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Policy Number: 01.005
Policy Title: Investment Policy Statement Antioch College Corporation
Policy Type: Board Policy
Governing Body: Board of Trustees
Date of Current Revision or Creation: June 2012
Investment Policy Statement – Antioch College Corporation
Purpose of This Investment Policy 3
Scope 3
Fiduciary Duty 3
Statement of Responsibilities 4
The Board of Trustees 4
The Investment Committee 4
The Investment Consultant 4
Fund managers 4
The Custodian 5
Investment Philosophy 5
Investment Goal & Objective and Spending Policy 6
Investment Program Strategy 6
Target Asset Allocation 7
Investment Management Policies, Guideline and Restrictions 7
Equity Securities 7
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Fixed Income Securities 8
Cash and Equivalents 8
Alternatives 9
Inflation Hedging (Real Assets) 9
Restrictions 10
Rebalancing 10
Manager/Fund due Diligence Process 11
Performance Measurement 11
Risk Tolerance 12
Liquidity 12
Use of Derivatives and Leverage 12
Conflict of Interest 13
Implementation 13
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Purpose of This Investment Policy
This investment policy statement was adopted by the Investment Committee of the Board
of Trustees of Antioch College Corporation in order to:
1. Establish an understanding of the investment philosophy and investment
objectives for the Investment Committee, donors, and investment managers.
2. Serve as requirements for the investment managers retained.
3. Serve as a basis for evaluating investment results.
4. Encourage effective communication between fund manager(s), consultant(s),
and the Investment Committee.
5. Manage the endowment fund assets according to prudent standards and the
Uniform Prudent Management of Institutions Funds Act (UPMIFA).
Scope
This policy applies to all assets that are included in Antioch’s long-term investment pool
for which the Investment Committee has been given supervisory responsibility. The
long-term investment pool is comprised of the Antioch College Invested Funds subpool
and the Endowment Reserve Funds subpool (the “Fund”).
Fiduciary Duty
This investment policy reflects the fiduciary responsibilities and duties as described
within UPMIFA regulations:
1. Duty of obedience: comply with donor intent and consider the purpose of the
charity and the Fund.
2. Duty of loyalty: make investment decisions in the best interests of the charity,
not personal interests. Fiduciaries must provide full and fair disclosure to the
Investment Committee of all material facts regarding any potential conflicts of
interests.
3. Duty of care: Act in good faith and with the care an ordinarily prudent person
in a like position would exercise under similar circumstances.
4. Duty to manage costs: investment activity costs must be appropriate and
reasonable in relation to assets, the charity’s purpose and the skills available
to the charity.
5. Duty to verify: make a reasonable effort to verify the accuracy of information
used in making decisions.
6. Duty to diversify: investments must be diversified, except under special
circumstances.
7. Duty to review asset suitability: consider the suitability of retaining
contributed property and document decisions to retain or dispose of assets.
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Statement of Responsibilities
The Board of Trustees has the ultimate fiduciary responsibility for the Fund’s investment
portfolio. The Board appoints the Investment Committee and determines and approves
the Investment Policy Statement and delegates responsibility to the Investment
Committee for implementation and ongoing monitoring.
The Investment Committee is responsible for recommending to the Board and
implementing investment strategies. This includes hiring and firing investment
managers, custodians, and investment consultants, monitoring performance of the
investment portfolio on a regular basis (at least quarterly), maintaining sufficient
knowledge about the portfolio and its managers so as to be reasonably assured of their
compliance with the Investment Policy Statement. The Committee is committed to
transparency and full disclosure regarding its investment activities and will make
available any of the reports received to the Board of Trustees upon request.
The Investment Consultant is responsible for assisting the Investment Committee in
managing and overseeing the Fund’s investment portfolio. The consultant is the primary
source of investment education and investment manager information. On an ongoing
basis the consultant will:
1. Provide the Investment Committee with performance reports within 45 days
following the receipt of performance statements for each calendar month.
2. Meet with the Investment Committee quarterly, or as needed.
3. Perform due diligence and assist with investment manager searches.
4. Provide quarterly performance and asset allocation reports.
5. Provide counsel on socially responsible investing from investments to
shareholder activism if so requested.
6. Communicate the Investment Policy Statement to fund managers and
recommend changes to the Investment Committee as necessary.
