Investment Policy Statement

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1. Purpose

This Investment Policy Statement, together with its Appendices, sets forth policies and procedures for the investment management of the Berkeley Student Cooperatives (“BSC” hereafter), a 501(c)(3) non-profit, exempt public benefit corporation. The Funds will be used to support general operations and the long-term strategic objectives of the BSC.

This Investment Policy Statement has been developed and approved by the Capital and Finance Committee (“CFCom” hereafter) and adopted by the BSC Board of Directors. Standards for investment performance, asset allocation, security selection, and diversification are outlined below. The Funds shall be managed with high fiduciary standards to which a prudent investor would adhere and in accordance with all applicable laws and regulations.

This Investment Policy Statement:

● Sets forth the investment objectives and goals that CFCom judges to be appropriate and prudent, considering the Fund’s various purposes;
● Establishes the criteria by which the investment manager(s) are selected, measured, retained, and/or terminated;
● Communicates the investment objectives, policies, and performance criteria to the Board of Directors, consultants, and all other interested parties; and
● Serves as a review document to guide the ongoing oversight of the investments of the Funds.

2. Duties and Responsibilities

CFCom is a subset of the Board of Directors who are responsible for:

● Adopting the investment policies of the Funds;
● Providing for review and modification of this Policy;
● Communicating the Investment Policy and performance expectations to the Investment Committee and the investment manager(s); and
● Selecting, engaging and retaining the investment manager(s).

The BSC Investment Committee is constituted as per section IV.J of the BSC policy and is responsible for:

● Overseeing the management of all investments of the Funds
● Providing for implementation of this Policy
● Tracking performance of the Funds relative to performance expectations established herein;
● Monitoring and evaluating performance of the investment manager(s); and
● Reporting to CFCom at least annually on all of the above duties.

The investment manager(s) are responsible for:

● Making investment decisions consistent with the Policy and the investment advisory agreement;
● Implementing security selection and timing of purchases and sales within the guidelines set forth by the Investment Committee;
● Voting proxy ballots in a manner that preserves value while also reflecting the BSC’s vision, values, and mission;
● Complying with all applicable laws, rules, and regulations;
● Keeping the Investment Committee advised of any material change in personnel, investment strategy, and/or other pertinent information; and
● Providing timely and accurate reporting

The Finance & Accounting Manager will serve as the primary point of contact for the custodian and the investment manager(s).

3. Investment Objectives

The investment objectives are to maintain the long-term viability of the Funds by maximizing the value of the Funds with a prudent level of risk and to provide the necessary liquidity to support the operations and mission.

The short-term assets of the Funds are to be invested to:

● Maintain sufficient liquidity to meet both operating needs and longer term requirements

The long-term assets of the Funds are to be invested to:

● Balance preservation of principal and long-term capital appreciation;
● Maximize return within reasonable and prudent levels of total investment risk; and
● Reflect the vision, mission, and values of the BSC.

The Executive Director and Finance & Accounting Manager, in consultation with CFCom, shall determine the specific asset allocation for each fund based on the following criteria:

Time horizon: funds being expected to be deployed within the year should be allocated to short-term investment vehicles. Conversely, funds expected not to be deployed within the year should be allocated to long-term investment vehicles.
Liquidity: the Executive Director and the Finance & Accounting Manager shall set a prudent threshold for an operating reserve to meet unexpected cash needs. This reserve shall be invested in short-term investment vehicles.
Purpose of internal fund: internal funds explicitly intended for long-term appreciation including but not limited to the Scholarship Fund and the Growth Fund shall be allocated to long-term investment vehicles.

While there cannot be complete assurance that these objectives will be realized, it is believed that the likelihood of their realization is reasonably high based upon this Investment Policy and the historical performance of the asset classes discussed herein. The objectives have been based on a ten-year investment horizon, so that interim fluctuations should be viewed with appropriate perspective.

