AIGA investment policy
Adopted by AIGA board of directors on April 7, 2009, with amendments May 2, 2013.
In general, the purpose of this policy is to outline a philosophy and attitude that will guide the investment management of AIGA’s assets toward the desired results. It is intended to be sufficiently specific to be meaningful, yet flexible enough to be practical.
In order to meet its needs, AIGA’s investment strategy is to emphasize total return; that is, the aggregate return from capital appreciation and dividend and interest income.
Specifically, the primary objective in the investment management for AIGA assets shall be long-term growth of capital—to emphasize long-term growth of principal while avoiding excessive risk. Short-term volatility will be tolerated in as much as it is consistent with the volatility of a comparable market index.
Mindful that all investments carry a certain degree of risk and that inflation can reduce the effective level of surplus, we intend that this policy be flexible enough to adjust to current market conditions. Application of this policy should be in such a manner as to insure sufficient liquidity to meet foreseeable operating contingencies of the association and to increase the value of the long-term component of the assets on a responsible risk-adjusted basis.
As with all asset allocation models, the intent is to increase the portfolio’s risk-adjusted value added (alpha co-efficient), maximize cumulative returns, while minimizing the non-diversifiable risk (beta co-efficient) and volatility (standard deviation).
This investment goal is the objective for aggregate funds and is not meant to be imposed on each investment account (if more than one account is used). The goal of each investment manager, over the investment horizon, shall be to:
- Meet or exceed the market index, or blended market index—selected and agreed upon by the executive director and investment consultant—that most closely corresponds to the style of investment management.
- Display an overall level of risk in the portfolio that is consistent with the risk associated with the benchmark specified above. Risk will be measured by the standard deviation of quarterly returns.
General investment principles
- Investments shall be made solely in AIGA’s interest, which includes fulfilling AIGA’s principles of social responsibility, sustainability, ethical conduct and human dignity.
- Funds shall be invested with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the investment of a fund of like character and with like aims.
- Investment of funds shall be diversified so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.
- AIGA may employ one or more investment managers of varying styles and philosophies to attain AIGA’s objectives.
- Cash is to be employed productively at all times, by investment in short-term cash equivalents to provide safety, liquidity and return.
Consistent with the New York Prudent Management of Institutional Funds Act (“NYPMIFA”) each person responsible for managing and investing AIGA’s funds “shall manage and invest the fund in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.” The Act includes basic requirements for satisfying the standard of prudence, including a requirement that an organization make a reasonable effort to verify the facts relevant to the management and investment of the fund, and that an organization only incur costs that are reasonable and appropriate.
NYPMIFA also requires that the following factors, if relevant, be considered in managing and investing institutional funds:
- General economic conditions
- The possible effect of inflation or deflation
- The expected tax consequences, if any, of investment decisions or strategies
- The role that each investment or course of action plays within the overall investment portfolio of the fund
- The expected total return from the income and the appreciation of the investments
- The needs of the organization and the fund to make distributions and to preserve capital
- An asset’s special relationship or special value, if any, to the purposes of the organization
Investment management policy
This investment management policy applies to the entire category of cash and invested assets of AIGA. There are, for practice purposes, three classes of assets:
- Class 1, cash or cash equivalents necessary for regular operations;
- Class 2, short to mid-term investments accessible as necessary for cyclical operating requirements, emergency or unanticipated requirements or board designated funds; and
- Class 3, longer term investments to maintain sustaining reserves.
Specific investment guidance will be given to investment consultants and managers depending upon the class of funds they are managing.
Preservation of capital: Consistent with their respective investment styles and philosophies, investment managers should make reasonable efforts to preserve capital, understanding that losses may occur in individual securities.
Risk aversion: Understanding that risk is present in all types of securities and investment styles, AIGA recognizes that some risk is necessary to produce long-term investment results that are sufficient to meet AIGA’s objectives. However, the investment managers are to make reasonable efforts to control risk and will be evaluated regularly to ensure that the risk assumed is commensurate with the given investment style and objectives.
