Investment and Endowment Policy

The Foundation’s mission is to establish and cultivate a variety of productive and mutually beneficial relationships with individuals, corporations, and other nonprofit entities. Through these relationships, the Foundation seeks to raise, acquire, hold, administer, invest, and manage funds from donors. Funds donated to the Foundation may be maintained in the form of endowments, quasi-endowments, or other forms deemed appropriate. The purpose of this document is to establish policy and guidelines which will provide for (a) the maintenance and enhancement of Foundation invested assets and (b) the operation of the organization. This document will be reviewed at least annually by the Investment and Finance Committee of the Foundation’s Board and updated as needed. The Board must approve material changes to this policy document. 

Investment Philosophy
The Foundation’s endowment exists to provide funds for daily operations of the organization and for student scholarships. Accordingly, the investment philosophy of the Foundation is to increase the value of the endowment and at the same time provide a dependable, increasing source of income to support Foundation programs and activities. The Foundation will thus embrace a  diversified approach to investing by utilizing  multiple asset classes and multiple managers. Our intent is to reduce risk and accommodate different manager styles and investing strategies considered reasonable and prudent.

Investment Goals
The primary investment goals are to: (a) support operations of the Foundation, (b) provide income to fund scholarships, (c) preserve principle, and (d) increase the purchasing power of endowed assets.

Investment Responsibilities
The investment program is managed in compliance with all applicable fiduciary, prudence, and due diligence requirements that experienced investment professionals would utilize and with all relevant laws, rules, and regulations issued by local, state, and federal entities that apply to the Foundation. The investment function of the Foundation will adhere to the requirements of the Uniform Prudent Management of Institutional Funds Act (UPMIFA).

A. Board of Directors
The Board of Directors bears the overall fiduciary responsibility for the Foundation. It is the responsibility of the Board to approve and amend as appropriate the Investment Policy document, establishing strategic policy guidelines by which the Foundation’s endowment is  managed.

B. Executive Committee
The Executive Committee is charged with ensuring that Foundation operations are performed in accordance with approved policies, plans, and budgets. In addition, the Executive Committee can act on behalf of the full Board for decisions necessary between Board meetings.

The Executive Committee’s responsibilities with respect to investments include:

1. Make recommendation to the full Board for those policy and operational items requiring Board action.
2. Discuss and summarize its decisions in a consent agenda for Board ratification.

C.  Finance and Investment Committee
The Board has delegated to the Finance and Investment Committee the responsibility for management of all investable funds (operations, programmatic, capital, and endowments) of the Foundation. The Committee has the responsibility to ensure that the assets of the Foundation are managed in a manner that is consistent with the approved policies of the Foundation and in compliance with all applicable laws. Committee members are required to discharge their duties solely in the interest of the Foundation’s mission, goals, and objectives. The Committee is authorized to engage the services of investment consultant(s) who possess the necessary specialized skills to meet the investment goals and objectives of the Foundation. The Committee will require the investment consultant(s) to adhere to any policies adopted by the Board.

In fulfilling its responsibilities, a quorum of the Finance and Investment Committee must be present, either in person, by teleconference, or by proxy. A quorum is a least 50 percent of the members of the Finance and Investment Committee. Each member shall be entitled to one vote and each decision of the committee shall require the ascent of a majority of those voting.

The Committee’s responsibilities include:

1. Review, approve, and submit for Executive Committee and Board action the Investment Policy of the Foundation at least yearly.
2. Review and approve investment guidelines relating to eligible investments, diversification and concentration restrictions, and performance objectives for specific managers.
3. Determine the Foundation’s asset allocation strategy and evaluate the need to rebalance investments at least yearly or as recommended by the investment consultant(s).
4. Monitor the adherence of investments to the Investment Policy and evaluate, at least quarterly, the performance of the total portfolio and of the individual managers based on stated goals, objectives, and benchmarks.
5. Evaluate each year the performance of the investment consultant(s) and portfolio manager(s) and make recommendations to the Executive Committee and Board for changes if needed.

D. Investment Consultant(s)
The Committee may recommend the engagement of an independent investment consultant firm(s) to assist in the attainment of the Foundation’s goals and to monitor compliance with the stated investment policies.

The consultant(s) responsibilities are:

1. Assist in the development and implementation of investment policies and guidelines.
2. Prepare an asset allocation analysis and recommend an asset allocation strategy consistent with the Foundation’s goals and objectives.
3. Implement investment of endowment funds subject to instructions from the Committee and guidelines associated with Investment Policy and asset allocation targets.
4. Communicate regularly with Foundation staff by providing input and recommendations on investment strategy and asset allocations as market conditions change.
5. Research investment managers and make recommendations to the Committee.
6. Prepare and present performance evaluation reports at least quarterly to the Committee.
7. Review both contracts and fees for current and proposed investment managers with the Committee prior to execution of a relationship.
8. Prepare and present, at least quarterly, a written economic outlook report which highlights the direction and trends of the market based on national and international economic conditions.**
9. Review and develop special investment strategies that complement existing asset classes or strategies for Committee consideration.
10. Notify the Committee of any changes in key personnel, ownership, strategy, or philosophy of the investment consultant(s) firm.
11. Notify the Committee of any significant changes in portfolio managers, personnel, ownership, portfolio structure, or strategy of any investment management firm(s).
12. Coordinate interactions with the selected investment custodian.

