Investment Governance Policy
Date
May 29, 2003
Date of Last Review/Revision
November 24, 2022
Number
B 10.09
Mandated Review
November 24, 2027
Policy Authority: Board of Governors
Associated Procedure:
EXECUTIVE SUMMARY
Pursuant to section 27(2)(o) of the University Act, the Board of Governors of Simon Fraser University has the responsibility “to administer funds, grants, fees, and endowments and other assets.” The University has established an Endowment Fund and Non-Endowment Fund. Assets of the Funds are invested to generate investment earnings that are an important source of income for a variety of University purposes. This policy establishes a governance structure for the investments in the Funds and sets out the requirements for their ongoing management.
TABLE OF CONTENTS
1.0 PREAMBLE
2.0 PURPOSE
3.0 SCOPE AND JURISDICTION
4.0 DEFINITIONS
5.0 POLICY
6.0 ROLES AND RESPONSIBILITIES
7.0 REPORTING
8.0 RELATED LEGAL, POLICY AUTHORITIES AND AGREEMENTS
9.0 ACCESS TO INFORMATION AND PROTECTION OF PRIVACY
10.0 RETENTION AND DISPOSAL OF RECRDS
11.0 POLICY REVIEW
12.0 POLICY AUTHORITY
13.0 INTERPRETATION
14.0 PROCEDURES AND OTHER ASSOCIATED DOCUMENTS
1.1 The Board of Governors (“Board”) of Simon Fraser University (“the University”) has the responsibility, pursuant to section 27(2)(o) of the University Act, “to administer funds, grants, fees, and endowments and other assets.”
1.2 The University has established an Endowment Fund and a Non-Endowment Fund (“Funds” or “Investment Funds”). Assets of the Funds are invested to generate investment earnings that are an important source of income for a variety of University purposes. The successful investment management of the Funds will have a direct effect on the ability of the University to achieve its academic and research goals.
2.1 This document constitutes the Investment Governance Policy (“the Policy”) adopted by the Board and will apply to the Investment Funds. It describes the governance structure established for the investments in the Funds and sets out the requirements for their ongoing, successful investment management.
3.1 This Policy applies to all of the Funds owned by the University excluding related entities and the pension plan funds.
4.1 See Appendix A for the definitions of words used in this Policy.
5.1 Investment Objectives
5.1.1 The investment management of the Funds will be made in a manner that reflects the different objectives of those Funds and will be accounted for accordingly.
5.1.2 Each Fund will be managed to balance the investment risk, return and liquidity objectives of those Funds.
(a) The primary investment return objective of the Endowment Fund is to earn, over the mid and long term, an absolute annual rate of return that exceeds the annual rate of increase in the Consumer Price Index plus the Spending Income Allocation Rate, net of investment expenses.
(b) The primary investment return objective of the Non-Endowment Fund is to earn, over the mid- to long-term, an absolute annual rate of return that exceeds the annual rate of increase in the Consumer Price Index by 3.0%, net of investment expenses.
(c) The primary risk objective of the Funds is to preserve the value of the invested capital over the differing time horizons and investment objectives of the various Funds.
5.2 Investment Principles
5.2.1 The Funds are to be invested in accordance with section 57 of the University Act which states that the University “must, when investing…make investments that a prudent person would make.”
5.2.2 The following principles will be followed in the investment of the Funds:
(a) The selection of investments in the Funds should be made in the context of the total portfolio, with a reasonable expectation of a fair return or capital appreciation;
(b) The investment objectives can best be achieved by investing in a diverse mix of asset classes, economic sectors and geographic markets with varied investment characteristics which will be determined by the Board with advice from the Investment Advisory Committee (“IAC”);
(c) The Vice-President Finance and Administration (“VPFA”) will appoint and use external professional investment management for all equity and fixed income investments with the expectation that professional management can add value, relative to a static benchmark portfolio, through opportunistic security selection;
(d) Multiple investment managers may be selected to ensure investment style diversification. The advantage of retaining multiple investment managers will be balanced with the disadvantage of over-diversification and excessive investment management and administrative costs;
(e) No entity, including the investment managers, the custodian, or a representative of the University, may lend, pledge, or otherwise encumber any of the Funds’ assets, except through a Securities Loan or University-related Business Entity Loan Agreement approved by the VPFA.
5.2.3 In recognition of the escalating climate emergency, the University committed on November 1, 2021 to a full divestment from fossil fuel-based investments by the end of 2025.
6.0 ROLES AND RESPONSIBILITIES
6.1 Governance Structure
6.1.1 The governance structure established for the investment of the Funds is designed to ensure that the investments are managed prudently, appropriately and in compliance with the applicable legislation and this Policy. The principal levels of responsibility are described in this section.
6.1.2 The Board has ultimate authority and fiduciary responsibility for the administration of the investment of the Funds and will make investment policy decisions which most significantly impact the Funds’ investment risk and return objectives based on recommendations from the IAC and the VPFA.
6.1.3 The Board on the recommendation of the President, will appoint members to the IAC, pursuant to section 27(2)(c) of the University Act, to act in an investment advisory role to the Board (see Appendix B for terms of reference).
6.1.4 SFU will endeavour to include individuals from equity groups including Indigenous Committee members. SFU will intentionally seek out these members.
(a) The IAC and the VPFA will monitor the investment performance of the Funds. Reports on the investment performance are made at least quarterly by the VPFA to the Finance and Administration Committee of the Board.
