- Responsible Office: Treasury Services, Finance and Budget
- Current Approved Version: 03/23/2017
- Policy Type: Board of Visitors
Policy Statement and Purpose
The purpose of this Investment Policy is to define the financial goals, objectives, and legal limitations for the investment and management of Virginia Commonwealth University’s funds and to articulate the responsibilities of the University, its investment managers, and its investment advisors, including performance measures and reporting requirements. This policy is subject to (a) applicable federal and state laws, rules and regulations, (b) resolutions and policies of the Board of Visitors or the Board’s designated Committee, and (c) restrictions imposed by donors, funding agencies or deeds of trust. Nothing in this policy should be construed to authorize activities that violate any of the above.
This policy sets forth the parameters to be followed when investing university funds. The policy sets forth detailed asset allocations, permitted and prohibited investment options, and benchmarks for performance for operating and reserve funds and endowment funds. It also provides requirements of investment managers, and how investments managers should be monitored.
The University, by consultation with the Board of Visitors (the “Board”) or designated Committee, has the following responsibilities:
- To comply with the Board’s asset allocation, diversification and quality guidelines for investment of funds as detailed in this policy;
- To utilize approved qualified investment advisors, investment managers and consultants and to facilitate communication from these entities to the Board;
- To ensure that the current spending requirements of the university are supported and the university’s daily cash flow demands are met; and
- To monitor and evaluate investment results and communicate the results to the Board or its designated committee.
It is the policy of the University to invest its funds solely in the interest of the University and in a manner that will provide the highest investment return within the specified risk tolerance, and to ensure the university’s operating funds meet daily cash flow demands. In the investment of its funds, the University will conform to applicable federal and state laws and other legal requirements, including, but not limited to, that certain Management Agreement dated November 15, 2007, by and between the Commonwealth of Virginia and the Rector and Visitors of Virginia Commonwealth University, as amended (Chapter 594 of the 2008 Virginia Acts of Assembly, including Exhibit F, Policy Governing Financial Operations and Management, thereto); the Security for Public Deposits Act, Chapter 44 (§ 2.2-4400 et seq.) of Title 2.2 of the Code of Virginia, as amended; the Investment of Public Funds Act, Chapter 45 (§ 2.2-4500 et seq.) of Title 2.2 of the Code of Virginia, as amended; the Uniform Prudent Management of Institutional Funds Act, Chapter 11 (§ 64.2-1100 et seq.) of Title 64.2 of the Code of Virginia, as amended; and § 23-50.10:01 of the Code of Virginia, as amended, concerning the University’s investment of endowment funds, endowment income, and gifts.
The University shall invest its operating funds and operating reserves in accordance with the Investment of Public Funds Act. Gifts, local funds, and nongeneral fund reserves and balances may be invested in accordance with the Uniform Prudent Management of Institutional Funds Act.
In the pursuit of its investment objectives, the University may engage the services of one or more investment advisors (each, an “Investment Advisor”) who if authorized, may select investment managers (each, an “Investment Manager”) for the assets. All Investment Advisors and Investment Managers appointed by the university must agree to invest the university’s funds in accordance with this policy.
There are no definitions associated with this policy.
Financial Objectives and Standard of Care
The University’s investment funds are split between two tiers, a Short‐Term Tier and a Long‐Term Tier. Each Tier has financial objectives, structure, and investment guidelines. Investment activities for both Tiers shall be guided by the appropriate objectives. The objectives will be defined in the relevant sections below.
The Short-Term Tier consists of the University’s operating funds and operating reserves, and shall be invested in accordance with the Investment of Public Funds Act.
The Long-Term Tier consists of gifts, local funds, and nongeneral fund reserves and balances that are endowments or have been designated by the Board to be treated as endowment (“quasi-endowments”). It shall be invested in accordance with the Uniform Prudent Management of Institutional Funds Act.
All investments shall be made with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
- Fund Structure and Financial Objectives
The Short‐Term Tier will be divided into two funds: the Primary Liquidity Fund and the Extended Duration Fund. As components of the Short-Term Tier, both the Primary Liquidity Fund and the Extended Duration Fund shall be invested in compliance with the Investment of Public FundsAct.