E. Investment Manager(s)
Each investment manager(s) is expected to pursue their investment strategy and produce capital appreciation and positive earnings for the Foundation.

The investment manager(s) responsibilities are:

1. Invest assets under their management in accordance with their firm’s philosophy, strategy, portfolio structure, and guidelines.
2. Provide written documentation of portfolio activity, portfolio valuations, and performance data on a monthly basis in addition to other information as requested by the Committee or investment consultant(s).
3. Demonstrate on a quarterly basis a reasonable positive increase over the comparative benchmark index. Active managers may be terminated if net performance is statistically indistinguishable from the benchmark return over four consecutive quarters.

F. Investment Custodian
The custodians are responsible for the safekeeping of the Foundation’s assets.

The investment custodian’s responsibilities are:

1. Provide timely reports detailing investment valuations and account transactions monthly.
2. Establish and maintain an account(s) for each investment manager of the Foundation.
3. Provide all normal custodial functions including security safekeeping, collection of income, settlement of trades, collection of proceeds of maturing securities, etc.
4. Prepare additional accounting reports as requested by the Committee or investment consultant(s).

G. Foundation Staff
The Foundation staff is responsible for serving the interests of the Committee and providing direction to the investment consultant(s).

The Foundation staff’s responsibilities are:

1. Develop policy and strategies for consideration by the Committee.
2. Execute decisions rendered by the Committee.
3. Interface regularly with the investment consultant(s).
4. Provide status information to the Committee on operational and student scholarship needs.

Standards of Care

1. Conflict of interest: all persons responsible for investment decisions or who are involved in management of the Foundation or who are consulting to or providing any advice whatsoever to the Finance and Investment Committee, shall disclose in writing at the beginning of any discussion or consideration by the Committee, any relationships, material beneficial ownership, or other material interest(s) which the person has or may reasonably be expected to have with respect to any investment issue under consideration. The Committee may require such persons to remove themselves from the decision making process. Any members of the Committee responsible for investment decisions or who are involved in the management of the Foundation shall refuse any remuneration, commission, gift, favor, service, or benefit that might reasonably tend to influence them in the discharge of their duties, except as disclosed in writing to and agreed upon in writing by the Committee. Failure to disclose any material benefit shall be grounds for immediate removal from the Committee.
2. Prudence: the standard of care used by Foundation staff and Committee members shall be the “prudent person” standard and shall be applied in the context of managing the overall portfolio. The “prudent person” standard  requires that a fiduciary with funds for investment may invest such funds only in securities that any reasonable individual interested in receiving a good return of income while preserving his or her capital would purchase. This rule does not mandate an individual possess exceptional investment skill. It requires only that a fiduciary exercise discretion and average intelligence in making investments that would be generally acceptable as sound. Finance committee members acting in accordance with this Investment Policy and exercising due diligence shall be relieved of personal liability.

