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ENDOWMENT INVESTMENT AND SPENDING POLICY
                  FOR PACIFIC LUTHERAN UNIVERSITY
_______________________________...
capacity and familiar with such matters would use in the conduct of an enterprise of a like character and
of like aims.

B...
PORTFOLIO SUMMARY

Pacific Lutheran University’s Endowment is composed primarily of investment assets owned and
directly c...
In setting the optimal allocation of assets for the University’s endowment fund, the Board of Regents
hereby adopts the fo...
2) Placement of the Total Fund in the top quartile of similar risk total portfolios, assuming that
         data is availa...
♦ Actively managed small capitalization funds should produce return results with no
            more than one and one half...
Alternative Investments as an asset class can help reduce the overall volatility of a total portfolio.
This is due to the ...
bond-like volatility. In addition, these investments historically have had a low correlation with
traditional asset classe...
The use of leverage is allowed but a maximum leverage ratio of 2 to 1 or less is preferred.
Since a multi-manager approach...
♦    Multi-manager strategies are expected to meet or exceed the EACM 100 Index on a
        return basis with equal or lo...
♦ Such investments shall not be included with the performance review, and will be held at
             cost, until the Gen...
(c)    Investment managers need not maintain specific levels of liquidity unless so advised by
             the Budget and...
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Transcript of "PLU Endowment Investment and Spending Policy.doc"

  1. 1. ENDOWMENT INVESTMENT AND SPENDING POLICY FOR PACIFIC LUTHERAN UNIVERSITY ________________________________________________________________________ Authorized September 18, 1993 – Amended January 24, 1997, January 22, 1999, January 21, 2000, May 3, 2003, and October 10, 2005 The following guidelines, objectives and restrictions apply to the investment management of Pacific Lutheran University’s endowment portfolio of assets and were adopted October 19, 1993 by the Board of Regents upon the advice of its Budget and Finance Committee and the University’s administration. The term “Policy” as used herein refers to the Endowment Investment and Spending Policy of the University. STATEMENT OF PURPOSE This statement of Investment Policy for the Pacific Lutheran University is set forth to insure that: 1) There is a clear understanding by the Budget and Finance Committee, University Administration, investment managers, and the investment consultant of the nature, purpose, and goals of this Endowment Fund. 2) The Budget and Finance Committee and the investment consultant are given guidelines for implementing this policy. 3) The Budget and Finance Committee and its advisors have a basis to evaluate the investment performance of the investment managers. It is the intent of this statement to establish an overall philosophy that will guide the regents, investment managers, and the investment consultant toward accomplishing the desired goals and objectives. It is intended that the objectives be sufficiently specific to be meaningful, but flexible enough to be practical in allowing for changes in the securities markets and economy. AUTHORITY The Pacific Lutheran University Board of Regents is responsible for setting and auditing investment policy. It hereby assigns its Budget and Finance Committee the responsibility for asset allocation directed by this Policy and for the selection and evaluation of investment managers. In carrying out its duties, the Budget and Finance Committee may elect an Investment Sub-Committee to make detailed analyses and specific investment manager selections. In carrying out these duties, the Investment Sub- Committee may utilize the services of the University’s investment consultant or may utilize other assistance as may be approved by the Budget and Finance Committee. STATEMENT OF RESPONSIBILITIES It is expected that the following parties associated with the University will discharge their respective responsibilities in accordance with the normal fiduciary standards; that is (a) in the sole interest of the University and other beneficiaries that these assets are intended to benefit; (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent investor acting in like 1