Primary Liquidity Fund: The Primary Liquidity Fund will be the first source of liquidity for the University (in concert with the University’s bank deposits). These funds must be readily available to meet the University’s operating needs, and as such, a portion of this fund shall be continuously invested in short-term investments such as money market mutual funds, bank deposits, or overnight repurchase agreements to ensure funds are readily available for the University’s obligations. Safety and liquidity are the primary objectives of this fund.
Extended Duration Fund: The remaining Short‐Term Tier funds, collectively known as the Extended Duration Fund, will be a secondary source of liquidity for the University. These funds do not need to be continuously available to meet the University’s operating needs but may be called upon at some point during the University’s annual operating cycle. As such, they shall be invested in short- and intermediate-term investments. Preservation of capital and return are the primary objectives of this fund.
Both funds of the Short‐Term Tier will consist of funds managed by external Investment Managers. Each fund and respective Investment Manager will have a specific mandate and related restrictions.
- Short-Term Tier Investment Managers Under the Vice President’s Purview
The Board delegates the management and investment of the Short-Term Tier to the Vice President for Finance and Budget, including the selection, hiring, monitoring, and termination of Short-Term Tier Investment Managers. The Vice President for Finance and Budget in turn may delegate these responsibilities to an Investment Advisor, including the selection, hiring, monitoring, and termination of Short-Term Tier Investment Managers. Only firms meeting the requirements of the Investment Manager Requirements for the Short-Term Tier section below may serve as Short-Term Tier Investment Managers, and on an ongoing basis, Short-Term Tier Investment Managers must comply with the duties outlined in both the Monitoring and Reporting for the Short-Term Tier and the Investment Manager Requirements for the Short-Term Tier sections below.
The Vice President for Finance and Budget and the Investment Advisor shall act in good faith, and with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, in: a) selecting Investment Managers; b) monitoring the Investment Manager’s performance and compliance with the scope and terms of this delegation.
- Authorized Investments
Authorized investments for qualified public entities are set forth in the Investment of Public Funds Act of the Code of Virginia in § 2.2‐4500 et seq. A qualified public entity is defined as any state agency having an internal or external public funds manager with professional investment management capabilities. The Investment of Public Funds Act authorizes qualified public entities to invest Short-Term Tier funds in the following securities:
- Treasury and Agency Securities: Obligations issued or guaranteed by the U.S. Government, an agency thereof, or U.S. Government sponsored enterprises. This includes Agency Mortgage-Backed Securities. These securities can be held directly, in the form of repurchase agreements collateralized by such debt securities or in the form of registered money market or mutual funds provided that the portfolio is limited to such evidences of indebtedness (§ 2.2-4501).
- Non‐Negotiable CD’s and Time Deposits: Non-negotiable certificates of deposit and time deposits of Virginia banks and savings institutions federally insured to the maximum extent possible and collateralized under the Virginia Security of Public Deposits Act, § 2.2-4400 et seq. of the Code of Virginia, and having a maturity not greater than five years (§ 2.2-4500).
- Negotiable CD’s and Bank Deposit Notes: Negotiable certificates of deposit and negotiable bank deposit notes of domestic banks and domestic offices of foreign banks with a rating of at least A‐1 by Standard & Poor's and P‐1 by Moody's Investors Service for maturities of one year or less. For maturities over one year and not exceeding five years, a rating of at least AA- by Standard & Poor's and at least Aa3 by Moody's Investors Service is required. This includes all levels of the “AA/Aa” rating (§ 2.2-4509).
- Repurchase Agreements: Repurchase Agreements collateralized by securities of the U.S. Treasury, an agency thereof, or U.S. Government sponsored enterprises. The collateral on overnight or one day repurchase agreements is required to be at least 100% of the value of the repurchase agreement. Longer‐term repurchase agreements are required to have collateralization in excess of 100% and be marked‐to‐market on a daily basis (§ 2.2-4507).
