Purpose of the endowment
As stated in the Foundation's corporate charter, the function of the Indiana University Foundation (hereinafter, "Foundation") is to raise, receive, hold, administer, invest and manage funds from donors wishing to benefit Indiana University. Funds donated to the Foundation for the benefit of the University may be maintained in the form of endowments, quasi-endowments, charitable trusts or other forms deemed appropriate.
Purpose of this document
The purpose of this Investment Policy Statement (“IPS”) is to establish a clear understanding of the investment objectives and philosophy for the Pooled Long-Term Fund (“PLTF”). The PLTF is comprised of assets that are part of the Foundation intended to be invested with a long time horizon, and for which the Investment Committee, staff, and investment managers have discretionary authority.
For the avoidance of doubt, this IPS does not cover any other assets administered by the Foundation, including but not limited to the Pooled Short-Term Fund, charitable remainder trusts managed by TIAA-Kaspick, and student managed accounts.
This document will describe the standards utilized by the Investment Committee of the Foundation’s Board of Directors (“Committee”) in monitoring investment performance, as well as serve as a guideline for any investment manager retained. This document will be reviewed at least annually by the Committee.
Investment Objective
The primary investment objective of the Foundation’s asset management program is to maintain purchasing power over long periods of time. This can be attained by achieving an annualized total return (net of investment fees and expenses) equal to or greater than the rate of inflation (as measured by the average of the Consumer Price Index and the Higher Education Price Index) plus any spending (distributions to accounts) and administrative expenses.
The assets are to be managed in a manner that will meet the primary investment objective, and where possible, seek growth above the objective, while at the same time attempting to avoid excessive risks that could lead to the permanent loss of capital.
Fiduciary Duty
In seeking to attain the investment objectives set forth, the Committee shall exercise prudence and appropriate care in accordance with the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”). UPMIFA is a law enacted in 49 states, including Indiana, which requires fiduciaries to apply the standard of prudence about each asset in the context of the portfolio of investments, as part of an overall investment strategy. All investment actions and decisions must be based solely on what is in the best interest of the Foundation. Fiduciaries must provide full and fair disclosure to the Committee of all material facts regarding any potential conflicts of interests. (Appendix A)
As summarized for the purpose of this Investment Policy Statement, UPMIFA states that the Committee is under a duty to the Foundation to manage the Foundation’s assets as a prudent expert would, in light of the purposes, scope, objectives and other relevant circumstances. This standard requires the exercise of reasonable care, skill, and caution while being applied to investments, not in isolation, but in the context of the portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the Foundation.
According to UPMIFA, in making and implementing investment decisions, the Committee has a duty to diversify the investments of an institutional fund unless the institution reasonably determines that, because of special circumstances, the purposes of the fund are better served without diversification. Further, the Committee may, at times, consider non-economic factors related to the institution’s mission or its current programs, while never losing sight of the preeminent goal, as fiduciaries, to do what is best to maintain the intergenerational purchasing power of the endowment.
In addition, the Committee must conform to fundamental fiduciary duties of loyalty and impartiality. This requires the Committee to act with prudence in deciding whether and how to delegate authority, in the selection and supervision of agents, and incurring costs where reasonable and appropriate.
