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S.03-41

. ?

SIMON FRASER UNIVERSITY

University Secretariat

MEMORANDUM

To: ?

Senate

From: ?

Alison Watt, Director, University Secretariat

Subject: Revised Investment Governance Policy

Date: ?

25 March, 2003

FOR INFORMATION

SCAR has determined that this policy should be forwarded to Senate for information at

its meeting on April 7, 2003. This policy has been reviewed and approved by the

Finance and Administration Committee of the Board of Governors and will go to the

Board of Governors for final approval in May, 2003.

P. Hibbitts

Attachthent

3186 Strand Hall Simon Fraser University, Burnaby, B.C.

Phone: 604 291-3495 Fax: 604 291-4860

SJMON FRASER UNIVERSITY

OFFICE OF

HE VICE-PRESIDENT

FINANCE & ADMINISTRATION

From:

President and Vice Chancellor

Vice-President,

Finance & Administration

Subject:

Investment Governance Policy

Date:

March 05, 2003

The attached draft of the new Investment Governance Policy document has hem widely

circulated for consultation and review, in accordance with our current process for new or

revised University policies. It has also been reviewed externally by the Investment Advisory

Cuznnjjttee on two occasions and discussed most recently at

its

meeting on December 6,

2002. In addition, eight external investment managers of the University and several other

interested parties reviewed it for issues of compliance conflicts and certain technical matters.

The wiricus reviews resulted in the

prepurntion of two distinct invesLuInt-related

documents. This Policy document was derived from the previous Statement of Investment

Guidelines and Procedures in place since 1996. A second doemnent, which will be the

Investment Management Operating Procedures, is currently under development. Upon

recommendation by the Finance and Administration Committee, and final approval by the

Board, this Policy will be incorporated into the

University's Board Policies.

The second

document, when complete, will be forwarded to the Finance and Administration Committee

and subsequently, to the Board, for information.

This is -the first revision of these policies and procedures since SF0 diversified its

Endowment Fund investments from a fixed income only mandate to a balanced mandate, by

adding "Canadian and foreign

eqiiitie.s.

It has been driven primarily by Legislative changes

that relaxed previously restrictive requirements under the

University

Act.

These changes

bring SF0 investments

line with pension plan management practices and current trends

investment governance documentation generally.

BC Universities are now permitted to invest both endowment and non-endowment funds

according to the judicial standard of a "Prudent Person" codified in the late 1800's which

requires care in the scle4iun of investments but does not impose narrow limits on

investment alternatives and simply stated is that:

Persons who act as fiduciaries have responsibilities and this rule is a legal

doctrine that constrains the type of investments that can be made in those

acco4n4s.

Those constraints limft

potential investments to those that might be

made by a prudent and reasonable person.

•1

The other main driver for tins revision is

the rapid growth

and complexity of

the SPU

investment portfolios, with total values doubling to slightly over $200 million, with four

external manager-mandates requiring oversight, being added since 1996. This Policy

the

and further

diversify

its

mandates and

activities

to reduce

risk.

Summarizing

the more significant changes from the original 1996 document:

• The Investment Governance Policy delineates the various roles and responsibilities of

both the internal and external parties connected with and responsible for the Unversitys

investments and describes the

broad investment

principles established.

•

Investment Management

Operating Procedures, when developed, will describe the

Board.

practical steps required to apply the Investment Governance Policy as approved

by the

• The definition of the University's risk and return objectives has been broadened.

• Thc Investment Managers' responsibilities, the

monitoring and review

of them and the

communication sections will

all

have been greatly expanded.

• Permitted categories of asset classes and investments have been expanded to permit

greater diversification strategies and to broaden invcstmcnt opportunities.

• The Benchmark Portfolio

for the investment of non-endowment funds has been revised to

permit diversification and expansion by a modest percentage into equity asset classes.

To ?

dforApproval

Michael Stevenson

President and Vice Chancellor

TGPdrft - ffnal

Ffi.

Simon Fraser University

INVESTMENT GOVERNANCE POLICY

Effective March 2003

Preamble

1.1 ?

The Board of Governors ("Board") of Simon Fraser University ("University") has the responsibility,

endowments

pursuant to paragraph

and other assets."

