THE CAPE COD FOUNDATION
Statement of Investment Objectives and Guidelines
Revised August 27, 2009
The Cape Cod Foundation (CCF) is a publicly supported, tax-exempt organization whose mission is to improve community life through philanthropy and grant making by:
Attracting gifts and bequests from many donors - individuals, agencies, corporations, private foundations and other sources - to create a Permanent Endowment dedicated to improving
the quality of life for all of the Cape’s residents. The Permanent Endowment may take a number
of forms, the two most likely to be, Unrestricted and Donor Advised. Other funds may be
accepted where Principal is to be distributed during a time period designated by the donor.
Managing its funds through professional investment that may include cooperative partnerships with local and other investment firms for certain Donor Advised funds and administration of its many gifts and bequests; and
Distributing the income (and in some cases, portions of the principal), from donors’
charitable gifts and bequests in a manner consistent with the donors’ specific and general interests.
The Cape Cod Foundation is entrusted with the investment management of its donors’ funds and with carrying out the wishes of the donors in the best interest of the community. The Foundation seeks through its investment policy to maintain and increase the real value of the endowment principal and distributions over the long term. The Board of Directors of CCF appoints an Investment Committee to oversee the investment management to enable the Board to prudently execute its fiduciary responsibilities in that regard.
The Investment Committee of CCF serves at the pleasure of the Board of Directors. There are to be between five and seven members of the committee. The Treasurer of the CCF serves on the committee and as its Chairman unless the Board designates otherwise and the President shall be an ex-officio member. The Investment Committee shall oversee investment of the funds of the Foundation in accordance with written policy of the Board of Directors.
The Committee’s responsibilities and duties shall include the following:
1. Undertaking a Prudent Investor analysis of potential Investment Managers, under
guidelines delineated in a separate policy document;
2. Recommending to the Board the selections of specific Investment Managers for the
Foundation’s investable funds;
3. Evaluating Investment Manager performance as measured and specified under Investment
Monitoring and Controls;
4. Reporting to the Board periodically on those performance measurements;
5. Recommending from time to time that Investment Managers, whose performing and/or
professional credentials do not meet the Committee and the Board’s performance criteria,
be replaced and;
6. Such other activities that may be delegated to the Committee from time to time by the
Total Return Concept
The Cape Cod Foundation believes under Prudent Investor principles that the Total Return Concept is the most effective way to manage permanent funds; that there is more to successful investing than maximizing current income; and that capital appreciation over time has historically been significant. Total Return allows the Board of Directors to establish an amount available for distribution each year based upon a defined spending rate (percentage) from its endowment. This
amount may be more or less than the actual income from interest and dividends. The Total Return
Concept allows an Investment Manager to invest with discretion in the optimum mix of quality stocks, bonds and cash instruments during all market cycles. Total Return investing from capital appreciation, dividends and interest, combined with a prudent spending rate, is designed to allow for growth of the value of the donated funds. Yearly distributions will be based on a spending rate calculated as a percentage of total fund market value averaged over the twelve prior quarters.
Spending Rates for Distributions
In keeping with the Total Return Concept the Board of Directors from time to time establishes a spending rate that bases distributions on the average market value for the twelve prior quarters. Historically, the spending rate has been 4.5 - 5% of this average value, not including the Community Foundation’s administrative fees and the investment managers’ fees. The Board will set the actual spending rate each fall, following a recommendation by the Investment Committee.
Asset Base Calculations
Within the CCF’s endowment, there are a number of individual donor advised funds in
addition to its unrestricted fund. Averaging each fund’s total market value over twelve quarters smoothes out market volatility and the effects of new donations. Spending Rates, as described
above, calculated in this manner, do not produce inordinately high levels of distributions in rising markets nor do they produce unfair low levels during market declines. New funds and unusually large donations will be taken under advisement for possible adjustments to the average market value on which distributions are calculated.
Investment Manager’s Instructions
The Investment Committee shall establish specific policies, procedures and guidelines, as approved by the Board, by which all selected Investment Managers must agree to be bound. Asset allocation models will be established with each manager within General Investment Guideline ranges for each asset class. Once accepted, individual Investment Managers shall be granted prudent but full investment discretion over the funds they manage.
Investment Managers in turn are to present to the Foundation their written investment policies as to how they are managing the Foundation’s funds.
CCF will measure performance on industry-accepted indices based upon the asset allocation models to which the managers agree.
Investment Managers will report to the Foundation on a quarterly basis.
Distributions: Investment Managers will be advised of the amounts to be paid out of the accounts to The Cape Cod Foundation. An advance schedule of distributions to be met in each year will be given to the Investment Managers. Once that schedule is received by the Investment Managers, they are responsible for making the funds available on the scheduled dates.
General Investment Guidelines
The intention of The Cape Cod Foundation is to encourage flexibility in the investment approach, as determined by the Investment Manager’s outlook for interest rates and equity market returns.
