Investment Policy

Overview

The Kansas Masonic Foundation (the “Foundation”) takes seriously its stewardship responsibility as a manager of donor’s gifts.  It recognizes that each donation, no matter the size, reflects an implicit trust in the Foundation’s ability to invest resources wisely, and use the funds in accordance with each donor’s charitable wishes.

Board Delegation

The responsibility for managing the Foundation’s investment portfolio is vested by the Board of Trustees in its Finance Committee (the “Committee”).  This Committee sets policy, establishes performance benchmarks and continually monitors the performance of the Foundation’s portfolios against these policies and benchmarks.  The Finance Committee reports to the Board of Trustees.

Standard of Investment Judgment

In seeking to attain the investment objectives set forth in this statement, the Committee shall exercise the appropriate care.  In today’s rapidly changing and complex financial world, no list of types or categories of investments can provide continuously adequate guidance for achieving the Foundation’s investment objectives.  Any such list is likely to be too inflexible to be suitable for market and investment environments which tend to change rapidly.  Therefore, it is (i) the process by which investment strategies and decisions are developed and analyzed, adopted, implemented, and monitored by the Committee, and (ii) the overall manner in which investment risk is managed which will evidence an appropriate standard of reasonableness, care, and prudence in the management of the Foundation’s investments.

Avoidance of Conflict of Interest

In selecting investment consultants, money managers and custodians for the Foundation’s assets, Committee members are expected to adhere to high standards in avoiding either the reality or the appearance of self-interest in decision making.

Policy Statement

The Investment policy for the investable assets of the Kansas Masonic Foundation (“Foundation”) is intended to:

      • Define the responsibilities of, and provide a framework for, regular constructive communication and collaboration between the Investment Committee, Staff, Investment Consultant, Custodian Bank and Investment Managers.
      • Document the Foundation’s goals, expectations, and risk parameters for the investable assets.
      • Establish formal (yet flexible) investment guidelines, incorporating prudent asset allocation and realistic total return goals.
      • Provide a performance evaluation and review process.
      • Create standards of investment performance which are historically achievable and by which, Investment Consultant and Investment Managers agree to be measured over a reasonable period.

This document will be reviewed at least annually by the Investment Committee, Staff, and the Investment Consultant to ensure the relevance of its contents to current capital market conditions and investment needs.

Scope

This policy applies to the investable assets of the Foundation.

Definitions

Committee:  Shall refer to the Finance Committee of the Foundation.

Foundation: Kansas Masonic Foundation.

Fund:  Shall refer to the investable assets of the Foundation.

Investment Consultant:  Shall mean any individual or organization employed to provide advisory services, including: advice on investment objectives and/or asset allocation, market insights and developments, tactical shifts within each portfolio, manager search and selection activities, and performance monitoring.

Investment Horizon:  Shall refer to the horizon over which progress of the Foundation, its components, and each Investment Manager will be measured.  While there is no standardized measure for a market cycle’s term, a full market cycle encompasses both a down period and an up period in either order.  The up and down portions will each be of at least two quarters in length.  Thus, a full market cycle may be as short as one year, though generally most market cycles are expected to last between three and five years.

Investment Manager:  Shall mean any individual, or group of individuals, employed to manage the Investment Funds.

Staff:  Shall refer to Kansas Masonic Foundation Staff.