27(2)(o) of the

Liniversity Acj "to

administer fund;, grants, fees, and

Purpose

2.1 This document constitutes the Investment Governance Policy

("IG

Policy) adopted by the Board,

and shall apply to the investments in the University's Endowment, Operdting and Special Purpose

Funds ("Funds"). It documents the governance structure established for the investments of the

Funds and describes the requirements for their ongoing, successful investment management

Investment Governance Structure

3.1 The governance structure established

for the investments of the Funds is designed to ensure that

the investments are managed prudently, appropriately and in compliance with the applicable

leqjsiation and this IG Policy. The principal levels of responsibility are described in this section.

3.2 The Board, on the recommendation of the President, shall appoint an Investment Advisory

The IAC has the responsibility to review this

Policy annually and to recommend to the Board

any changes that may be required.

3.3 ?

The Board may delegate the investment management and operational respon5lblllUes for the

Funds to Office of the Vice-President

Finance & Administration ("VPF"). The VPF shall report on

its activities to the IAC at least semi-annually and to the Board at least annually and will provide

copies of the minutes

of its

meetings with the IAC to the Board.

3.4 The VPF, with

input

from the TAC, and the advice of the

Finance and Administration

Committee of

the Board ("FAC"), shall establish and maintain an Investment Management Operating Procedures

See

set out

stu.ca/P

the requirements

licie-s-Lb-oardlinde

for the

proper

htm

. The

investment

Procedures

of the

Funds

shall

include a description of permitted categories of investments, constraints for each category of

investments and asset mix guidelines. It shall include the process for hiring, monitoring,

terminating or replacing investment managers, consultants, the custodian and other independent

experts. -

Investment Objectives

4,1 ?

The investments of the

different Funds may be made in a manner that reflects the objectives of

those Funds separately, and accounted for accordingly.

'3.2 ?

Funds.

Each Fund will be managed to balance the different investment return and risk objectives

the

4.3 ?

The primary investment return objective of the Endowment Fund is to earn, over the mid and long

term,

Price Index

an absolute

by at least

annual

5.0%,

rate

net

return

investment

that exceeds

expenses.

the annual rate

increase in the Consumer

4.4 The primary investment return objective of Funds

other

than the Endowment Fund Is to earn, over

the short to mid term, an absolute annual rate of return that exceeds the annual rate of increase

in the Consumer Price Index by at least 3.0%, net of investment expenses.

4.5 ?

The primary risk objective of the Funds is to preserve the value of the invested capital

Simon Fraser University

41 ?

Investment Governance Policy

S. ?

Investment Principles

5.1 ?

The Funds are to be invested in accordance with Seion 57 of the

(Jniversit'Act

that states that

the University: "must, when investing. ...make investments that a prudent person would make."

5.2 ?

The following principles shall be followed In the investment of the Funds:

(a)

The selection of investments in the Funds should be made In the context of the total portfolio,

with a reasonable expectation of a fair return or appreciation.

(b)

The Funds should be invested in the capital markets to achieve the stated investment

objectives.

(C)

The investment objectives can best be achieved by Investing in a mix of diverse asset classes

with varied investment characteristics.

(d)

The risk of price fluctuations within the asset classes and the uncertainty of future economic

and investment rnnditions dictate prudent diversification of invcstrnents by economic sector,

industry, quality and size of market capitalization.

(e)

Competent, external professional investment managemenL cn acid value, relative to a static

benchmark portfolio, through opportunistic security selection.

(f)

Risk should be controlled, and guidelines and constraints must be established by the VPF that

ensure that any investment manager retained does not take excessive risk.

(g)

Diversification of investment managers is desirable to reduce the probability of a substantial

shortfall inherent in a single investment style or investment manager. The advantage of

retaining multiple investment managers shall

be balanced with the disadvantage of over-

diversification and excessive investment management and administrative costs.

6. ?

Management of Investment Funds

6.1 A list of approved categories of investments, attached as

Sth&u/e 2,

shall be maintained at all

times. The VPF, with input from the IAC, shall review other categories of Investments from time to

time, and shall recommend to the Board any other categories that, in their opinion, will help

achieve the investment objectives. Until such time as the Board approves a new category of

investments, any investment not In an approved category shall be prohibited.

6.2 All securities shall be purchased through normal public market sources, unless the purchase price

approximates the prevailing market price from some other recognized source and is negotiated on

an arm's length basis.

