Approved by the Board of Trustees: September 9, 2021
The Brookline Community Foundation creates opportunity and promotes equity through the transformative power of giving, fulfilling the promise of opportunity, by addressing the needs of Brookline as a whole.
This document states the investment policy of the Board of Trustees (the “Board”) of the Brookline Community Foundation (the “Foundation”). It applies to the Foundation’s professionally managed invested assets (the “Endowment”) and to the spending rate for assets invested in the Endowment.
The Investment Committee is empowered by the Board to direct and monitor the investment management of the Endowment. This statement has been chosen by the Investment Committee and approved by the Board as the most appropriate policy for achieving the financial objectives of the Endowment, which are described in the “Investment Objectives” section of this document. The Foundation has adopted a long-term investment horizon such that the chances and duration of investment losses are carefully weighed against the long-term potential for appreciation of assets.
II. Investment Objectives
The primary investment objective of the Endowment is to provide a relatively stable, inflation adjusted, annual payout to support the Foundation’s defined spending rate. There will be some inevitable volatility in the principal value of the Endowment, but it may offer the potential for a sustainable payout plus inflation protection over the long term.
To assist the Foundation in gauging the success of the return on investments, the Foundation shall employ as its investment minimum return goal the following formula:
Target Rate of Return = Consumer Price Index (CPI) + Annual Spend Rate
The target return is measured based on a trailing five year annualized return. This is the time period used to gauge whether or not the portfolio is meeting its objective. Each individual period may be more or less than the target. The probability of success of achieving the minimum return goal increases as the length of the evaluation period increases. It is anticipated that there will be periods of time where the five year trailing calculation will be below the minimum return goal. There must be a tolerance for these periods in order to remain with the long term strategy and not change at inopportune times.
Except as a donor’s gift instrument otherwise requires, and consistent with all applicable regulations, including the Uniform Prudent Management of Institutional Funds Act, as amended, by the Commonwealth of Massachusetts, and the Pension Protection Act of 2006, as amended, the following factors will be considered, in managing and investing the investment portfolio:
- General economic conditions;
- The possible effect of inflation or deflation;
- The expected tax consequences, if any, of investment decisions or strategies;
- The role that each investment or course of action plays within the Foundation’s overall investment portfolio;
- The expected total return from income and the appreciation of investments;
- Other resources of the Foundation;
- The needs of the Foundation and a given institutional fund to make distributions and to preserve capital, and;
- An asset’s special relationship or special value, if any, to the purpose of the Foundation.
III. Spending Policy
The spending rate of the endowment is intended to support grants to the community as well as the operations of the Foundation. It is currently anticipated that the spending target range will likely fall between 4.5% and 5.5% of the Endowment’s market value, calculated over the prior 12 quarters. This 12 quarter average was chosen to accommodate (smooth out) the payouts based on a more volatile, growth-oriented portfolio. This spending policy may be revised from time to time.
IV. Asset Allocation
The Investment Committee believes that the Endowments’ risk and liquidity position are, in large part, a function of asset class mix. Mason Investment Advisory Services (“the Investment Consultant”, “Mason”) has presented, to the Investment Committee, summary information about the long-term performance of various asset classes, focusing on balancing the risks and rewards of market behavior. Considering the Endowment’s investment objective, time horizon, risk tolerances, performance expectations, and asset class preferences, an appropriate portfolio allocation was identified, as shown in the “Asset Allocation Targets” chart in the Appendix.
After the allocation strategy is implemented, the Investment Consultant is responsible for rebalancing the portfolio, applying the methodology approved by the Investment Consultant.
Any change to either the asset allocation targets or rebalancing methodology will be communicated to the Foundation in writing contemporaneously.
V. Investment Restrictions
No “illiquid” investments, such as private placements, limited partnerships, and hedge fund vehicles (among others) may be purchased by the Investment Consultant without the recommendation of the Investment Committee and approval of the Board.
VI. Manager Qualifications
A qualifying manager must be a registered investment advisor under the Investment Advisors act of 1940, including mutual funds, exchange-traded funds, and separately managed accounts. The Investment Consultant has full discretion in choosing specific fund managers based on their internal selection process.
Individual Manager Analysis
Individual funds are selected on the basis of the style of manager(s) which is most appropriate in terms of constructing the target investment portfolio. The manager(s) selected within each asset class should provide the appropriate level of diversification and style purity with the highest likelihood of providing optimal risk adjusted returns over the long term.
Performance Evaluation: Benchmarks and Reference Points
Several evaluation benchmarks are required to measure both the success of the allocation strategy as well as the managers used to implement the allocation. To measure the success of the allocation strategy, the Investment Committee will use a global stock/bond index, as well as an Equity-Biased Growth Allocation Reference Point. These benchmarks are described below.
Global Stock / Global Bond Composite Index
The global stock / global bond composite index is comprised of the same ratio of equity to fixed income as that of the Fund’s long-term targets (77% equity and 23% fixed income). This composite index is derived from the indices described below. Monthly rebalancing is assumed. The performance of the equity/fixed income composite index is presented net of the average annual ETF and index fund expense ratio, prorated monthly.