- Banker’s Acceptances: Banker’s Acceptances with major domestic banks and domestic offices of foreign banks rated not lower than A‐1 by Standard & Poor’s and P‐1 by Moody's Investors Service (§ 2.2-4504).
- Commercial Paper: Prime quality commercial paper issued by domestic corporations. “Prime quality” shall be as rated by at least two of the following: Standard & Poor’s within its rating of A‐1, Moody’s Investors Service within its rating of P‐1, Fitch Investor’s Services within its rating of F‐1, Duff and Phelps within its rating of D‐1, or by their respective corporate successors, provided that at the time of any such investment the corporation meets the criteria specified in Section 2.2‐4502 of the Code of Virginia (§ 2.2-4502).
- Money Market Funds: Money market and other open‐end investment funds provided that they are registered under the Securities Act of the Commonwealth of Virginia or by the Federal Investment Company Act of 1940, and that the investments by such funds are restricted to investments otherwise permitted by qualified public entities within the Commonwealth of Virginia (§ 2.2-4508).
- Corporate Debt: Corporate notes and bonds having a credit rating of at least A3/A- or equivalent by two nationally recognized rating agencies, one of which must be either Standard & Poor's or Moody's Investors Service. This includes all levels of the “A” rating (§ 2.2-4510).
- Municipal Securities: Taxable and tax-exempt municipal securities of the following provided that at the time of any such investment the municipal security meets the criteria specified in Section 2.2-4501 of the Code of Virginia, including: (i) of any state of the United States, (ii) of any county, city, town, district, authority or other public body of the Commonwealth of Virginia, (iii) of any city, county, town or district situated in any one of the states of the United States provided that they are the direct legal obligations of the city, county, town, or district and the city, county, town, or district has power to levy taxes on the taxable real property therein for the payment of such obligations without limitation of rate or amount. The municipal securities must be rated at least A3/A- or equivalent by two nationally recognized rating agencies, one of which must be either Standard & Poor's or Moody's Investors Service. This includes all levels of the “A” rating (§ 2.2-4501).
- Asset‐Backed and Mortgage‐Backed Securities: Asset-backed and non-Agency mortgage-backed securities with a duration of no more than five years and rated no less than AAA by at least two nationally recognized rating agencies, one of which must be either Standard & Poor's or Moody's Investors Service. Authorized mortgage‐backed investments include Commercial Mortgage‐Backed Securities (CMBS), Agency and Non‐Agency (private label) Mortgage‐Backed Securities (MBS & RMBS) including pass‐throughs, Collateralized Mortgage Obligations (CMOs) and Planned Amortization Classes (PACs) (§ 2.2-4511).
- International Bank for Reconstruction and Development, Asian Development Bank, and African Development Bank Obligations: Dollar-denominated bonds and other obligations issued, guaranteed or assumed by the International Bank for Reconstruction and Development, by the Asian Development Bank, or by the African Development Bank having a maturity of no longer than five years and a credit rating of at least AAA by Standard & Poor’s and Aaa by Moody’s Investors Service (§ 2.2-4501).
Should a security be downgraded to a level that ceases to meet the credit quality guidelines above, the Investment Manager shall notify the University in writing within one business day of the downgrade. Unless the Vice President for Finance and Budget authorizes the retention of any such downgraded security in writing, such security must be sold within 30 calendar days.
Finally, the Short‐Term Tier can only be invested in senior debt. Subordinated and convertible debt securities are not authorized investments. Investment securities not specifically authorized above are prohibited.
- Prohibited Investments or Actions
- Inverse floaters, Credit Default Swaps (CDSs), Collateralized Debt Obligations (CDOs), Collateralized Loan Obligations (CLOs), and Interest Only (IO), Principal Only (PO) and Z-tranchesecurities.
- Futures, options, options on futures, margin buying, leveraging and commodities. Forward trades are permitted as long as they are procured during normal “when issued” periods for individual markets and as long as cash is reserved or a security will mature to cover the purchase at the time of settlement.
- Securities with the ability to defer interest, securities with the ability to convert to perpetual maturities and 144A securities.
