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CHAIRMEN
MITCH DANIELS
LEON PANETTA
TIM PENNY
PRESIDENT
MAYA MACGUINEAS
DIRECTORS
BARRY ANDERSON
ERSKINE BOWLES
CHARLES BOWSHER
KENT CONRAD
DAN CRIPPEN
VIC FAZIO
WILLIS GRADISON
WILLIAM HOAGLAND
JIM JONES
LOU KERR
JIM KOLBE
DAVE MCCURDY
JAMES MCINTYRE, JR.
DAVID MINGE
JUNE O’NEILL
PAUL O’NEILL
MARNE OBERNAUER, JR.
BOB PACKWOOD
RUDOLPH PENNER
PETER PETERSON
ROBERT REISCHAUER
ALICE RIVLIN
CHARLES ROBB
ALAN K. SIMPSON
JOHN SPRATT
CHARLIE STENHOLM
GENE STEUERLE
DAVID STOCKMAN
JOHN TANNER
TOM TAUKE
GEORGE VOINOVICH
PAUL VOLCKER
CAROL COX WAIT
DAVID M. WALKER
JOSEPH WRIGHT, JR.
The Better Budget Process Initiative:
Strengthening the Budget Resolution
April 14, 2016
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CSO Online
The purpose of this guideline is to specify the conditions under which an Index- Linked Variable Annuity (ILVA) is
consistent with the definition of a variable annuity and exempt from Model 805 and specify nonforfeiture
requirements consistent with variable annuities.
A number of insurers have developed and are issuing annuity products with credits based on the performance of an
index with caps on returns, participation rates, spreads or margins, or other crediting elements. The current products
include a risk of loss throughout the life of the contract and include limitations on the loss such as a floor or a buffer.
These products are not unitized and do not invest directly in the assets whose performance forms the basis for the
credits. However, unlike traditional non-variable indexed annuities, these annuities may reflect negative index
returns.
There is no established terminology for these annuity products. These products go by several names, including
structured annuities, registered index-linked annuities (RILA), or index-linked variable annuities, among others. This
guideline refers to these products as index-linked variable annuities (ILVA).
The Better Budget Process Initiative:
Strengthening the Budget Resolution
Variable annuities are exempted from the scope of NAIC Model 805, Standard Nonforfeiture Law for Individual
Deferred Annuities, however, NAIC Model 805 does not define the term "variable annuity".
NAIC Model 250, Variable Annuity Model Regulation, defines variable annuities as “contracts that provide for
14,account”
2016Section 7B of NAIC Model
annuity benefits that vary according to the investment experience ofApril
a separate
250 provides that "to the extent that a variable annuity contract provides benefits that do not vary in accordance with
the investment performance of a separate account" the contract shall satisfy the requirements of the NAIC Model 805.
The application of the NAIC Model 250 to a traditional variable annuity with unitized values is straightforward. The
unitized feature provides an automatic linkage between annuity values and the investment experience of a separate
account. Daily values (market values of the separate account assets) are the basis of all the benefits, including
surrender values.
The fact that ILVA products are not unitized means they do not have values determined directly by the market prices
of the underlying assets. Therefore, this guideline sets forth principles and requirements for determining values,
including death benefit, withdrawal amount, annuitization amount or surrender values, such that an ILVA is
considered a
Roots of Progress/CSO Online
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August 2011
CSOONLINE
THE INVESTMENT POLICY STATEMENT
Executice CEO and Founder - Sean Stengle
INTRODUCTION.
Successful investing for long-term funds requires a strategic plan. This is true despite –
indeed, because of – the fact that the future is unknowable. The plan must be specific,
embodying in concrete terms the best thinking of the board of trustees about the investment pool, its goals and purposes; but it also needs to be sufficiently flexible to
guide the board through environments that may be very different from those prevailing
at the time of its adoption.
This paper reviews the key features of such a plan – the investment policy statement.
Since investment policy statements are as varied as the organizations they serve,
there is no one-size-fits-all solution. We do, however, include an appendix with two
templates that may serve as examples for those who find it helpful to work from
an existing model.
For institutions with endowed perpetual funds, one of the gravest risks is that, in
periods of economic turmoil, crucial investment decisions may be made in haste,
under pressure, and without adequate consideration of the long-term consequences.
During the working lifetimes of many of today’s trustees, market crises have occurred
at a rate of around two per decade. In such cases, the temptation to listen to urgent
voices claiming that ‘this time is different’ has been very difficult to resist. For trustees,
the risk to the fund of a permanent loss of purchasing power as a result of poor
investment decisions is compounded by the potential for after-the-fact secondguessing and possible legal challenge by attorneys general, donors and beneficiaries.
The investment policy statement sets forth in writing the operating plan of the board
of trustees for the management, investment and spending of the investment pool.
While strategic in approach and long-term in scope, the investment policy statement
also sets forth parameters or ranges within which more tactical actions may be taken.
Composed in calm to be used in crisis, it is both a shield, guarding trustees from the
pressure to make unwise decisions in an atmosphere of panic, and a sword, by which
the board establishes the territory it intends to occupy and cultivate, through its
investment practice, as fiduciaries for the institution.
COMPONENTS OF THE INVESTMENT POLICY STATEMENT.
Endowed institutions differ in their missions, capabilities and resources, and
investment policy statements naturally mirror these differences. In that sense, there
is no single ‘right’ investment policy statement; each institution’s board must craft
a statement that responds to the needs of the institution and the preferences and risk
tolerances of the trustees. Annual review of the statement by the board can help to
ensure that it remains an appropriate distillation of the institution’s investment
philosophy and practice.
It can be said, however, that a properly-drafted investment policy statement should
address, at a minimum, the following issues:
• What is the purpose of the investment pool? What is its role in
supporting the mission of the institution?
•Is the fund intended to be perpetual in duration, or will it have a finite
life? To what extent is maintenance of purchasing power an explicit goal?
• Who will have responsibility for investment decisions? What are the
required qualifications of these individuals, and how are they to be
recruited?
• If the board of trustees intends to delegate its authority to an
investment committee or some other body or entity, how should that
delegation be evidenced and documented? Which investment
decisions, if any, should
be delegated to outside advisors or investment managers? How should these
and other service providers be selected and monitored?
2 ©2011 COMMONFUND
• What is the investment pool’s target return, both in nominal and
real (i.e., after inflation) terms? What is its expected annual
contribution as
a proportion of the institution’s operating budget or other relevant criterion?
• What should be the overall investment strategy of the fund, including
asset allocation targets and ranges, permitted and prohibited investment
strategies and instruments?
• What kind and degree of risk is the board prepared to take in pursuit of
its investment goals? How are risks to be defined and measured?
• How much liquidity should be maintained by the fund, either for
investment needs within the fund or for wider institutional purposes?
©2011 COMMONFUND 3
• How much of the endowment should be spent and how much
reinvested? What rules determine how this amount is calculated?
• To what extent is the fund expected to assist in maintaining the balance
sheet of the institution (for example, by supporting its credit rating)?
In the following sections, we review and discuss each of these issues.
DISCUSSION.
Purpose of the investment pool. Endowments are typically composed of individual
funds given by donors over time, usually to support particular activities or missions
of the organization. Apart from these restricted funds, donors sometimes give with
no restriction as to purpose. In addition, institutions themselves may elect to treat
operating surpluses, unrestricted bequests and other similar amounts as ‘quasiendowment’, to be invested and spent alongside other endowed funds.
These differing purposes influence the investment strategy for the funds. For example,
a fund dedicated to providing scholarships at a college requires a steady flow of cash,
year in and year out; ideally, the amount should not only remain steady but should
rise with inflation. A fund, on the other hand, that is intended to cover the cost of
awarding an occasional prize every five years does not have the same need for ready
cash. These two funds have different tolerances for year-to-year fluctuation in their
value and for liquidity, among other characteristics; and their asset allocation may,
as a result, be different.
Duration of the pool: perpetual or not? Historically, most donors to endowments
have contemplated a perpetual life for their funds. In recent years, however, some
endowments – including some very large ones such as the Bill and Melinda Gates
Foundation – have been established with a finite life. The expected lifespan, or term,
of a fund is an important factor to consider when crafting an investment policy.
4 ©2011 COMMONFUND
In this context, the maintenance of purchasing power, also called intergenerational
equity, becomes an issue of key importance for a perpetual fund. While donors may
occasionally state that intergenerational equity is not a goal for their fund, under the
Uniform Prudent Management of Institutional Funds Act (UPMIFA), which is the
law in virtually all the states, maintenance of purchasing power is assumed to be
the intention of donors in the absence of a specific provision to the contrary.1
1
For a summary discussion of UPMIFA and its requirements, see Sedlacek and Jarvis, “Endowment Spending: Building a
Stronger Policy Framework” (2010), pp. 2-4. For other information about the law, see http://www.upmifa.org.
©2011 COMMONFUND 5
For example, a series of funds to endow the conductor’s and section chairs’ positions
at a symphony orchestra will need to be invested with a perpetual horizon in mind,
including considerations of intergenerational equity. On the other hand, a fund
dedicated to constructing a new concert hall for the symphony ten years from now
does not need to generate any cash during its life and should, accordingly, be
invested using a different strategy (although a fund for ongoing maintenance of
the hall would be perpetual).
Who has responsibility for investment decisions? Authority over institutional investment pools such as endowments, foundations and pension funds resides with the
governing board, the members of which are fiduciaries. Under common-law concepts
of fiduciary duty, and also under UPMIFA, whoever has responsibility for investment
decisions must exercise prudence.2 UPMIFA sets forth a list of factors that those
responsible for endowed funds must observe in managing and investing, and states
that “a person that has special skills or expertise, or is selected in reliance upon the
person’s representation that the person has special skills or expertise, has a duty to
use those skills or that expertise in managing and investing institutional funds.”3
Thus, while the law is flexible in not demanding that board or investment committee
members exercise expertise that they do not possess, it also implicitly disapproves of
arrangements whereby an illustrious individual lends his or her name without actually
participating in debate and decision-making.
Apart from purely legal considerations, the task of recruiting a competent and
committed group of individuals to oversee the investment pool requires a nominating
process that acknowledges the seriousness of this portion of the organization’s mission.
If the board as a whole is to retain this responsibility, then trustee nominations should
include an assessment of candidates’ financial literacy and investment-related
experience.
6 ©2011 COMMONFUND
2
UPMIFA § 3(b). http://www.law.upenn.edu/bll/archives/ulc/umoifa/2006final_act.pdf, p. 11.
