Overview. This policy stipulates the objectives and guidelines that are to inform the investment of funds
held by the Medieval Academy of America. It outlines the responsibilities of parties involved in investing the Academy's funds as well as the standards and protocols to be observed in assessing
investment performance. This policy is to be reviewed on an annual basis by the Academy's Finance Committee, which will make recommendations for needed changes for the approval of the Academy's
Responsibilities. The legal responsibility for the Academy's investments lies with the Council, which
exercises its fiduciary role by monitoring investment activities and by approving policies that bear on
Academy's investment practices. In accordance with the Academy's by-laws, the Council delegates
execution of these policies, including decisions having to do with the purchase or sale of specific assets, to the Treasurer and the Finance Committee, who serve at the Council's pleasure.
The Finance Committee oversees the activities of the Academy's investment managers by assuring their
compliance with the Academy's investment policies, by acting on the managers' recommendations,
and by monitoring their performance. In all of these activities it is accountable to the Council. The Finance Committee also undertakes a formal evaluation of the Academy's investment managers according to
protocols laid out in this policy. Its recommendations of retention or dismissal, as well as any other recommendations that it may have touching on the Academy's investments, are forwarded to the Council for its deliberation.
Council Members, and Members of the Finance Committee are obligated to weigh the following circumstances, as identified in the Uniform Prudent Management of Institutional Finances
of 2006, when making investment decisions on the Academy's behalf:
* general economic circumstances,
* possible effects of inflation or deflation,
* expected tax consequences,
* the role of each investment within the context of the overall portfolio,
* the expected total return from income and appreciation,
* the possible role of alternative financial resources that may be available to the Academy,
* the requirements of making distributions from the corpus as well as preserving its value,
* and the particular value that any specific asset might have in light of the Academy's mission.
Investment Objectives. The Academy will manage its investments with the objective of preserving
long-term, real purchasing power of its assets in conformance with its need for a relatively predictable, renewable stream of annual operating income. At a minimum, the Academy's investment goal is to preserve the inflation-adjusted dollar value of its assets after mandated annual draw-downs are carried out in accordance with the Academy's spending policy. The Higher Education Price Index
(HEPI) published by the Commonfund
Institute will be used as the basis for calculating inflation- adjusted values as of June 30th each year.
Spending Policy. The Academy's policy on spending from invested assets is designed to promote a total return investment strategy; that is, a strategy to achieve capital appreciation (realized and unrealized gains) as well as investment yield (interest and dividends). Spending policy is set by the
Council upon recommendation by the Finance Committee. At its November 2015 meeting, the Executive Committee approved the Finance Committee's recommendation that the spending policy be changed from the 5% maximum approved in 2011 to a maximum drawdown of four and one-half percent (4.5%) of the average market value of the Academy's invested assets for the three preceding years taking June 30th of each year as the date of
valuation, effective in 2017.
It is the responsibility of that Committee and its chair, in concert with the Executive Director, to inform the Academy's investment managers of the specific cash requirements dictated by that policy and to assure that appropriate liquidity is maintained to meet budgeted income requirements throughout the year. Each year, the Finance Committee evaluates current spending policy in light of the Academy's identified needs, both short- and long-term, and makes recommendations to the Council concerning any needed change.
Asset Allocation. The Academy's assets are managed as a balanced portfolio consisting of two major
components: an equity portion and a fixed income portion. The expected role of equity investments is to maximize the long-term growth of portfolio assets. The expected role of fixed income investments is to generate current income, to provide for more stable periodic returns, and to secure a measure
of protection against prolonged decline in the value of the portfolio's equity investments.
Long-term Strategic allocation of the portfolio:
* Equities: 70% (range 50% - 79%)
Income: 28% (range 15% - 50%)
* Cash 2% (range 1% - 5%)
Diversification across and within these basic asset classes is the primary safeguard that the Academy
imposes to avoid undue risk of large losses over long time periods. In addition to regularly monitoring the actual-to-target allocations
of these classes of assets, the Finance Committee monitors subclass allocations and reallocations within these broad classes to assure that the Academy maintains an appropriate balance of investment risk and return. If appropriate, the Committee develops specific goals for the asset subclasses that warrant the imposition of durable target percentages as a means of safeguarding the Academy's investments. Such subclass targets should not be created for allocations that flow from tactical, as opposed to strategic, investment choices. The Finance Committee is also
charged to make occasional inquiry to discover if other classes or subclasses of assets offer the Academy prudent means of enhancing its investment performance.
