Investment Policy Statement

Overview

The National Foundation for Infectious Diseases (NFID) currently consults with two investment consultants in managing NFID investments, selecting investment managers, asset allocation, asset custody, rebalancing procedures, performance reporting, and investment policy.

Delegation of Authority and Responsibility

The ultimate responsibility for managing the cash and investments of NFID is with the Board of Directors, which may delegate responsibility to the Finance Committee. In carrying out its responsibilities, the Finance Committee will be guided by and act in accordance with these objectives and guidelines and all applicable laws and regulations. The Board of Directors reserves the exclusive right to revise and update the Investment Policy Statement. The purpose of the Investment Policy Statement is to provide a framework for NFID and its investment consultants to achieve investment objectives at a level of risk acceptable to the Finance Committee and the Board of Directors.

Investment Performance Objectives

The NFID investment performance objective is to preserve and grow capital and achieve a competitive rate of total return on assets over multi-year periods. The objective is to grow the aggregate portfolio value at or above the rate of inflation, over the investment horizon. Total return is defined as income plus realized and unrealized gains, less realized and unrealized losses and expenses. The primary emphasis is on moderate capital growth with some focus on income. The annual budgetary process establishes cash flow needs. This information will be shared with money managers by the investment consultants in a timely manner so that they may determine how to meet cash flow requirements. The NFID investment performance objective is for the total investment portfolio to perform as well as or better than the appropriate index or indices over 3, 5, and 10 year periods. The target rate of return is in excess of a risk-adjusted market index by 1%.

Risk Tolerance

The Finance Committee desires long-term investment performance sufficient to meet NFID objectives and understands that to achieve such performance, the portfolio may experience periods of decline. The Finance Committee further understands that in a severe market, the potential recovery period could be extensive. Although NFID prefers to limit the portfolio’s volatility, NFID is comfortable with fluctuations in the portfolio, and the possibility of large declines in value, in order to seek to grow the portfolio over time.

Tax Policy

Tax minimization is not a concern for this investment portfolio.

Cash Management

NFID will maintain a minimum of 12 months of cash on hand for operating purposes. Investing of the cash will be the responsibility of the NFID Executive Director and CEO and may be delegated to the investment consultants.

Spending Policy

NFID may draw a maximum of 10% of the total market value of the investment portfolio as of May 1 each fiscal year to fund activities that support its mission. The evaluation process for approved project spending will be approved by the NFID Board of Directors.

Asset Mix

The current approved asset allocation indicates both an initial target allocation and a range for each investment category. From time to time, based on changing economic circumstances and the various relative investment opportunities as perceived by the Finance Committee and NFID investment consultants, it may be desirable to make changes in target allocations. The Finance Committee and NFID investment consultants may determine such changes. The Finance Committee will approve subsequent target allocation changes and the Investment Policy Statement will be updated accordingly.

The current approved asset allocation for each investment consultant is as follows:

Asset Category           Minimum     Target                Maximum

Cash 0% 10% 20%
Fixed Income 20% 30% 60%
Equity 20% 50% 60%
Large Cap 10% 30% 40%
Small/Mid Cap 0% 5% 10%
International 5% 15% 20%
Alternative Investments 0% 10% 15%

 

The underlying approach to managing NFID investments shall be to optimize the risk-return relationship appropriate to NFID needs and goals. The portfolio will be diversified globally employing a variety of asset classes. Mutual funds or managed portfolios will be employed to implement the portfolio and the chosen asset classes will be periodically re-balanced to maintain a more consistent risk/reward profile.

Rebalancing Procedures

From time to time, market conditions may cause investments in various asset classes to vary from the established allocation. To remain consistent with the asset allocation guidelines contained herein, each asset class in which investments are made shall be reviewed at least on an annual basis by the Finance Committee for possible rebalancing back to the target weightings. Rebalancing will occur when the portfolio exceeds the minimum or maximum constraints.

Asset Type and Quality

Investment of NFID funds shall be limited to investment grade equity and fixed income securities.

Asset Diversification and Portfolio Limitations/Restrictions:

The managers and consultants will maintain reasonable diversification at all times and may not make investments in the equity securities of any one company that exceed 5% of the portfolio (at the time of purchase) nor allow the total securities position (debt and equity) in any one company to exceed 10% of the portfolio. The managers and consultants shall also maintain reasonable sector allocations and diversification, with no more than 20% of the entire portfolio being invested in the securities of any one sector.  These limitations may not be exceeded without prior express approval of the Finance Committee.

Maximum average bond maturities: 15 years

Maximum individual bond maturities: 20 years

Investment Manager Limitations

Managers or consultants may not make direct investments in real estate or permit the lending or mortgage of any assets.

Alternative Investments

The Finance Committee considers all investments other than traditional stocks and bonds to be alternative investments. The Finance Committee believes that alternative investments can, over time, improve the expected total return of the portfolio. The diversification impact on the portfolio from adding these alternative asset classes should improve risk adjusted returns. These asset classes include commodities, real estate, currencies, convertible securities, long-short equities, opportunistic fixed-income, and managed futures. The Finance Committee will consider liquidity issues, expenses, manager experience, and other relevant due diligence issues when considering potential exposure to this asset class. Approved alternative investments must be registered under the Investment Company Act of 1940, as amended, and the Securities act of 1933 and should have minimum quarterly liquidity. Derivative funds may only be purchased under special approval by the Finance Committee.