Provisions

  • Fund Objectives
    • Goals of the Foundation
        • Support activities, programs and organizations that benefit Kansans while striving to be the premier Masonic Foundation serving humanity.
  • Investment Objectives
    • Goals of the Fund
        • Meet the financial obligations of the Foundation.
        • Maintain the purchasing power of the corpus of the Foundation.
        • Grow the real (inflation adjusted) corpus of the Foundation.
    • Spending Target
        • An annual spending target of no more than 5% of the average market value over the most recent 20 quarters, measured at the beginning of each fiscal year.
        • The spending target will include administrative expenses of the Foundation, but it excludes all investment related expenses.
    • Return Objective
        • The total return of the Foundation is expected to exceed a weighted benchmark return, as described in Appendix A, based upon policy asset allocation targets and standard index returns over a full market cycle.  Recognizing that shortfalls may occur over portions of the market cycle, this comparison will focus on both return and volatility.
    • Volatility
      • The Foundation’s assets are to be sufficiently diversified to manage volatility.  Diversification may be achieved by:
  • Allocating assets to multiple asset classes and emphasizing different sources of return throughout the portfolio.
  • Allocating assets among various investment styles within each asset class.
      • The possibility of short-term declines in market value is acceptable in order to achieve potentially higher long-term investment returns.
      • Asset Classes will be “clustered” based on expected volatility and correlation, into three distinct portfolios.  The Investment Committee shall set target percentages and ranges for each of these portfolios.  The three portfolios shall be titled Growth, Income and Diversification.  The characteristics of the portfolio are as follows:

Growth Portfolio:

        • The asset class with the highest expected rate of return and high correlations to other risk assets.
        • Expectation of material market value fluctuations during lifetime of asset are +/-20% (or greater).
        • Investment structures can be liquid, semi-liquid or illiquid.

Income Portfolio:

        • Typically, the majority of return comes from expected income.
        • Lower correlation to the Growth and Diversification portfolios.
        • The probability of material market fluctuations is considerably lower than the Growth Portfolio, with no greater than +/-15% by asset class, and no greater than 5% for the Income Portfolio as a whole.
        • Investment structures are typically liquid to semi-liquid; however, illiquid structures are permissible.

Diversification Portfolio:

        • These are asset classes that can be expected to do well in market environments that negatively impact both Growth and Income assets, such as deflation, inflation and high volatility.
        • These asset classes have very low to negative correlation to Growth and/or Income asset classes.
        • During “normal” market periods, these asset classes are expected to have low returns.
        • While these assets can be volatile, during stressed market periods they are expected to mitigate “tail risk” for investors in Growth and Income assets.
        • The primary goal is to reduce the overall volatility of the Fund.
  • Within the ranges established in this policy, Appendix A, for each portfolio, the Investment Consultant cannot knowingly deviate from these ranges without prior approval of the Finance Committee.
    • Time Horizon
        • Results of the Fund, its components, each asset class, and investment manager will be measured over a full market cycle.  The Committee will review quarterly updates from Staff and Investment Consultant to ascertain progress against assigned return objectives and other parameters.
  • Assignment of Responsibility
    • Delegation of Authority

The Committee is the named fiduciary with responsibility of the Foundation.  The Committee recognizes its responsibility to manage the Fund with care, skill, prudence and diligence, providing adequate diversification in accordance with applicable laws and regulations, and to enhance long-term returns within the established risk parameters.  The Committee has delegated certain responsibilities as described below to the Investment Consultant.

    • Delegation of Responsibility

Consultant

Committee

Investment Policies

Recommend

Approve

Asset Allocation/Ranges

Recommend

Approve

Investment Objectives

Recommend

Approve

Investment Decisions:

