Introduction and Purpose
The purpose of this Statement is to clearly articulate the SVS Foundation Board of Director’s (Board) view on the SVS Foundation Fund’s investment objectives and risk tolerance. This statement will establish a target asset allocation and benchmarks that will be used to monitor performance.
Income generated by the Fund is intended for reinvestment, whether such income results from dividends, interest or gain on sale of securities. Withdrawals from the Fund shall be made only upon the majority vote of the Board of Directors, based upon income/expense projections of the Executive Director. The Investment Manager Consultant shall be alerted as early as possible of any consideration to be given to withdrawal of assets from the Fund.
The objectives of the Fund have been established after a comprehensive review of current and projected financial requirements, market returns and risks and any special requirements of SVS Foundation. The Committee will address these objectives in periodic reviews of the Funds’ performance; the frequency will be negotiated between the Investment Manager Consultant and the Board.
The Fund has both absolute and relative investment objectives.
- The long-term objective of the Fund is the preservation of capital
- Achieve a real rate of return of 4-6 percent (in excess of inflation as measured by the Consumer Price Index) on equities and 2-3 percent on fixed income securities
- Diversification will be employed to reduce risk
- Generate a return in excess of the passive portfolio benchmark for each asset class
- Exceed the 50th percentile return of a universe comprised of funds or managers with similar objectives and/or styles
Consistent with the diversification objectives of the portfolio, the Investment Policy is based on the assumption that the volatility of the portfolio will be similar to that of the target policy.
The volatility of the total portfolio, in aggregate, should be reasonably close to the volatility of a weighted composite of market indices of the target policy, which is 55 percent Russell 3000, 25 percent Lehman Aggregate, 10 percent EAFE and 10 percent HFRI Equity Hedge Index.
The asset allocation target ranges set forth below represent a long-term view. Short-term market volatility may cause the asset mix to fall outside the targeted range.
||Benchmark Index |
|Large Cap Growth
||Russell 1000 Growth|
|Large Cap Value
||Russell 1000 Value|
||Russell Mid Cap|
||HFRI Equity Hedge Index|
Approved investment managers are expected to be fully or near fully invested, unless extreme market conditions dictate otherwise or explicit consent has been received from the Board. For allocation purposes, convertible bonds will be considered 50 percent domestic equity and 50 percent domestic bonds due to their hybrid nature.
Given the volatility of the capital markets, strategic adjustments in various asset classes may be required to rebalance asset allocation back to its target policy. Such adjustments should be executed so as to minimize excessive turnover and transaction costs.
The following securities and transactions are not permitted for the Fund without prior Board approval:
- Letter stock and other unregistered securities; commodities or other commodity contracts; uncovered and covered options.
- Investments for the purpose of exercising control of management.
- Investments in companies that have filed a petition for bankruptcy.
Within the above guidelines, SVS Foundation gives investment managers full responsibility for security selection, diversification, turnover, and allocation of holdings among selected securities and industry groups. The following are guidelines to be followed by investment managers:
- Equity holdings may be selected from the New York, American, and Regional Stock Exchanges, or the NASDAQ markets.
- These holdings must represent companies meeting a minimum capitalization requirement of $250 million on the date of purchase.
- The cost of an individual security in a portfolio at purchase may not exceed 5 percent of the total market value of that portfolio. Individual securities in a portfolio must not exceed 10 percent of the market value of that portfolio.
- The market value of the holdings of any one market sector may not exceed more than twice that sector’s weighting in the investment manager’s selected benchmark. Managers will supply sector breakouts of portfolio holdings using sector classifications from a recognized source such as Wilshire, Russell or S&P.
- The investment manager is prohibited from investing in private placements and from speculating in futures or derivatives.
Domestic Fixed Income - Investment Grade
- No issues may be purchased with a longer maturity than the maximum maturity in the applicable benchmark index. Duration should be managed to remain within +/- 25 percent of the applicable benchmark index.
- Investments in securities of a single issuer in a portfolio (with exception of the United States Government and its agencies) must not exceed 10 percent of the market value of that portfolio.
- The investment manager is prohibited from speculating in fixed income or interest rate futures or derivatives.
- No more than 30 percent of the market value of the portfolio may be invested in non-United States dollar denominated securities without prior Board approval.
- Holdings in any one company in a portfolio shall not exceed more than 5 percent of that portfolio.
- Allocations to any sector, region or country should not be excessive relative to the benchmark.
- The investment manager may enter into foreign exchange contracts provided that the use of such contracts is limited to hedging currency exposure existing within the portfolio. Direct speculation on currency movements is prohibited.
