Association Investment Policy

American Association of Collegiate Registrars and Admissions Officers

Association Investment Policy

1. Board of Directors

1.1. Fiduciary Capacity – All funds of the American Association of Collegiate Registrars and Admissions Officers (“AACRAO”) are held by its Board of Directors (“Board”) as a fiduciary.  Therefore, all restricted and unrestricted funds of the organization are held by the Association as a steward for the sake of carrying out AACRAO’s mission and objectives. The following instructions are to be understood and employed with that sense of stewardship in mind.

1.2. Prudent Investor - The basic investment standards shall be those of a prudent investor as articulated in laws of the District of Columbia.  This standard requires that the Board invest and manage AACRAO’s funds as a prudent investor would, in light of the purposes, terms, distribution requirements, and other circumstances of the funds.  This standard requires that the Board exercise reasonable care, skill, and caution, and is to be applied to investments not in isolation but in the context of the overall investment portfolio and as a part of an overall investment strategy, which should incorporate risk and return objectives reasonably suitable to the portfolio.  In making and implementing investment decisions, the Board has a duty to diversify the investments of the portfolio unless, under the circumstances, it is prudent not to do so.  In addition, Board members must conform to fundamental fiduciary duties of loyalty and impartiality; act with prudence in deciding whether and how to delegate authority and in the selection and supervision of agents; and, incur only costs that are reasonable in amount and appropriate to the investment responsibilities of those agents.

1.3. The Board of Directors will

1.3.1. approve the selection, hiring, and termination of all outside Investment Consultants and other outside investment professionals; and

1.3.2. establish investment guidelines and policies that direct the investment of the Association’s portfolio including asset allocation, risk tolerance, and investment time horizon.

1.4. Conflicts of Interest – The Board will notknowingly invest AACRAO funds with any firm or in any vehicle that may monetarily benefit a member of the Board or the AACRAO staff as a result of the transaction.

1.5. Amendment – The Board reserves unto itself the exclusive right to amend or revise this policy.

2. Finance, Investments and Audit Committee

2.1. Purpose - The purpose of the Finance, Investments and Audit Committee is to assist the Board in reviewing investment policies, strategies, transactions, and the performance of the Association’s investment portfolio(s). Additionally, the committee makes recommendations relating to the integrity of the accounting and financial reporting; financial controls; compliance with legal and regulatory requirements, including the filing of IRS form 990; and the qualifications, independence, and performance of the outside auditor.   

2.2. Responsibilities – With regard to investment policy, The Finance, Investments and Audit Committee shall

2.2.1. supervise the overall implementation of AACRAO’s investment policies by the Executive Director and outside investment professionals; and

2.2.2. recommend the selection, hiring, and termination of all outside investment consultants and other outside investment professionals to the Board  for its approval; and

2.2.3. recommend the establishment of investment guidelines and policies to the Board  for its approval; and

2.2.4. review and evaluate the performance of the investment portfolio and investment consultants and other outside investment professionals at least once per fiscal year to assure adherence to policy guidelines, and monitor progress toward achieving investment objectives, and report the results of such reviews and evaluations to the Board; and

2.2.5. provide overall supervision to the Executive Director to whom the committee delegates specific duties related to AACRAO investments; and

2.2.6. act in accord with this investment policy and all applicable laws and state and federal regulations that apply to nonprofit agencies including, but not limited to, the Uniform Prudent Investors Act and the Uniform Prudent Management of Institutional Funds Act; and

2.2.7. perform other duties as delegated by the Board from time to time.

3. Management
At the discretion of the Finance, Investments and Audit Committee, specific duties, tasks, and responsibilities related to the Association’s investments may be assigned or delegated to the Executive Director from time to time, subject to the overall supervision of the Finance, Investments and Audit Committee.

4. Investment Consultants

4.1. Investment Consultant(s) - Relative to the perpetual life of AACRAO’s long-term investment funds, service on the AACRAO Board or its Finance, Investments and Audit Committee is transitory.  In addition, it is unlikely that a sufficient number of members of the Finance, Investments and Audit Committee will possess the technical expertise to directly manage the investment portfolio.  For these reasons, the Finance, Investments and Audit Committee shall employ one or more Investment Consultants to manage AACRAO’s investment funds instead of  directly managing investments itself.

4.2. Investment Guidelines – The Investment Consultants are responsible for making discretionary day-to-day investment decisions on behalf of the Board, they will follow written guidelines that limit their actions to a range of investment activities approved by the Board (see section 7 below).

