1.0 Purpose and Scope
1.1 This investment policy:
- Defines and assigns responsibilities for investing activities.
- Establishes a clear understanding of the University’s investment goals and objectives.
- Provides guidance and define classes of assets suitable for investing.
- Provides guidance on hedging of investments.
- Describes the basis of evaluating investment results and the performance of any independent external advisor.
- Describes our approach to responsible investing and details investment exclusions.
2.0 Policy Review and Consultation
2.1 The University is committed to following good practice in setting this policy. This includes timely, proactive and open consultation with student and staff representative bodies and the monitoring of sector best practice.
2.2 The Investment Sub-Committee (ISC) will consider annually whether other emerging areas of widespread pressure for divestment should be incorporated into this policy. The policy must be reviewed after 3 years.
3.0 Definitions
3.1 The University segments it’s excess cash into three time-based allocations being the duration of time it expects to be able to retain this cash based on projected cashflows. Endowment funds are held separately. These allocations are summarised in the table below and the investment delegations are also noted. Finance Committee note the expected available funds report at each of its meetings.
| Segment/Description | Purpose | Time Frame | Delegated investment approval |
|---|---|---|---|
| Short-term | Manage operational liquidity, following SLC and other receipts. | Less than 1 year | Director of Finance |
| Medium-term* | Investments in infrastructure. | Between 1 and 3 years | Under Scheme of Delegation |
| Long-term* | Repay loan borrowings and investments in large infrastructure | Over 3 years (expectation that it will be over 5 years) | Under Scheme of Delegation |
| Endowment Fund | Permanent (capital retention is required) and expendable funds. | In excess of 10 years | Under Scheme of Delegation |
*The Council Scheme of Delegation requires that investments of between £2.0m & £10.0m require Finance Committee approval, investments over this value require Council approval.
4.0 Roles and Responsibilities
4.1 Short-term cash that estimated cash flows indicate will be required within 12 months is held in either cash or cash funds where liquidity is within one day, fixed term or certificate of deposits whose terms are less than 12 months. ISC and then Finance Committee annually approve the counter parties and their limits through the Treasury Management Report (TMR) and the operational management of this segment is delegated to the Director of Finance.
4.2 Medium, Long-term and Endowment investments are the responsibility of the ISC which is a sub-committee of Finance Committee.
4.3 Both committees have terms of reference that can be found through the following links.
4.4 Finance Committee shall receive a report from ISC and the approved ISC minutes after every meeting of ISC.
4.5 The Treasurer shall Chair meeting of Investment Sub Committee.
5.0 Investment Goals and Objectives
5.1 We invest only for the benefit of the University.
5.2 We aim for the best return without taking unnecessary risks and while following ESG principles. The University Sustainability Policy describes the principles of sustainability being about conducting our activity (our research, our education, our operations and our engagement) in a way which embodies and addresses:
- Environmental health and climate action
- Social responsibility, equity and inclusion
- Economic and financial sustainability
5.3 The University may employ investment advisor(s) and manager(s) to attain its investment objectives.
5.4 ISC will ensure that each investment has an investment objective and that an appropriate selection process is undertaken which considers the University’s overall strategy, investment principles, alternative options, due diligence and ESG criteria. ISC will monitor performance through reporting at each meeting and by regular meetings with the fund managers where the fund, its performance and prospects are discussed. A formal report on the selection process should be presented to Council and/or Finance Committee for approval as per the limits within the scheme of delegation.
5.5 Cash is to be always employed productively, by investment in short term cash equivalents to provide security of capital, liquidity, and a return.
5.6 The primary objectives in the investment of assets are to ensure that funds invested are available to meet:
The short-term (cash) is invested in secure deposits held by counter parties at limits approved by Finance Committee in the Treasury Management Report (TMR). Cash preservation and liquidity are essential and therefore no capital risk is tolerated outside that associated with the counterparty. Targeted returns are therefore based on bank rate plus 30 bps as a margin.
