Investment Policy Statement

(Change Approved 10/6/23)

Introduction

The Trustees of Hamilton College have delegated to the Investment Committee of the Board of Trustees responsibility for investing the College’s endowment funds and other assets invested for the long term. The purpose of this policy statement is to set forth the policies followed to carry out these responsibilities. The endowment is managed by the Office of Investments under the supervision of the Investment Committee. The investment policy statement will be reviewed periodically by the Investment Committee. Included in the investment policy statement is the College’s endowment spending guideline.

Definitions

As used in this Policy, the term “endowment” includes the following:

1. “endowed funds” meaning individual donor-established funds that, pursuant to the terms of the applicable gift instruments, are not wholly expendable on a current basis;
2. “quasi-endowed funds” meaning individual funds that the Board of Trustees or management chooses to treat as endowment but that are not subject to any legal prohibition against expenditure (in whole or in part) on a current basis; and
3. other Hamilton College funds that the College chooses to include and manage with the endowed funds and quasi endowed funds as part of the endowment.

New York Prudent Management of Institutional Funds Act

In executing its responsibilities, the Investment Committee will comply with the New York Prudent Management of Institutional Funds Act of September 2010 (NYPMIFA). NYPMIFA requires that “each person responsible for managing institutional funds1 act in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.” The Act provides that in managing and investing an institutional fund, an institution shall consider the purposes of the institution and the purposes of the institutional fund.

The Act specifically requires;

1. Only costs that are appropriate and reasonable in relation to the assets, the purposes of the institution, and the skills available to the institution may be incurred.
2. Management and investment decisions must be made in the context of an institutional fund’s portfolio of investments as a whole and as part of an overall investment strategy having risk and return objectives reasonably suited to the institutional fund and the institution itself.
3. Investments of an institutional fund shall be diversified. The diversification requirement may be disregarded because of special circumstances but this must be reviewed at least annually.
4. Except as otherwise provided by a gift instrument, the following factors, if relevant, must be considered on an ongoing basis in managing and investing an institutional fund:
   1. general economic conditions;
   2. the possible effects of inflation or deflation;
   3. the expected tax consequences, if any, of investment decisions or strategies;
   4. the role that each investment or course of action plays within the overall investment portfolio of the individual institutional fund;
   5. the expected total return from income and the appreciation of investments;
   6. other resources of the College;
   7. the needs of the College and the individual institutional fund to make distributions and to preserve capital; and
   8. an asset’s special relationship or special value, if any, to the purposes of the College.

Also, the Act specifically permits two or more institutional funds to be pooled for purposes of management and investment, provided that the above requirements are met.

Objectives

In order to achieve intergenerational equity between current and future students, the primary objective in managing the endowment is to achieve a total return that, in addition to providing annual income to support the college, preserves the real value of the endowment in perpetuity commensurate with the risk tolerance of the Board of Trustees. A secondary objective is to grow the real purchasing power of the endowment while avoiding taking excessive risk. Measurement of purchasing power is based on the market value of the endowment’s assets adjusted for investment returns, spending and inflation, but exclusive of gifts. In absolute terms, the endowment’s return objective is to earn a 4.5% annualized real rate of return over rolling 10- year periods. The HEPI Index will be used to measure inflation.

The return earned by the endowment is expected to exceed the performance of a passively invested portfolio that reflects the endowment’s strategic asset mix (SAM), over rolling five- and 10-year time periods in order to maintain a long term focus in managing the assets.

The return earned by each asset class is expected to exceed the performance of a broad investable benchmark that reflects the returns that can be earned from investing in the asset class on a passive basis. Each investment manager is expected to outperform an investable benchmark that represents a passive implementation of the manager’s investment style. Private equity and similar limited partnership structures will be evaluated based on internal rates of return and multiples of returned capital and their ranking relative to partnership universes of the same type and vintage year.

For evaluation purposes, performance will be calculated net of investment management fees. An independent third party will be used to calculate performance.

Responsibilities of the Investment Committee

Establish an Investment Policy Statement to guide and maintain a long term orientation in the investment of the Endowment assets. This policy will be reviewed on a periodic basis by the Investment Committee.

Establish investment objectives that are consistent with the financial needs of the College and the risk tolerance of the Board of Trustees. 

Review and approve asset allocation studies conducted by the Investment Office at least once every three years, which will be used as the basis for establishing the endowment’s Strategic Asset Mix (SAM).

Monitor the performance of the endowment, asset classes and investment managers against their benchmarks.

Monitor the endowment’s investments to ensure compliance with investment policies and guidelines.

Develop and recommend annual spending policy jointly with the Budget and Finance Committee and the VP of Administration & Finance.

Appointment and evaluation of the Chief Investment Officer and staff.

Oversee the Investment Office expense budget.

Report annually on these matters to the Board of Trustees.

Responsibilities of the Investment Office

Develop and maintain the Investment Policy Statement that is approved by the Investment Committee.

Conduct asset allocation studies that the Investment Committee uses as the basis for setting the endowment’s strategic asset mix (SAM). These studies will be conducted at a minimum of at least once every three years.

Provide the Investment Committee with monthly performance and asset allocation reports.

Approve the hiring, setting of investment guidelines and termination of investment managers, taking into account the requirements of NYPMIFA in consultation with the IC Chair.

Monitor investment manager/investment vehicle performance and compliance with investment guidelines. As part of this monitoring process, it is expected that the Investment Office will hold meetings with the investment managers at least once a year.

