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Business Procedures Manual

9.2 Investments

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9.2.1 Investment Policy

Each institution must develop a written investment policy that must be filed with the Vice Chancellor for Fiscal Affairs and Treasurer. The policy must be reviewed and updated at least once every two (2) years. Each institution shall submit an annual report on its investment performance to the Vice Chancellor for Fiscal Affairs and Treasurer, which asserts that investments have been made in accordance with the institution’s written investment policy.

Note: For the schedule of reporting of investment policy changes and annual investment performance, see Section 20.0, Required Reports.

  1. The investment policy should specify overall investment objectives. There may be several different investment objectives, depending on the type of funds to be invested and period of investment to be considered. These may include objectives that attempt to preserve the purchasing power of income and principal, maximize current income, or maximize capital values. Each investment objective should clearly state the time horizon for achieving investment objectives.

  2. The investment policy should also identify the general type of investments permitted under each investment objective. Investment must be consistent with donor intent, Regents policy and applicable federal and state laws.

  3. The investment policy should include asset allocation guidelines, which outline the asset classes and subclasses that will constitute permissible areas for investment of funds. The guidelines should indicate the maximum and normal distribution of funds among the different asset classes or subclasses and the rationale for selecting these criteria. Asset allocation guidelines should also be tied to the investment objective and consider the potential risks associated with different asset allocations. The investment policy should outline the factors to be considered when an institution proposes a change in asset allocation such as during times of significant rate shift affecting the investment portfolio and instability in inflationary trends.

  4. Diversification is fundamental to the management of risk, and is, therefore, a pervasive consideration in prudent investment management. The investment policy should include a diversification plan that considers the asset classes and investment products to be utilized in an attempt to achieve desired return with an acceptable level of risk.

  5. The investment policy should include spending rules and relate these to investment objectives. Variables to be considered include the percentage of return allocated to prevent principal erosion by inflation versus the percentage to be expended currently.

  6. The investment policy should provide for appropriate collateralization of invested funds that, by law, require the pledge of collateral.

  7. Management’s plan for authorization of investment activity, periodic reporting of investment activity, and monitoring of investment results should be outlined in detail in the investment policy.

  8. Criteria to be used in the selection of investment managers and the evaluation of their performance should be described in the investment policy, if the institution chooses to use outside investment managers. These criteria should address the investment manager’s:

    • Professional background and experience;
    • Investment philosophy relative to the institution’s stated investment objectives;
    • Organizational structure and overall product line;
    • Control with respect to ensuring that individual managers adhere to policy objectives and guidelines;
    • Total size of managed assets;
    • Record of performance measured against appropriate benchmarks;
    • Ability to communicate results effectively and in timely fashion;
    • Written contract, executed once an investment manager is selected, that specifies, at a minimum, the requirements listed in section 7.5.2, Investments, in the Board of Regents Policy Manual. In addition, state funds invested must be separately identifiable.

9.2.2 Pooled Investment Funds

Units of the University System of Georgia and their affiliated organizations may participate in the Pooled Investment Fund Program. The characteristics and investment objectives of the four types of pooled funds are detailed below.

Short Term Fund

The Short Term investment fund provides a current return and stability of principal while affording a means of overnight liquidity for projected cash needs. The investment maturities in this fund will range between daily and two (2) years.

INVESTMENT OBJECTIVES

  1. The primary investment objective shall be preservation of principal and current income consistent with permitted investments.

  2. The secondary investment objective shall be to provide a competitive return on the short term funds of the University Systems of Georgia participants, while providing sufficient liquidity for periodic cash needs.

  3. The portfolio shall be limited to domestic fixed income only and shall be well diversified as to issuer and maturity within the scope of permitted investments.

  4. The overall character of the portfolio shall be of U.S. treasury and agency quality, possessing a minimal degree of credit risk.

GENERAL INVESTMENT GUIDELINES

  1. The investment manager will give frequent and active attention to the portfolio to implement the Fund’s investment strategy.