The medium-term requirement to finance the University’s capital and revenue investments. Medium term investments made either to cover the carrying cost of loans received in advance of spending or cash needs of the University over a period of up to 18 months. Cash preservation and liquidity are important, but some risk may be appropriate to generate higher returns than cash. Targeted returns are therefore based on cash plus a margin. Medium-term investments may return a regular/fixed income to the University. The target returns and acceptable risk levels (as measured by expected volatility) are set out in the table below. Risk tolerance is based on a forward-looking assessment, as assessed by the ISC, and the value of investments falling by more than this level would not necessarily trigger any changes to the investment strategy.
| Target Return | Volatility Risk Tolerance |
|---|---|
| Cash plus 2-3% | Up to 7.5% |
- Long-term investments have a holding duration of at least three years, as the need for the cash is not immediate and the objective is for long-term investments to grow capital value over the period. Targeted returns are therefore based on CPI plus a margin (higher than on medium-term), but the level of risk should not exceed a pre-determined level. The target returns and acceptable risk levels (as measured by expected volatility) are set out in the table below. Risk tolerance is based on a forward-looking assessment, as assessed by the ISC, and the value of investments falling by more than this level would not necessarily trigger any changes to the investment strategy.
| Target Return | Volatility Risk Tolerance |
|---|---|
| CPI plus 3% | 15 - 20% |
- Endowment investments have a holding duration of at least 10 years for expendable, but a portion of the fund is permanent where capital is held in perpetuity. There is need for income to be taken, in a range of 3-4% to support the spending commitments given to donors but long-term capital appreciation is the objective.
| Target Returns | Volatility Risk Tolerance |
|---|---|
| CPI plus 4% | Up to 20% |
5.7 ISC will select asset classes and fund managers that are expected to achieve the overall risk and return targets set out above. Neither target is to be used as an absolute measure of performance of an individual fund manager within that segment. Investment return is to be measured based on total return; that is, the aggregate return from capital appreciation and dividend and interest income.
5.8 The appropriateness of asset class benchmarks and risk tolerances is considered by the ISC. Benchmarks are expected to align to the nature of each investment manager’s specific mandate, for example using global equity indices for global equity mandates, however for alternative investments, the ISC may choose to use an absolute target return for benchmarking purposes.
5.9 ISC will approve the asset allocation for long-term and endowment funds. ISC will ensure the allocation is reviewed at least triennially and receive performance monitoring reports including allocation and risk reports from the independent external advisor at each meeting of the ISC.
5.10 ISC will ensure diversity in long-term and endowment segments when allocating funds for investments so that the segment is expected to achieve the total expected returns whilst avoiding undue risk concentration outside the tolerance for the segment.
5.11 To achieve its objectives it is understood that investment returns will experience volatility and fluctuations in market value. The University will tolerate volatility as measured against the volatility of agreed benchmark for each fund in and a composite index based on the strategic allocation to each asset. The indices used as a measure of an investment manager's performance will also be used to benchmark what is allowable volatility (risk).
6.0 Classes of assets suitable for investing
6.1 The short-term (cash) assets classes include the following:
- Bank, Cash, fixed deposit, and Notice Accounts: To provide absolute security and accessibility for regular transactions.
- Money Market, Cash Plus funds and Certificates of Deposit: To provide a high degree of security, accessibility, and a competitive interest rate.
- Bonds, Gilts and Unit Trusts: To provide a high degree of security and a return in excess of base rate.
- Counter Parties and limits are approved in the TMR.
6.2 The medium-term asset classes include the following:
- Bank, fixed deposits, and notice accounts: To provide absolute security and accessibility for regular transactions.
- Bonds, Gilts, including Fixed Income Bonds and Unit Trusts: To provide a high degree of security and a return in excess of an agreed benchmark.
6.3 The long-term and endowments asset classes include the following:
- Bonds, Gilts and Unit Trusts: To provide a high degree of security and a return in excess of an agreed benchmark.
- Equities: To exceed the target real rate of return over a suitable period.
- Alternatives, including but not limited to, Unit Trusts, Hedge Funds and Private Equity and debt markets.
- Socially positive investments - investments in local, national or international projects which meet risk and return requirements and support the delivery of positive impact opportunities, including community projects that deliver social, environmental, or economic benefit.
- Property: The University will invest in property to either: (a) Advance the University in the achievement of its strategic aims. (b) Achieve a return commensurate with investments within this asset class.
6.4 The above asset classes may be varied through the approval of the TMR.
7.0 Hedging Guidance
7.1 ISC recognises the global nature of the investment funds it has and that currency fluctuations can have a material impact on the returns made by these funds.