  2. 2. capacity and familiar with such matters would use in the conduct of an enterprise of a like character and of like aims. Budget and Finance Committee The Budget and Finance Committee will establish investment policy for the Endowment Fund and establish procedures for monitoring (i) the implementation of such policy and (ii) monitoring the performance of the investment managers or commingled-pooled investments. It is the specific responsibility of the Budget and Finance Committee, based on the advice from its Investment Sub-Committee, to periodically review the risk/reward parameters underlying the Policy, and make appropriate changes in specific investments utilized to carry out this Policy. Specifically the Budget and Finance Committee shall annually review, and reaffirm, or change as appropriate, the investment objectives and portfolio guidelines. The Policy shall thereupon, as appropriate, be amended to reflect any applicable changes. Investment Sub-Committee The Investment Sub-Committee, as directed by the Budget and Finance Committee, will perform periodic detailed analysis of current manager performance and will make periodic manager changes as deemed appropriate. In general terms it is the Investment Sub-Committee’s responsibility to provide advice to the Budget and Finance Committee in areas such as: asset allocation, , investment policy revisions, performance monitoring or other investment issues as it relates to Endowment assets. Investment Managers The Investment Managers, or commingled-pooled managers, hired by the University shall be responsible for implementation of their mandated investment strategy. These managers are charged with the responsibility to conduct day-to-day investment management of the University’s assets in accordance with specific agreements or as described in their respective investment prospectuses. Custodian If a custodian is determined to be necessary for protection of certain investments, the Custodian will be charged with the responsibility for safekeeping securities, collections and disbursement, and periodic accounting statements for the assets under its control. Investment Consultant The Investment Consultant is charged with the responsibility to assist the Budget and Finance Committee and the Investment Sub-Committee in developing ongoing investment policy, asset allocation, manager selection, custodian selection, providing investment performance monitoring and analysis, and assisting these Committees in conducting all activities associated with the investment policy. 2
  3. 3. PORTFOLIO SUMMARY Pacific Lutheran University’s Endowment is composed primarily of investment assets owned and directly controlled by the University, but may contain assets managed entirely by and under custody of third parties. Assets of this type are typically held and managed by banks or brokerage firms under various arrangements made independently by University donors. For purposes of calculating the long- term debt/endowment ratios referred to in the financial covenants associated with the University’s long- term debt, the entire asset value of the Endowment assets held and managed by others is included along with those assets under direct control of the University. This Policy statement specifically authorizes the temporary lending to University operations of cash held as “Cash Equivalents” in the Endowment. Such loans shall bear an interest rate equal to the 90-day Treasury Bills calculated at the beginning of each month. The amount of temporary lending to the University from the Endowment will be limited to the amount of the University’s maximum unsecured credit line that is in place through its current banking relationships. Investments under this Policy will typically be made in managed accounts, mutual funds, offshore funds, partnerships or other co-mingled vehicles. These investments are typically held in registered form, and are not considered marketable securities. Therefore, no master custodian is required under this Policy for those specific investments, but a custodian bank or brokerage firm is required for those securities that are bearer instruments or are considered readily marketable. Evidence of ownership of all investments is to be kept in a vault or other secure facilities. INVESTMENT GOALS AND SPENDING POLICY The primary purpose of the endowment for the University is to provide a continuing source of current income, principally for the purposes of financial aid. To meet this purpose over the long-run, and to maintain the purchasing power of the assets, the net asset value of the existing portfolio must grow even without gift additions. To accomplish this growth, the Investment Policy provides that the Endowment be invested in a diversified mixture of asset classes that are collectively expected to provide an acceptable level of return for and acceptable level of risk over an extended time horizon. This Policy limits the amount the endowment shall distribute annually to 5% of a three-year average market value of principal, on a unit value basis. The average computation is to include the November 30 quarter