The purpose of the MSU Foundation’s investment portfolio is to preserve and enhance the real (inflation-adjusted) purchasing power of portfolio assets, while providing reasonable annual support to Mississippi State University.
The Board of Directors of the MSU Foundation is aware of its responsibility to provide for prudent management of funds given to the Foundation for the benefit of Mississippi State University. The Board of Directors hereby charges its Investment Committee with the responsibility of proposing policies for adoption by the Board, including the investment policy and the employment of investment counsel.
Investment Committee Responsibilities
The Foundation’s bylaws declare that the investment committee shall: “…appoint or dismiss, monitor, and evaluate the agents, managers, or trustees to handle the Corporation's investments and the investment pool. The committee will adopt policies for the investment of the investable assets of the Corporation and of the investment pool.”
Effective July 2017, the committee appointed the Agility Group at Perella Weinberg Partners as its outsourced chief investment officer firm to manage the Mississippi State University Investment Pool [MSIP].
Following are investment committee duties and responsibilities as spelled out in the Foundation’s Investment Policy:
- The development of a sound and consistent investment policy statement that addresses items such as financial and investment objectives, asset allocation targets, spending guidelines, acceptable risk levels, total return objectives, and general maintenance guidelines (e.g., diversification and quality guidelines);
- Selecting a qualified External Investment Manager [EIM] and other experts, as needed, to manage the MSIP in accordance with the adopted investment policy statement;
- Monitoring and evaluating results to ensure that investment policy statement guidelines are being adhered to and that policy objectives are being met;
- Evaluating the performance of the EIM and making changes, as needed;
- Complying with the provisions of all pertinent federal and state laws and regulations; and
- Reviewing this charge annually or as often as necessary and reporting changes, if any, to the Board and performing any other activities consistent with this charge that the Board deems appropriate.
Three primary objectives should be considered in the investment of the MSIP:
- To provide a relatively predictable and stable real (inflation-adjusted) source of annual spending in support of the Foundation’s fiduciary objectives;
- To preserve and enhance the real purchasing power of MSIP’s assets; and
- To provide support for the Foundation’s capital investment needs when the Committee and/or Board of Directors deem it appropriate.
The long-term investment objectives of the Foundation are as follows:
- Exceed an average annual real (inflation-adjusted) return of 5.5%. To achieve this goal, the MSIP should generate an annual rate of return that exceeds the sum of (i) the spending rate (outlined subsequently), (ii) inflation, as measured by the Consumer Price Index, and (iii) administrative expenses, as measured over a reasonable market cycle.
- Attain annualized returns net of fees at least equal to the policy portfolio benchmark (defined herein) as selected by the Committee measured over rolling five-year periods.
It is recognized that these objectives may be difficult to attain in every five-year period, but should be attainable over a reasonable series of five-year periods.
To meet the objectives stated above, the MSIP should also be managed in reasonable accordance with the principles outlined below.
- Total Return Objective: The MSIP is to be managed for total return, defined as dividend and interest income plus or minus capital gains and losses.
- Time Horizon: The MSIP shall be invested in a manner that is consistent with the perpetual nature of the Foundation and MSIP’s limited partners.
- Investment Prudence: The decisions of the Board and its Committee are constrained by the Prudent Investor Rule and the Uniform Prudent Management of Institutional Funds Act, as adopted by the State of Mississippi. The Board and Committee must make decisions in a prudent manner and in the best interests of the Foundation. The Board and Committee have the discretion to delegate this responsibility to other parties such as bank custodians, EIMs, and investment managers that work in a fiduciary capacity for the Foundation. The standard of conduct applicable to the Foundation is one of ordinary business care and prudence under the prevailing facts and circumstances, considering long-term and short-term needs, present and anticipated financial requirements, expected total return on current pricing of investments, and general economic conditions.
- Diversification: The MSIP shall be invested in a diversified manner through investments across multiple asset classes, recognizing that classes with low correlation to each other perform differently in different environments.
- Transparency: The EIM is authorized to select investments with limited transparency as to the underlying holdings, but it is expected that the underlying external managers shall provide periodic updates to the EIM, or to MSIP, with regard to account performance, general strategy, evidence of unqualified annual financial audits, the presence of established prudent investment practices, and investment themes.
- Liquidity: There must be sufficient liquidity in the MSIP to ensure that the Foundation can meet its distribution/spending policy and operational needs. The EIM is authorized to select investments with restricted liquidity, provided that the liquidity needs of the Foundation and the liquidity of the MSIP have been considered in advance of such investment. The Foundation’s CFO shall inform the EIM of the liquidity needs of the Foundation and the MSIP on a regular basis and upon request by the EIM.
- Investment Vehicles: The investment structures to be used in the MSIP may include, but are not limited to, separate account managers, mutual funds, exchange traded funds and notes, and other pooled investment vehicles, including private placements.
- Rebalancing: The Committee shall review and monitor the asset allocation relative to the target at each meeting. The target asset allocation shall be formally reviewed and revised, if necessary, on an annual basis based on changing organizational preferences or needs. It is anticipated that asset allocation targets and ranges are long-term in nature and will not be changed frequently.
- Taxes: The MSU Foundation is exempt from Federal income tax under Section 501(c)(3) of the Internal Revenue Code. Investment decisions generally will not be driven by tax considerations, including any investment strategy that generates unrelated business taxable income (UBTI). Specifically, the use of investment strategies that generate UBTI is allowed, and the CFO will monitor and evaluate the level of UBTI exposure in the MSIP. The CFO will advise the EIM of any change in the Committee’s tolerance of UBTI in the portfolio.
The MSIP seeks to attain an annual average total return over a full market cycle (typically 5-7 years) in excess of a Policy Benchmark composed of a blend of two broad-based indices:
- [80%] weight to the MSCI All Country World Return Net Index from Morgan Stanley Capital International [MSCI ACWI]; and
- [20%] weight to the Bloomberg Global Aggregate Bond Index [LEGATRUU].
- The Committee recognizes that the MSIP’s return may vary significantly from that of the Policy Benchmark in certain market environments, particularly over short time periods.
Asset Allocation Target and Ranges
|Global Fixed Income||0.0%||5.0%||15.0%|
|Public Real Assets||0.0%||5.0%||15.0%|
|Private Real Assets||0.0%||7.5%||20.0%|
The asset mix policy and acceptable minimum and maximum ranges established by the Foundation represent a long-term view. As such, market movements may cause the MSIP’s actual asset mix to fall outside the policy ranges at times. The target allocations may be changed by the Committee, as long as the revised target allocations are within the approved ranges.
The annual spending rate for endowed funds is 4%; the amount to be allocated for spending in each upcoming fiscal year is calculated on September 30th by multiplying the spending rate (4%) by the lesser of:
- A rolling 36-month average of unit values, or
- The unit value at September 30th.
Performance Goals, Measurement and Evaluation
A. Quantitative Criteria (measured over a rolling 5-year market cycle)
- Portfolio Performance
– Comparison to primary benchmark: Policy Benchmark; and
– Comparison to secondary benchmark: CPI + 5.5%.
- Peer Performance
– Comparison to other institutional peers: annual NACUBO Study; and
– Comparison to Southeastern Conference (SEC) peers.
B. Qualitative Criteria
The Foundation uses a number of qualitative criteria to evaluate the EIM. Among them are responsiveness, professionalism, proactivity, problem resolution, technical knowledge, quality and timeliness of periodic performance reports.