University policy regarding university investments

Roles and responsibilities.

Implementation.

Investment considerations. In accordance with division (C)(1) of section 3345.05 of the Revised Code, across all university funds, an average of no less than twenty-five per cent of the total operating assets over the previous fiscal year must be invested in publicly-traded fixed-income securities, defined as:
1. Securities issued by the United States government or its agencies or instrumentalities;
2. The treasurer of the state of Ohio’s poled investment program;
3. Obligations of the state of Ohio or any of its political subdivisions;
4. Certificates of deposits of any national bank located in the state of Ohio;
5. Written repurchase agreements with any eligible Ohio financial institution that is a member of the federal reserve system or federal home loan bank;
6. Money market funds; or
7. Bankers acceptances maturing in two hundred seventy days or less which are eligible for purchase by the federal reserve system, as a reserve.
Monies from various university funds may be pooled to maximize return or reduce expenses.

Specific investment objectives. The university investment pool is divided into three investment pools.

Short-term pool. The short-term pool contains university funds needed for day-to-day operating expenses, generally at least totaling the amount of projected expenditures occurring within a one-year time frame.
1. Investment objective. The investment objective of the short-term pool is to provide for preservation of capital for ongoing liquidity with the maximum income commensurate with the need for principal safety. Investment selection shall be based on the need for this pool to fund day-to-day operating expenses and planned expenditures occurring within a one-year time frame.
2. Relative rate of return objective. The performance of the short-pool investments shall be measured relative to the ninety-day US treasury bill Index.
3. Asset allocation guidelines:
  
  Asset class Policy target
  
  Cash & equivalents 100%

Intermediate-term pool. The intermediate-term pool contains funds that may be authorized for university unrestricted priorities, as well as to support the short-term pool on a temporary or permanent basis pursuant to the university budget, the use of which could occur over an intermediate time frame generally considered between one and five years. The funding of the intermediate-term pool may come from, but is not limited to, accumulated short-term funds that exceed projected operating needs over the subsequent year, funds set aside for specific initiatives, excess earnings from the long-term pool, and other amounts that are set aside by the senior vice president for finance and administration.

Investment objective. The investment objective of the intermediate-term pool is to earn a higher return on funds that are not identified as day-to-day operating expenses. Emphasis is placed on income and principal appreciation with an attempt to minimize return volatility.
Relative rate of return objective. The intermediate-term pool shall attempt to achieve a return in excess of a blended benchmark calculated by applying each strategy's target asset allocation to the comparable benchmark. Additional market-based blends may be utilized for further comparative uses.

Asset allocation guidelines:

Asset class	Strategic target	Range
Growth strategies	25%	15%-35%
Inflation protection	5%	0%-15%
Risk reduction	70%	60%-80%

Growth strategies are expected to provide long-term growth and offer high expected real returns, and shall include several asset classes with a bias toward equity (public and private, as well as long-biased hedge funds) and equity-like investments (such as high yield and emerging markets debt) due to their higher long-term return expectations.
Inflation protection strategies shall include public real asset strategies as well as private real estate. Real assets and private real estate provide the portfolio with a diversified hedge against inflation as well as a strong yield component.
Risk reduction strategies shall include diversified fixed income and non-directional hedge funds. Fixed income provides stability and protection in deflationary environments. Non-directional hedge funds are designed to reduce volatility while providing fixed income-like returns.

Long-term pool. The long-term pool represents a "permanent core" fund not needed for working capital in any given single year.

Investment objective. The primary investment objective of the long-term pool is to maximize capital appreciation over an extended time horizon, deemed approximately five to ten years or greater, the purpose which is to enhance the university's ability to provide for programs and initiatives. Emphasis is placed on capital appreciation over intermediate income needs or short-term capital preservation.
Relative rate of return objective. The intermediate-term pool shall attempt to achieve a return in excess of a blended benchmark calculated by applying each strategy's target asset allocation to the comparable benchmark. Additional market-based blends may be utilized for further comparative uses.

Asset allocation guidelines:

Asset class	Strategic target	Range
Growth strategies	69%	59%-79%
Inflation protection	11%	0%-21%
Risk reduction	20%	10%-30%

The terms “growth strategies,” “inflation protection,” and “risk reduction” shall have the same meaning as provided for in paragraph (D)(2)(c) of this rule.