3
Ibid. § 3(e)(6), p. 13.
©2011 COMMONFUND 7
Delegation to a committee, a consultant, or a manager. Delegation of the trustees’
responsibilities with respect to a particular fund is permitted under UPMIFA, unless
prohibited by the donor.4 Under this standard, the board can delegate its fiduciary
responsibility for investment matters to a committee or to outside advisors, but
must exercise prudence in doing so.5 Upon accepting the delegation, the new
fiduciaries are bound by the same standard as the trustees in carrying out their
new responsibilities. And if an investment committee or similar body is to be
created, the committee chair (who should be a trustee) should seek out members –
whether trustees or not – who have sufficient skill, experience and commitment
to be good fiduciaries for the pool. All of these actions should be evidenced by
appropriate board discussion and action, and recorded in the minutes.
What is the right size for an investment committee, and what kind of individuals
should be asked to serve? Data taken from the most recent NACUBO-Commonfund
Study of Endowments and Commonfund Benchmarks Studies 6 show that the investment
committees of educational institutions, operating charities and nonprofit healthcare
organizations number about 8 voting members on average. Foundations have smaller
committees of around 6 voting members, since for many foundations the committee
is composed of the founder’s family and a few outside advisors. Within the investment
committee, around 4 or 5 members are investment professionals (for foundations,
the number of investment professionals is around 3). Between 2 and 3 members
across all types of institution have alternative strategies experience, a key requirement
for fiduciaries of highly diversified portfolios.
It is thus apparent that in recruiting trustees, investment committee members, and
others who will have responsibility for managing endowment funds, care must be
taken to select individuals who will understand and be able to fulfill their duties as
fiduciaries and will bring their particular skills to bear in overseeing or managing the
funds. It is important to note that, while UPMIFA does not set a minimum standard
for those to whom the responsibility is delegated, it does require that the board, in
choosing those individuals, act prudently.7 Thus, sound investment policy would
indicate that those to whom the responsibility for managing institutional funds is
assigned (whether trustees or others) should, at a minimum, have some familiarity
with and experience in investment management.
8 ©2011 COMMONFUND
4
Ibid. § 5(a), p. 29.
5
Ibid.
6
Citations are to data for FY2010 drawn from the NACUBO-Commonfund Study of Endowments (NCSE) and the
Commonfund Benchmarks Study volumes on foundations, operating charities and healthcare organizations.
7
Ibid.
©2011 COMMONFUND 9
What about outside investment managers, consultants and other advisors?
Most smaller and mid-sized nonprofit organizations lack the financial and staff
resources to manage their own portfolios, and so must rely on such outside entities,
overseen by volunteer boards of trustees or investment committees that meet several
times a year. Many commentators have criticized this model as lacking in rigor, but it
remains the standard for most nonprofits.
Across the nonprofit sector, internal staff resources are minimal. The NCSE and
Benchmarks Study research shows that the average number of full-time equivalent
(FTE) staff overseeing investments is between 1 and 2 FTEs. Only at institutions
with endowments above $300 million do the data show higher staffing levels.
Yet manager use, even by smaller nonprofits, is high: institutions with assets below
$100 million use a total of 9 to 10 managers on average across all asset classes, while
for endowments above $100 million it is not unusual to see 6 to 11 separate
managers hired directly for various alternative strategies, in addition to between
3 and 5 managers for each of the traditional asset classes such as domestic equities,
fixed income, international equities and cash.
Nevertheless, the fiduciary standards outlined above require that the same prudence
be exercised in retaining, monitoring, evaluating and dismissing these advisors as in
all other matters undertaken by the board. And, given the highly diversified portfolios
that underpin the endowment model of investing, it is not surprising that the
NCSE and Benchmarks research shows that between one-quarter and one-third
of institutions have decided to delegate their investment responsibilities, in full or
in part, to outsourced investment providers. Even here, however, the same standards
of prudence and diligence in choosing and monitoring the provider apply.
Target return and endowment dependence. If the board aspires to maintain the
purchasing power of the investment pool over time, then assumptions must be made
about the long-term spending rate from the endowment, the anticipated rate of
inflation and any other costs the fund may incur. As to the spending rate, both
practical experience and economic modeling tools have demonstrated that it is not
10 ©2011 COMMONFUND
possible to spend in excess of five percent of the portfolio each year without suffering
erosion in purchasing power over time. A proxy rate of no more than five percent,
therefore, is frequently used. Inflation has fluctuated considerably over the past
half-century, but in recent years has been negligible; an assumed long-term rate of
three percent is common. And administrative and other costs are typically considered
to add one percent to the expense base. Thus, five plus three plus one, or nine percent,
is often the target return cited as necessary to maintain purchasing power.
©2011 COMMONFUND 11
It is important to try to reduce this number, because a nominal nine percent return,
year after year, is probably unachievable without incurring a level of risk that most
trustees would deem unacceptably high. Academic research has shown that, in the
United States, the long-term equity premium over the risk-free rate of return has
averaged approximately six percent, of which two percent has been dividends rather
than capital appreciation.8 To the extent that a portfolio is diversified away from U.S.
equity securities – for example, into fixed income – this long-term return is even lower.
Therefore, the assumptions for spending, inflation and expenses need to be examined
carefully.
Spending, in particular, is the largest item of these three and is most directly within
the control of the board. The NCSE and Benchmarks research shows that policy
spending rates for educational institutions and operating charities average between
4.5 percent and 4.9 percent. Among foundations, the federally-required minimum
annual spending rate of 5 percent for private foundations means that policy
spending rates range between 5.1 percent and 5.5 percent, highlighting the
challenges that face these institutions in maintaining intergenerational equity.
Equally important, when considering long-term return targets, is the degree to
which the institution’s operating budget is dependent upon support from the longterm investment pool. This ratio of endowment dependence ranges from zero,
at institutions for which the pool is truly a ‘rainy-day fund’, to much higher figures –
for example, the 30-50 percent endowment dependence ratios that are observed
at well-endowed U.S. private colleges and universities. The NCSE and Benchmarks
research shows that endowment dependence ratios at institutions of higher education
average 10.5 percent, from a low of just 5.3 percent at institutions with endowments
under $25 million to a high of 17.1 percent at those with institutions with assets
over $1 billion. For operating charities, the average endowment dependence is even
higher, at 38.3 percent.
An endowed institution ideally would like to receive a steady, and steadily increasing,
amount of dollar support each year from its endowment. Where endowment
dependence is high, the institution’s tolerance for volatility in this amount becomes
12 ©2011 COMMONFUND
lower, and the imperative for realism in setting expected returns and acceptable risk
levels becomes correspondingly more urgent.
8
Dimson, Marsh and Staunton, Triumph of the Optimists (2002), pp. 163-175.
©2011 COMMONFUND 13
Investment strategy of the fund, asset allocation, and permitted and prohibited
investment strategies and instruments. The investment strategy section forms the
conceptual core of the investment policy statement (for operational ease, it may be
contained in an appendix to the main body of the document). Its chief component
is a table in which target allocations for each permitted asset class and strategy are
specified. The table also prescribes ranges or bands around the target allocations,
within which they will be permitted to fluctuate. It is important that the ranges not
be so broad that they lack discipline or fail to reflect the actual portfolio construction
preferences and risk tolerances of the institution. For this reason, where possible,
financial modeling using long-term simulation tools should be used to help the
board or investment committee to understand the range of probable outcomes and
risk parameters of various alternative portfolio choices.
Rebalancing is another key component of the asset allocation policy. Different asset
classes and investment strategies will of necessity produce different returns over the
same investment period, with the result that the portfolio’s actual allocations to
each asset class or strategy will become higher or lower than the targets. To the
extent that the allocations move outside the permitted bands as a result of such
market fluctuations, rebalancing is required. Across all the different types of
endowed nonprofits surveyed in the NCSE and Benchmarks research, this practice
is nearly universal: around 80 percent of institutions report having rebalanced their
portfolios during the past fiscal year.
The process is somewhat counterintuitive, since it involves selling investments that
have appreciated in value and using the proceeds to purchase investments that have
declined; but the result, from an investment policy point of view, is highly beneficial
as the institution is able to reap gains on successful investments and buy other
investments that are desired components of the portfolio cheaply.
14 ©2011 COMMONFUND
The two most frequently used approaches to rebalancing are those in which the
process is conducted a certain number of times a year (calendar-based) and those in
which rebalancing takes place whenever the targets or ranges in the asset allocation
table have been exceeded (target/range-based). In the former the portfolio may be
rebalanced monthly, quarterly, annually or at some other time interval; in the NCSE
and Benchmarks research, around one-fourth of institutions report rebalancing
quarterly. In the latter, as noted above, the rebalancing is triggered when the ranges
or bands are exceeded; around three-fourths to four-fifths of survey participants
report using this method, probably in coordination with one of the calendar-based
alternatives. Rebalancing may also be triggered in response to major gifts or other
changes in cash flow, in order to ensure that the portfolio remains within its permitted
asset allocation ranges. Whichever method is used, it is important that the rebalancing
process itself not become the subject of subsequent debate (apart, that is, from the
annual review of the investment policy). If it is regarded as optional, the board
or committee may be tempted to engage in market timing and the policy will lose
its effectiveness.
The investment policy statement should also contain descriptions of permitted and
prohibited asset classes, investment strategies and instruments. The purpose of this list
is to enable the board or committee to focus on the role of the various strategies in the
context of the portfolio and its goals. To this end, it should include not only strategies
that the institution intends to use immediately, but those that it may use in the future.
For example, the statement might permit certain classes of alternative investments
while assigning them a weighting of zero in the current portfolio. Going through the
work of considering and describing their potential role and advantages enables the
board or committee to be prepared for the time when a place will be made for them
in the portfolio.
©2011 COMMONFUND 15
The question of permitted and prohibited investment strategies and instruments has
gained in importance today because the complex nature of many investment products
can make it difficult for a client to understand clearly what investment practices are
being employed by a manager. Many disclosure documents and offering memoranda
are lengthy and densely written, and can as a result be hard to understand, even if the
information in them is accurate. The board should not find itself in a situation where,
as a result of this complexity, the language in the investment policy conflicts with
decisions actually taken. If, for example, an investment policy statement prohibits
instruments such as derivatives or strategies such as short selling, the committee
should be careful not to invest with a hedge fund that uses derivatives and routinely
goes short unless it has first inserted language in the investment policy statement
to allow for the use of derivatives and short-selling as part of a hedging strategy.
