Investment Policy Statement
The following Investment Policy Statement is intended as a guideline for the Board of Directors (the “Board”) of the Southeast Virginia Community Foundation (the “Foundation”), the Investment Committee of the Foundation, and the Investment Managers (as defined below) of the Foundation.
The Foundation seeks a minimum rate of return sufficient to maintain the real economic purchasing power of its portfolio(s) after all costs, inflation, and distributions, including:
- its spending policy distributions
- the rate of inflation, and
- the costs of administration
while assuming a level of risk that should under most circumstances result in returns that all within its specified risk tolerance. Specification of these requirements may be found in the Appendix to this policy.
The Foundation, while having an indefinite existence and a long term investment horizon, also recognizes that the long term is made up of a series of shorter terms, and therefore will manage its assets in terms of medium term economic and financial market cycles.
The Foundation’s risk tolerance is the decline, expressed in percentage terms, which the Board is willing to accept in the value of its portfolio(s) over the course of any 12 month period.
Asset Classes and Asset Allocation:
The Foundation through its Investment Managers may invest in any asset class deemed prudent for fiduciaries and shall be guided by the prudent expert rule and, except for broad classifications of assets, shall not be restricted or limited to any particular percentage in any given class except as set forth below:
Stocks (both domestic & foreign): Greater than 35%; no more than 75%
Of which Alternative Investments no more than 15%
Fixed Income & Money Market Greater than 25%; no more than 65%
Duties & Responsibilities:
The Board, upon recommendation of the Finance Committee, shall be responsible for approval of:
- The Investment Policy Statement and any changes thereto;
- The Foundation’s Spending Policy
- The Foundation’s Minimum Required Rate of Return
- The Foundation’s Stated Risk Tolerance
- The Selection of Investment Manager’s and/or other Advisors.
The Finance Committee shall be responsible for:
- Making recommendations with respect to the items immediately above to the Board;
The Investment Subcommittee, which is a subcommittee of the Finance Committee, shall be responsible for:
- The annual review in February and the updating on an annual basis of the Investment Policy Statement;
- The broad asset allocation between stocks, fixed income, and cash equivalents of the Foundation’s portfolio(s);
- Communicating the same to the Investment Managers either directly by one of its members or through the Foundation’s CEO/Executive Director;
- Making such tactical adjustments to the asset allocation as may be appropriate from time to time;
- Interviewing and selecting advisors and Investment Managers for recommendation to the Board.
- Monitoring and calculating the performance of:
1) The entire Foundation portfolio;
2) The long term Endowment portfolio;
3) Each Investment Manager
These statistics shall be audited by the Foundation’s accounting firm annually.
- Reporting the Asset Allocation of the Foundation’s assets and the performance of its managers on a quarterly basis to the Board.
- Initiating Spending Policy changes if necessary to adjust to the investment environment;
- Such other responsibilities as the Board may assign to it.
As distinguished from the Board, Finance Committee or Investment Subcomittee, who are responsible for managing the investment process, the Investment Managers are fiduciaries responsible for making investment decisions (security selection and price decisions). The Investment Managers shall be responsible for:
- Custodianship and record keeping for the portfolio(s) under their jurisdiction;
- The discretionary management of the portfolios entrusted to them within the objectives and guidelines communicated to them by the Investment Subcommittee;
- Providing portfolio valuations and a statement of cash flows in and out of the portfolio on a monthly basis;
- Voting all proxies in a manner consistent with the objectives of the Foundation, and shall keep detailed records of the same;
- Communicating with the Foundation all significant changes pertaining to the fund it manages or the firm itself. Changes in ownership, organizational structure, financial condition, and professional staff are examples of changes to the firm in which the Foundation is interested; and
- Use the same care, skill, prudence, and due diligence under the circumstances then prevailing that experienced investment professionals acting in a like capacity and fully familiar with such matters would use in like activities for like portfolios with like aims and in compliance with the Uniform Prudent Investment Act and all applicable laws, rules and regulations.
