ECOLOGICAL SOCIETY OF AMERICA
INVESTMENT POLICY STATEMENT
FOR TEMPORARILY RESTRICTED NET FUNDS
Adopted by the Governing Board
August 4, 2012
This Investment Policy Statement (IPS) has been adopted by the Governing Board of Ecological Society of America (Society) to provide guidelines for the investment of temporarily restricted net funds held by the Society (referred to herein alternately as the funds or the portfolio). This IPS does not include guidelines for the management or investment of funds held entirely in cash or for current operations.
The Society was founded in 1915 and incorporated in Wisconsin in 1927. Its purposes are to: (1) promote ecological science by improving communication among ecologists through publication of journals and holding meetings, (2) raise the public’s level of awareness of the importance of ecological science and ensure the continuing supply of new ecologists through educational and outreach activities, (3) increase the resources available for the conduct of ecological science through efforts of the membership in both the private and public sectors, and (4) ensure the appropriate use of ecological science in environmental decision-making by enhancing communication between the ecological community and policy-makers at all levels of government and the private sector.
The Governing Board has determined that the funds are “institutional funds” and that a portion of the funds are also “endowment funds” as those terms are defined in the Uniform Prudent Management of Institutional Funds Act adopted by the state of Wisconsin in 2009.
The specific purposes and sources of the funds are:
To support the annual costs of: 1) carrying the life members of the Society, 2) awards given by the Society to its members and the recipient’s travel expenses to receive them, and 3) such other expenses as determined by the Governing Board.
Gifts, bequests, life membership fees, public and private sector grants and unrestricted funds designated restricted by the Governing Board.
Review and Selection of Investment Advisors
The Governing Board will approve one or more investment advisors to execute prudent decisions in accordance with this IPS. Each investment advisor must have a substantial record of successful performance in the investment of assets of similar funds, be registered with the Securities and Exchange Commission, possess appropriate licensure and certification, and have staff, resources, research support, and motivation to provide effective supervision of the Society’s investments. Investment advisor performance will be judged by returns over a 3- to 5-year period.
Standard of Conduct in Managing and Investing the Funds
- Subject to the intent of a donor expressed in a gift instrument, in managing and investing the funds, the Governing Board, and each registered investment advisor engaged to manage a portion of the funds, shall consider the charitable purposes of the Society and the purposes of the funds, and shall manage and invest the funds in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.
- In managing and investing the funds, the Governing Board shall incur only costs that are appropriate and reasonable in relation to the assets, the purposes of the Society, and the skills available to the Society, and shall make a reasonable effort to verify facts relevant to the management and investment of the funds.
- Management and investment decisions about an individual asset shall not be made in isolation, but rather in the context of the portfolio of investments as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the funds and the Society.
- Except as otherwise provided by a gift instrument, in managing and investing the funds, the Governing Board, and each registered investment advisor engaged to manage a portion of the funds, shall consider the following factors, if relevant:
- The needs of the Society to both make distributions and preserve capital,
- Other resources available to the Society,
- The role that each investment or course of action plays within the overall investment portfolio,
- The expected total return from income and the appreciation of investments,
- The expected tax consequences, if any, of investment decisions or strategies,
- The possible effect of inflation or deflation,
- General economic conditions, and
- An asset’s special relationship or special value, if any, to the charitable purposes of the Society.
Guidelines for Management and Investment of Funds
Through investment of the funds, the Society seeks to generate sufficient income to meet annual cash flow needs, to preserve the value of current assets, and to generate long-term total returns that meet or exceed both the rate of inflation (as measured by the CPI) and the returns of the total portfolio custom benchmark, without undue exposure to risk, as defined below.
Since it is understood that fluctuating rates of return are characteristic of securities markets, and that short-term market fluctuations may cause significant variations in portfolio performance, the investment objective and portfolio performance will be evaluated over rolling five-year periods or “market cycles.”
Risk is the likelihood that the funds may lose principal and/or not attain their investment objectives.
