Investment Policy and Objectives for Endowment Assets

Introduction and Purpose

The intent of this Investment Policy Statement and Objectives for Endowment Assets (the “Statement”) is to articulate an investment strategy with specific parameters that reflect the philosophy of the Board of Regents (the “Board”), thereby providing the Investment Committee (the “Committee”) with clearly defined investment policies and objectives for Endowment Assets (the “Endowment”). Although these investment policies and objectives are intended to govern the investment activity, they are also intended to be sufficiently flexible in order to be practical.

Relationship between the Board of Regents and the Investment Committee

The Board is responsible for the overall stewardship of the Endowment. The Board has delegated to the Committee the fiduciary responsibility to oversee the Endowment’s investment activities and to recommend appropriate actions to the Board.

The Committee has the responsibility to ensure that the Endowment is managed in a manner that is consistent with the Statement of Investment Policy and Objectives for Endowment Assets.

The Committee members are required to discharge their duties solely in the interest of St. Olaf College (the “College”) and for the exclusive purpose of meeting the financial needs of the College.

Investment Objectives

The Committee has a long-term investment horizon and strives to provide a source of income for spending that is reasonably stable and predictable from year-to-year. The primary goal of the investment program is to preserve the purchasing power of the Endowment by achieving long-term returns that meet or exceed the sum of the expenditures on: spending policy allocations; inflation; and consultant, manager and custodial fees.

The College’s investment objectives are summarized as follows:

Time Horizon:	Long-term perpetual investment pool
Return Objective:	Primary: Earn, over the long term, an average annual real total return of 5.0%, net of fees. Other: Outperform the Policy Benchmark, the Dynamic Benchmark and the Passive Benchmark over a full market cycle.
Risk Tolerance:	The Endowment should maintain an overall level of financial assets to ensure sufficient capital is available for operations and strategic opportunities. Over a full market cycle, the volatility of the Endowment should be approximately similar to that of the Policy Benchmark. During adverse market conditions, the decline in the net asset value of the Endowment should not exceed 25% over a 12-month period.
Liquidity Required:	Provide funds to meet operating, strategic, and financial needs of the College. At all times at least 40% of the Endowment assets should be liquid within 1 year, and at least 65% of the Long-Term Fund assets should be liquid within 3 years.

Pursuit of these investment objectives must be in compliance with all applicable federal, state, and local laws, rules, and regulations, including the Uniform Prudent Management of Institutional Funds Act (UPMIFA), as enacted in Minnesota.

Endowment Spending Policy

Based on market conditions and expected returns, the Committee shall annually recommend the spending rate on the Endowment to the Finance Committee. For budget planning purposes, it is assumed the spending rate will be 4.0% to 5.0% of the sixteen-quarter (four years) rolling average market value of all Endowment assets. The Committee recognizes that in periods of capital appreciation, the effective pay out rate compared to the current market value of the Endowment may be less than 4.0%. Conversely, in periods of capital depreciation, the effective pay out rate compared to the current market value of the Endowment may be greater than 5.0%. As permitted by UPMIFA, the Investment Committee will decide on a case-by-case basis whether or not to continue spending from an underwater endowment.

Fiduciary Roles and Responsibilities

The Investment Committee, Staff, Outsourced Chief Investment Officer (“OCIO”), investment managers (“Investment Managers”) and custodian (“Custodian”) are fiduciaries of the College’s investment program and have responsibilities with respect to invested assets.

The table in Appendix A graphically depicts the roles and responsibilities of the College’s fiduciaries. For more detailed information on roles and responsibilities please refer to the Investment Committee Charter and other applicable governance documents.