7. Provide performance results of each individual fund manager over the last
quarter, and the trailing one-, three-, five-, and ten-year periods, along with
comparative benchmarks.
8. Provide peer group analyses and percentile rankings for the same.
9. Develop aggregate portfolio investment performance based on asset
allocations.
10. Make any recommendations for changes of the managers or asset allocation.
Investment Managers are responsible for making the investment decisions while
operating within all policies, guidelines, constraints, and philosophies as outlined in this
Investment Policy Statement. The Investment Committee may employ one or more
investment managers of varying styles and philosophies to seek to achieve the Fund’s
objectives. Specific responsibilities of the individual Investment Managers include:
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1. Exercising full discretion with respect to buying, holding or selling assets held
in the portfolio, including asset allocations within guidelines established in
this Investment Policy Statement and their prospectus.
2. Reporting investment performance results on a monthly basis.
3. Voting proxies, if requested by the Investment Committee, on behalf of the
Fund. At some future date Investment Managers might be called upon to
facilitate shareholder activism on behalf of the ACCF.
4. Communicating any major changes to economic outlook, investment strategy,
or any other factors, which affect implementation of investment process, or
the investment objective progress of the Fund’s investment management.
5. Informing the Investment Committee regarding any change to investment
management organization: examples include changes in portfolio management
personnel, ownership structure, or investment philosophy.
The Custodian is responsible for the safekeeping of the portfolio’s assets. These
responsibilities include: valuing the holdings, collecting income and dividends, settling
all transactions initiated by the fund managers, and providing reports that detail
transactions, cash flows, securities held and their current value, and change in value of
each security and the overall portfolio since the previous report. The custodian’s
quarterly report details portfolio holdings, activity, and changes in value.
Investment Philosophy
The Fund is intended to be a permanent vehicle for supporting Antioch College. Changes
in the value of the Fund will result from investment performance, dividend and interest
income, distributions to support Antioch College as specified by donors, investment
management fees, and administrative costs.
The Articles of Incorporation of the Fund limit annual distributions to a maximum of
7.0% of the fair market value calculated on the basis of market values determined
quarterly and averaged over a period of not less than three years immediately preceding
the year in which the appropriation for expenditure is made. Furthermore the Articles of
Incorporation prohibit expenditures if the value of the Fund in the aggregate is below, or
by virtue of the expenditure, would fall below 90.0% of the “historic dollar value” of the
fund.
Modern portfolio theory will be the primary influence on the portfolio’s structure and
investment decisions. The aim is to optimize risk/return utilizing a diverse portfolio
including a variety of asset classes, styles, and managers/funds.
Investment Goal & Objective and Spending Policy
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The fundamental long-term investment goal is to preserve the purchasing power of the
endowment while providing a 5.0% return after inflation, to be spent as directed by the
various funds, net of all investment and management fees.
Therefore, the long-term investment objective is for the portfolio to achieve a total rate of
return net of investment management and consulting fees equal to or exceeding 8.0%.
This is calculated based on the spending policy of 5.0%, and estimated annual inflation
and fees of 3.0%.
The Spending Policy is determined by a total return system. The amount spent in support
of Antioch College for the coming fiscal year is calculated each June 30 and is reviewed
by the Board of Trustees prior to distribution. The calculation is based on a 12quarter
moving average of the market value of the total fund multiplied by an amount not to
exceed 7.0%.
The product of this calculation is then adjusted by the Board to reflect fund liquidity,
possibility of non-cash distributions to restricted funds, and donor restrictions. The final
planned spending amount will be communicated to the Investment Consultant at the
beginning of the fiscal year with the distribution planned to be made within that fiscal
year.
Furthermore, in recognition of the Uniform Management of Institutional Funds Act
(UMIFA), spending shall comply with the evolving “prudent spending” guidelines of
UMIFA. This policy will be reviewed annually as part of the budgeting process.
Investment managers should be given ample notice of the required withdrawal schedule.
Appropriate liquidity should be maintained to fund these withdrawals without impairing
the investment process.
Investment Program Strategy
The Committee will place assets with qualified external professional Investment
Managers that show competence in each asset class. The external Investment Managers
will 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.
