Investment Policy
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INVESTMENT
POLICY
Policy Type:
Board
Initially
Approved:
February 10, 2014
Policy Sponsor:
Board of Governors
Last Revised:
December 1, 2023
Administrative
Responsibility:
Associate Vice-
President, Finance and
Commercial
Operations
Review
Scheduled:
December 1, 2025
Approver:
Board of Governors
Policy Summary: This Policy outlines the objectives, principle and strategy for the investment of University
funds.
A.
OVERVIEW
The Board of Governors of Mount Royal University has fiduciary responsibility for the investment
of University resources. This Investment Policy
(‘Policy’) outlines the principles by which the
University will discharge its responsibility with respect to maintaining, managing and enhancing its
endowment funds by stewarding them in perpetuity,
as well as the University’s working capital
assets, comprised of the short term and long term fund, to support the current and future operations
of the University. The University Funds portfolio (
‘Fund’ or ‘Funds’) is made up of the University
Endowment Fund and the University working capital assets, Short-Term and Long-Term Fund.
B.
PURPOSE
The purpose of this Policy is to:
● Provide the framework to define investment return performance goals to achieve a long-term
rate of return that in real terms shall equal or exceed the rate of spending with an acceptable
level of risk.
● Define the investment management structure for University Funds.
● Ensure that all relevant issues are considered in formulating an investment strategy for
University Funds with explicit attention to market risk, foreign currency risk, liquidity risk, credit
risk, and interest rate risk.
● State the investment guidelines and restrictions for University Funds.
● Ensure that there is ongoing communication between the Board of Governors, University
management, investment asset consultants, and investment managers, investment
custodians, and other related services as required.
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C.
SCOPE
Compliance with this Policy extends to all Funds held by the University.
D.
POLICY STATEMENT
1.
OBJECTIVES
1.1
The University determines investment objectives consistent with the investment
principles set out by the Board and based on the needs and various purposes of
the type of funding included in the Fund.
1.2
The primary objectives for the Fund include:
a.
Endowment Fund: To generate sufficient income to meet the approved
spending rate of 3.5% while preserving the principal invested in real
(inflation-adjusted) terms over the long term.
b.
Short and Long-term Funds: To generate a growth component above
short- and medium-term spending needs.
1.3
In order to meet these investment objectives, the Fund is composed of Short-term
and Long-term investments.
1.4
The Endowment principal share of the Long-Term Investment Portfolio is held in
perpetuity and cannot be redeemed. The unendowed working capital share can be
formed by any sources of funds other than the Endowment principal. The
redemptions from the Long-Term Investment Portfolio for cash, which are not sales
in the normal course of the Portfolio rebalancing, can only be performed from its
unendowed working capital share.
2.
FUND MANAGEMENT AND INVESTMENT PRINCIPLES
2.1
Fund investments shall be made solely in the interest of Mount Royal University in
accordance with this Policy.
2.2
The Fund shall be invested with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person in a like position would
exercise under similar circumstances; and, in a manner that the Board of
Governors reasonably believes to be in the best interest of the University.
2.3
Board members and their appointed advisors who possess, or ought to possess,
because of their profession or business, a particular level of knowledge or skill
relevant to their responsibilities to the Fund, shall employ that particular level of
knowledge or skill in the interest of the Fund.
2.4
Investment of the Fund shall be diversified so as to yield target returns within
acceptable levels of risk to minimize the risk of material losses, and without undue
reliance on a single market and/or strategy.
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2.5
With respect to implementation of the asset mix, investment management fees will
be considered relative to the potential for value-added.
2.6
The Board shall ensure that there is sufficient liquidity to make required
disbursements as they become due.
2.7
It is the Board's intent to continue operating its Investment Portfolio in perpetuity
with a focus on long-term overall investment performance balanced with the need
to meet annual disbursement requirements.
2.8
Available Short-term Working Capital is to be employed productively by investment
in short-term cash equivalents to provide safety, liquidity, and return.
3.
INVESTMENT STRATEGY
3.1
The Board of Governors has approved a combination of active and passive
investment management strategies, where applicable, as the optimal strategy for
the generation of investment returns at the optimal risk level, while providing broad
based, low cost exposure to applicable investment markets.
3.2
The University shall employ an investment management protocol and a diversified
asset allocation strategy using a variety of asset classes, with a goal to:
a.
Preserve the capital of the investment portfolio by limiting risk to an
acceptable level;
b.
achieve a real rate of return; and
c.
subject to (a) and (b), minimize investment management costs.
4.
INVESTMENT RESPONSIBILITIES
4.1
The Board maintains full oversight responsibility for University investment activities
through the following structure and delegation of responsibility:
a.