Investment Objectives and Guidelines

1. *Rate of return: the goals of the Foundation's investment objectives are to support the operations of the organization, to provide for current scholarship needs and to earn a return sufficient to preserve the purchasing power of the Foundation. While there cannot be complete assurance that a positive rate of return will be realized annually, it is believed that the likelihood of realization is enhanced by diversifying the assets of the Foundation, astutely allocating assets to match economic and market conditions and by utilizing best in class portfolio managers. *Revised as of February 12, 2012.
2. Distribution (spending) policy: the Foundation’s spending policy and investment strategy is designed to work together to preserve the inflation adjusted value of the endowment portfolio over time. The spending policy reflects Foundation guidance associated with the annual amount of funds which will be withdrawn from endowment projects and made available for distribution each year (spending rate). The CBC Foundation Board of Directors has adopted a spending policy of at least 0.5 percent but no more than 5 percent of the fair market value of the endowment pool. The annual total spending rate and amount will then be determined on the basis of investment performance calculated at least quarterly and averaged over a one-year period that immediately proceeds the year in which the expenditure will be made. Once the overall rate is established, the spending amount for each endowment project is based on individual investment earnings. Each year, the Foundation staff will review individual projects determining if the approved spending rate would reduce available amounts below prudent reserve thresholds and if so, will reduce or stop the approved distribution.Endowments are intended to be held in perpetuity; therefore spending typically comes from accumulated earnings derived from investment performance. Consequently, spending from new endowments cannot occur immediately unless the donor specifies a certain amount as non-endowed and available for immediate appropriation. Therefore, generally, spending will not begin on a newly established endowment for at least a 12-month period to allow for earnings accumulation.The Foundation and Committee are aware that despite diversification in its investment portfolio, there will be times when the fair market value of an endowment project may fall below the endowment project corpus value creating underwater endowments. In the event an endowment falls underwater, the Foundation will suspend spending from that project. This Foundation will only distribute for scholarships when individual endowments are in a positive cash position and have sufficient reserves accumulated in a temporary restricted account to support a scholarship award. In periods of exceptional growth, the surplus earnings allocated to an endowment are based on each projects prorated share of the total investment pool. The amount allocated is the net of market performance, less the spending distribution and less an administrative fee for Foundation operating expenses. Earnings in excess of spending and the administrative fee are added to the endowment project balance. This “real growth” is then available to provide the cushion to fund spending and fees during periods of poor market performance. Despite the amount of yearly earnings from our endowment investment pool, funds functioning as endowments (FFEs) will have funds available for expenditure each year until all the funds are expended. The Foundation staff will also evaluate the status of each FFE and make a scholarship distribution recommendation to the Committee for FFEs. In no case will the recommendation exceed 25 percent of the total FFE pool available in any given year. With approval of the Board, the Foundation assesses a fee on the value of the endowment pool determined and distributed quarterly to assist in providing revenue to offset its operating expenses. The investment fee will not exceed 1.5 percent annually.
3. Exit strategy: the investment fee rate (1.5%) is the part of the rate of return objective that the Foundation utilizes to support its operations. The operational obligations include: employee salaries and benefits, administrative costs, and fund raising expenses. The exit strategy will be directly linked to these operational obligations and the overall valuation of the endowment. The higher the valuation, the more dollars are available to support operations. The converse is also true. The lower the valuation, the fewer dollars are available to support operations. The objective of the Foundation’s exit strategy is to define two levels; one to serve as a warning and the other to set a minimum level of dollars that the Foundation needs to accomplish its mission. When the endowment valuation reaches the  warning level, the Committee will initiate steps to rebalance the asset allocation from equities to fixed income. When the endowment valuation reaches the minimum level needed to support operations, then the Committee  will initiate steps to exit the equity marketplace and invest in either fixed income, cash or cash equivalent accounts. (See Appendix A.) When either the warning or minimum level is obtained, the Committee will diverge from the target asset allocation table in determining the appropriate asset structure and balance to maintain during this period of duress.
4. Risk: with investments, risk is inseparable from performance and rather than being desirable or undesirable is simply necessary. A common definition for investment risk is deviation from an expected outcome. Every investment involves some degree of risk which can be very close to zero in the case of a U.S. Treasury security or very high for something such as a concentrated exposure to emerging markets in undeveloped countries. Risk is quantifiable in both absolute (standard deviation) and in relative (alpha/beta) terms. A solid understand of risk in its different forms and the goals of the Foundation, can help the Committee better understand the opportunities, trade-offs and costs involved with different investment approaches. For the Foundation, risk is specifically defined as the probability of failing to meet the rate of return objective over a given time horizon. The Foundation’s endowments are established for perpetuity  and accordingly should be managed from a risk perspective with a time horizon much longer than the normal investment cycle. A time horizon of three years is probably appropriate. The Committee is particularly risk adverse and is much attuned to the probability of constantly not meeting the rate of return objective. Should the Foundation’s endowment performance fail to achieve the rate of return objective for three years, then the committee will reevaluate the portfolio and allocations. To minimize the risk of not consistently achieving the target rate of return objective, the Committee adheres to  policies of asset diversification and active management through its investment advisor(s).

Investment Strategy

1. Asset structure: to facilitate investment and accounting, the endowments and other invested funds shall function as a single pooled fund. Each individually named endowment shall hold its pro rata share of the investment pool. On occasion, income earned may be capitalized and transferred to the principle of a fund.
2. Asset allocation: the single most important decision made by the Committee is the asset allocation decision. Investment research has determined that a significant portion of a portfolio’s investment behavior can be attributed to: (a) the asset classes/styles which are employed by an organization and (b) the weighting of each asset class/style. It is the responsibility of the Committee to identify the asset allocation balance that offers the highest probability of achieving  the Foundation’s investment objectives. The Committee, with guidance and recommendations from its consultant(s), shall review the asset mix on an ongoing basis and recommend to the Board revisions as necessary.
   The following table defines the target asset allocation and range for each asset class:
   Target Asset Allocation Table
   

