Red Deer & District Community Foundation
2) FINANCIAL POLICIES
2.01 – Investment Policy
1. Investment Philosophy:
The Red Deer & District Community Foundation (“the Foundation”) believes that a low-risk investment management style can provide attractive long-term rates for the Foundation. The Foundation favors investment options targeted at the long-term growth of the investment fund and its ability to generate a high level of income. Therefore, investment selections will be made with a ten to twenty year view and results shall be reviewed annually and reported quarterly against appropriate benchmarks.
In keeping with their stewardship philosophy, the Foundation will adopt specific policies that ensure preservation of capital value by accounting for consumer price index and inflation in their net income calculations and by establishing a limit for the amount of grants disbursed annually.
2. Investment Objectives:
Through the donations and gifts of a number of community members, the Foundation has established an endowment fund (“the Fund”). The objects of the Foundation as stated in their incorporation by-laws are to use the income generated by the funds entrusted to is, together with such portion of the capital of such funds and gifts as the respective donors may direct, for charitable, philanthropic, humanitarian, educational, recreational, cultural and benevolent purposes in the City of Red Deer and surrounding area. In order to accomplish those goals the Foundation will invest its funds with the objective of preserving the capital pool while generating sufficient income to meet community needs.
The Fund’s Investment Objectives will be measured in terms of the following performance benchmarks, evaluated over 4 year periods, which is expected to exceed, after fund management expenses, the return computed by linking the quarterly returns on a composite portfolio of:
- Canadian Treasury Bills or cash equivalents;
- Canadian Bonds as measured by Scotia McLeod Midterm Bond Index;
- Canadian Equities as measured by the S&P/TSX Composite Index;
- Non-Canadian Equities in Canadian Dollars, as measured by the S&P 500 Composite Index
3. Investment Committee:
3.1 The Foundation will appoint an Investment Committee at the first meeting after the Annual General Meeting each year.
3.2 The Committee will have no fewer than three members with at least two of those being Board members, one of whom the Board shall appoint as Chair.
3.3 The primary responsibilities of the Investment Committee shall be the administration of the Fund and supervision of all persons who have duties related to the Fund and all organizations appointed to provide services to the Fund.
3.4 The Investment Committee shall meet with the Investment Manager at least twice a year and review all reports submitted by the Investment Manager(s). They shall subsequently provide quarterly reports to the Board regarding the operation, management and performance of the Fund.
3.5 On an annual basis the Investment Committee shall review the Investment Policy and make recommendations to the Board regarding amendments to the policy.
3.6 Based on a formal evaluation process, the Investment Committee may recommend changes in the appointment of Investment Manager(s) if they consider it to be in the best interest of the Fund and the Foundation.
4. Fund Administration:
The Investment Committee shall appoint one or more Investment Managers and one or more Custodians for the Fund. The primary responsibility of the Investment Manager(s) is the day-to-day operations of the Fund in adherence to the Foundation Investment Policy. The primary responsibilities of the Custodian(s) are to hold the assets of the Fund, to keep records, to separately identify changes to capital and revenue and to provide the Foundation with monthly reports regarding investments held by the Fund.
5. The Investment Manager(s):
5.1 Investment Manager(s) appointed by the Foundation will have demonstrated a suitable investment approach, financial and organizational stability, capacity to undertake the account, performance record of at least two years of relevant experience and expertise, and other factors deemed appropriate by the Investment Committee.
5.2 Upon appointment by the Investment Committee the Investment Manager(s) will be provided a six month period in which to establish the funds according to the parameter of this policy. Thereafter, the performance of the designated portfolio will be reviewed on a quarterly basis and evaluated against current appropriate benchmarks and the parameters of this policy.
5.3 The Investment Manager(s) will provide the Committee with quarterly written reports which will include portfolio valuation, performance summary in comparison to established benchmarks, a statement of compliance with this policy and other such information deemed relevant by the Manager and/or the Committee. Sufficient notice shall be provided if additional information is required.
5.4 On a semi-annual basis, the Investment Manager(s) shall further report on economic outlook, markets, and tactics or strategies planned.
5.5 The Investment Manager(s) shall report directly to the Executive Director of the Foundation in respect to the day-to-day matters of the Fund, including monthly transaction details.
5.6 The Investment Manager(s) will keep records identifying capital and revenue and may therefore keep one account which will at all times include capitalized revenue.
5.7 The Investment Manager(s) shall exercise the care, diligence and skill in the investment of the designated portfolio that a reasonable and prudent person would to avoid undue risk of loss and obtain a reasonable return.
5.8 The Investment Manager(s) is authorized to adjust the designated portfolio to meet objectives consistent with the parameters set herein.
6. Fund Parameters:
6.1. Asset Mix:
In keeping with the Foundation’s Investment Philosophy, the asset mix of the Fund will be focused towards a long-term investment horizon. Each Investment Manager shall be assigned a portfolio by the Investment Committee. The normal policy allocation for assets of the Fund and the associated range for investment at any time to be adhered to by the Investment Managers(s) is calculated on the basis of market value at all times and is as follows:
Short Term Reserves/Commercial Paper: 0 – 20% of portfolio
Canadian and Non-Canadian Equities: 25 – 55% of portfolio
Fixed Income: 25 – 75% of portfolio
6.2 Quantitative Parameters:
In view of the foregoing and calculated on the basis of market value at all times, the following general parameters shall apply:
Cash/Cash Equivalents a) Not more than 5% of the portfolio market value may be invested in any one corporate issue.
Equities: a) Not more than 5% of the Fund, or 10% of the Equity component, shall be invested in the common stock, preferred shares or other equity issues of any one corporation.
b) Equity in any one corporation shall not exceed 5% of the equity of the corporation.
c) Small capitalization will be restricted to 10% of the total Equity component at time of purchase.
d) The Fund shall not be invested in any single industry group representing more than 30% of the Canadian Equity portfolio, as represented by the S&P/TSX Composite Index.
Bonds: a) At least 50% of the Bond portfolio should be invested in Federal/Provincial or Government guaranteed bonds.
b) Not more than 40% of the Bond portfolio may be invested in issues of any one province or provincial guarantee.
c) Not more than 10% of the Bond portfolio may be invested in any one corporation or municipality and not more than 5% in any one issue.
6.3 Qualitative Parameters:
In compliance with its by-laws, the Foundation shall have the power to “invest any money of or in the possession of the Foundation in any property in which a trustee may invest trust money, pursuant to the laws of the Province of Alberta, or in which a life insurance company may invest funds under the Canadian and British Insurance Companies Act, Statutes of Canada, 1932; pursuant to any order of a Justice of the Court of Queen’s Bench of Alberta.”
6.3.1 All investments must be made in accordance with the Insurance Companies Act (Canada).
6.3.2 The Short Term Reserves/ Commercial Paper are limited to government paper and high quality rated at R-1 or better by the Dominion Bond Rating Service.
6.3.3 The Bonds must be rated at “A” or better by the lowest rating of the Dominion Bond Rating Service or the Canadian Bond Rating Service at time of purchase. Any bond dropping below “BBB” will be eliminated from the portfolio within 120 days.
7. General:
7.1 All recommendations will be made within the context of the objectives, asset allocation guidelines, and constraints as set out in this policy.
7.2 Any intended deviation from above, resulting from exceptional circumstance, must receive prior approval by the Board of Directors.
7.3 These policies will remain in effect until changed or modified by the Board. Where applicable, such changes shall be promptly communicated to the Investment Committee and Investment Managers.
Date Approved: November 19, 1996
Date Revised: February 27, 2001
June 24, 2003
January 31, 2007