Adopted by the Board of Directors April 8, 1994
Amended: December 12, 1997; December 11, 1998; September 11, 2000; June 15, 2001; March 15, 2002; December 10, 2004; September 1, 2005; December 1, 2005; September 14, 2006; December 17, 2007; March 13, 2008; June 18, 2009; December 16, 2010; December 15, 2011; September 20, 2012
The investment objective of the Foundation is to maximize the return from the various investment portfolios while preserving capital and liquidity, and producing consistent and stable growth with low to moderate risk appropriate for the separate portfolios. Annual performance will be measured primarily according to total return in the case of the Managed Portfolio, which comprises approximately 90% of the Foundation’s total investable assets. Berkshire Taconic Community Foundation strives to have performance in the top quartile of Community Foundations of its size, viewed over any rolling 3-5 year period and produce an average, over long term horizons, returns that will offset spending plus inflation plus administrative fees. Berkshire Taconic complies with the Uniform Prudent Management of Institutional Funds Act (UPMIFA) in the management of its endowed funds.
II. The Investment Committee
Berkshire Taconic’s Investment Committee is comprised of from 6 to 8 people who have extensive experience with institutional investment issues and practices, and who together provide a broad range of expertise in different asset classes. At any one time at least one half of the Committee must be comprised of board members. The remaining half may be residents of the region with expertise that enhances or complements the Board members on the Committee, and who will generally have staggered 3 to 5 year terms. The Committee must be free from actual and perceived conflicts of interest, and sign appropriate statements. Committee members must be committed to ongoing education and doing research on a regular basis on various investment styles, methods and emerging asset classes and willing to challenge (and be challenged on) the assumptions, philosophy and guidelines of the investment process and objectives.
The role of the Investment Committee is to establish and continuously monitor the investment policies and guidelines of Berkshire Taconic’s financial assets. Through the Committee Chair, it reports to the full Board quarterly on the portfolio’s performance, as well as any other relevant issues including approval of any new managers and changes to the asset allocation model. This role includes establishing overall and manager specific benchmarks, the hiring, overseeing and if needed, firing of managers who do not follow their mandates or meet Berkshire Taconic’s performance expectations.
In addition, the Investment Committee recommends to the Board the annual spending policy for all its endowed funds under management. In doing so, it takes into account general economic conditions, the possible effects of inflation/deflation and Berkshire Taconic’s commitment to its mission to improve the quality of life in the region. It is acknowledged that investment returns are a key factor in the grantmaking and operations of the Foundation. The Committee also reviews and recommends to the Board policies and practices with regard to planned giving instruments.
The Committee at all times shall have authority to invest and reinvest the funds of the Foundation, and to sell or exchange securities in which the funds of the Foundation are invested. Such actions may be taken directly and/or delegated to outside investment professionals. The Committee will exercise prudence and good faith in selecting, instructing and monitoring agents/managers to manage funds. The Committee, from time to time, shall submit to the Board such matters of, or changes to, general financial policy and strategy, as the Committee may desire to have considered for approval.
The Committee is responsible for establishing appropriate benchmarks and then monitoring the performance of the total portfolio and of the individual managers who are chosen for their expertise in a particular strategy. Normally the investment manager’s performance will be judged over a 1 to 3 year period. In its review, the Committee will consider, among others, the following criteria:
1. Adherence to Overall Investment Policies – that the investment advisors have adhered to the current policies set forth in this document.
2. Adherence to Specific Strategy – that the investment advisors have presented the Committee with an annual strategy, and have followed the strategy, jointly agreed upon by the advisor and the Committee within the context of their specific asset class. Any significant change to that strategy should be communicated to the Committee in writing as soon as possible with an explanation as to why, and what impact it may have on performance and risk.
3. Acceptable Growth of Total Return – that the assets under management are growing satisfactorily in a manner consistent with the asset allocation parameters and investment objectives of the capital under management, and consistent with overall market direction.
4. Relative Performance – Performance of each manager will be monitored by the Committee not less than quarterly and will be measured using appropriate investment industry benchmarks as recommended by each investment manager and agreed to by the Investment Committee. If the Committee determines that a manager has consistently under performed the relevant benchmark, it may issue a letter of probation to the manager warning them of the Committee’s concern, indicating there may be no future allocations as well as the possible termination of the relationship unless an improvement is noted.
III. Investment Portfolios and Asset Allocation
The Foundation currently has five investment categories that are represented by four separate investment pools, and one category for special situations. As a general rule, securities received as gifts will be sold on receipt and the proceeds allocated to the investment managers. The following is a summary of each together with their respective asset allocations.
1. Managed Portfolio —This pool was created for all of our endowed funds and the bulk of our other funds, and is invested for the long term. It is structured on the premise that a highly diversified portfolio with a bias toward quality, equity-oriented investments will ensure the best total return over time for endowed funds.
