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Approved June 21, 2013
This statement of investment policies and objectives governs the management of the investment portfolio of Clemson University Foundation (“CUF” or the “Foundation”) and other assets managed by the Foundation (together, the “Portfolio”) and will be effective until modified by the Foundation’s Investment Committee (the “Committee”) and Board of Directors (the “Board”). The purpose of the policy is to set forth approaches to prudently manage the investment of assets of the Foundation and those managed by the Foundation, within policies that enhance the value of resources of the Foundation, while maintaining prudent fiduciary standards. This statement will be reviewed at least annually by the Committee.
II. ROLES AND RESPONSIBILITIES
The roles and responsibilities of the Committee and the Foundation’s Chief Investment Officer are detailed in the Investment Committee Charter. In general, the Committee is responsible for developing investment policy and providing oversight of the investment process, while the CIO is largely responsible for the day-to-day implementation of the investment policy.
III. INVESTMENT OBJECTIVES
The overall financial objectives of the Portfolio are to (1) provide spending support to Clemson University and (2) maintain an individual endowment’s purchasing power over time. To accomplish these goals, the Portfolio must generate after-inflation investment returns greater than its spending rate over time, within acceptable risk parameters.
The investment objective of the Portfolio is to attain an average annual real total return* (net of investment management fees) of at least 5.25 percent over time. It is recognized that actual Portfolio performance will vary significantly from this long-term objective over shorter periods.
Specific guidelines for evaluating Portfolio performance are included in section VI.
*Real total return is the sum of capital appreciation (or loss) and current income achieved in the form of dividends and interest adjusted for inflation as measured by the CPI(U) index.
IV. ASSET ALLOCATION
After assessing the degree of risk that the Foundation can tolerate in pursuit of its objectives, the Committee has adopted the long-term asset allocation policy shown below.
Allowable RangeAsset Class Minimum - Maximum
The Committee may establish interim asset class targets and allowable ranges at its discretion, so long as they remain within the long-term allowable ranges set forth above.
Asset classes have the definitions presented below.
Global Equity includes investments in stocks listed on public exchanges* (in both developed and emerging markets) and private equity partnerships. Public equity managers may hold stocks long and sell them short. The role of the global equity portion of the portfolio is to provide long-term growth.
Absolute Return includes a diverse group of managers and strategies with a goal of earning positive, generally equity-like returns over time, but with less volatility and smaller interim declines than that of the public equity markets. Included in this category are strategies often pursued by hedge funds, including event-driven and special situations investing, merger and capital structure arbitrage and distressed securities. This category also encompasses strategies focused on corporate and structured bonds, including those rated below investment grade. The roles of the absolute return portion of the portfolio are to provide diversification and access to unique strategies and manager skill.
Real Assets includes investments generally expected to perform relatively well during periods of significant and unexpected inflation. This category includes commodities and commodity futures, public and private real estate, natural resource stocks, oil and gas, timber, inflation-linked bonds and other inflation-sensitive investments. The roles of the real assets portion of the portfolio are to provide diversification and a partial hedge during periods of unexpected inflation.
High-Quality Bonds and Cash includes the obligations of sovereign nations and corporations, mortgage- and asset-backed securities, money market instruments and bank deposits, which, on average, are expected to have a high quality rating (typically “A” or better by a recognized bond rating agency). The roles of the high-quality bonds and cash portion of the portfolio are to provide diversification and a partial hedge during periods of economic contraction, deflation, or flight to quality.
It is recognized that the Portfolio will have exposure to some “real assets” through its diversified equity investments in the Global Equity portion of the portfolio (e.g., REITS and natural resources equity are included in major equity indices). Exposure to real asset equities that is gained through diversified investments in the Global Equity Portfolio will not be included for purposes of measuring the allocation to Real Assets as defined by this policy statement. The Real Assets category shall include only investments in managers or funds that are dedicated specifically to the Real Assets category.
V. GUIDELINES FOR IMPLEMENTATION
The Foundation will adopt specific investment guidelines for investment advisors managing portfolio assets in a separately managed account. Assets managed in commingled vehicles are subject to the investment guidelines outlined in the prospectus or other governing agreement.