Monitor and manage the endowment’s liquidity requirements.

Develop and maintain an adequate system of internal controls for management of the endowment.

In addition to the above enumerated responsibilities, the Investment Office is responsible for the day to day investment management of the endowment including meeting custody, depository, legal, and audit requirements.

Strategic and Tactical Asset Allocation

The endowment’s “strategic asset mix” (SAM) is based on the periodic asset allocation studies performed by the Investment Office. Given the primary objective of maintaining the endowment’s real purchasing power, it is expected the policy portfolio will have relatively high exposure to equity, and asset classes with equity-like characteristics, and lower exposure to fixed income asset classes. However, it is expected that SAM will be highly diversified across asset classes in order to reduce volatility. SAM will be reviewed for appropriateness at least annually by the Investment Committee to ensure it is appropriate in light of the College’s risk tolerance and spending needs.

SAM is intended to be long term in nature as it is difficult to add value through short term tactical changes in the policy mix due to associated transaction costs and the need to be correct twice, in both selling and buying.

Deviations from SAM will be reviewed by the Investment Committee on a regular basis.

Permissible Investments

Permissible investments include publicly traded equity securities including both domestic and international stocks, stock indices, fixed income securities including those issued by either domestic or international governments or corporations, mortgages, illiquid alternative investment structures such as limited partnerships and hedge funds, and derivative instruments such as futures, options, and swap contracts that are either exchange traded or private.

Securities of any one issuer, except for those of the U.S. Government and its agencies or instrumentalities, shall not exceed 5% of the total market value of the endowment.

Investment Management

The endowment will be managed by external investment managers who will have discretion to manage the assets subject to the College’s investment guidelines for their accounts. In general, it is expected that assets will be actively managed as there is an underlying belief markets are not perfectly efficient, and that it is possible to identify added value managers. Index funds may be used to gain broad low cost asset class exposure.

No manager shall manage more than 15% of the market value of the endowment. However, as it pertains to an overlay provider, the 15% limit may be waived during periods when transition positions, hedging activities, or other overlay exposure management needs are required.

It is the general policy of Hamilton College not to disclose to external sources any specific information relating to the Hamilton endowment or investment managers and others employed in the management of the endowment (“confidential information”). Moreover, many investment managers impose confidentiality obligations on the College as a condition to providing confidential information. The College is generally responsible for any breach of these obligations by its officers, employees, and Trustees, including members of the Investment Committee. Disclosure or misuse of confidential information may have adverse financial and other impacts on Hamilton College and the investments in the investment pool. Accordingly, in undertaking their duties and responsibilities, the members of the Investment Committee, the Chief Investment Officer, and staff of the Hamilton College Investment Office agree not to disclose confidential information and to use it only in carrying out their respective duties on behalf of the College.

Endowment Spending Guideline/Policy

The endowment spending guideline is designed to provide a dependable source of funds for current operations and to allow regular and sustained growth of endowment income for budget planning and support while maintaining the real purchasing power of the endowment over time.

The guideline for the endowment spending policy will be calculated as the prior year’s endowment spending plus inflation (HEPI) weighted at 70%, plus 5% of the average of the most recent four quarters of the endowment value weighted at 30%. The actual spending policy for each fiscal year will be developed jointly by the chair of the Budget and Finance Committee, the chair of the Investment Committee and the VP of Administration and Finance.

The Spending Policy will be implemented in accordance with NYPMIFA. Accordingly, the chair of the Budget and Finance Committee, the chair of the Investment Committee and the VP of Administration and Finance will consider the following factors when developing and making a spending policy recommendation to the Board of Trustees each year:

1. the duration and preservation of the individual endowed funds included within the endowment,
2. the purposes of the College and the individual endowed funds included within the endowment,
3. general economic conditions,
4. the possible effect of inflation or deflation,
5. the expected total return from income and the appreciation of investments,
6. other resources of the College,
7. where appropriate and if circumstances would otherwise warrant, alternatives to the expenditure of individual endowed funds included within the endowment, giving due consideration to the effect that such alternatives may have on the College, and
8. the other provisions of this policy.

A contemporaneous record describing the consideration given to each of these factors and other legal requirements will be maintained. The actual spending policy each year is approved by the Board of Trustees.

All returns in excess of endowment spending requirements will remain invested in the endowment. Any shortfalls may be supplemented by drawing against the endowment.

Investor Responsibility Policy

The mission of the Hamilton endowment is to contribute essential enduring support for the academic mission of the College. The role of the Investment Committee is foremost to serve as a fiduciary: to maintain the real purchasing power of the endowment by investing to maximize long-term returns with appropriate consideration of risk while at the same time providing income to support the educational mission of the College. In line with its mission as an academic institution committed to active citizenship, the College thoughtfully considers environmental, social and governance (ESG) issues as part of its investment process. The consideration of such factors is incorporated in varying manners across decisions made by the Investment Office, including as part of the criteria on which external investment managers are evaluated. The inclusion of ESG factors in the investment process is not intended to result in the exclusion of specific investments based on any single factor alone. Instead, it is a critical part of the mosaic for generating sustainable, long-term financial returns for the endowment.

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¹ “Institutional fund” means a fund held by an institution. An “endowed fund” means an institutional fund or part thereof that, under the terms of a gift instrument, is not wholly expendable by the institution on a current basis.