The institution should know what it is investing in and be sure that permissions and
prohibitions in the investment policy statement reflect the reality of the decisions
being made for the portfolio.
RISKS THE BOARD IS PREPARED TO TAKE IN PURSUIT OF ITS INVESTMENT GOALS. HISTORICALLY,
most investment policy statements treated investment risk as an undesirable by-product
of investing rather than as an essential precondition to earning investment returns.
References to risk typically spoke of it as something to be ‘managed’ in a general sense,
while avoiding specific metrics or parameters. Where risk was defined in investment
policy statements, it was usually as volatility of returns, measured in terms of standard
deviation – a definition first used by Markowitz in his Modern Portfolio Theory dating
from the 1950s.
The 2007-2009 market collapse, and the subsequent (and as yet incomplete) recovery,
have brought home to fiduciaries the inadequate nature of this definition and the
multiple nature of the risks that are undertaken in investing. Investment risk is now
understood to comprise a wide variety of potential threats, chief among which is the
risk of loss that would be permanent or require an unacceptably long time to recoup.
Financial models are available to enable fiduciaries to estimate the probability and
range of possible losses associated with given investment strategies over time, but
it is important to emphasize that while risk can be modeled and to some degree
understood, it cannot be eliminated if the portfolio’s goal is to achieve a long-term
return after spending and costs that is in excess of inflation. The question for
16 ©2011 COMMONFUND
fiduciaries, then, becomes whether the risks described are acceptable. How many
years in twenty, for example, will the board be faced with a decline in dollar spending
from year to year? What is the projected worst loss, and how many years would be
required for the portfolio to recover its purchasing power? These important questions
should be asked and resolved as part of the investment policy formation process.
©2011 COMMONFUND 17
Liquidity: How much and for what purposes? During the financial crisis, many
nonprofits found themselves with insufficient liquidity. For these institutions, the
normal process of selling investments to raise cash for payroll and ongoing operations
became a harrowing race to the bottom as sellers greatly outnumbered buyers and even
high-quality securities could not be sold except at steep discounts from their previous
prices. This situation called into question the validity of the ‘Endowment Model’,
which uses a highly diversified portfolio with a higher-than-usual tolerance for
illiquidity. Under the Endowment Model, endowment cash was held in small
amounts, primarily to satisfy capital calls for partnership investments and to provide
‘dry powder’ to take advantage of attractive investment opportunities. Cash and
near-cash allocations in excess of these requirements were viewed as a drag on
performance and kept to a minimum. The crisis greatly increased the need for
liquidity at the time when it was least available, and led to a reassessment of the place
of cash in the endowment. Data from the NCSE and Benchmarks Studies show that
most institutions now include a larger allocation to endowment cash in their policy
portfolios – between 5 percent and 9 percent – than at any time in the past ten years.
Spending versus reinvestment and the rules guiding it. Endowments have different
purposes and uses for different organizations. At one end of this broad spectrum are
institutions whose philosophy is to spend nothing and simply let the investment pool
grow. These endowments are typically not composed of restricted funds (or at least
not of those that require regular spending) and their institutions are, by definition,
not heavily dependent on the endowment for support of the operating budget.
It may be that trustees want to build up a rainy-day fund or have some other long-term
goal in mind, such as a major capital project. At the other extreme are those funds
that are not intended to be perpetual in duration, where spending during a set period
is part of the donor’s purpose. As noted above, some very large private foundations
are currently operating on this basis.
Occupying the middle ground, and defining the vast majority of institutions and assets,
are those institutions whose goal is that the endowment provide a source of perpetual
support for the mission of the institution. The touchstones for this goal are prudent
investing and spending, concepts that inform UPMIFA. Under UPMIFA, trustees may
spend or accumulate as much of an endowment fund—including principal or income,
realized or unrealized appreciation—as they deem prudent, taking into account the
intended duration of the fund, the fund’s purposes, economic conditions, expected
inflation or deflation, investment returns, other institutional resources and the
institution’s investment policy.9 This direct reference to investment policy highlights the
18 ©2011 COMMONFUND
central role of the statement in forcing an explicit consideration and articulation, in the
statement itself, of the respective roles of investment and spending in the endowment.
9
UPMIFA § 4(a). http://www.law.upenn.edu/bll/archives/ulc/umoifa/2006final_act.pdf, p. 19.
©2011 COMMONFUND 19
Role of the fund in supporting the institution’s balance sheet. Most endowments have
as their primary goal the support of the institution’s operating budget. In some cases,
however, an endowment may have different, or even multiple, roles. For example,
unrestricted or quasi-endowment may be pledged to secure a credit line, or it may
support a bond rating. In the case of nonprofit healthcare organizations, bond rating
agencies have requirements for liquidity and underlying assets; these considerations
affect asset allocation, and must be worked into the organization’s risk and return
expectations. In this sense, the question of the purpose of the investment pool, which
we considered at the outset, continues to inform the endowment management
process even in areas that are not directly related to investment decision-making.
Indeed, there is a strong case to be made for linking the investment policy not only
with the institution’s balance sheet but also with its long-term strategic plan. A growing
number of institutions are doing this, and many are also addressing gifts and debt
either in their investment policy or in separate but coordinated policy documents.
20 ©2011 COMMONFUND
CONCLUSION.
In the past, many investment policy statements gave relatively cursory treatment to
risk, its quantification and its potential impact on the asset pool. The market collapse
and credit crisis of 2007-2009 demonstrated that many institutions’ portfolios carried
unacknowledged risks, that their risk profiles in general were higher than they thought,
and that the risk tolerance of their fiduciaries was lower than acknowledged. Today,
then, it is entirely appropriate to put risk at the top of the process of investment policy
development.
Financial models, as the crisis demonstrated, are anything but infallible and, when
consulted, must be used with care and a healthy degree of skepticism. It is nonetheless
true that the results of an appropriate simulation or modeling study can assist
fiduciaries in going beyond traditional risk definitions such as volatility to examine
such critical parameters as the risk of permanent loss, year-to-year declines in spending,
and recovery periods. These metrics both enable and force a discussion about tolerable
levels of risk, the conclusions from which can be used to guide the construction of
a range of potential portfolios that embody those risks that are deemed acceptable.
Projected returns from these portfolios are an outcome which, if considered
insufficient, indicate either acceptance of lower contributions for the acceptable
level of risk or mandate a more robust discussion about the relationship between risk
assumption and needed long-term returns.
Thus, in this proposed structure, instead of starting with return, committees work
toward it. If, ultimately, the projected range of returns is seen as ‘too low’ compared
to anticipated institutional needs, then the fiduciaries must either reconcile themselves
to the fact that the target return is beyond their reach given their risk limits, or accept
the necessity of embracing additional risks and explicitly acknowledge them in the
investment policy statement.
©2011 COMMONFUND 21
APPENDIX
Sample INVESTMENT POLICY STATEMENT TEMPLATES
This section contains two templates for the Board of Trustees or Investment
Committee of an endowed nonprofit organization to use in crafting an investment
policy statement.
The Risk-based Investment Policy Statement is designed for organizations with access
to financial simulation and modeling tools (sometimes called Monte Carlo models)
that can be used to estimate ranges of future returns for given portfolio choices and create “stress-testing” scenarios to examine the performance of portfolios in illiquid or
non-normal market environments. This approach requires more intensive quantitative
work on the part of the Board or Committee, usually in partnership with the organization’s investment advisor; the result is a more dynamic investment policy process that
places risk and liquidity considerations on an equal footing with portfolio returns in
making asset allocation and spending decisions.
The Traditional Investment Policy Statement is designed for organizations that do not
have access to, or choose not to use, the financial simulation and modeling tools employed in the Risk-based Investment Policy Statement. It places asset allocation at the
center of the investment policy, does not focus on multiple levels or types of risk parameters to the same degree as the Risk-based Statement, and does not require the same
degree of dynamic involvement by the Board or Committee in the investment process.
Both templates comprise a main body, which forms the permanent text of the Statement; this is followed by an appendix containing the Operating Guidelines that set
forth the working parameters to be used by the Board or Committee in managing the
portfolio. This structure is intended to facilitate the Committee’s annual review of the
Statement, and to make the process of revision relatively simple and clear.
Both statements also incorporate references to the investment, fiduciary and spending
standards of the Uniform Prudent Management of Institutional Funds Act (UPMIFA),
which is the law in virtually all states of the United States. It is recommended that an
institution consult its counsel to confirm that the Investment Policy Statement conforms to the version of UPMIFA adopted in its state.
©2011 COMMONFUND 23
TEMPLATE I:
RISK-BASED INVESTMENT POLICY STATEMENT
General: The contractor shall submit claims for reimbursement in the manner and format
described herein and as illustrated in the sample invoice/financing request.
Format: Standard Form 1034, "Public Voucher for Purchases and Services Other Than
Personal," and Standard Form 1035, "Public Voucher for Purchases and Services Other Than
Personal-- Continuation Sheet," or reproduced copies of such forms marked ORIGINAL
should be used to submit claims for reimbursement. In lieu of SF-1034 and SF-1035,
claims may be submitted on the payee's letter-head or self- designed form provided that it
contains the information shown on the sample invoice/financing request.
Legal Fees. Should a dispute between the named Parties arise lead to legal action, the
prevailing Party shall be entitled to any reasonable legal fees, including, but not limited to
attorneys’ fees.
Adopted: [Date] Aug. 30th, 2023
The Financial Advisor shall perform the services in compliance with the terms and conditions of the Agreement.
Table of Contents
Page
Statement of Purpose............................................................................................ 4
General Principles ................................................................................................ 4
Roles and Responsibilities..................................................................................... 4
Policy Review ....................................................................................................... 5
Goals and Objectives ............................................................................................ 5
Objectives of the Fund.............................................................................. 5
Investment Philosophy ............................................................................. 6
Modeling Assumptions and Process .......................................................... 6
Investment Policies and Procedures ....................................................................... 6
Operating Guidelines ............................................................................... 6
Risk and Liquidity .................................................................................... 7
Investment Policy .................................................................................... 8
Asset Allocation, Investment Strategies,Guidelines and Restrictions ......... 10
Spending................................................................................................ 11
Appendix A: Operating Guidelines .................................................................... 12
Investment Policy Metrics ........................................................... 12
Hypothetical Target Asset Allocation ........................................... 13
©2011 COMMONFUND 3
Investment Strategies, Guidelines and Restrictions ...................... 14
4 ©2011 COMMONFUND
STATEMENT OF PURPOSE
The purpose of this Investment Policy Statement (together with its Appendix, the
“Statement”) is to set forth the policies and procedures that shall guide the Board of
Trustees (the “Board of Trustees” or the “Board”) of [name of institution] (“XYZ”) in
supervising and monitoring the management of XYZ’s investable assets (the “Fund”).