77/23 Global Stock / Global Bond Composite Index
∙ 77% S&P Global Broad Market Index
∙ 23% Bloomberg Barclays Global Aggregate Index
The S&P Global Broad Market Index is a top-down, float-adjusted market capitalization-weighted index which measures the performance of the entire universe of institutionally investable equity securities.
The Bloomberg Barclays Global Aggregate Index provides a broad-based measure of the global investment-grade fixed income market, including government, credit and collateralized securities.
The Fund, which contains both domestic and global investments, is not intended to match the domestic and global weightings of this stock/bond composite index. Therefore, the Fund’s returns may vary relative to this composite index due to several factors, including, but not limited to, differences in returns between domestic and global investments and returns of small versus large cap stocks.
Equity-Biased Growth Reference Point
This reference point, produced by Morningstar, includes all funds contained within the Morningstar Allocation – 70%-85% equity. These funds seek to provide both capital appreciation and income by investing 70% to 85% of assets in equities and the remainder in fixed income and cash.
The Investment Committee agrees that this is a reference point. The performance of the Fund may be greater or less, depending upon how aggressive the asset allocation strategy is relative to that of the managers included in the reference point.
Benchmarks for Managers
To measure the success of the managers used to implement the asset allocation, each manager will be measured against its specific Morningstar peer group using a category average of mutual funds with the same asset class or investment style.
Although short term underperformance will be tolerated and closely monitored by the Investment Consultant, managers are normally expected to perform at or above their peer group averages over longer term time periods generally defined as in excess of five years. In addition, fund managers will be measured relative to their relevant performance benchmarks over various time periods.
VII. Short Term Reserve Management Policy
From time to time the Foundation may maintain large cash balances in reserve for future needs and contingencies. The Investment Consultant is authorized to manage these reserves for enhanced yields consistent with a conservative cash management policy. To manage credit risk, instruments used for cash management will be limited to the following:
∙ Money Market Mutual Funds and “ultrashort bond funds”
∙ Government issues (known as “Treasuries”)
∙ Government-Sponsored Enterprise Securities (known as “Agencies”), such as Farm Credit System, Federal Home Loan Bank System, Federal National Mortgage Association, some of which are not explicitly backed by the full faith and credit of the U.S. Government
∙ FDIC insured Certificates of Deposit, to be bought in increments up to the maximum insured limit per bank to assure insurance coverage.
With the possible exception of the “ultra-short bond funds”, no instrument will have a maturity at issue, or remaining maturity at purchase, of greater than twelve months. Generally, and depending upon the specific liquidity needs of the Foundation, a ladder strategy will be employed to further minimize interest rate risk.
VIII. Delegation of Authority and Responsibilities
This Investment Committee is responsible for the development and implementation of the investment policy. This responsibility includes determining investment strategy, selecting the Investment Consultant, establishing the scope and terms of the delegation of the investment management of the Endowment, and monitoring the Investment Consultant’s performance and compliance with the scope and terms of the delegation.
Standard of Care
In exercising its responsibilities, the Investment Committee will act in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.
A person with special skills or expertise, or selected in reliance upon his or her representation that he or she has special skills or expertise, will use those skills or that expertise in managing and investing the Endowment.
In investing and managing the Endowment, the Investment Committee will consider both the purposes of the Foundation and the purpose of any specific fund.
Management and investment decisions about an individual asset will be made not in isolation but rather in the context of the portfolio as a whole and as part of an overall investment strategy having risk and return objectives reasonably suited to the Foundation.
In managing the portfolio, the Investment Committee will incur only those costs that are appropriate and reasonable in relation to the Endowment or any specific fund, the purposes of the Foundation, and the skills available to it and will use reasonable efforts to verify facts relevant to the management and investment of the Endowment.
Board of Trustees
The Board shall have final responsibility for ensuring the prudent investment and management of assets comprising the Endowment. The Board shall have the authority to approve or reject the Investment Policy Statement developed by the Investment Committee. Once the Investment Policy Statement has been approved by the Board, the Board shall authorize the Investment Committee to implement the Investment Policy Statement. It is the responsibility of the Investment Committee to review the Investment Policy Statement and to provide the Finance Committee and the Board with periodic updates on the Fund’s investment performance. The Investment Committee may seek the assistance of the Investment Consultant to present updates on the Fund to the Board.
President, Treasurer, or Clerk of the Foundation
Sign all appropriate contracts, open accounts, and give any other authorizations needed by the Investment Consultant to affect the terms of this Investment Policy Statement.
The Investment Consultant is the primary source of investment education and investment manager information. On an ongoing basis the Investment Consultant will:
- Provide the Investment Committee with quarterly performance reports. This report will measure performance of the Endowment and each manager within the Endowment, with comparisons to benchmarks and reference points as described herein. Also, this report will illustrate actual asset allocations as compared to the targets set by this Investment Policy Statement;
- Report to the Investment Committee quarterly, or as requested;
- Monitor the activities of each investment manager or investment fund;
- Provide the Investment Committee with an annual review of this Investment Policy Statement, including an assessment of the Foundation’s current asset allocation, spending policy, and investment objectives; and
- Supply the Investment Committee with other reports or information as reasonably requested.
