500.1 - Endowment Fund Investment
University Group Policy #500.1
I. Policy Statement
This policy sets forth the objectives and guidelines to be used in the management of the endowment assets. The assets of the portfolio will be managed in a manner consistent with its fiduciary nature and within the levels of economic risk that a prudent person might undertake. The Board of Trustees of the Endowment Fund of Winston-Salem State University, hereafter referred to as the "BOTE", shall consist of no fewer than six and no more than nine members, as determined by the Winston-Salem State University Board of Trustees. The BOTE shall be comprised as follows:
- The chair of the Board of Trustees of Winston-Salem State University, ex officio, shall also serve as the chair of the BOTE;
- The chancellor of Winston-Salem State University, ex officio;
- An additional officer of the Board of Trustees of Winston-Salem State University or an officer of a committee of that Board, as determined from time to time by the Board of Trustees of Winston-Salem State University, ex officio;
- The chair of the Winston-Salem State University Foundation Board and two additional members of its board as recommended by the Winston-Salem State University Foundation Board; and
- Three at large members appointed by the Board of Trustees of Winston- Salem State University for overlapping three-year te1ms (who may or may not be trustees or employees of Winston-Salem State University). Each shall be initially appointed for one, two and three years each. All elections thereafter shall be for a regular te1m of three years, except any person elected to fill an unexpired vacancy.
The Winston-Salem State University Endowment Fund is the result of the generous support of the donors and contributors to the fund. Restrictions placed upon the endowed funds by the donors must be honored. The Board recognizes that these funds are endowed for the purpose of creating scholarships, professorships and to defray other operational costs of the University. Only funds so designated by the donors will be classified as true endowment. Funds endowed by direction of the Chancellor or the Board of Trustees shall be classified as quasi-endowment. The prin1ary management objective of the Endowment Fund shall be the preservation of capital while providing a predictable, stable and constant stream of earnings to assist m meeting the University's needs.
This portfolio shall be invested in a manner to provide a maximum risk-adjusted return (within the General Investment Guidelines described below) from the portfolio without distinction between income and capital appreciation. Therefore, the primary investment objective shall be to yield an annual rate of growth including interest, dividends and capital appreciation to preserve the endowment from inflation and to provide a total return spending-rate to be reviewed at the March meeting of the calendar year of the BOTE.
Investment return of the University's Endowment Funds is predicated on the total return concept (yield plus appreciation). The total spending rate is calculated annually by taking the sum of the market value of the endowment investments for the preceding twelve quarters, and dividing the result by twelve. Spending from the average value shall be at a rate of four and one-half (4 ½) to five and one-half (5 ½) percent, paid out proportionately on a quarterly basis. However, with recommendation by the Endowment Committee and approval by the Board, the spending rate may deviate from the established range in a given fiscal year in order to take full advantage of market conditions
The Board recognizes that the establishment and consistent application of a spending policy is essential to the long-term success of the Endowment Fund. This spending policy is intended to establish reasonable and prudent spending from the Endowment Fund on an annual basis to support the Endowment Fund's intended purposes and general operations.
The secondary investment objective shall be maintaining a sustained long-term capital appreciation of the portfolio to exceed the rate of inflation after providing for the total return-spending policy.
For comparative purposes, the equity portion of the portfolio will be reviewed relative to the appropriate benchmark for each investment product. The bond portion of the portfolio will be measured against the appropriate benchmark for each investment vehicle. The cash portion of the portfolio will be measured against ninety-one (91) day Treasury bill.
The total fund performance goal should be to outperform the approved composite benchmark on an annualized basis and measured over a five-year market cycle.
The primary measurement of the investment manager's success will be the consistency with which the manager meets the stated investment objectives and performance goals.
This statement is intended to provide a framework between the BOTE and the advisors it retains regarding the objectives and guidelines of and for the management of its assets, such that:
- There is a clear understanding on the part of the BOTE as to the policies and objectives of the Endowment Fund.
- Formal yet flexible guidelines are established including asset allocation limitations and total return objectives given the business, economic and capital markets environments.
- The BOTE has a basis for understanding the investment process and the evaluation of investment performance.
- It is expected that this document will be reviewed annually to insure its relevance to current conditions.