preceding the beginning of the budget year. The primary goal of the Endowment is to achieve a total return, over a three-year moving average basis, at least equal to the spending rate plus the rate of inflation as measured by the Consumer Price Index (CPI) for urban customers. As an educational institution, the endowment fund is not subject to state of Washington or federal income taxes. ASSET ALLOCATION POLICY Investment decisions shall be made within the framework of the goals stated above for optimizing the total rate of return, keeping in mind the desirability of limiting year-to-year risk of income and market fluctuations. These goals require that the total rate of return of the portfolio be optimized rather than maximized. The optimal portfolio allocation is one that carefully equates expected rate of return with expected risk of all investment categories used in the portfolio. 3
  4. 4. In setting the optimal allocation of assets for the University’s endowment fund, the Board of Regents hereby adopts the following strategic (long-term) asset allocation policy: Asset Class Strategic Target Minimum Maximum CASH AND EQUIVALENTS 5% 0% 10% EQUITIES 30% 25% 50% Core Domestic 10% 10% 30% Small/Mid Cap Domestic 10% 10% 30% International Equities 10% 3% 15% Emerging Market Equities 0% 0% 10% FIXED INCOME 10% 10% 25% U.S. Corp/Gvt Bonds 10% 5% 25% International Bonds 0% 0% 15% REAL ESTATE 10% 5% 15% ALTERNATIVE INVESTMENTS 45% 15% 50% Absolute Return Strategies 35% 5% 40% Hedge Fund Strategies is combined with absolute return strategies line as the terms are synonymous for purposes of asset allocation Real Assets 5% 0% 10% Venture Capital & Private Equity 5% 0% 15% At least annually, the Budget and Finance Committee must provide a report of investment performance of endowment assets and of compliance with this policy to the Board of Regents. The “strategic target” asset mix, which emphasizes diversification in order to lower expected risk and to maximize expected total return to risk, is to be reviewed at least annually to ensure the established guidelines are still appropriate. The minimum and maximum ranges within each asset class provide for investment flexibility. The Budget and Finance Committee may make “tactical” changes to the target allocation to take advantage of perceived changes in the capital markets for temporary periods but agrees to avoid market-timing tactics. Any tactical asset allocation changes are to be based on a one-to-two year horizon and should be made in accordance with the established ranges. Because portfolio assets may stray outside the limits of the asset allocation policy, they are to be rebalanced at least annually to conform to the policy “minimum” and “maximum” asset allocation parameters. The University’s Vice President of Operations, after obtaining advice from the Investment Consultant or Investment Sub-Committee members, will have the authority to rebalance the endowment account to within the approved targets. INVESTMENT OBJECTIVES The specific long-term strategic objectives for the Pacific Lutheran University endowment fund portfolio, both in total and for the respective segments, will be compared in the following manner: Total Fund 1) An annualized return of 5% over the rate of inflation as measured by the Consumer Price Index (CPI) for urban consumers. 4
  5. 5. 2) Placement of the Total Fund in the top quartile of similar risk total portfolios, assuming that data is available on other portfolios with similar risk/reward characteristics. 3) The Total Fund will have as an objective to exceed the Policy Index, which composite index return is based on the Strategic Target Allocation. The Policy Index is made up of the following indices: 15% Standard & Poor’s Index 15% Russell 2500 Index 3% MSCI EAFE Index 20% Lehman Brothers Aggregate Bond Index 27% EACM 100 Index 5% Wilshire Microcap Index 13% NCREIF 2% 91-Day Treasury Bills Asset Class Performance Objectives Over a Full Market Cycle (1) Cash Equivalents ♦ To achieve a total annualized rate of return of 1% over the rate of inflation as measured by the Consumer Price Index. ♦ To achieve a risk-adjusted annual rate of return at least equal to the return on 91-day Treasury bills. (2) Core Equities (equities whose total market capitalization equals or exceeds approximately $5 billion): ♦ Core equity funds should produce total annualized rate of return of 5% over the rate of inflation as measured by CPI for urban consumers. ♦ Actively managed core equity funds should produce an annual rate of return at least equal to the S&P 500 Index plus 1%. ♦ Actively managed core equity funds should produce return results with no more than one and one half times the standard deviation of the S & P 500 Index on a quarterly basis. ♦ Core equity index funds are expected to match the performance of the S&P 500 Index with less than a 50 basis point downside tracking error. ♦ All core equity funds are expected to rank in the top third of a comparable core equity universe. (3) Small/Mid Capitalization Equities (equities whose total market capitalization is up to $5 billion). ♦ Small/Mid capitalization funds should produce a total annualized rate of return of 6% over the rate of inflation as measured by CPI for urban consumers. ♦ Actively managed small capitalization funds should produce an annual rate of return at least equal to the Russell 2000 Index or the Russell 2500 Index plus 1%. 5