- Asset Allocation Parameters and Short‐Term Tier Constraints
As noted above, the Primary Liquidity Fund is intended to provide for the day‐to‐day working capital requirements of the University, with the remaining balance of the Short‐Term Tier being invested in the Extended Duration Fund.
Duration and Maturity Limitations
As noted above, the maximum maturity may not exceed five years on any single non-negotiable certificate of deposit or time deposit of Virginia banks, negotiable certificate of deposit or bank deposit note. For any single asset-backed or mortgage-backed security, the maximum duration may not exceed five years at the time of purchase; in the event the duration subsequently exceeds this limit, the external Investment Manager shall notify the University in writing within one business day, and the University, in consultation with the Investment Manager, shall decide the appropriate action.
The target duration for the Primary Liquidity Fund and Extended Duration Fund are as follows:
Primary Liquidity Fund and Extended Duration Fund Target Duration Primary Liquidity Fund 9 months or less Extended Duration Fund Short Duration Portfolio Per Applicable Benchmark Intermediate Duration Portfolio Per Applicable Benchmark Long Duration Portfolio Per Applicable Benchmark
Primary Liquidity Fund and Extended Duration Fund Investment Managers’ maximum duration is limited to +10% of the Target Duration or the Applicable Benchmark duration. For purposes of this section, duration shall be defined as the industry standard effective duration as calculated by Bloomberg or other well established models available. In addition, for purposes of asset-backed securities and mortgage-backed securities, the prepayment assumptions to be used in the effective duration calculation will be the Bloomberg median prepayment assumptions or other well established models available. In the absence of a median prepayment assumption available in Bloomberg, the assumption to be used shall be that which provides the greatest principal protection to the portfolio.
- Performance Measures
In accordance with the performance measures by which the State Council of Higher Education for Virginia measures investment performance as published annually in the Commonwealth of Virginia’s Appropriations Act, the University should achieve a three-year average rate of return at least equal to the iMoney.net money market index fund.
Investment Managers should produce returns commensurate with the following benchmarks:
Commensurate Benchmarks Fund Fund Benchmark(s) Primary Liquidity Fund iMoney.net Money Market Index Extended Duration Fund Short Duration Portfolio BofA ML 1-3 Year US Treasury Index, BofA ML 1-3 year Govt/Corp Index, Barclays 1-3 Year Government Bond Index, or other benchmark(s) that more appropriately reflects the Investment Manager(s) style within this portfolio. Intermediate Duration Portfolio Barclays US Treasury Intermediate Index, Barclays US Intermediate Government Index, Barclays US Intermediate Gov/Credit Bond Index, or other benchmark(s) that more appropriately reflects the Investment Manager(s) style within this portfolio. Long Duration Portfolio Barclays US Aggregate Treasury Index, Barclays U.S. Aggregate Government Index, Barclays US Aggregate Bond Index, or other benchmark(s) that more appropriately reflects the Investment Manager(s) style within this portfolio.
Each individual portfolio within the Primary Liquidity Fund and the Extended Duration Fund will be diversified with no more than 3% of the value of the respective portfolios invested in the securities or individual trusts of any single issuer. This limitation shall not apply to the U.S. Government, an agency thereof, or U.S. Government sponsored enterprises, securities fully insured and/or fully guaranteed by the U.S. Government, or money market funds.