General considerations in the selection of managers include, but are not limited to:
Decisions as to individual security selection, security size and quality, number of industries and holdings, current income level, turnover and the other tools employed by active managers are left to the broad manager discretion, subject to the usual standards of fiduciary prudence and the limits described below and/or in individual guidelines.
The Portfolio is expected to be broadly diversified by economic sector, industry, number of holdings, and other characteristics. Diversification will be achieved at the total Portfolio level and not necessarily at the investment manager level. To produce overall diversification, managers may be selected to employ different management philosophies which together achieve the desired degree of diversification. Portfolios will be monitored for adherence to these philosophies.
The Portfolio shall not have exposure greater than 5 percent of its market value to any single security (i.e., stock or bond). Commingled fund vehicles and exchange-traded funds are excluded from this requirement.
Generally, no more than 5 percent of the Portfolio’s value will be invested in a single active manager (i.e., non-indexed investment). Notwithstanding the above, in the case of a Fund-of-Funds (FoF) vendor, the risk associated with lack of manager diversification is substantially reduced, leaving the operational and selection risks of the FoF manager as the predominant risk factor. In the case of a FoF investment, maximum vendor commitments (as a percentage of the investment pool assets) will be set based on the following criteria:
Vendor Commitment PercentagesNumber of Underlying Funds within the FOF
10%Single Strategy 1-11 ≥ 12 ≥ 17
Multi Strategy1-19 ≥ 20 ≥ 25
Derivatives and Leverage
No leverage (i.e., margin or borrowing) will be used at the total Portfolio level. Individual managers may use leverage, provided its use is consistent with their risk controls and strategy.
All managers using derivatives must have systems in place to rigorously analyze and monitor duration, liquidity, counter-party credit risk and other risks in order to minimize the risk associated with the use of derivatives.
The ability to easily convert the Portfolio’s investments to cash to fulfill capital commitments is a critical consideration. The liquidity of the Portfolio will be closely monitored and will be maintained at a level such that a minimum of three years expected spending plus outstanding capital commitments may be easily accessed within a three-month period, even under stressed market conditions.
Within constraints otherwise set by this policy statement, the Foundation will be cognizant of investments which promote a sustainable environment.
VI. MONITORING OF OBJECTIVES AND RESULTS
All objectives and policies are in effect until modified by the Committee. They will be reviewed at least annually for their continued appropriateness.
Individual investment managers will be monitored on a routine basis for consistency in investment philosophy, return relative to objectives, asset class exposures nd investment risk.
Performance of the Portfolio will be measured at least quarterly, but evaluated over longer periods. Portfolio performance is expected to:
1. Match or exceed the rate of inflation plus 5.25 percent. Performance versus this objective will be evaluated over rolling 10-year periods.
2. Exceed the return of a Composite Benchmark made up of the indices presented below. Performance versus this objective will be evaluated over rolling five- to ten-year periods.
Corresponding Asset Class
Russell 3000 Index
MSCI All Country World Ex US Index
DJ UBS Commodity Total Return
S&P Global Natural Resources Index
Natural Resource Equities
FTSE EPRA NAREIT Global Real Estate Index
Public Real Estate
BC Aggregate Bond Index
It is expected that short-term performance will often vary significantly from these objectives. Additional benchmarks may be used to evaluate performance from time to time.
VII. INVESTMENT POOL ASSETS
Assets of individual endowments are invested in a unitized pool.
The objectives of this investment approach are to provide superior investment opportunities in addition to administrative economies.
CUF and Clemson University (“CU”) executed that certain Memorandum of Understanding (“Agreement”), dated April 1, 1999, and modified as of July 1, 2003 and any extensions thereof in accordance with its terms. Under this Agreement, CU will lend certain of its endowment funds to CUF for the purpose of having said funds invested by CUF under the same investment management objectives, guidelines and processes as employed by CUF in the investment of CUF Endowment funds. In accordance with the Agreement, the CU funds will not be comingled with any other funds.
While CUF acknowledges that its long-term investment objective in managing CU endowment funds through CUF endowment policies, strategies and management processes will conform to those used for CUF funds to the maximum extent possible, nothing herein shall preclude CUF from adopting certain modifications that are intended to reflect prudent investment asset allocations for the CU endowment funds.
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