  6. 6. ♦ Actively managed small capitalization funds should produce return results with no more than one and one half times the standard deviation of the Russell 2000 Index or the Russell 2500 Index on a quarterly basis. ♦ All small capitalization funds are expected to rank in the top third of a comparable small or mid capitalization equity universe. (4) International Equities ♦ International equities funds should produce a total annualized rate of return of 6% over the rate of inflation as measured by CPI for urban consumers. ♦ Actively managed international equity funds should produce an annual rate of return at least equal to the MSCI EAFE Index plus 1% expressed in U.S. dollars. ♦ Actively managed international equity funds should produce return results with no more than one and one half times the standard deviation of the MSCI EAFE Index on a quarterly basis. ♦ All international equity funds are expected to rank in the top half of a comparable international equity universe. (5) U.S. Fixed Income ♦ U.S. fixed income funds should produce a total annualized rate of return of 3% over the rate of inflation as measure by CPI for urban consumers. ♦ Actively managed U.S. fixed income funds should produce an annual rate of return at least equal to the Lehman Brothers Aggregate Index plus .50%. ♦ Actively managed U.S. fixed income should produce return results with no more than one and one quarter times the standard deviation of the Lehman Brothers Aggregate Index on a quarterly basis. ♦ All U.S. fixed income funds are expected to and rank in the top third of a comparable fixed income universe. (6) Non-U.S.-Dollar-Denominated Fixed Income Funds ♦ Non-U.S.-dollar-denominated fixed income funds should produce a total annualized rate of return of 5% over the rate of inflation as measure by CPI for urban consumers. ♦ Actively managed Non-U.S. dollar denominated fixed income funds should produce an annual rate of return at least equal to the Solomon Brothers Non-U.S. Gov’t Bond Index expressed in U.S. Dollars plus .50%. ♦ Actively managed Non-U.S. fixed income funds should produce return results with no more than one and one half times the standard deviation of the Solomon Brothers Non-U.S. Gov’t Bond Index on a quarterly basis. ♦ All Non-U.S. dollar denominated fixed income funds are expected to rank in the top third of a comparable fixed income universe. ♦ A mutual fund portfolio of debt instruments from emerging market countries is considered an acceptable investment under this category. ALTERNATIVE INVESTMENTS Multi- Manager Approach to Investing in Alternative Investments 6
  7. 7. Alternative Investments as an asset class can help reduce the overall volatility of a total portfolio. This is due to the fact that many alternative assets have low correlation or no correlation to traditional markets. Additionally, alternative investments may help improve a portfolio’s total return over time. Successful investment in the Alternative Investment area is primarily dependent on a particular manager’s skill and execution. To diversify its investments the Pacific Lutheran Endowment will either seek to invest in the alternative asset class through Multi- Manager Funds or invest directly into several funds. By utilizing these approaches the Endowment seeks to minimize the inherent manager specific risks associated with investing in an Alternative Investment asset class. The following criteria for selecting Multi-Manager Funds is intended to provide only general guidance for manager selection and manager evaluation. Multi- Manager Fund General Criteria 1) The Multi-Manager Fund should ideally have at least a three-year performance track record. 2) The Multi-Manager Fund should seek to diversify the assets by manager and by investment strategy. 3) The Multi-Manager Fund should seek out strategies and managers that have proven track records of consistent long-term performance or capability. 4) The Multi-Manager Fund should have no less than five alternative investment managers. No single manager should represent more than 30% of the total portfolio. 