  2. The investment manager is authorized to make investment changes as deemed necessary on a discretionary basis, but only in accordance with the objectives and guidelines set forth in this document.
    The investment manager will meet regularly with the Pooled Fund Program’s Investment Committee, and at least annually with the BOR Business and Finance Committee, to review investment objectives, investment strategies and performance results.

  3. All investments utilized in the Fund will be highly liquid with readily determinable valuations. Generally, it is anticipated that liquidity needs will be met through maturities, portfolio structure and interest income.

  4. For comparative purposes, the portfolio will be measured against the Barclays 9-12 month T-Bill Index and Georgia Fund One (LGIP)>

SPECIFIC INVESTMENT GUIDELINES

  1. Investments in the Fund shall be limited to fixed income securities permitted for investment under Georgia Code Sections 50-17-59 and 50-17-63.

  2. Consistent with the above Code Sections, permitted investments shall include:

    • US Treasury bonds, bills and notes;
    • Eligible bonds, bills and notes of counties or municipalities of the State of Georgia;
    • Eligible industrial revenue and development authority bonds created by the laws of the State of Georgia;
    • Obligations (including mortgage obligations) of subsidiary corporations of the US Federal Government including, but not limited to, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Government National Mortgage Association;
    • Repurchase agreements collaterialized by obligations of the US Treasury and subsidiary corporations of the US Federal Government. The market value of the collaterial shall be 102% of the repurchase agreement investment.
  3. The average duration of the portfolio will range from 0.3 to 1.25 years and will typically average 0.75 to 1 year.

  4. The maximum maturity (average life) of any individual holding shall not exceed 3 years.

  5. For purposes of determining maturities, the next reset date will be used for floating rate securities, the put date for putable securities, the call date for securities trading on a yield-to-call basis, and the average life on securities with periodic principal payments prior to maturity such as mortgage-backed securities and asset-backed securities.

Legal Fund

The Legal fund provides an opportunity for greater income and modest principal growth to the extent possible with the securities allowed under Georgia Code sections 50-17-59 and 50-17-63. The average maturity of in this fund will typically range between five (5) and ten (10) years, with a maximum maturity of thirty (30) years for any individual investment.

INVESTMENT OBJECTIVES

  1. The Fund’s investment objective is preservation of principal and above average current income consistent with permitted investments.

  2. The portfolio shall be limited to domestic fixed income only and shall be well diversified as to issuer and maturity within the scope of permitted investments.

  3. The overall character of the portfolio shall be US Treasury and Agency quality, possessing a minimal degree of risk.

GENERAL INVESTMENT GUIDELINES

  1. The investment manager will give frequent and active attention to the portfolio to implement the Fund’s investment strategy.

  2. The investment manager is authorized to make investment changes as deemed necessary on a discretionary basis, but only in accordance with the objectives and guidelines set forth in this document.

  3. The investment manager will meet regularly with the Pooled Fund Program’s Investment Committee, and at least annually with the BOR Business and Finance Committee, to review investment objectives, investment strategies and performance results.

  4. All investments utilized in the Fund will be highly liquid with readily determinable valuations.

  5. For comparative purposes, the portfolio will be measured against the Barclays Intermediate Government Bond Index.

SPECIFIC INVESTMENT GUIDELINES

  1. Investments in the Fund shall be limited to fixed income securities permitted for investment under Georgia Code Sections 50-17-59 and 50-17-63.

  2. Consistent with the above Code Sections, permitted investments shall include:

    • US Treasury bonds, bills and notes;
    • Eligible bonds, ills and notes of counties or municipalities of the State of Georgia;
    • Eligible industrial revenue and development authority bonds created by the laws of the State of Georgia;
    • Obligations (including mortgage obligations) of subsidiary corporations of the US Federal Government, including, but not limited to, the Federal Farm Credit Bank, the Federal Home Loan Bank, the Federal National Mortgage Corporation, and the Government National Mortgage Association;
    • Repurchase agreements collateralized by obligations of the US Treasury and subsidiary corporations of the US Federal Government. The market value of the collateral shall be 102% of the repurchase agreement investment.
  3. The portfolio will be of intermediate duration, typically ranging from 75% to 125% of the duration of the benchmark index with an average maturity (average life) of 3 to 5 years.