4. Distributions

Distributions from the Funds will be made at the discretion of the Executive Director and the Finance & Accounting Manager as directed by BSC Policy and/or the Board of Directors.

5. Asset Allocation Target and Ranges

Each individual fund shall be invested in each asset class ranging between a minimum and a maximum percentage of the total long-term Funds as shown below.

Asset Classes:

Large Cap Equities: Provide long-term capital appreciation through a diversified common stock portfolio of large cap stocks, which may include stocks of foreign companies listed on U.S. exchanges.
Small-Mid Cap Equities: Provide long-term capital appreciation through a diversified common stock portfolio of small-mid cap stocks, which may include stocks of foreign companies listed on U.S. exchanges.
International Equity: Provide long-term capital appreciation through a diversified portfolio of international equities from developed and emerging market countries.
Fixed Income Securities: Provide diversification through a mix of nominal and inflation-linked securities.
Commodities: Provide diversification through a mix of commodities
Money Market Mutual Funds: Provide return above cash with minimal risk and short liquidation timeline

Capital Improvement Fund Target Asset Allocation
Asset Class Min Wt. Max Wt. Target Wt. Benchmark
Large Cap Equity (US) 0% 0% 0%
Small Cap Equity (US) 0% 0% 0%
International Equity 0% 0% 0%
Domestic Fixed Income 80% 100% 90%
Commodities 0% 0% 0%
Cash 0% 20% 10%

Growth Fund Target Asset Allocation
Asset Class Min Wt. Max Wt. Target Wt. Benchmark
Large Cap Equity (US) 15% 35% 25%
Small Cap Equity (US) 1% 21% 11%
International Equity 0% 20% 10%
Domestic Fixed Income 37% 57% 47%
Commodities 0% 10% 4%
Cash 0% 10% 3%

Operating Reserve Target Asset Allocation
Asset Class Min Wt. Max Wt. Target Wt. Benchmark
Money Market Mutual Funds (MMFs) 0% 0% 0%
Domestic Fixed Income 75% 95% 85%
Cash and Cash Equivalents 5% 25% 15%

Scholarship Fund Target Asset Allocation
Asset Class Min Wt. Max Wt. Target Wt. Benchmark
Large Cap Equity (US) 19% 39% 29%
Small Cap Equity (US) 0% 20% 10%
International Equity 10% 20% 20%
Domestic Fixed Income 25% 45% 35%
Commodities 0% 10% 4%
Cash 0% 10% 2%

CFCom is guided by the philosophy that asset allocation is the most significant driver of long-term investment return. The asset allocation of the Funds will be maintained as close to the target allocations as possible. Cash additions and withdrawals shall be allocated across portfolios to bring the asset mix as close to the target allocation as possible.

The Funds shall be rebalanced quarterly to keep asset allocations within target ranges of the portfolio, thereby ensuring that the Funds to not incur additional risks in keeping with the investment objectives. Rebalancing actions are deemed to be normal investment activities, consistent with advisory input, liquidity objectives, and overall portfolio return. Rebalancing will typically be accomplished over a reasonable period of time, as the investment manager determines to be appropriate.

6. Asset Class Risk/Return Objectives

The Investment Committee will periodically review the investment manager’s progress in meeting the Fund’s investment objectives. The rate of return and risk objectives shall be evaluated on the following benchmark:

● Rate of return over a majority of a rolling three and five year period that is equal to or above the appropriate benchmark for each asset class.
● Volatility of returns as measured by the standard deviation of investment returns, that is less than or equal to the median manager of an appropriate peer group over a majority of rolling three and five-year periods.

