IV.J. Investment Management: Difference between revisions

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''Asset Allocation Plan''
''Asset Allocation Plan''


:1. Equities  35%
:1. Equities  45%
:2. Fixed Income  55%
:2. Fixed Income  55%
:3. Cash & Equivalents 0%
:3. Cash & Equivalents 0%
:4. Commodities  10%
:4. Commodities  0%





Revision as of 13:28, 31 May 2012

PURPOSE OF BSC INVESTMENT POLICY

The purpose of this Investment Policy is to support the mission of the BSC by providing guidelines for the BSC, its Board of Directors, and Investment Management Committee (IMC) to effectively invest the BSC’s non-real property assets.

The mission of the Berkeley Student Cooperative is to provide a quality, low-cost, cooperative housing community to university students, thereby providing an educational opportunity for students who might not otherwise be able to afford a university education.


GENERAL INVESTMENT OBJECTIVES

The objective of the BSC’s investment strategy is to maximize returns within prudent levels of risk appropriate for each of the BSC’s investment fund accounts.

In addition, the BSC shall evaluate return by taking into account the cost of the investment transaction.


In general, investments shall be diversified so as to minimize the risk of large losses from a single cause, unless under the circumstances it is not prudent to do so. Care shall also be taken to diversify internationally unless under the circumstances it is not prudent to do so.


The investments for each investment fund account shall be selected with the care, skill, and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in with respect to an investment fund with similar aims and constraints.


The BSC relies on the return on its investments to achieve socially responsible goals that directly further its mission, including the award of scholarships for needy members, the improvement of its buildings to make them safe and accessible, and the development of new co-ops.


ASSET CLASS AND INVESTMENT INSTRUMENT GUIDELINES

Permissible Investments

The BSC may invest in the following asset classes using the described investment instruments selected for each investment fund account under the specific guidelines adopted for each of the individual investment funds accounts:


Cash and Cash Equivalents Interest bearing checking accounts in federally insured banks; money market accounts; federally insured certificates of deposits
Equities US and international mutual funds and ETFs
Fixed Income US government bonds, US agency bonds, US treasury bonds, US and international bond funds and ETFs
Commodities Commodity ETFs and mutual funds


Instruments will be appropriate in light of the BSC’s management capacity and whether the BSC retains a professional investment manager or advisor.

The IMC will choose specific investments based on the different purpose and investment objectives of each investment fund account.

Prohibited Investments

It is the policy of the BSC not to invest in individual stocks or bonds (other than US government or US agency bonds), except with the approval of the BSC Board of Directors. Investments in private placements and entities that are not publicly traded are prohibited.

PROFESSIONAL INVESTMENT ADVISOR

It is the responsibility of the IMC, from time to time, to consider and make a recommendation to the Board of Directors as to whether the BSC should retain a professional investment advisor. If the BSC Board of Directors approves the use of a professional investment advisor, it is the responsibility of the IMC to monitor and evaluate the performance of the advisor.

MONITORING ROLE

Investment Performance

At least quarterly, the IMC shall measure the performance of the BSC’s investments against each account’s investment objective as set out below.

At least annually, the IMC shall evaluate the effectiveness of the asset allocations set out below in meeting investment objectives.

Rebalancing

It is expected that the actual asset allocation for each fund will vary from the target asset allocation as a result of the varying periodic returns earned on investments. At least annually, the IMC will rebalance investments in each investment account to reach target asset allocation using the following procedures:


1. To the extent feasible, the IMC will use incoming cash flow (contributions) or outgoing money movements (disbursements) of each investment fund account to realign the current weightings closer to the target asset allocation. The IMC may in its discretion achieve rebalancing by selling from one asset class to buy into another.
2. At least annually, the IMC will review the actual asset allocation existing in each investment fund account to determine the deviation from the target asset allocation for that account. During each annual review, if any asset class within an investment account is found to deviate +/- 5% from its target asset allocation, the investments will be rebalanced.
3. The IMC may rebalance more frequently than annually in its discretion.

Costs

1. The IMC shall monitor all costs associated with the management of the BSC’s investment program, including:
2. Expense ratios of each investment option against the appropriate peer group.
3. Custody fees for the holding of the assets, collection of the income and disbursement of payments.
4. Any other professional fees.

