Maranacook Education Foundation
Investment Policy Statement for Endowment Fund Assets
1. Introduction. The Board of Directors (the “Board”) of the Maranacook Education Foundation (the “MEF”) has, by resolution, adopted the following Investment Policy Statement (the “Policy”) to govern management, investment, and distribution of restricted and unrestricted funds in the MEF’s Donor Designated and Board Designated Endowment Fund accounts (collectively herein, the “Fund”).
2. Finance Committee. The MEF established as a standing committee of the corporation a Finance Committee to provide ongoing oversight of the investment of the assets in the Fund.
3. Purposes. The purposes and objectives of this Investment Policy are to:Establish guidelines to govern investment of the assets in the Fund;b.Establish an investment policy that can be communicated to future and existing
a. Establish guidelines to govern investment of the assets in the Fund;
b.Establish an investment policy that can be communicated to future and existing donors to the Endowment Fund; and
c. Establish a clear understanding between the Finance Committee and the custodian/manager of the Fund (the “Fund Manager”) regarding the objectives, goals, and guidelines for investing the assets in the Fund.
This Policy is not a contract between the MEF and the Fund Manager. It is intended to assist the MEF and the Fund Manager in effectively supervising, monitoring, and evaluating the management of the assets in the Fund. The MEF understands that past performance is no guarantee of future performance, and that achievement of investment goals and objectives is properly measured against the long-term objectives of the MEF and not against short-term fluctuations.
4. Selection of a Fund Manager.
a. The Board shall select the Fund Manager and, in doing so, shall be guided by the following:
(1) The Fund Manager must be (i) the trust department of a bank or trust company, or (ii) a registered investment advisor with managed assets of at least $50 Million Dollars.
(2) The Fund Manager shall not be a financial institution that employs a member of the Finance Committee.
b. Request for Proposals. At least every five (5) years, the Board, with the advice and input of the Finance Committee, shall determine whether to issue a Request for Proposals (“RFP”) for the purpose of obtaining bids from interested parties to serve as the Fund Manager. Nothing in this Subsection (b) is intended to require the Board to issue such an RFP.
5. Investment Philosophy and Objectives.
The primary investment objective for the Endowment Fund is to optimize total return (price appreciation plus dividend and interest income) on an after-inflation basis, consistent with a fiduciary approach and adherence to the diversification and risk management principles of the Prudent Investor rule.
6. Investment Guidelines. The MEF recognizes its responsibilities to provide guidelines to its Fund Manager, and, in addition to the other provisions of this Policy, establishes the following:
a. All investments for the Fund should be made with the care, skill, and diligence that a prudent investor would exercise. The MEF understands and intends that the Maine Uniform Prudent Investor Act, 18-B M.R.S.A. §§ 901-908 (“UPIA”), in addition to the terms of this policy, applies to and governs investment of the assets in the Fund.
b. The Fund Manager shall manage the Fund’s assets in compliance with the Uniform Prudent Management of Institutional Funds Act, 13 M.R.S.A. § 5101 et seq. (“UPMIFA”).
c. The Fund Manager shall maintain a well-diversified portfolio of equities and fixed income instruments within the following permissible range of asset allocation:
(1) Cash – 0-10%
(2) Fixed Income and/or Alternatives – 20-40%
(3) Equities – 50-80% (with a 70% target)
As used in this Subsection (c), “Alternatives” means (i) assets that are not correlated with a major equity or debt index (e.g., emerging markets debt); (ii) assets that are inflation-sensitive (e.g., sovereign debt); and (iii) non-traditional assets (e.g., publicly held infrastructure and senior floating rate notes).
d. For purposes of risk tolerance, the MEF defines “risk” as (i) the probability of losing money over the fund’s investment time horizon in perpetuity; (ii) the probability of not maintaining the purchasing power over the Endowment Fund’s investment time horizon in perpetuity; (iii) the probability of not meeting the Endowment Fund’s absolute return objective; and (iv) high volatility of investment returns. In establishing the risk tolerance for the Endowment Fund, the MEF considered the ability to withstand short and intermediate-term variability. The MEF determined that the Endowment Fund’s prospects for the future, current financial conditions, and several other factors collectively suggest that interim fluctuations in market value and rates of return may be tolerated in order to achieve long-term objectives. The risk tolerance of the Endowment Fund can best be described as market-like.