5) The Multi-Manager Fund should have no more than 40% of the fund invested in any single investment strategy. 6) The Multi-Manager Fund should have a detailed procedure for monitoring risk. These risk controls, such as Value at Risk (VAR), and other control measures should be detailed and confirmed in writing. 7) An independent auditing firm will audit the Multi-Manager Fund at least on an annual basis. The Multi-Manager Fund will provide reports regarding performance and an investor letter at least on a quarterly basis. 8) The principals of each Multi-Manager Fund should have a significant portion of his/her net worth invested in his or her particular strategy. 9) The Multi-Manager Fund should perform on-site manager due diligence with its managers at least on an annual basis. 10) The Multi-Manager Fund should have significant corporate infrastructures established so that the monitoring and implementation of the fund is not solely dependent on one individual. 11) The Multi-Manager Fund should have errors and omissions insurance and should provide evidence of this insurance on an annual basis. 12) It is preferable that Multi-Manager incentive fees are paid only after established hurdle rates have been achieved. In addition, it is preferred that annualized absolute return “high water” marks should be achieved before incentive fees are paid. ABSOLUTE RETURN STRATEGIES General Approach and Categories Absolute return strategies, sometimes referred to as market-neutral strategies or relative value strategies, should represent the core investment in the area of Alternative Investments. This means that these strategies, whether accessed through multi-manager funds or through direct investments in individual funds, should represent the largest percentage of the Endowments’ Alternative Investments. These strategies have the potential to produce equity-like returns with 7
  8. 8. bond-like volatility. In addition, these investments historically have had a low correlation with traditional asset classes (i.e. stocks and bonds). Therefore, the inclusion of Absolute Return Strategies should help the Endowment Fund achieve increased relative returns with relatively lower risk. When considering asset allocation maximums, any Absolute Return Strategy managers that are a part of the Multi-Strategy Fund, or as a group of managers that collectively constitute the equivalent of a multi-strategy Absolute Return Fund, should be included as part of the Absolute Return Strategies total allocation. The use of leverage is allowed but a leverage ratio of 2 to 1 or less is preferred (A portfolio that is 100% long and 100% short is considered to have a leverage ratio of 1 to 1). The overall net long or net short positions of these multi-manager funds should be 20% or less. The Absolute Return Strategies may include but are not limited to the following categories: Long/Short Equities Long undervalued equities or derivative instruments /short overvalued equities or derivative instruments Convertible Hedging Long convertible bonds or preferred/short underlying common or convertible securities inherently hedged against stock market risk Bond Hedging Yield curve arbitrage or long/short debt positions Rotational/Multi-Strategy Multiple relative value strategies, including those listed above Performance Objectives ♦ Absolute return strategies should produce a total annualized rate of return of 5% over the rate of inflation as measure by CPI for urban consumers. ♦ Absolute return strategies should produce an annual rate of return at least equal to the Lehman Brothers Aggregate Index plus 2%. ♦ Absolute return strategies should produce return results with no more one and one half times the standard deviation of the Lehman Brothers Aggregate Index on a quarterly basis. ♦ Absolute return strategies are expected to meet or exceed the Relative Value Composite of the EACM 100 Index on a return basis with equal or lower risk. MULTI-MANAGER STRATEGIES General Approach and Categories A Multi-Manager Fund may include a broad range of liquid marketable securities. These alternative strategies, implemented by capable managers, have the potential to produce equity- like returns with low to medium correlation to traditional assets (i.e. stocks and bonds). Therefore, the inclusion of a Multi-Manager Fund should help the Endowment Fund achieve increased relative returns with relatively lower risk. 8