The funds shall be invested in equity and fixed income securities, including no-load mutual funds and exchange traded funds, other than those identified as Prohibited Investments.
The Society prefers to invest a portion of its portfolio in socially responsible companies or funds. In making investment decisions, the Society will consider environmental sensitivity as a criterion along with such factors as yield, appreciation potential and risk. The Society will seek to avoid investing in companies whose activities demonstrate a callous disregard for the environment, such that investing in them would be embarrassing for the Society. Goals for socially responsible investing will be determined by the Governing Board in consultation with the Society’s investment managers.
The equity asset classes should be maintained at risk levels roughly equivalent to the sectors of the market represented, with the objective of meeting or exceeding the returns of a custom benchmark made up of industry-recognized indexes measuring the performance of the designated market segment over rolling five-year periods, net of fees and commissions. Mutual funds conforming to the policy guidelines may be used to implement the investment program. In cases where comparable investment opportunities are not available from mutual funds or individual stocks, the portfolio may invest in exchange traded funds and/or closed-end funds.
The portfolio will be structured to provide market exposure to value and growth styles in both U.S. and non-U.S. markets. International equity exposure shall constitute between 10% and 30% of the total equity position at market value.
Investments in fixed income securities will be managed to pursue opportunities presented by changes in interest rates, credit ratings, and maturity premiums. The fixed income asset classes should be maintained at risk levels roughly equivalent to the market segments represented, with the objective of meeting or exceeding the returns of a custom benchmark made up of industry-recognized indexes measuring the performance of the designated market segment over rolling five-year periods, net of fees and commissions. Mutual funds conforming to the policy guidelines may be used to implement the investment program. In cases where comparable investment opportunities are not available from mutual funds or individual bonds, the portfolio may invest in exchange traded funds and/or closed-end funds.
If fixed income investments are made through mutual funds, the portfolio of mutual funds will be managed to capture a range of maturities and credit qualities, while providing diversification across issuers.
If balanced mutual funds or exchange traded funds are used, the equity percent shall be allocated to the equity segment of the portfolio and the fixed income percent shall be allocated to the fixed income segment of the portfolio.
Asset Class Target Ranges
The percentage of total portfolio assets to be allocated between equities/commodities and fixed income/cash shall fall within the following ranges, with the specific target percentages to be determined by the Governing Board:
For purposes of determining compliance with the asset class target ranges only, the portion of the portfolio invested in commodities shall be counted as equities and the portion of the portfolio held in cash or cash equivalents shall be counted as fixed income.
Over time, the portfolio’s actual allocation of assets may vary from its target allocation due to market conditions. The investment advisor shall rebalance the portfolio back to target at least every twelve to eighteen months unless the Governing Board, after consultation with the investment advisor, determines otherwise.
The portfolio shall be diversified. Diversification provides reasonable assurance that no single security or class of securities will have disproportionate impact on the total portfolio.
Individual stocks are subject to maximum 5% commitment at cost or 7% commitment of the account’s market value for an individual security and 20% at cost for a particular industry.
Individual bonds not guaranteed by the U.S. Government, its agencies or instrumentalities are subject to a maximum 5% commitment at cost.
Individual mutual funds, exchange traded funds and closed-end funds are subject to a maximum 40% commitment at market value, per fund. To maintain proper diversification among industries, no more than 5% of the total portfolio value, at cost, may be invested in a particular sector fund.
There shall be no direct investments in any of the following:
- Private Placements,
- Lettered Stock or Restricted Stock,
- Individual options contracts. However, to the extent that the Society uses mutual funds the mutual funds may buy or sell option contracts for the purposes of managing portfolio risk,
- Individual securities whose issuers have filed a petition for bankruptcy,
- Commodities or commodity contracts,
- Short sales, and
- Margin transactions.
For purposes of this investment policy, “direct” investing excludes the buying and selling of shares of mutual funds, exchange traded funds, and closed-end funds.