At the time of purchase, the maximum percentage in each eligible security type for the Primary Liquidity Fund and the Extended Duration Fund shall be maintained as follows:
Authorized Investments Primary Liquidity Fund Extended Duration Fund U.S. Treasury and Agency Securities 100% 100% Non-Negotiable Certificates of Deposit (CDs) 5% 0% Negotiable CDs and/or Negotiable Bank Deposit Notes 20% 20% Overnight/Open Treasury/Agency Repurchase Agreements 100% 0% Overnight/Open non-Treasury/Agency Repurchase Agreements 50% 0% Term Repurchase Agreements 20% 0% Banker’s Acceptances 40% 0% Commercial Paper 35% 0% Money Market Funds 35% 10% Corporate Notes/Bonds 25% 40% Municipal Securities 10% 10% Asset-Backed Securities 0% 40% Combined Agency MBS, Agency/Private CMOs, CMBS, RMBS, PACs 0% 50% Agency Mortgage-Backed Securities (MBS) 0% 50% Agency CMOs (including PACs) 0% 10% Commercial Mortgage-Backed Securities (CMBS) 0% 10% Private Label Residential Mortgages (including CMOs & PACs) 0% 5% International Development Bank Obligations 0% 5%
- Monitoring and Reporting for the Short-Term Tier
Quarterly, the Board will receive an investment report for the Short‐Term Tier. At a minimum, this report will include the following information:
- Investment performance report (net of fees) for the Short‐Term Tier as a whole, the Primary Liquidity Fund, and the Extended Duration Fund, versus the appropriate benchmarks above.
- Actual asset allocations of the Short-Term Tier as a whole, the Primary Liquidity Fund, and the Extended Duration Fund versus the allocation requirements above.
- Any investments that required management notification (such as credit downgrades obduration changes), along with management’s response to such notifications.
- A statement from each Investment Manager certifying compliance with the Virginia Investment of Public Funds Act.
Annually, the Board will receive the following information on the Short‐Term Tier. At a minimum, this will include:
- A certificate showing compliance with the Investment Policy, specifically the Authorized Investments, the Prohibited Investments or Actions, and the Asset Allocation Parameters and Short-Term Tier Constraints sections above.
- Investment Manager Requirements for the Short-Term Tier
Before an organization can provide investment management services for the Short-Term Tier, it must confirm in writing that it has received and reviewed this Investment Policy, and is able to comply with it. Investment Managers are not permitted to deviate from their specifically announced investment strategy and may utilize discretion only as approved by the Board or its designee. Only firms having the following qualifications may serve as Short-Term Tier Investment Managers:
- Registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940 or exempt from registration;
- Must have provided to the University an annual updated copy of Form ADV, if applicable;
- Must be registered to conduct business in the Commonwealth of Virginia; and,
- Must have proven experience in providing investment management services under the Virginia Investment of Public Funds Act.
- Accept assets as directed by the University, and invest those assets in strict adherence to the Investment Policy and applicable laws;
- Reconcile all transactions, market values, security holdings, and cash flows with the custodian within 30 days of each month end;
- Calculate monthly performance against the appropriate benchmark and provide a written report within 35 days of each month end;
- Calculate quarterly performance against the appropriate benchmark and provide a written report within 35 days of each quarter end;
- Provide written quarterly reports concerning investment strategy, including quantitative performance attribution based on interest rate risk, sector allocation and security selection;
- Provide a written economic and investment outlook report within 30 days of each month end;
- Meet as required to review portfolio and investment results;
- Issue prospectuses, annual reports and other pertinent information on a timely basis;
- Notification in advance of potential material changes in fund and/or firm operations under consideration or
about to be implemented, including organizational or strategy changes that may impact asset
- Notification of any non‐compliant securities as further outlined above; and,
- Provide a written quarterly statement attesting to compliance with the Investment Policy.
- Fund Structure
The Long‐Term Tier shall consist of endowments and Board-designated quasi-endowment funds. As the Long- Term Tier consists of gifts, local funds, and nongeneral fund reserves and balances designated for long-term investment, it shall be invested in accordance with the Uniform Prudent Management of Institutional Funds Act. The primary objective for the Long-Term Tier is to maximize long-term real returns commensurate with the University’s risk tolerance.
- Financial Objectives
The funds invested in the Long‐Term Tier shall be treated as long‐term assets managed to maintain the purchasing power of those assets in the future while being mindful of the cash flow and liquidity requirements of both the University and the endowed funds. The objective of the Long-Term Tier is to achieve a rate of return in excess of inflation, CPI + 5%, at an acceptable level of risk.
The University does not expect that this investment objective will be achievable every year and, as a result, investment performance over rolling three‐, five‐, and ten‐year periods will carry greater significance. The University also recognizes that some level of investment risk, including volatility and illiquidity, is necessary to achieve the long‐term investment objectives of the Long‐Term Tier.