G ENERAL PRINCIPLES
The risk parameters and related return objectives set forth in this Statement shall
form the basis for the Fund’s investment strategy, as more fully described herein.
XYZ shall diversify the investments of the Fund unless the Board and, if applicable,
the Investment Committee (the “Investment Committee” or the “Committee”), after
appropriate deliberation, reasonably determine that because of special circumstances
the purposes of the Fund are better served without diversification.
The Fund shall be managed in accordance with high standards of fiduciary duty and
in compliance with applicable laws and regulations.10
Standards for risk, return, asset allocation, diversification and liquidity shall be
determined from a strategic perspective and measured over successive market cycles.
ROLES AND RESPONSIBILITIES
If the Board of Trustees elects to oversee investment matters directly, it shall
undertake the roles and responsibilities prescribed for the Investment Committee
herein. Otherwise, the Investment Committee shall implement the management
process and monitor the Fund in accordance with this Statement. The Chair of the
Committee shall be a current member of XYZ’s Board of Trustees; other Committee
members need not be Trustees.
©2011 COMMONFUND 5
The Investment Committee, acting pursuant to this Statement and to instructions
from the Board of Trustees, shall have direct responsibility for the oversight and
management of the Fund and for the establishment of investment policies and
procedures.
10
6 ©2011 COMMONFUND
Including but not limited to the version of the Uniform Prudent Management of Institutional Funds Act
enacted in this state, if applicable.
The Investment Committee shall, as more fully described herein, manage the Fund
via a set of risk and return parameters at the asset class level, combined with policy
liquidity and asset allocation mixes for the portfolio.
In fulfilling its responsibilities under this Statement, the Investment Committee shall,
among other activities, recommend to the Board of Trustees the hiring and dismissal
of investment managers, fiscal agents and other advisors.
Reports on the Fund shall be provided quarterly to the Investment Committee.
The [insert title of appropriate staff person] shall be responsible to the Investment
Committee for maintaining detailed records of all invested funds and for carrying
out the investment policies and procedures established by the Board of Trustees and
the Investment Committee.
POLICY REVIEW
This Statement shall be reviewed annually by the Investment Committee and any
recommendations for changes presented to the Board of Trustees.
GOALS AND OBJECTIVES
O BJECTIVES OF THE FUND
The Fund has a long-term investment horizon. The primary investment objectives of
the Fund are to:
• Maintain the real purchasing power of the Fund after inflation, costs
and spending (i.e., achieve “intergenerational equity”);
©2011 COMMONFUND 7
• Maximize the Fund’s risk-adjusted returns; and
• Provide a stable source of liquidity and financial support for the
mission of XYZ.
8 ©2011 COMMONFUND
I NVESTMENT PHILOSOPHY
While acknowledging the importance of preserving capital, the Board of Trustees also
recognizes the necessity of accepting risk if the Fund is to be able to meet its long-term
investment goals. It is the view of the Board of Trustees that choices made with respect
to asset allocation and liquidity risk will be the major determinants of investment
performance. The Committee shall seek to ensure that the risks taken are appropriate
and commensurate with the Fund’s goals.
M ODELING A SSUMPTIONS AND PROCESS
In setting risk and liquidity parameters for the management of the Fund, the
Committee shall use appropriate financial simulation models to determine the Fund’s
portfolio structure and calculate risk levels. In so doing, the Committee shall not
assume that normal market environments will prevail, but shall instead engage in
“stress testing” scenarios for the portfolio. These stress scenarios, including “left tail”
or loss scenarios, shall form the basis for the risk and liquidity parameters that shall
guide the management of the Fund.
INVESTMENT POLICIES AND PROCEDURES
OPERATING GUIDELINES
The Fund shall be managed in accordance with the Operating Guidelines for risk
and liquidity described in this section, a template for which is set forth in Appendix A.
Once the Operating Guidelines have been approved by the Board, the Investment
Committee shall have the authority to manage the Fund within the Operating
Guidelines without further authorization from the Board. The following policy
descriptions refer to items in the corresponding sections in Appendix A.
©2011 COMMONFUND 9
RISK AND LIQUIDITY
Definition of Risk: Using appropriate financial simulation models, the Committee
shall begin by specifying its goals for the following parameters over a 20-year period:
– Probability of achieving intergenerational equity (expressed as a percentage)
– Maximum cumulative drawdown for the Fund, from absolute market cycle
peak to trough (expressed as a percentage of asset value)
– Conditional Value at Risk (CVaR) for the aggregate portfolio (expressed in basis
points)
– Risk of not meeting payout requirements (expressed as the percentage of
occasions when the amount spent declines from one period to the next)
Liquidity Policy: From the above inputs, the model will produce a target asset
allocation for the Fund, which shall be designed to achieve the above objectives and
entered in Appendix A.
– The Committee shall determine the liquidity mix of this target portfolio as of
the present time, in normal market conditions, and in conditions representing
market stress, giving due regard to the operating needs of the institution.
These three liquidity mixes shall be depicted in, respectively, the “Current
Portfolio”, “Normal Market” and “Stress Testing” subsections of the “Liquidity
Policy” section in Appendix A.
– The overall liquidity constraints of the Fund for the target portfolio shall be closely
derived from the “Stress Testing” subsection, and shall be entered in the
“Liquidity Mix” section of Appendix A.
Current Risk Metrics: The Fund shall be managed on a risk-adjusted basis to maintain
purchasing power after inflation, costs and spending, within the “Stress Testing” liquidity environment.
10 ©2011 COMMONFUND
– On an ongoing basis, the aggregate portfolio shall be managed to the 12-month
average CVaR for the Fund. The Committee shall also monitor trends and changes
in this metric.
©2011 COMMONFUND 11
– When possible, the Committee shall monitor and compare the Fund’s
performance relative to:
• Absolute return objectives for the Fund
• The respective benchmarks for each asset class or strategy in which the
Fund is invested, as set forth in the asset allocation table in Appendix A
• A representative group of peer institutions identified by the Committee
• A representative group of peer investment managers
I NVESTMENT POLICY
– Asset allocation. The Committee shall, consistent with the above sections, invest
the Fund using an asset allocation that is designed to meet the Fund’s long-term
goals. The allocation will be based on the objectives of the Fund as set forth
above.
– Illiquid investments. Because of their long-term nature, investments in and
commitments to illiquid investment strategies, including but not limited to
private capital, private equity real estate, natural resources, distressed debt and
other similar private investments, shall be analyzed and discussed by the
Committee separately.
– Targets and ranges. The asset allocation shall be implemented using a policy
portfo- lio, with target allocations and ranges for each investment strategy. Due
to the need for diversification and the longer funding periods for certain
investment strategies, the Committee recognizes that an extended period of
time may be required to fully implement the asset allocation plan. It is expected
that market value fluctuations will cause deviations from the target allocations
to occur.
– Rebalancing. The purpose of rebalancing is to maintain the Fund’s policy asset
allocation within the targeted ranges, thereby ensuring that the Fund does not
12 ©2011 COMMONFUND
incur additional risks as a result of having deviated from the policy portfolio.
Rebalancing will take place on a portfolio basis to reduce expenses as far as
practicable. More frequent tactical rebalancing of asset classes within their ranges
will also be permitted in order to take advantage of shorter-term market conditions,
as long as such changes or reallocations do not, in the opinion of the Committee,
cause undue risk or expense to the Fund.
©2011 COMMONFUND 13
– Standard of conduct. In managing and investing the Fund, the Committee shall:
• act in good faith and with the care an ordinarily prudent person in a
like position would exercise under similar circumstances;
• incur only costs that are appropriate and reasonable in relation to the
assets, the purposes of XYZ and the skills available to XYZ;
• make a reasonable effort to verify facts relevant to the management
and investment of the Fund;
• consider the following factors, if relevant:
(a) general economic conditions;
(b) the possible effect of inflation or deflation;
(c) the expected tax consequences, if any, of investment decisions or strategies;
(d) the role that each investment or course of action plays within the
overall investment portfolio of the Fund;
(e) the expected total return from income and the appreciation of investments;
(f) other resources of XYZ;
(g) the needs of XYZ and the Fund to make distributions and to
preserve capital; and
(h) an asset’s special relationship or special value, if any, to the
charitable purposes of XYZ;
• make management and investment decisions about an individual asset not
in isolation, but rather in the context of the Fund’s portfolio of investments
as a whole and as a part of XYZ’s overall investment strategy, including the
risk and return parameters set forth in this Statement.
14 ©2011 COMMONFUND
– Delegation. Subject to any specific limitation set forth in a gift instrument,
the Committee may delegate to an external agent the management and
investment of all or part of the Fund to the extent that XYZ could prudently
delegate under the circumstances. The Committee shall act in good faith,
with the care that
an ordinarily prudent person in a like position would exercise under similar
circumstances in: (1) selecting an agent; (2) establishing the scope and terms of the
delegation, consistent with the purposes of XYZ and the Fund; and (3) periodically
reviewing the agent’s actions in order to monitor the agent’s performance and
compliance with the scope and terms of the delegation.
©2011 COMMONFUND 15
In this regard, the Committee shall engage qualified external professional investment
managers that have demonstrated competence in their respective investment
strategies. These managers shall have full discretion and authority for determining
investment strategy, security selection and timing of purchases and sales of assets
subject to the guidelines specific to their allocation.
– Investment manager reporting and evaluation. The investment managers
responsible for the investment of the Fund’s assets shall report quarterly on their
performance. Reports shall include, at a minimum, the following information:
• Comparative returns for the Fund assets under management against their
respective benchmarks.
• A complete accounting of all transactions involving the Fund during the quarter.
Each investment manager shall review the portfolio with the Investment Committee
at least annually; these review meetings may be supplemented by such other meetings
as the Committee may think necessary.
A SSET A LLOCATION , I NVESTMENT S TRATEGIES , G UIDELINES AND RESTRICTIONS
The Fund shall be diversified both by asset class and within asset classes. Within each
asset class, investments shall be diversified further among economic sector, industry,
quality and size. The purpose of this diversification is to provide a reasonable assurance
that no single security or class of securities will have a disproportionate impact –
positive or negative – on the overall performance of the Fund.