The equity portion of the portfolio will generally be invested in separately managed accounts, but
investments in individual equities and mutual funds
are permitted investments.
* No more than 20% of the target allocation for equities may be invested in any single managed account or mutual fund or 5% in any single equity at the time of purchase. However, through market appreciation, such investments may temporarily exceed the above limits, but will be rebalanced as often as necessary to comply with the intent of this Policy.
* A minor portion of the equity portion of the portfolio may be invested in short term cash equivalents.
* Investments in international and emerging market equities may not exceed 30% of the equity portion of the portfolio.
Fixed Income Investments:
The fixed income investments in the core portion of our portfolio will be invested in the following instruments:
* Direct obligations
of the U.S. Treasury.
* Mortgage-backed obligations issued or guaranteed by agencies of the U.S. Government. Corporate debt securities (including preferred stock) rated Baa or better by Moody’s or BBB or
better by Standard and Poor’s.
* Senior secured loans.
* High yield Corporate Bond Funds.
* Commercial paper
rated P-2 or better by Moody’s, or A-2 or better by Standard and Poor’s.
* Collateralized mortgage obligations rated Aaa or AAA.
* FDIC insured Certificates of Deposit.
With the exception of direct obligations of the U.S. Government, no single holding shall exceed 10%
of the target allocation
for fixed income investments.
Purchase of non-interest bearing bonds
High Yield Bond Fund investments may not exceed 10% of the fixed income portion of the portfolio.
Investments in International Bond Funds may not exceed 10% of the fixed income portion of the portfolio.
Asset Class Rebalancing. Rebalancing of the Academy's portfolio is to take place only as
circumstances dictate and with an eye towards minimizing costs. Normal portfolio cash flows are to
be used to keep the actual asset allocation as close to the policy targets as practical. Managers should consider rebalancing whenever a single asset class's allocation exceeds +/- five percent of its target allocation. The Finance Committee is responsible for seeing that the Academy's investment managers carry out mandated rebalancing of the portfolio.
Performance Evaluation. Review of the Academy's investment managers' performance is an ongoing process conducted as a regular part of the Finance Committee's business. In addition to reports of
recent activity, the Committee considers reports that capture investment performance over the previous
five-year market cycle defined on a rolling basis. Additional reports at quarterly, yearly, and three-year intervals are also examined to ascertain performance trends. Performance anomalies uncovered through this process trigger notification of the Executive Committee as well as specific requests of the investment managers for further explanation.
Reports designed to track investment performance in specific asset classes and subclasses employ
industry-wide benchmarks developed by the CFA Institute. In additional to reports focused on asset classes, overall investment return is judged against a benchmark portfolio constructed to reflect the performance of appropriate market indices weighted according to the weights assigned to each asset class in the strategic policy allocation.
In addition to utilizing the foregoing reports as tools to evaluate the current managers' performance, the Committee on some regular basis will consider the following measures:
* The extent to which the Academy's investment returns have met the goal of providing
income sufficient to support operations and programs while preserving the real purchasing power of the Academy's assets after inflation is taken in to account. Such
consideration should also take take note of any new demands for income that changing
Academy priorities might impose.
* The investment performance achieved by similar organizations
over comparable periods of
time. Care should be taken to assure that a fair basis for comparison is maintained.
* The comparison of investment costs incurred employing current managers with those available through
The Committee should take this opportunity to
assess the value that the current managers have added by pursuing an active investment strategy. Calculation of the cost of a purely passive investment strategy should provide a useful benchmark.
Focused evaluations of investment managers' performance with an eye toward their retention or replacement will be undertaken by the Finance Committee, with appropriate input from the Executive Committee and Council, at such intervals as the Finance
Committee deems appropriate. These evaluations
should be thorough
enough to enable the Finance Committee to decide, with the Executive Committee's approval, whether there is sufficient cause to warrant issuing a formal RFP to identify a field of
possible replacement firms.
In the event that the issue of an RFP is deemed appropriate, the Finance Committee will include the following criteria in its assessment of all candidates for the manager of the Academy's investments:
of years in business and size of client base, (ii) investment philosophy, (iii) investment style, (iv) past performance, (v) efficiency, and (vi) consistency, as well as other criteria that the Committee deems relevant at the time of its considerations.
In keeping with the Finance Committee's responsibility to be familiar with the range of investment options open to the Academy, it will, on a regular basis, invite presentations suited to this purpose
from a variety of firms and individuals.