The Fund shall be allocated across a number of investment classes to provide
diversification and achieve the Fund’s investment objectives. The following table defines
the Fund’s target asset allocation and range for each asset class:
Target Asset Allocation
Asset Class Target Range Representative Index
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Global Equities 43 38 – 48 MSCI AC World
Domestic Equity 18 13 – 23 S&P 500
International Equity 20 15 – 25 MSCI AC World ex-US
Emerging Equity 5 2.5 – 7.5 MSCI EM
Flexible Capital 20 15 – 25 HFRI Diversified
Fixed Income 22 17 – 27 Custom Composite
Domestic Barclays US Aggregate (float adjusted)
International Citigroup Non-US World Government Bond
Inflation Hedging 15 10 – 20 Custom Composite
Liquid Capital 0 0 – 5 –
The target allocation will be reviewed by the Investment Committee at least annually
with adjustments made as warranted at any time by the Investment Committee with
ratification by the Board.
Investment Management Policies, Guidelines, and Restrictions
These investment policies, guidelines, and restrictions are intended as a framework to
help the Fund and its Manager(s) achieve the investment objectives at a level of risk
deemed acceptable. The Fund will be diversified both by asset class and within asset
classes. Within each asset class, securities will be diversified among economic sector,
industry, quality, and size. The purpose of diversification is to provide reasonable
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assurance that no single security or class of securities will have a disproportionate impact
on the performance of the total fund. As a result, the risk level associated with the
portfolio investment is reduced.
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 generally be restricted to high quality, readily marketable
securities of corporations that are traded on the major stock exchanges 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 the discretion of the Investment Managers, subject to the standards of fiduciary
prudence. However, no single major industry shall represent more than twenty percent
(20%) of the Fund’s total market value, and no single security shall represent more than
five percent (5%) of the total market value of the Fund’s equity segment, unless approved
by the Investment Committee.
Within the above guidelines and restrictions, the Manager(s) has complete discretion over
the timing and selection or sale of equity securities.
Fixed Income Securities
Domestic and International fixed income investments provide diversification and a
dependable source of current income. Diversification within fixed income investments
will be flexibly allocated among maturities of different lengths according to interest rate
prospects and the goals of the Fund. Fixed income instruments should reduce the overall
volatility of the Fund’s assets, and provide a deflation or inflation hedge, where
appropriate.
Fixed income includes both the domestic fixed income market and the markets of 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.
Fixed income also includes money market instruments, including, but not limited to,
commercial paper, certificates of deposit, time deposits, bankers’ acceptances, repurchase
agreements, and U.S. Treasury and agency obligations. The Investment Manager(s) must
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
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be managed actively to pursue opportunities presented by changes in interest rates, credit
ratings, and maturity premiums.
Within the above guidelines and restrictions, the Investment Manager(s) has complete
discretion over timing the sale, purchase, and selection of fixed income securities.
Cash and Equivalents
The Investment Manager(s) may invest in the highest quality commercial paper,
repurchase agreements, Treasury Bills, certificates of deposit, and money market funds to
provide income, liquidity for expense payments, and preservation of the Fund’s principal
value. No more than 5.0% of the Fund’s total market value may be invested in the
obligations of a single issuer, with the exception of the U.S. Government and its agencies.
Uninvested cash reserves shall be kept to a minimum since short term, cash equivalent
securities are usually not considered an appropriate investment vehicle for long-term
investments. However, such vehicles are appropriate as a depository for income
distributions from longer-term investments, or as needed for temporary placement of
funds directed for future investment to the longer-term capital markets. Also, such
investments are the standard for contributions to the current fund or for current operating
cash.
Within the above guidelines and restrictions, the Investment Manager(s) has complete
discretion over timing the purchase, sale, and selection of cash equivalent securities.
Alternatives (Flexible Capital)
Marketable Alternative Strategies – Investments may include equity-oriented or absolute
return funds which can be domestic and/or international market oriented. These
components may be viewed as equity-like or fixed income-like strategies as defined by
their structures and exposures.
Directional long/short hedge funds are a category of the hedge fund market that combines
the use of long and short holdings so that the fund has exposure to the overall market, i.e.
not market neutral. These funds add value by participating in moves in the financial
markets; directional funds tend to be more volatile and more highly correlated with major
market benchmarks than absolute return funds. Directional long/short managers are
allowed to use leverage in order to enhance returns, but it may increase volatility as well.