(b) The IAC and the VPFA will review this Investment Governance Policy every five years or as needed, and the VPFA will advise the Board of any changes that may be required, including reviewing and approving any recommended changes to the approved categories of investments and/or asset mix ranges.
(c) The VPFA will review the capital requirements of the University on a quarterly basis and ensure that there is sufficient working capital to meet these requirements. If working capital is deemed to be inadequate, additional capital may be sourced from the Non-Endowment Fund.
6.1.5 The Board delegates the operational responsibilities for investment management of the Funds to the VPFA. The VPFA will report on Funds activities to the Board at least quarterly. The daily management and operational oversight of the Funds rests with the Treasurer.
6.1.6 The VPFA and Treasurer will establish investment management operating procedures.
6.2 Investment of Funds
6.2.1 The Board of Governors will approve a list of categories of investments. The VPFA, with advice from IAC, will document a list of Board approved categories of investments [see Appendix C, section 2]. Until such time as the Board approves a new category of investments, any investment not in an approved category will be prohibited. Notwithstanding any other limitations, any donation to the University is permitted under section 57 of the University Act.
6.2.2 The Board will approve the investment asset mix ranges. The VPFA, with advice from the IAC, will document the investment asset mix ranges for each of the Funds [see Appendix C, section 4]. The VPFA will maintain the asset mix of the Funds within the specified ranges. At the end of each quarter any asset class outside the range will be rebalanced to the mid-point of the range as soon as is practical, but no later than the end of the following quarter.
6.2.3 The VPFA, with advice from the IAC, will establish and document a Benchmark Portfolio for each Fund. If the IAC believes that the Benchmark Portfolio established for a Fund cannot meet the investment objectives over the following five-year period, it will work with the VPFA to develop an alternative Benchmark Portfolio.
6.2.4 The VPFA will appoint a custodian to hold the assets of the Funds in safekeeping.
6.2.5 The selection of investment managers will be made in a prudent manner, based on criteria established and documented by the VPFA.
6.2.6 Each investment manager will operate under the terms of an Investment Management Agreement with the University, as agreed to with the VPFA. The agreement will include guidelines and constraints to ensure risk, return, and liquidity is controlled and the requirement to inform the VPFA of any changes in the investment manager’s firm that could have a material impact on the management of the funds.
6.2.7 The VPFA will make any changes in the investment managers as necessary to meet the investment objectives.
6.3 Monitoring of the Funds
6.3.1 The VPFA will monitor the performance of each of the investment managers on a monthly basis as well as the overall performance of the Funds.
6.3.2 The VPFA will meet with the IAC on a quarterly basis and will report on the performance of the Funds and results of meetings with the investment managers since the previous IAC meeting. Any concerns about an investment manager’s performance will be noted in the minutes of the IAC’s meeting with the VPFA.
6.3.3 The VPFA will forward the minutes to the IAC meetings to the Board and to the Finance and Administration Committee.
6.4 Conflict of Interest
6.4.1 The conflict of interest guidelines for the Funds will be consistent with the University’s Conflict of Interest and Conflict of Commitment Policy (GP 37). To the extent that certain situations may create a conflict of interest not covered by the Conflict of Interest and Conflict of Commitment Policy, the VPFA will establish additional guidelines as required.
6.4.2 All securities will be purchased through normal public market sources, unless the purchase price approximates the prevailing market price from some other recognized source and is negotiated on an arm’s length basis.
6.5 Voting Rights
6.5.1 The VPFA will develop procedures for the exercise of voting rights acquired through the investment of the Funds.
7.1 The VPFA will report to the Finance and Administration Committee and to the Board of Governors as set out in section 6 of this Policy.
8.0 RELATED LEGAL, POLICY AUTHORITIES AND AGREEMENTS
8.1 The legal and other University Policy authorities and agreements that may bear on the administration of this policy and may be consulted as needed include but are not limited to:
8.1.1 University Act, R.S.B.C. 1996, c. 468
8.1.2 Freedom of Information and Protection of Privacy Act, R.S.B.C. 1996, c. 165
8.1.3 Endowment Management Policy (GP 20)
8.1.4 Conflict of Interest and Conflict of Commitment Policy (GP 37)
8.1.5 Responsible Investment Policy (B 10.16)
9.0 ACCESS TO INFORMATION AND PROTECTION OF PRIVACY
9.1 The information and records made and received to administer this policy are subject to the access to information and protection of privacy provisions of British Columbia’s Freedom of Information and Protection of Privacy Act and the University’s Information Policy series.
10.0 RETENTION AND DISPOSAL OF RECORDS
10.1 Information and records made and received to administer this policy are evidence of the University’s actions to manage investment of the Endowment Fund and the Non-Endowment Fund. Information and records must be retained and disposed of in accordance with a records retention schedule approved by the University Archivist.
11.1 This policy must be reviewed every five years and may always be reviewed as needed.
12.1 This policy is administered under the authority of the Vice-President Finance and Administration.
13.1 Questions of interpretation or application of this policy or its procedures shall be referred to the President and the Chair of the Board whose joint decision will be final.
14.0 PROCEDURES AND OTHER ASSOCIATED DOCUMENTS
14.1 Appendix A contains the definitions applicable to this policy.
14.2 Appendix B contains the Terms of Reference of the Investment Advisory Committee.
14.3 Appendix C contains the Approved Categories of Investments, Divestment, and the Investment Asset Mix Ranges.