Investment Policy Statement

CLEMSON UNIVERSITY FOUNDATION (CUF)
STATEMENT OF INVESTMENT POLICIES AND OBJECTIVES
Approved October 22, 2020

I. INTRODUCTION

This statement of investment policies and objectives governs the management of the investment portfolio of Clemson University Foundation (“CUF” or the “Foundation”) and other assets managed by the Foundation (together, the “Portfolio”) and will be effective until modified by the Foundation’s Investment Committee (the “Committee”) and Board of Directors (the “Board”). The purpose of the policy is to set forth approaches to prudently manage the investment of assets of the Foundation and those managed by the Foundation, within policies that enhance the value of resources of the Foundation, while maintaining prudent fiduciary standards. This statement will be reviewed at least annually by the Committee.

II. ROLES AND RESPONSIBILITIES

The roles and responsibilities of the Committee and the Foundation’s Chief Investment Officer are detailed in the Investment Committee Charter. In general, the Committee is responsible for developing investment policy and providing oversight of the investment process, while the CIO is largely responsible for the day-to-day implementation of the investment policy.

III. INVESTMENT OBJECTIVES

The overall financial objectives of the Portfolio are to (1) provide spending support to Clemson University and (2) maintain an individual endowment’s purchasing power over time. To accomplish these goals, the Portfolio must generate after-inflation investment returns greater than its spending rate over time, within acceptable risk parameters.

The investment objective of the Portfolio is to attain an average annual real total return[1] (net of investment management fees) of at least 5.25 percent over time. It is recognized that actual Portfolio performance will vary significantly from this long-term objective over shorter periods.

Specific guidelines for evaluating Portfolio performance are included in section VI.

IV. ASSET ALLOCATION

After assessing the degree of risk that the Foundation can tolerate in pursuit of its objectives, the Committee has adopted the long-term asset allocation policy shown below.

 

 

Allowable Range

Asset Class

 

Minimum

 

Maximum

Global Equity

 

30%

-

80%

Hedge Funds

 

0%

-

30%

Real Assets

 

5%

-

25%

High-Quality Fixed Income & Cash

 

10%

-

25%

The Committee may establish interim asset class targets and allowable ranges at its discretion, so long as they remain within the long-term allowable ranges set forth above.

Asset classes have the definitions presented below.

Global Equity includes investments in stocks listed on public exchanges[2] (in both developed and emerging markets) and private equity and venture capital partnerships. Private equity and venture capital investments may include opportunistic allocations to co-investments with new or existing partnerships. The role of the global equity portion of the portfolio is to provide long-term growth.

The hedge fund allocation includes a diverse group of managers and strategies with a goal of earning positive returns between those of equities and bonds over time, with less volatility and smaller interim declines than that of the public equity markets. Included in this category are strategies such as long/short equity, event-driven and special situations investing, merger and capital structure arbitrage, distressed securities, and fixed income arbitrage. This category also encompasses strategies focused on corporate and structured bonds, including those rated below investment grade. Additionally, this category may include opportunistic allocations to co-investments with hedge fund managers in high conviction ideas. The roles of the hedge fund portion of the portfolio are to provide diversification and access to unique strategies and manager skill.

Real Assets[2] includes investments generally expected to perform relatively well during periods of significant and unexpected inflation. This category includes commodities and commodity futures, public and private real estate, natural resource stocks, oil and gas, timber, inflation-linked bonds, and other inflation-sensitive investments. The roles of the real assets portion of the portfolio are to provide diversification and a partial hedge during periods of unexpected inflation.

High-Quality Bonds & Cash includes the obligations of sovereign nations and corporations, mortgage- and asset-backed securities, money market instruments, and bank deposits, which, on average, are expected to have a high quality rating (typically “A” or better by a recognized bond rating agency). The roles of the high-quality bonds and cash portion of the portfolio are to provide diversification and a partial hedge during periods of economic contraction, deflation, or flight to quality.

V. GUIDELINES FOR IMPLEMENTATION

Authorization and Required Approvals

The Board will approve the Investment Policy Statement, the Risk Management Policy, the Statement of Investment Policies and Objectives for the Planned Giving Portfolio, the Mini Pool MOU with the University, the Operating Cash Policy, and the Investment Committee Charter, and any changes thereof.