Responsibilities of the Investment Committee

The primary roles of the Investment Committee are:

Establish and amend the Statement of Investment Policy and Objectives, including the strategic asset allocation.
Meet regularly to evaluate policy compliance, review progress in achieving the Endowment’s goals and assess the effectiveness of the investment program.
Review and evaluate investment results in the context of predetermined performance standards.
Monitor and review annually the overall cost of the investment program including OCIO, investment manager and custodian fees.
Periodically review the ability to meet the Endowment’s spending policy.
Review the status of the purchasing power (unit values) of the Endowment on an annual basis, including a review of “Underwater Funds”, as applicable.
Take appropriate action if objectives are not being met or if policy and guidelines are not being followed.
Comply with all applicable state and federal laws, regulations, and rulings that relate to the Fund’s investment management process.
Establish and implement policies addressing issues that may result in perceived or actual conflicts of interest.

Responsibilities of the Chair of the Committee

The Chair must be a member of the Board of Regents. The Chair is responsible for the following duties:

Provide leadership in the conduct of Committee responsibilities and preside at Committee meetings;
Communicate on behalf of the Committee;
Report Committee activities and actions and Endowment performance annually at meetings of the Board;
Review Committee performance and participate in new member orientation sessions;
Collaborate with Chief Financial Officer and Chief Investment Officer on developing meeting agendas and meeting locations.

Responsibilities of Staff

The responsibilities of Staff, represented by the Chief Financial Officer and Chief Investment Officer, include the following:

Maintain day-to-day relationship management of investment program service providers and act as liaison between the Committee and investment program service providers;
Monitor, in coordination with the OCIO, the performance of the Endowment;
Provide reports to internal and external constituencies as required;
Develop meeting agendas and collaborate with the Chair and appropriate service providers, as needed;
Provide orientation to new Committee members alongside with the OCIO.

Responsibilities of the OCIO

The Committee has delegated to an OCIO responsibility for managing the Endowment in accordance with this Statement of Investment Policy and Objectives. Along with the Staff, the Committee oversees the activities of the OCIO, who is responsible for investment policy implementation and the Endowment’s day-to-day operation.

The OCIO’s responsibilities are as follows:

Recommending to the Committee the Endowment investment objectives and asset allocation guidelines to be defined in this Statement of Investment Policy and Objectives.
Managing the Endowment assets in compliance with this Statement of Investment Policy and Objectives, including investment strategy, asset allocation, hiring and terminating investment managers, and rebalancing.
Reporting to the Committee, on regularly-scheduled basis, on portfolio activity, including changes to the asset allocation, the hiring and termination of investment managers, and the increase or decrease in allocations to existing investment managers.
Preparing and presenting performance evaluation reports;
Attending Committee meetings to present evaluation reports on a regularly-scheduled basis and at other meetings as requested;
Reviewing fees for both current and proposed Investment Managers;
Providing research on specific issues and opportunities, and assisting the Committee in special tasks;
Communicating investment policies and objectives to the Investment Managers, and monitoring their adherence to such policies and reporting all violations;
Notifying the Committee of any significant changes in personnel or ownership of the OCIO firm;
Overall, being proactive with the Staff and Committee in the management of the Endowment.

Responsibilities of Investment Managers

Investment Managers are expected to pursue their own investment strategies within the guidelines created for the manager in accordance with the Endowment’s asset allocation strategy and manager selection criteria. Coordination of the guidelines for the individual managers assures the combined efforts of the managers will be consistent with the overall investment objectives of the Endowment.

The Investment Managers’ responsibilities are as follows:

Investing assets under their management in accordance with agreed upon guidelines and restrictions;
Exercising discretionary authority over the assets entrusted to them, subject to these guidelines and restrictions;
Providing written documentation of portfolio activity, portfolio valuations, performance data, and portfolio characteristics on a regular basis in addition to other information as requested by the OCIO;
Voting proxies for the assets under management (companies held within the portfolio) in the best interest of the Endowment, and to the extent possible, consistent with the College’s ESG Investing Statement (Appendix E);
Notify the OCIO of any litigation or violation of securities regulations in which the manager is involved; and
Notify the OCIO of any significant changes in portfolio managers, personnel, or ownership.

Investments in pooled funds shall be subject to the investment policy guidelines established by the respective fund managers and the governing documents.