The Operating Guidelines, a template for which is set forth in Appendix A, contain
the Fund’s target asset allocation and range for each asset class or investment strategy,
together with the applicable guidelines and restrictions. Taken together, these
constitute a framework to assist XYZ and its investment managers in achieving the
Fund’s investment objectives at a level of risk consistent with the parameters set forth
in this Statement.
16 ©2011 COMMONFUND
S PENDING 11
– Policy spending rate. The policy spending rate for the Fund shall be [ ] percent.12
– Spending formula. The amount available for appropriation during each fiscal year
shall be calculated by applying the policy spending rate to the average of the
previous three fiscal years’ beginning-period endowment values.
– Special appropriations and decisions not to spend. Any special appropriation or decision not to spend the amount indicated by the spending formula must be
approved in
advance by the Board of Trustees.
– Standard of conduct. Subject to the intent of a donor expressed in a gift
instrument, XYZ may appropriate for expenditure or accumulate so much of the
Fund as the Board of Trustees determines to be prudent for the uses, benefits,
purposes and duration for which each of the separate endowments in the Fund
is established.
In making a determination to appropriate or accumulate, XYZ shall act in good faith,
with the care of an ordinarily prudent person in a like position would exercise under
similar circumstances and shall consider, if relevant, the following factors:
(1) the duration and preservation of the Fund;
(2) the purposes of XYZ and the Fund;
(3) general economic conditions;
(4) the possible effect of inflation or deflation;
(5) the expected total return from income and the appreciation of investments;
(6) other resources of XYZ; and
(7) XYZ’s investment policy.
©2011 COMMONFUND 17
18 ©2011 COMMONFUND
11
A spending policy must be based on an institution’s own specific spending requirements. Examples of the main spending
formulas currently in use include spending a percentage of a moving average of market value; a fixed percentage; increasing
spending dollars each year by an inflation measure; and using a hybrid or weighted average approach.
12
Where the version of UPMIFA passed in the state contains the provision creating a rebuttable presumption that spending
above a specified amount is imprudent, the spending rate set forth in this section must fall within the permissible range.
New York state institutions are reminded that the version of UPMIFA passed in that state (New York Prudent Management
of Institutional Funds Act, New York Not-for-Profit Corporation Law (N-PCL) §§ 550-558) establishes requirements for
record-keeping on spending decisions.
APPENDIX A: OPERATING GUIDELINES
INVESTMENT POLICY METRICS
MODELING RESULTS
NB: These Allocations Are Samples and are Provided for Illustrative Purposes Only
Definition of Risk
Probability of Achieving Intergenerational Equity
Conditional VaR for Aggregate Portfolio
(Percent Probability) (60%)
(Basis Points) (3-4)
Maximum Drawdown (Absolute)
Risk of not meeting payout
(Percent of Asset Value) (35%)
(Percent Negative Spend)
Liquidity Policy
Current Portfolio
Normal Market
Stress Test
• Daily >20%
Illiquid
27%
• Monthly >25%
Illiquid
30%
Daily
• Quarterly<25%
Qtly
• Illiquid<40%
9%
5%
Monthly
Monthly
6%
8%
58%
Qtly
Daily
57%
Illiquid
Daily
24%
38%
Qtly
12%
Monthly
26%
TOTAL
©2011 COMMONFUND 19
HYPOTHETICAL TARGET ASSET ALLOCATION
NB: These Allocations Are Samples and are Provided for Illustrative Purposes Only
Minimum
Target
Maximum
30%
40%
60%
MSCI All Country
Domestic Equity
10%
15%
30%
Russell
International Equity
5%
15%
30%
MSCI All Country ex U.S.
Private Capital
0%
5%
10%
Russell 3000 + 4%
Distressed Debt
0%
5%
10%
Merrill Lynch High Yield + 4%
Fixed Income (Deflation Hedging) 10%
20%
40%
Barclays U.S. Aggregate
Equity Strategies
3000
Cash & Equivalents
0%
3%
10%
3 Month T-Bill
U.S. Treasuries
0%
5%
20%
Barclays U.S. Treasury Index
Core Bonds
5%
7%
25%
Barclays U.S. Aggregate
Global Bonds
0%
5%
15%
World Govt Bond Index
5%
20%
40%
CPI + 4%
TIPS
0%
0%
10%
Barclays TIPS
Commodities
0%
5%
10%
Dow Jones-UBS Commodities
Real Assets (Inflation Hedging)
20 ©2011 COMMONFUND
Benchmark
Natural Resources
0%
8%
10%
Goldman Sachs Commodities + 4%
Private Real Estate
0%
7%
15%
NCREIF 50% Leveraged
Directional & Relative Strategies
10%
20%
35%
LIBOR + 5%
Long/Short Directional
0%
10%
20%
S&P 500
Relative Value
0%
10%
20%
3 Month T-Bill + 4%
©2011 COMMONFUND 21
INVESTMENT STRATEGIES, GUIDELINES AND RESTRICTIONS
– Equity Securities. The purpose of equity investments, both domestic and
international, in the Fund is to provide capital appreciation, growth of
income, and current income. This asset class carries the assumption of
greater market volatility and increased risk of loss, but also provides a
traditional approach to meeting portfolio total return goals. This component
includes domestic and international common stocks, American Depository
Receipts (ADRs), preferred stocks, and convertible stocks traded on the
world’s stock exchanges or over- the-counter markets.
Public equity securities shall be restricted to high quality, readily marketable
securities of corporations that are traded on the major stock exchanges, including
NASDAQ, and have the potential for meeting return targets. Equity holdings must
generally represent companies meeting a minimum market capitalization requirement
of respective asset class profiles with reasonable market liquidity where customary.
Decisions as to individual security selection, number of industries and holdings,
current income levels and turnover are left to manager discretion, subject to the
standards of fiduciary prudence. However, investments in securities of issuers
representing a single major industry (as determined by the Committee) shall not
at time of investment exceed 10 percent of the Fund’s total market value, and
investments in securities of any one issuer shall not at time of investment exceed
5 percent of the Fund’s total market value, unless approved by the Committee.
Within the above guidelines and restrictions, the Fund’s investment managers shall
have complete discretion over the selection, purchase and sale of equity securities.
– Fixed Income Securities. Domestic and international fixed income investments are
intended to provide diversification and a dependable source of current
income.
Fixed income investments should reduce the overall volatility of the Fund’s assets
and provide a deflation or inflation hedge, where appropriate.
22 ©2011 COMMONFUND
The fixed income asset class includes the fixed income markets of the U.S. and the
world’s other developed economies. It includes, but is not limited to, U.S. Treasury
and government agency bonds, non-U.S. dollar denominated securities, public and
private corporate debt, mortgages and asset-backed securities, and non-investment
grade debt. Also included are money market instruments such as commercial paper,
certificates of deposit, time deposits, bankers’ acceptances, repurchase agreements,
and U.S. Treasury and agency obligations. The investment managers shall take into
account credit quality, sector, duration and issuer concentrations in selecting an
appropriate mix of fixed income securities. Investments in fixed income securities
should be managed actively to pursue opportunities presented by changes in interest
rates, credit ratings, and maturity premiums.
Within the above guidelines and restrictions, the Fund’s investment managers
shall have complete discretion over the selection, purchase and sale of fixed income
securities.
– Cash and Equivalents. The Fund’s investment managers may invest in the highest
quality commercial paper, repurchase agreements, U.S. Treasury Bills, certificates of
deposit, and money market funds to provide income, liquidity for expense
payments, and preservation of the Fund’s principal value. Investments in the
obligations of a single issuer shall not at time of investment exceed 5 percent of
the Fund’s total market value, with the exception of the U.S. Government and its
agencies.
Since the Investment Committee does not consider short-term cash equivalent
securities to be appropriate investment vehicles for long-term portfolios, uninvested
cash reserves shall be kept to a minimum except where needed to comply with the
Fund’s liquidity parameters. However, such vehicles are considered appropriate
(i) as a depository for income distributions from longer-term investments,
(ii) as needed for temporary placement of funds directed for future investment
to longer-term investment strategies and (iii) for contributions to the current fund
or for current operating cash.
©2011 COMMONFUND 23
Within the above guidelines and restrictions, the investment managers shall have
complete discretion over the selection, purchase and sale of cash equivalent securities.
– Alternatives. The following alternative strategies shall be permitted investments
for the Fund, subject to the respective guidelines set forth in each section.
Investments in alternative strategies shall not at time of investment exceed 25
percent of the Fund’s total market value, unless approved by the Committee.
24 ©2011 COMMONFUND
Marketable Alternative Strategies - Investments may include (among other
strategies) equity-oriented or market-neutral hedge funds (i.e. long/short,
macro event driven, convertible arbitrage, and fixed income strategies), which
can be both domestic and international market oriented. These components
may be viewed as equity-like or fixed income-like strategies as defined by their
structures and exposures.
Private Capital - Investment allocations may include venture capital, private
equity and international private capital investments, typically held in the form
of professionally managed pooled limited partnerships. Such investments must
be made through funds offered by professional investment managers.
Energy & Natural Resources - Investments may include oil, gas, and timber
investments, typically held in the form of professionally managed pooled
limited partnerships, as well as commodity-based investments. All such
investments must be made through funds offered by professional investment
managers.
Private Equity Real Estate - Investments may include equity real estate,
held in the form of professionally managed, income producing commercial
and residential property. Such investments may be made only through
professionally managed pooled real estate investment funds.
Distressed Debt - Investments may include the debt securities of companies
undergoing bankruptcy or reorganization. Such investments may be made
only through professionally managed funds.
– Derivatives and Derivative Securities. Certain of the Fund’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 have the effect of creating portfolio characteristics outside of
portfolio guidelines.
©2011 COMMONFUND 25
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. Investment managers must ascertain and carefully monitor the
creditworthiness of any third parties involved in derivative transactions.
26 ©2011 COMMONFUND
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.
– Investment Restrictions. The Investment Committee may waive or modify any of
the restrictions in these guidelines in appropriate circumstances. Any such
waiver or modification shall be made only after a thorough review of the
investment manager and investment strategy involved. An addendum
supporting such waiver or modification shall be maintained as a permanent
record of the Investment Committee. All such waivers and modifications shall
be reported to the Board
of Trustees at the meeting immediately following the granting of the waiver or
modification.