Present Asset Allocation Guidelines:
45% to 80%
Global Public Equity
35% to 50%
Global Private Equity
5% to 15%
Global Long/Short Equity
5% to 25%
5% to 25%
Includes Core Bond, non US Credit
5% to 20%
|Includes Absolute Return / Event-Driven|
0% to 10%
Includes Cash T-Bills
0% to 20%
|Includes assets: oil, gas, timber, commodities, U.S. treasuries|
2. Income Portfolio — This pool was established to handle funds where the terms of the endowment specifically exclude the use of appreciated gains and limit grants to income only. It is also recommended for funds that have a defined investment period pending drawdown.
|Bonds, Preferred Stock & Cash||
90 – 100 %
0 – 10 %
3. Minimum Market Risk Portfolio — This pool was established to accommodate organizations and individuals that want their funds to be invested with minimum risk. This pool is invested in high-quality, liquid short-term fixed-income securities which will typically have lower but more stable returns than the Managed or Income Portfolios.
4. Socially Responsible Investment Portfolio—This opportunity was created for those individuals and organizations that want fund assets invested in a socially responsible manner and are willing to forgo annual return potential to take advantage of the social aspects of this investment. The portfolio uses a balanced approach with approximately 60% invested in equities and 40% in bonds and cash.
5. Separately Invested Portfolio — This is a vehicle that was created for special situations such as restricted securities. These portfolios will be held separately from the investment pools until such restriction is lifted. Occasional gifts are offered to the Foundation whereupon the donor wishes to retain an investment manager. Such gifts of $250,000 or more will be considered by the Committee and monitored in accordance with the provisions for all investment managers as set forth in this document. The Committee will not consider situations where the donor or related persons are the investment manager.
IV. Investment Policies
1. The specific portfolios and their strategies are to be determined by the Foundation’s investment advisors with overall allocation and direction from the Investment Committee. Stocks, bonds, mutual funds, cash, or cash equivalents, which may include money market funds, are to be identified and selected to meet the investment strategies, policies and objectives set by the Foundation’s Investment Committee.
2. Bonds should be investment grade or better. Bond maturities should be staggered, and provide approximate market duration. Lower grade bonds may be part of a manager’s mandate within an “alternative” investment vehicle or strategy.
3. Investment advisors are to provide the Foundation directly or through its custodian with:
A. Timely reports of gifts received and transfers of assets in or out of their account.
- a report of the pool’s market value as of the last day of the month,
- reinvestment of all income collected and gains or realized transactions,
- a report of all investment advisor fees, commissions, or charges, all of which are to be deducted only from the pool’s income,
- a report of all withdrawal or fund addition transactions, with a month-end schedule of assets, for managed equity and fixed income accounts
- a report indicating asset allocation percentages, monthly net return, annualized total return, and measurements of performance against the relevant benchmark and any others that may be appropriate and requested.
- At least annually, the measure of risk as determined by volatility.
4. Regarding fees, it should be also noted that this policy statement prohibits double-dipping fee arrangements, and no sales loads are to be paid for mutual fund investments, unless approved in writing by the Investment Committee.
5. Diversification Guidelines (Managed Pool)
|Maximum Exposures By:|
6. Use of a Central Custodian
The Managed Pool will utilize the services of a central custodian to whom all advisors will provide electronically the reports referenced above. From time to time the Investment Committee will look at the overall composition of the Endowed Portfolio to ensure the diversification guidelines are being met.
7. Use of a Consultant
The Investment Committee may utilize the services of an investment consultant to provide an entirely independent viewpoint on all portfolio management matters, conduct systematic and continuous review of all capital markets, systematically and proactively source best-in-breed investment ideas across all asset classes, perform rigorous due diligence on existing portfolio managers, and prepare comprehensive, detailed and customized performance monitoring services. The consultant will periodically report directly to the full Board on the activities and performance of the portfolios and Investment Committee.
V. Spending Policy
Berkshire Taconic’s spending policy is designed to allow the assets of a Fund to be invested on a "total return" basis to maintain and, if possible, increase the purchasing power of the Fund, while at the same time providing a relatively steady and predictable level of funding for grantees. The spending policy in effect on the date hereof is 4.0% of the value of the Fund based on the average of the trailing twenty quarters as of June 30th and is determined annually. If the Fund is under historic dollar value (HDV), the spending rate will be reduced as follows:
|Under HDV by||Spending Rate|
|0 – 5%||4.0%|
|5 – 10%||3.5%|
|>10%||Interest & Dividends earned over the prior year|
The Fund will be managed in accordance with the Uniform Prudent Management Institutional Funds Act (UPMIFA) and thus the following provisions are considered when determining the spending rate:
1. The duration and preservation of the endowment fund
2. The purposes of the institution and the endowment fund
3. General economic conditions
4. The possible effect of inflation or deflation
5. The expected total return from income and appreciation of assets
6. Other resources of the institution
7. Where appropriate and circumstances would warrant, alternatives to expenditure of the endowment fund, giving due consideration to the effect that such alternatives may have on the institution
8. The investment policy of the institution
The Investment Committee reviews the spending policy and makes a recommendation to the Board annually.