Investment Philosophy & Spending Rule
The Community Foundation of North Central Massachusetts has an important responsibility to its donors and the community to ensure that every gift is invested with diligence and a long-term view. The Board has developed a comprehensive investment strategy to guide its decision making.
The following is a brief overview of the Foundation’s Investment Policy. For the complete policy, please contact please contact Melissa Maranda, mmaranda@cfncm.org at 978-345-8383.
The Investment & Finance Committee (Committee) is empowered by the Foundation Board of Trustees (Board) to direct and monitor the investment management of the Community Foundation of North Central Massachusetts (Foundation) funds. The Foundation’s Investment Policy Statement (IPS), issued by the Committee, is designed to cover the assets donated or held for charitable benefits.
It is the intention of the Committee to offer three separate investment objectives to meet the differing needs and missions of various charities. The IPS also prescribes cash management policies for the Foundation’s cash reserves held for near term needs and contingencies.
The Charter for the Investment & Finance Committee outlines the following responsibilities:
- The Committee shall submit to the Board, for approval, a statement of investment policy outlining the objectives and guidelines for the investment assets
- The Committee, from time to time, shall review the investment policy statement and recommend appropriate changes to the Board
- The Committee will include in its policy statement a list of prohibited assets that the Committee believes are not appropriate for the Foundation
- The Committee will recommend to the Board a spending policy for the Endowment Funds, taking into account sustainable payout rates and, including a withdrawal rate from the endowment on a year to year basis
- The Committee may choose to hire an investment manager (Manager) and shall review them at least once per year.
In general, the purpose of the IPS is to outline a philosophy and attitude that will guide the investment management of the Foundation’s funds toward the desired results. It is intended to be sufficiently specific to be meaningful, yet flexible enough to be practical. The Committee has considered the financial implications of a wide range of policies, and this statement describes the prudent investment process that the Committee deems appropriate.
To assure continued relevance of the guidelines, objectives, financial status, and capital markets expectations as established in the IPS, The Committee will review investment policy periodically.
Investment Objectives
The IPS provides for three distinct and separate investment objectives (Funds) to accommodate donors and agencies with differing missions and objectives. Each Fund has a separate asset allocation strategy. For donor advised funds or funds held on behalf of others, the donor or agency may choose one Fund or a mix of appropriate Funds. The Committee has chosen to invest unrestricted endowment funds in the Long Term Fund.
Short Term Fund
The primary investment objective of this Fund is stability of principal. This fund is appropriate for non-endowed funds or other situations where funds can be withdrawn with little or no advance notice, and/or in situations where only minimal fluctuations to principal can be tolerated. Agencies and donors with time horizons under three years should consider this strategy. For performance evaluation purposes, the Committee will track one, two, and three year period trailing returns as compared to money market funds.
Medium Term Fund
The primary investment objective of this Fund is to provide payouts with moderate year to year volatility. This Fund may experience some reduction of purchasing power over time due to inflation. This fund is appropriate for endowed funds that require minimal, or no, nominal growth (before inflation) after payouts, or non endowed funds that have a time horizon that is between three and five years. This fund will most likely experience moderate fluctuations to principal. For performance evaluation purposes, the Committee will track trailing three and five year period trailing returns compared to the “Conservative Allocation” reference point as compiled by Morningstar and more fully described in the Due Diligence Policy section of the IPS.
Long Term Fund
The primary investment objective of this Fund is preservation of purchasing power, as defined in Section IX “Definitions”, to provide a relatively stable, inflation adjusted, annual payout to support grant-making or other donor missions. This Fund is appropriate for endowed funds or non-endowed funds with time horizons beyond five years. There will be some inevitable volatility in principal value from this strategy but it may offer the potential for a sustainable payout plus inflation protection, understanding that this may result in a less stable payout from year to year. For performance evaluation purposes, the Committee will track trailing three, five, and ten year period trailing returns compared to a “Growth and Income Allocation” reference point more fully described in the Due Diligence Policy section of the IPS.
To assist the Foundation in gauging the success of the return on investments, the Foundation shall employ as its investment return goal the following formula:
5 yr Annualized CPI + Grantmaking Rate (4.5%) + Average Administrative Fee (1%)
The Board of Directors shall review this formula on an annual basis.
Spending Policy
For permanent endowment funds, each year the Foundation shall distribute 4.5% of the fund’s average market value over the prior 20 quarters. No distributions shall be made during the first year following the funding of a permanent endowment fund. This spending policy may be revised by the Committee and submitted to the Board for approval from time to time.
Administrative Fees
Administrative task associated with the management of funds include investigation of grants, receipts and acknowledgement of contributions, payments of grants, oversight of investment management, and compliance with federal and state reporting requirements. To support these activities, the Foundation charges a tiered annual fee ranging from 1% to 0.10% of the fund’s market value. The fee is calculated at 1/12th of the fund’s market value at the end of each month. The tiered fees are broken down as follows:
First $2,000,000 1.0%
Next $3,000,000 .25%
Amounts above $5,000,000 .10%
Performance Returns
The Foundation has a very dedicated Investment and Finance Committee whose job it is to invest donors' money efficiently and effectively.
Considerable time was devoted to creating an Investment Policy, which guides the trustees and our money management firm.
It is our goal to maximize the Foundation's investment returns without taking undue risk. That is why we have a diversified portfolio, representing 14 sectors.
It provides stability and the opportunity to maximize returns, which provides the Foundation with more resources it can invest in the community.
We are pleased to report that for the period ending September 30, 2009 our performance returns net of all investment fees were:
Performance Returns for the period ending:
September 30, 2009
Past performance doesn not guarantee future results