Adherence to investment discipline: Investment managers are expected to adhere to the investment management styles for which they were hired. Managers will be evaluated regularly for adherence to investment discipline.
The objective for liquidity will apply generally to management of Class 1 and a portion of the Class 2 funds.
To minimize the possibility of a loss occasioned by the sale of a security forced by the need to meet a required payment, the chief operating officer (COO) will periodically provide the investment consultant with an estimate of expected net cash flow. The COO will notify the investment consultant in a timely manner, to allow sufficient time to build up necessary liquid reserves.
To maintain the ability to deal with unplanned cash requirements that might arise, AIGA requires that a minimum of 15 percent of financial assets shall be maintained in cash or cash equivalents over all classes of investments, including money market funds or short-term U.S. Treasury bills. This may be higher in order to meet operational requirements anticipated by management.
Categories of risk
There are generally accepted risk categories for types of investments, which can generally be grouped as follows in increasing likelihood of risk.
|Lower risk||Limited risk||Moderate aggressive risk||Higher risk (prohibited)|
Money market accounts and money market funds
U.S. Treasury bills
|Blue chip stocks|
High-rated corporate, municipal and zero-coupon bonds
Conservative mutual funds
U.S. Treasury bonds and notes
Small company stocks
Medium-rated corporate, municipal and zero-coupon bonds
Growth mutual funds
Rental real estate
Investment grade bonds
|Futures, options and other derivatives|
Speculative stocks and mutual funds
Mining, precious metals
Rare coins, gold, silver and precious stones
Investment grade bonds will include bond funds whose average bond rating is A or AA and which does not include any bonds rated below BBB+.
In general, but not binding terms, AIGA would tend to place its liquid operating assets in the low risk category, its designated funds in the limited or moderate risk categories, and its working capital reserves in moderate risk categories. Investing in the higher risk category or asset opportunities is prohibited. Short-selling and margin transactions are also prohibited.
Delegation of authority
The AIGA board of directors delegates the authority to manage the investment policies, strategies and implementation to the executive director, who is also the CEO and a board member. The COO is authorized to instruct the investment consultant and investment managers in implementation of the strategy under the direction of the CEO.
The executive director is a fiduciary of AIGA’s financial resources and is responsible for directing and monitoring the investment management of fund assets. As such, the executive director is authorized to delegate certain responsibilities to professional experts in various fields.
The executive director is authorized to develop and execute an investment strategy consistent with the asset allocation and investment guidelines approved by the board. The strategy will be developed with a professional investment consultant and will be implemented through professional investment managers.
The chief executive officer and chief operating officer will each be authorized signatures to direct the investment consultants to initiate transactions consistent with the policy guidance. As a matter of internal controls, both officers must approve reallocation of funds that exceed $200,000. As with other financial transactions, the second approval can be documented by email. This condition applies to all forms of transaction options, including wire transfers.
Any transactions that substantially shift the asset allocation from that approved by the executive committee or involve a transaction involving $500,000 or more will require prior review and approval of the president or treasurer, except as the allocation is affected by variations in the cash balances and CD balances during the year. As with other financial transactions, the board officer approval can be documented by email.
Assignment of responsibilities
Responsibility of the investment advisor or consultant
The investment advisor’s or consultant’s role (these are different terms for the same consulting activity) is that of a non-discretionary advisor to AIGA. Investment advice concerning the investment management of fund assets will be offered by the investment consultant and will be consistent with the investment objectives, policies, guidelines and constraints as established in this statement. Specific responsibilities of the investment consultant include:
- Assisting in the development and periodic review of investment policy
- Conducting investment manager searches when requested by the executive director
- Providing “due diligence,” or research, on investment managers
- Monitoring the performance of investment managers to provide the executive director with the ability to determine the progress toward the investment objectives.