   Asset Types

Approve

Monitor

   Tactical Asset Allocation

   Reclassify asset classes between G/I/D

Approve

Approve

Monitor

Monitor

   Investment Managers

Approve

Monitor

   Diversification

Approve

Monitor

   Minimum Investment Standards

Approve

Monitor

   Investment  Performance

Report

Monitor

    • Responsibilities of the Committee
        • Overseeing this Investment Policy, ensuring that the Foundation is prudently managed.
        • Reviewing the risk-adjusted portfolio performance in the context of established standards of performance against policy targets and benchmarks.
        • Evaluating, selecting, monitoring and when appropriate, terminating one or more Investment Consultants.
        • Evaluating the Investment Consultant’s effectiveness and contributions to organization.
        • Ensuring that each of the foregoing duties is carried out in compliance with all applicable laws and regulations.
    • Responsibilities of the Investment Consultant
  • Implementation
  • Coordinating the day-to-day oversight of the assets and implementing strategy and policy.
  • Communicating the investment objectives, guidelines and standards (including any material changes that may occur) to the Investment Managers or other Fund providers.
  • Evaluating, selecting, monitoring and when appropriate, terminating a Custodian Bank.
  • Measuring, selecting, monitoring and when appropriate, hiring/terminating Investment Managers, pooled funds, mutual funds, or other appropriate investment vehicles.    
  • Completing other duties as delegated by the Committee.
  • Coordinating the day-to-day oversight of the assets and implementing strategy and policy.
  • Communicating the investment objectives, guidelines and standards (including any material changes that may occur) to the Investment Managers or other Fund providers.
  • Acting as primary contact between the Investment Managers, Custodian, and any other parties in the management of the Funds.
    • Investment Policy
  • Review the Investment Policy and recommend appropriate changes for Committee consideration to meet the Fund’s objectives. Make recommendations, when deemed necessary, about objectives and policy provisions based upon material and sustained changes in the capital markets or the Foundation’s needs.
    • Asset Allocation
        • Evaluate and recommend, with supporting materials, the appropriate portfolio weightings among the Growth, Income and Diversification portfolios.  Additionally, evaluate whether asset classes are properly classified within the G/I/D framework on an ongoing basis.
    • Selection of Investment Vehicles or Managers
        • Take responsibility for the decision to hire, retain or terminate Investment Managers.  This will include taking the lead role in identifying and screening candidates for appropriate portfolios based upon performance and organizational characteristics.  Investment Consultant will perform initial due diligence reviews and quantify the trade-offs between expected returns and risks among the various candidates.

  

      • Compensation Negotiation and Review
        • Responsible for compensation negotiations with Investment Managers, Custodians and other service providers.  On a regular basis, a review of compensation arrangements of providers will be completed to ensure fees are appropriate with current market levels.
      • Performance Evaluation
        • Quarterly performance evaluation of the Fund and its component parts will be completed. A written report will be provided to the Committee following the close of the quarter. The written report will cover four basic areas:
    • Returns: A full evaluation of total time-weighted returns over various periods will be prepared.
    • Return Comparisons: Returns will be compared to the appropriate benchmark indices and a statistical universe of similar funds.
    • Diagnostics: A full measurement of risk-adjusted performance, analyses of risks, and return attribution will be completed.
    • Compliance: Portfolios will be reviewed for compliance with the objectives, targets and policy guidelines specified in this Policy.
  • The Investment Consultant will also make available regular qualitative analysis concerning each manager’s organization, philosophy, account and personnel growth and turnover and any other issues that may affect the manager’s ability to meet the Fund’s objectives.
      • Review Meetings
        • Investment Consultant will attend meetings at the request of the Committee. The agenda will include (at a minimum):
    • Review and re-appraisal of the investment program based upon current market conditions.
    • Evaluation of possible strategy changes based upon market innovations or structural changes.
    • Discussion of any key policy issues facing the Committee.
    • Commentary on investment results in light of the appropriate standards of performance.
    • Presentation on progress of the portfolio implementation to allocation targets.
    • Discussion of Investment Manager changes since the prior quarterly meeting.
    • Any other matters as deemed appropriate by the Finance Committee.
      • Investment Manager Review
  • Facilitate regular formal Investment Manager reviews and evaluations.
      • Administrative Support
  • The Investment Consultant will assist the Committee and/or Staff in reviewing documents, drafting letters, and facilitating processes as requested.
      • Documentation of Investment Consultant’s Investment Advisor Registration
  • Annually or upon material revision, provide a copy of the Investment Consultant’s Securities Exchange Commission Registration Form ADV, Part II.
      • Communication
  • Annually or upon material event, provide notification of the Investment Consultant’s organizational changes, including, but not limited to; terminations, departure of key employees, or additions to senior level staff.
  • Monitoring
    • Benchmarking
      This policy establishes several benchmarks from a top-down perspective to evaluate the value added from portfolio management and determine whether the Fund is performing above, at, or below expectation. The benchmark tool is designed to assist the Committee in determining the areas of strength in the portfolio, areas that may need improvement/attention, and when tactical opportunities may exist.
    • Policy Benchmark
      The policy benchmark expresses the asset allocation decision.  As such, it is determined in advance of performance measurement, is straightforward, and investible. The focus of the policy benchmark analysis is the portfolio and its critical component’s ability to equal/exceed the broad markets through a series of active decisions.