The overall return will be evaluated against a policy portfolio benchmark consisting of the sum of different asset class benchmarks weighted in accordance with the long‐term policy targets designed to meet the Long-Term Tier objective.
- Long-Term Tier Investment Managers Under the Investment Advisor’s Purview
The Board has delegated the management and investment of the Long-Term Tier to the Investment Advisor, including the selection, hiring, monitoring, and termination of Investment Managers.
The Investment Advisor shall act in good faith, and with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, in: a) selecting Investment Managers; b) monitoring the Investment Manager’s performance and compliance with the scope and terms of the delegation.
Given the uncertain and continuously evolving nature of investment markets, no static list of security types, asset classes, or definitions of investment management strategies can continuously express prudent practice. Therefore, the process by which investment decisions are developed, analyzed, adopted, and executed must satisfy relevant standards of care.
Note: Investment Managers or the Investment Advisor are to vote shareholders’ proxies. Such voting is to be solely in the best interest of the University’s investment funds, given their stated policies, goals, and objectives. Where Investment Managers or fund vehicles have their own terms regarding proxy voting, such terms will be an attribute to be considered by the Investment Advisor in selecting and monitoring Investment Managers and investment vehicles.
- Strategic Asset Allocation and Performance Measures
In developing and implementing the Long‐Term Tier’s Strategic Asset Allocation, the University will consider the risks associated with each asset class. Based upon the University’s risk tolerance together with capital market risk and return estimates, the Board sets a strategic asset allocation designed to achieve the objectives stated in this Investment Policy Statement. The strategic asset allocation shall be prudently diversified across asset classes. The Investment Advisor will invest the Long-Term tier in keeping with the parameters of the Strategic Asset Allocation below. The Strategic Asset Allocation specifies risk controls in the form of ranges and targets for Fund asset allocations. The ranges help to ensure adequate diversification, define acceptable degrees of tactical tilts, and constrain absolute risk. Extraordinary market conditions may lead to deviations outside the specified ranges, which will be reported to the Investment Committee with a plan to return to the specified ranges.
Benchmark indices are selected to represent the desired risk and return profile of the Long-Term Tier. The Investment Advisor should produce returns commensurate with the blended benchmark indices noted below. Key considerations in selecting benchmark indices include broad market coverage, ability to passively invest, transparency of index construction, and objectivity of the index provider.
Long-Term Tier Benchmark
Long-Term Teir Benchmark Asset Class Long-Term Policy Benchmark Equity 65 MSCI All Country World Equity Real Assets 10 MSCI All Country World Real Estate Fixed Income & Cash 25 Barclays Aggregate Bond Index Total 100% Blended Benchmark
Strategic Asset Allocation Risk Control Targets and Ranges:
Net Exposure (%) Range Target Equity 40-70 65 Real Assets 0-20 5 Credit 5-45 10 Government Bonds 0-25 5 Cash/Residual 0-25 15
Regional Exposures (%) North America Europe Asia Rest of World Regional Ranges 25-75 0-50 0-40 0-20 Cash & Currency Ranges 0-50 0-30 0-30 0-20
Annually, the University and the Investment Advisor shall informally review and assess the Strategic Asset Allocation. Should the University and the Investment Advisor recommend changes to the Strategic Asset Allocation, such proposed changes will be brought to the Board for consideration.
The Strategic Asset Allocation reflects targets for exposures to various asset classes as described above. The purpose of rebalancing is to maintain the risk/reward relationship implied by the stated long-term Strategic Asset Allocation targets adopted by the Board. The actual asset mix may diverge from the target allocations as a result of either market fluctuations or explicit tactical decisions. The role of the ranges within the Strategic Asset Allocation is to allow for these short-term fluctuations, and to provide limits for tactical investing.
Under stable market conditions, should actual asset allocations reside outside of allowable Strategic Asset Allocation ranges, unless otherwise directed by the Board, the Investment Advisor will rebalance the Long- Term Tier without prior Board discussion or approval. Cash flows to, from, or within the Long-Term Tier will be used to rebalance the portfolio and may be allocated to or from the underlying Investment Managers within the Long- Term Tier.