Description of Roles
Investment Committee
The Committee is responsible for the following:
- Establishing policy and guidelines for the investment and spending policy of the PLTF financial assets
- Determining the appropriate asset allocation for the Pooled Long-Term Fund
- Monitoring the performance of assets in the PLTF
- Providing oversight and guidance to staff regarding hiring and dismissal of investment managers
- Advising the Foundation’s Board of Directors on matters pertaining to investments
- The committee may delegate authority to subcommittees or staff, including the authority to pre-approve investment decisions, providing that such decisions are ultimately presented to the full Committee
IUF Investment Office
The co-Chief Investment Officers (co-CIOs) oversee the IUF Investment Office, which has daily responsibility for administration and oversight of Foundation investments and will consult with the Committee and the investment consultant on matters relating to the investments of the Foundation. The Investment Office will serve as the primary contact for the Foundation’s investment managers, investment consultant, and asset custodian. Additional responsibilities include:
- Remaining informed about the evolving financial markets, risks, and opportunities to serve IUF most effectively in achieving its goals and objectives
- Informing the Committee on manager decisions and portfolio tilts
- Making recommendations to the Committee on matters including, but not limited to, asset allocation targets and general investment policy
- Making manager hiring and dismissal decisions
- Managing internally managed assets
- Managing internal investment staff
- Communicating investment policies and results to university personnel as required
Investment Consultant
The investment consultant is responsible for assisting the Committee and Investment Office in all aspects of managing and overseeing the investment portfolio. The consultant is an important source of investment education and investment manager information. On an ongoing basis the consultant will:
- Provide recommendations
- Supply the Committee and Investment Office with reports (e.g., asset allocation studies, investment research and education) or information as reasonably requested
- Monitor the activities of each investment manager or investment fund
- Provide the Committee and Investment Office with monthly performance reports
The Committee and IUF Investment Office have utilized the discretionary services of a specialist consultant for a specific asset class in the past and may decide to do so in the future.
Spending Policy
The Foundation spending policy is comprised of the distribution rate of 4.5% of a 12-quarter rolling average of the market value of the Pooled Long-Term Fund.
In addition, inflation bands further enhance the stability of the distributions. Distributions will be constrained to fall within 2 times inflation on the growth side and 1 times inflation on the downside based on what was distributed in the previous year.
The inflation factor will be calculated as a rolling 5-year average of the Consumer Price Index (CPI). Revised inflation bands will be computed at calendar year end and become effective the following July at the beginning of each new fiscal year.
IUF charges a 1% administrative management fee to the PLTF which is also calculated using the same methodology described above for the spending policy. This includes a 12-quarter rolling average and inflation bands.
Investment Philosophy
Investment Principles
The following core tenets provide the basis for the asset allocation policy of the PLTF:
- Equity orientation – Ownership (equity) is expected to achieve higher long-term expected returns than lending (fixed income). Equity exposure may come in the form of public equities, private equity, or ownership of real assets. The portfolio will primarily be oriented toward equity-like structures given the PLTF’s long-term focus.
- Diversification – The PLTF will seek to achieve thoughtful diversification within and between asset classes by investing in numerous funds and managers that will diversify by region, sector, and strategy.
- Willing to invest in less liquid assets – Private investments may outperform more liquid public investments by exploiting market inefficiencies. The Foundation is willing to accept illiquidity in portions of its portfolio when it believes that excess returns can be generated over the long term.
- Global mandate – The PLTF will seek to invest in the best opportunities globally. A significant portion of assets are expected to be invested in the United States but will also pursue investments in other developed and emerging market countries.
Asset Class Roles and Fund Characteristics
Global Public Equity – Publicly-traded stocks offer the opportunity to own fractional amounts of leading corporations located around the world. There are no specific targets for U.S., developed international, or emerging markets exposure, nor is there a prescription of exposure to different market capitalizations (e.g., small, mid, large). Additionally, there are no limitations placed on individual companies, sectors, or geographic exposure, as it is important to allow each manager to fully implement its model strategy portfolio.
Public equity exposure will generally be held in commingled vehicles, institutional mutual funds, or separate accounts held at our custodian. These structures generally offer liquidity ranging from one day to one month. In select situations, the PLTF may invest a portion of the public equity portfolio in partnership structures that have longer notice periods and/or a side pocket of less liquid holdings.
Global Private Equity – Over time, these strategies are expected to generate higher returns than the public markets offer and may also provide diversification benefits to the overall portfolio by giving exposure to strategies that are difficult to access in the public space. The Foundation’s private equity portfolio includes buyouts, venture capital, special situations, growth equity and other strategies as deemed appropriate.
Diversification is highly desirable within private equity across geographies, sectors, strategies, philosophies, company stage, and exposure to different economic risk factors. Also critically important is vintage year diversification, also known as time diversification. We seek to commit relatively consistent amounts each year, throughout the cycle, as some vintage years turn out to be stronger than others.
