Policies & Procedures

I.  Philosophy

At the core of this investment policy statement is a set of fundamental investment beliefs which are the underpinnings of all Longwood University Foundation, Inc. investment policies:

• Endowment funds are by definition perpetual funds. The Finance Committee can afford to take a very long-term view in setting investment policy.
• Taking into account the long-term nature of endowment funds, the Longwood University Foundation should maintain a bias toward equity investments, which have historically produced higher long-term returns.
• Diversification can reduce risk and increase return.

II. Spending Policy (Adopted 2/96 and amended 10/97, 9/98, 3/12, 6/14)

Annual distributions from the true and quasi-endowment funds held by the Longwood University Foundation will be 4% of each funds average market value for the preceding 12 quarters ending June 30^th of the most recent calendar year.  If an endowed fund’s market value is less than the gift value (underwater funds) on June 30^th of the fiscal year prior to distribution then no distribution will be made from that fund.  Recommendations will be presented to the Investment Committee for distribution from underwater funds as they occur. 

III. Investment Objectives (Amended 6/14)

The primary investment objective of the Longwood University Foundation endowment is to earn an annual real total return sufficient to cover annual expenses and distributions of the Foundation. Attainment of this objective will enable the Foundation to maintain the purchasing power of endowment assets in perpetuity and meet its current spending policy.

A secondary investment objective of the endowment is to outperform over the long term (defined as rolling five-year periods) a blended custom benchmark based on a current asset allocation policy of: 25% Russell 3000, 15% T-Bills X 2, 15% Cambridge Associates (60% Buyout & 40% Venture), 20% MSCI-World Ex-US Index, 5% Cash (3 Mo. T-Bill), 5% Merrill Lynch HY Master II, 5% Russell NCREIF Real Estate Index, and 10% CPI + 6%.

A third investment objective of the endowment is to rank in the top quartile of the NACUBO universe of college and university endowment returns over the long term.

IV. Asset Allocation

The single most important investment decision is the allocation of endowment funds to various asset classes. The primary objective of the Longwood University Foundation’s asset allocation policy is to provide a strategic mix of asset classes which produces the highest expected investment return within a prudent risk framework.

Each asset class should not be considered alone, but by the role it plays in a diversified portfolio. Diversification among asset classes has historically increased returns and reduced overall portfolio risk. How asset classes relate to each other is the key to making asset allocation decisions within the context of overall endowment risk and return.

As stated earlier, a core fundamental investment belief of the Longwood University Foundation is to maintain a bias toward equity investments, which produce higher long-term returns. In addition, the endowment’s long time horizon is well suited to exploiting illiquid, less efficient markets that offer higher potential returns.

With these basic tenets in mind:

• equity bias – increases returns
• diversification – reduces risk
• long time horizon

The Longwood University Foundation has decided to invest in the following asset classes:

DOMESTIC EQUITY: Publicly traded U.S. stocks are a core asset of institutional portfolios with long-term investment horizons and modest liquidity constraints. The objective of the domestic equity portfolio is to generate investment returns with adequate liquidity through consistent exposure to common stock investments. The domestic equity portfolio may contain both a passive core and an active investment strategy. The passive core is meant to provide low-cost exposure to the U.S. equity market and will primarily be achieved through the use of, but not limited to, swaps, ETFs and other derivative products, utilized from time to time to add or reduce the directionality of the portfolio. The portfolio seeks to generate incremental returns (alpha) through its active investment strategy. The active investment strategies will include both long/short and long only managers. The primary benchmarks for the domestic equity portfolio are the Russell 3000 and the S&P 500.

INTERNATIONAL EQUITY: Includes publicly traded common stock of predominantly international markets, both in developed and developing/emerging regions. In general, it is perceived that through increasing industrialization, strong demographic trends and increasing depth and efficiency of capital markets in these countries, that these markets could generate higher returns than the U.S. markets. In addition, over long-term periods of time, international equities have relatively low correlations to the U.S. markets making them not only a return source, but a portfolio diversification tool.. The objective of the international equity portfolio is to generate investment returns with adequate liquidity and to provide a diversification benefit to the entire portfolio. The international equity portfolio takes an active investment approach due to the less efficient nature of the markets which should generate higher returns than a passive core and will be implemented through both long/short and long only managers, potentially in all regions of the world. Despite an active approach, from time to time there may be opportunities to add or reduce directionality to international markets through the use of, but not limited to, swaps, ETFs and other derivative products. The primary benchmark for the international equity portfolio is the MSCI-World ex-U.S. index.

