Revised DRAFT



DRAFT

INVESTMENT GUIDELINES

FOR THE COMMITTEE ON TEMPORARY SHELTER INVESTMENT FUND

As of June, 2013

This policy replaces the policies dated September 24, 1999 and June 23, 2009.

I. Investment Objective and Time Horizon: The Committee on Temporary Shelter’s (COTS’) Investment Fund is a pool of assets with a long term investment horizon of greater than ten years. This fund, through active investment management, should achieve a rate of return that exceeds the total of fund expenses and inflation and meets or exceeds a market return benchmark for similarly invested funds. Through investment management, the organization intends to preserve and enhance the purchasing power of the assets.

II. Use of Funds: Up to 4% of a rolling 3 year average of market value (principal and interest) may be used to fund operating needs. Any applicable donor restrictions will be adhered to at all times.

III. Definition of Duties

Board of Trustees - The COTS Board of Trustees has responsibility for oversight of the management of COTS investment assets, and ensures that any donor restrictions on funds are met. The Board chooses the Investment Manager, reviews the Investment Manager’s performance, and approves the organization’s Investment Policy, all based on the recommendations of the Finance Committee.

Finance Committee - The Finance Committee recommends the Investment Manager based upon an evaluation process that includes a Request for Proposal for Investment Management services. The Committee reviews the Investment Manager’s performance at least semiannually and ensures that the Investment Manager complies with the organization’s Investment Policy Statement. The Finance Committee provides final approval of the Investment Manager’s performance measurement methodology and provides a quarterly report to the COTS Board on the Investment Fund’s performance.

Finance Committee Chair - The Chair prepares the monthly committee workflow in order to meet the previously stated committee duties. The Chair works in concert with the Executive Director to provide industry expertise in the carrying out of the Committee and the Executive Director’s duties.

Investment Manager – The Investment Manager devises and implements an Investment Strategy to achieve the goals stated in COTS’ Investment Policy Statement and provides input on performance measurement criteria. The Investment Manager complies with all reporting and in person presentation requirements (see Section V.) and notifies COTS when it can no longer meet the conditions of the Investment Policy Statement.

Custodian- The Custodian provides settlement services for all transactions, provides data necessary for required reports, safeguards the assets, collects and records dividends, interest and other income, and disburses funds as specified in the Investment Policy Statement. The Custodian and the Investment Manager may be the same party.

Executive Director – The Executive Director is a member of the Finance Committee of the Board and provides support and staff resources in the fulfilling of the duties of the Finance Committee and Board of Trustees. The Executive Director is the primary contact person with the Investment Manager for day to day communications and may delegate this responsibility to staff.

IV. Investment Parameters:

A. Asset Allocation

The Investment Fund is permanent and should be managed for long term results. However, the Investment Manager should review at least quarterly, the asset mix and individual holdings. The assets will be invested in a manner that provides an appropriate balance of a blend risk and return that over time will increase the purchasing power of the assets.

The following table illustrates what are considered acceptable target allocations, and benchmarks. The Investment Manager will further refine performance measurement criteria with the final approval of the Finance Committee.

Asset class

(see glossary) |Lower range |Target allocation |Upper range |Evaluation benchmark | |US Equity |40% |50% |60% |S&P 500

| |Non US Developed Equity |5% |10% |15% |Morgan Stanley

EAFE | |Non US

Emerging Mkts Equity |0% |5% |10% |MSCI Emerg. Mkts (EM) Index | |Fixed Income |20% |30% |40% |Barclays Intermediate Aggregate Bond Index | |Alternative

Investments |0% |5% |10% |Not Avail. | |

B. Diversification and Risk Profile

,

Diversification guidelines governing all asset categories at time of purchase are as follows:

• No more than 5% of the portfolio in a single holding or company.

• No more than 10% in single fund.

• No more than 20% in any single industry/sector, as defined by usage in the S&P 500.

• Limit on international holdings of 25%.

• Fixed income securities should be diversified within quality and maturity guidelines stated hereafter, in an effort to minimize risk.

If a holding or holdings grow(s) to be greater than the limits stated above, the Investment Manager must notify the Finance Committee, no less frequently than on a quarterly basis. Holdings should be brought back within guidelines within one quarter unless the asset(s) sale would negatively impact the value of the portfolio (as determined by the Finance Committee and Investment Manager) and the Investment Manager can provide the Finance Committee with a reason to not sell the asset.

C. Investment Quality

Fixed Income Investments should be chosen from Treasury Bonds and Notes, U.S. Federal Agency securities, Mortgage Backed securities, Municipal bonds, High Grade Corporate bonds, preferred stocks and fixed income mutual funds. All securities will carry an investment grade rating by at least one nationally recognized ratings service, unless disclosed to and approved by the Finance Committee prior to purchase. Exceptions to this credit quality limit may include mutual funds that hold high yield bonds, bonds that have been pre-refunded but not re-rated, and certain “non-rated” bonds backed by an issuer with taxing power or providing a critical municipal service.

There are no maturity limits on individual fixed income holdings, although appropriate risk limits shall be maintained at all times for the overall portfolio. Proper diversification shall be maintained with respect to maturities, sector concentration, issuer exposure, and call protection.

