Investment Policy

Responsible Unit: Finance | Executive lead: CFO 
Created: 01/01/2008 | Reviewed/Revised: 05/2011, 07/2012, 09/2023 | Effective: 09/2023 
Compliance: RCW 63.60, NWCCU 2.E.1, 2.E.2, 2.E.3  
Approving Body: BOT | Classification: Institution-wide 

Mission:
The mission of PNWU is to educate and train healthcare professionals emphasizing service among rural and medically underserved communities throughout the Northwest.  To further its mission, the university has established endowed funds and other institutional investments, to support the students with scholarships and other financial support.  This policy addresses investment objectives, fiduciary duties and operational guidelines of University endowed funds and other institutional investments, including operating reserves.   

Policy:
Permanently restricted/endowed assets are to be invested with the goals of long-term growth and safety of principal, maximization of total investment yield in accordance with stated investment objectives, and maintenance of liquidity sufficient to achieve the stated purposes.  

Operating reserves are to be invested with the goal of preservation of capital with a reasonable return based upon a safe level of maintaining the principal.  

Other Operating funds are to be invested with the goal of maximizing income produced while maintaining flexibility and liquidity. 

Delegation of Authority 
The University Board of Trustees is responsible for the prudent management of endowed funds and operating reserves.  The Board has delegated responsibility for the oversight of investments to the Finance Committee.  The Finance Committee (and when implemented, the Investment Subcommittee) is responsible, along with the Chief Financial Officer (CFO) for implementing and recommending changes to this policy.  It is expected that the Investment Subcommittee (when applicable), Finance Committee, Board, and external Investment Manager will review this policy annually and propose any revisions needed to support the investment objectives.  See Exhibit A for the Roles and Responsibilities of all parties. 

Investment Objectives of Other Operating Funds  
Other Operating funds are excess cash that is not designated as reserves.  Other Operating funds are to be invested in short-term cash equivalents such as money market funds and/or certificates of deposit to provide safety, liquidity, and return.   The liquidity needs of the University will be met from these funds.   

Investment Objectives of Operating Reserves  
Operating reserves are to be invested in cash equivalents to provide safety, return and liquidity.   

Investment Objectives of Endowed Funds 
The primary investment objective of endowed funds is to preserve the inflation-adjusted value of the assets while distributing earnings in accordance with the spending policy to provide scholarships or other stated objectives of the fund.  The goal is to attain annual returns net of fees of at least 7% annualized rate of return.

Total returns equal dividends and interest income, plus or minus (realized and unrealized) capital gains and losses, net of all applicable investment fees (including 12b-1 fees).  Endowment expenses, including taxes, investment management, legal, consulting, custodial, and other endowment-related expenditures, may be paid from endowment earnings. 

Liquidity 
There must be sufficient liquidity in the endowment portfolio to ensure that the endowment can meet its distribution/spending policy and operational needs, maintain the University’s desired credit ratings, and maintain compliance with any debt agreements to which the University is a party. The external Investment Manager is authorized to select investments with restricted liquidity, provided that the liquidity needs of the University and the liquidity of the overall endowment portfolio have been carefully considered in advance of such investment and will continue to be met after the investments are added to the portfolio.  

Rebalancing 
The actual investment allocations will be reviewed quarterly by the CFO who will report to the Investment subcommittee but may be changed at any time (as long as the proposed allocations are within the acceptable ranges) based on the judgment of the external Investment Manager. 

Spending Policy  
The endowment spending rate(s) is 4% of the rolling five-year average of the quarterly market values, including realized and unrealized gains(losses) of participating funds net of investment fees (rolling 12 quarters).  Spending is distributed on timelines consistent with the objectives of the fund (i.e., scholarship funds are distributed once or twice per year on the tuition billing cycle).   

In establishing the payout percentage, the following factors, among others, will be considered: (1) duration and preservation of the endowment; (2) the purposes of the University and the endowment; (3) general economic conditions; (4) the possible effect of inflation or deflation on the endowment; (5) the expected total return from income and the appreciation of investments; (6) other resources of the University; and (7) this Policy.  

Notwithstanding the above, individual true endowments with a market value that is below their permanently restricted value will only distribute the current year’s income from interest and dividends. If such endowments support financial aid, the spending shortfall may be covered by other University funds. 