Real Assets – The objective of the Real Assets allocation is to provide low correlation to equity and fixed income markets and serve as an inflation hedge. This category may contain real estate, infrastructure, commodities, natural resources, and renewable energy. While this exposure may come in the form of public market funds, we expect that most of this allocation will be invested in private equity structures. Thus, it is important to achieve vintage year diversification in real assets, as described in the private equity section above. It is also desirable to diversify by asset type, strategy, sector, and fund manager.
Absolute Return – This part of the portfolio seeks to provide returns with low correlations to the equity and fixed income markets by seeking specialist managers able to generate returns through unconstrained investment management, opportunistic investing, and the ability to control market exposure through hedging. Funds in this part of the portfolio may be focused on arbitrage, credit, long/short equity, global macro, distressed, and open mandate funds that combine numerous underlying strategies. While over time most of these funds will be in semi-liquid partnership structures, we maintain the ability to invest in drawdown funds in situations where the assets are more appropriately held in those structures. These strategies could involve rescue capital, royalties, or other unique sources of absolute return.
Fixed Income – Our fixed income allocation serves a critically important role within the portfolio. It provides a liquid and reliable source of funds for cash needs, including our distributions to the University, the fees that help to fund IUF’s ongoing operations, private equity capital calls, and the potential for withdrawals from quasi-endowments. The PLTF may also selectively invest in private credit funds that are housed within our fixed income allocation.
Asset Allocation
Asset allocation will likely be a key determinant of the Foundation’s returns over the long-term. Therefore, diversification of investments across multiple markets that are not similarly affected by economic or political developments is highly desirable. A globally diversified portfolio, with uncorrelated returns from various assets, should reduce the variability of returns across time. In determining the appropriate asset allocation, the inclusion or exclusion of asset categories shall be based on the impact to the total portfolio, rather than judging asset categories on a standalone basis.
The target asset allocation should provide an expected total return equal to or greater than the primary objective of the Foundation, while avoiding undue risk concentrations in any single asset class or category, thus reducing risk at the overall portfolio level. To achieve these goals, the Pooled Long-Term Fund asset allocation will be set with the following target percentages and within the following ranges:
| Asset Category | Target (established 6/2024) | Range |
| Global Public Equity | 37% | 27-47% |
| Global Private Equity | 33% | 22-45%[1] |
| Fixed Income | 10% | 0-15% |
| Real Assets | 10% | 5-18%[1] |
| Absolute Return | 10% | 0-15%[1] |
[1]Limited Partners (investors) in private investment vehicles are not in control of the timing of cash flows or valuation markups or markdowns. Thus, it is conceivable that the actual allocation ould fall outside of these ranges for a period. This could occur because of significant exit activity reducing our allocation below the lower-bound of the range, or markups that outpace the returns generated in other parts of the portfolio. This latter dynamic can be exacerbated by the ‘denominator effect’ if public markets experience a sharp decline concurrent with private funds holding up, even if only temporarily due to the lagged effect of valuations.
In these circumstances, there are often limited potential near-term remedies that are economically attractive, as private capital exposure takes years to scale in and out of. Following a period of strong exits, it may be unattractive to quickly rebuild exposure through secondary purchases or increasing commitments. Conversely, in times of market stress, selling prices for secondary stakes may be heavily discounted and an unattractive method of rebalancing.
If any asset categories fall outside of the range, the Investment Office shall notify the Investment Committee chair as soon as practicable.
Rebalancing
Periodic rebalancing of the portfolio toward policy targets has proven to be an effective portfolio management tool. It is useful for maintaining the risk profile adopted by the Committee and for achieving the desired goals and objectives. The asset allocation of the endowment relative to the established policy targets and ranges will be monitored on a regular basis by the Investment Office and adjusted as required and/or as it is deemed beneficial to do so. In many cases, the
additions of new money or withdrawals for spending will be used to rebalance in a cost-effective manner. There will be times, due to sharp price fluctuations of the financial markets or manager performance, in which cash flows may not be sufficient to maintain the actual allocation within permissible ranges. In those cases, it will be necessary to reallocate assets to comply with allocation guidelines.
