Investment policy for endowment funds

Policy
1. Introduction

The University Court of the University of St Andrews holds a modest amount of Endowment Assets. These funds have largely been provided for specific purposes. This paper sets out the investment policy for these assets. This policy is subject to regular review by the Investment and Collections Committee on behalf of the University Court.

The University has previously adopted a traditional arms length approach to investment managers placing discretion and responsibility in all matters associated with individual stock selection to its appointed investment managers while placing reliance on those managers Socially Responsible Investment Policies. Following engagement with the Student body the University accepts that in making investment decisions the University should have regard to the promotion of socially responsible behaviours and sustainability. This policy has been developed in partnership with the active student body with the intention of moving the investment policy to one in which sustainable and ethical issues are taken into account alongside financial issues by investment managers in individual stock selection issues.

Responsibility for governance of these arrangements rests with the University Court which it discharges by way of the Investments and Collections Committee.

2. Needs of the Funds

As at 31 July 2006, the University held around £36million of endowment funds, of which around 94% had been given for specific purposes. In devising an investment policy therefore, the primary purpose that the University Court needs to support is the generation of sufficient income to meet the specific purposes for which the funding was given to the University. The specific funds largely provide for three main core areas of spending – support for specific academic chairs, provisions of scholarships and bursaries and a group of other specific funds which include, book and prize funds, travel bursaries and other causes.

In general terms the University believes that to support the primary purpose of the funds that it needs to achieve an above inflation (based on UK RPI) of 4% per annum. This general need is measured against a periodic (every 3 to 5 years) cash flow modelling exercise which is used to support a review of the Asset Allocation Strategy.

3. Ongoing donations

Ongoing donations are used in accordance with donor’s wishes. Those gifts that are given to produce income to support general or specific income will be invested in support of the asset allocation strategy prevalent at the time.

Those gifts that are given to be spent on a specific purpose will be done so in the year of giving. Those gifts that are given for the general benefit of the University will be used in the year of gift on purposes which will be determined by the University. Currently such income is used to support the provision of scholarships and bursaries for students.

4. Authority to Invest

The University Court derives its authority to invest funds from Ordnance No. 119 ‘Additional Regulations as to the administration and finances of the University’ which provides for wide ranging powers to enter into financial transactions and arrangements.

The University Court is also content to place reliance on a report commissioned by the United Nations Environment Programme’s Finance Initiative (UNEP FI) commissioned a report in the area of investment decisions taking into account environmental, social and governance issues from legal firm Freshfields Bruckhaus Deringer. The University is satisfied that this report indicates that it is entitled to take into account wider issues which are aligned with the interests of the funds stakeholders, as long as the approach to investment continues to involve a high degree of professional expertise and there is diversification in the asset base taking into account due regard for items of risk and return.

5. Asset Allocation Strategy

To be completed on conclusion of process and agreement on action – will outline allocation of assets between asset classes and territorial boundaries if appropriate. Will also highlight heritable properties held in StA.

6. Investment Criteria

The University believes that in investing its funds, regard must be made to social, environmental and governance issues. In line with its general strategic direction, the University believes that its investments should mirror its own desire to be sustainable and promote sustainability. Appointed asset managers are therefore expected to encourage good behaviour or discourage poor behaviour through screening of investments, either positively or negatively or through direct engagement with firms. In making investment decisions the University expects its appointed managers to consider, the following areas (this list should not be considered as exhaustive;


 * Promotion of human rights, including but not limited to the equality of gender, race and sexuality;
 * Promotion of good business ethics and good employment practices;
 * Protection of the global environment, its climate and its biodiversity;
 * Promotion of community investment;
 * Promotion of international co-operation and an end to international conflict including a prohibition of companies which produce armaments;
 * Sustainable provision and procurement of essential resources and services (utilities for example);
 * Prohibition of companies which test on animals purely for cosmetic purposes.

While operating within these criteria, appointed investment managers are left at their discretion to select individual stocks and to operate within their own Socially Responsible Investment Policy. The appointed manager will be accountable to the University in terms of financial performance and adherence to commitments made on issues of social responsibility and sustainability. The appointed manager will also be expected to discuss issues around social responsibility and sustainability with the investments advisory committee.

7. Investment Manager(s)

To be completed on appointment providing details of the manager, agreed performance targets, portfolio / product structure, possibly details of spread levels, expense and charge rates and dates of formal agreements. This section would also detail the actual method of achieving the investment criteria i.e. inclusion / exclusion or engagement which would be defined in the investment mandate.

8. Fund Performance

Investment manager(s) will be expected to report to the Investment & Collections Committee in writing and in person periodically in line with the needs of the Committee.

Investment manager(s) shall meet with the Sustainable Investment Advisory Committee (being a sub committee to the Investment and Collections Committee with remit outlined in Annex A) in relation to the investment criteria and stock selections.


 * a. Investment Returns – Investment Manager(s) will provide a quarterly report outlining the performance of their University portfolio compared against the agreed benchmark for that quarter, the previous 12 months and the previous 5 years or since appointment (as appropriate).


 * b. Investment Criteria – Investment Manager(s) will provide quarterly reports outlining their stock selection decisions in relation to the Investment Criteria agreed with them on appointment and as summarised in this policy.

The University would expect any appointed investment manager to support the development of this policy in conjunction with the investments advisory committee, particularly with regard to transparency and definition of sustainability issues.

Investments Advisory Committee
1. Purpose

The University has established an investment policy which has its heart consideration of issues relating to positive behaviours in Environmental, Social and Governance (ESG) alongside requirements to generate funding for primary purposes. In support of this the University recognises that it will need to supplement its ongoing Committee structure to provide additional monitoring of the ESG aspects of its investment policy.

For this reason it has created an Investments Advisory Committee as a sub group of the Investments & Collections Committee. This Committee will be established initially on an informal basis until the working arrangements and their effectiveness can be trialed and tested.

2. Membership

It is important that this Committee has the opportunity to mirror, as far as possible, the elements of the University Community. It is therefore proposed that up to 3 members be permitted from each of the following constituencies: Court, University Management, Students, Staff and Alumni. The Committee would meet, either in public, or with public and private sessions on at least a twice yearly basis, following receipt of investment managers’ reports with the investment managers invited to attend on an annual or bi-annual basis.

The Committee will be chaired either by the Convener of the Investments and Collections Committee or by a members of University Management.

3. Remit

The proposed remit for this Committee would be:


 * To engage with investment managers on ESG issues,
 * To provide advice to the Investment and Collections Committee on ESG issues,
 * To monitor the progress of implementation and effectiveness of the investment strategy raising concerns with ICC along with recommended actions,
 * Regularly liaise with stakeholder groups on ESG issues and publicise the investment policy,
 * Ensure that all investments are conducted in a transparent manner including the annual publication of full details of the investment accounts.