6.3 All investments are subject to the constraints of this IG Policy, any legal requirements, and the

guidelines established by the VPF. Notwithstanding any other limitations, any investment donated

to the University is permitted.

6.4 The Board

shall establish Benchmark Portiolios for each Fund, attached as

Sdiedule 2,

based on

the recommendations of the VPF, with Input from the IAC. If the IAC believes that the Benchmark

Portfolio established for a Fund cannot meet the investment objectives over the following four-

year period, it will work with the VPF to develop an alternative Benchmark Portfolio.

6.5

The VPF, with the input of the

IAC

shall establish and document investment asset mix ranges for

each of the Funds, and shall maintain the asset mix of the Funds within the specified ranges.

6.6 ?

The VPF, with the Input of the IAC, will appoint one or more suitably qualified external

\• professional investment managers to manage the Funds. For the purposes of this IG Policy, staff

of the VPF who may also invest a portion of the Funds, are considered to be investment

managers.

Simon Fraser University

5 ?

Investment Governance Policy

Management of Investment Funds (continued)

6.7

The VPF shall appoint a Custodian to hold the investments of the Funds.

6.8

The selection of an intment manager

Will

be made in a prudent manner, based on criteria

established and documented by the VFP.

6.9

Each investment manager shall operate under the terms of an Investment Management

Agreement with the University, this IG Policy and an investment mandate, as agreed to with the

VPF. ?

The VPF is authorized to waive or modify any of the restrictions in appropriate

shall make any changes

the investment managers as it

Loans of Funds Assets

7.1

No entity, including the investment managers, the Custodian or a

representative

of the University,

may lend, pledge or otherwise encumber any of the Funds' investment assets, except through a

Securities Loan or University-related

Business

Entity Loan Agreement approved by the VPF.

Communication by Investment Managers

8.1

Each investment manager shall prepare and deliver a report to the VPF at the end of each

calendar quarter on the management of their

Each investment manager shell meet with the VPF on at least a semi-annual basis to review their

management of the fund, their economic forecast and their investment strategy.

8.3

An Investment manager will inform the VPF promptly of any changes in the investment manager's

firm

that could have a material impact on their management of the University's investments.

Monitoring of the Funds

9.1

The VPF, in consultation with the TAC, shall monitor and evaluate on a quarterly basis, the

performance of each of the investment managers as well as the overall

erformance of the Funds.

9.2

The

VPF- will meet with the IAC on at least a semi-annual basis and will report to them on

the

results of meetings with the investment managers since the previous IAC meeting. Concerns

about an investment manager's

erformance shall be noted in the TAC's minutes.

9.3 At its meetings, the VPF and the LAC shall review the economic conditions that may affect the

future investment performance of the Funds and any recommendations made by the VPF for

changes relating to that performance.

10.

Review of the Investment Management Procedures

Portfolios

impacl

11.

Conflict of Interest

11.1 The conflict of interest guidelines for the Funds shall be consistent with the overall guidelines for

the University. To the extent that certain situations may create a conflict of interest not covered

by the University's guidelines, the VPF shall establish additional guidelines as required.

12.

Voting Rights

12.1 The VPF will develop procedures for the exercise of voting rights acquired through the

investments of the Funds.

Simon Fraser University

Investment Governance Policy

Investment Governance Policy

Schedule 1

Approved Categories of Investment

The

following is the list of the approved categories of investments as of March 1, 2003, as

required under paragraph 6.1 of the

IG Policy. Until such time as

the Board approves a new

category of investments, any investment not in an approved category shall

prohibited. The

VPF shall

document the guidelines and

constraints in the related IM Procedures document for

investing in these assets in accordance with paragraph 3.4 of the

1(3 Policy.

(a) equities, which may be

issued

by companies inside or outside of Canada;

(b)

debt securities of Canadian and non-Canadian issuers, issued in Canadian or non-Canadian

currencies;

placements;

(d)

income-producing commercial, industrial and residential property, held in a professionally-

managed, diversified, pooled real estate fund;

(e)

interest-bearing cash and cash equivalents;

(1') options on securities held and derivatives for allowed purposes;

(g) unitized pooled funds or mutual funds consisting of eli

g ible investments in the above