7.2 ISC will make investments in GBP share classes where these are available with the investment funds.
7.3 Where investment funds only offer non-GBP share classes, or when some of the underlying assets in the investment fund are not priced in GBP, then ISC will consider currency hedging on a case-by-case basis, noting the decision regarding whether to hedge will depend on the nature of the asset class in question. Any direct hedging arrangements will be put in place typically on an annual basis and their renewal should be approved by ISC in advance.
8.0 Basis of evaluating investment results and performance
8.1 Performance reports based on information provided by the funder manager monthly, this should include the agreed benchmarks as determined by ISC and historical performance. Reporting should be by total long & medium-term portfolios. Consideration shall be given to the extent to which the investment results are consistent with the investment objectives, goals, and guidelines as set forth in this policy.
8.2 The University intends to evaluate the portfolio(s) over at least a three-year period, but reserves the right to terminate a fund manager for any reason including the following:
Investment performance that is significantly less than anticipated given the discipline employed and the risk parameters established, or unacceptable justification of poor results.
Failure to adhere to any aspect of this statement of investment policy, including communication and reporting requirements.
Significant qualitative changes to the investment management organisation.
Any other reason the University considers appropriate.
9.0 Responsible Investing
9.1 The University is committed to ensuring that its funds are managed sustainably and with integrity, having due regard to ESG issues. The ISC will adopt an ethical decision-making criteria for its investment while minimising any negative impact on its investment returns. Investment decisions informed by socially responsible and ethical considerations will also consider the requirement for trustees to maximise returns on investment for the charitable benefit of the University.
9.2 The University is committed to ensuring that its investments are part of an integrated approach to achieving carbon commitments.
10.0 Monitoring Impact
10.1 Reducing absolute carbon emissions of the investment fund is an important aspect of our climate action. The policy will align with the carbon targets set out in our sustainability policy and plan. The monitoring of the carbon emissions of investments is an evolving field and we will adopt the most appropriate means to monitor our progress against the targets.
10.2 The University considers that ESG factors have a material impact on investment risk and that good stewardship can create and preserve value for the longer term.
10.3 The University acknowledges and aims to reduce and, ideally, eliminate, corporate behaviour leading to:
Environmental degradation
Armament sales to military regimes
Human rights violations
The institutionalisation of poverty through discriminatory market practices
Racial or sexual discrimination
Tobacco production, cultivation, and manufacture
The exploitation of workers
The giving or receiving of bribes
10.4 ISC will use all reasonable endeavours to ensure that it operates its investment policy in a way that is consistent with the University aims listed above in the context of the trustees’ duty to maximise returns. Utilising the specialist knowledge of the investment managers will provide ISC with the opportunity to make a positive contribution towards sustainability including alternative investments in its investment portfolio.
11.0 Direct & Indirect Investments
11.1 Ideally the University would have no exposure to the sectors listed below. For practical reasons the University operates a de minimus limit of 5% of revenues to implement the objectives described in 10.3.
11.2 To support the objectives above the University will exclude direct investments in companies from the sectors listed below subject to the de minimus limit.
11.3 To support the objectives above the University will exclude indirect investments or pooled investments from the sectors listed below subject to the de minimus limit.
11.4 Where the ISC is aware of a breach of the 5% threshold it will consider how to remedy the situation in a timely fashion with an expectation that resolution will occur within 6 months.
| Market Sector |
|---|
| Tobacco |
| Fossil Fuel extraction and exploration |
| Pornography |
| Gambling |
| Controversial weapons* - weapons that are considered controversial due to their disproportionate and indiscriminate impact on civilians, even years after a conflict has ended (anti-personnel mines, nuclear weapons, cluster weapons, biological and chemical weapons, depleted uranium, and white phosphorus munitions) |
*Whilst there is no universally accepted definition, we are guided by the Sustainalytics definition of controversial weapons.
11.5 Direct exclusions may be reviewed periodically and may be updated through the Treasury Management Strategy.
12.0 Reporting
12.1 ISC report annually to Finance Committee in November each year on its activities over the previous financial year, this will include but not be limited to a summary of Investment performance against benchmarks and details of any fund manager selection.
12.2 To support transparency the University will publish details of its investments annually on its website.
12.3 Minutes of ISC will be sent to Finance Committee for monitoring.