  4. The maximum maturity of any individual holding shall not exceed 30 years.

  5. For purposes of determining maturities, the next reset date will be used for floating rate securities, the put date for putable secruities, the call date for securities trading on a yield-to-call basis, and the average life on securities with periodic principal payments prior to maturity, such as mortgage-backed securities and asset-backed securities.

Balanced Income Fund

The Balanced Income fund is designed to be a vehicle to invest funds that are not subject to state regulations concerning investing in equities. This fund is comprised of fixed income, equity, and cash equivalent instruments.

INVESTMENT OBJECTIVES

  1. The Fund’s investment objective is to achieve a meaningful total rate of return with an emphasis on current income.

  2. The overall character of the portfolio should be one of above-average quality, possessing an average degree of investment risk..

GENERAL INVESTMENT GUIDELINES

  1. The investment manager will give frequent and active attention to the portfolio to develop and implement the Fund’s investment strategy.

  2. The investment manager is authorized to make investment changes as deemed necessary on a discretionary basis, but only in accordance with the objectives and guidelines set forth in this section..

  3. The investment manager will meet regularly with the Pooled Fund Program’s Investment Committee, and at least annually with the Board of Regents Business and Finance Committee, to review investment objectives, investment strategies and performance results.

  4. All investments utilized in the Fund will be highly liquid with readily determinable valuations.

  5. For comparative purposes, the total equity portion of the portfolio will be reviewed over a full market cycle compared to the Standard & Poor’s 500 Index.

  6. The total fixed income portion of the portfolio will be reviewed over a full market cycle compared to the Barclay’s Aggregate Bond Index.

SPECIFIC INVESTMENT GUIDELINES

  1. The portfolio’s equity allocation range shall be between 30%-40%, with a target of 35%, and shall have the following characteristics:
    • High overall quality;
    • Diversification among large-, mid-, and small cap domestic equities; and
    • Exposure to both growth and value equity styles..
  2. The portfolio’s fixed income allocation shall typically range between 60%-70%, with a target of 65%, and shall have the following characteristics:
    • Allowable investments are currently limited to domestic fixed income only.
    • All issues must be investment grade at the time of purchase.
    • The portfolio will be well diversified as to issuer and maturity.
    • Maturities should generally be of intermediate term, but may periodically emphasize shorter or longer maturities, depending on yield differentials and market conditions.
    • The maximum maturity of any individual issue shall not exceed thirty (30) years at the time of purchase.
    • The average duration of the portfolio shall not exceed ten (10) years.
    • The total fixed income portfolio should have an average credit quality rating of at least A.
  3. Reserves for contingencies and investment purchases are expected to comprise the balance of the fund:
    • Cash reserves should be invested at all times in appropriate overnight investment vehicles.
    • Overnight investments shall be limited to high quality institutional money market mutual funds rated A1, P1 or other high quality short-term debt instruments rated at least AA+.

Total Return Fund

The Total Return fund is another pool designed to be a vehicle to invest funds that are not subject to state regulations concerning investing in equities. This pool offers the greatest percentage of overall equity exposure, with well over half of the funds typically invested in equities.

INVESTMENT OBJECTIVES

  1. The Fund’s investment objective is to achieve a meaningful total rate of return with an emphasis on capital appreciation.

  2. The overall character of the portfolio should be one of above-average quality, possessing a moderate degree of investment risk.

GENERAL INVESTMENT GUIDELINES

  1. The investment manager will give frequent and active attention to the portfolio to develop and implement the Fund’s investment strategy.