The Board recognizes that under distressed market conditions, a less static approach to rebalancing could provide the University with increased flexibility and a more productive rebalancing process. Should the Investment Advisor believe that such distressed market conditions exist, the Investment Advisor shall: 1) immediately notify the Vice President for Finance and Budget; 2) provide the Vice President for Finance and Budget with recommended intermediate-term deviations from the Strategic Asset Allocation; and, 3) provide the Vice President for Finance and Budget with a recommended timeline for rebalancing the Long-Term Tier. After reviewing these three items with the Investment Advisor, the Vice President for Finance and Budget may authorize intermediate-term deviations from the Strategic Asset Allocation targets, and shall provide the recommended deviations and recommended rebalancing timeline for the Board’s review at its next meeting.
- Investment Restrictions
The Strategic Asset Allocation specifies risk controls in the form of ranges for Long-Term Tier asset allocations. The ranges help to ensure adequate diversification, define the permissible magnitude of tactical asset allocation, and constrain both absolute and relative risk. Risk control ranges express the acceptable variation from target asset allocations in normal market and economic circumstance. The Investment Advisor shall adopt risk controls principally considering the Tier’s tolerance for volatility, but also to ensure adequate liquidity.
It is understood that the Long‐Term Tier must maintain a certain minimum level of liquidity that is sufficient to fund annual programmatic activities, as well as to fund ongoing expenses, including capital calls. The Investment Advisor shall monitor on an ongoing basis the liquidity of the Long-Term tier.
- Spending Policy
The Spending Policy is meant to maintain the purchasing power of the Long-Term Tier, with the goal of providing a predictable and sustainable level of income. This policy reflects industry best practices. Under this policy, spending for a given year equals the trailing three‐year average market value of the Long‐Term Tier multiplied by the long‐term spending rate of 4.5%.
Payouts under this Spending Policy may exceed spending needs. At the discretion of the Vice President for Finance and Budget, the University may elect to reinvest any portion of the annual distribution back into the Long‐ Term Tier. Each year, the Vice President for Finance and Budget will prepare a report for the Board showing the current spending rate and allocating distributions made under this Spending Policy between those funds spent to meet University needs and those funds reinvested into the Long-Term Tier.
Annual payouts are assumed, and distributions are to be made on or before September 30. The University will communicate the planned distribution to the Investment Advisor approximately 180 days in advance, and the Advisor will confirm receipt to the University within five business days. The Advisor is responsible for wiring funds as directed.
If investment funds fall “underwater,” the payout and distribution shall be in compliance with Virginia's Uniform Prudent Management of Institutional Funds Act (§ 64.2‐1100 et seq., "UPMIFA"), determining what portion of investment funds is appropriate for expenditure or accumulation as the University and Investment Advisor determine is prudent for the uses, benefits, purposes, and duration for which the investment funds were established.
- Monitoring and Reporting for the Long-Term Tier
Quarterly, the Board will receive the following information on the Long‐Term Tier. At a minimum, this report will include:
- Investment performance (net of fees) for the Long‐Term Tier versus the appropriate benchmarks above.
- Actual asset allocations of the Long-Term Tier versus the Strategic Asset Allocations above.
- A report showing compliance with the Investment Policy, specifically the Authorized Investments, Strategic Asset Allocation and Performance Measures, and Investment Restrictions sections above.
- The report specified under the Spending Policy section above.
- Investment Advisor Requirements for the Long-Term Tier
The Investment Advisor shall prudently select Investment Managers, acting in good faith, and with the care that an ordinarily prudent person in a like position would exercise under similar circumstances. Investment Managers are not permitted to deviate from their specifically announced investment strategy and may utilize discretion only as approved by the Investment Advisor.