Investment Manager Section
The Foundation will apply the following due diligence criteria in selecting each individual investment option.
- Regulatory Oversight. Each Investment Manager should be a regulated bank, an insurance company, a mutual fund organization, or a registered investment advisor.
- Assets Under Management. Each Investment Manager should have at least $75 million under management.
- Stability of the Organization: There should be no perceived organizational problems – the same portfolio management team should be in place for at least two years. (This may be waived in some circumstances; such as for funds managed by teams or for funds where prior performance histories of separate accounts are considered relevant.)
Investment Manager Evaluation
- Preferably a 10 year track record
- Top 50% initial performance against peer group
- Preferably manager/management team in place the entire period
- And such other criteria as the committee deems appropriate at the time
Ongoing review criteria: Violation of these criteria warrants further committee review.
- Review 3 year track record
- Top 50% performance against peer group
- Investment Manager still in place
- Any regulatory issues constitute a need for further review
- And such other criteria as the committee deems appropriate at the time
Treatment of Excess Business Holdings
Under the Pension Protection Act of 2006 (the “PPA”), the private foundation excess business holdings rules now apply to donor advised funds as if they were private foundations. That is, the holdings of a donor advised fund in a business enterprise, together with persons who are disqualified persons with respect to that fund, may not exceed any of the following:
- Twenty percent (20%) of the voting stock of an incorporated business.
- Twenty percent (20%) of the profits interest of a partnership or joint venture or the beneficial interest of a trust or similar entity.
Ownership of an unincorporated business that are not substantially related to the fund’s purpose is also prohibited.
Donor advised funds receiving gifts of interests in a business enterprise after the date of the PPA’s enactment (August 17, 2006) will have five (5) years to divest holdings that are above the permitted amount, with the possibility of an additional five (5) years if approved by the Secretary of the Treasury.
What is a business enterprise?
A “business enterprise” is the active conduct of a trade or business, including any activity which is regularly carried on for the production of income from the sale of goods or the performance of services. Specifically excluded from the definition are:
- Holdings that take the form of bonds or other debt instruments unless they are a disguised form of equity
- Income from dividends, interest, royalties and from the sale of capital assets
- Income from leases unless the income would be taxed as unrelated business income
- “Functionally-related” businesses and program-related investments
- Businesses that derive at least ninety-five (95%) of their income from passive sources (dividends, interest, rent, royalties, capital gains). This will have the effect of excluding gifts of interests in most family limited partnerships, and other types of holding company.
What is a disqualified person?
Donors and persons appointed or designated by donors are disqualified persons if they have – or reasonably except to have- advisory privileges with respect to the donor advised fund by virtue of their status as donors. Members of donors’ and advisors’ families are also disqualified, but the section does not define “family” and does not cross-reference either I.R.C. Section 4958 or 4946 for the definition. The term includes thirty-five percent (35%) controlled entities as defined in I.R.C. Section 4958(f)(3).
The Foundation Policy With Regard to Assets Categorized under the PPA as “Excess Business Holdings”
The Foundation will identify and monitor any new gift to a donor advised fund of any interest qualifying as an “excess business holding, under the PPA. The Foundation will exercise its best effort to dispose of the contributed interest at the best possible price within five (5) years of the date of the gift, as required under the PPA. In any event, the Foundation will dispose of any excess business holdings prior to the five (5) year time limit, except in the event that the Treasury Department grants an additional five (5) year holding period. The Foundation will notify potential donors of such interests of this requirement prior to the contribution of such interest.
 Thirty-five percent (35%) if it can be shown that persons who are not disqualified persons have effective control of the business.
 Additionally, the donor advised fund will be barred from holding non-voting stock of an incorporated business unless the disqualified persons collectively own less than twenty percent (20%) of the voting stock. Under the de minimis rule, the donor advised fund could continue to hold an interest that did not exceed two (2%) of the voting stock and two percent (2%) of the value. Additional rules apply to cover situations such as mergers, redemptions, and acquisitions.