Investment Policies

Policy Portfolio

Policy Portfolio Asset Allocation Recommendation for Calendar Year 2022 (in %)

2022
Policy Portfolio
Traditional Investments
Consisting of:
Public Equities & ETFs 30
Fixed Income 4
Short Term 4
Total, Traditional Investments 38
Alternative Investments
Consisting of:
Hedge Funds/Diversifiers 24
Private Partnerships 38
Total, Alternative Investments 62
TOTAL 100

Approved by the Investment Committee on 9/21/2021

Investment Philosophy and Policy Statement

I. Philosophy

A. Organization and Purpose

The University of Rochester’s Board of Trustees has delegated the authority for investment decisions to its Investment Committee (Committee).  The University of Rochester’s Investment Office (Office), under the supervision of the Committee, provides investment management services to the University of Rochester (University) and certain affiliated organizations or foundations (Foundations).  The majority of assets are held in custodial accounts or in limited partnerships within the University’s Long-Term Investment Pool (Pool) consisting of the University’s endowment and other funds intended to be invested over long time periods.  Other pools of capital such as operating funds, defined benefit pension plans, or split-interest gifts may also be managed by the Committee and/or the Office, either separately or in other investment pools. In addition to guiding the University’s investment process, the policies contained herein comply with NYPMIFA as adopted by New York in 2010.   This statement applies to management of the Pool.

 B. Standard of Care

The Committee and the Office manage the Pool in accordance with an Investment Policy Statement. In recommending investment actions to the Committee, the Office exercises ordinary diligence and prudence and may engage, with Committee approval, a consultant to assist it in performing its duties.

 C. Purpose, Objectives, and Strategy

The purpose of the University of Rochester endowment (the primary component within the Pool) is to provide predictable and increasing financial support for the University’s current operations, while preserving its real value for future generations. This requires an expected return that exceeds the annual rate of endowment spending plus the rate of growth in the University’s operating budget. The endowment’s objective is to seek long-term returns that fulfill this purpose, which can only be achieved through an equity-oriented approach. The strategy of the endowment is to retain top-tier investment management firms across the globe in diverse asset categories in order to meet or exceed historical long-term performance of a passively-managed benchmark portfolio. Recognizing that the University seeks outstanding students, faculty, and staff and wishes to provide them with appropriate resources, the University also employs an endowment performance objective of seeking long-term returns above the mean of similar private universities (“Close Peer Group”).

The University does not employ market timing, or high concentration in any particular asset class, and may retain investment managers who are flexible in their investment approach in addition to those seeking to outperform benchmark indices. This multi-asset class approach offers diversification and helps to reduce risk. The endowment’s perpetual time horizon and predictable spending enables the endowment strategy to tolerate above-average volatility and a high degree of illiquidity.

D. Policy Portfolio and Spending

The Committee and the Office will establish, annually, a long-term investment return forecast and asset allocation targets (Policy Portfolio), recognizing that available returns are influenced by economic and market conditions and must not be driven by spending needs.  The Committee and the Office calculate and communicate the Pool’s return forecast to the University and participants in the Pool to assist them in setting spending rates and to help in long term planning.  The Policy Portfolio will be used by the University in establishing financial models for budgetary planning.  The Policy Portfolio is established after analysis and modeling of factors which influence investment returns and risks of various asset classes, including possible impacts of inflation or deflation.  In establishing the Policy Portfolio the extremes of investing for preservation of principal and current income on one hand, and maximum return without regard for risk on the other, are to be avoided.

II. Responsibilities and Practices

A. Committee Responsibilities

Committee responsibilities include:

      1. Approving an Investment Policy Statement to guide investment practices over a period of five years or more, including an appropriate benchmark.
      2. Approving an annual Policy Portfolio to guide asset allocation.
      3. Offering perspectives to the Office on investment managers under consideration.
      4. Monitoring Office actions to ensure compliance with policies.
      5. Monitoring the returns and characteristics of the Pool relative to the Policy Portfolio and Close Peer Group.
      6. Meeting quarterly to execute these responsibilities.

 

    1. Benchmarking

The benchmark used to evaluate the overall performance of the Pool is a mix of 80% equity and 20% fixed income, which provides an investable passive measure to evaluate active asset allocation decisions.

The current equity component of the benchmark is the MSCI ACWI.  The Bloomberg Barclays 1-3 Year Government/Credit Index is the fixed income benchmark.   For portfolio construction, the equity component may be weighted by GDP to reflect global economic activity.

Given the University of Rochester is located in the United States, and a majority of its expenses are in U.S. dollars, the S&P 500 is included as a benchmark for informational and comparative purposes but does not represent the opportunity set on which the equity program is based.