Return allocation policy. No less than annually, the investment committee shall review investment returns and determine any reallocation of the returns to the short-term or intermediate-term pools.
Time horizon. Based on historical data, it is anticipated that the university shall have a strong probability of achieving its stated objectives over the long-term. Since it is assumed that the university and its purpose shall exist over a long period of time, long-term investment time horizons are used (e.g. ten, twenty, and thirty years) to establish the appropriate asset allocation policies and guidelines in order to attain these objectives. Year by year and over shorter-term time horizons these objectives may not always be attained. Nevertheless, emphasis on evaluating performance shall be over rolling three-year and five-year periods, rather than short-term, to determine the portfolio's progress towards its objectives.

Definition of risk. Any person or organization involved in the process of advising the university regarding the investment of assets shall understand how the investment committee defines risk so that the assets are invested in a manner consistent with the university objectives and investment strategy as outlined in this rule. The investment committee defines risk across all university funds, collectively, as the probability of not meeting the university's liabilities or cash flow requirements as determined by its objectives.

The investment advisor shall manage portfolio risk at multiple levels: strategic asset allocation, manager selection and portfolio construction. Strategic asset allocation recommendations shall be made with the goals of managing portfolio risk (supporting preservation) and providing return enhancement (supporting perpetuity). Diversification across asset classes is critical to minimizing volatility of returns. Risk (absolute and relative) shall also be managed and monitored at the investment manager level. Multi-manager strategies shall be designed to offer optimal diversification, reduce risk and deliver consistency.
Portfolio risk shall be monitored on a regular basis and the advisor shall provide reporting on risk related metrics such standard deviation, Sharpe ratios, value at risk, max drawdown and stress testing.
Each pool's risks are different. Generally, the primary risk of each pool is:
1. Short-term pool. Any temporary or permanent loss that is not recoverable in ninety days or less time.
2. Intermediate-term pool. A temporary or permanent of loss of purchasing power over rolling three-year periods. That is, the primary risk associated with the intermediate-term pool is the loss of real value (after inflation) over three-year periods.
3. Long-term pool. Excess volatility measured in relation to the blended benchmark described above, as well as long-term permanent loss of principal measured over full market cycles, as defined in this rule.

Liquidity. Sufficient liquidity and income should be maintained to pay the University wages, benefits and other expenses, and any predictable and/or reasonable contingencies. To minimize the probability of a loss occasioned by the sale of a security forced by the need to meet a required payment, the investment committee shall, along with the investment advisor, take the necessary steps to provide sufficient liquidity on an ongoing basis. In the event of an unforeseen cash requirement, the investment committee shall work with the investment advisor to provide the necessary liquidity. As a general rule, when providing for liquidity, the strategic allocations as delineated in this rule and accompanying exhibits shall be, within reason, a primary consideration.

Investment guidelines.

Investment advisor review.

Performance reports generated by the investment advisor shall be compiled at least quarterly and communicated to the investment committee for review. The investment performance of the total portfolio, as well as asset class components, shall be measured against commonly accepted performance benchmarks as described throughout this rule. Consideration shall be given to the extent to which the investment results are consistent with the investment objectives, goals and guidelines as set forth in this rule.
The investment advisor performance is generally measured over a full market cycle, though there is always the right to terminate the advisor for any reason including but not limited to the following:
1. Significant qualitative changes to the investment advisor’s organization, personnel or strategy.
2. Investment performance, which is significantly less than anticipated given the discipline employed, and the risk parameters established, or unacceptable justification of poor results.
3. Failure to adhere to agreed upon or communicated investment parameters or the terms of an agreement with the university, including communication and reporting requirements.
4. Change in fee structure.
5. Performance against peers.

Investment policy review. To ensure continued relevance of the guidelines and objectives established in this rule, the investment committee and the investment advisor shall review this rule at least annually. However, the investment committee reserves the right to amend this rule at any time.

Definitions. For the purposes of this rule, the following terms are defined as follows:

Indices.
1. MSCI all country world index (MSCI ACWI). The MSCI ACWI index is a market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI is divided approximately across all stock markets, in proportion to their size across the globe. The US markets are approximately forty-five per cent to fifty-five per cent of the global markets, and other developed and emerging markets comprise the remainder in proportion to their sizes.
2. Barclays capital U.S. intermediate government/credit bond Index. The index measures the performance of U.S. dollar denominated U.S. treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years.
Full market cycle. A full market cycle is generally described as the intermediate- to long-term period during which capital markets exhibit upward, downward, and then upward again behavior (historically five to seven years on average, though time-frame may be shorter or longer depending on the market environment). Because market cycles tend to present themselves differently over time, a longer-term orientation enables the university more fully to judge performance in light of the unique characteristics of each period rather than project based on more difficult to discern short-term results.

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University policy regarding university investments

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Asset class	Policy target
Cash & equivalents	100%