Derivatives and Derivative Securities - Certain of the Plan’s managers may be permitted
under the terms of their specific investment guidelines to use derivative instruments. Derivatives are contracts or securities whose market value is related to the value of another security, index, or financial instrument. Investments in derivatives include (but are not limited to) futures, forwards, options, options on futures, warrants, and interest-only and principal-only strips. No derivative positions can be established that create portfolio characteristics outside of portfolio guidelines. Examples of appropriate applications of derivative strategies include hedging market, interest rate, or currency risk, maintaining exposure to a desired asset class while making asset allocation changes, gaining exposure to an asset class when it is more cost-effective than the cash markets, and adjusting duration within a fixed income portfolio. All derivatives positions must be fully collateralized. Investment managers must ascertain and carefully monitor the creditworthiness of any third parties involved in derivative transactions.
Each manager using derivatives shall (1) exhibit expertise and experience in utilizing such products; (2) demonstrate that such usage is strategically integral to their security selection, risk management, or investment processes; and (3) demonstrate acceptable internal controls regarding these investments.
For mutual and other commingled funds, the prospectus or Declaration of Trust documents of the fund(s) will govern the investment policies of the fund investments. While the Committee understands that such funds have their own stated guidelines which can not be changed for individual investors, in principle and spirit those guidelines should be similar in nature to the guidelines stated above. To the extent that a fund allows any or all of the above stated restrictions, the Committee must be aware of their possible use and be confident that the Investment Manager(s) thoroughly understands the risks being taken, has demonstrated expertise in their usage of such securities, and has guidelines in place for the use and monitoring of those
Options and futures may be used as a hedging technique, but the use of such instruments for speculative purposes or to leverage any fund is prohibited.
As of the date of this Statement of Investment Objectives and Guidelines, the range of asset allocations designated by the Investment Committee are:
Asset Class Maximum Minimum Benchmark
Short-term Invest. 15% 0% 90 Day T-Bills
Fixed Income 30% 15% Barclays Aggregate Bond Index
Equities (Domestic) 55% 40% S&P 500
Equities (International) 20% 5% EAFE
Real Estate 15% 0% NCREIF Property Index
Alternatives 15% 0%
In addition to these General Investment Guidelines, the following instructions apply to equity securities. The Investment Committee may approve deviations from these guidelines on a case-by-case basis.
1. No letter stock or private placements are permitted.
2. Investment in the common stock of any one issuer may not exceed 5% of its common shares
3. Investments in any class of equity securities of any one issuer may not exceed 5% of the
market value of the common stock portfolio under management.
4. Investments in any particular industry sector (as defined by the S&P 500) may not exceed
20% of the value of the common stock portfolio under management at current market.
Fixed Income Guidelines
In addition to the General Investment Guidelines, the following instructions apply to fixed income securities. The Investment Committee may approve deviations from these guidelines on a case-by-case basis.
1. Obligations of the U.S. Government or Government Agencies may be held in any amounts.
2. No more than 25% of the fixed income portfolio may be rated below-investment grade.
3. Corporate Bond investments shall be diversified by sector, such as, industrial, utility,
financial or telephone. Investments in any particular industry sector may not exceed 20%
of the value of the fixed income portfolio under management at cost.
4. Investment is limited to more than 5% of the outstanding debt of any one issuer.
5. Investment in any one security shall not exceed 5% of the fixed income portfolio at cost
although the Committee may waive this requirement for pre-refunded issues
Investments may include real estate, held in the form of professionally managed, income producing commercial and residential assets. Such investment may be made only through professionally managed pooled real estate investment funds, as offered by leading real estate advisors with proven records of superior performance over time.
Alternative investments may include funds investing in hedged equity, commodities and private equity such as venture capital, secondary or buyout funds.
It is CCF’s policy to rebalance within the stated ranges on a uniform basis. The purpose of
rebalancing is to control portfolio risk and maintain the policy asset allocation within the targeted ranges. It is the CCF’s policy to rebalance back to the stated target allocations as defined in the “range of asset allocations” table above. Policy requires the portfolio to be rebalanced annually or when large cash inflows or spending withdrawals occur.
Investment Monitoring and Controls
The Board of Directors of the Cape Cod Foundation bears the fiduciary responsibility to see that investments are being properly managed. The Board delegates responsibility to the Investment Committee to monitor and evaluate the Investment Managers on a quarterly basis and makes an annual report thereon to the full Board of Directors.
Investment Managers are expected to include a quarterly report of their investment results with the usual transaction reports and end of period securities valuations.
The Investment Committee will meet annually with all the Investment Managers in order for each of them to present a statistical and narrative evaluation of their performance for the previous year. These reports will be prepared and presented in the format satisfactory to the Investment Committee so that all managers can be evaluated on a fair and equal basis.
Investment Managers’ performance will be monitored and results evaluated, as appropriate, against absolute and relative return objectives. Results will be reviewed over a three to five year period and are expected to exceed the benchmarks noted in the “range of asset allocations” table
Each quarter, performance will be reviewed for the following periods:
1) Trailing twelve months
2) Current quarter, year-to-date, 1 year, 3 years and 5 years