Board Policies:

Sec. 4-801. Responsibility and Authority for Investment Activity.
Investment activity for University's short-term, intermediate-term and long-term investment pools shall be the responsibility of the President and/or his/her designee, and is to be implemented in accordance with this subpart. The President or his/her designee may delegate to other officers and/or employees of the University, the authority to act in the place of the President or his/her designee in the investment and reinvestment of University funds. In the administration of the powers to make and retain investments, and to delegate investment authority, the President or his/her designee shall exercise ordinary business care and prudence under the facts and circumstances prevailing at the time of the action or decision. In exercising said ordinary business care and prudence, the President or his/her designee shall consider the long-term and short-term needs of the University in carrying out its educational purposes. Other factors, such as expected total return on its investments, price-level trends, general economic conditions, and the safety of principal values and investment return, shall be considered in the investment decision process.

Sec. 4-802. Investment Objectives and Asset Allocation for Short-Term Investment Pool Accounts.
The primary investment objective for the short-term investment pool accounts shall be to provide for the preservation of capital, with a secondary emphasis upon the maximization of investment income without undue exposure to risk.. Funds needed for expenditures in less than one year shall be considered short-term. The short-term investment pool shall be managed by one or more short-term investment managers, each maintaining a portfolio with an average weighted maturity of between one day and one year.

Sec. 4-803. Investment Objectives and Asset Allocation for Intermediate-Term Investment Pool Accounts.
The primary investment objectives for the intermediate-term investment pool accounts shall be the preservation of capital and the maximization of income without undue exposure to risk within the parameters specified in this subpart. Funds needed for expenditures within one to five years shall be considered intermediate-term. One or more intermediate-term investment managers shall manage the intermediate-term investment pool, with the intermediate investment pool maintaining an average weighted maturity between one year and five years, except for Treasury Inflation Protected Securities (TIPS) managers.

TIPS are a special type of Treasury note or bond that offer protection against inflation, as the coupon payments and underlying principal are automatically increased to compensate for inflation as defined by the consumer price index (CPI). Although the maturities may be longer than 5 years, these investments are included in the intermediate-term pool based on their risk profile.

Sec. 4-804. Investment Objectives and Asset Allocation for Long-Term Investment Pool Accounts.
The primary investment objective for the long-term investment pool accounts shall be to provide for the long-term growth of principal and income without undue exposure to risk. Funds not needed for expenditures within five years shall be considered long-term. The University's general policy toward the long-term investment pool shall be to diversify investments within both equity and fixed income securities so as to provide a balance that will enhance total return, while avoiding undue risk concentrations in any single asset class. Asset allocation guidelines shall be made on a long-term basis, with consideration to current and projected investment environments. Asset allocation, as a percent of the total market value of the total long-term portfolio, will be set with the following target percentage and within the following ranges:

Type of Securities	Target	Range
Equity	50%	30-60%
U.S.	35%	20-55%
Domestic Large Cap	20%	10-40%
Domestic Mid Cap	10%	5-15%
Domestic Small Cap	5%	0-10%
International	15%	5-25%
Core	10%	5-15%
Emerging Markets	5%	0-10%
Real Estate Investment Trusts	5%	0-10%
Fixed Income	45%	30-70%
Cash	-	0-10%

University representatives will monitor the asset allocation structure of the long-term investment pool. If the portfolio becomes overweighed in an asset class, University representatives will develop a plan of action to rebalance the portfolio.

Sec. 4-805. Performance Objectives.

1. Short-term market fluctuations may cause variations in investment performance. Therefore, performance will ordinarily be measured over a moving five-year period, net of investment management fees and transaction costs; and the criteria set forth in this section will ordinarily be applied in evaluating investment performance. The University reserves the right to evaluate and make necessary changes regarding investment managers and/or funds over a shorter term using the same criteria or other criteria.
2. Market Benchmark:
   1. The total return for the short-term investment pool and for each short-term investment manager shall exceed the rate of return on 3-month U.S. Treasury Bills.
   2. The total return for the intermediate-term investment pool and for each intermediate-term investment manager shall exceed the Merrill Lynch 1-3 Year Government Bond Index. The total return for each intermediate-term investment manager shall rank in the top half of the intermediate-term fixed income universe.
   3. The total return for the long-term investment pool shall exceed the total return of a target Balanced Index composed of: 30% of the S&P 500 Index, 10% of the Russell 2000 Index, 10% of the EAFE Index, and 50% of the Lehman Brothers Aggregate Bond Index. The total return for each active long-term investment manager shall exceed the total return of the relevant benchmark (Domestic Large Cap - S&P 500 Index; Domestic Small Cap - Russell 2000 Index; Core International - EAFE Index; and Fixed Income - Lehman Brothers Aggregate Bond Index). The total return for each passive long-term investment manager shall approximate the total return of the relevant benchmark (Domestic Large Cap - S&P 500 Index; Domestic Small Cap - Russell 2000 Index; Core International - EAFE Index; and Fixed Income - Lehman Brothers Aggregate Bond Index). Furthermore, the total return for each active long-term investment manager shall rank in the top half of the appropriate universe (Large Cap Equity, Small Cap Equity, Small Cap Growth, Small Cap Value, International Equity, and Fixed Income).
3. Variability
   1. The standard deviation for each short-term investment manager shall not exceed the standard deviation of 52-week Treasury Bills.
   2. The standard deviation for each intermediate-term investment manager shall not exceed 1.2 times the standard deviation of the Merrill Lynch 1-3 Year Government Bond Index.
   3. The beta (volatility) for each long-term equity investment manager shall not exceed 1.2 times that of the relevant equity benchmark. Furthermore, each active equity investment manager is expected to achieve a positive alpha (risk-adjusted return).