- The Investment Consultant shall supervise and direct the investment of the Endowment as specified in this Investment Policy Statement. Supervision is continuous, with the Investment Consultant being responsible for assessing the appropriateness of asset allocation strategies and maintaining discretion to change the strategy without the Investment Committee’s approval.
- In addition, the Investment Consultant has discretion and is required to rebalance the Endowment to maintain the asset allocation using the methodology approved by the Investment Consultant. The Investment Consultant also has discretion to change managers as appropriate.
Custodians are responsible for the safekeeping of the portfolio’s assets. The specific duties and responsibilities of the custodian are:
- Value the holdings.
- Collect all income and dividends owed to the portfolio.
- Settle all transactions (buy-sell orders).
IX. Adviser Retained Fund Policy
The Foundation recognizes that on occasion certain donors may want to retain their existing investment manager in instances where the donor wishes to make a contribution to the Foundation. The following policy has been established to allow and encourage such donations, while also ensuring that any donation is handled in a manner consistent with the Foundation’s Investment Policy Statement. This policy establishes limitations and guidelines for situations when a donor wishes to recommend a specific investment manager to hold his or her contribution to the Foundation.
Upon request by a donor at the time of a gift and establishment of a fund, and subject to the approval by the Board, the Foundation will enter into a contract with an individual investment manager or management firm (“Recommended Manager”) to manage assets given to the Foundation by said donor, provided:
- The donor makes an endowment gift of at least $250,000 to the Foundation for the purposes of establishing a new fund;
- The donor requests in writing, as a condition of the gift, that the gifted assets be held by the Recommended Manager;
- The Recommended Manager, at a minimum, must be a registered investment advisor under the Investment Advisors Act of 1940;
- The donor does not have a family relationship with the Recommended Manager or with the employees or owners of the Recommended Manager’s firm;
- The assets must be managed in a separate account belonging to the Foundation and the donor may exercise no control over that account.
- The donor acknowledges that the fees and expenses charged by the Recommended Manager will be deducted solely from the total return on the funds held by the Recommended Manager. A representative from the Investment Committee or a Foundation designee will discuss these fees and expenses with the Recommended Manager to reach an agreement establishing fees and expenses that are commensurate with the services the Recommended Manager will provide.
- The donor agrees that an annualized Investment Consultant’s fee will be deducted from the total return on the funds.
- The donor agrees that the funds donated will be assessed an annual administrative fee in accordance with the Foundation’s policy on administrative fees.
- The donor acknowledges and the Recommended Manager agrees that the Recommended Manager will monitor investment performance of the funds, will coordinate and communicate regularly with the Foundation’s Investment Consultant all investment management activities and recommendations.
- The donor acknowledges and the Recommended Manager agrees that, while the Foundation’s Investment Consultant will request and consider investment recommendations from the Recommended Manager, the Recommended Manager will make investments only pursuant to the instructions of the Foundation’s Investment Consultant, and in accordance with the Foundation’s Investment Policy Guidelines.
- The donor acknowledges and the Recommended Manager agrees that the Recommended Manager will adhere to all investment instructions, advice and guidance provided by the Foundation’s Investment Consultant, and will be evaluated according to the same criteria and benchmark requirements as applied to the Foundation’s Investment Consultant.
Revocation or Termination
The donor and the Recommended Manager acknowledge that the Board may, at any time, revoke the privilege of the donor recommendation. The donor acknowledges that I.R.S. regulations require the Board to retain sole discretion to terminate the Foundation’s relationship with the Recommended Manager, and to transfer the funds held by the Recommended Manager to other investment managers under any facts or circumstances that the Board in good faith believes warrant such termination and transfer. Such facts and circumstances will include, but not be limited to, a determination made in the sole discretion of the Board that the Recommended Manager has failed to meet the benchmark requirements set forth herein, including any amendments that may be made from time to time; has failed to perform comparably to other managers; has charged fees that are incommensurate with services provided; has failed to adhere to the Investment Consultant’s investment instructions, advice or guidance; or has otherwise failed to perform as requested by the Foundation.
In the case of an agency donor, the board of the agency must pass a resolution directing the agency to request that the Foundation enter into a contract with a specifically named manager. The agency donor must supply that resolution to the Foundation at the time of making its request.
The money held by a Recommended Manager will be a part of the Foundation’s Endowment Fund portfolio. As a result, investment earnings on the Foundation’s Endowment Fund portfolio will be allocated proportionate to the endowed fund in the same manner as all of the Foundation’s other endowed funds.
Each instance of requests contemplated by this Policy will be evaluated individually by the Investment Committee, and exceptions may be made based on the facts and circumstances of the donation. As always, the Board reserves the right to refuse any gift deemed to be against the best interests of the Foundation.