GLOBAL EQUITY: Includes publicly traded common stock from a combination of domestic, developed international and developing/emerging international markets. The objective of the global equity portfolio is to generate investment returns with adequate liquidity through a globally diversified portfolio of common stocks that will provide return sources from less correlated regions of the world. The global equity portfolio will largely employ an active investment strategy, though from time to time may utilize swaps, ETFs and other derivative products to add or reduce the overall directionality of the portfolio. Investments in the global equity category typically have a broader investment mandate and cannot be classified specifically into domestic or international alone due to the global approach of the portfolio management function. An investment is generally defined as global if the investment has more than 20% of its gross exposure domiciled outside of either its home country or its primary investing region and investments will include both long/short and long only managers. The primary benchmarks for the global equity portfolio are the Russell 3000, the S&P 500 and the MSCI-World ex-U.S. indexes.

PRIVATE EQUITY/VENTURE CAPITAL: Includes illiquid investments in both private and public companies both domestically and internationally. These investments include venture capital, buyouts, high yield, and subordinated debt. The private equity/venture capital portfolio’s objective is to earn higher returns than the public equity markets over the long term. This portfolio invests in highly illiquid positions and should generate higher returns as compensation for that illiquidity. A secondary objective of these investments is to provide diversification. The portfolio’s strategy is to invest in a select number of funds managed by the highest quality management teams usually organized as limited partnerships. Managers are sought which have proprietary deal flow and whose experience enables them to bring strategic, operational, or technical expertise to a transaction in addition to financial acumen and capital. The portfolio is diversified across categories and investment stage. The private equity/venture capital portfolio’s primary benchmark is the Cambridge Associates Venture Capital and Buyout benchmarks weighted 60% buyouts and 40% venture capital.

MULTI-STRATEGY: Includes managers specializing in asset allocation across multiple investment strategies that have low correlations and/or market exposure to other asset classes. The objective of this asset class is to generate equity-like returns with less volatility and market exposure than global equities. Diversification across strategies and positions will be wide in order to dampen portfolio volatility. The portfolio’s liquidity will be moderate, less than that of the traditional public equity portfolios, but more liquid than the private equity/venture capital portfolio. This portfolio will focus on areas and strategies where value added by active management can contribute a substantial portion of the return. The portfolio may utilize swaps, derivatives, ETFs or other instruments in order to manage risk. The primary benchmark for this asset class is 2 X Citi 3 Month Treasury Bills Index.

DIVERSIFIED: Includes investments with active managers specializing in single strategy arbitrage or niche investment strategies that have low correlations and exposure to broad equity and credit markets. Investments will be made opportunistically based on manager talent and market opportunity. It is expected that some investment strategies will be added to exploit opportunities also found within the Multi-Strategy asset class. The portfolio will be diversified across investment strategies and asset classes. The portfolio objective is to generate equity-like returns with moderate volatility and market exposure. The portfolio may utilize swaps, derivatives, ETFs or other instruments in order to manage risk. The primary benchmark for the asset class is 2 X Citi 3 Month Treasury Bills Index.

CREDIT: Includes investments in publicly and privately traded credit and credit related securities. The portfolio can hold a mix of traditional benchmark relative strategies and absolute return strategies. It is expected that many types of securities could be considered credit sensitive and the portfolio will contain, but not be limited to, bonds, equities, derivatives, currencies and private securities. The portfolio will be diversified across credit asset classes and hold a mixture of investment grade and high yield securities of performing and non-performing debt. Liquidity and volatility will vary by strategy. The portfolio will focus on capital appreciation rather than current income and will not be managed to specific duration guidelines. The primary benchmark is the Merrill Lynch High Yield Master II Index.

REAL ASSETS: Real Assets represent claims on future streams of inflation-sensitive income, supplying protection against unanticipated inflation and playing an important diversifying role in the portfolio. Real assets are comprised of investments in oil and gas, commodities, timber, and inflation-linked bonds. The primary benchmark is CPI + 6%.

REAL ESTATE: The long-term objective of the Real Estate portfolio is to provide equity-like returns while providing a partial hedge against inflation. In addition, real estate is an extraordinary diversifier within the overall endowment due to its low correlation with other asset classes. The portfolio is directed largely to illiquid investments with a long time horizon. The primary benchmark is the Russell NCREIF Property Index – a broad index of institutional quality private real estate.