As discussed above, private investments can cause rebalancing challenges in certain market conditions, given the fact that investors do not control the timing of capital calls, distributions, or valuation changes. In those circumstances, it may be necessary to carry offsetting overweights or underweights in other asset classes.
Tactical/Opportunistic
The Committee appreciates, especially during increased volatility within the financial markets, the benefits of allowing for the limited consideration and possible investment in opportunities that may require a nimbleness and added degree of flexibility not normally available in the management of the endowment portfolio. Such an allocation may be used for market anomalies, price dislocations, portfolio tilts, or time-sensitive opportunities, for example.
ESG Considerations
Environmental, Social, and Governance (“ESG”) factors are given consideration within our due diligence process within all asset classes. Often, these manifest as risk factors to be considered. When underlying assets or companies need improvement in areas of ESG, we like to see our investment managers engage in efforts to find solutions and improvements, rather than mandating a sale or prohibition of owning a given company.
Liquidity
A goal of the Foundation is to maintain a balance between investment goals and liquidity needs. Liquidity is necessary to meet the spending policy payout requirements (distributions to accounts), private investment capital calls, and any extraordinary events. The Committee understands that in many instances, the most appropriate investment option is one that comes with liquidity constraints. The tradeoff between appropriateness and liquidity will be considered
throughout the portfolio construction process.
Capacity
As indicated in the Pooled Short-Term Fund IPS, the Pooled Long-Term Fund can borrow the lesser of $75 million or 15% of the PSTF value as a source of temporary liquidity if warranted by market conditions. This shall be paid back as soon as practicable and is not intended to be used as a long-term source of portfolio leverage.
The Investment Office receives regular reports from the IUF Portfolio Accounting team regarding our current cash balance. Upon notification that the cash balance has gone negative (which automatically triggers PSTF borrowing), if the Investment Office intends to maintain a negative cash position for more than one week, it shall consult with the
Investment Committee Chair for approval and subsequently notify the full Investment Committee.
Evaluation and Performance Measurement
Benchmark
The goal is for the portfolio to outperform its benchmarks over full market cycles with the knowledge that all investment objectives will not be attained in each year. Furthermore, the Committee and staff recognize that over various time periods, the portfolio may produce significant deviations relative to the benchmarks. For this reason, investment returns will be evaluated over a full market cycle (for measurement purposes: 10 years).
The primary objective of the Foundation is to achieve a total return, net of fees, equal to or greater than spending (distributions to accounts), administrative fees, and inflation. The primary objective of the PLTF is:
Return > Inflation + Spending Policy + Administrative Fees (Inflation + 5.50%)
A secondary objective is to achieve a total return greater than the Target Weighted Index comprised of each asset category benchmark weighted by its target allocation. The Target Weighted Index will be adjusted periodically to match the actual allocation due to the long period needed to draw down capital and realize value from private investments. Currently, the Target Weighted Index is comprised of:
Target Weighted Index 07/01/25 - Present
35% MSCI ACWI (Net) – Public Comp
33% MSCI ACWI (Net) – Private Equity Comp
10% HFRI Fund of Funds Index
9% FTSE NAREIT All Equity REITs Index
3% S&P NA Natural Resources Index
10% Bloomberg Barclays Aggregate Bond Index
Manager Evaluation
It is expected that equity, fixed income, and absolute return managers outperform the benchmarks over a reasonable timeframe (for measurement purposes: 5-10 years). The Committee and staff do not expect that all investment objectives will be attained in each year and recognize that over various time periods, including multi-year stretches, investment managers may significantly underperform their benchmarks. Each equity, fixed income, and absolute return investment manager will be reviewed on an ongoing basis and evaluated based upon the following criteria:
- Stability of the organization
- Retention of key personnel
- Absence of regulatory actions against the firm, its principals, or employees
- Adherence to the guidelines and objectives of this Investment Policy Statement
- Consistency in the style and capitalization characteristics defined as “normal” for the manager
- Performance compared to the appropriate benchmark and, for equity managers, produce positive risk-adjusted return (alpha)
- Performance compared to a peer group of managers with similar styles of investing. Due to poor performance or certain other factors occurring within a firm, managers may deserve additional attention and would be added to the IUF Watch List (Appendix B).