The prime directive of the Board Finance Committee is to monitor the
performance of the investment portfolio in meeting the objectives and
philosophy, and recommend betterments as needed.
b.
Through the Board Finance Committee, assess reports provided by
management regarding Asset Mix, market developments, Manager
performance, and compliance with the Investment Policy.
c.
The Asset Mix will be reviewed by the Board on a semi-annual basis along
with this Policy as recommended by the Board Finance Committee.
5.
INVESTMENT MANAGEMENT and ASSET MIX
5.1
The Board shall monitor the performance of the Short-term Fund. Such monitoring
shall include quarterly performance measurement reporting by management.
5.2
The Investment Portfolio, comprised of the University's Long-term Fund and
Endowment Fund, shall be invested through investment Manager(s) approved by
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the Board of Governors based on recommendations of the Board Finance
Committee (Appendix A). The Manager(s) must comply with the Agreements and
the Accountability Checklist outlined in Appendix B, respectively.
5.3
The investment performance objective for the Investment Portfolio is to provide
returns that approximate as closely as practicable, before expenses, the
performance of each asset class benchmark index over the long term.
5.4
Asset Mix Policy
The long term asset mix policy and tolerance ranges for the Long-Term Fund and
Endowment Fund, as approved by the Board, are as follows:
Asset Class
Percentage of Total Fund Market Value
Minimum
Policy
Maximum
Cash & Short Term
0%
0%
5%
Universe Bonds
10%
15%
20%
Mortgages
2.5%
10%
17.5%
Total Fixed Income
12.5%
25%
32.5%
Canadian Equity
10%
20%
30%
Global Equity
25%
35%
45%
Total Equity
45%
55%
65%
Canadian Real Estate
2.5%
10%
17.5%
Global Infrastructure
2.5%
10%
17.5%
Total Alternatives
5%
20%
30%
Total
100%
5.5
Management shall monitor the market value of each Asset Class within the
Investment Portfolio and shall rebalance between Asset Classes as set out in the
asset mix table above. An Asset Mix review will be performed monthly and
investments re-balanced upon approval of the Associate Vice-President, Finance
and Commercial Operations.
6.
RISK AND DIVERSIFICATION
6.1
The investment objectives as described in section D., 1, have been reviewed by
the Board with advice from an Asset Consultant with regard to the risk tolerance
of the Board.
6.2
The uncertainty of future economic and investment conditions calls for prudent
diversification in the investments of the Fund to reduce risk. Diversification requires
the use of different Asset Classes within the Fund.
7.
PERMITTED CATEGORIES OF INVESTMENTS
7.1
Subject to section D., 5, of this Policy, the Fund may invest in any or all of the Asset
Classes and their subcategories listed below:
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a.
Public equities, including common and preferred shares and equivalents,
such as warrants, rights, installment receipts, unit trusts, and convertible
debentures, all of which may be issued by Canadian or non-Canadian
issuers;
b.
Debt instruments of Canadian and non-Canadian issuers, issued in
Canadian or Non-Canadian currencies, including bonds, loans,
convertibles, securitized instruments and debentures;
c.
Commercial mortgages;
d.
Real Estate investments invested in actively managed open-end or
closed-end real estate pooled funds or real estate investment trusts;
e.
Infrastructure investments invested in actively managed open-end or
closed-end global infrastructure pooled funds;
f.
Guaranteed investment certificates or equivalent of insurance companies,
banks or other eligible issuers;
g.
Annuities, deposit administration contracts or other instruments regulated
by the Insurance Companies Act or comparable provincial law, as
amended from time to time;
h.
Term deposits offered by banks or other financial institutions where
deposits are guaranteed by CDIC or an equivalent guarantor; and/or,
i.
Cash, treasury bills or money market securities issued by governments,
government agencies or corporations.
7.2
Managers may utilize the following financial instruments provided that participation
has been specifically listed in the pooled fund investment policy and/or the
Investment Management Agreement:
a.
Futures and other derivative instruments.
b.
Currency forwards, futures and options used to hedge foreign currency
exposure.
c.
Equity and Fixed Income indices including Exchange Traded Funds (EFT)
provided the underlying investments qualify under clause D., 7, 7.1.
d.
Derivative products designed to transfer or change certain characteristics
of the underlying investments, provided that those underlying investments
and characteristics qualify under Section G.
7.3
The Fund may not invest in:
a.
Commodities or derivative instruments related thereto.
b.
Collectibles.
c.
Investment instruments that create a leveraged liability greater than the
original investment (some Hedge Funds and potentially some Income
Trusts).
d.
Non-listed shares.