Typical hedge strategies include long/short equity, long/short credit, and global macro.
Absolute Return includes investment strategies that can invest, in general, across the
range of asset classes with greater flexibility, i.e., short selling, leverage, etc.
Specifically, strategies include long/short equity (security selection-oriented), event
driven strategies (distressed, restructurings, and merger arbitrage), non-event arbitrage
(capital structure arbitrage, statistical equity arbitrage, and fixed income arbitrage), and
global macro (including commodity trading advisors).
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The predominant vehicles are domestic limited partnerships or offshore corporations,
which have limited liquidity. Quarterly liquidity is typically available, though some
investments lock-up funds for several years. The number of managers employed may
vary over time depending on the use of multi-strategy/multi-manager vehicles (funds-of-
funds) and based on available opportunities. The size of direct manager mandates will
depend on the relative risk of the manager’s underlying strategies and capabilities.
Inflation Hedging (Real Assets)
Real Assets includes a broad array of assets and sectors with varying levels of liquidity:
private real estate (core, value-added, opportunistic, international), publicly-traded real
estate (REITs), publicly-traded energy-related equities (global), commodities (typically
through futures), natural resource partnerships (oil/gas, timber), and inflation-indexed
bonds (global).
Other sectors such as energy-related equities and commodity indices may be included,
either passively or actively. Diversification across strategies/sectors and managers will
be sought to control risk. For target maintenance purposes, passive or active mandates
that focus on the entire or specific segments of the “liquid” opportunity set may be
utilized temporarily or permanently. The number of managers employed may vary over
time depending on the use of multi-strategy/multi-manager vehicles (funds-of-funds) and
based on available opportunities. The size of direct manager mandates will depend on the
relative risk of the strategy/sector and the capabilities of the manager.
Restrictions
The Investment Committee may waive or modify any of the restrictions in these
guidelines in appropriate circumstances. Any such waiver or modification will be made
only after a thorough review of the Investment Manager(s) and the investment strategy
involved. An addendum supporting such investments where a waiver or modification has
been made will be maintained as a permanent record of the Investment Committee. All
waivers and modifications will be reported to the Board at the meeting immediately
following the granting of the waiver or modification.
Any investment that is made in mutual funds and/or commingled funds will be reviewed
and approved by the Investment Committee on a case by case basis and if approved, may
vary from this Policy. For mutual and other commingled funds, the prospectus or
Declaration of Trust documents of the fund(s) 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, in
principle and spirit, those guidelines should be similar in nature to the guidelines stated
above. To the extent that a fund allows any or all of the above stated restrictions, the
Investment Committee must be aware of their possible use and be confident that the
Investment Manager(s) thoroughly understands the risks being taken, has demonstrated
expertise in their usage of such securities, and has guidelines in place for the use and
monitoring of those securities.
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Rebalancing
The Investment Committee intends to periodically rebalance the Fund back to the
respective asset allocation targets to ensure that the asset allocation remains an accurate
reflection of Antioch College’s desired risk profile. To remain consistent with the asset
allocation guidelines, the Investment Committee shall review the actual allocations on a
quarterly basis and rebalance the Fund back to the recommended weighting if a class is
outside of its acceptable range, unless under the circumstances, it is clearly prudent not to
rebalance.
The following guidelines will be used when rebalancing the Fund to the target
allocations: 1) rebalance will be considered during the review of the Fund’s performance,
intended to occur on at least a quarterly basis; 2) rebalancing will be considered alongside
any cash transitions in (gifts, e.g.) or out (annual distribution to the College, e.g.) of the
Fund; and 3) should actual allocations move outside of allowable ranges due to short term
changes in the market value of the portfolio, the Investment Committee will convene to
determine the appropriate course of action.
In general, the Fund’s average asset allocation should match the targets listed in the table
above. However, there may be times when tactical over- or underweights are maintained
to take advantage of favorable market conditions or disequilibria in certain asset
categories (tactical weighting within the rebalancing boundaries of ±5%). In addition, the
Committee recognizes that investing in certain illiquid investments (i.e. private equity
and real assets) makes it more challenging to quickly adjust those allocations.
Furthermore, the pace of commitments to these investments must be measured to
construct an optimally diversified portfolio. As a consequence of these constraints,
deviations from policy targets may occur.