Pursuant to the Board of Trustees of the Endowment Fund of Winston-Salem State University resolution, dated September 20, 2007, that authorized the Transfer of the University's Endowment Fund balance; Winston-Salem State University currently invests its entire endowment with the UNC Investment Fund, LLC. The UNC Investment Fund, LLC manages many of the endowment and foundation investments for the University of North Carolina and constituent campuses within a common fund pool. The UNC Investment Fund investment objectives are as follows:
- Preserve the Real (Inflation-adjusted) purchasing power of the Fund while providing a predictable and growing stream of spending distributions to Fund participants.
- Earn an annualized "real" total rate of return of at least 5.5% (CPI +5.5%) over 5- 10 year time horizons.
- Earn an annual rate of return that exceeds the Strategic Investment Policy Portfolio (SIPP) benchmark.
- Perform in the top quartile of University Endowment Funds.
Therefore, Winston-Salem State University has deferred the decisions on investment composition and targets to UNC Management Company due to its extensive knowledge and experience with managing university endowment investments. The Board of Trustees for the Endowment (BOTE) committee shall be responsible for reviewing the performance of any Investment Manager and to make any needed changes based on their performance.
Reports and Reviews
Written reports will be provided at the end of each fiscal quarter and at the end of the fiscal year. These reports will include the following:
- Current and historical commentary for the most recent quarter.
- A review of the equity and fixed income markets for the most recent quarter.
- The most current month end asset allocations.
- Total portfolio returns and specific returns for each product versus the appropriate benchmark.
- Equity and Fixed Income outlook commentary.
- Quarterly fact sheets on each investment product, if available.
- Investment Manager is required to inform the BOTE of any change in professional personnel, account or organizational structure, or fundamental investment philosophy.
- Performance results should include the fiscal YTD, most recent quarter, 1-, 3- and 5-year results.
- The BOTE shall annually submit a comprehensive report of the endowment fund through the WSSU Board of Trustees to the UNC Board of Governors.
Policy Review and Modification
The BOTE will annually review the Investment Policy, investment objectives, benchmarks, asset allocation and restrictions for the organization. The BOTE will also use its periodic investment performance evaluations to consider whether any elements of the existing policy are either insufficient or inappropriate. In particular, the BOTE will review the following:
- The University's ongoing ability to tolerate downturns in asset value (function of financial and cash flow considerations)
- Any changes in the University's liquidity or spending requirements
- Any changes in the University's rate of return objectives and priorities
- Areas found to be important but not covered by this policy
Modifications to this policy can only be made with the approval of the Board of Trustees of the Endowment Fund.
III. Roles and Responsibilities
Responsibilities - BOTE
The BOTE acknowledges its fiduciary responsibility and that it should act in the exclusive interest of the Endowment Fund as follows:
- Develop and communicate to the Investment Managers the investment goals, guidelines and performance measurement standards that are consistent with the needs of the Endowment Fund, including any material changes that may subsequently occur.
- Evaluate and appoint Investment Managers to invest and manage the assets.
- Review and evaluate the performance of the Investment Managers in context with the standards established in this document.
- Take actions deemed prudent and appropriate when the needs of the Endowment Fund are not being met.
Responsibilities - Investment Managers
It is the intent of this statement to establish an attitude and/or philosophy to guide an Investment Manager toward the performance desired. The Investment Manager should adhere to the following principles.
- The Investment Manager will give frequent and active attention to the Endowment Fund in both developing strategy and making decisions for implementation. Investments shall be made solely in the interest of the Endowment Fund for the purpose of providing for income needs and defraying reasonable costs of administering the Endowment Fund.
- The Manager is authorized to make investment changes as deemed necessary in accordance with the objectives and guidelines set forth in this document.
- The assets shall be invested with the care, skill, prudence and diligence under the circumstances prevailing from time to time that a prudent person acting in a like capacity and familiar with such matters would use in the investment of a fund of like character.
- The Investment Manager shall provide adequate and competitive investment returns at a reasonable cost.
This policy is applicable to the Board of Trustees Endowment Fund of Winston-Salem State University.
Responsible Division: Vice Chancellor for Finance & Administration
Authority: Board of Trustees
- Adopted December 10, 2010
- Amended: September 16, 2016