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e.
Derivative instruments not specifically permitted above.
f.
investments not permitted for the Fund under applicable legislation (if any).
7.4
The Fund may not engage in speculative hedging.
7.5
Short-term investments managed directly by the University
a. The Short-term investments shall be invested in liquid securities with a term to
maturity of no more than one year, or held in cash.
b. All short-term investments shall be a minimum rating of DBRS R-1 (high), or
equivalent.
c. Not more than 10% of the short-term component of the Investment Portfolio
shall be invested in any one issuer except for securities of, or guaranteed by:
• the Government of Canada;
• or a province of Canada having at least AA DBRS or equivalent credit
rating, and whose short-term investments are rated R-1 (high) or
equivalent;
• or a Canadian bank having at least a AA DBRS or equivalent credit rating,
and whose short-term investments are rated R-1 (high) or equivalent.
7.6
Commingled Vehicles
Where investments are made through mutual or pooled funds, those investments
are to be governed in accordance with the investment policy of the mutual or pooled
fund which will supersede any other specific constraints in this Policy.
8.
DONATED SECURITIES
Subject to market conditions, donated securities will generally be sold immediately upon
receipt by the University. However, where it is deemed advantageous to not immediately
dispose of donated securities to avoid price impairment due to limited security trading
volume, the University may employ an alternate disposal strategy. All circumstances
where the University elects to hold donated securities for a period exceeding 30 calendar
days shall be reported to the Finance Committee of the Board of Governors.
9.
INVESTMENT AND PERFORMANCE OBJECTIVES
The primary objective for the Endowment Fund is to achieve, over moving four-year
periods, a real rate of return, before fees, of 3.5% which is
the Endowment’s approved
spending rate.
A secondary objective is to achieve, over moving four-year periods, a gross rate of return,
at least equal to the benchmark allocations defined in the table below.
The primary objective for the Long-Term Fund is to achieve, over moving four-year periods,
a gross rate of return, at least equal to the benchmark allocations defined in the table below.
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Asset Class
Benchmark
Portfolio %
Cash and Short Term
FTSE Canada 91 Day T-Bill Index
0%
Universe Bonds
FTSE Canada Universe Bond Index
15%
Mortgages
60% FTSE Canada Short-Term Bond Index + 40% FTSE
Canada Mid-Term Bond Index + 50 bps
10%
Canadian Equities
S&P/TSX Composite Index
20%
Global Equities
MSCI ACWI ex-Canada Index
35%
Canadian Real Estate
MSCI/REALpac Canada Annual Property Index
10%
Infrastructure
CPI + 4%
10%
The primary objective for the Short-Term Fund is to achieve, over moving four-year
periods, a gross rate of return, at least equal to the FTSE Canada 91 Day T-Bill Index.
An overall Investment Portfolio performance report shall be prepared by the Asset
Consultant and provided annually to the Board Finance Committee and the Board of
Governors. Such report shall present the current Investment Portfolio in relation to the
relevant index benchmarks; address developments in the corporate investment
environment; and, may include recommendations related to Asset Mix and/or new Asset
Classes for future consideration.
Changes to the Mandate structure shall be undertaken only after consideration of a study
regarding the alternatives, their benefits and drawbacks, reference to the experience of
other funds, and supported by analysis and recommendations from an Asset Consultant.
10.
ADMINISTRATION
10.1 VALUATION OF INVESTMENTS
Investment in mutual or pooled funds shall be valued according to the guidelines
of the mutual or pooled fund.
10.2 RELATED PARTIES
Related Parties of the Fund include:
a.
The University and its Board, committees and employees,
b.
The investment Manager(s) hired to invest the assets of the Fund,
c.
the Custodian(s) of the Fund, and
d.
the Asset Consultant(s) of the Fund.
Assets of the Fund may be invested in the securities of, or involved in a transaction
with, a Related Party.
Any actual or perceived conflict of interest shall be reported as outlined in section
D., 10.3.
10.3
CONFLICTS OF INTEREST
a.
A conflict of interest, whether actual or perceived, is defined for the
purposes of this Policy as any event in which a Related Party may benefit
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materially from knowledge of, participation in, or by virtue of, an investment
decision or holding of the Fund.
b.
Should a conflict of interest arise, the party in the actual or perceived
conflict, or any person who becomes aware of a conflict of interest
situation, shall immediately disclose the conflict to the Chair of the Board
of Governors. The party to the conflict shall thereafter abstain from
decision-making with respect to the area of conflict, and a written record
of the conflict shall be maintained by the Board of Governors.
c. Where an actual or perceived conflict of interest arises, the nature and
substance of the conflict will be disclosed to all affected parties as soon as
possible and in any event within 30 days after the conflict has arisen.
