Institute for the Desert Arabian Horse
I. Statement of Purpose
The financial strength and stability of the Institute for the Desert Arabian Horse (herein after referred to as the Institute) is of utmost importance to maximize the corporation’s ability to continue to serve its mission. Consequently, managing the Institute’s investment activities with considerations for the preservation of principal, consistent with achieving a market return, is a critical responsibility of the Institute. The Institute’s Board of Directors recognizes its fiduciary duty to act prudently and cautiously while managing the Institute’s cash assets, and therefore, has established the policy set forth below regarding the investment of the Institutes funds.
II. Statement of Responsibility and Authority
The investment of the Institute’s cash assets will be made within the guidelines established by this policy, which has been approved by the Treasurer and the Board. As prescribed by the Institute’s bylaws, the Treasurer has charge and custody of all funds and securities of the corporation, subject to the control and oversight of the Board of Directors. The Board of Directors and the Treasurer join with the Finance Committee to assume responsibility for monitoring and overseeing investments of the Institute.
III. Blueprint of Investment Process
The investment process is monitored and overseen by the Institute’s Finance Committee. At least annually, the committee will review Institute investment results and issue a report thereon to the Board of Directors. Any changes in investment strategy or policy will be communicated to Institute management by means of written memos. Institute staff, if any, will handle all routine, day-to-day, investment procedures.
IV. Reasonable Long-term Return Expectations
The Institute expects to invest most of its non-operating, reserve, endowment and bequest funds in stock-indexed mutual funds, bond mutual funds, and US Treasury securities. However, a mix of investments is expected to vary from this standard, based on current economic conditions, donor preferences and unique circumstances. The Institute seeks a long-term annualized return of approximately double the 10-year US Treasury rate.
V. Investment Constrains and Security Selection Parameters
The Institute recognizes that investing is always subject to certain risks. However, the Institute seeks to keep risks to a minimum. It will not invest in real estate for speculation, junk bonds, complex derivatives, options or futures. Use or leverage is prohibited. (Note: The Institute may elect to purchase and/or own real estate for the purpose of future development. Such a decision may be made only by the Board of Directors and, as such is not subject to the limitations of this policy.)
VI. Asset Allocation Guidelines
The Institute’s primary objective when investing is to maximize investment earnings while preserving principal and maintaining liquidity for corporate requirements. There are two components of the Institute’s investment portfolio: Operating Funds and Reserve Funds.
Operating Funds (unrestricted) are those funds which are required to be available to meet short-term cash needs. Operating funds include cash residing in checking accounts and money market accounts.
Reserve Funds (restricted and unrestricted) are funds which are invested with the intent that they will be available for special long-term operating needs, including but not limited to capital acquisition and improvements, research project funding, publications, database development and maintenance, and scholarly publications. Further, it is the Institute’s goal to accumulate sufficient funds to operate for a one to two-year period without membership dues support in the event of such an emergency. An Emergency Reserve Fund for such a purpose is restricted since the reserve may not be used for any other purpose.
This policy anticipates that, except in unusual circumstances, operating and reserve funds will be invested primarily in mutual funds, bonds and cash investments. The amounts invested in these areas should approximate the following general guidelines:
Cash investments – cash amounts needed for the next six-months to one year, as determined by the Treasurer and the Finance Committee. Amounts in this category may be adjusted during certain market conditions. Investments in this category will generally be restricted to savings and money market accounts.
Bonds and bond mutual funds – amounts representing projected cash needs for the next two years plus one-half of the remaining surplus. Bonds should be of investment grade (defined as those rated Baa3 by Moody’s Investor Service, Inc. or BBB by Standard and Poors Corporation in 2006). Acceptable instruments for investments include mutual funds, US Treasury Securities (Treasury Bills (3-12 months) and Notes (2-10 years), US Government Agency Securities (such as FNMA, GNMA, Federal Home Loan Bank, and Farm Credit System), and Certificates of Deposit from banks and corporate bonds.
Stock index mutual funds – amounts representing the remainder of funds held by the Institute. Funds chosen for investment should generally be reflective of a broad large-ca stock index such as Standard and Poor 500.
VII. Portfolio Balancing and Adjustment
Under certain conditions, due to unusually volatile market conditions or other economic or political forces, changes to the Institute’s portfolio allocation may be necessary. In these cases, a meeting or teleconference of the Finance Committee shall be convened to make a decision on the matter. It should be noted that, under normal circumstances, this policy does not anticipate the Institute engaging in any market “timing.”
VIII. Use of Paid Money Managers
It is anticipated that the bulk of the Institute’s investments will consist of stock index mutual funds, bond mutual funds, and US Treasury securities, and will not require the use of a paid money manager. However, in certain situations and market conditions, the Institute may choose to hire a money manager for some period of time to be determined by the Board of Directors as recommended by the Treasurer and the Finance Committee. In these instances, the following guidelines will apply:
- Money managers will be expected to provide periodic reports to the Finance Committee
- The Institute’s management style of dealing with its investments is expected to be moderately active. Thus, the Finance Committee will be expected to be informed of portfolio activity on a monthly basis.
- Asset allocation guidelines for the money manager will be similar to those noted in Part VI, above. Cash investments will consist of amounts needed for current operations, as determined by the Treasurer, Finance Committee or Board of Directors, as appropriate. Amounts representing projected cash needs for the next two years plus one-half of the remaining surplus should be invested in bonds and bond funds. Money managers will also have the option of investing up to 20% of the list category in small cap stock and 10% of the list category in foreign securities.
- Risk and return for these investments should, in most cases, be measured against the following criteria:
- Large cap stocks – the Standard and Poors 500 index
- Small cap stocks – the Russell 2000 index
- Foreign stocks – the Morgan Stanley Capital International World Index (net) Bonds – the last six months’ results of the Vanguard C-NMA Fund
It is understood that the Finance Committee shall from time to time re-evaluate these criteria and modify as prudent and necessary.
IX. Ethics and Conflict of Interest
Except with written agreement of the Institute’s Board of Directors, the Institute will not:
- Invest in any company that is known to have as an officer, director or significant owner, an Institute officer, director, governing member or employee;
- Buy or sell any securities or other investments from or to an individual who is an Institute officer, director, governing member or employee;
However, it may be deemed appropriate to use as a paid money manager or broker an individual who is an Institute officer, director, governing member or employee, but only if competitive bids have been obtained from an independent entity and full disclosure is made to the Board of Directors of the arrangement.