7. Performance Monitoring Guidelines

The Investment Committee will review total Fund performance quarterly or bi-annually with the investment manager(s). Appropriate benchmarks for performance evaluation are stated in the Policy but can be updated by the Investment Committee as appropriate. The Investment Committee will meet with CFCom annually to review investment objectives and the appropriateness of the Investment Policy. It is not expected that the Investment Policy will change frequently. In particular, short-term changes in the financial markets should not require an adjustment in the Investment Policy. The ongoing monitoring of investments is the mechanism for revisiting the investment manager selection process and confirming that the criteria originally satisfied remain so. While frequent change is neither expected nor desirable, the process of monitoring investment performance relative to specified guidelines is an on-going process. The quarterly to bi-annual monitoring of investments will include any material changes in the manager organizations, such as investment philosophy, personnel, acquisitions or losses of major accounts, etc.

8. Investment Manager

CFCom at the authorization of the Board of Directors may delegate the management and investment of all or part of the Funds to external investment managers. Such managers shall be qualified professionals who have demonstrated competence in their respective investment strategies. CFCom may retain investment advisers as necessary to select and monitor external investment managers and to provide general investment advice to CFCom.

External investment manager(s) are expected to:

● Adhere to the investment objectives as outlined in this Policy.
● Meet the performance criteria outlined in section VI. (Asset Class Risk/Return Objectives).
● Maintain expense levels that are reasonable and competitive.
● Conform to metrics for manager performance specified in the investment management agreement.

Should the manager consistently fail to meet the above conditions, CFCom shall initiate termination within a reasonable time should such grounds be established.

9. Standards of Conduct

In management and investment of the Funds, CFCom and the Investment Committee shall act in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. CFCom and Management shall ensure that costs are appropriate and reasonable in relation to the assets and services provided.

Exceptions to the Investment Policy may be allowed under the following circumstances:

1. Action is required to provide necessary liquidity to meet immediate financial obligations; or,
2. Action is required to avoid or correct a violation of any applicable law or regulation

In such circumstances, any and all exception to the Investment Policy must be approved by a majority of the BSC President, Vice President of Capital & Finance, Executive Director, and Finance & Accounting Manager. Exceptions approved and the reasons therefore shall be documented in CFCom’s minutes and reported to the Board of Directors at its next regularly scheduled meeting.

10. Guidelines for Security Selection

Funds may be invested in a pooled investment vehicle such as a mutual fund, co-mingled fund, or exchange-traded fund. Wherever possible, manager(s) should use passive index funds with low expense ratios and a history of consistently meeting their respective benchmarks. For individual securities the following guidelines will apply:

US Equity Security Holdings: Equity holdings shall be restricted to readily marketable closed-end mutual fund shares or ETF’s.
Non-US Equity Security Holdings: Non-US Equity holdings shall be restricted to readily marketable closed-end mutual fund shares or ETF’s. Currency hedges may be used as necessary
Fixed Income Security Holdings: Fixed income investments shall be marketable securities which may include US Treasury, Federal Agencies and other US government guaranteed obligations, and corporate issues including convertibles and preferred equity.
Commodity Holdings: Commodity holdings shall be restricted to readily marketable closed-end mutual fund shares or ETF’s.
Prohibited Investments:
○ Actively managed ETFs or mutual fund strategies
○ Options
○ Foreign currency not otherwise used as hedge
○ Leveraged ETFs (2x, 3x, etc) or ETNs
○ Single-name equity securities
○ Short ETFs
○ Private placements or unregistered equity securities
○ MBS, CDO’s, and non-dollar denominated bonds
○ Futures contracts
Diversification: Investments shall be diversified with the intent to minimize the risk of large losses. Consequently, the combined portfolios will be constructed and maintained to provide prudent diversification with regard to the concentration of holdings in individual issues:
○ Not more than 5% of the total stock holdings of all portfolios valued at market may be invested in the common stock of any one corporation.
○ With the exception of securities issued by the US Government and its agencies, no single fixed income issue will represent more than 5% of the total portfolio as measured by market value at the time of purchase.
Execution of Security Trades: the purchase and sale of securities are to be made through responsible brokers in a manner determined by the manager in order to receive the best combination of realized prices and transaction costs.

[Moved this page as per board approval at Board #3 (12.1.2022)]