    1. Delegation

The Committee delegates to the Office, in accordance with the Investment Policy Statement and Policy Portfolio, responsibility for:

      1. Managing day-to-day investment operations.
      2. Hiring and terminating investment managers (including limited partnerships, mutual funds and ETFs).
      3. Rebalancing
      4. All other actions associated with managing an investment office, including purchasing and selling public and private securities, drawing upon line(s) of credit, budgeting, staffing, hiring a consultant, custodian, or other vendors, etc.

3. Proxy Voting

The Investment Committee delegates to investment managers the authority to vote proxies.  However, the Committee may from time to time direct a manager vote on certain shareholder resolutions.

 

B. Office Responsibilities

The Office manages the Pool, within the responsibilities set forth below by the Committee, and develops the Investment Policy Statement and the Policy Portfolio.  The Office’s responsibilities include:

 

    1. Asset Allocation

Based upon the University’s risk tolerance together with capital market risk and return estimates, the Office will annually establish asset allocation targets in order to achieve the objectives stated in the Investment Policy Statement. The Office adjusts the portfolio for rebalancing or in gradual response to unusual conditions (such as reducing equity exposure after a prolonged period of excess returns) but will not engage in short-term speculation on the direction of markets.

    1. Manager Selection and Monitoring

The Office continuously monitors and evaluates investment strategies and investment firms with a goal of identifying superior opportunities.  Prior to hiring investment firms the Office investigates, analyzes and documents the investment process, organization, and staff of such firms.  This effort continues after firms are hired.  Investment firms are expected to implement strategies, within guidelines that are provided to them, that are likely to achieve or exceed targeted returns.

    1. Manager Diversification

For investments with returns derived solely through publicly-traded markets, such as mutual funds, exchange-traded funds and externally-managed pools, no more than 8% of the Pool can be allocated to a single such investment.  A limitation of 10% applies to the market value of any firm-wide investment in private equity and real asset partnerships including undrawn commitments.  The Committee may vote to override these limits in certain circumstances.

    1. Reporting

The Office provides quarterly reports to the Committee, the Executive Committee of the Board of Trustees, and participants in the Pool, describing the Pool’s asset allocation relative to the Policy Portfolio, risk, liquidity and returns.  Reporting to the Committee also includes performance of investment firms and underlying asset classes relative to benchmarks summary reports that explain the Pool’s investment performance relative to the Policy Portfolio and significant actions by the Office over the prior quarter.  The Office also provides a comprehensive and highly confidential annual report to the Committee and Board of Trustees on all of its activities, on the investment firms managing the Pool, and with comparisons of the Pool to the Close Peer Group.

    1. Statement on Corporate Shareholder Responsibility

The University’s mission includes education, research, creative expression, and provision of healthcare. These activities are conducted according to a set of core values, which include freedom of expression, equality of persons, respect for cultural diversity, dissemination of knowledge in the public interest, fair labor standards, human rights, democratic governance and environmental sustainability. The University’s investment policy seeks to assure the consistency of institutional support strategies with core values.

The University invests along with peer institutions with asset managers in long-term investment pools.  These managers are accountable to uphold norms of corporate social responsibility.  It is the University’s intention that its resources be invested in ways that are ethical, sustainable and consistent with relevant laws and regulations.  To this end, the University includes questions on corporate social responsibility as well as diversity, equity, and inclusion in an annual questionnaire directed to investment managers.

From time to time the Investment Committee evaluates proposals from the Ethical Investment Advisory Committee.  Portfolio restrictions arising from such proposals are reported on the Investment Office website and communicated to the appropriate investment firms.

Approved by the Investment Committee on 9/21/2021

Secondary Pool Investment Policy

Funds in the secondary pool are invested within the Long Term Investment Pool and receive the net return of the Pool. Reports are provided to participants monthly, approximately 30 days after each month end. The secondary pool requires a three-year lock-up for all new accounts but offers monthly liquidity thereafter. The required minimum initial investment is $1,000,000.

Socially Responsible Investment Policy

The Investment Office will respond to written inquiries from members of the University of Rochester community (students, faculty, staff and alumni) relating to specific investment holdings within the endowment. The University does not release a list of its investment holdings, but will acknowledge, upon written request, whether or not the University is the owner of a specific security. The Investment Office will also submit to the Investment Committee of the University’s Board of Trustees, on a case-by-case basis, requests for action pertaining to specific securities.

Our Commitment to Equity, Diversity, and Inclusion »

Policy on Investments in Companies Operating in Sudan »

Ethical Investment Advisory Committee (“EIAC”) »