ST. OLAF COLLEGE
STATEMENT OF INVESTMENT POLICY AND OBJECTIVES
FOR ENDOWMENT ASSETS

Investment Philosophy

The Investment Committee of St. Olaf College has a long-term investment horizon and strives to provide a source of income for spending that is reasonably stable and predictable from year-to-year.
St. Olaf College’s investment philosophy is summarized as follows:

  1. Preserve the purchasing power of the endowment by achieving long-term returns that meet or exceed the sum of the expenditures on: spending policy allocations; inflation; and consultant, manager and custodial fees.
  2. Consistent with prudent standards for preservation of capital and maintenance of liquidity, the goal of the Committee is, in its fiduciary role, to earn the highest possible rate of return consistent with the Committee’s perception for the College’s ability to accommodate risk
  3. Comply with all applicable federal, state, and local laws, rules, and regulations, including the Uniform Prudent Management of Institutional Funds Act, as enacted in Minnesota, that may have an impact on the investment of St. Olaf’s assets

Investment Objectives

  1. To earn, over the long term, an average annual real total return of 6.0%, net of fees.
  2. To outperform the appropriate benchmark for each asset class in which assets are invested, measured over three to five years or complete market cycles, whichever period is longer.
  3. To outperform a simple benchmark of the broad market mix represented by a 70% S&P 500 and 30% Barclays Aggregate allocation.

Endowment Spending Policy

Based on market conditions and expected returns, the Investment Committee shall annually recommend the spending rate on the Endowment to the Finance Committee. For budget planning purposes, it is assumed the spending rate will be 4.0% to 5.0% of the sixteen-quarter (four years) rolling average market value of all Endowment assets.  The Investment Committee recognizes that in periods of capital appreciation, the effective pay out rate compared to the current market value of the Endowment may be less than 4.0%.  Conversely, in periods of capital depreciation, the effective pay out rate compared to the current market value of the Endowment may be greater than 5.0%. 

Strategy – Asset Allocation

In order to achieve the return objectives, the Investment Committee shall employ the following investment strategies (asset allocations):

  1. Assets shall be diversified to ensure that adverse results from one security or security class will not have an unduly detrimental effect on the entire portfolio.  Diversification is interpreted to include diversification by type, by characteristic, and by the number of investments, as well as by the investment style of investment managers.
  2. Investment management shall be delegated to professional asset managers in each asset class. 
  3. Asset allocation targets are subject to adjustments as determined by the Investment Committee.  The current targets are shown on the Asset Allocation Addendum (attached).  Asset allocation ranges by asset class are:

    a. Public Equities:

 

Minimum

Maximum

Domestic Equities

0%

50%

International Equities

0%

50%

TOTAL PUBLIC EQUITIES

20%

90%

    b. Fixed Income:

 

Minimum

Maximum

Government & Corporate Bonds & Debentures

5%

40%

Treasury Inflation Protected Securities

0%

25%

Cash

(3%)

3%

TOTAL FIXED INCOME

10%

40%

    c. Alternative Assets:

 

Minimum

Maximum

Hedge Funds

0%

20%

Real Assets

0%

15%

Private Equity

0%

15%

Opportunistic

0%

15%

TOTAL ALTERNATIVE ASSETS

0%

50%

 

The opportunistic category is intended to reflect decisions made by the Investment Committee to intentionally over-weight a particular asset category and may represent investments within traditional equity and fixed income securities or alternative asset categories. 

Strategy- Rebalancing Policy

Staff will review the asset allocation at least quarterly and recommend the reallocation of assets from asset class to asset class to bring under-funded asset classes above minimum and over-funded asset classes below maximum.  Upon Investment Committee approval, staff shall transfer funds among managers.

New Gifts to the Endowment

To minimize the Endowment’s exposure to market cycle volatility, new gifts to the Endowment that come in the form of marketable securities (stocks, bonds, etc.) shall be liquidated immediately, or as soon thereafter as practicable.  Cash generated by the sale of securities shall either be invested in an under-funded asset class, or used as a portion of the monthly spending allocation.

Unitized Endowment

The market value of each individual Endowment fund is based on the number of units owned.  When a new fund is established, the individual fund "purchases" units based on the prevailing market value per unit.  Subsequent additions and/or re-invested spending also purchase units at the then-prevailing market value per unit.  Calculations of market value per unit are completed following the end of each calendar month.

Review of Managers

The Investment Committee has delegated to Mercer (consultant) the initial and on-going due diligence processes for those managers they recommend.  However, the Investment Committee will review Mercer ’s due diligence reports at the time of investment approval and on an ongoing quarterly basis. In addition, staff will perform (at minimum) an annual site-visit to Mercer to review the documentation and to discuss any changes to their due diligence process.
The Investment Committee has adopted best practices for the ongoing review of all investment managers within the Endowment of the College. They are:

  1. Review performance of each manager against the appropriate benchmark for three-month; calendar year-to-date; fiscal year-to-date; one, three, and five year periods.
  2. Evaluate each investment manager’s performance quarterly.  Include not only measurements with respect to the standards described above, but also an overall qualitative evaluation of strategy during the quarter and other periods ending on that date. 
  3. Review the level of risk within each portfolio to determine whether it is appropriate for the strategy associated with the investment style.

Responsibilities of the Investment Committee

The role of the Investment Committee is supervisory, not advisory.  The Investment Committee delegates discretion to professional investment managers.  The primary roles of the Investment Committee are:

  1. Establish and amend the Statement of Investment Policy and Objectives, including strategic asset allocation and rebalancing policies.
  2. For separately managed accounts (if any), establish and amend Investment Manager Guidelines.
  3. Select, monitor and, if necessary, replace investment managers.
  4. Select, monitor and, if necessary, replace the professional investment consultant.

Conflicts of Interest

All persons responsible for investment decisions, investment management, investment consulting, or any investment advice whatsoever, shall disclose at the beginning of any discussion or consideration by the Committee, any relationships, material ownership, or other material interest(s) that the person has, with respect to any investment issue under consideration.  The Committee will require such persons to remove themselves from the final decision.
Any members of the Committee, staff, or consultants responsible for investment decisions or who are involved in the management of the Endowment shall refuse any remuneration, commission, gift, favor, service or benefit that might influence them in the discharge of their duties, except as disclosed in writing to and agreed upon (as documented in the meeting minutes) by the Committee.    Failure to disclose any material benefit shall be grounds for immediate removal from the Committee. 

Proxy Voting

Investment Managers shall be responsible for casting all proxy votes on behalf of the Investment Committee, with the understanding that the votes will be cast in such a way so as to maximize the long-term value of the shares owned.

Annual Review

The Investment Committee shall review the Investment Policy Statement annually.  Exceptions to these guidelines may be made at any time with the approval of the Investment Committee.

The Investment Committee shall review the status of the purchasing power (unit values) of the Endowment on an annual basis, including a review of “Underwater Funds”, as applicable.

Staff shall annually provide the Investment Committee with a Schedule of Fees Paid for the Endowment Consultant, the Investment Managers and for Custody Services.