Investment Strategies and Performance
Statement of Investment Objectives
Community Foundation of Orange and Sullivan.
- Investment Philosophy
The Community Foundation of Orange and Sullivan (CFOS) Board is entrusted with the investment and management of its charitable funds and with carrying out the wishes of its donors in the best interest of the community. The Board of Directors of CFOS views the assets held by the Foundation as Endowment Funds designed for long-term development purposes. However, the Board is also cognizant of the Foundation’s central philanthropic purpose, which is to be consistently responsive to the current and changing charitable needs of the community. This purpose dictates the need for an annual return on the Foundation’s assets to meet these needs and allow for a growth in capital to at least equal inflation.
The Community Foundation of Orange and Sullivan Investment Philosophy is summarized as follows:
A. Preserve capital, considering the impact of inflation and market fluctuations.
B. Strive for consistent annual Total Returns (realized and unrealized, dividends and interest).
C. Achieve long-term Total Returns which meet or exceed inflation, plus spending for operations and grants.
D. Earn the highest possible return given the risk tolerance established by the Community Foundation of Orange and Sullivan.
The Board has ultimate responsibility for investing component funds and allocating investment earnings. The Board has appointed a Finance & Investment Committee to advise the full Board as to its investment and allocation functions. The Finance & Investment Committee will monitor performance of the component funds.
The Foundation has entered into agreements with various financial managers, for the actual investment of component fund assets. A donor may request that the Foundation enter into agreements with other financial managers. These requests will be considered by the Executive Director and may be accepted, if deemed prudent. It is anticipated that the Foundation shall use no more than ten (10) asset managers or a number that can be reasonably monitored by the Finance Committee.
- Spending Policy
The Community Foundation generally sets the recommended spending policy in accordance with industry standard and from time to time may amend the spending policy in concert with recommendations from the Finance & Investment Committee. To allow for a more stable and predictable flow of funds available for distribution, the spending rate is set at 4% based upon the average of the 12 most recent calendar quarter fund balances in each donor fund as of June 30th of the most recent fiscal year. The recommended current spending level is set at 4% to support the Foundation’s operations and grant program.* On a monthly basis, all component funds will have the interest income from the co-mingled investment account that the fund is invested in, allocated to each component fund. On a monthly basis, all component funds will have their asset balances restated to market value. Capital gains and losses on Foundation investments are then allocated to each component fund based upon the previous month’s average fund balance.
*NOTE: The Foundation also honors the terms of fund agreements in which the donor stipulates a smaller annual grant in favor of growth, a larger grant which may invade principal, or a fixed amount (as in the case of some scholarship funds.
The Community Foundation of Orange and Sullivan will employ an investment strategy that will target a total return of sufficient level to support the 4% recommended spending rate model and any growth in principal to meet inflation. It is understood that inherent features of this strategy will be wealth preservation and, accordingly, the need to adjust to counteract changing market conditions. In order to achieve these return objectives, the Foundation will employ the following investment strategies:
A. Diversification of assets will be employed 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 number of investments as well as by investment style of management organization.
B. Asset classes considered appropriate for investment of fund assets are:
EQUITY
Including Large Cap (both growth style and value style), International Equity, Small Cap and Emerging Markets
- Equities will represent not less than 30% or more than 70% of the market value of the total fund assets, dependent on market conditions.
- Diversification of equity investments will be guided by professional investment managers, as selected by the Foundation.
- Investments should be made under the Prudent Investor Rule.
FIXED INCOME
- Fixed Income obligations will represent not less than 30% or more than 70% of the market value of the total fund assets, dependent on market conditions.
- Diversification of fixed income investments will be guided by professional investment managers, as selected by the Foundation.
- Fixed Income investments should be limited to Investment Grade (BAA/BBB) or better.
- Investment management selection will be delegated to a professional registered advisory investment firm by the Finance and Investment Committee. The Community Foundation of Orange and Sullivan will continue the policy that (except for established guidelines and unusual circumstances) no restrictions will be placed on the selection of individual investments by the Foundation’s investment managers.
Manager performance will be monitored and results measured against absolute and relative return objectives. Results will be reviewed taking into consideration a complete market cycle, which is generally three to five years. The Foundation expects the total fund to achieve the following:
1. An absolute return objective equal to the Consumer Price Index plus 5% compounded annually.
2. An unmanaged market index of 65% S & P 500 Index and 35% Shearson Lehman Brothers Intermediate Government/Corporate Bond Index, net of all investment expenses.
3. On a short-term basis, which can be generally stated as a rolling twelve month average, results will be compared, where appropriate, against the following standards:
1) S& P 500
2) Lehman Government/Corp. Composite
3) T-Bill rate
4) Morgan Stanley EAFE Index
5) Russell 2000
6) the median of a universe of like funds.
- Finance & Investment Committee
The Finance & Investment Committee recognizes that its role is supervisory, and that discretion is delegated to managers as long as they adhere to general guidelines established by the Community Foundation of Orange and Sullivan. The primary role of the Finance & Investment Committee is to:
· Establish performance goals,
· Identify appropriate asset mix guidelines,
· Review actual results of the investments on a regular basis,
· Monitor the professional investment managers, custodians and consultants selected by the Board, and make
recommendations as to their selection and if necessary, replacement.
- Annual Review
These guidelines, with a particular focus on the current spending policy, will be reviewed by the Finance & Investment Committee at least annually. Exceptions to these guidelines may be made any time with the approval of the Finance & Investment Committee.
- Management Fee
Each endowment fund will be assessed an asset management fee. The management fee will be paid to the CFOS Operating Fund and will be calculated based upon the previous month’s fund balance of the respective Endowment Fund and assessed monthly against each endowment fund’s balance. The management fee will constitute the Foundation’s administrative charge for all services routinely provided by the Foundation based on the current fee schedule. In the event a donor requests services from the Foundation in addition to routine services, the Foundation reserves the right to assess additional reasonable management fees. In addition, the Fund will be charged, on an equitable basis, its share of any investment management fees incurred by the Foundation.
- Financial Reporting
The Foundation’s financial statements will be prepared in accordance with generally accepted accounting principles. The Foundation’s fiscal year end is June 30. The financial statements are audited annually by a reputable CPA firm. The financial statements are published annually in the Foundation’s annual report. A report of all distributions from component funds shall be included in the Foundation’s annual report. Additional reports of component funds may be made as directed by the Board.
All fund advisors and established beneficiaries will receive semi-annual fund reports, unless requested more frequently. These reports will summarize all activity in the fund for the six months ending December 31 and the twelve months ending June 30. A detailed list of all contributors to the fund will also be included in this mailing.
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Read more:
Ten Ways Your Clients Can Continue to be Charitable in Challenging Economic Times
CFOS Professional Advisors Council
Investment Strategies and Performance
Fees at CFOS
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