Determining the portfolio’s actual asset allocation within the allowable ranges is the responsibility of the CIO. Subject to the interim allowable ranges established by the Investment Committee, the CIO is authorized, without prior Committee approval, to make changes to the portfolio’s asset allocation by altering the portfolio’s exposure to existing active managers and passive investment vehicles (i.e., index or exchange-traded funds).

Investments with all new active managers (public or private) must be approved by the Committee. However, the CIO is authorized to invest in new or existing passive investment vehicles, or liquidate investments in any existing managers. Further, the CIO is authorized to recommit to existing private managers provided the commitment size is commensurate with prior vintages. The CIO will notify the Chair of the Committee of any such changes, but advanced approval by the Committee is not required.

Manager Guidelines

The Foundation will adopt specific investment guidelines for investment advisors managing portfolio assets in a separately managed account. Assets managed in commingled vehicles are subject to the investment guidelines outlined in the prospectus or other governing agreement.

Manager Selection

General considerations in the selection of managers include, but are not limited to:

  • Demonstration of sufficient tenure, organization and investment management skills.
  • Investment performance relative to peers is superior over a reasonable period of time.
  • Historical performance of the investment compares favorably to the investment objectives being sought.

Manager Autonomy

Decisions as to individual security selection, security size and quality, number of industries and holdings, current income level, turnover and the other tools employed by active managers are left to the broad manager discretion, subject to the usual standards of fiduciary prudence and the limits described below and/or in individual guidelines.

Diversification

The Portfolio is expected to be broadly diversified by economic sector, industry, number of holdings, and other characteristics. Diversification will be achieved at the total Portfolio level and not necessarily at the investment manager level. To produce overall diversification, managers may be selected to employ different management philosophies which together achieve the desired degree of diversification. Portfolios will be monitored for adherence to these philosophies.

The Portfolio shall not have exposure greater than 5% of its market value to any single security (i.e., stock or bond). Commingled fund vehicles and exchange-traded funds are excluded from this requirement.

Generally, no more than 5% of the Portfolio’s value will be invested in a single active manager (i.e., non-indexed investment). Notwithstanding the above, in the case of a Manager of Managers, such as a fund of fund or managed account, the risk associated with lack of manager diversification is substantially reduced, leaving the operational and selection risks of the manager as the predominant risk factor. In the case of a Manager of Managers investments of more than 10% require Investment Committee approval.

Derivatives and Leverage

No leverage (i.e., margin or borrowing) will be used at the total Portfolio level. The CIO may use margin to facilitate or settle trades within specific sectors. Individual managers may use leverage, provided its use is consistent with their risk controls and strategy.

All managers using derivatives must have systems in place to rigorously analyze and monitor duration, liquidity, counter-party credit risk and other risks in order to minimize the risk associated with the use of derivatives.

Liquidity

The ability to easily convert the Portfolio’s investments to cash to fulfill capital commitments is a critical consideration. The liquidity of the Portfolio will be closely monitored and will be maintained at a level such that a minimum of three years expected spending plus outstanding capital commitments may be easily accessed within a three-month period, even under stressed market conditions.

Mission-Related Investing

CUF may make investments in the Portfolio that align with its mission (“Mission-related Investments” or “MRIs”) of supporting Clemson University and its expressed priorities. Mission-Relating Investing is defined as the practice of using investments to directly achieve, or be aligned with, an institution's mission or programmatic goals. Mission-related investing encompasses a range of strategies and approaches—including, but not limited to: environmental, social, and/or governance (ESG) investing; impact investing; and program-related investing (PRI). Additionally, CUF will be cognizant of investments which promote good practices in the areas of the environment, sustainability, and governance.

Dependent upon their characteristics, MRI opportunities will fall under one of two categories. The first being those opportunities that may be established within the CUF Long-Term Investment Portfolio (“the Portfolio”) not including the Clemson University Mini-Pool. The second type being those that do not meet investment criteria, therefore, will be held outside of the Portfolio. In both categories, Clemson University leadership must acknowledge to CUF leadership that the MRI supported purpose is a priority of the University and the mission benefit warrants additional CUF Investment Committee consideration.