  9. 9. The use of leverage is allowed but a maximum leverage ratio of 2 to 1 or less is preferred. Since a multi-manager approach is employed, the above characteristics shall be evaluated on a collective basis, rather than on a manager-by-manager basis. The Multi-Manager Fund may include, but are not limited to the following categories: Relative Value Strategies (same as described above) Event Driven Strategies Deal Arbitrage Long and short equity securities of companies involved in corporate transactions Bankruptcy/Distressed Debt Long undervalued securities of companies usually in financial distress Multi- Event Strategies Long and short based on deals, bankruptcies and other events Hedge Fund Strategies Domestic Long-Biased Long undervalued U.S. equities/short selling used sparingly Domestic Opportunistic (Net Long or Net Short) Long and short U.S. equities, with the ability to be net short overall Global/International Primarily long undervalued equities, with some ability to sell short Global/International Opportunistic Long and short international equities, with the ability to be net short overall Macro Global Strategies Discretionary Long and short markets based on qualitative/fundamental analysis Systematic Trading Strategies Long or short markets based on trend-following or other quantitative techniques Performance Objectives ♦ Multi-manager strategies should produce a total annualized rate of return of 8% over the rate of inflation as measure by CPI for urban consumers. ♦ Multi-manager strategies should produce an annual rate of return at least equal to the S&P 500 Index plus 1%. ♦ Multi-manager strategies should produce return results with no more one and a half times the standard deviation of the S&P 500 Index on a quarterly basis. 9
  10. 10. ♦ Multi-manager strategies are expected to meet or exceed the EACM 100 Index on a return basis with equal or lower risk. HEDGE FUND STRATEGIES General Approach and Categories Hedge Fund Strategies may include a broad range of liquid marketable . securities, which may include equities, bonds, derivitive instruments, futures contracts, currencies, and forward contracts. These alternative strategies, implemented by capable managers, have the potential to enhance the equity returns of the Endowment Fund. Hedge Funds of this type historically may either have higher or lower relative correlations to traditional assets when compared to other alternative investments. However, compared to traditional assets these funds historically have attractive risk/return characteristics. Therefore, the inclusion of a Hedge Fund Strategy should help the Endowment Fund achieve increased relative returns with an acceptable level of risk. The use of leverage is allowed but a maximum leverage ratio of 3 to 1 or less is preferred. The Fund may include, but is not limited to the following categories: Hedge Fund Strategies (same as described above) Performance Objectives ♦ Hedge fund strategies should produce a total annualized rate of return of 8% over the rate of inflation as measure by CPI for urban consumers. ♦ Multi-manager strategies should produce an annual rate of return at least equal to the S&P 500 Index plus 1%. ♦ Multi-manager strategies should produce return results with no more one and one half times the standard deviation of the S&P 500 Index on a quarterly basis. ♦ Absolute return strategies are expected to meet or exceed the Hedge Fund Composite of the EACM 100 Index on a return basis with equal or lower risk. VENTURE CAPITAL AND PRIVATE EQUITY General Approach and Categories Venture capital and private equity may include a broad range of non-liquid marketable U.S. securities. These alternative strategies, implemented by capable managers, have the potential to enhance the equity returns of the Endowment Fund. However, compared to traditional assets these funds historically have higher risk/return characteristics. Therefore, the inclusion of venture capital and private equity as an asset class should help the Endowment Fund achieve increased relative returns with an acceptable level of risk. Performance Objectives ♦ Venture capital and private equity strategies should produce a total annualized rate of return of 8% over the rate of inflation as measure by CPI for urban consumers. 10
  11. 11. ♦ Such investments shall not be included with the performance review, and will be held at cost, until the General Partners of these investment funds begin to provide at least annual appraisals of value. IMPORTANT CHARACTERISTICS TO CONSIDER 1) Illiquidity of the Investment: Venture Capital and Private Equity investments are illiquid investments. Typically investments made in this asset class have a 10 – 12 year time horizon. In order to maximize the benefit of these investments and to minimize the effects of some poor returning vintage years, a long-term commitment to the asset class is required. However, tactical decisions to delay or advance new commitments to this asset class are considered appropriate. 