Although there are no strict guidelines that will be utilized in selecting managers, the criteria above as well as the length of time the firm has been in existence, its track record, assets under management, and the amount of assets the Foundation already has invested with the firm will be evaluated.
Summary of Quantitative Performance and Risk Objectives
Liquid and Semi-Liquid Active Managers
Public equity, fixed income, absolute return, and public real asset managers will undergo extensive qualitative and quantitative analysis on an ongoing basis and throughout the full market cycle to gauge whether they are executing on their stated strategy and delivering value to the overall portfolio.
Qualitative review will focus on firm ownership structure, personnel changes, adherence to stated strategy, exposure to potential headline risks, proliferation of strategies at the firm, and a host of other factors. Quantitative analytics will vary by asset class, but will look at portfolio characteristics, assets under management, risk and volatility metrics, style analysis, return attribution, portfolio concentration, performance versus benchmark, and performance within peer group. It is critically important to apply qualitative reasoning to the quantitative work to understand why a fund performed the way it did in each period of time.
Importantly, a primary consideration is the performance of the overall portfolio and how it fits together to achieve IUF’s investment objectives. A manager may underperform over a stretch of time but provide valuable diversification benefits to the overall portfolio when market dynamics rapidly shift.
Public Liquid Passive Managers
Passive (index) managers are expected to approximate the total return of the respective benchmark. The beta for passive equity managers should approximate 1.00.
Private Illiquid Managers
Most of the Foundation’s private equity and real assets allocation will be invested with private partnerships. These partnerships typically range from 7-12 years in life, during which time the Foundation may not be able to sell the investment. Additionally, the partnership may not produce meaningful returns for 3-7 years (depending on the strategy). New investments are generally expected to create a drag on Foundation performance in the early years (3-5 years)
until these investments begin to mature. Private, illiquid manager performance will be measured utilizing internal rate of return (IRR) calculations, measuring the multiple of invested capital (MOIC), distributed to paid-in capital (DPI), and compared to an appropriate peer group within the respective vintage years. As with public and absolute return fund managers, qualitative factors are equally important as quantitative ones, and portfolio context is critical. It is not realistic to expect a private capital manager to outperform in all vintage years and market environments.
Guidelines & Restrictions
Overview
The requirements stated below apply to investments in separate, discretionary accounts on behalf of the Foundation.
Although IUF cannot dictate policy to commingled fund investment managers, IUF’s intent is to select and retain only commingled funds with policies that are similar to this Investment Policy Statement. All managers (commingled and separate), however, are expected to achieve the performance objectives. Each traditional equity and fixed income investment manager shall:
- Have full investment discretion regarding security selection consistent with this Investment Policy Statement.
- Immediately notify the Investment Office and consultant of any material changes in the investment philosophy, strategy, portfolio structure, ownership, or senior personnel.
- Vote proxies and share tenders in a manner that is in the best interest of the Foundation and consistent with the investment objectives contained herein.
Illiquid and Semi-Liquid Investment Guideline
Each investment will require a signed Subscription Agreement and Limited Partnership Agreement. The Foundation may wish to have these documents reviewed by independent legal counsel. As these investments are typically private limited partnerships, the Foundation cannot dictate policy. The Foundation may, however, request side letters for revisions or addendums to the Limited Partnership Agreement. The manager is ultimately responsible to manage investments in accordance with the Private Placement Agreement (PPM) and Limited Partnership Agreement.