Adherence to the restrictions in these guidelines shall be measured as of the time
of initial investment. It is recognized that subsequent market action may result in
the investment or strategy ceasing to adhere to these restrictions, through no fault
of the XYZ staff or the respective outside manager. In such a situation, XYZ and
the manager shall make reasonable attempts to bring the investment or strategy back
within adherence to these restrictions, bearing in mind the long-term interests of
XYZ and the Fund and the desirability of avoiding harmful forced sales of assets.
Investments in mutual funds or commingled funds shall be reviewed and approved
by the Investment Committee on a case-by-case basis and, if approved, may vary
from this Statement. For each such mutual or commingled fund, the prospectus,
offering memorandum or Declaration of Trust documents of the respective fund
will govern the investment policies of the fund investments. While the Investment
Committee understands that such funds have their own stated guidelines which
cannot be changed for individual investors, those guidelines should be similar in
principle and spirit to the guidelines stated herein. To the extent that a mutual or
commingled fund departs from any or all of such guidelines, the Investment
Committee shall make itself aware of the possible consequences and be confident
that the investment manager thoroughly understands the risks being taken, has
©2011 COMMONFUND 27
demonstrated expertise in such investment strategies and has guidelines in place
for monitoring their risk-adjusted performance.
28 ©2011 COMMONFUND
TEMPLATE II:
Traditional Investment Policy Statement
CSOONLINE
Statement of Investment Policy
[NAME OF INSTITUTION]
[Date]
Table of Contents
Page
Statement of Purpose ..................................................................................................... 3
General Principles........................................................................................................... 3
Roles and Responsibilities ................................................................................................ 3
Policy Review .................................................................................................................. 4
Goals and Objectives ...................................................................................................... 4
Objectives of the Fund ....................................................................................... 4
Investment Philosophy ...................................................................................... 4
Investment Policies and Procedures................................................................................. 5
Operating Guidelines ........................................................................................ 5
Investment Policy .............................................................................................. 5
Asset Allocation, Investment Strategies, Guidelines and Restrictions .................... 7
Spending ........................................................................................................... 8
Appendix A: Operating Guidelines................................................................................. 9
Hypothetical Target Asset Allocation ...................................................... 9
Investment Strategies, Guidelines and Restrictions............................... 10
2 ©2011 COMMONFUND
STATEMENT OF PURPOSE
The purpose of this Investment Policy Statement (together with its Appendix, the
“Statement”) is to set forth the policies and procedures that shall guide the Board of
Trustees (the “Board of Trustees” or the “Board”) of [name of institution] (“XYZ”) in
supervising and monitoring the management of XYZ’s investable assets (the “Fund”).
G ENERAL PRINCIPLES
1. XYZ shall diversify the investments of the Fund unless the Board and, if
applicable, the Investment Committee (the “Investment Committee” or
the “Committee”), after appropriate deliberation, reasonably determine
that because of special circumstances the purposes of the Fund are better
served without diversification.
2. The Fund shall be managed in accordance with high standards of fiduciary
duty and in compliance with applicable laws and regulations.13
3. Standards for return, asset allocation and diversification shall be
determined from a strategic perspective and measured over successive
market cycles.
ROLES AND RESPONSIBILITIES
If the Board of Trustees elects to oversee investment matters directly, it shall
undertake the roles and responsibilities prescribed for the Investment Committee
herein. Otherwise, the Investment Committee shall implement the management
process and monitor the Fund in accordance with this Statement. The Chair of the
Committee shall be a current member of XYZ’s Board of Trustees; other Committee
members need not be Trustees.
©2011 COMMONFUND 3
The Investment Committee, acting pursuant to this Statement and to instructions
from the Board of Trustees, shall have direct responsibility for the oversight and
management of the Fund and for the establishment of investment policies and
procedures.
The Investment Committee shall, as more fully described herein, manage the Fund
via a set of asset allocation targets and ranges for the portfolio.
13
4 ©2011 COMMONFUND
Including but not limited to the version of the Uniform Prudent Management of Institutional Funds Act enacted
in this state, if applicable.
In fulfilling its responsibilities under this Statement, the Investment Committee shall,
among other activities, recommend to the Board of Trustees the hiring and dismissal of
investment managers, fiscal agents and other advisors.
Reports on the Fund shall be provided quarterly to the Investment Committee.
The [insert title of appropriate staff person] shall be responsible to the Investment
Committee for maintaining detailed records of all invested funds and for carrying out
the investment policies and procedures established by the Board of Trustees and the
Investment Committee.
POLICY REVIEW
This Statement shall be reviewed annually by the Investment Committee and any
recommendations for changes presented to the Board of Trustees.
GOALS AND OBJECTIVES
O BJECTIVES OF THE FUND
The Fund has a long-term investment horizon. The primary investment objectives of
the Fund are to:
• Maintain the real purchasing power of the Fund after inflation, costs
and spending (i.e., achieve “intergenerational equity”);
• Provide a stable source of liquidity and financial support for the
mission of XYZ.
I NVESTMENT PHILOSOPHY
©2011 COMMONFUND 5
While acknowledging the importance of preserving capital, the Board of Trustees also
recognizes the necessity of accepting risk if the Fund is to be able to meet its long-term
investment goals. It is the view of the Board of Trustees that choices made with respect
to asset allocation will be the major determinants of investment performance. The
Committee shall seek to ensure that the risks taken are appropriate and commensurate
with the Fund’s goals.
6 ©2011 COMMONFUND
INVESTMENT POLICIES AND PROCEDURES
OPERATING GUIDELINES
The Fund shall be managed in accordance with the Operating Guidelines described in
this section, a template for which is set forth in Appendix A. Once the Operating
Guidelines have been approved by the Board, the Investment Committee shall have
the authority to manage the Fund within the Operating Guidelines without further
authorization from the Board.
I NVESTMENT POLICY
– Asset allocation. The Committee shall, consistent with the above sections, invest
the Fund using an asset allocation that is designed to meet the Fund’s long-term
goals. The allocation will be based on the objectives of the Fund as set forth
above.
– Illiquid investments. Because of their long-term nature, investments in and
commit- ments to illiquid investment strategies, including but not limited to
private capital, private equity real estate, natural resources, distressed debt and
other similar private investments, shall be analyzed and discussed by the
Committee separately.
– Targets and ranges. The asset allocation shall be implemented using a policy portfolio
as set forth in Appendix A, with target allocations and ranges for each investment
strategy. Due to the need for diversification and the longer funding periods for
certain investment strategies, the Committee recognizes that an extended period
of time may be required to fully implement the asset allocation plan. It is expected
that market value fluctuations will cause deviations from the target allocations to
occur.
©2011 COMMONFUND 7
– Rebalancing. The purpose of rebalancing is to maintain the Fund’s policy asset
allocation within the targeted ranges, thereby ensuring that the Fund does not
incur additional risks as a result of having deviated from the policy portfolio.
Rebalancing will take place on a portfolio basis to reduce expenses as far as
practicable. More frequent tactical rebalancing of asset classes within their ranges
will also be permitted in order to take advantage of shorter-term market conditions,
as long as such changes or reallocations do not, in the opinion of the Committee,
cause undue risk or expense to the Fund.
8 ©2011 COMMONFUND
– Standard of conduct. In managing and investing the Fund, the Committee shall:
• act in good faith and with the care an ordinarily prudent person in a
like position would exercise under similar circumstances;
• incur only costs that are appropriate and reasonable in relation to the
assets, the purposes of XYZ and the skills available to XYZ;
• make a reasonable effort to verify facts relevant to the management
and investment of the Fund;
• consider the following factors, if relevant:
(a) general economic conditions;
(b) the possible effect of inflation or deflation;
(c) the expected tax consequences, if any, of investment decisions or strategies;
(d) the role that each investment or course of action plays within the
overall investment portfolio of the Fund;
(e) the expected total return from income and the appreciation of investments;
(f) other resources of XYZ;
(g) the needs of XYZ and the Fund to make distributions and to
preserve capital; and
(h) an asset’s special relationship or special value, if any, to the
charitable purposes of XYZ;
• make management and investment decisions about an individual asset not
in isolation, but rather in the context of the Fund’s portfolio of investments
as a whole and as a part of XYZ’s overall investment strategy, including the
risk and return parameters set forth in this Statement.
©2011 COMMONFUND 9
– Delegation. Subject to any specific limitation set forth in a gift instrument, the Committee may delegate to an external agent the management and investment of
all or part of the Fund to the extent that XYZ could prudently delegate under the
circumstances. The Committee shall act in good faith, with the care that an
ordinarily prudent person in a like position would exercise under similar
circumstances in: (1) selecting an agent; (2) establishing the scope and terms of the
delegation, consistent with the purposes of XYZ and the Fund; and (3) periodically
reviewing the agent’s actions in order to monitor the agent’s performance and
compliance with the scope and terms of the delegation.
10 ©2011 COMMONFUND
In this regard, the Committee shall engage qualified external professional investment
managers that have demonstrated competence in their respective investment
strategies. These managers shall have full discretion and authority for determining
investment strategy, security selection and timing of purchases and sales of assets
subject to the guidelines specific to their allocation.
– Investment manager reporting and evaluation. The investment managers
responsible for the investment of the Fund’s assets shall report quarterly on their
performance. Reports shall include, at a minimum, the following information:
• Comparative returns for the Fund assets under management against
their respective benchmarks.
• A complete accounting of all transactions involving the Fund during
the quarter.
– Each investment manager shall review the portfolio with the Investment
Committee at least annually; these review meetings may be supplemented by such
other meetings as the Committee may think necessary.
When possible, the Committee shall monitor and compare the Fund’s performance
relative to:
• Absolute return objectives for the Fund
• The respective benchmarks for each asset class or strategy in which the
Fund is invested, as set forth in the asset allocation table in Appendix A
• A representative group of peer institutions identified by the Committee
• A representative group of peer investment managers
A SSET A LLOCATION , I NVESTMENT S TRATEGIES , G UIDELINES AND RESTRICTIONS
©2011 COMMONFUND 11
The Fund shall be diversified both by asset class and within asset classes. Within each
asset class, investments shall be diversified further among economic sector, industry,
quality and size. The purpose of this diversification is to provide a reasonable assurance
that no single security or class of securities will have a disproportionate impact –
positive or negative – on the overall performance of the Fund.
12 ©2011 COMMONFUND
The Operating Guidelines, a template for which is set forth in Appendix A, contain
the Fund’s target asset allocation and range for each asset class or investment strategy,
together with the applicable guidelines and restrictions. Taken together, these
constitute a framework to assist XYZ and its investment managers in achieving the
Fund’s investment objectives at a level of risk consistent with the parameters set forth
in this Statement.
