Policies & Guidance

Investments

PURPOSE

The purpose of the Investment Policy is to provide a clear statement of League of Women Voters of Minnesota Education Fund’s (LWV Minnesota) investment goals and objectives, to define responsibilities of the LWV Minnesota Board of Directors (the Board), the Finance Committee, Executive Director, and Financial Advisor (Advisor) and any other parties involved in managing investments. The policy also details LWV Minnesota’s investment strategies, including asset allocations, permissible investments, diversification requirements and performance measures.

INVESTMENT GOAL

The overall investment objective of LWV Minnesota is to maximize the return on invested assets while minimizing risk and expenses. This is done through prudent investing and planning, as well as through the maintenance of a diversified portfolio.

INVESTMENT OBJECTIVES

• All transactions shall be for the sole benefit of LWV Minnesota.

• Investment decisions will focus on total return: the aggregate return from capital appreciation, dividends and interest income, net of expenses.

• The emphasis is on long-term growth of capital. Short-term volatility will be tolerated if it is consistent with the volatility of a comparable market index.

• Investments and deposits and withdrawals from them shall be diversified and limited in order to minimize the risk, specifically the loss of principal over the investment horizon.

• In order to preserve purchasing power, investment results should achieve returns in excess of the rate of inflation, net of expenses.

• Investments shall remain sufficiently liquid to meet operating needs that may be reasonably anticipated.

• Investments shall be made with the care, skill, prudence and diligence, under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use.

• Investments will be managed in compliance with all applicable state, federal and local laws and regulations concerning management of investment.

INVESTMENT OVERSIGHT

The oversight of assets and of any changes to this Investment Policy is ultimately the responsibility of the LWV Minnesota Board of Directors (the Board). However, the Board has authorized a Finance Committee to serve in an advisory capacity over its financial affairs. As such the Board and the Finance Committee are both fiduciaries, responsible for the care and oversight of LWV Minnesota assets. Such assets are managed for the purpose of carrying out the organization's mission. These investment policies are to be judged and understood in light of this overall sense of stewardship. 

The Finance Committee reports to the Board and is responsible for developing and reviewing fiscal procedures and the budget with staff and other Board members. The members of the Finance Committee shall consist of at least four members, at least two of whom are members of the Board. The Treasurer will be a member of the Finance Committee.

The Board may retain one or more investment advisors (Advisor) to provide professional expertise in the management of funds and assets owned and administered by the organization.  In discharging this authority, the Board has delegated the day-to-day management of this relationship and implementing these policies to the LWV Minnesota Executive Director (Executive Director). The Finance Committee and the Executive Director will meet regularly, ideally quarterly, with the Advisor(s), to review reports, and advise the Board on investment results, Advisor’s performance and recommendations for future investment management.

In carrying out their responsibilities, the Board, Finance Committee, Executive Director, Advisor and any other agents shall act in accordance with these investment policies and all applicable laws and regulations.  The Board, with Finance Committee input, reserves the exclusive right to revise these policies and may also grant exceptions to these investment policies when appropriate. All exceptions are to be approved at a Board of Directors meeting and documented in the minutes. Accordingly, the Finance Committee realizes that its role is advisory and will serve as outlined below.

ROLES AND RESPONSIBILITIES

Board:

• Approves and annually reviews the Investment Policy, including permissible investments, asset allocation and diversification maximum recommendations

• Approves performance benchmarks

• Approves any exceptions to the Investment Policy

• Approves recommendations of Finance Committee

• Approves hiring of financial advisors

• Reviews financial reports monthly as presented by the Treasurer

Finance Committee: 

• Reviews Investment Policy annually and recommends updates as needed

• Recommends permissible investments, asset allocation and diversification maximums annually

• Recommends hiring of financial advisors

• Designate someone on the Finance Committee to serve as primary liaison to Advisor and ensure adherence to terms of their contract

• Establishes performance benchmarks and reviews Advisor performance annually

• Reviews financial reports monthly

• Reviews target bank balance for short-term operating cash needs

• Meets at least quarterly

Executive Director (may delegate to appropriate staff):

• Staff Finance Committee and attend meetings

• Prepare monthly financial reports

• Manage day-to-day activity in executing investment policies

• Forecast future cash flows on an annual  basis to predict cash needs, with the cash flow to be strictly cash and not accrual accounting basis

• Direct all cash transfers between bank and investment custodian and manage short-term cash needs at a local bank to fund operations

• Establish sufficient internal controls to safeguard assets

Financial Advisor:

• Must acknowledge in writing acceptance of responsibility of fiduciary

• Invest the portfolio assets solely in the interest of, and for the exclusive purposes set forth by, LWV Minnesota

• Responsible for making all investment decisions for all assets placed under their management in accordance with the Investment Policy, including:

  • Buy, sell or hold decisions on individual investments within Policy guidelines

  • Report, on a timely basis, monthly performance results

  • Communicate any major changes in the economic outlook or investment approach

  • Administer investments at a reasonable cost (including but not limited to management and custodial fees, transaction and other administrative costs), balanced with avoiding a compromise of quality 

• Advisor may recommend a Custodian to provide the following:

  • Safekeeping of investment portfolio assets

  • Account for, and provide statements of portfolio activity, including income and expenses, redemption of maturing securities, and receipt/delivery of securities as appropriate due to requested transfers and/or gifts

  • Not make a market in any security, which is then added to portfolio investments

INVESTMENT STRATEGIES

Permitted Investments

• Cash, Money Market Funds and Commercial Paper: Cash accounts and certificates of deposit must be insured by FDIC or SIPC. Money market funds must be rated by a nationally recognized rating agency in the highest category for short-term debt securities. Commercial paper must be rated A-1 by Standard & Poor’s or P-1 by Moody’s. Short-term cash for ongoing operational needs shall be invested at a local bank in FDIC insured checking account(s) or certificates of deposit with maturities of 24 months or less.