Responsibilities of the Custodian

Fund assets will be held by an institution designated as the Custodian, who shall manage, control and collect the assets of the Fund in accordance with the terms of a separate custodial agreement as well as the terms of this policy. The Custodian for the Fund is responsible for:

Providing all normal custodial functions including security safekeeping, collection of income, settlement of trades, collection of proceeds of maturing securities, daily investment of cash, and preparation of additional Endowment reports as requested by the Staff and OCIO;
Providing timely reports detailing investment holdings and Endowment transactions to the Staff and OCIO;
Meeting with the Staff and OCIO as requested;
Notifying the Staff and OCIO of any significant changes in personnel or ownership of the Custodian.

Asset Classes

The Endowment is divided into four broad asset classes – Equities, Diversifying Assets, Real Assets, and Fixed Income. The asset classes represent a spread of investment risk and return.

By dividing the assets in this manner, the Committee can specify the allocation to each broad risk level. While each asset class, strategy, and manager will be carefully selected, the focus of the portfolio’s investment process should be on achieving the overall Endowment objectives.

Equities: The Equities portfolio is to consist mainly of direct or indirect investments in public or private equities. Designed to be a principal contributor toward achieving the return target, the Equities portfolio is likely to be the most volatile asset class.

Diversifying Assets: The Diversifying Assets portfolio is to consist mainly of investments in public and private market vehicles that provide diversification relative to the other asset classes.

Common strategies employed are to include long/short equity hedge funds, credit/opportunistic hedge funds and private market credit/opportunistic funds (e.g. direct lending, distressed credit). The Diversifying Assets portfolio is designed to generate competitive absolute returns while preserving capital during times of equity market stress and accordingly serving as a partial buffer to potential losses in the Equities portfolio.

Real Assets: The Real Assets portfolio is to consist mainly of direct or indirect investments in real estate, natural resources, and other assets that may serve to provide a measure of inflation protection to the Endowment. It is expected that the Real Assets portfolio may be a source of heightened volatility from time to time, but that such volatility will not directly match that of the Equities portfolio.

Fixed Income: The Fixed Income portfolio is to consist mainly of direct or indirect investments in investment grade marketable bonds as well as short-term liquid investments and cash equivalents. The Fixed Income portfolio is designed to meet near-term operating distributions to the College, provide capital for rebalancing, fund capital calls to private market investment vehicles, reduce the Endowment’s overall volatility, provide a measure of deflation protection, and, if possible, generate current income. The Fixed Income portfolio may selectively include other fixed income investments, such as high-yield bonds or non-U.S. bonds, depending on market conditions and overall portfolio risk levels.

Asset Allocation

The Asset Allocation shall be determined based on a comprehensive asset allocation study completed by the OCIO and reviewed annually by the Committee. The Asset Allocation of the Endowment, as presented in Appendix B, is designed to give balance to the overall structure of the Endowment’s investment program over the long-term. The Asset Allocation includes the long term target for each asset class as well as the allowable allocation range around each target. The allowable allocation ranges help to ensure adequate diversification, define the permissible magnitude of tactical asset allocation, and constrain both absolute and relative risk. The OCIO is authorized in its discretion to adjust the allocation to each asset class within the approved allocation ranges.

If as of the end of any quarter the percentage of Endowment fair value accounted for by an asset class deviates from the approved allocation range for that asset class, the OCIO shall take steps toward rebalancing the Endowment in the direction of the allocation range as promptly as practicable, unless otherwise directed by the Committee. Alternatively, the OCIO may recommend a tactical adjustment to the allowable allocation range that would remove the immediate requirement to rebalance. A tactical adjustment to the allowable allocation ranges requires approval from the Committee.

Manager Selection

Investment management shall be delegated to professional Investment Managers in each asset class. The OCIO is responsible for manager selection, which includes researching and analyzing investment opportunities; identifying and conducting interviews with prospective managers; and completing thorough investment and operational due diligence.

Managers will have full discretion to exercise all voting rights, including the voting of proxies, with respect to any and all assets under their management unless otherwise notified in writing by the College and OCIO.