SPECIFIC INVESTMENT OBJECTIVES FOR BSC INVESTMENT ACCOUNTS

Scholarship Fund Account

The BSC contributes annually to and solicits alumni donations to the Scholarship Fund Account for the specific purpose of aiding needy individual members in paying a portion of their BSC housing cost. The Scholarship Fund is dedicated to this purpose, and neither its principal nor its earnings are available to meet the operating or capital improvement needs of the BSC. Given the current value of the Scholarship Fund’s assets and assuming an annual rate of return of at least 4%, the Scholarship Fund should currently be able to fund 40 scholarships per year, each equal to one-third of one semester’s room and board rate (i.e., in Spring 2011 each scholarship was $1,110) without depleting principle.

Investment Objectives

1. Time Horizon: The BSC has no plans to liquidate the investment except for meeting the goals of the Scholarship Fund.
2. Risk Tolerance: Because the BSC has no plan to liquate the investment except for meeting the goals of the Scholarship Fund, the BSC’s tolerance for risk and volatility is high. Short-term volatility will be tolerated as long as it is consistent with the volatility of a relevant market index.
3. Average Annual Rate of Return over a 3-year Period: Investments shall be selected based on a targeted annual rate of return sufficient to meet current scholarship award goals (4%).

Asset Allocation Plan

1. Equities 45%
2. Fixed Income 55%
3. Cash & Equivalents 0%
4. Commodities 0%


Operating Reserve Account

The purpose of the BSC Operating Reserve account is to provide for operating shortfalls caused by economic conditions, unplanned liabilities (such as lawsuits), or management error. The BSC’s goal is to accumulate from annual net operating income a six-month operating reserve (excluding certain discretionary expenditures), an amount which is currently estimated to be $4,000,000 but which will change as the BSC’s operating expenses increase.

Investment Objectives

1. Time Horizon: Approximately $500,000 should be available from the immediate term to 3 months for unplanned expenses, such as uninsured liabilities and legal defense costs. The balance should be available on a time horizon of between 3 to 12 months for other unplanned liabilities and expenses.
2. Risk Tolerance: Because of the BSC’s inability to anticipate and plan for the need to draw on the operating reserves, the risk tolerance for the Operating Reserve account is low.
3. Average Annual Rate of Return over a 3-year Period: Based on the low risk tolerance and short time horizon, a rate of return of between 2% and 3% is targeted for the Operating Reserve account.

Asset Allocation

1. Equities 0%
2. Fixed Income 75%
3. Cash & Equivalents 25%
4. Commodities 0%


Capital Improvements Account

The BSC’s Capital Improvements account has been created to fund board-approved capital improvement projects that will completed in the next five years, including seismic renovations, improvements for disabled access, energy conservation improvements, and IT upgrades. The BSC plans on allocating 1% net book value annually specifically for seismic and disabled access, which is estimated to be approximately $300,000 in FY 2011-2012. The BSC dedicates a CARE utilities discount equal to approximately $100,000 annually to this account for energy efficiency capital improvements. The BSC also solicits alumni donations for purposes of seismic renovations, disabled access, energy improvements, and IT upgrades.


Investment Objectives

1. Time Horizon: Because of the Board approved plans for capital improvements, the time horizon for this account is one to four years
2. Risk tolerance: BSC is committed to using these funds for specific capital improvements planned for the next five years, so risk tolerance is low.
3. Average Annual Rate of Return over a 3-year Period: Given the low risk tolerance and short to mid-term time horizon for the use of these funds, the targeted rate of return is 1 to 2%.


Asset Allocation

1. Equities 0%
2. Fixed Income 25%
3. Cash & Equivalents 75%
4. Commodities 0%


Growth Fund Account The funds invested in the Growth Fund account are intended to empower the BSC to pursue opportunities for expansion. The BSC aims to make an annual contribution to this account of $200,000-$250,000, with a target balance of $2 million by the end of FY 2014-2015.


Investment Objectives

1. Time Horizon: The target date for accessing these funds is unknown because to some extent the use of the Growth Fund is driven by opportunity in the competitive real estate market of student housing near the UC campus. On a short-term basis, the BSC needs enough liquidity to make a good faith deposit while it arranges other financing or evaluates how to liquidate other investments.
2. Risk Tolerance: Because the BSC intends the funds to be used for expansion and not to meet a basic organizational need, the risk tolerance is high.
3. Average Annual Rate of Return over a 3-year Period: 5%


Asset Allocation

1. Equities 30%
2. Fixed Income 60%
3. Cash & Equivalents 10%
4. Commodities 0%


BSC Alumni Association Membership Dues

The BSC is the custodian for the Alumni Association’s membership dues account. The Alumni Association controls the investment of these funds and directs the BSC in writing on the investment objectives and the asset allocation plan that is appropriate for the account.