4.3. Responsibilities of Investment Consultants – Investment Consultants shall

4.3.1. consult with the Finance, Investments and Audit Committee and Executive Director on investment goals and strategic long-term direction of the Association; and

4.3.2. recommend investment guidelines, asset allocation strategies, risk-based fund objectives, and appropriate investment management structures; and

4.3.3. adhere to all investment guidelines established by the Board (see section 7 below); and

4.3.4. select, monitor, and evaluate investment managers and/or investment entities; and

4.3.5. provide and review quarterly and annual performance measurement reports and assist the Finance, Investments and Audit Committee in interpreting the results; and

4.3.6. provide appropriate monthly reports to the Association’s accounting staff; and

4.3.7. proactively rebalance the fund and make tactical asset allocation shifts, as needed, to maintain proper asset
allocations and investment strategies for the objectives of each fund in light of the economic and market environments; and

4.3.8. assist in an annual review of the Investment Policy; and

4.3.9. execute such other duties as may be mutually agreed.

5. Operating Reserve Funds

AACRAO will maintain sufficient operating reserves (one month of the annual budget) to ensure adequate cash for operations. Given the short-term nature of the Operating Reserves it is critical to ensure the safety of the portfolio by utilizing fixed income and cash investments focused on liquidity and preservation of capital. 
The Executive Director is responsible for advanced planning that will ensure that the Association’s cash flow requirements are met, and for notifying Investment Consultants and other money managers of anticipated distributions and liquidity requirements.

6. Long-Term Reserve Fund

The Board maintains a managed, long-term investment portfolio.  It is expected that the Association will spend prudently from these funds in order to ensure their perpetual existence.   The portfolio may be used for the following purposes:

6.1. Purpose - AACRAO will maintain a Long-Term Reserve Fund designed to provide long-term sustainability to the organization as well as meeting existing debt covenants.

6.2. Target Value – The Long-Term Reserve Fund should maintain a target value of 66% (8 months) of the current fiscal year budgeted operating expenses.

6.3. Minimum Value - The Long-Term Reserve Fund should maintain a minimum value of 50% (6 months) of the current fiscal year budget. Additionally, on an annual basis, any existing debt covenants should be reviewed to ensure adequate reserves are being maintained to meet such debt covenants. 

6.4. Spending Policy – Reserves in excess of the target value will be available each year for strategic spending. In any given fiscal year, the staff may propose that up to 25% of excess reserves be added to the following year’s budget.  

6.5. Strategic Spending – The Board may use excess reserves (according to the spending policy noted in 6.4) to fund equipment and hardware upgrades, software acquisition and development, office repairs, develop new programs or replace outdated ones, expand the Association’s interests and services, or invest in new revenue-producing opportunities. The Strategic Spending Policy provides further guidance on the parameters around strategic spending. 

6.6. Contributions – Contributions to the Long-Term Reserve Fund must be approved by the Board and will normally comprise net surpluses generated in any fiscal year. The Long-Term Reserve Fund shall be funded only if the Operating Reserve Fund is fully funded. 

7. Investment Guidelines for Investment Consultants

7.1. Investment Purpose - The investment purpose of the long-term reserve funds is to provide financial stability and operating revenue in support of the Association mission. Income and gains from all these funds, in addition to spending guidelines of each fund as listed above, may be spent to support the prescribed functions of the respective fund.

7.2. Investment Primary Objective - The primary investment objective of the long-term investment funds is to achieve a rate of return, net of fees, which meets or exceeds CPI + 4% over a complete market cycle of rolling five-year periods.  

7.3. Investment Long-Term Objective - The long-term objective of the total portfolio (all Funds combined together) is to pursue income and growth with equal emphasis on principal preservation and maintaining purchasing power over time.  Whereas it is understood that fluctuating rates of return are characteristic of the securities markets, the greatest concern is long-term maintenance of purchasing power and consistency of total portfolio return over time. Objectives will be measured by results achieved over a three-year rolling period.

7.4. Risk, Volatility and Loss - AACRAO recognizes that risk (i.e. the uncertainty of future events), volatility (i.e. the potential for variability of asset values), and the potential loss in purchasing power due to inflation are present to some degree with all types of investment vehicles.  The assumption of a level of risk that is commensurate with AACRAO’s objectives is warranted in order to allow the investment portfolio the opportunity to achieve satisfactory results consistent with its objectives and characteristics.  AACRAO will accept the exhibition of portfolio volatility characteristics that approximate the appropriate index as outlined below in section 7.13.  Nonetheless, it is AACRAO's expectation that the maximum losses incurred by the portfolio in any one year not exceed that of the comparative index.  The Investment Consultant(s) should take actions to minimize losses.