Investments should be made with consideration of the College’s status as a tax-exempt organization, both in terms of the strategies used and also the potential Unrelated Business Income Tax (“UBIT”) consequences.

Diversification

Assets shall be diversified to ensure that adverse results from one security or asset class will not have an unduly detrimental effect on the entire portfolio. Diversification is interpreted to include diversification by type, by characteristic, by vintage year (if applicable) and by the number of investments, as well as by the investment style of investment managers.

The allowable asset allocation ranges are intended to ensure that the Endowment investment risk is sufficiently diversified across asset classes. In addition, the following guidelines will be in place:

No single investment manager shall represent more than 6% at market value of total Endowment assets.
No single security shall represent more than 4% at market value of total Endowment assets.

Performance Review

Performance of the Endowment shall be provided by the OCIO at least quarterly and compared with appropriate market benchmark comparisons, both at the total portfolio level and for each individual asset class. Performance shall be reported net of fees. While performance will be reported quarterly, especially as it relates to conformance to the investment guidelines and restrictions, specific quantitative evaluation should normally be considered of more importance over longer investments horizons.

Benchmark indices are selected to represent the return and risk profile of each asset class. Key considerations in selecting benchmark indices include broad market coverage, ability to passively invest, transparency of index construction, and objectivity of the index provider.

Investment performance for the total portfolio will be compared against the following benchmarks:

Absolute Return and Risk Outcomes. Measures performance versus the College’s absolute return and risk targets as defined in the Investment Objectives. Compares performance to the College’s purchasing power and stability objectives.

Policy Benchmark. Measures performance versus a portfolio consisting of a benchmark for each asset class, weighted by the College’s asset class policy targets. Compares performance to a portfolio with the same asset class policy targets. The asset class policy targets are defined in Appendix B. The benchmark for each asset class is defined in Appendix C.

Dynamic Benchmark. Measures performance versus a portfolio consisting of a benchmark for each asset class, weighted by the College’s actual asset allocation as it changes through time. Compares performance to a portfolio with the same actual asset allocation. The benchmark for each asset class is defined in Appendix C.

Passive Benchmark. Measures performance versus a fixed-weight, passively-managed portfolio of traditional stocks and bonds. Compares performance to a portfolio of passive indices that St. Olaf would hold if the College moved away from active management. The Committee has selected a Passive Benchmark consisting of:

65% MSCI All Country World Index
35% Bloomberg Barclays US Aggregate Bond Index

Derivatives and Leverage Policy

Derivatives will be primarily used to implement investment strategies more effectively than would be possible in the cash market or to hedge risk. Derivative instruments include: futures contracts, forward contracts, swaps, and all forms of options. Derivatives shall at all times comply with applicable laws and regulations in the U.S. and globally. The OCIO will monitor the regulatory environment and inform the Investment Committee of developments that may have a material impact on the Endowment.

Derivatives and currency hedging may be used by an Investment Manager provided their use is consistent with the Investment Manager’s stated strategy and the Investment Manager’s fiduciary duty to the College. No Investment Manager is authorized to bind any assets of the College, through investments in derivatives or otherwise, beyond those assets of the College that are under direct management of such Investment Manager.

Exchange-Traded Derivatives. Use of exchange-traded derivatives will take precedence over over-the-counter (OTC) derivatives. Exchange-traded derivatives will be fully supported by cash equivalents (frequently described as “equitization” in the case of equities) to fully support the notional value of the contracts and will be evaluated daily as part of the mark-to-mark process. This same approach applies to fixed income, including to-be-announced (TBA) mortgage-backed securities.

Over-the Counter Derivatives. Prior to any entering into any OTC investments, the OCIO will work with the CFO and the Investment Committee to adopt counterparty guidelines. Prior to entering into any ISDA agreements, key ISDA terms and conditions, such as certain elements of the Credit Support Annex (CSA), will be fully reviewed with the CFO. The OCIO will be fully responsible to manage and monitor liquidity in order to support daily marks-to-market. No other sources of liquidity will be available.