The Foundation is a tax-exempt organization, but certain investments may be subject to taxation on Unrelated Business Taxable Income (UBTI). Given that net risk-adjusted returns are the primary objective of the Foundation, potential tax ramifications must be considered during the investment analysis and selection process. The Foundation may seek to minimize the UBTI impact on the portfolio by selecting investment structures and geographic locations most beneficial to the Foundation.
Abusive Tax Shelters and Listed Transactions
The Internal Revenue Service has identified specific listed transactions considered to be abusive and requires individuals that market and participate in these transactions to disclose said activity. A listed transaction is a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a listed transaction.
The Indiana University Foundation will comply with the form, substance, spirit, and letter of such laws and regulations. As agents of the Foundation contracted to perform specific investment management activities, each investment manager is prohibited from marketing to, or otherwise engaging the Foundation in these listed transactions. Should any of the investment vehicles currently held for the benefit of the Foundation be classified by the IRS as an abusive tax shelter subsequent to the original engagement, each manager is required to notify their Foundation contact immediately and make every effort to divest of this transaction. Such notification should include a detailed listing of any investment transactions or activities performed on the Indiana University Foundation’s behalf and the plan to divest these investments.
Derivative Security Guideline
Many investment managers will utilize derivatives in the normal course of business to efficiently create exposure, hedge against risk, or achieve desired portfolio characteristics. The utilization of derivatives will vary by asset class and strategy, and due diligence should incorporate a comprehensive understanding of how and why the manager is using these instruments.
In the case of commingled vehicles, including absolute return and private equity funds, if an investor is uncomfortable with how derivatives are being used and/or explained by the manager, the best option is to pass on the fund if not yet invested. Redemptions are also an option if necessary with existing absolute return funds. In the case of separate accounts held at our primary custodian bank, IUF will evaluate the manager’s standard use of derivatives and decide whether to limit or prohibit the use of derivatives in our specific customized account.
APPENDIX A
Conflict of Interest Policy
(In conjunction with existing IUF policy)
Below are guidelines for evaluating investments for the Foundation that may have a perceived or real conflict of interest involving an IUF Board Member, family member of an IUF Board Member, or individuals in a position of influence including IU trustees and major donors. These guidelines serve as a first set of hurdles to clear before a potentially conflicted investment opportunity would be considered via the full due diligence process.
- No first-time funds excluding those in an evergreen format that meet the criteria below
- Minimum of 3 years in business
- The Firm must have at least $100 million in invested/committed capital
- The manager must have demonstrated top quartile performance in previous/existing investments relative to an appropriate peer group. It is recognized that private equity peer measurement becomes more meaningful as the period is lengthened, therefore the age of the funds must be factored into the judgment so that this is not the sole criteria for exclusion.
- IUF’s investment may be no more than 10% of the total fund size
If an investment passes the initial screen, passes subsequent due diligence by Staff, and advances to final stages of consideration:
- The interested party must fully disclose any potential conflicts and completely recuse himself/herself from the discussion of the potential investment.
- The process must be well documented that all appropriate steps have been taken to prove that conflicts of interest were minimized.
APPENDIX B
Investment Manager Watch List Policy
In building a portfolio under the asset allocation guidelines as established by the Indiana University Foundation (IUF) Investment Committee, the investment assets are primarily managed through the utilization of external investment managers and funds. The oversight of the managers is the responsibility of the IUF Investment Office with assistance from the investment consultant.
IUF desires to hire and retain investment managers that offer, in aggregate, the most attractive attributes and abilities to enable IUF to achieve its goals and objectives, and to avoid or terminate managers who are unlikely to achieve performance objectives on a going-forward basis. IUF recognizes that past performance may not be indicative of future results, and that over a long-term time horizon even the most successful managers are likely to experience periods of lackluster or poor performance. IUF also recognizes that there are costs to changing managers (in terms of time and resources to conduct a search, and the actual transaction costs to transition from the old portfolio to the new, and potential disruption of market exposures), and desires to achieve its performance objectives with the lowest possible manager turnover.
This policy describes the ongoing manager monitoring to be performed by staff and the consultant and outlines the criteria that will trigger a manager’s addition to the Watch List.