7.5. Asset Allocation – The long-term reserve fund will have a specific asset allocation in order to serve its purpose effectively.   From time to time and with the advice of the Investment Consultant(s), the Finance, Investments and Audit Committee may amend the asset allocations without Board approval as long as it stays within ranges below.  However, the mix of assets in any of the long-term investment funds should fall within the following tactical ranges:

7.5.1. Cash: 0-10%

7.5.2. Equities: 40-85%

7.5.3. Fixed Income: 15-60%

7.5.4. Alternative Investments: 0-30%

7.6. Rebalancing Procedures - It is understood that market movements and tactical adjustments may cause the actual allocation of assets to vary from the policy allocations listed in section 7.5.  Therefore, it will be necessary to rebalance the portfolios to those tactical allocations periodically.  Gains and losses will be recognized during the implementation of rebalancing whether the total portfolio return is positive or negative during such rebalancing periods.  The ranges set forth in section 7.5 above are thresholds that should be reviewed quarterly by AACRAO after receipt of quarterly investment reports from the Investment Consultant(s), who will regularly monitor the portfolio for any variations from the policy allocations.  

If the actual allocation in any of the four major asset classes (Equities, Fixed Income Alternatives, and Cash) varies from the policy allocation by at least 10% in absolute terms, it will call for rebalancing of the portfolio back to the tactical amounts as soon as is practicable.

7.7. Diversification, Marketability, Yield, and Quality Consideration - Seeking to establish a diversified program of investments, assets shall be invested under the management of one or more registered investment advisors in mutual funds, separately managed accounts, alternative investments, and index-linked exchange traded funds (ETF) in portfolios of U.S. domestic equities, domestic fixed income, and international equities.  Investment vehicles and amounts allocated to each vehicle may change after a thorough review of the capital markets.  The specific guidelines in 7.8 and 7.9 do not apply to pooled investments as these investment vehicles will follow the guidelines detailed in their prospectuses.  

The types of stocks and market capitalization of the companies purchased for the portfolio are within the discretion of the Investment Consultant(s).  The Investment Consultant(s) is expressly permitted to invest in small, medium and large capitalization stocks.

7.8. Equity Portfolio

7.8.1. Equity holding in any one company in each investment consultant’s portfolio may not exceed 7% of portfolio at cost or 10% of account value.

7.8.2. Equity holding in non-U.S. investments, including emerging markets, may not exceed 45% of the market value of the portfolio.

7.8.3. Equity securities shall in general possess value and quality corroborated by accepted techniques and standards of fundamental and technical analysis.

7.9. Fixed Income Portfolio

7.9.1. Investments in bonds should be actively managed.  Active management is meant to include shifting sector
emphasis as well as affecting other prudent strategies that enhance the portfolio or decrease the volatility or exposure to capital depreciation.  However, the weighted average maturity of the portfolio must be 10 years or less with a maximum of 30 years for individual securities.

7.9.2. The diversification of fixed income securities by maturity, sector, and geography is the responsibility of the Investment Consultant(s), with final approval provided by the Finance, Investments and Audit Committee.

7.9.3. Individual fixed income securities shall be marketable, intermediate-term maturity securities with an average portfolio rating of no less than “BBB” as rated by Standard and Poor’s or Moody’s.  The following instruments are acceptable: Commercial paper or variable rate notes of P-1 or equivalent rating. Certificates of deposit and bankers acceptances (A-rated or above). United States Treasury bonds, notes, and bills. Repurchase agreements with U.S. Treasury securities and agencies of the U.S. Government as collateral. Debt instruments of the U.S. Government or its agencies. Corporate debt issues with an investment grade rating from a major bond-rating agency such as Moody's or Standard and Poor’s (BBB-rated or higher). High-yield or below investment grade bonds (rated BB or lower) may be purchased in a pooled investment vehicle such as an exchange traded fund (ETF) or a mutual fund.  If purchased as individual bonds, then a professional money manager must be hired to manage these investments opportunistically.  The allocation to these bonds should not exceed 15%-20% of the fixed income portfolio.

7.9.4. Standard and Poor’s or Moody's must rate bonds as “BBB” or higher to be purchased for the portfolio.  Bonds that are split rated will, for the purposes of this portfolio, be considered investment grade and thus eligible for purchase.  Split rated bonds are defined as bonds that have an investment grade rating with Standard and Poor’s and a non-investment grade rating with Moody's or vice versa.

 7.9.5.      International / Emerging Markets bonds are limited to no higher than 10% of the total portfolio value and should be invested via pooled investments such as ETFs and/or mutual funds.

7.9.6. The fixed income holding of a single issuer may not exceed 10% of the market value of the portfolio.

7.9.7. The portfolio diversification requirements do not pertain to investments in debt securities issued by the U.S.
Government or its fully guaranteed agencies.