Leverage. The use of leverage is prohibited at the portfolio level.

Applicability. This Derivatives and Leverage Policy is primarily designed to address separately held investments and to generally describe the risk management appetite of the Investment Committee. Investments in hedge funds, assuming they are limited liability vehicles, will be subject to the investment guidelines and parameters of each Investment Manager. Importantly, as limited liability structures, the asset risk to the College is be limited to the amount invested.

Investments in commingled fund vehicles will be subject to the investment guidelines and parameters developed and adopted by the sponsoring Investment Manager. Prior to investing in a commingled fund, the OCIO will consider the separate account derivatives and leverage policy guidelines set forth above and, to the extent possible, will comply with the spirit of the risk management objectives outlined. Any meaningful differences will be identified to the CFO as soon as practicable.

Index Funds and Exchange-Traded Funds Policy

The OCIO may employ liquid, commonly-held index funds and Exchange-Traded Funds (“ETFs”) to help manage the portfolio in response to rebalancing objectives, risk management, organizational cash needs, Investment Manager changes, asset allocation changes, tactical decisions, investment opportunities, and other reasons. These securities may be employed only to the extent that the aggregate risk of the Endowment is not increased beyond that which would be allowed by this Statement of Investment Policy and Objectives without the use of such securities. Fossil free funds are preferred, provided each individual index fund and ETF utilized must exhibit clear correlation to the strategy intended, while also providing sufficient liquidity at a comparable cost. No leveraged ETFs may be directly owned by the College.

Securities Lending

The Endowment will not engage in securities lending.

New Gifts to the Endowment

To minimize the Endowment’s exposure to market cycle volatility, new gifts to the Endowment that come in the form of marketable securities (stocks, bonds, etc.) shall be liquidated immediately, or as soon thereafter as practicable.

Unitized Endowment

The market value of each individual Endowment fund is based on the number of units owned. When a new fund is established, the individual fund “purchases” units based on the prevailing market value per unit. Subsequent additions and/or re-invested spending also purchase units at the then-prevailing market value per unit. Calculations of market value per unit are completed following the end of each calendar month.

Conflicts of Interest

All persons responsible for investment decisions, investment management, investment consulting, or any investment advice whatsoever, shall disclose at the beginning of any discussion or consideration by the Committee, any relationships, material ownership, or other material interest(s) that the person has, with respect to any investment issue under consideration. The Committee will require such persons to remove themselves from the final decision. Any members of the Committee, staff, or consultants responsible for investment decisions or who are involved in the management of the Endowment shall refuse any remuneration, commission, gift, favor, service or benefit that might influence them in the discharge of their duties, except as disclosed in writing to and agreed upon (as documented in the meeting minutes) by the Committee. Failure to disclose any material benefit shall be grounds for immediate removal from the Committee.

Procedure for Revising the Statement of Investment Policy and Objectives

The Investment Committee shall review the Investment Policy Statement annually. Exceptions to these guidelines may be made at any time with the approval of the Investment Committee.

APPENDIX A

Fiduciary Roles & Responsibilities

	Policy	Portfolio Construction	Execution	Evaluation
	Investment Objectives & Asset Allocation	Tactical Allocations & Manager Selection	Security Selection	Investment Outcomes
Investment Committee	Approves	Oversees		Reviews & Considers
Staff	Oversees & Reviews	Oversees		Reviews & Considers
OCIO	Recommends	Decides	Oversees	Reports & Analyzes
Investment Managers			Decides	Reports

APPENDIX B

Asset Allocation Policy Targets & Ranges

	Policy Target	Allowable Minimum	Allowable Maximum
Equities:
Public Equity
Private Equity
Total Equities	50%	40%	60%

Diversifying Assets:
Long/Short Equity
Credit/Opportunistic
Total Diversifying Assets	30%	20%	40%

Real Assets:
Real Estate
Resources
Total Real Assets	10%	0%	15%

Fixed Income:
Bonds
Cash
Total Fixed Income	10%	5%	15%

Additional Constraint:
Total Private Investments*	25%	0%	35%

Note: Private Investments are defined to include assets within Private Equity, Private Real Estate, Private Natural Resources and Private Credit/Opportunistic strategies, as well as any public market vehicles with lock-ups longer than 3 years.