The policy benchmark for the Fund is defined in Appendix A of this Policy.

    • Strategy Benchmark

The Investment Consultant, has chosen to allow for the funds to be invested in asset classes/strategies in each segment (Growth, Income, Diversification) beyond the passive, publicly traded securities contained in the policy benchmark.  These other asset classes/strategies have been included to increase diversification, increase returns and/or decrease risk.

The strategy benchmark shall consist of predetermined asset class/style benchmarks at the target weights of this Policy.  By comparing the strategy benchmark to the policy benchmark, the Committee will be able to evaluate whether or not the inclusion of additional asset classes was additive, negative, or had no impact.

The strategy benchmark by asset class/style and target allocations is defined in Appendix A of this Policy.

    • Allocation Benchmark

The Investment Consultant has established ranges for every asset class inside each portfolio (Growth, Income, and Diversification).  The decision to invest in an asset class at policy target or to over/under allocate to an asset class is an active decision that has been delegated to the Investment Consultant in an attempt to add value as market opportunities are identified. By comparing the allocation benchmark to the strategy benchmark, the Committee will be able to evaluate whether or not the inclusion of additional asset classes was additive, negative, or had no impact on results.

The allocation benchmark shall be the actual portfolio weights at quarter-end of each asset class/strategy, multiplied by the asset class/strategy benchmark identified in Appendix A of this Policy.

    • Actual Results

This is the actual time-weighted returns of all assets in the Fund.  By comparing this to the allocation benchmark, the Committee can evaluate the level and persistence of the value-added of aggregate Investment Manager selection.

    • Framework for Evaluation

frameworkforevaluation

    • Other Performance Measures & Diagnostics

In addition to the benchmarking efforts described above, the Committee, Staff, and Investment Consultant will utilize numerous benchmarks, peer samples, diagnostic tools, comparative analytics, and risk measures as part of the ongoing monitoring and evaluation effort. 

Appendix A:  Asset Allocation Targets and Ranges

The Fund’s actual asset allocation shall be determined on a market value basis using values as reported by the Custodian.  Actual allocations may deviate from guideline percentages at any specific period due to market conditions.  When market conditions cause an asset class to move outside of its established ranges, Staff will actively pursue steps to bring it back within range over a reasonable period of time.  If this is not feasible, a report with recommended action shall be presented to the Committee.  Allocations may not knowingly deviate from allowable ranges without prior Committee approval.

Total Portfolio:

Asset Class

Policy Benchmark

Target

Range (%)

– Growth:

MSCI AC World IMI

80%

50% – 85%

– Income:

Barclays Capital Aggregate Index

15%

10% – 40%

– Diversification:

US 90-Day T-Bills

5%

0% – 20%

Sub-Asset Classes:

Asset Class

Strategy Benchmark

Range (%)

– Growth:

Public Equities

MSCI AC World IMI

25% – 85%

Liquid Equity Surrogates

Weighted Blend of Underlying Allocations

0% – 45%

Private Assets

Actual Portfolio

0% – 25%

– Income:

Public Debt

Barclays Capital Aggregate Index

10% – 40%

– Diversification:

Liquid Diversifiers

Weighted Blend of Underlying Allocations

0% – 20%

 

Auction!
The 4th Annual Online Auction will be open to all Kansas Masons and their friends on Wednesday, March 1, 2017 and ends on Wednesday, March 15, 2017 at 5:00pm.