The following material describes a structure for developing and presenting resource materials for endowment investment portfolios managed by CSU campus Auxiliary Organizations. The subject matter is directed at the development of an Investment Policy. Subsequent materials are planned for areas such as the selection and evaluation of an investment manager and the creation of an Investment Committee.

The resource materials developed under this project are intended for the use of CSU Auxiliary Organizations and will be on a web site maintained within the Office of the Chancellor.

Contents of a Strong Investment Policy

The development of a strong investment policy is the responsibility of the governing board of each CSU Auxiliary Organization. The contents of a strong investment policy have been described in the publication, Endowment Management, A Practical Guide (2004), written by Mr. Jay Yoder and published by the Association of Governing Boards of Universities and Colleges.¹

Mr. Yoder states that an investment policy must be detailed and specific. For example, he says that it is better to articulate a detailed return objective: "We seek to earn the spending rate of our endowment, plus the inflation rate as measured by the CPI, plus 1 percent real growth" rather than a broad, general statement such as: "We seek to maximize returns without incurring undue risk."

Secondly, Mr. Yoder believes a strong investment policy includes sound rationales as to why and for what purpose the policy exists. Explanation of the rationale and purpose of the policy helps answer questions, such as why specific return objectives or asset allocations are being employed.

Finally, a good investment policy must be logically consistent. The individual components of the policy must work together and not contradict each other.

Mr. Yoder describes seven characteristics of a strong investment policy. They are:

1. Return objectives
2. Relevant risks
3. Asset-allocation guidelines
4. Asset-allocation rationales
5. Provisions for rebalancing
6. Portfolio and asset-class benchmarks
7. Views on indexing

A brief discussion of each characteristic-with the exception of item 7, Views on indexing² - is given below along with a checklist CSU Auxiliary Organizations may wish to use to compare with their existing investment policies. Please refer to Endowment Management, A Practical Guide for a more detailed description of each of the characteristics.

¹ © Copyright 2004 Association of Governing Boards of Colleges and Universities. Reprinted with permission. All rights reserved.

²  Mr. Yoder states that Index Funds have an appropriate role in an endowment portfolio, and may, in some cases, be the predominant method of investing for small endowments. The consensus of the CSU Endowment Task Force was to regard the subject of Index Funds as a matter of asset class allocation rather than as a separate policy characteristic.