In the event an endowment falls underwater by greater than 20% of its historic dollar value (the aggregate value of all contributions to an endowment fund at the time they were made), the Chief Financial Officer will perform an in-depth analysis of the fund in order to determine the viability of suspending spending distributions until the value of the fund goes back above the 20% level.  The Chief Financial Officer will report the findings to the Investment Subcommittee. 

Investment Guidelines 

Allowable Investments / Assets 

  1. Cash Equivalents or funds containing: Treasury bills, money market funds, commercial paper, banker’s acceptances, repurchase agreements, and/or certificates of deposit.   
    • Cash and cash equivalent reserves may be invested in short-term fixed-income investments and shall be used to fund necessary financial obligations at times when it is not desirable or practical to liquidate stock or bond investments. 
  2. Fixed Income funds containing: U.S. Government and agency securities, corporate notes, and bonds with a quality rating of investment grade [(BBB) or better], mortgage-backed bonds.    
    • The fixed income portfolio will typically be diversified across various subclasses and by investment style and strategy (such as duration, sector, and quality). 
  3. Equity Securities funds containing:  common stocks of U. S. or non-U.S. companies.   
    • This class will typically be diversified in terms of style and capitalization and may include both active and passive investment strategies. Smaller capitalization, concentrated, and style-specific strategies may all be used to diversify the portfolio.  

        As the amount of PNWU-endowed funds grows, it is recognized that the structures and asset classes outlined in the policy will encompass a wide range of investment strategies that have significantly different risk profiles and cost structures. 

        Socially Responsible or Environmental, Social and Governance (ESG) Strategy 
        Socially Responsible Investing (“SRI”) is a method of investing that is geared toward accomplishing a social goal or promoting a particular mission.  Environmental, social, and governance (ESG) refers to the three central factors in measuring an investment’s sustainability and ethical impact in a company or business.  These criteria help to better determine the future financial performance of companies (return and risk). The Finance Committee or Investment Subcommittee may consider SRI or ESG investment opportunities when the manager’s targeted values align with the mission of the University and when the manager meets or exceeds other approved Investment options. 

        Unallowable Investments / Assets 
        Due to the small relative size of current PNWU endowed funds, the following investments are considered unallowable until such time as funds grow enough to warrant more complexity and diversification, unless obtained through broad market index funds or other externally managed commingled funds:   

        Hedge funds, real assets (real estate, commodities) futures contracts, private placements, options, limited partnerships, venture-capital investments, interest-only (IO), principal-only (PO), and residual tranche CMOs, derivatives, and securities of emerging nations.  In addition, short selling and margin transactions are not allowed. 

        Asset Allocation Guidelines for Endowed Assets (at market value) 

        Allocation by Asset Class Range %: Target % 
        Cash 4-10% 10% 
        Equities 50-70% 60% 
        Fixed Income 30-50% 30% 

        If the investment manager deviates from the parameters established, the manager will notify the Board through its Investment Sub-Committee immediately.  

        Selection of Investment Managers  
        The Committee’s selection of an Investment Manager must be based on prudent due diligence procedures. A qualifying Investment Manager must be a registered investment advisor under the Investment Advisors Act of 1940 or a bank or insurance company.  The committee shall review the performance of Investment Managers / Advisors and go out for bid for investment fiduciaries no less than every five (5) years. 

        Conflict of Interest 
        It is the policy of the PNWU Finance Committee to avoid conflicts of interest in its operations, including the selection of Investment Managers, Advisors, or funds. Each member of the committee and administration shall disclose, at least annually, the nature of any relationships with any investments or investment managers or advisors and recuse themselves from decisions that could cause real or perceived conflicts of interest. 

        Investment Authority 
        Except for the guidance, authority, and limitations with respect to the investment of funds as herein provided, it is understood and acknowledged that the Committee should not reserve control over investment decisions made by Investment Managers engaged by the Committee. As such, the Investment Manager shall be responsible, and/or held accountable, for results achieved on the investment of funds held. The Investment Manager is, therefore, encouraged to request modifications to this investment policy as they may deem necessary and/or appropriate under the circumstances. 