MRIs held in the Portfolio must meet the standard for quality and thorough diligence as all other investments in the Portfolio. MRIs are expected to generate long-term risk-adjusted investment returns competitive with other institutional-quality alternatives, and should have terms (e.g., fees, liquidity, duration, reporting) in line with CUF’s guidelines for investments in the same asset class.

MRIs included in the Portfolio will be included when measuring Endowment performance, diversification, and asset allocation, thus they must fall within all other Investment Policy Statement guidelines. All opportunities must be evaluated with consideration given to the impact on existing Policy and Target allocation ranges of the Portfolio and diversification within each asset class (e.g. Real Assets, Bonds and Cash). CUF’s CIO will determine which asset class an MRI will be classified under. MRIs generally may not represent more than 10% of the value of their respective asset class but in special circumstances may be up to 20% of the respective asset class.

If an MRI does not meet return or other quality requirements, it will be held outside of the Portfolio. For these MRIs, funds cannot be drawn from CUF’s existing investment portfolio, but rather, funds must be contributed from outside sources to a pool established that may include that opportunity. Fees will be assessed on such investments to cover administrative costs.

Regardless of where the investment may fall, in or out of the Portfolio, no project may be smaller than $1 million, and in no case may the total of all MRIs exceed 3% of the Portfolio at any time.

CUF’s CIO (working with outside advisors as needed) will have primary responsibility for the initial evaluation of potential investments as outlined in paragraph three, and for communicating to the Committee the important characteristics of these investments. All MRIs must be approved by the Committee and will be evaluated within this policy statement.

VI. MONITORING OF OBJECTIVES AND RESULTS

All objectives and policies are in effect until modified by the Committee. They will be reviewed at least annually for their continued appropriateness.


Individual investment managers will be monitored on a routine basis for consistency in investment philosophy, return relative to objectives, asset class exposures, and investment risk.


Performance of the Portfolio will be measured at least quarterly, but evaluated over longer periods. Portfolio performance is expected to:

  1. Match or exceed the rate of inflation plus 5.25%. Performance versus this objective will be evaluated over rolling 10-year periods.

  2. Exceed the return of a “Composite Benchmark” made up of the indices presented below. Performance versus this objective will be evaluated over rolling five- to ten-year periods.

 

 

 

Index

Corresponding Asset Class

Weight

Russell 3000 Index

US Stocks

42%

MSCI All Country World Ex US Index

Non-US Stocks

28%

Bloomberg Commodity Total Return Index

Commodities

5%

S&P Global Natural Resources Index

Natural Resource Equities

5%

FTSE EPRA NAREIT Global Real Estate Index

Public Real Estate

5%

BC Aggregate Bond Index

Bonds

15%

It is expected that short-term performance will often vary significantly from these objectives. Additional benchmarks may be used to evaluate performance from time to time.

VII. INVESTMENT POOL ASSETS

Assets of individual endowments are invested in a unitized pool. The objectives of this investment approach are to provide superior investment opportunities in addition to administrative economies.

CUF and Clemson University (“CU”) executed that certain Memorandum of Understanding (“Agreement”), dated April 1, 1999, and modified as of July 1, 2003 and any extensions thereof in accordance with its terms. Under this Agreement, CU will lend certain of its endowment funds to CUF for the purpose of having said funds invested by CUF under the same investment management objectives, guidelines and processes as employed by CUF in the investment of CUF Endowment funds. In accordance with the Agreement, the CU funds will not be comingled with any other funds.

While CUF acknowledges that its long-term investment objective in managing CU endowment funds through CUF endowment policies, strategies and management processes will conform to those used for CUF funds to the maximum extent possible, nothing herein shall preclude CUF from adopting certain modifications that are intended to reflect prudent investment asset allocations for the CU endowment funds.


[1] Real total return is the sum of capital appreciation (or loss) and current income achieved in the form of dividends and interest adjusted for inflation as measured by the CPI(U) index.

[2] It is recognized that the Portfolio will have exposure to some “real assets” through its diversified equity investments in the Global Equity portion of the portfolio (e.g., REITS and natural resources equity are included in major equity indices). Exposure to real asset equities that is gained through diversified investments in the Global Equity Portfolio will not be included for purposes of measuring the allocation to Real Assets as defined by this policy statement. The Real Assets category shall include only investments in managers or funds that are dedicated specifically to the Real Assets category.