   The standard deviation for each long-term fixed income investment manager shall not exceed 1.2 times the standard deviation of the Lehman Brothers Aggregate Bond Index.

Sec. 4-806. Investment Guidelines.

1. In today's rapidly changing and complex financial world, no list or types of categories of investments can provide continuously adequate guidance for achieving investment objectives. It is the process by which investment strategies and decisions are developed, analyzed, adopted, implemented and monitored, and the overall manner in which investment risk is managed, which determines whether an appropriate standard of reasonableness, care and prudence has been met for these investments.
2. The requirements stated below apply to investments in non-mutual and non-pooled funds, where the investment manager is able to construct a separate, discretionary account on behalf of the University. Although the University cannot dictate policy to pooled/mutual fund investment managers, the University's intent is to select and retain only pooled/mutual funds with policies that are similar to this policy statement. All managers (pooled/mutual and separate), however, are expected to achieve the performance objectives.
   1. Short-term investment managers must invest at least 50% of the portfolio in U.S. Government Securities and/or U.S. Government Agency issues.
   2. No more than 10% of the portfolio, at cost, can be invested in any single issue, except U.S. Government Securities.
   3. The weighted average credit quality is to be no more than "AAA" (or its equivalent rating by two national rating agencies) for the short-term investment pool accounts, "AA" for the intermediate-term investment pool accounts, and "A" for the long-term investment pool accounts. In addition, the minimum acceptable credit quality at the time of purchase for individual securities shall be "AA" for the short-term pool accounts, "BBB" for the intermediate-term investment pool accounts, and "B" for the long-term investment pool accounts.
   4. Portfolio holdings must be sufficiently liquid to ensure that 10% of the portfolio can be sold on a day's notice with no material impact on market value.
   5. Commercial paper must be, at the time of purchase, rated within the highest classification established by not less than two national rating services./li>

   6. The average weighted maturity for each short-term investment manager shall be between one day and one year. The average weighted maturity for each intermediate-term investment manager shall be between one year and three years. The duration for each long-term fixed income investment manager shall be no greater than +20% that of the Lehman Brothers Aggregate Bond Index.
   7. Bank Certificates of Deposit and Bankers' Acceptances are to be rated within the top two rating classifications by any one national rating service. Foreign bank issues are capped at 10% of the total investment in this category. No more than $5 million of the University's portfolio can be invested in Bank Certificates of Deposit or Bankers' Acceptances with any one bank.
   8. There shall be no investments in non-marketable securities.
   9. The investment managers shall not utilize derivative securities to increase the actual or potential risk posture of the accounts. Subject to the other provisions of this subpart, the use of primary derivatives is prohibited. As used in this subpart, the term "primary derivative" includes, but is not limited to, structured notes (other than "conservative" structured notes, which are principal-guaranteed, unleveraged, and of short to intermediate maturity), lower class tranches (as defined by the Federal Financial Institutional Examination Council) of collateralized mortgage obligations, principal-only or interest-only strips, inverse floating securities, futures contracts, options, short sales, margin trading, and such other specialized investment activity. Investment managers are precluded from using derivatives to effect a leveraged portfolio structure. If options and futures are specifically approved by the University, such positions must be offset in their entirety by corresponding cash or securities. The use of such derivative instruments is permitted only upon the explicit authorization of the President and/or his/her designee. In considering such authorization, the President and/or his/her designee shall consider relevant criteria including, but not limited to, the following:
      1. The manager's proven expertise in such category.
      2. The value added by using in derivatives.
      3. The liquidity of instruments.
      4. Whether the derivatives are actively traded on major exchanges (or for over-the-counter positions, executed with major dealers).
      5. The manager's internal procedures to evaluate derivatives, such as scenario and volatility analysis and duration constraints.

   10. For diversification purposes, each equity portfolio manager should have more than 20 positions.
   11. The investment manager shall immediately notify the University in writing of any material changes in its investment outlook, strategy, portfolio structure, ownership, or senior personnel.

Sec. 4-807. Evaluation of Investment Managers.
Investment managers shall be reviewed and evaluated on the following:

1. Ability to exceed the performance objectives stated in this subpart.
2. Adherence to the philosophy and style articulated to the University at, or subsequent to, the time the investment manager was retained.
3. Ability to exceed the performance of other investment managers who adhere to the same or similar style.
4. Continuity of personnel and practices at the firm.
5. Additional criteria established by the University.

Sec. 4-808. Signature Authority in Sales of Securities.
The following officers are hereby authorized to sell, assign, and endorse for transfer, certificates representing stocks, bonds, or other securities registered in the name of the University: the President, the Vice President for Administration and Finance, the Associate Vice President for Administration and Finance, and the Investment and Grants Officer. The signatures of any two of these officers in combination are required for such transactions.

Sec. 4-809. Quarterly Review and Report.
Investment performance shall be reviewed on a quarterly basis. A report on the status of the investment program shall be provided quarterly to the Board.

Cross Reference:
Business Policy Letter, BPL 98-04, Investment Policy

Prior Board Action:

October 9, 1998.

Entire Subpart 4-8 included in October 19, 2001 Codification, Phase I.

Entire Subpart 4-8 included in October 22, 2004 Codification, Phase II.

July 9, 2008.