USI Foundation - Investment Policy

Investment Policy

Purpose
The purpose of this Investment Policy Statement (IPS) is to assist the Finance Committee of the University of Southern Indiana Foundation (Committee) in effectively supervising, monitoring and evaluating the investment performance of the Investment Portfolio (Portfolio).

General Investment Objectives
The objectives represent desired results and are long term in nature. The general investment objectives are:

To outperform inflation,
To establish an investment program that participates in a diversified investment portfolio,
To offer equity and fixed income investments that are diversified among various asset classes, thus minimizing the risk of large losses, and
To maximize total return within reasonable and prudent levels of risk.

Spending Philosophy
The USI Foundation believes that a "reasonable" spending policy should do several things. First, it should provide sufficient funds for operations. It should also leave sufficient funds for the assets to grow, at a minimum, so that inflation-adjusted spending is perpetuated. The policy should minimize the impact of the volatility of the markets on the year-to-date spending and it should be clearly articulated and embrace a challenging, but achievable, investment objective.

Given these beliefs, the Committee has established the following spending policy goals:

1. Maintain reasonable inflation-adjusted spending into the future.

2. Provide for sufficient asset growth after spending to preserve the inflation-adjusted value of the assets.

3. Smooth spending on a quarter by quarter basis rather than vary it with short-term changes in interest rates and asset values.

Total Return Concept
The Total Return Concept (TRC) should allow the Foundation to set a spending level that is independent of the income earned by the Foundation's funds in any given year. The Foundation will identify a spending level which will preserve the inflation-adjusted value of the assets and agree to fund at that level. In setting spending levels, the Foundation recognizes that there is more to successful investing than merely maximizing current income. Capital appreciation over time can be significant.

The Foundation believes that a prudent balanced approach to investing can offer the potential for total return consisting of income plus appreciation that will cover inflation and provide for a reasonable level of spending. Based on the investment goals and risk tolerances stated in the Foundation's investment policies, an asset mix strategy with a target of 70% equities and 30% fixed income investments is appropriate.

Spending Level Determination
Each year the Committee will review the financial status of the Foundation and set the spending level to balance current need with growth for the future. The Committee has set a proposed spending level of 4.5%. To insure a stable and predictable base, it will use a rolling three-year average market value to determine future distributions.

Asset Allocation Guidelines
The major component of this investment policy is the allocation of assets among various asset classes.

For example, studies have indicated that anywhere from 85% to 93% of a Portfolio's investment performance over longer periods of time can be attributed to how assets are allocated among various security classes, not how asset managers add value through their security selection or timing decisions.

The Committee has reviewed the long term historical risks and returns associated with different asset classes. Also, the Committee has reviewed the importance of asset diversification and its impact on portfolio volatility and returns.

SECTION I: GENERAL ASSET ALLOCATION GUIDELINES
SECTION II: ASSET CLASS/STYLE DIVERSIFICATION
SECTION III: REBALANCING THE PORTFOLIOS
SECTION IV: RESTRICTIONS

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