2) High Risk and Return Profile: Venture Capital and Private Equity have the potential to achieve superior performance relative to other equity markets. However, this high return characteristic also carries with it high risks, and there are no guarantees that the outstanding returns experienced over the past ten years will continue. 3) Committed vs. Invested Capital: Generally Venture Capital and Private Equity funds need four to six years to fully invest the capital that has been committed by investors. Also, during normal market periods, around the third or fourth year, many fund managers begin to make distributions from successful earlier investments. The result of these two factors is that investor’s committed funds are rarely 100 percent invested at any time. Therefore, for planning purposes Pacific Lutheran will have a policy to commit 50% more than the strategic allocation and will continuously seek out new venture funds with new and existing managers in order to stay as close as possible to the strategic invested target allocation. DIVERSIFICATION GUIDELINES Given the high risk return profile of this asset class, it is prudent to diversify the investments by utilizing multi-manager funds and/or by selecting a series of individual funds with diversified styles. Because of the high-risk nature of venture and private equity investing, the Investment Committee will seek to diversify the aggregated Venture Capital and Private Equity investments along four lines: 1) Stage of Company Development: start-up stage, early stage, expansion stage and late stage. 2) Industry Sector: computer technology, medical and healthcare, telecommunications, media communications, consumer products and biotechnology. 3) Geographical Region: the aggregated venture capital and private equity investments should have some degree of geographical diversification. Vintage Year: the aggregated venture capital and private equity commitments should be made over time to avoid a concentration of investments in any one year. PERFORMANCE MEASUREMENT AND OTHER GUIDELINES (a) In measuring performance, a full market cycle is understood as a typical five-to-seven- year period during which U.S. economy actively rises and falls. (b) Rate of return targets are time weighted and net of management fees. 11
  12. 12. (c) Investment managers need not maintain specific levels of liquidity unless so advised by the Budget and Finance Committee; (d) Convertible securities will be considered equity securities; (e) For the manager of a balanced or equity funds, the performance measurement should include that portion of cash balances held as a tactical tool for the portfolio; (f) Each investment manager shall be bound by the “Prudent Expert Rule” and must observe, in all instances, the fiduciary responsibilities of all related parties whether moral or legal; (g) All written communications shall be addressed to the Chairman of the Board of Regents or his designee. INVESTMENT MANAGER/BUDGET AND FINANCE COMMITTEE GUIDELINES The majority of the Pacific Lutheran University’s endowment fund consists of commingled- pooled fund investments. Therefore, it is not practical or feasible to give pooled fund managers specific restrictions. The list below is intended to guide the Budget and Finance Committee and the Investment Consultant by giving general restrictions for evaluating existing pooled funds or pooled funds that are added to the Total Fund. These guidelines do not apply to Alternative Investments. It is preferred that pooled fund investments not: (a) Hold more than 20% of its endowment fund portfolio in any one industry; (b) Hold more than 5% of its endowment fund portfolio at cost, as determined at the time of purchase, or 10% of market value; in the securities of any one company (except for obligations issued or guaranteed by the United States Government); (c) Loan money or securities to any individual or corporation from the assets of the endowment fund portfolio other than through the purchase of marketable fixed income securities; (d) Purchase any municipal or other tax-exempt securities; (e) Permit the mortgage, pledge, or hypothecation of any assets of the endowment; (f) Purchase any private placement which may not be publicly sold without registration under the U.S. Securities Act of 1933; (g) Utilize an investment policy designated to further the interest of the University’s officers, directors, trustees, or any equity which they are affiliated to the detriment of the endowment fund; (h) Make any investment which may be precluded by any special instruction issued in writing from time to time by the Board of Regents. Deviation from these guidelines and restrictions (e.g., to accommodate investment in commingled accounts) is permissible with approval from the Budget and Finance Committee. 12

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