It should be noted that rebalancing of illiquid assets is limited, and that the precise Total Private Investments target is for informational purposes only.

APPENDIX C

Policy Benchmark & Dynamic Benchmark Composition

Asset Class	Benchmark
Equities	MSCI All Country World Index
Diversifying Assets	HFRI Asset Weighted Composite Index
Real Assets	50% FTSE NAREIT All REITs Index / 50% S&P Global Natural Resources Index
Fixed Income	80% Barclays US Intermediate Government/Credit Index / 20% Citigroup 90-Day Treasury Bills Index

APPENDIX D

Benchmark Definitions and Investment Glossary

Bloomberg Barclays US Aggregate Bond Index comprises government securities, mortgage-backed securities, asset-backed securities, and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the Index are over one year.

Bloomberg Barclays US Intermediate Government/Credit Index is a broad measure of the performance of intermediate term government and corporate fixed-rate debt issues.

Citi 3-Month Treasury Bill Index is comprised of equal dollar amounts of 3-month Treasury bills purchased at the beginning of each of three consecutive months. As each bill matures, all proceeds are rolled over or reinvested in a new 3-month bill.

Core inflation is a measure of inflation that excludes certain items that face volatile price movements, such as energy and food products.

FTSE NAREIT All REITs Index is a market capitalization-weighted index that and includes all tax-qualified real estate investment trusts (REITs) that are listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market List.

HFRI Asset Weighted Composite Index is a global, asset-weighted index comprised of over 2,000 single manager funds that report to HFR Database. Constituent funds report monthly net of all fees performance in US Dollar and have a minimum of $50 million under management or a twelve (12) month track record of active performance. The HFRI Asset Weighted Composite Index does not include Funds of Hedge Funds. The constituent funds of the HFRI Asset Weighted Composite Index are weighted according to the AUM reported by each fund for the prior month.

MSCI All Country World (Net) Index is a free-float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI (Net) measures the net return of the index.

MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

S&P 500 Index is a gauge of the U.S. equities market and includes 500 leading companies in leading industries of the U.S. economy.

S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified and investable equity exposure across 3 primary commodity-related sectors: agribusiness, energy, and metals & mining.

Volatility is the degree of variation of the trading-price series over time.

APPENDIX E

Environmental, Social and Governance Investing

The Committee recognizes that ESG factors, in addition to many other factors, may have an impact on investment performance over the long term. As a result, the Committee actively takes many factors into consideration, including ESG factors, in determining how the endowment assets of the College are invested.

ESG is used to describe environmental, social and corporate governance factors that, when material, may have the potential to impact the value of investments. ESG factors include, but are not limited to, such issues as energy consumption, greenhouse gas emissions, climate change, resource scarcity, water use, waste management, health and safety, employee productivity, diversity and non-discrimination, supply chain risk management, human rights (including respect for worker rights), and effective board oversight. The degree to which ESG factors are relevant and material to an investment depends on the company or asset, the industry in which it operates and the type of investment strategy. For instance, ESG factors may have a direct impact on a company’s profitability through increased regulation, such as changes to environmental laws or governance codes, which can lead to rising operating costs, or an indirect impact by affecting a company’s long-term performance, such as its ability to attract talented employees, retain customer loyalty and protect its reputation and brand.

The Investment Committee, on behalf of St. Olaf and the Board of Regents, will endeavor to remain current on responsible investing issues and the impact of ESG factors on the College’s endowment. In light of the foregoing, the College will discontinue making new private market commitments to the fossil fuel industry. The Committee, both directly and through the OCIO, will remain in conversation with other institutional investors and industry associations to discuss such issues.