SPENDING14
– Policy spending rate. The policy spending rate for the Fund shall be [ ] percent.15
– Spending formula. The amount available for appropriation during each fiscal
year shall be calculated by applying the policy spending rate to the average of
the previous three fiscal years’ beginning-period endowment values.
–Special appropriations and decisions not to spend. Any special appropriation or
decision not to spend the amount indicated by the spending formula must
be approved in advance by the Board of Trustees.
– Standard of conduct. Subject to the intent of a donor expressed in a gift
instrument, XYZ may appropriate for expenditure or accumulate so much of the
Fund as the Board of Trustees determines to be prudent for the uses, benefits,
purposes and duration for which each of the separate endowments in the Fund
is established.
In making a determination to appropriate or accumulate, XYZ shall act in good
faith, with the care of an ordinarily prudent person in a like position would exercise
under similar circumstances and shall consider, if relevant, the following factors:
(1) the duration and preservation of the Fund;
(2) the purposes of XYZ and the Fund;
(3) general economic conditions;
(4) the possible effect of inflation or deflation;
(5) the expected total return from income and the appreciation of investments;
(6) other resources of XYZ; and
©2011 COMMONFUND 13
(7) XYZ’s investment policy.
14
A spending policy must be based on an institution’s own specific spending requirements. Examples of the main spending formulas currently in use include spending a percentage of a moving average of market value; a fixed percentage; increasing
spending dollars each year by an inflation measure; and using a hybrid or weighted average approach.
15
Where the version of UPMIFA passed in the state contains the provision creating a rebuttable presumption that spending
above a specified amount is imprudent, the spending rate set forth in this section must fall within the permissible range.
New York state institutions are reminded that the version of UPMIFA passed in that state (New York Prudent Management of
Institutional Funds Act, New York Not-for-Profit Corporation Law (N-PCL) §§ 550-558) establishes requirements for recordkeeping on spending decisions.
14 ©2011 COMMONFUND
APPENDIX A: OPERATING GUIDELINES
Hypothetical Target Asset Allocation
NB: These Allocations Are Samples and are Provided for Illustrative Purposes Only
Minimum
Target
Maximum
30%
40%
60%
MSCI All Country
Domestic Equity
10%
15%
30%
Russell 3000
International Equity
5%
15%
30%
MSCI All Country ex U.S.
Private Capital
0%
5%
10%
Russell 3000 + 4%
Distressed Debt
0%
5%
10%
Merrill Lynch High Yield + 4%
Fixed Income (Deflation Hedging) 10%
20%
40%
Barclays U.S. Aggregate
Equity Strategies
Benchmark
Cash & Equivalents
0%
3%
10%
3 Month T-Bill
U.S. Treasuries
0%
5%
20%
Barclays U.S. Treasury Index
Core Bonds
5%
7%
25%
Barclays U.S. Aggregate
Global Bonds
0%
5%
15%
World Govt Bond Index
5%
20%
40%
CPI + 4%
TIPS
0%
0%
10%
Barclays TIPS
Commodities
0%
5%
10%
Dow Jones-UBS Commodities
Real Assets (Inflation Hedging)
©2011 COMMONFUND 15
16 ©2011 COMMONFUND
Natural Resources
0%
8%
10%
Goldman Sachs Commodities + 4%
Private Real Estate
0%
7%
15%
NCREIF 50% Leveraged
Directional & Relative Strategies
10%
20%
35%
LIBOR + 5%
Long/Short Directional
0%
10%
20%
S&P 500
Relative Value
0%
10%
20%
3 Month T-Bill + 4%
INVESTMENT STRATEGIES, GUIDELINES AND RESTRICTIONS
– Equity Securities. The purpose of equity investments, both domestic and
international, in the Fund is to provide capital appreciation, growth of
income, and current income. This asset class carries the assumption of
greater market volatility and increased risk of loss, but also provides a
traditional approach to meeting portfolio total return goals. This component
includes domestic and international common stocks, American Depository
Receipts (ADRs), preferred stocks, and convertible stocks traded on the world’s
stock exchanges or over-the- counter markets.
Public equity securities shall be restricted to high quality, readily marketable securities
of corporations that are traded on the major stock exchanges, including NASDAQ,
and have the potential for meeting return targets. Equity holdings must generally
represent companies meeting a minimum market capitalization requirement of
respective asset class profiles with reasonable market liquidity where customary.
Decisions as to individual security selection, number of industries and holdings,
current income levels and turnover are left to manager discretion, subject to the
standards of fiduciary prudence. However, investments in securities of issuers
representing a single major industry (as determined by the Committee) shall not
at time of investment exceed 10 percent of the Fund’s total market value, and
investments in securities of any one issuer shall not at time of investment exceed
5 percent of the Fund’s total market value, unless approved by the Committee.
Within the above guidelines and restrictions, the Fund’s investment managers shall
have complete discretion over the selection, purchase and sale of equity securities.
– Fixed Income Securities. Domestic and international fixed income investments are
intended to provide diversification and a dependable source of current
income.
Fixed income investments should reduce the overall volatility of the Fund’s assets
and provide a deflation or inflation hedge, where appropriate.
©2011 COMMONFUND 17
The fixed income asset class includes the fixed income markets of the U.S. and the
world’s other developed economies. It includes, but is not limited to, U.S. Treasury
and government agency bonds, non-U.S. dollar denominated securities, public and
private corporate debt, mortgages and asset-backed securities, and non-investment
grade debt. Also included are money market instruments such as commercial paper,
certificates of deposit, time deposits, bankers’ acceptances, repurchase agreements,
and U.S. Treasury and agency obligations. The investment managers shall take into
account credit quality, sector, duration and issuer concentrations in selecting an
appropriate mix of fixed income securities. Investments in fixed income securities
should be managed actively to pursue opportunities presented by changes in interest
rates, credit ratings, and maturity premiums.
Within the above guidelines and restrictions, the Fund’s investment managers
shall have complete discretion over the selection, purchase and sale of fixed income
securities.
– Cash and Equivalents. The Fund’s investment managers may invest in the highest
quality commercial paper, repurchase agreements, U.S. Treasury Bills, certificates of
deposit, and money market funds to provide income, liquidity for expense
payments, and preservation of the Fund’s principal value. Investments in the
obligations of a single issuer shall not at time of investment exceed 5 percent of
the Fund’s total market value, with the exception of the U.S. Government and its
agencies.
Since the Investment Committee does not consider short-term cash equivalent
securities to be appropriate investment vehicles for long-term portfolios, uninvested
cash reserves shall be kept to a minimum except where needed to comply with the
Fund’s liquidity parameters. However, such vehicles are considered appropriate
(i) as a depository for income distributions from longer-term investments,
(ii) as needed for temporary placement of funds directed for future investment
to longer-term investment strategies and (iii) for contributions to the current
fund or for current operating cash.
18 ©2011 COMMONFUND
Within the above guidelines and restrictions, the investment managers shall have
complete discretion over the selection, purchase and sale of cash equivalent securities.
©2011 COMMONFUND 19
– Alternatives. The following alternative strategies shall be permitted investments
for the Fund, subject to the respective guidelines set forth in each section.
Investments in alternative strategies shall not at time of investment exceed 25
percent of the Fund’s total market value, unless approved by the Committee.
Marketable Alternative Strategies - Investments may include (among other
strategies) equity-oriented or market-neutral hedge funds (i.e. long/short,
macro event driven, convertible arbitrage, and fixed income strategies), which
can be both domestic and international market oriented. These components
may be viewed as equity-like or fixed income-like strategies as defined by their
structures and exposures.
Private Capital - Investment allocations may include venture capital, private
equity and international private capital investments, typically held in the form
of professionally managed pooled limited partnerships. Such investments must
be made through funds offered by professional investment managers.
Energy & Natural Resources - Investments may include oil, gas, and timber
investments, typically held in the form of professionally managed pooled
limited partnerships, as well as commodity-based investments. All such
investments must be made through funds offered by professional investment
managers.
Private Equity Real Estate - Investments may include equity real estate,
held in the form of professionally managed, income producing commercial
and residential property. Such investments may be made only through
professionally managed pooled real estate investment funds.
Distressed Debt - Investments may include the debt securities of companies
undergoing bankruptcy or reorganization. Such investments may be made only
through professionally managed funds.
20 ©2011 COMMONFUND
– Derivatives and Derivative Securities. Certain of the Fund’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 have the effect of creating portfolio characteristics outside
of portfolio guidelines.
©2011 COMMONFUND 21
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. 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.
– Investment Restrictions. The Investment Committee may waive or modify any of
the restrictions in these guidelines in appropriate circumstances. Any such waiver
or modification shall be made only after a thorough review of the investment
manager and investment strategy involved. An addendum supporting such
waiver or modification shall be maintained as a permanent record of the
Investment Committee. All such waivers and modifications shall be reported to
the Board
of Trustees at the meeting immediately following the granting of the waiver
or modification.
Adherence to the restrictions in these guidelines shall be measured as of the time of
initial investment. It is recognized that subsequent market action may result in the
investment or strategy ceasing to adhere to these restrictions, through no fault of
the XYZ staff or the respective outside manager. In such a situation, XYZ and the
manager shall make reasonable attempts to bring the investment or strategy back
within adherence to these restrictions, bearing in mind the long-term interests of
XYZ and the Fund and the desirability of avoiding harmful forced sales of assets.
Investments in mutual funds or commingled funds shall be reviewed and approved
by the Investment Committee on a case-by-case basis and, if approved, may vary
from this Statement. For each such mutual or commingled fund, the prospectus,
offering memorandum or Declaration of Trust documents of the respective fund
will govern the investment policies of the fund investments. While the Investment
Committee understands that such funds have their own stated guidelines which
cannot be changed for individual investors, those guidelines should be similar in
principle and spirit to the guidelines stated herein. To the extent that a mutual or
commingled fund departs from any or all of such guidelines, the Investment
Committee shall make itself aware of the possible consequences and be confident
22 ©2011 COMMONFUND
that the investment manager thoroughly understands the risks being taken, has
demonstrated expertise in such investment strategies and has guidelines in place
for monitoring their risk-adjusted performance.
©2011 COMMONFUND 23
NDMP
D D D DD D D D D
D DD D D D D D D D D D D D D D
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support all Open Access mission. A very important subdivision of the Land Bounty Rights relates to the applications for
locations of the land. The applications were worded In consequence of a certificate and transfer herewith delivered, and
agreeable to the ways I do locate the following of many valuable maps are filed with the applications seriously .