This policy applies to all external managers unless otherwise noted.
Criteria Triggering Addition to Watch List
The following factors have been developed to assist staff when considering whether an external investment manager necessitates extra scrutiny, initially with an addition to the Watch List, and potentially with termination. There are two sets of factors to consider, qualitative and quantitative. Due diligence is a comprehensive and ongoing process with more factors to monitor than can be summarized in a policy statement. The following list is not intended to be exhaustive, and numerous other factors can land a manager on the Watch List.
Qualitative Factors – These relate to the overall investment organization, investment philosophy and process.
- Process - Has the manager deviated from the process or philosophy for which it was hired?
- Ownership – Has the manager undergone ownership or substantial organizational changes in the past three years?
- Personnel – Have key members of the portfolio management team left the firm, had a significant change of roles, or undertaken significant new responsibility?
- Regulatory/ Legal – Has the manager faced legal action or had a regulatory change that could impact the firm?
Quantitative Factors – These are basic risk and return measures derived from the manager’s investment performance.
- Assets Under Management – Has the manager experienced inflows/outflows within the portfolio that have the potential to impact results?
- Performance – For public equity and fixed income managers, has the manager underperformed its benchmark over the trailing five-year period? For absolute return, real asset, and private capital managers, underperformance relative to expectations and/or vintage group peers can trigger addition to the Watch List.
Manager Review Process and Outcomes
Within a reasonable time after the conclusion of each calendar year, the investment consultant will prepare a grid indicating whether each traditional (public equity and fixed income) manager has passed or failed each of the above criteria. For any manager that has failed one or more criteria, staff and the consultant shall conduct a review appropriate in scope to the criteria triggered. At the conclusion of the review, staff shall determine whether to retain the manager.
APPENDIX C
Private Co-Investments
The return objective of private co-investments is similar to that of the underlying illiquid private investment strategy. The purpose of utilizing the co-investment structure is to increase the PLTF’s exposure to top quality managers and lower the cost of private investment fees. Starting in 2022, new co-investments may only be made alongside existing General Partners whom IUF is already invested or committed. This should alleviate issues with determining a fair valuation to hold the investments at and should provide strong information rights about the deal.
- The annual amount of capital deployed in co-investments shall not exceed 1% of the Foundation’s Pooled Long-Term Fund during any given calendar year. The cumulative cost basis of active, unrealized co-investment deals shall not exceed 5% of the PLTF.
- Individual co-investments including future rounds of funding will be limited to acumulative cost basis of 25 basis points of the Foundation’s Pooled Long-Term Fund. In the case of a continuation vehicle co-investment (where an existing position is rolled over rather than taking a cash exit), the limit of 25 basis points applies to the original cost basis of the position, not the amount rolled into the new vehicle. Investing more than 25 basis points will require Investment Committee approval.
- The Investment Office must perform reasonable due diligence in advance of closing. Co-investments will follow a similar process as fund investments, including the Investment Office making the final decision and subsequently presenting the decision to the Committee. Given the time constraints inherent in many co-investment situations, it may not always be feasible to include these on the Committee pipeline reports.
- Co-investments must have a reasonable time to liquidation. Opportunities with investment horizons that are expected to be greater than ten years should not be considered.
- For co-investments in private entities without a publicly attained valuation, staff will use the valuation that the “sponsor” General Partner uses in its valuations. If a co-investment becomes publicly traded, the public valuation will be used. In the absence of a General Partner valuation, staff would rely upon the “Price of Recent Investment” valuation technique as outlined in the International Private Equity and Venture Capital Valuation Guidelines as follows: the Valuer uses the initial cost of the Investment itself, excluding transaction costs, or, where there has been subsequent investment, the price at which a significant amount of new investment into the company was made, to estimate the Enterprise Value.
- If neither valuation technique is available nor satisfactory, any discretionary valuation changes will be made only with the approval of the Committee.
- The Investment Office shall provide regular monitoring of co-investments, as it does with fund investments.
