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Statement of Investment Polices

Classification number LCG 1128
Framework category Legal, Compliance and Governance
Approving authority Board of Governors
Policy owner Vice-President, Administration
Approval date June 24, 2021
Review date June 2022
Supersedes Statement of Investment Policies, February 27, 2020; Editorial Amendments, February 18, 2020; February 28, 2019; June 2016, June 27, 2018

Purpose

The purpose of this Statement of Investment Policies (“SIP”) is to define the management structure governing the investment of non-expendable (endowed) University funds, and to outline the principal objectives and rules by which assets will be managed. The assets will be managed in accordance with this Statement and all applicable legal requirements. Any investment manager (“Manager”) or any other agents or advisor providing services in connection with assets shall accept and adhere to this Statement.

Responsibilities

  1. Board of Governors

    The Board of Governors (“the Board”) of the University has responsibility and decision-making authority for these assets. 

    As part of its fiduciary responsibilities, the Board will:

    • appoint members to sit on Audit and Finance Committee;
    • receive the Audit and Finance Committee’s recommendations with respect to Statement of Investment Policies and approve or amend the Statement as appropriate;
    • review all other recommendations and reports of the Audit and Finance Committee with respect to the Fund and the selection, engagement or dismissal of professional investment managers, custodians and advisors, and take appropriate action.

  2. Audit & Finance Committee

    The Committee may delegate some of its responsibilities to agents or advisors. In particular, the services of a custodian (the “Custodian”) and of one or more investment managers (the “Manager”) may be retained. As part of its fiduciary responsibilities, the Audit and Finance Committee will:

    • maintain an understanding of legal and regulatory requirements and constraints applicable to these assets;
    • review the SIP  on an annual basis, and make appropriate recommendations to the Board of Governors;
    • formulate recommendations to the Board of Governors regarding the selection, engagement or dismissal of professional investment managers, custodians and advisors.
    • oversee the Fund and the activities of the Manager, including the Manager’s compliance with their mandate and the investment performance of assets
    • ensure that the Manager is apprised of any amendments to their mandate; and
    • inform the Manager of any significant cash flows.

  3. Investment Manager(s)

    The Manager is responsible for:

    • Selecting securities within the asset classes assigned to them, subject to applicable legislation and the constraints set out in this Statement;
    • Providing the Committee with quarterly reports of portfolio holdings, a review of investment performance, facilitating future strategy discussions and recommending appropriate changes to the investment portfolio; (see Section 8 on “Reporting and Monitoring”);
    • Attending meetings of the Committee at least once per year to review performance and to discuss proposed investment strategies;
    • Informing the Committee promptly of any investments which fall outside the investment constraints contained in this Statement and what actions will be taken to remedy this situation; and
    • Advising the Committee of any elements of this Statement that could prevent attainment of the objectives.

Portfolio Objectives

  1. Investment Policy

    The Investment Policy outlines the University’s investment objectives and risk guidelines. Investment objectives are defined in the context of Total Return which is defined as the sum of income and capital gains from investments.

  2. Investment Objectives

    The overall investment objective is to obtain the best possible total return on investments that is commensurate with the degree of risk that the University is willing to assume in obtaining such return. In general, the University's investment decisions balance the following objectives:

    • generate stable annual income for the funds’ designated purpose;

    • preserve the value of the capital;

    • protect the value of the funds against inflation; and

    • maintain liquidity and ease of access to funds when needed

Stable annual incomes are an essential part of the disbursement process, and facilitate the forecast of spendable income each year. The investment object for non-expendable (endowment) funds is to generate a total return that is sufficient to meet obligations for specific purposes by balancing present spending needs with expected future requirements. The total return objective must take into consideration the preservation of endowment capital, and the specific purpose obligations according to donor wishes.