MONITORING OF INVESTMENT OBJECTIVES AND PERFORMANCE REPORTING
The portfolio will be monitored on a regular basis for consistency in investment philosophy, return relative to objectives, investment risk as measured by asset concentrations, exposure to extreme economic conditions, and market volatility. It is understood that, over the long run, the allocation between equity and fixed income may be the single most important determinant of total portfolio return.
The portfolio is evaluated quarterly on a total return basis. Returns are compared to:
- The Consumer Price Index (“CPI”),
- The three month Treasury Bill Index (the risk-free proxy),
- Relevant nationally-recognized indexes which most accurately reflect the agreed-upon actual portfolio allocation, and
- Custom benchmarks made up of nationally-recognized indexes representing domestic and international fixed income markets, and domestic and international equity markets.
Total Portfolio Performance
The Society expects the portfolio, in the aggregate, to achieve total returns, net of fees, over rolling five-year periods, that:
- Meet or exceed the change in the Consumer Price Index, and
- Meet or exceed the returns of the total portfolio custom benchmark agreed-upon by the Society and its investment advisor.
The total portfolio custom benchmark is made up of relevant market indexes that most accurately reflect the agreed-upon actual portfolio allocation and sector weightings. It is understood that the total portfolio custom benchmark assumes full investment for the indicated time period and does not reflect fund expenses, transaction costs, or differences due to shifting of portfolio holdings during the investment period.
In addition to evaluating the performance of the portfolio as a whole, the Society shall separately evaluate the performance of the equity and fixed income segments of the portfolio.
Equity Segment Performance
The U.S. equity segment is expected to achieve total returns, net of fees, over rolling five-year periods that meet or exceed the custom domestic equity benchmark.
The non-U.S. equity segment is expected to achieve total returns, net of fees, over rolling five-year periods that meet or exceed the custom international equity benchmark.
The domestic equity and international equity custom benchmarks are made up of relevant market indexes that most accurately reflect the agreed-upon actual portfolio allocation and sector weightings. It is understood that both custom equity benchmarks assume full investment for the indicated time period and do not reflect fund expenses, transaction costs or differences due to shifting of fund portfolio holdings during the investment period.
Fixed Income Segment Performance
The fixed income segment is expected to provide stability of principal and a relatively stable rate of return. The fixed income segment is expected to achieve total returns, net of fees, over rolling five-year periods that meet or exceed the custom fixed income benchmark.
The custom fixed income benchmark is made up of relevant market indexes that most accurately reflect the agreed-upon actual portfolio allocation and sector weightings. It is understood that the custom fixed income benchmark assumes full investment for the indicated time period and does not reflect fund expenses, transaction costs or differences due to shifting of fund portfolio holdings during the investment period.
Each investment advisor shall report the following to the Executive Director and the Vice President for Finance at least quarterly:
- Total return net of all commissions and fees, for the month-to-date, last quarter, year-to-date, latest 1-year, 3-year, and 5-year periods, and since inception, for the portfolio as a whole, and separately for the equity and fixed income segments, and for relevant industry-recognized indexes,
- Contributions to and withdrawals from the portfolio during the quarter,
- Purchases and sales during the quarter, and
- Current portfolio holdings at cost and at market value.
Additionally, each investment advisor must inform the Executive Director and the Vice President for Finance of any change in firm ownership, organizational structure, professional personnel, account structure (e.g. number, asset size and account minimums), or fundamental investment philosophy.
Each investment advisor will meet with the Vice President for Finance at least annually to review investment results and outlook, as well as the economy and other factors, including environmental sensitivity, that are relevant to fulfilling the Society’s future investment objectives.
TREATMENT OF CONTRIBUTED ASSETS
The Executive Director and the Vice President for Finance shall confer and determine the appropriate disposition of any assets contributed to the funds in a form other than cash. These decisions shall be reported to the Governing Board at its next meeting.
Review and Revision of IPS
To ensure that this IPS remains consistent with the mission of the Society and accurately reflects its current financial condition, this IPS shall be reviewed annually by the Executive Director and the Vice President for Finance. Any proposed revisions to the IPS will be submitted to the Governing Board for approval.