• Equities: Investment in equities could be through mutual funds, exchange traded funds, or individual equities. Individual equities are limited to those traded on the New York and NASDAQ stock exchange. Prohibited equity investments include initial public offerings, restricted securities, private placement, derivatives, options, futures and margined transactions.

• Fixed Income: May include U.S. Treasury obligations, U.S. Government Agency or U.S. Government sponsored enterprise obligations, investment grade corporate and preferred stock. No individual fixed income security shall have an equivalent credit quality below investment grade at the time of purchase, defined as BBB or higher by Standard & Poor’s or Baa or higher by Moody’s. Purchases may include mutual funds or exchange traded funds. Global, high yield, and inflation protected bonds may ONLY be purchased via a diversified investment such as a mutual fund or exchange traded fund but still must be less than 5% each of the total fixed income portfolio.

• Alternative Investments: Investments in asset classes such as commodities, real estate, precious metals, long/short, merger arbitrage and foreign currency may only be purchased as part of a diversified investment vehicle such as a mutual fund or exchange traded funds.

• Any investment that is not expressly permitted under this Policy must be formally reviewed and approved by the Board.

Liquidity

• Investments shall be readily marketable.

• The portfolio shall be structured to match anticipated cash flow requirements. Because of the inherent difficulties in accurately forecasting cash flow needs, a portion of the portfolio should be invested to ensure appropriate liquidity to meet ongoing and unforeseen obligations.

Diversification-General

• Investment in equity securities of any one company shall not exceed 5% of the portfolio nor shall the total securities (debt and equity) in any one company exceed 10% of the portfolio

• No more than 25% of the portfolio may be invested in the securities of any one industry sector

Diversification-Asset Allocation Ranges

LWV Minnesota’s base investment strategy for asset allocation is 50% growth and 50% income and asset preservation. The more conservative strategy recognizes that while the organization presently has a healthy investment portfolio it is still adjusting to ongoing changes in the nonprofit sector and therefore expects unpredictable revenues for the next 3-5 years. Depending on market conditions asset allocation targets will fall within the ranges provided below. It is expected that actual asset allocation will vary from target asset allocation as a result of varying periodic returns and market fluctuations on each class and sub-class. Investments will be reviewed on a regular basis, with a goal of every 10 business days. In general, asset classes that rise or fall more than a relative 20% from the minimum and maximum of the target range will be rebalanced (specific rebalance minimums and maximums below). If the Financial Advisor cannot rebalance or recommends not rebalancing according to these guidelines they must immediately contact the Executive Director and ongoing exceptions must be approved by the Board.

Since the principal of the endowment account must remain intact, it has a longer investment horizon and thus has an asset allocation strategy of 65% growth and 35% income and capital preservation.  

GIFT POLICY

Attached is the League of Women Voters Gift Acceptance Policy and all gifts shall be processed accordingly.  Endowment gifts shall be segregated in a separate account and restricted on LWV Minnesota’s balance sheet. The Executive Director shall direct the Advisor to sell any future gifts of securities as soon as possible and reinvest according to this Investment Policy. Advisor will report the high and low value of any security donation on a timely basis in order to provide donor with accurate gift totals.

PERFORMANCE GOALS AND BENCHMARKS

The investment goal is to achieve a total return (income and appreciation, net of fees) that meets or exceeds benchmarks for the entire portfolio over 3-5 years and that total returns exceed any loss of purchasing power due to inflation. 

The Advisor shall provide the Finance Committee and the Board with a report measuring investment performance over rolling three and five-year periods to determine if the performance of the portfolio and asset classes meet or exceed the selected index. Total portfolio, asset class and sub-class benchmarks are provided below:

• Total Investment Portfolio: Vanguard Total Stock Market Index weighted at 50% and Vanguard Total Bond Market Index weighted at 50% , Morningstar Moderate Index weighted at 50% and Morningstar Conservative Index weighted at 50%

• Total Endowment Portfolio: Vanguard Total Stock Market Index weighted at 65% and Vanguard Total Bond Market Index weighted at 35%, Morningstar Moderate Index weighted at 65% and Morningstar Conservative Index weighted at 35%

• Fixed Income: Barclays U.S. Aggregate Bond Index, Vanguard Total Bond Market Index

• Large Cap Equities: Standard & Poor’s 500 Index, Russell 1000 Index

• Mid Cap Equities: Russell Midcap Index, Standard & Poor’s Mid-Cap 400 Index

• Small Cap Equities: Russell 2000 Index, Standard & Poor’s Small Cap 600 Index

The Finance Committee shall review portfolio performance on a quarterly basis. Recommendations to make changes or continue with the present strategy will be presented to the Board at least annually. Approved changes will also be incorporated into the Investment Policy, if necessary, and presented to the Board for approval.