All endowment funds are to be accumulated and invested in a diversified segregated or pooled fund of Canadian and foreign equities and fixed income securities. These funds must be structured to optimize return efficiency such that the return potential is maximized within the organization’s risk tolerance guidelines. The Manager is expected to advise the Committee in the event that the pooled fund exhibits, or may exhibit, any significant departure from this Statement.

General Guidelines

The University uses the investment pool method, except that in those instances where funds are precluded under agreement or contract from being pooled for investment purposes. The acquisition of specific investment instruments outside of authorized investment pools, requires the approval of the Chief Financial Officer and one of either President or VP External Relations.

All securities shall be registered in the University Of Ontario Institute Of Technology’s name; or in the name of a financial institution that is eligible to receive investments under the University Of Ontario Institute Of Technology’s Investment Policy.

The University may or may not directly or internally manage any portion of its endowed funds.

External investment managers and/or advisors shall be selected from well-established and financially sound organizations which have a proven record in managing funds with characteristics similar to those of the University.

The University shall maintain separate funds in the general ledger for endowment fund donations. Within these funds, the University shall maintain accurate and separate accounts for all restricted funds.

Investment income, capital gains and losses on the sale of equities and securities, and the amortization of premiums and discounts on fixed term securities earned on endowment funds accrue to the benefit of the endowment accounts and are distributed to capital preservation, stabilization and distribution accounts annually.

Authorized Investments

  1. Investment Criteria

    Outlined below are the general investment criteria as understood by the Committee. The list of permitted investments includes:

    1. Short-term instruments:
      • Cash;
      • Demand or term deposits;
      • Short-term notes;
      • Treasury bills;
      • Bankers acceptances;
      • Commercial paper; and
      • Investment certificates issues by banks, insurance companies and trust companies.

    2. Fixed income instruments:

      • Bonds;
      • Debentures (convertible and non-convertible); and
      • Mortgages and other asset-backed securities.

    3. Canadian equities:

      • Common and preferred stocks;
      • Income trusts; and
      • Rights and warrants.

    4. Foreign equities:

      • Common and preferred stocks;
      • Rights and warrants; and
      • American Depository Receipts and Global Depository Receipts.

    5. Alternative investments:
      • Direct Real Estate Equity: commercial investment grade income-producing real estate

    6. Pool funds, closed-end investments companies and other structured vehicles in any or all of the above permitted investment categories are allowed.

  2. Derivatives

    The Fund may use derivatives, such as options, futures and forward contracts, for hedging purposes, to protect against losses from changes in interest rates and market indices; and for non-hedging purposes, as a substitute for direct investment.

  3. Pooled Funds

    With the approval of the Committee, the Manager may hold any part of the portfolio in one or more pooled or co-mingled funds managed by the Manager, provided that such pooled funds are expected to be operated within constraints reasonably similar to those described in this mandate. It is recognized by the Committee that complete adherence to this Statement may not be entirely possible; however, the Manager is expected to advise the Committee in the event that the pooled fund exhibits, or may exhibit, any significant departure from this Statement.

  4. Responsible Investing

    The Board has a fiduciary obligation to invest the Fund in the best interests and for the benefit of the University.

    The Board recognizes that environment, social, and governance (ESG) factors may have an impact on corporate performance over the long term, although the impact can vary by industry.  Best practices suggest that incorporating ESG factors in the investment process is prudent and aligned with the University’s social commitment.  

    Given the fact that the University uses the investment pool method, it is not practical for the Committee to directly engage individual companies on ESG related issues, either through dialogue or by filing shareholder resolutions.  Subject to its primary fiduciary responsibility of acting in the best interests of the University and its stakeholders, and within the limits faced by an investor in externally managed pooled funds, the Committee will incorporate ESG factors into its investment process through the following methods:

    1. Manager Selection and Reporting

      The integration of ESG factors in the investment process will be a criterion in the selection, management and assessment of the Manager.

      The Committee will require the Manager to provide regular and annual reporting on the incorporation of formal ESG factors in the management of their portfolios. 