        The assigned staff accountant who records investment transactions has no authority over investment decisions. Detailed investment accounting records are maintained by the third-party investment advisor, not by PNWU accounting staff. PNWU delegates custodial responsibilities to the Investment Manager.  

        Review and Communication  
        The Finance Committee / Investment Sub-Committee shall review the following on a regular basis: 

        1. Investment results, shall be reviewed quarterly, including but not limited to, reported gross and net of all investment fees (including internal fees) 
        2. Future investment strategies considering past, present, and prospective economic and financial market climates, shall be reviewed annually 
        3. Annually the Committee will review adherence to and compliance with, this investment policy and other guidelines that may be adopted by the Committee. 

        Fiduciary Duty 
        To attain the investment objectives set forth, the committee shall exercise prudence and appropriate care per the Uniform Prudent Management of Institutional Funds Act (UPMIFA). UPMIFA requires fiduciaries to apply the standard of prudence “about each asset in the context of the portfolio of investments, as part of an overall investment strategy.” All investment actions and decisions must be based solely on the interest of the University. Fiduciaries must provide full and fair disclosure to the Committee of all material facts regarding conflicts of interest. 

        Exhibit A 
        Roles and Responsibilities 

        Investment Prudence 
        The decision process of the Board, Committee and Subcommittee are governed by the Prudent Investor Rule and the Washington State Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) and the Washington Nonprofit Corporation Act. The Board, Committee and/or Investment Subcommittee must make decisions in good faith, in a prudent manner and in the best interests of the endowment and other investments, taking into consideration long-term and short-term needs, present and anticipated financial requirements, the expected total return and risk of certain investments, and general economic conditions.  

        The Board, Committee and Subcommittee have the discretion to delegate the responsibility to manage and invest the endowment and other investments to other parties such as bank custodians, an external investment manager, and investment consultants who work in a fiduciary capacity for the endowment. In considering delegation to external agents the Board must act with such standard in: (i) selecting the agent; (ii) establishing the scope and terms of the delegation, including such agent’s standard of care; and (iii) reviewing and monitoring the agent’s performance.  

        The Board and Committee shall document their decisions. The standard imposed upon the agent under the scope and terms of the delegation should be consistent with UPMIFA, including (i) the requirement to exercise reasonable care in complying with the scope and terms of the delegation and (ii) the requirement that a person who has special skills or expertise or is selected in reliance on such person’s representations of such special skills or expertise has a duty to use these skills or expertise. 

        Responsibilities of Finance Investment Sub-Committee 
        The Finance Committee charges the Investment Subcommittee with the responsibility for reviewing and approving this policy, which addresses the following: 

        • Hiring external investment advisors, managers, consultants, or other experts as needed to manage the endowed and operating reserve funds; 
        • Performance objectives of the funds, and the monitoring of external experts’ performance of the portfolio within the guidelines stated herein; 
        • Investment guidelines, including diversification and concentration restrictions 
        • Asset allocation targets 
        • Acceptable and unacceptable risk levels 
        • Spending policies 
        • Compliance with all pertinent laws and regulations 

        Any changes to the above items will be reported to the Finance Committee for referral to the Board of Trustees as needed. 

        Responsibilities of the Chief Financial Officer and other Finance Team Members: 

        • Support the Committee and Subcommittees (if applicable) 
        • Provide timely endowment and operating reserve reports, in collaboration with external experts. 
        • Coordinate and monitor the activities of the external experts; 
        • Ensure detailed records are tracked for applicable accounting and tax reporting; 

        Responsibilities of External Investment Advisor, Manager or other Expert: 

        • Utilize discretion in managing the assets of the endowment and/or operating reserves in accordance with this policy; 
        • Notify the Committee or Subcommittee proactively if it believes that the policy and/or investment strategy should be modified to achieve the objectives stated herein;  
        • Seek to outperform, on an after-fee and after-tax basis, the policy benchmark (as defined herein) over a full market cycle, which would generally be viewed as a period of five to seven years;  
        • Provide ongoing education and insights into the capital markets to the Committee/Subcommittee; 
        • Conduct regular asset allocation reviews;  
        • Conduct endowment spending analyses and recommend the annual endowment spending policy;  
        • Conduct fee analyses;  
        • Provide performance reporting within 30 business days of the end of each month to the Committee/Subcommittee;  
        • Attend meetings and participate in conference calls of the Committee/Subcommittee, as requested, and 
        • Assist the CFO and finance staff in the execution of their responsibilities, as mutually agreed. 