  2. The investment manager is authorized to make investment changes as deemed necessary on a discretionary basis, but only in accordance with the objectives and guidelines set forth in this section.

  3. The investment manager will meet regularly with the Pooled Fund Program’s Investment Committee, and at least annually with the BOR Business and Finance Committee, to review investment strategies and performance results.

  4. All investments utilized in the Fund will be highly liquid with readily determinable valuations.

  5. For comparative purposes, the total equity portion of the portfolio will be reviewed over a full market cycle compared to the Standard & Poor’s 500 Index.

  6. The total fixed income portion of the portfolio will be reviewed over a ful market cycle compared to the Barclay’s Aggregate Bond Index.

SPECIFIC INVESTMENT GUIDELINES

  1. The portfolio’s equity allocation range shall be between 60%-70%, with a target of 65%, and shall have the following characteristics:

    • High overall quality;
    • Diversification among large-cap, mid-cap and small-cap domestic equity;
    • Exposure to both growth and value equity styles.
  2. The portfolio’s fixed income allocation shall typically range between 30%-40%, with a target of 35%, and shall have the following characteristics:

    • Allowable investments are currently limited to domestic fixed income only;
    • All investments must be investment grade at the time of purchase;
    • Maturities should generally be of intermediate term, but may periodically emphasize shorter or longer maturities, depending on yield differentials and market conditions;
    • The maximum maturity of any individual issue shall not exceed thirty (30) years at the time of purchase;
    • The average duration of the portfolio shall not exceed ten (10) years; and
    • The total fixed income portfolio should have an average credit quality rating of at least A.
  3. Reserves for contingencies and investment purchases are expected to comprise the balance of the fund:

    • Cash reserves should be invested at all times in appropriate overnight investment vehicles; and.
    • Overnight investments shall be limited to high quality institutional money market mutual funds rated A1, P1 or other high quality short-term debt instruments rated at least AA+.

Diversified Fund

The Diversified fund is designed to gain further diversification and increase exposure to assets that have lower correlation to equity and bond markets by utilizing alternative asset classes. In addition, this fund is constructed to build an optimal portfolio where return is increased and risk is reduced.

INVESTMENT OBJECTIVES

  1. The Fund’s investment objective is to achieve a meaningful total rate of return, with an emphasis on capital appreciation.

  2. The overall character of the portfolio should be one of above-average quality, possessing a moderate degree of investment risk..

GENERAL INVESTMENT GUIDELINES

  1. The investment manager will give frequent and active attention to the portfolio to develop and implement the Fund’s investment strategy.

  2. The investment manager is authorized to make investment changes as deemed necessary, but only in accordance with the objectives and guidelines set forth in this section.

  3. The Investment Manager will meet regularly with the Pooled Fund Program’s Investment Committee, and at least annually with the BOR Business and Finance Committee, to review investment objectives, investment strategies and performance results.

  4. All investments utilized in the Fund will be highly liquid with reaily determinable valuations.

  5. For comparative purposes, the total equity portion of the portfolio will be reviewed over a full market cycle compared to the Standard & Poor’s 500 Index.

  6. The total fixed income portion of the portfolio will be reviewed over a full market cycle compared to the Barclay’s Aggregate Bond Index.

SPECIFIC INVESTMENT GUIDELINES

  1. The portfolio’s equity allocation shall typically range between 50%-75%, with a target of 65%, have the following characteristics:

    • Broad diversification among large-, mid-, and small-cap stocks, international and emerging market equities, and real estate investment trusts (REITs);
    • Exposure to both growth and value equity styles
  2. The portfolio’s fixed income allocation shall typically range between 25-50%, with a target of 35%, and have the following characteristics:

    • Allowable investments include investment grade domestic bonds, dollar-denominated global bonds, and non-dollar denominated global bonds.
    • The portfolio will be well diversified as to issuer and maturity.
    • Maturities generally should generally be intermediate term, but may emphasize shorter or longer maturities, depending on yield differentials and market conditions.
    • The maximum maturity of any individual issue shall not exceed thirty (30) years at the time of purchase.
    • The average duration of the portfolio shall not exceed ten (10) years.
    • The total fixed income portfolio should have an average credit quality rating of at least A.
  3. Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the Fund:

    • Cash reserves should be invested at all times in appropriate overnight investment vehicles.
    • Overnight investments shall be limited to high quality institutional money market mutual funds rated A1, P1 or other high quality short-term debt instruments rated at least AA+..