    2. Engagement

      Since the University does not directly invest in companies, proxy voting is delegated to the Manager.  The Committee will encourage the Manager to incorporate into their proxy voting guidelines policies that encourage issuers to increase transparency of their ESG policies, procedures and other activities, and also to bring to the Committee’s attention any significant exposure through the Fund to a particular company, industry or nation that is facing a material ESG issue.

Risk Guidelines

All investment of assets must be made within the risk guidelines established in this Statement. Prior to recommending changes in investments, the Manager must certify to the Committee that such changes are within the risk guidelines. For the purposes of interpreting these guidelines, it is noted that all allocations are based on market values and all references to ratings reflect a rating at the time of purchase, reviewed at regular intervals thereafter. In the event that the portfolio is, at any time, not in compliance with either the ranges or ratings profile established in this Statement, such non-compliance will be addressed within a reasonable time after the Manager or Committee has identified such non-compliance.

  1. Asset Mix and Ranges


    Table 6.1

    Asset Class

    Strategic Target

    Range

    Benchmark (Total Return)

    Cash & short-term

    0%

    0% – 10%

    FTSE 30-Day T-Bill Index

    Fixed Income

    35%

    25% – 45%

     

    Core Plus Bonds

    20%

    15% - 35%

    FTSE Canada Universe Bond Index

    Mortgages

    15%

    0% - 25%

    FTSE Canada Short Term Overall Bond Index

    Equities

    55%

    45% - 65%

     

    Canadian

    20%

    10% - 30%

    S&P/TSX Capped Composite Index

    Global *

    30%

    20% - 45%

    MSCI World Net Index ($C)

    Emerging Market Equities

    5%

    0% - 10%

    MSCI Emerging Markets Net Index ($C)

    Alternatives

    10%

    0% - 20%

     

    Direct Real Estate

    10%

    0 - 15%

    Canada CPI (seasonally adjusted) + 4.0%

    Investment of assets must be within the asset classes and ranges established in Table 6.1. 

  2. Cash and Cash Equivalents

    Cash and cash equivalents must have a rating of at least R1, using the rating of the Dominion Bond Rating Service (“DBRS”) or equivalent.

  3. Fixed Income

    1. Maximum holdings of the fixed income portfolio by credit rating are:

      Credit Quality Maximum in Bond1 Minimum in Bond1 Maximum Position in a Single Issuer
      Government of Canada2 100% n/a no limit
      Provincial Governments2 60% 0% 40%
      Municipals 25% 0% 10%
      Corporates 75% 0% 10%
      AAA3 100% 0% 10%
      AA3 80% 0% 5%
      A3 50% 0% 5%
      BBB 15% 0% 5%
      BB and less 20% 0% 2%

      1 Percentage of portfolio at market value; 2 Includes government-guaranteed issues; 3 Does not apply to Government of Canada or Provincial issues

    2. Maximum holdings of the fixed income portfolio, other than Canadian denominated bonds as illustrated in 6.3 (a), by asset type:

      • 20% for asset-backed securities;
      • 60% for mortgages or mortgage funds;
      • 20% for bonds denominated for payment in non-Canadian currency; and
      • 10% for real return bonds.