7.10. Alternative Investments Portfolio

7.10.1. A range of alternative investments may be considered prudent to be included in the overall asset allocation with the objective of creating favorable risk-reward characteristics for the overall portfolio.  These alternative investments may include liquid alternatives, private equity, managed futures (limited partnerships), hedge funds or hedge fund replication strategies, inflation-indexed securities, real assets/natural resources, real estate or REITS, and commodities.

7.10.2. The tactical allocation for such alternative investments may range from 0%-30% of the total market value of the portfolio.  This allocation is limited due to the high risk, long-term, illiquid nature of such commitments.

7.10.3. AACRAO recognizes that while such alternative investments may carry a higher degree of risk if considered on their own, they may potentially reduce total portfolio risk and enhance total portfolio return since they may be uncorrelated to other asset classes in the portfolio mix.

7.11. Cash Equivalents Portfolio - While it is desirable that the Investment Consultant(s) use interest-bearing money market funds and other cash equivalent securities with a maturity of one year or less, AACRAO understands that attractive opportunities might arise with securities with longer maturities from time to time.  The Investment Consultant(s) is permitted to invest in such securities.

7.12. The Investment Consultant (s) shall not purchase assets other than those expressly allowed in this statement without the written consent of AACRAO.  The following are prohibited (except if executed in the Alternative Investments portion of the portfolio).

7.12.1. purchase of securities on margin

7.12.2. options of all types

7.12.3. letter stock

7.12.4. private placements

7.12.5. securities whose issuers have filed a petition for bankruptcy

7.12.6. short sales

7.12.7. specific industries or sectors as set forth by AACRAO Finance, Investments and Audit Committee or a designated sub-committee

7.12.8. tax exempt securities

7.12.9. warrants

7.12.10. foreign stocks (with the exception of American Depositary Receipts for the International allocation) unless the international investment advisor(s) deems such exposure appropriate and suitable.

7.13. Fund Performance Benchmarks

7.13.1. Investment Consultant(s) will be evaluated against their respective benchmarks and peer groups.  For example, a Large Cap Value manager will be compared against the Russell 1000 Value and the PSN or Morningstar Large Cap Value Universes.  

7.13.2 The custom index is defined as a mix of relevant indices in the same proportion as the policy allocation of each asset class in the portfolio.  For example, a 10% allocation to the large cap value investment manager will require that the custom index include 10% of Russell 1000 Value or another appropriate index in the mix.  This target of return would be accomplished through long-term capital appreciation, principal preservation, and achievement of returns consistent with each category of investment.

7.14. Review and Reporting

7.14.1. Annual Review - The Finance, Investments and Audit Committee will review, on an annual basis, written evaluations of the net-of-fee performance against the investment policies and benchmarks set forth above.  The evaluation shall include a report of performance for each investment manager for past periods including the last quarter, last twelve months, last three years, and period since inception (both absolute and relative to appropriate indices).  Returns shall be annualized and calculated on a time-weighted basis for the total portfolio.  All returns should include income and dividends.

7.14.2. The Investment Consultant(s) will provide a quarterly performance summary and a detailed quarterly evaluation to the Finance, Investments and Audit Committee.

7.14.3. The Finance, Investments and Audit Committee or its designee(s) shall meet with the Investment Consultant(s) at least semi-annually or as requested to review fund investments and the current investment environment.  At such meetings, the written and oral presentations shall cover the following: a review of the financial markets and economies that may affect the portfolio's performance; and the quarterly performance and asset allocation report described above, and an annual fee disclosure; and discussion of the rationale for performance results by relating them specifically to investment strategy and
tactical decisions implemented during the current review period; and discussion of the Investment Consultant's specific strategy for the portfolio over the next period with specific reference to asset allocation and portfolio characteristics, as appropriate; and supporting discussion of the next period's strategy with reference to Investment Consultant's capital market and economic assumptions, as appropriate; and discussion of AACRAO’s needs, goals, and objectives, if different from the previous quarter.

7.14.4 All actions taken by the Investment Consultant will be communicated to the Executive Director and Finance, Investments and Audit  Committee Chair within 24 hours or as quickly as possible.  

7.15. Changes to Investment Guidelines – The Board reserves the right to make any changes to these guidelines as deemed necessary.  All such changes will be made in writing and Investment Consultant(s) will be duly informed.

Approved: October 20, 2006
Amended: December 7, 2006
January 9, 2007
December 2, 2008
March 17, 2009
April 20, 2010
June 14, 2010
July 14, 2011
October 8, 2011
July 16, 2012
March 13, 2013
February 7,2014
March 29, 2014
August 1, 2015
February 14, 2024