        Consideration shall be given to the extent to which the investment results are consistent with the investment objectives, goals, and guidelines as set forth in this policy. The Committee intends to evaluate the portfolio(s) over at least a three-year period, but reserves the right to terminate a manager for any reason including the following: 

        1. Investment performance that is significantly less than anticipated given the discipline employed and risk parameters established or unacceptable justification of poor results. 
        2. Failure to adhere to any aspect of this statement of investment policy, including communication and reporting requirements. 
        3. Significant changes to the investment management organization. 

        The Investment Manager shall be reviewed regularly regarding performance, personnel, strategy, research capabilities, organizational and business matters, and other qualitative factors that may impact their ability to achieve the desired investment results. 

        These Internal Controls must be met by this policy/procedure and will be removed from the final policy.  They are included here as an FYI only. 

        _____ IC1 – The governing body or senior management formally establishes and periodically review investment policies. 

        _____IC1,2 – Procedures exist to ensure that investment policies and practices comply with legal and contractual provisions and for prompt adjustment when those provisions change. 

        _____IC3 – Procedures exist to ensure that investment advisers and managers are qualified, selected through a competitive process, and not related parties. 

        _____IC8 – Procedures require the periodic review and reauthorization of investment counterparties. 

        _____IC4 – Procedures exist to ensure that written agreements with investment advisers, investment managers, and external investment pools address all important factors and that they are adhered to. 

        _____IC5 – The governing body or senior management authorizes personnel with investment responsibilities, including those who evaluate investment opportunities, purchase investments, and access securities.

        _____ IC10 – Personnel who initiate and evaluate investments do not maintain or approve the related accounting records.  

        _____IC11 – An employee who is not responsible for initiating investments reviews and approves those transactions. 

        _____IC26 – Personnel who maintain the detailed accounting records for investments are independent of the general ledger function. 

        _____IC28 – Polices require personnel with access to investments to be bonded. N/A – access to investments is limited to a qualified third-party investment advisor 

        _____IC13 – Procedures require the periodic review and reauthorization of custodial agents. 

        _____IC14 – Personnel with custodial responsibilities for securities and other documents evidencing ownership or other rights do not maintain or approve the related accounting records. 

        _____IC15 – Procedures require dual signatures or authorizations to obtain the release of securities from custodial agents or to access the entity’s safe deposit box. 

        _____IC16 – Policies require all investment and collateral securities to be registered or held in the name of the entity. 

        _____IC17 – Policies require the entity or an independent third party to hold all investment and collateral securities. 

        _____IC18 – Procedures exist for periodically inspecting securities or for confirming them with custodial agents. 

        _____ IC19 – Procedures exist to determine the fair value of investments and collateral. 

        _____IC20 – Personnel independent of the investment management function review the fair values of investments and collateral. 

        _____IC8 – The entity integrates its investment program with its cash management program and expenditure requirements. 

        _____IC7 – Policies and procedures exist that govern the level and nature of approvals required to purchase and sell investments. 

        _____IC9 – The entity seeks competitive bids for investment purchases. 

        _____IC12 – Adequate physical safeguards and custodial procedures exist over securities, both those that the entity owns or holds for others and those that are pledged to it, for example, under repurchase agreements and securities lending transactions. 

        _____IC21 – Personnel review investments carried at cost-based measures for other-than-temporary declines and appropriately write down the values of those investments. 

        _____IC22 – Personnel independent of investment management functions periodically evaluate investment performance. 

        _____IC23 – Procedures exist to ensure proper accounting for investment activity, including income and amortization entries. 

        _____IC27 – Personnel periodically reconcile detailed investment accounting records to the general ledger records, and personnel independent of the investment management and accounting functions review that agreement/reconciliation. 

        _____IC25 – Controls exist to ensure that the entity credits investment earnings to the appropriate fund and properly classifies the earnings in the financial statements. 

        Definitions:  
        N/A 

        Procedure:  
        N/A 

        Related Documents: 
        N/A 

        Policy Resources

        For assistance with policies and procedures contact:

        Lori Fulton
        lfulton@pnwu.edu