Procedure No.: 50.001 Page No.: 1,2,3,4,5,6 and 7 of 7 Date Issued: 10/5/98 Issued By: Dick Siemer
Target Expected Range
Cash Pool 25% 20 - 40%
Liquidity Pool 50% 30 - 60%
Diversified Investment Pool 25% 0 - 30%
Up to 25% of the target amount for the Diversified Investment Pool (DIP) funds can be utilized in the University's Investment Loan Program # Procedure #50.002).
The Diversified Investment Pool (DIP) funds not utilized in the internal Investment Loan Program shall be invested consistent with provisions of this policy. In making asset allocation judgments, it is not expected that the University Treasurer, or investment managers, will necessarily seek to "time" subtle changes in financial markets, or that frequent or minor adjustments would be needed. Instead, the Treasurer is expected to develop, and the Board of Trustees is expected to adopt, expressed guidelines for broad allocations on a long-term basis, in light of current and projected investment environments.
To insure broad diversification in the long-term investment portfolios among the major categories of investments, asset allocation, as a percent of the total market value of the Diversified Investment Pool, will be set by Board resolution with the following framework cross referenced to benchmark indexes that follow:
Type of Securities Target RangeThe University's Treasurer will monitor the asset allocation structure of the Diversified Investment Pool and will attempt to stay within the ranges allowed for each asset class. If the portfolio becomes overweighted or exceeds the range of percentage for that asset class, the University's Treasurer will develop a plan of action, either for immediate rebalancing of the portfolio or a rebalancing that will occur over the subsequent few months.
Domestic Large Cap a%
Domestic Small Cap a%
Fixed Income y%
The moving 5-year period performance objectives shall be as follows:
b. The total return for the Liquidity Pool and for each Liquidity Pool investment manager shall exceed the Merrill Lynch 1-3 Year Government Bond Index.
c. The total return for the Diversified Investment Pool shall exceed a target Balanced Index composed of: a% of the S&P 500 Index, b% of the Russell 2000 Index, c% of the EAFE Index, y% of the Lehman Brothers Aggregate Bond Index, and z% STAR Ohio. Furthermore, the total return for each active Diversified Investment Pool investment manager shall exceed the relevant benchmark (Domestic Large Cap - S&P 500 Index; Domestic Small Cap - Russell 2000 Index; Core International - EAFE Index; and Fixed Income - LB Aggregate Bond Index). Passive Diversified Investment Pool investment managers shall approximate the return of the relevant benchmark.
b. The standard deviation for each Liquidity Pool investment manager shall not exceed 1.2 times the standard deviation of the Merrill Lynch 1-3 Year Government Bond Index.
c. The beta (volatility) for each active Diversified Investment Pool equity investment manager shall not exceed 1.2 times that of the relevant equity benchmark. Furthermore, each active equity investment manager is expected to achieve a positive alpha (risk-adjusted return). The standard deviation for each active Diversified Investment Pool fixed income investment manager shall not exceed 1.2 times the standard deviation of the LB Aggregate Bond Index. Passive investment managers shall approximate the risk level of the relevant benchmark.
b. The total return for each active Diversified Investment Pool investment manager shall rank in the top half of the appropriate universe (Large Cap Equity, Small Cap Equity, Small Cap Growth, Small Cap Value, International Equity, and Fixed Income).
a. Cash Pool investment managers must invest at least 50% of the portfolio in U.S. Government Securities and/or U.S. Government Agency issues.
b. No more than 10% of the portfolio, at cost, can be invested in any single issue, except the investments in U.S. Government Securities.
c. The weighted average credit quality is to be no less than "AAA" (or its equivalent rating by two national rating agencies) for the Cash Pool accounts , "AA" for the Liquidity Pool accounts and "A" for the Diversified Investment Pool accounts . In addition, the minimum acceptable credit quality at the time of purchase for individual securities shall be "AA" for the Cash Pool accounts , "BBB" for the Liquidity Pool accounts , and "B" for the Diversified Investment Pool accounts .
d. Portfolio holdings will be sufficiently liquid to ensure that 10% of the portfolio can be sold on a day's notice with no material impact on market value.
e. Commercial paper must be, at the time of purchase, rated within the highest classification established by not less than two national rating services.
f. Eligible instruments for the Cash Pool are those permitted by the Treasurer of the State of Ohio and/or other like investments with similar risk/reward relationships.
g. The average weighted maturity for each Liquidity Pool investment manager shall be between one year and five years. The duration for each Diversified Investment Pool fixed income investment manager shall be no greater than (+20% that of the Lehman Brothers Aggregate Bond Index.
h. Bank Certificates of Deposit and Bankers' Acceptances are to be rated within the top two rating classifications by any one national rating service. Foreign bank issues are capped at 10% of the total investment in this category.
i. Certificates of deposit shall not be excessively invested with any one bank.
j. There shall be no investments in non-marketable securities.
k. The investment managers shall not utilize derivative securities to increase the actual or potential risk posture of the accounts. Subject to other provisions in this Investment Policy Statement, the use of primary derivatives, including, but not limited to, Structured Notes1, lower class tranches2 of Collateralized Mortgage Obligations (CMO's), Principal Only (PO) or Interest Only (IO) Strips, Inverse Floating Securities, Futures Contracts, options, short sales, margin trading and such other specialized investment activity is prohibited.
Moreover, the investment managers are precluded from using derivatives to effect a leveraged portfolio structure (if options and futures are specifically approved by the University, such positions must be offset in their entirety by corresponding cash or securities).
l. The investment manager shall handle the voting of proxies and tendering of shares in a manner that is in the best interest of the University and consistent with the investment objectives contained herein.
m. For diversification purposes, each equity portfolio manager should have in excess of 20 positions.
n. The investment manager shall immediately notify the University in writing of any material changes in its investment outlook, strategy, portfolio structure, ownership, or senior personnel.
1. Permit investments in "conservative structured notes which are principal guaranteed, unleveraged, and of short to intermediate maturity.
2. Lower class defined by Federal Financial Institutional Examination Council (FFIEC)
This statement of investment policy shall be reviewed annually. The investment performance will be reviewed on a quarterly basis, aligned with the Board of Trustees' meeting schedule, and the report will be provided by an independent third party. The investment managers may provide any suggestions regarding appropriate adjustments to this statement or the manner in which investment performance is reviewed.
On Behalf of Ohio University
On Behalf of Investment Consultant
On Behalf of Investment Manager
Dick Piccard revised this file (http://www.ohiou.edu/policy/s50-001.html) on September 23, 2005.
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