Cash receipts shall be invested as soon as practical and in accordance with the current
asset allocation policy, unless otherwise approved.
Manager/Fund due-Diligence Process
The Investment Committee will interview, select, and monitor external managers to
invest the assets of the Fund.
The Investment Consultant conducts the fund manager/fund due diligence process, which
is monitored continuously on a quarterly basis utilizing both quantitative and qualitative
analysis.
The quantitative portion of the screening process emphasizes several key factors,
including superior risk adjusted performance to their respective peer group and
benchmarked over specific time periods, style consistency to a specific asset class, and
correlation to existing managers to insure adequate diversification.
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Performance is measured by looking at annual returns over one -, three-, five-, and ten-
year time periods. Other considerations include returns in up and down markets, standard
deviation, alpha, beta, and R-squared for one-, three-, five-, and ten-year periods.
The qualitative analysis includes philosophy, process, people, performance, product fit,
fees, and intangibles including: fulfillment of the fund manager responsibilities as
enumerated earlier in this Investment Policy Statement, avoidance of significant deviation
from the manager’s stated investment philosophy and style, and avoidance of regulatory
actions against the firm, its principals, or employees.
Performance Measurement
Performance shall be evaluated according to the following framework:
Short Term (fewer than three years) – adherence to the stated philosophy and style of
management at the time the Investment Manager was retained by the Investment
Committee; and continuity of personnel and practices at the firm.
Intermediate Term (rolling 3 year periods) – adherence to the stated philosophy and style
of management at the time the Investment Manager was retained by the Investment
Committee; continuity of personnel and practices at the firm; and ability to meet or
exceed the average annual rate of return of the weighted average benchmark over a three-
year period.
Performance at the Total Fund level will be compared to its Policy Benchmark, which
represents the optimal “Policy Portfolio” selected by the Investment Committee. The
Policy Benchmark is defined as the sum total of all the policy target weights for each of
the asset classes multiplied by the returns of their respective benchmarks. Significant
performance deviations from the Policy Benchmark will be explained and appropriate
actions taken if necessary.
In addition to the Fund and asset-class benchmarking, all Investment Managers within
each asset class will be compared to their own relevant style index benchmarks. While a
horizon of at least three years is the preferred comparison period, significant short-term
differences will be highlighted and, if warranted, actions recommended to the committee.
Risk Tolerance
In establishing the risk tolerance for this Investment Policy Statement, several factors
were considered including:
• Financial ability to accept risk within the investment program;
• The time horizon;
• Cash flow requirements; and
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• Willingness to accept return volatility.
Taking these items into account, the Investment Committee rates their risk tolerance as
moderately aggressive. The very long-term time horizon and need to maintain the real
purchasing power of the Fund assets in perpetuity argue for a growth-oriented approach.
The Investment Committee understands that higher returns involve more volatility and
that the long-term time horizon of the Fund has a mitigating effect on the downside risk.
Liquidity
The Investment Committee’s basic requirement for liquidity from the Fund is to provide
for the 5.0% annual distribution. The Fund’s liquidity will be monitored on a regular
basis to ensure appropriate levels of liquidity.
Use of Derivatives and Leverage
In general, the Fund will not make direct use of derivatives or leverage. However, the
Fund may have exposure through certain investment managers, such as those in the
private equity, long/short hedge, absolute return, and real assets. When prudently used,
derivative instruments and strategies can be an important element of general portfolio
management. Derivatives offer investment management firms effective alternatives to
trading physical securities, provided firms have the technical knowledge of the market
factors, the quantitative skills to analyze the securities over a range of scenarios, and the
ability to determine reasonable valuation before purchasing. Portfolio management
agreements or manager guidelines must explicitly authorize the use of derivatives, or
clearly state when their use is permitted.
Conflict of Interest
If any member of the committee, staff, or the Investment Consultant shall have, or appear
to have, a conflict of interest that impairs or appears to impair the respective member’s
ability to exercise independent and unbiased judgment in the good faith discharge of his
or her duties, he or she shall disclose such conflicts prior to meaningful discussion. All
parties must also comply with any other conflicts of interest policies adopted by Antioch
College.
Implementation
In order to keep the Investment Policy Statement current, this information is subject to no
less than annual review.