10.4
LOANS AND BORROWING
a.
No part of the Fund shall be loaned to any persons, partnership or
association except as provided in this Section.
b.
The Fund does not engage in Securities Lending however, mutual or
pooled funds may lend securities if permitted under their investment
policies.
c.
The assets of the Fund may not be pledged, hypothecated, or otherwise
encumbered in any way except where temporary overdrafts occur in the
normal course of business.
d.
The Custodian of the Fund shall not borrow on behalf of the Fund except
to a limited and temporary extent and only for the timely payment of
disbursements or administrative costs.
e.
Borrowing or leverage may be used by the investment manager(s) in the
infrastructure and real estate funds where it is common practice to do so.
10.5
VOTING RIGHTS
a.
The responsibility of exercising and directing voting rights acquired
through Fund investments shall normally be delegated to the Manager, to
be exercised in accordance with the mutual or pooled fund’s policies.
a.
The Board reserves the right to direct or override the voting decision of
any Manager if in its view such action is in the best interests of the
Investment Portfolio and such rights are available in the prospectus of the
respective investment Mandate.
10.6
REVIEW MEETINGS
The Finance Committee shall meet face-to-face at least once every two years with
each Manager and/or as otherwise called by the Chair, to:
a.
Review the assets and net cash flow of University funds;
b.
Review the composition of the Strategy and take any action necessary to
ensure compliance with this Policy;
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c.
Receive and consider analysis of the investment performance of the
Strategy;
d.
Review the current economic outlook and investment plans of the Strategy
and review major events within the portfolio and the Manager firm since
the last meeting;
e.
Receive and review reports describing compliance with the Agreement.
E. DEFINITIONS
(1)
Asset Class:
a group of securities that exhibit similar characteristics, behave
similarly in the marketplace, and are subject to the same laws
and regulations. The asset classes identified for the Fund include
equities stocks), fixed-income (bonds), real estate, infrastructure,
commercial mortgages and cash equivalents (money market
instruments).
(2)
Asset Consultant:
third party investment industry consulting firm who provides
expertise, guidance and advice on all or any specific aspects of
the University's investment policies, processes and procedures.
(3)
Asset Mix:
means the allocation of investment portfolio funds among
approved Asset Classes to remain in compliance with the
Investment Policy.
(4)
Board/Board of
Governors:
the Board of Governors of Mount Royal University.
(5)
Endowments:
Donor gifts with external stipulations requiring that the principal
be held in perpetuity with earnings being spent for an intended
purpose.
(6)
Finance Committee:
the Finance Committee of the Board of Governors.
(7)
Fund:
the total of all funds under management of the University.
(8)
Investment Portfolio:
University funds including both long term working capital funds as
well as endowed funds, co-mingled for investment purposes,
invested through the services of external Investment Managers.
(9)
Long-Term:
funds including
University’s working capital and the endowed
funds co-mingled in the University's Investment Portfolio.
(10)
Manager(s):
external professional investment management firm(s) authorized
and contractually engaged for investment of University funds for
specific Asset Class(es) noted within the Investment Policy.
(11)
Mandate:
authorization for an Asset Class of the Fund to be invested
through engagement of an authorized Manager with specific
investment objective, benchmark, Strategy, Strategy attributes,
performance and risk management expectations; see Appendices
C
– H Investment Manager Mandate Statements.
(12)
Policy:
means the Investment Policy.
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(13)
Restricted Funds:
Funds with external stipulations; may require that the principal be
held in perpetuity; and, always with earnings being spent for an
intended purpose.
(14)
Short-Term:
funds invested in term specific accounts as approved by the Board
of Governors from time to time for the specific investment of
balances made up of government grants and tuition fees until
required for operations.
(15)
Strategy:
an investment product or combination of products acquired for
investment in a specific Asset Class. Each strategy has defined
characteristics, objectives and constraints; acquired, under
contract through an external investment Manager or banking
service provider for the investment of University funds. Strategy
characteristics, objectives and constraints are captured in a
Manager Strategy Disclosure Document.
(16)
Tracking Error:
a divergence between the price behaviour of a portfolio and the
price behaviour of a benchmark. Measured as the standard
deviation percentage difference of returns relative to the returns
of the index. Tracking error may be the result of transactional
costs, replication, turnover of assets, management experience,
and/or enhancements such as securities lending.
(17)
University:
means Mount Royal University.
(18)
University Funds:
all funds held by the University, regardless of source or purpose;
in totality also referred to as the Fund.
(19)
Working Capital:
unspent unrestricted funds held by the University for the purpose
of its operational activities.