CASH: Cash is a very risky investment for an institution with a long time horizon due to its low return and the diminution of purchasing power that entails. It is considered prudent to minimize the use of cash in the overall endowment. Outside of extraordinary market dislocation periods, cash will exist from time to time for transaction and/or rebalancing needs only.

With the above serving as the approved asset classes, the Longwood University Foundation has developed the following as its optimal long-term asset allocation policy.

Asset Class Desired Range

EQUITY

   Domestic Equity                               5% - 25%

   International Equity                         5% - 25%

   Global Equity                                   5% - 25%

PRIVATE EQUITY/VENTURE         10% - 25%

MULTI-STRATEGY                          5% - 20%

DIVERSIFIED                                    0% - 10%

CREDIT                                              0% - 15%

REAL ASSETS                                   0% - 10%

REAL ESTATE                                  0% - 10%

CASH                                                  0% - 10%

V. Portfolio Rebalancing Policy

The Longwood University Foundation’s Investment Policy Statement establishes the long-term asset allocation targets for the endowment and certain minimum and maximum constraints for each individual asset class. The Board of Managers of Spider Management Company will rely on investment staff to determine allocations within the stated ranges and to initiate rebalancing of the fund whenever minimum or maximum constraints are violated.

Rebalancing is a critical element in controlling the long-term asset allocation of the endowment. The Longwood University Foundation’s Rebalancing Policy will be implemented in a systematic and disciplined fashion using the following guidelines:

• In the case of an asset class being below its minimum constraint, monies will be invested in that asset class to bring it back toward its target allocation. We will use cash flow to rebalance whenever feasible. When cash is not readily available to facilitate the rebalancing, we will trim the most overweight asset class.
• In the case of an asset class being above its maximum constraint, assets will be sold in that asset class to bring it back toward its target allocation. Cash generated from these sales will be reinvested in those asset classes that are below their target allocations.
• Spider Management Company has the ability to make additions and withdrawals from public market investments with managers we currently have relationships with for the purpose of portfolio rebalancing.
• Spider Management Company has the authority to commit capital to subsequent funds offered by our existing private market managers without getting approval from the Committee.

VI. Short-Term Cash

1. The Treasurer shall establish such short-term cash accounts as necessary to provide liquidity sufficient to meet short-term withdrawal needs of the Longwood University Foundation.
2. Short-term accounts will receive earnings from investment accounts, gifts from donors, construction funds and disburse spending according to the policies of the Longwood University Foundation, Inc.

1. The percentage of total Foundation assets held in short-term funds should be as low as possible between 1-10%, but holdings should be sufficient so that requests for withdrawals from investment accounts are infrequent. Ordinarily, short-term funds should contain approximately 5 percent of Foundation assets.   
2. The investment objective for short-term funds is to outperform .25 percent (.25 basis points) per annum (net of fees) the 91-day T-Bill index.
3. Money market instruments as well as bonds may be used in the short-term fund, but equities and convertible bonds are excluded. Since the fund is designed as a stable, temporary repository for funds, its average duration should never be greater than 12 months.
4. Because of the short-term fund’s stability and liquidity requirements, its investments are permissible only within securities with certain minimum credit standards. These are:  (1) obligations of, or guaranteed by, the US government;  (2) corporate bonds rated “A” or higher by Moody’s or Standard & Poor; (3) commercial paper rated Prime-3 or higher by Moody’s Investors Service; (4) negotiable certificates of deposit, bankers’ acceptances and floating rate notes issued by U.S. chartered banks rated B or higher by Thompson’s Bankwatch, Inc.;  (5) interest rate futures contracts, providing that such contracts are used only for the purpose of duration management;  (6) repurchase agreements secured by securities qualifying by the guidelines above;  (7) money market funds from commercial banks and other major investment advisors containing securities qualifying by the guidelines above.
5. In general, the short-term fund shall be well diversified with respect to type, industry and issuer in order to minimize risk exposure. However, obligations issued or guaranteed by the U.S. Government may be held without limitation.

VII. Investment Documentation and Reporting

Statements will be provided quarterly to the Treasurer.  Analytical data will be provided quarterly to the Treasurer and Finance Committee summarizing:

• time-weighted rates of return for the quarter and trailing periods for the total portfolio and individual funds
• asset allocation of total portfolio
• market value reconciliation for the period for the total portfolio
• strategy and characteristics of each fund

Audited financial statements for each investment fund will be supplied annually.

Spider Management, LLC will assume responsibility for voting proxies associated with its funds. 

Spider Management, LLC will meet periodically with the Finance Committee to review the portfolio and its investment results.