Investment PolicyReview Our Investment Policy

Revised – August 2021

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 that 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 percent 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.

Investment Framework

Asset Classes will be “clustered” into five different groupings based on the role they are expected to serve.   The Investment Committee shall set target percentages and ranges for each of these portfolios.  The Committee may choose not to allocate to any one or more of the groupings depending on risk posture, portfolio goals, comfort level, or liquidity needs.  The five groupings shall be titled: Public Equity, Fixed Income, Marketable Alternatives, Private Markets, and Real Assets.  The characteristics of each of these groups are as follows:

  • Public Equity Portfolio
    • Investments will be in equity securities that are publicly traded on exchanges around the globe (including MLPs). 
    • The expectation of material market value fluctuations during the lifetime of an asset are +/-20% (or greater).
    • Investment structures can be liquid or semi-liquid.
  • Fixed Income Portfolio
    • Candidate investments include publicly traded fixed income securities and some hedge fund strategies. 
    • Typically, the majority of return comes from expected income.
    • Investment structures are typically liquid and semi-liquid.
  • Marketable Alternatives Portfolio
    • Candidate strategies will diversify risk exposures and include hedge funds, risk premia, risk parity, some debt strategies (convertible debt), and option writing strategies.
    • The goal of these investments is to reduce volatility in the overall portfolio.
    • Investment structures are typically liquid and semi-liquid.
  • Private Markets Portfolio
    • Investments will be commitments to private partnerships utilizing a call-down structure for the committed capital over the investment period.
    • Investments are marked to market on a quarterly basis, with market values usually lagged one quarter.
    • Investment structures are illiquid.
  • Real Assets Portfolio
    • Investments in this portfolio are expected to do one or more of the following:  deliver real return (return net of inflation), provide inflation protection, and provide diversification.
    • Candidate investments include real estate, commodities, TIPS, Energy, infrastructure, and natural resources.
    • Investment structures are liquid, semi-liquid, and illiquid.
    • Illiquid strategies will utilize a call-down structure for the capital committed.

Within the ranges established in this policy, Appendix A, for each portfolio, the portfolio cannot knowingly deviate from these ranges without prior approval of the Investment Committee.

Time Horizon

Results of the Fund, its components, each asset class, and investment manager will be measured over a full market cycle (typically 3 – 5 years and will include an up period and down period).  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 the 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 Approve Monitor
Reclassify Asset Classes Between Buckets Approve 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 the 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
  • Acting as the 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 different portfolios described in Section II.E.  Additionally, evaluate whether asset classes are properly classified within the framework described in Section II.E 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. The 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 the compensation arrangements of providers will be completed to ensure fees are appropriate with current market levels.

Performance Evaluation

A 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):

  • A review and re-appraisal of the investment program based upon current market conditions.
  • An evaluation of possible strategy changes based upon market innovations or structural changes.
  • A discussion of any key policy issues facing the Committee.
  • Commentary on investment results in light of the appropriate standards of performance.
  • A presentation on the progress of the portfolio implementation to allocation targets.
  • A 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 the 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.  Each of the five groupings (Public Equity, Fixed Income, Markets Alternatives, Private Markets, and Real Assets) serves a specific role in the portfolio, and allocations to the different portfolios will have different goals.  Therefore, each portfolio will have a ”long-term” and “short-term” benchmark.  The long-term performance of each portfolio should be evaluated relative to the long-term benchmark over a full market cycle (typically at least 5 years and includes an up period and a down period).  The short-term benchmark will be the metric used for intra-cycle periodic performance evaluation.

  • Public Equity Portfolio
    • Objective:  deliver global public equity market returns and volatility.
    • Long-Term Benchmark:  MSCI All Country World Index
    • Short-Term Benchmark:  MSCI All Country World Index
  • Fixed Income Portfolio
    • Objective: Deliver public fixed income market returns and volatility.
    • Long-Term Benchmark: Weighted combination of indices for the underlying strategies within the portfolio.
    • Short-Term Benchmark: Weighted combination of indices for the underlying strategies within the portfolio.
  • Marketable Alternatives Portfolio
    • Objective: Provide return from diversified sources of risk to the portfolio.
    • Long-Term Benchmark:  75% of the global public equity market returns with 50% of the volatility.
    • Short-Term Benchmark:  Weighted combination of indices for the underlying strategies within the portfolio.
  • Private Markets Portfolio
    • Objective:  deliver US Equity returns with an illiquidity premium at reduced volatility due to the mark-to-market nature of private partnerships.
    • Long-Term Benchmark:  MSCI ACWI  + 1.5%
    • Short-Term Benchmark:  Benchmarked against itself for the first 5 years, then converts to The Burgiss Private Equity Composite.
  • Real Assets Portfolio
    • Objective:  one or more of the following:  deliver real returns (net of inflation returns), provide inflation protection, provide diversification.
    • Long-Term Benchmark:  CPI + 4.0%
    • Short-Term Benchmark:  Weighted combination of indices for the underlying strategies within the portfolio.

Other Performance Measures and 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

Sub Portfolio:

Benchmark

Target

Range (%)

– Public Equity

MSCI AC World IMI

60%

35% – 70%

– Marketable Alternatives

Weighted Blend of Underlying Strategy Benchmarks

0%

5% – 25%

– Private Markets

The Cambridge Associates US Private Equity Composite

10%

0% – 20%

– Fixed  Income

Weighted Blend of Underlying Strategy Benchmarks

15%

10% – 50%

– Real Assets

Weighted Blend of Underlying Strategy Benchmarks

15%

0% – 20%

 

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