The Investment Advisor shall have the following duties:
- Accept assets as directed by the University, and invest those assets in strict adherence to the Investment Policy and applicable laws;
- Reconcile all transactions, market values, security holdings (as applicable), and cash flows with the Investment Managers;
- Calculate performance against the appropriate benchmarks and provide regular, written reports to the University;
- Provide written reports to the University concerning investment strategy, including quantitative performance attribution;
- Meet as required with the University to review portfolio and investment results;
- Issue investment reports and other pertinent information on a timely basis to the University;
- Notify the University of potential material changes in fund and/or firm operations under consideration or about to be implemented, including organizational or strategy changes that may impact asset management;
- Notify the University of any non‐compliant investments; and,
- Provide a written quarterly statement attesting to compliance with the Investment Policy.
Establishing a Prudent Split Between the Short-Term and Long-Term Tiers
The Short‐Term and Long‐Term Tiers have markedly different liquidity, risk, and volatility profiles. It is the responsibility of the Office of the Vice President for Finance and Budget to perform ongoing analysis and monitoring to recommend to the Board a prudent split between the Short‐Term and Long‐Term Tiers.
No changes to this policy may be implemented without the approval of the Board or its designated committee.
Passive Violations: A passive violation occurs when a portfolio breaches a prescribed policy limit as the result of changing market or credit conditions, with the exception of the procedures outlined under the Rebalancing Policy for the Long-Term Tier. Other than the routine rebalancing of the Long-Term Tier under stable market conditions as described in the Rebalancing Policy above, the University will report any violations to the Board and will remedy the violation within 90 days of the violation or prepare a written action plan that must be approved by the Board to extend the cure period beyond 90 days. The Investment Advisor and Investment Managers will continuously monitor the portfolio for any Passive Violations, and will promptly notify the University as they occur.
Active Violations: An active violation is caused by entering into an agreement or investment that breaches a policy limit at inception or thereafter through failure to monitor. In this case, a thorough analysis of controls will ensue and be reported to the Board, as soon as practical. The Investment Advisor will seek to remedy the violation when possible. In instances where the costs of immediate remedies are prohibitive, the Investment Advisor will develop a corrective action plan that will be submitted to the University within a reasonable time after the violation occurs, not to exceed 15 days, depending on the nature and complexity of the investment holding and transactions needed to remedy the violation. The Board will be apprised of the violation at its next regularly scheduled meeting along with the corrective action plan.
Legal and Other Considerations
The University will, in accordance with law, consider the present and anticipated financial requirements of the University, the expected total returns on investments, the capital markets environment and general economic conditions.
§ 64.2‐1102 of the Virginia Uniform Prudent Management of Institutional Funds Act sets forth specific factors that, if relevant, must be considered in managing and investing the Long-Term Tier. These factors are:
- The duration and preservation of the Long-Term Tier funds;
- The purposes of the institution and the Long-Term Tier funds;
- General economic conditions;
- The possible effect of inflation or deflation;
- The expected total return from income and the appreciation of investments;
- Other resources of the institution; and
- The investment policy of the institution.
Upon request, the University will present an analysis of these factors to the Board to assist its decisions regarding managing and investing the Long-Term Tier.
Conflicts of Interest
Virginia Commonwealth University will take reasonable measures to assess the independence of Investment Advisors and Investment Managers. Members of the Board, University Management, and members of the internal financial staff must disclose any conflicts of interest prior to the approval of an Investment Advisor or Investment Manager.
Who Should Know This Policy
- The Board of Visitors;
- The Investment Advisor;
- Investment Managers;
- The staff of the Office of the Vice President for Finance and Budget, and
- Administrative staff involved in the appointment of Investment Advisors or Investment Managers.
General and specific questions about this policy can be answered by VCU’s Office of the Vice President for Finance and Budget
1. VCU Policy: Debt Management
This policy supersedes the following archived policies:
|05/15/2009||VCU Operating Pool Investment Policy|
|09/19/2013||VCU Investment Policy|
|04/25/2016||VCU Investment Policy – Interim|
|03/05/2019||Investment Policy [minor revision to clarify preexisting Strategic Asset Allocation and Performance Measures]|
There are no forms associated with this policy.
There are no FAQ associated with this policy and procedures.