The name of the count in which the land a situated as enrolled
the application; but this reference is your signature
Form: General Fund
FORM: GENERAL FUND AND SERVICES
557,47
Taxes and equivalent in its processes in a drive ended reason is to abort a season’s detail of it ending but
between the next processes to handle its share in a given break often formed to tire a unique employee in its
future.
Lined informants of details of our transfer to the license of your business to each
provider is to uniquely handle a future appointed freedom. All without a creative
incentive of lists of illustrated permits in a finished performance of portioned details, but
also out of a net in a given late detail. Each permit is both a trial in a detail in portions of
our interest in uniquely rising to the occasion of our proposed business solution of our
folded effort to understand a real research of our library.
22 ©2011 COMMONFUND
Payable to each
insurer
Roots of Progress
We Shall ride the wooden horse, or
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This isThis
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Understand the dynamic and changing nature of the arts
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Explore and value the diversity of the arts across time, place and cultures
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Display a knowledge of film-making traditions in more than one country
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one country
The process of scene analysis will be scaffolded. Students will begin by analysing single frames, and
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REFLECTION: considering the planning, process and impact of the inquiry
Prior to studying the unit
This is a digital copy of a book that was preserved for generations on library shelves before it was carefully scanned by Google as part of a project
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Noismention
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Combinatorics
Configuration Management Plan Template
Number: 580-TM-065-01
Home and Work editing
Approved By: (signature)
Effective Date: April 2, 2007
A feat in our query is supplied in the treatise of forgoing into the lane in line chain blocking
the dementia of knowledgeable understandings in bank telling the interest layer of forgoing
the interesting details often resourced or performance layers have made the next
understatement in regard in not allowing a slower ability to perform itself.
Title: Associate Division Chief, ISD
Responsible Office: 580/Information Systems Division (ISD)
Asset Type: Template
Title: Configuration Management Plan Template
PAL Number: 3.1.1.1
ActivitiesActivities to follow for CM are contained within the Configuration Management Process ( HYPERLINK "http://
software.gsfc.nasa.gov/AssetsApproved/PA3.1.doc" 580-PC-019-01).
Guidance
The main activities in developing a configuration management plan are as follows:
1. We lack a general term to refer collectively to all the concepts characteristic of practical thought. These include
concepts belonging to virtue and character-related concepts (courage, etc.), responsibility-related concepts
(excuses, etc.), value concepts (admirable, etc.), norma- tive concepts (ought, etc.), and reason concepts (rational,
etc.). In previous times “descriptive” and “factual” were commonly used to designate those concepts that are not
specifically prac- tical. This, however, miscasts descriptions. (“This is John” is not a description of anything yet is
supposed to be a descriptive sentence.) Designating nonevaluative propositions “factual” implies that there are no
evaluative facts, which is false. I will use “evaluative” and “normative” interchangeably to refer to all of them, as
well as using them more narrowly to refer to items of the subcategories indicated above.
2. That the idea is consistent with Hart’s account of the law was intimated by him in his review of LON FULLER,
THE MORALITY OF LAW in Hart, 78 HARVARD L. REV. 1281 (1965), repr. in H.L.A. HART, ESSAYS IN
JURISPRUDENCE AND PHILOSOPHY 361 (1983), and reiterated in the postscript to THE CONCEPT OF LAW 250
(1961), though neither time did Hart stop to explore the meaning and implication of the idea; see David Lyons,
Principles, Positivism and Legal Theory, 87 YALE L.J. 415 (1977), at 423–424, and Philip Soper, Legal Theory and
the Obligation of a Judge: The Hart/Dworkin Dispute, 75 MICHIGAN L. REV. 473 (1977). The point was embraced
by Jules Coleman, Negative and Positive Positivism, 11 J. LEGAL STUD. 139 (1982), and developed and defended
at length by him in JULES COLEMAN, THE PRACTICE OF PRINCIPLE (2001). See, for a general discussion of the
view, Kenneth E. Himma, Inclusive Legal Positivism, in THE OXFORD HANDBOOK OF JURISPRUDENCE AND
PHILOSOPHY OF LAW (J. Coleman & S. Shapiro, eds., 2002).
Threats to Validity
History: Refers to the threat that some coincidental event outside the study
caused the observed change; can control by reducing time between measures
The situation in which some specific event occurs during the study, which in
turn affects the results. The specific event is an effect other than the
experimental treatments. To prevent this threat use a control group, shorten
time between testing, select a dependent variable less prone to history
effects, or insulate participants.
Maturation: refers to any naturally occurring process within individuals as a
function of time per se that may cause a change in their performance.
Processes include fatigue, boredom, growth, or intellectual maturation. Time
threat to internal validity in which internal or normal developmental
processes cause the observed change. To prevent this threat, conduct the
study over shorter period of time or use a control group with a comparable
maturation rate.
Testing: refers to a response to the pretest that causes the observed change
in the outcome variable; can reduce by disguising the pretest or dropping it
completely
Instrumentation: when observed changes results from shifts in the way
measures are collected; can be controlled by carefully standardizing and
monitoring the measurement procedures
Regression: Comes from the tendency of scores from unreliable measures to
move toward the mean on retest; affects one group studies that select
subjects for their extreme scores; To prevent avoid the selection on the basis
of extreme scores or create a control group of extreme scores. Can also use
highly reliable measures.
Mortality: subject attrition from pretest to posttest, which casts doubt on
validity of the study; orotection of this threat cannot be orovided bv a control
or random assignment
Selection
Four Primary Areas
Quantitative Research
of Measurement - Construct Validity
SamplingExternal
Validity
Design - Internal Validity
Statistics - Statistical Conclusion Validity
Scales of Measurement
Nominal: categorical measurement. We use this when we group observations
of the same attribute together, for example, putting people into religious
categories (p. 138)
Ordinal: goes one step beyond nominal level in that we not only group like
observations together but also rank them. For example, the question "Would
you rate your social support as very good, satisfactory, or very poor?" asks for
an ordinal judgment. Ordinal measures may use numbers for convenience in
coding answers, for example, very good (3), satisfactory (2), and very poor (1).
However, such numbers for ordinal categories may serve only as handy,
abbreviations or labels, and you could not conclude that someone answering
with a "3" had three times as much social support as someone answering
with a "3" (p318)
Interval: not only group equivalent observations together in ordered
categories, but also consider the interval between adjacent categories as
equal, but no natural zero. Such as temperature, differences make sense, but
ratios do not. You can think of the meaning of interval level measurement if
you think of it as "equal-internal" measurement (p.329)
Ratio: includes all of the characteristics of the interval level plus the
additional one of having a true zero point that allows dividing one measure by
another (p.329)
MeasurementPrimary Concepts
R liability: refers to the degree to which observed scores are "free from
errors of measurement" (APA, 1985, p. 19). We can gauge reliability by the
consistency of scores (p. 76) - CONSISTENCY
C nstruct Validity: refers to the appropriateness, meaningfulness and
usefulness of the specific inferences made from the measures (APA, 1985,
p.9) (p. 76) - we use the score and how will it reflects the construct
SamplingPrimary Concepts
Population: Collection of all elements (3rd grade teachers) to whom survey
results are to be generalized (US). (p. 348).
Sample: Subset of individuals selected from a larger population (p. 350)
Risk
Exposure to the possibility of physical, psychological or social injury as a
result of the study
Coercion Anonymous
Coercing people to participate require the participants cannot be identified
Confidential
Require the confidentiality of the participants
Reliability
Refers to the degree to which observed scores are "free from errors of
measurement" (APA, 1985, p. 19). We can gauge reliability by the
consistency of scores (p. 76). Reliability is a necessary, but NOT sufficient
condition for validity, reliability can also create a tension with validity.
Reliability Coefficient
Test-retest: short time between tests, stability (error due to time)
Alternate forms: forms match better in content and stat properties,
equivalence (error due to form or internal consistency)
Inter-rater: standardizing procedure including training, rubrics and
monitoring. Scorer or rater consistency.
Split-half: reliability is higher when forms are matched in content and stat
properties, internal consistency (consistency across items - content
sampling error, flawed items)
Internal consistency: longer tests: wide range of individual variability on
construct; freedom from distractions, misunderstandings, use of items of
medium difficulty on cognitive measures (two primary methods for increasing
test reliability), consistency across items - content sampling error, flawed
items.
Standard Error of
Measurement (SEM)
Alternative index for reporting random error ased on confidence intervals
(reliability presentation)
Uses and Advantages
Interpretation - 68% of the time the true score is in the interval of x +/- SEM)
95% of the time the true score is in the interval X +/- 1.96*SEM), it is sample
from estimation also important (Reliability, presentation)
Construct Validity
Definition-Construct Validity-"refers to the appropriateness, meaningfulness,
and usefulness of the specific inferences" made from the measures (p.76)
Sampling Methods
Probability sampling: The actual selection of elements from the frame must
give the elements in the frame an equal probability of selection. Random
sampling provides the best way of achieving equal-probability sampling (p.
128). BETTER FOR GENERALIZATIONS; MORE RIGOROUS
Non-probability sampling: includes any method in which the elements have
unequal chances of being selected. One such method, called convenience
sampling, depends on the availability of respondents. In this procedure,
subjects select themselves (p. 129)
External Validity
Generalizability of the study's findings to other populations, places or times
(p. 345)
Design
True Experimental Designs
(Random Assignment to Control/Comparison Group). More desirable.
Control group is randomly assigned. Random selection from population into
sample; random assignment of control/treatments groups.
Quasi-Experimental Designs
(Control/Comparison Group without Random Assignment)
Pre-Experimental Designs (No Control/Comparison Group)
Internal Validity
Truthfulness of the assertion that the observed effect is due to the
independent variables in the study (p. 346). Judge the relationship between
the independent and dependent variables. RELATED TO DESIGN
Descriptive Statistics
Describes the sample. A set of methods to describe data that we have
collected (mean, standard deviation)
Inferential Statistics
Make inferences about population. Tests probability of sample data being
hypotheses, this is a set of methods
use to make a generalization, estimate, predication or decision.
Statistical Conclusion
Validity
Refers to inferences about whether it is reasonable to presume that a
relationship exists between variables (introduction presentation)
FERPA
Family Educational rights and privacy act {1974) is a federal law that
protects the privacy of student education records (ethics presentation)
National Research Act and
Institutional Review Board
{IRB):
Committees established by us federal regulations at each research
institution to protect human subjects from abuses through prior review of
research proposals