- Investments in REITS, Long/Short Funds, Absolute Return Funds, Distressed Obligations, Fund of Funds, and Futures Funds are allowed to provide portfolio return enhancement and volatility dampening.
Cash and Equivalents
Investment mangers may invest in commercial paper, bankers’ acceptances, repurchase agreements, Treasury Bills, certificates of deposit, and money market funds to provide income, liquidity for expense payments, and preservation of the portfolio’s principal value. All such assets must represent maturities of one year or less at the time of purchase. S& P's and Moody’s must rate commercial paper A-1 or P-1, respectively. Bankers’ acceptances and certificates of deposit should only be purchased from larger, well-capitalized domestic and foreign banks with a minimum of an A rating from one of the major rating agencies. Uninvested cash reserves should be kept to minimum levels.
Investment managers will not purchase assets other than those mentioned above without written consent of the Board.
Voting of Proxies
Investment managers shall vote any and all proxies solicited in connection with securities held by the Fund. Managers shall produce a written proxy voting policy statement, and shall keep records with respect to its voting decisions.
Communications and Fees
The Investment Manager Consultant shall measure and evaluate investment results in writing on a quarterly basis. In addition to recommending appropriate investment managers, the Investment Manager Consultant shall monitor changes within the investment manager’s organization. A periodic review of investment policies is required and the Investment Manager Consultant shall provide advice on the reallocation of existing assets.
Equity Structure and Style
The goal of the active managers is to outperform their respective market segments.
United States Equities Index - The Russell 3000 Index is composed of 3,000 large United States securities, as determined by total market capitalization. This index represents approximately 98 percent of the investible United States equity market. The largest security has a market cap of approximately $487 billion as of June 30, 2001.
Large Cap Equities – The Russell 1000 Index consists of the 1,000 largest securities in the Russell 3000 Index, representing approximately 90% of the Russell 3000 total market cap. The weighted average market cap as of June 30, 2001 was $13 billion. The Russell 1000 Index is highly correlated with the S&P Index.
Large Cap Growth – The Russell 1000 Growth Index consists of the Growth stocks in the Russell 1000 Index. Stocks in the Russell 1000 Index that have both Growth and Value elements are split between the Russell 1000 Growth and Russell 1000 Value on a pro-rata basis as determined by Russell.
Large Cap Value – The Russell 1000 Value Index consists of the Value Stocks in the Russell 1000 Index.
Mid Cap Equities – The Russell Midcap Index consists of the smallest 800 securities in the Russell 1000 Index, as ranked by total market capitalization. This index accurately captures the medium-sized universe of securities and represents approximately 30 percent of the Russell 1000 total market capitalization. The weighted average market cap as of June 30, 2001 was $4 billion.
Small Cap Equities – The Russell 2000 Index consists of the smallest 2000 securities in the Russell 3000 Index, representing approximately 10 percent of the Russell 3000 total market capitalization. This index is widely regarded in the industry as the premier measure of small cap stocks. The weighted average market cap as of June 30, 2001 was $530 million.
Growth – These securities exhibit greater-than-average growth orientation. Higher price-to-book, higher price-earnings rations, lower dividend yields and higher forecasted growth than that of value stocks are characteristic of this style. Growth stock portfolios typically display above market performance in rising markets and have larger standard deviations than their value counterparts.
Value – These securities exhibit less-than-average growth orientation. Lower price-to-book, lower price-earnings ratios, higher dividend yields and lower forecasted growth than that of growth stocks are characteristic of this style. Value stock portfolios typically display above market performance in flat or declining markets and have smaller standard deviations than their growth counterparts.
Market-Neutral – These securities exhibit both growth and value characteristics. Also, the fundamental statistics of the overall portfolio has characteristics similar to that of the overall market. Performance will be measured against that of the overall market and one would expect standard deviations to approximate that of the overall market.
Morgan Stanley Capital International Europe Australia Far East Index (EAFE): Includes over 1,000 securities listed on the exchanges of 20 developed countries in Europe, Australia, and the Far East. Calculated in United States dollars, on a total return, market value weighted basis, with dividends reinvested before deduction of withholding taxes.
Morgan Stanley Capital International Emerging Markets Free Index: Includes securities listed on the exchanges of 25 emerging market countries around the world. Calculated in United States dollars, on a total return, market value weighted basis, with dividends reinvested before deduction of withholding taxes.
Approved by SVS Foundation Board of Directors October, 2004 and most recently modified by the Board of Directors in March 2008.
Affirmed by SVS Board of Directors, January 2010.