The Fund Manager shall have the authority to work within these asset allocation guidelines, and to execute day-to-day investment changes.
7. Investment Restrictions.
a. If a donor places a restriction as to the investment of funds donated by the donor to the Fund and if the MEF accepts the gift, the donor’s restriction on the gift shall be followed. In accordance with the provisions of the MEF’s Endowment Fund Policy, this restriction ordinarily shall apply only to gifts of $1,000 or more.
b. Equity investments shall be limited to the common and preferred stocks of companies listed on the New York Stock Exchange, the American Stock Exchange, or the NASDAQ system.
c. No more than 5% of the total portfolio of the Fund (as measured by fair market values) may be invested in an individual security, and no more than 25% of the total portfolio of the Fund (as measured by fair market values) may be invested in a single industry.
d. No more than 15% of the total portfolio of the Fund (as measured by fair market values) may be invested in securities (equity and/or debts) of companies with headquarters domiciled outside the United States.
e. Investment in bonds or other fixed income instruments shall be restricted to “Investment Grade” securities. In general, the ratings shall be “A” or better.
f. Investments in any of the following are prohibited:
(1) Future contracts;
(2) Short sales;
(3) Options contracts;
(4) Private placements;
(5) Non-marketable securities;
(6) Hedge funds;
(7) Derivatives; and
(8) Specific securities as may be identified from time to time in writing by theFinance Committee for the Fund Manager.
g. The following transactions are prohibited:
(1) Margin transactions; and
(2) Short-selling or selling uncovered put or call options.
8. Spending Policy.
a. No distribution shall be made from the Income from Donor Designated Endowment for any year in which the total Principal in Donor Designated Endowment is less than Ten Thousand Dollars ($10,000).
b. Subject to Subsection (a), in order to minimize the effect of fluctuating market values, the annual distribution from the Donor Designated Endowment portion of the Fund (i.e., this limitation on spending shall not apply to Principal or Income within Board Designated Endowment) shall not exceed 4% of the average of the June 30th portfolio market value for the prior three years. The Investment Manager shall distribute such funds on a schedule to be determined by the Board of Directors of the MEF. Nothing in this Section 8 shall require the Board to distribute funds from the Donor Designated Endowment portion of the Fund in any year.
9. Strategic Rebalancing. As a general rule, new cash in the Fund shall be used to rebalance the total endowment in the direction of the asset allocation target mix. If the Finance Committee determines that cash flows into the Fund are insufficient to bring the strategic allocation of the Fund’s assets within the targeted ranges, the Finance Committee shall decide whether or not to implement measures (i.e., buy/sell decisions) to bring the strategic allocation of the Fund’s assets with the threshold ranges.
10. Compliance. The MEF and the Finance Committee shall, and they shall ensure that the Fund Manager shall, at all times comply with UPMIFA, UPIA, and all federal and Maine state laws, regulations, and rules applicable to dealing with and investment of endowment funds.
11. Performance Monitoring, Evaluation, and Reporting.
a. Annual Review. The Finance Committee and the Fund Manager shall monitor investment results, and shall meet on at least an annual basis, or at the request of the Board, to review investment activities, strategies and performance. Each such review also shall include review of at least the following:
(1) The Fund Manager’s adherence to the guidelines of this Policy.
(2) The Fund’s investment performance compared to market indices. For this review,
the Fund Manager will provide comparison of the Fund’s performance (by asset class) to the following:
(a) Standard and Poor’s 500 (domestic large capitalization equities);
(b) Russell 2000 (small and mid-capitalization equities);
(c) EAFE Total Return Index (international equities);
(d) Barclays Government/Corporate Intermediate Bond Index (fixed income);
(e) Consumer Price Index (total account); and
(f) Any other benchmarks deemed relevant by the Fund Manager or the Finance Committee.
(3) The Fund Manager’s performance compared to like investment style or strategy.
b. Quarterly Reports. The Finance Committee shall ensure that the Fund Manager provides the Finance Committee with a written quarterly accounting as to performance of Fund assets, including a detail of holdings, principal and income transactions, and period-end market values.
12. Policy Review. The Finance Committee and the Board shall review this Policy periodically, but no less than every three years, and the Board will revise the Policy as necessary to reflect changes related to the Fund’s portfolio, the MEF, or the markets. The Board shall ensure that any modification of this Policy is given promptly to the Fund Manager.
Adopted: December 11, 2017