- Communicating matters of policy, manager research and manager performance to the executive director
- Reviewing fund investment history, historical capital markets performance and the contents of this investment policy statement to the executive director
Responsibility of investment managers
Each investment manager must acknowledge in writing its acceptance of responsibility as a fiduciary. Each investment manager will have full discretion to make all investment decisions for the assets placed under its jurisdiction, while observing and operating within all policies, guidelines, constraints and philosophies as outlined in this statement. Specific responsibilities of the investment managers include:
- Discretionary investment management including decisions to buy, sell, or hold individual securities, and to alter asset allocation within the guidelines established in this statement.
- Reporting, on a timely basis, quarterly investment performance results.
- Communicating any major changes to economic outlook, investment strategy, or any other factors that affect implementation of investment process, or the investment objective progress of AIGA’s investment management.
- Informing the executive director regarding any qualitative change to investment management organization: Examples include changes in portfolio management personnel, ownership structure, investment philosophy, etc.
- Voting proxies, if requested by the executive director, on behalf of AIGA, and communicating such voting records to the executive director on a timely basis.
Asset allocation guidelines will be reviewed and revised annually as an addendum to the investment policy, to provide specific guidance to investment consultants and managers on portions of the overall assets under their discrete management. This annual direction will also consider any evolution in economic conditions or AIGA’s risk tolerance and investment goals.
The performance of the investment consultants and managers will be based on total return on the portfolio compared to a policy index developed for the strategic asset allocation compared with standard indices for the allocation classes (e.g., S&P 500, a bond index, 90-day T-bills).
AIGA may employ investment managers whose investment disciplines require investment outside the established asset allocation guidelines. However, taken as a component of the aggregate investment portfolios, such disciplines must fit within the overall asset allocation guidelines established in this statement. Such investment managers will receive written direction from the executive director regarding specific objectives and guidelines.
In the event that the above aggregate asset allocation guidelines are violated, for reasons including but not limited to market price fluctuations, the executive director will instruct the investment manager(s) to bring the portfolio(s) into compliance with these guidelines as promptly and prudently as possible. In the event that any individual investment manager’s portfolio is in violation with its specific guidelines, for reasons including but not limited to market price fluctuations, AIGA expects that the investment manager will bring the portfolio into compliance with these guidelines as promptly and prudently as possible without instruction from the executive director.
Diversification for investment managers
AIGA does not believe it is necessary or desirable that securities represent a cross section of the economy. However, in order to achieve a prudent level of portfolio diversification, the securities of any one company or government agency should not exceed 10 percent of the total invested assets, and no more than 30 percent of the total funds should be invested in any one industry. Individual treasury securities may represent 40 percent of the total funds, while the total allocation to treasury bonds and notes may represent up to 100 percent of AIGA’s aggregate bond position.
Performance reports generated by the investment consultant shall be compiled at least quarterly and communicated to the CEO, COO and treasurer for review. The investment performance of total portfolios, as well as asset class components, will be measured against performance benchmarks developed on a custom blended basis by the investment consultant to reflect the profile of the portfolio and using commonly accepted benchmarks. 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 statement. The executive director intends to evaluate the portfolio(s) over at least a three-year period, but reserves the right to terminate a 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 organization.
- Investment managers shall be reviewed regularly regarding performance, personnel, strategy, research capabilities, organizational and business matters, and other qualitative factors that may impact their ability to achieve the desired investment results.
Appointment of investment consultant
AIGA will employ professional investment consultants associated with a major financial institution and with a proven track record throughout the business cycle. The investment consultants to AIGA are governed by instructions contained in this policy and additional instructions clarifying it. The consultants will be available to the executive committee to discuss the guidance, investment strategy or current market evaluation.
The principal investment advisory relationship with a financial institution will be presented to the executive committee for ratification annually at the same time as the ratification of the auditor. While there is a value in maintaining a longer-term relationship with investment consultants, if returns fail to meet expectations, competitive review of the relationship may be called for. These reviews would be co-chaired by the executive director and the treasurer. The executive committee will receive an annual report on fund balances and performance by March each year, concurrent with the annual audit review.