Diversified Fund for Foundations

INVESTMENT OBJECTIVES

  1. The Fund’s investment objective is to achieve a meaningful total rate of return, with an emphasis on capital appreciation,

  2. The overall character of the portfolio should be one of above-average quality, possessing a moderate degree of investment risk.

GENERAL INVESTMENT GUIDELINES

  1. The investment manager will give frequent and active attention to the portfolio to develop and implement the Fund’s investemtn strategy.
  2. The investment manager is authorized to make investment changes as deemed necessary on a discretionary basis, but only in accordance with the objectives and guidelines set forth in this document.
  3. The Investment Manager will meet regularly with the Pooled Fund Program’s Investment Committee, and at least annually with the BOR Business and Finance Committee, to review investment objectives, investment strategies and performance results.
  4. All investments utilized in the Fund will be highly liquid with readily determinable valuations.
  5. For comparative purposes, the total equity portion of the portfolio will be reviewed over a full market cycle, compared to the Standard & Poor’s 500 Index.
  6. The total fixed income portion of the portfolio will be reviewed over a full market cycle compared to the Barclays Aggregate Bond Index.
  7. The Uniform Prudent Management of Institutional Funds Act (UPMIFA) and FSP FAS 117-1 require charitable organizations to account and report for donor-restricted and board-designated endowments in ways that are substantially different from previous guidance. It is the Fund’s policy to adhere to the statutory requirements of UPMIFA as adopted in the Georgia Code.

SPECIFIC INVESTMENT GUIDELINES

  1. The portfolio’s equity allocation typically shall range between 40%-75%, with a target of 65%, and have the following characteristics:

    • Broadly diversified among large-, mid- andsmall-cap domestic equities, international and emerging market equities, and real estate investment trusts (REITs);
    • Exposure to both growth and value equity styles.
  2. The portfolio’s fixed income allocation shall typically range between 10% -40%, with a target of 20% and have the following characteristics:

    • Allowable investments include investment grade and high yield domestic bonds, dollar-and non-dollar denominated global bonds, and emerging market bonds;
    • The portfolio will be well diversified as to issuer and maturity;
    • Maturities generally should be intermediate term, but periodically may emphasize shorter or longer maturities depending on yield differentials and market conditions;
    • The maximum duration of any individual issue shall not exceed thirty (30) years at the time of purchase; and
    • The average duration of the portfolio shall not exceed ten (10) years.
  3. The Fund may utilize certain alternative asset classes to gain further diversification. The primary purpose for investing in these asset classes is to increase exposure to assets that have lower correlation to traditional equity and fixed income asset classes. The alternative investment allocation typically shall range between 0% -30%, with a target of 15%. The following alternative asset classes are permitted investments.

    • Hedge Funds – The Fund’s approach for investing in this asset class is to use multi-strategy, multi-manager fund of hedge funds, which will provide the best access to a highly diversified pool of hedge fund strategies and managers.
    • Commodities – The return characteristics of this asset class are largely uncorrelated with stock and bond returns; therefore, adding broad commodity exposure can improve diversification, lower the portfolio’s risk profile and potentially enhance return. Achieving this level of diversification has been made easier with the development of registered investment products that passively track a broad range of commodities.
  4. Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund:

    • Cash reserves should be invested at all times in appropriate overnight vehicles.
    • Overnight investments shall be limited to high quality, institutional money market funds rated A1, P1 or other high quality short-term instruments rated at least AA+.

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