F.
RELATED POLICIES
● Endowment Management Policy
G.
RELATED LEGISLATION
● Alberta Post-secondary Learning Act
H.
RELATED DOCUMENTS
● Code of Ethics and Standards of Professional Conduct of the CFA Institute
● Investment Mandate Allocation – Appendix A
● Accountability Checklist – Appendix B
● Investment Managers Mandate Statements
● Investment Procedures
● Endowment Management Procedures
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I.
REVISION HISTORY
Date
(mm/dd/yyyy)
Description of Change
Sections
Person who
Entered Revision
(Position Title)
Person who
Authorized Revision
(Position Title)
02/10/2014
NEW
05/28/2018
Asset Allocation Change; updated
Investment Managers Mandate
Statements to align with the
current Fund Declarations and
Strategy documents of the
Investment Managers
D., 5; D., 8;
Appendices A, C,
D, E, F
Treasury Accountant The Finance
Committee of the
Board of Governors
09/29/2021
Enhanced the distinction between
the endowed funds and
unendowed working capital of the
Long-Term Investment Portfolio.
Included actively managed funds
to the permitted categories of
investment.
Updated assets allocation split
and tolerances.
Amended frequency of the BoG
Annual
Amended Appendix A with the
updated legal names of
investment managers and
consultants.
Amendments to reflect the
accountability-based investment
management agreements.
Added Canadian Commercial
Mortgages and Infrastructure
asset classes and Mandates
D.1.4, E
D.3., D.7., D.8.,
Appendix B
D.5., D.8
D.13
Appendix A
D.5., D.13.,
Appendix B
E., H., Appendix
E, Appendix H
Finance Partner
Board of Governors
12/01/2023
Comprehensive revision
A, C, D, F and
Appendices
Mercer (Canada)
Limited;
Finance Partner
Board of Governors
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INVESTMENT POLICY
INVESTMENT MANDATE ALLOCATION
APPENDIX A
The approved investment Managers, Custodian, and Asset Consultants as at December 1, 2023, are set
out below.
MANDATE AND MANAGER:
Canadian Equity:
State Street Global Advisors (SSgA), Ltd.*
Global/US/Emerging Equities:
State Street Global Advisors (SSgA), Ltd.*
Real Estate:
Canada Life Assurance Company
Fixed Income
State Street Global Advisors (SSgA) Ltd
Infrastructure
IFM Global Infrastructure (Canada), LP
Canadian Commercial Mortgages
TD Greystone Asset Management, Inc
CUSTODIAN:
RBC Investor Services and Trust
ASSET CONSULTANTS:
Willis Towers Watson
Mercer (Canada) Limited
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INVESTMENT POLICY
INVESTMENT MANAGERS’ ACCOUNTABILITY CHECKLIST
APPENDIX B
ACCOUNTABILITY:
(1)
Each Manager must comply with the terms of Agreement:
(a)
The Fund shall retain Manager(s) for domestic assets that are registered and in good
standing with the relevant Canadian Provincial Securities Commission (e.g., Ontario
Securities Commission) and, for international assets, Manager(s) who are registered and in
good standing with the Securities and Exchange Commission of the United States of
America. Should the registration of an incumbent Manager be declined or revoked, the Board
should be notified immediately (through the Vice-President, Finance and Administration of
the University), who shall discuss their course of action within 14 days of such notification.
(b)
Managers shall provide the Board with a copy of their policy regarding "Conflict of Interest"
and their Standard or Code of Conduct.
(c)
Managers shall provide an annual compliance statement.
(d)
A set of guidelines shall be established within which each Manager is expected to operate,
including quality standards and performance expectations.
(e)
The Board will determine whether the policies of the indexed funds are acceptable in totality,
whether the investment in the indexed fund is to be discontinued, or whether the University's
Investment Policy is to be amended.
(f)
Each Manager shall notify the Board promptly in writing of any conflict of interest, direct or
indirect, or a substantive change in investment philosophy, key personnel, or corporate
organization.
(g)
The Board shall monitor the performance of each Manager. Such monitoring shall include
quarterly performance measurement and a face-to-face presentation by the Manager to the
Finance Committee as required by the latter. The Board shall also monitor or cause to be
monitored each Manager's turnover of personnel, consistency of investment style, discipline
in portfolio construction, and record of service.
(h)
The Board shall take such steps as it deems appropriate to address any concerns which may
arise from such monitoring. Ultimately, if the Board loses confidence in the ability of the
Manager to achieve the performance objectives of the Mandate, it will replace that Manager.
The Board will annually have a discussion regarding their confidence in each Manager.