not able to address the needs of beneficiaries or requirements of the Committee.
·    -->The Committee is to periodically review various alternatives for more cost effectively or efficiently managing and administering the Fund's investments.
·    -->Recommend to the Board of Governors, one or more investment management consultants to assist in any of the foregoing or other related functions and approve the fees.
·    -->Review this Statement on an annual basis and recommend to the Board of Governors, any appropriate changes.
 
These administrative guidelines are intended to provide direction to the Committee but may be varied or changed from time to time by the Committee.  The Statement should be reviewed annually by the Committee.
 

INVESTMENT MANAGER COMMUNICATION AND REPORTING

The investment manager(s) is expected to meet at least annually or upon request of the Committee.  Additionally, the investment manager(s) are expected to provide:
1)  -->INITIALLY, a written statement acknowledging acceptance of the Statement of Investment Policy and Guidelines and the performance standards therein stated;
2)  -->statements to be provided that include:
A. the monthly cost and market value of fund shares, the number of shares owned and all principal and income cash transactions for the various funds.
B. On a quarterly basis, in addition to the monthly report, the investment manager(s) will supply a statement showing for each fund offering:
1. the fund holdings broken out, minimally, by equity, fixed income, cash equivalents and uninvested cash balances and
2. fund positions, by individually-named securities
3) QUARTERLY, a report, within 30 days after the end of each calendar quarter, in the following format:

A. Review of Organizational Structure.
1)  -->Organizational changes of investment managers (i.e. ownership, staff, clients)
2)  -->Assets and accounts under management for those firms in total and by product
3)  -->Product asset growth for each of the last three years

B. Summary of Investment Guidelines
1)  -->Summarize guidelines and objectives
2)  -->Discuss adherence to guidelines
3)  -->Provide any comments and suggestions regarding policy constraints, guidelines, etc.

C. Review of Investment Process and Evaluation of Portfolio Management Process for Investment Manager(s)
1)  -->Brief review of investment process
2)  -->Discussion of any changes to the investment process
3)  -->Investment strategy used over the past year and underlying rationale
4)  -->Evaluation of current strategy's success/ disappointments
5)  -->Current investment strategy and underlying rationale

D. Performance Review
1)  -->Present total fund and asset class returns for last quarter, year-to-date, last year, last four years and since inception versus benchmarks designated in the investment manager guidelines
2)  -->Discuss performance relative to benchmarks
3)  -->Provide portfolio characteristics relative to benchmarks

E. Listing of Portfolio Holdings
1)  -->Present book value and current market value
2)  -->List individual securities by sector

F. Other Business
Includes any other comments or information
4)  -->UPON WRITTEN OR ORAL REQUEST
A. Copies of all documentation in support of any investment activity.
B. Evidence of suitable insurance coverage of the investment manager'(s) fiduciary responsibilities.