Alternative investments are limited to funds or “fund of funds” that make investments in commodity funds, real estate investment trusts, hedge funds or private equity funds.  The upper limit on this asset class reflects the higher level of risk and lack of liquidity inherent in alternative investments. Unlike direct investment in alternatives, these funds have oversight by both FINRA and the SEC. 

D. Restrictions

While these guidelines do not delegate full discretion to the Investment Manager, they do provide latitude for the employment of their own investment initiatives. Hence, COTS expects the Investment Manager to adhere to the limits and standards herein prescribed. Whenever an Investment Manager believes it can no longer do so, the Finance Committee Chair or his/her representative expects to be notified promptly.

V. Performance Measurement and Reporting: Investment returns are expected to surpass an appropriate overall portfolio performance index to be determined. Performance will be measured on a 3 year trailing basis net of all fees and results will be reported in written form at least semiannually in a manner acceptable to the Finance Committee. (See VI. Performance Review)

To the extent any benchmark or overall portfolio performance measure becomes obsolete or unsuitable, the Investment Manager will provide the Finance Committee with appropriate comparative data to assist the Finance Committee in evaluating the investment performance of the Investment Manager. The final selection of the comparative data is subject to the approval of the Finance Committee.

The Investment Manager is expected to recommend to the Finance Committee any changes in these guidelines believed to be in the best interests of COTS. The Investment Manager will provide the Finance Committee, prior to the end of each calendar year, a letter stating whether, in its opinion, changes should be made.

VI. Performance Review: the Finance Committee’s review of written performance reports on at least a semiannual basis will include a meeting to be attended by the Investment Manager. A formal review of the Investment Manager’s performance will be triggered by missing performance benchmarks in 2 out of 3 trailing annual performance periods.

VII. General: The Finance Committee will review these guidelines at least annually and they may be altered at any time by duly authorized action of the COTS Board of Trustees communicated in writing to the Investment Manager. The COTS Board of Trustees will consider a new Request for Proposal for Investment Manager services at least every five years.

Exceptions to these guidelines with respect to specific transactions which are recommended by the Investment Manager can be authorized by the Treasurer and either one of the following:

-Chair of the Board of Trustees, or

-Vice Chair of the Board of Trustees

Glossary:

Equity: A stock or any other security representing an ownership interest. 

US Equity- Stocks in U.S. companies

Non US Developed Equity – Stocks in foreign companies in developed countries.

Non US Emerging Markets Equity – Stocks in foreign companies in countries without well developed economies but with high growth potential.

Risk: The risk in holding equity securities is that the price will fall below the original purchase price or cost or that the increase in value will be less than expectations. There is a wide range of risk within this asset class.

Fixed Income – Securities that pay a guaranteed rate of return over a stated period of time. The return is in the form of fixed periodic payments over the term of the security and principal is repaid at the maturity date. Bonds are the most common form of fixed income securities. The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply "Treasuries." 

Risk: Generally given their structure, bonds are considered a less volatile and therefore ‘safer’ investment than equities. There are five main risks in holding bond securities:

1. Interest rate risk - the risk that bond prices will fall as interest rates rise. By buying a bond, the bondholder has committed to receiving a fixed rate of return for a fixed period. Should the market interest rate rise from the date of the bond's purchase, the bond's price will fall accordingly. The bond will then be trading/selling at a discount to reflect the lower return that an investor will make on the bond.

2. Reinvestment Risk –In a period of falling interest rates, returns from a bond will be reinvested at a lower rate than the bond originally provided.

3. Call Risk - The risk that a bond will be called by its issuer. Callable bonds have call provisions, which allow the bond issuer to purchase the bond back from the bondholders and retire the issue. This is usually done when interest rates have fallen substantially since the issue date. Call provisions allow the issuer to retire the old, high-rate bonds and sell low-rate bonds in a bid to lower debt costs.

4. Default Risk - The risk that the bond's issuer will be unable to pay the contractual interest or principal on the bond in a timely manner, or at all. Credit ratings services such as Moody's, Standard & Poor's and Fitch give credit ratings to bond issues, which helps to give investors an idea of how likely it is that a payment default will occur.

5. Inflation Risk - The risk that the rate of price increases in the economy diminishes the returns associated with the bond. This has the greatest effect on fixed rate bonds, which have a rate set from inception. The interest rates of floating-rate bonds are adjusted periodically to match inflation rates, limiting investors' exposure to inflation risk. 

Alternative Investments – This category applies to non-traditional investments that could be held to offset risk in other categories or provide additional diversification for an acceptable risk and return. Alternative investments include tangible assets such as precious metals, art, wine, antiques, coins, or stamps and some financial assets such as commodities, private equity hedge funds, carbon credits, venture capital, forests/timber, film production and financial derivatives. Certain funds and ‘funds of funds’ that invest in these alternatives provide a vehicle for investors to gain access to these investments with an additional level of oversight by FINRA and the SEC. Alternative investments carry a higher level of risk and lack of liquidity than more traditional investments.

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