   Asset Class	Minimum Wt.	Maximum Wt.
   Fixed Income	10%	40%
   Equity Securities
   Large Capital	20%	45%
   Mid/Small Capital	5%	25%
   International	5%	25%
   Cash/Cash Equivalents	0%	10%
   Real Estate Investment Trusts	0%	5%
   Commodities	0%	10%
   Alternative Investments	0%	15%

3. Rebalancing: the purpose of rebalancing is to maintain asset allocation within the targeted ranges while contributing to the control of portfolio risk. In the event that actual portfolio positions in asset classes move outside the ranges indicated due to market forces that shift relative valuations, the Foundation staff will inform the Committee and take steps to rebalance portfolio positions back within the policy ranges as soon as practicable. The Executive Director will work with the consultant(s) to complete the rebalancing process and inform the Committee when corrective actions have been implemented.
4. Diversification: to achieve the stated objective of growing assets and income at a rate in excess of inflation over the long term, Foundation assets are to be invested in a diversified portfolio. The endowment fund will be diversified both by asset class and within asset class. Within each asset class, securities will be diversified among economic sector, industry, quality, and size. The purpose of diversification is to provide reasonable assurance that no single security or class of securities will have a disproportionate impact on the performance of the total endowment fund. As a result, the risk level associated with the portfolio investment is reduced.

Performance Standards

1. Performance relative to risk: the stated objective for the total portfolio is to generate an average annualized rate of return, net of fees, 8% greater than the rate of inflation as measured by the Consumer Price Index (CPI-All Urban Consumers-Western Region) over a three-year period (July 1 to June 30). Broad portfolio diversification is expected to provide an aggregate risk for the total endowment portfolio that is lower than that of a market index weighted to match the asset mix of the portfolio. This disciplined approach to investment is intended to be consistent over time and among asset classes. Incremental changes to asset class allocation will be proposed or new classes added when such actions are anticipated to improve returns and/or reduce risk.
2. Total portfolio performance: the portfolio’s overall performance will be reviewed quarterly and should provide, over a  twelve-month period (July 1 to June 30) a rate of return that is greater than or equal to a composite index created by averaging the various benchmark indices utilized in the target allocation. Should performance not meet expectations, the Committee will review the current asset allocation mix and the performance of individual Investment Managers and make recommended changes to the Board as necessary.
3. Peer group: performance of the endowment portfolio will also be compared to the endowment universe with similar investment allocations. It is expected that the total portfolio will perform above the median performance in the comparable fund universe provided by the investment consultant(s).
4. Investment managers: the investment managers are expected to equal or exceed the return of the agreed benchmark and generally perform in the top 40 percent of their respective peer group over a market cycle of three years, as measured by a broad performance database that evaluates investment managers as to style, risk, and return. Failure to perform to this level will constitute a basis for replacement. Each investment manager will be measured against their asset class benchmark.
5. Indices: performance of the endowment (net of fees) and its component asset classes will be measured against benchmark returns of comparable portfolios as follows:

Asset Class	Benchmark
U.S. Large Cap Equities	S & P 500 Index
U.S. Mid/Small Cap Equities	Russell 2500  Index
International	MSCI EAFE Index
International Emerging Markets	MSCI Emerging Markets Index
U. S. Fixed Income	Barclays Intermediate Government/Corporate
Cash/Cash Equivalents	U.S. 30 Day Treasury Bill
Real Estate Investment Trusts	NAREIT Property Index
Commodities	Dow Jones AIG Commodity Index
Alternative Investments	HFRI Fund of Funds Conservative Index
Bond Index	N/A

Performance Measurement and Reporting
At least annually, the Committee will conduct performance evaluations at the total endowment, asset class, and individual manager levels. The investment consultant(s) will provide information for this review. At the total endowment level, the Committee will analyze results relative to the objectives, the real rate of return, and the blended benchmark indices for the total endowment. Further, investment results will be reviewed relative to the effects on next year’s operation’s budget, the effects of policy decisions, and the impact of deviations from policy allocations that may require portfolio rebalancing.

On the asset class and individual manager levels, results will be evaluated quarterly relative to benchmarks (net of fees) assigned to managers and selected pooled investments. These benchmarks are a vital element in the evaluation of individual and aggregate Manager performance within each asset class. Again, the investment consultant(s) will be responsible for providing the pertinent information.

In addition, at its quarterly meeting, the investment consultant(s) will provide to the Committee information to support the following:

1. Review of past, present, and perspective economic climate in relation to the Foundation’s investment objectives and strategy.
2. Allow the Committee to understand the current investment strategy being used to fulfill the stated goals and objectives.
3. Permit the Committee to understand the risk levels of the securities represented in the portfolio.
4. Review trends in performance levels in relations to stated goals and objectives.
5. Review the Foundation Investment Policies, Goals, Objectives, and Strategy. 

**Approved by the Board of Directors at its meeting, February 17, 2011.