Investment Management Selection/Retention Criteria

Investment managers (including mutual funds, separate account managers, and limited partnership sponsors) shall be selected based on the following criteria:

  • Past performance, considered relative to other investment having the same investment objective. Consideration shall be given to both performance rankings over various time frames and consistency of performance
  • Costs relative to other funds with like objectives and investment styles
  • Manager adherence to investment style and size objectives
  • Size of the proposed fund
  • Length of time the fund/manager has been in existence and length of time it has been under the direction of the current manager(s) and whether or not there have been material changes in the manager’s organization and personnel
  • Historical volatility and downside risk of each proposed investment
  • How well each proposed investment complements other assets in the portfolio
  • Current economic environment
  • Likelihood of future investment success, relative to other opportunities

As a matter of course, the consultants shall keep NFID apprised of any material changes in the consultant’s outlook, recommended investment policy, and tactics.

Duties and Responsibilities

Finance Committee

The duties of the Finance Committee in consultation with its consultants regarding NFID investments include:

  • Oversight of the portfolio
  • Establishment and regular review of the investment objectives and guidelines
  • Review of the asset allocation within the investment funds and implementation of any necessary changes
  • The hiring and removal of outside investment managers charged with managing the investment funds
  • Selecting and monitoring the investment consultants
  • Actively participating in setting performance goals and acceptable risk for the investments in conjunction with the advice and recommendations of the investment consultants
  • Monitoring the investment performance, within prudent investor standards
  • Review of all expenses incurred by the investment funds including custodial fees, investment manager fees, and consultant fees, if any
  • Reporting investment results and recommendations to the Board of Directors
  • Reading and understanding the information contained in the prospectus and each investment in the portfolio
  • Exercising all rights, including voting rights, as are acquired through the purchase of securities.

 Investment Consultants and Managers

Consultants are Registered Investment Advisors and shall act as the investment consultants to NFID until NFID decides otherwise. Consultants shall be financially sound and shall be responsible for:

  • Assisting in the development and periodic review of investment policy
  • Manage the investment assets of NFID within these policy objectives and guidelines
  • Designing and implementing an appropriate asset allocation plan consistent with the investment objectives, time horizon, risk profile, guidelines and constraints outlined in this statement
  • Advising the Finance Committee about the selection of and the allocation of asset categories
  • Identifying specific assets and investment managers within each asset category
  • Providing “due diligence”, or research, on the investment manager(s)
  • Notifying NFID of any changes in the ownership of the manager(s), changes in style of the manager(s) in writing or any intended deviations from investment philosophy, and any changes in the manager(s) ADV (SEC registration statement)
  • Notifying NFID of any legal action taken against the manager(s) or consultants or judgments against the manager(s) or consultants
  • Monitoring the performance of all selected assets
  • Recommending changes to the investment policy statement
  • Periodically reviewing the suitability of the investments for the Finance Committee
  • Being available to meet with the Finance Committee at each meeting/teleconference
  • Being available at such other times within reason at the Finance Committee request
  • Preparing and presenting appropriate performance reports that are within industry standards and as noted below in the reporting requirements
  • Consultant will not have any discretionary control, nor authority to withdraw funds from NFID accounts, except to cover payment of previously agreed to fees or at the specific direction of NFID
  • Consultant may not change the NFID investment policy, including the targeted asset allocation, without Finance Committee prior approval.

Investment Monitoring and Reporting Requirements

  1. Monthly: The consultants will provide NFID with a monthly written report showing values of each asset and all pertinent transaction details for each investment fund including:
  • All additions and withdrawals including the name and quantity of each security purchased or sold, with the price and transaction date; and
  • Any significant information or updates for prior or future month planned activity.
  1. Quarterly: The consultants will provide NFID with a quarterly assessment of the asset allocation, investment manager performance, future investment strategies, and other pertinent matters of interest to NFID.
  2. Annually: The consultants will provide annual three (3) year, five (5) year, etc. rolling performance measures by manager including expenses and a summary of all transactions in each fiscal year and relative market indexes for comparative purposes. In addition, a risk vs. return assessment will be included as part of the annual performance reporting to NFID. An annual schedule of fees and expenses incurred will be provided to the NFID Executive Director for investment management and custodial purposes.
  3. Periodic:  The consultants will provide NFID with the following management reports on a periodic basis or as requested:
  • Portfolio performance results over varying time periods
  • Performance results of comparative benchmarks over varying time periods
  • Review of current asset allocation versus policy guidelines and any recommendations for changes in asset allocation

Investment Policy Revisions

Revisions to the policy may be requested in writing to the Finance Committee. The policy is subject to review by the Finance Committee biennially or sooner, as determined by market conditions, cash flow needs, and/or investment manager turnover.

 

Updated May 2017