    3. All debt ratings refer to the ratings of Dominion Bond Rating Service (DBRS), Standard & Poor’s or Moody’s.

    4. No less than 80% of non-Canadian dollar denominated bonds should be hedged back to the Canadian dollar.
  4. Equities

    1. No one equity holding shall represent more than 15% of the market value of the assets of a single pooled fund.
    2. There will be a minimum of 30 stocks in each equity (pooled fund) portfolio.
    3. No more than 5% of the market value of an equity portfolio (pooled fund) may be invested in companies with a market capitalization of less than $1 billion at the time of purchase
    4.  Illiquid assets are restricted to 10% of the net assets of the Fund.
    5. Foreign equity holdings can be currency hedged to a maximum of 50%
    6. It is expected that Global Equities will be well-diversified to represent a proportional share of U.S. equities as part of the broader global markets. This has historically ranged from 55% to 65%.
  5. Alternative Assets
    1. Illiquid assets shall not constitute more than 20% of the total portfolio.
    2. Alternative investment solutions have the potential to enhance fixed income returns, reduce equity risk, reduce portfolio volatility and improve portfolio efficiency. They typically require a longer investment horizon, are less liquid, and when considered in isolation may be deemed more risky than other securities. The associated risks, fees and expenses are detailed in a document called an Offering Memorandum which the manager is responsible for providing to the appropriate Committee prior to any such new investment being made in the portfolio.

Performance Expectations

  1. Portfolio Returns

    The portfolio is expected to earn a pre-fee rate of return in excess of the benchmark return over the most recent four-year rolling period. Return objectives include realized and unrealized capital gains or losses plus income from all sources. Returns will be measured quarterly, and calculated as time-weighted rates of return. The composition of the benchmark is developed from the asset mix outlined in this Statement and more specifically described in the Asset Class Management Procedures, Appendix A.

    In order to meet the University’s disbursement requirements, investments need to earn a minimum level of income, measured over a four year rolling market cycle. The minimum recommended level is defined as the sum of the following items:

    Minimum disbursement requirement 3.5%
    Investment management fees 0.5%
    Capital preservation amount 2.0%
    Minimum Rate of Return 6.0%
    Note: The disbursement requirement and capital preservation amounts will be reviewed, and updated as required.

Reporting and Monitoring

  1. Investment Reports

    Each quarter, the Manager will provide a written investment report containing the following information:

    • portfolio holdings at the end of the quarter;
    • portfolio transactions during the quarter;
    • rates of return for the portfolio with comparisons with relevant indexes or benchmarks; Compliance report.

  2. Monitoring and Recommendations

    At the discretion of the Committee as required, the Manager will meet with the Committee regarding:

    • the rate of return achieved by the Manager;
    • the Manager’s recommendations for changes in the portfolio;
    • future strategies and other issues as requested.

    The agreement with the Manager or any Custodian will be reviewed by the committee on a four year cycle. This review could include a Request for Proposal for these services.

  3. Annual Review

    It is the intention of the University to ensure that this policy is continually appropriate to the university’s needs and responsive to changing economic and investment conditions. Therefore, the Committee shall present the SIP to the Board, along with any recommendations for changes, at least annually.

Standard of Care

The Manager is expected to comply, at all times and in all respects, with the code of Ethics and Standards of Professional Conduct as promulgated by the CFA Institute.

The Manager will manage the assets with the care, diligence and skill that an investment Manager of ordinary prudence would use in dealing with all clients. The Manager will also use all relevant knowledge and skill that it possesses or ought to possess as a prudent Investment Manager.

The Manager will manage the assets in accordance with this Statement and will verify compliance with this Statement when making any recommendations with respect to changes in investment strategy or investment of assets.

The Manager will, at least once annually, provide a letter to the Committee confirming the Manager’s familiarity with this Statement. The Manager will, from time to time, recommend changes to the SIP to ensure that the SIP remains relevant and reflective of the University’s investment objectives over time.

Conflict of Interest

All fiduciaries shall, in accordance with the University's Act and By-laws and policies on conflict of interest, disclose the particulars of any actual or potential conflicts of interest with respect to the Fund. This shall be done promptly in writing to the Chair of the Audit & Finance Committee. The Chair will, in turn, table the matter at the next Board meeting. It is expected that no fiduciary shall incur any personal gain because of their fiduciary position. This excludes normal fees and expenses incurred in fulfilling their responsibilities if documented and approved by the Board.

Proxy Voting Rights

Proxy voting rights on portfolio securities are delegated to the Manager. The Manager is expected to maintain, and produce upon request, a record of how voting rights of securities in the portfolio were exercised. The Manager will exercise acquired voting rights in the best interests of the unit holders of the pooled fund.