INVESTMENT
POLICY
Green
Tree Community Health Foundation
Investment Policy Statement
I. Introduction
This document
describes a specific set of investment policies and procedures
that will assist the Gree Tree Community Health Foundation (GTCHF)
Investment Committee in overseeing the investment of the GTCHF's
assets (the Portfolio). The guidelines serve to:
1.
Articulate a plan for investing the GTCHF's fund assets
2. Communicate an investment framework between the Investment
Committee and the Investment Consultant/investment manager
3. Articulate standards for the measurement of portfolio and manager
performance
4. Define the GTCHF's spending policies
5. Ensure that the funds will be wisely invested and managed to
secure the existence of the Foundation in perpetuity
II.
Background and Mission
A. GTCHF was
established in March of 2005 as the successor organization of
the Chestnut Hill Hospital and related companies. The Foundation
was created when Community Health Systems acquired the majority
of the assets of the former hospital. GTCHF is a public charity
providing grant support to non-profit health and human services
organizations serving Northwest Philadelphia and Eastern Montgomery
County.
B. GTCHF is
a non-profit organization as defined by 501 (c) 3 of the United
States Internal Revenue Service Code of 1986 as amended and operates
as a public charity as further defined in Section 509 (a) (1)
of the IRS code.
C. GTCHF operates
on a fiscal year. The fiscal year begins July 1st and ends June
30th. The annual operating and spending budgets coincide with
the fiscal year.
D. The terms
of the asset purchase agreement provide an opportunity to receive
approximately $25 million less debt and pension requirements from
the sale. GTCHF anticipates conducting a fund-raising program
and is in a position to accept gifts and bequests from donors
who wish to contribute to this effort. GTCHF also will accept
various gifts from previously established trusts which had designated
Chestnut Hill Hospital or any of its related companies as a beneficiary.
E. The mission
of the GTCHF is to improve the health status of community residents
and initiating and supporting activities in response to identified
needs in partnership with community resources.
F. GTCHF seeks
to "make a difference" through its strategic grant-making
program. It envisions providing targeted financial support to
assist in the furthering of new ideas and programs, to expand
existing programs -- GTCHF does not wish to function as an operating
agency.
III. Duties and Responsibilities
GTCHF's trustees
are responsible as fiduciaries to manage all of its investable
assets. In order to do this GTCHF directs the Investment Committee
(the Committee) to assume responsibility for all of the activities
that include, but are not limited to, the following: All decisions
and recommendations of the Investment Committee must be approved
by the full board of trustees.
1.
Establish investment goals with regards to spending policy, portfolio
returns, and appropriate risk exposure as reflected by the Committee.
2. Update annually the spending policies and gain approval by
the Board of Trustees
3. Select and retain a qualified professional investment manager.
Review the recommendations for the appropriate investments
4. Provide the investment manager with anticipated spending needs
and an annual withdrawal rate
5. Voting the proxies of any investment vehicle where full discretion
has not been granted
6. Utilize the Investment Policy Statement to provide boundaries,
where necessary, for ensuring the portfolio's investments are
managed consistent with the short-term and long-term financial
goals of GTCHF. At the same time, recognize its investment flexibility
in the face of changes in capital market conditions and in the
financial circumstances of the foundation.
7. Review this Investment Policy Statement at least once per year.
Changes to this Investment Policy Statement can be made only by
unanimous affirmation by the members of the Committee, and ratification
by the full board of trusees.Written confirmation of the changes
will be provided to all Committee members and to any other parties
hired on behalf of the Portfolio as soon thereafter as is practical.
IV. Investment Objectives and Spending Policy
A. The Portfolio
is to be invested with the objective of preserving the long-term,
real purchasing power of assets while providing a relatively predictable
and growing stream of annual distributions (in real terms) in
support of GTCHF.
B. For the
purpose of making distributions, the Portfolio shall make use
of a total return based spending policy, meaning that it will
fund distributions from net investment income, net realized capital
gains, and proceeds from the sale of investments.
C. The distribution
of Portfolio assets will be permitted to the extent that such
distributions do not exceed a level that would erode the Portfolio's
real assets over time. The Committee will seek to reduce the variability
of annual Portfolio distributions by factoring past spending and
Portfolio asset values into its current spending decisions. The
Committee will review its spending assumptions annually for the
purpose of deciding whether any changes therein necessitate amending
the Portfolio's spending policy, its target asset allocation,
or both.
D. The Board
of Trustees awards grants, including approval of its administrative
budget, in accordance with the spending policy adopted annually.
The annual cash payout is currently defined as no greater than
4% of the average fair market value, using a three year 12-quarter
trailing average.
V. Portfolio Investment Policies
Asset Allocation
Policy
1.
The Committee recognizes that the strategic allocation of Portfolio
assets across broadly-defined financial asset and sub-asset categories
with varying degrees of risk, return, and return correlation will
be the most significant determinant of long-term investment returns
and Portfolio asset value stability.
2. The Committee expects that actual returns and return volatility
may vary widely from expectations and return objectives across
short periods of time. While the Committee wishes to retain
flexibility with respect to making periodic changes to the Portfolio's
asset allocation, it expects to do so only in the event of material
changes to the fund, to the assumptions underlying fund spending
policies, and/or to the capital markets and asset classes in
which the Portfolio invests.
3. Fund
assets will be managed as a balanced portfolio comprised of
two major components: an equity portion and a fixed income portion.
The expected role of fund equity investments will be to maximize
the long-term real growth of Portfolio assets, while the role
of fixed income investments will be to generate current income,
provide for more stable periodic returns, and provide some protection
against a prolonged decline in the market value of Portfolio
equity investments.
4. Cash
investments will, under normal circumstances, only be considered
as temporary Portfolio holdings, and will be used for fund liquidity
needs or to facilitate a planned program of dollar cost averaging
into investments in either or both of the equity and fixed income
asset classes.
5. Outlined
below are the long-term strategic asset allocation guidelines,
determined by the Committee, in consultation with the investment
manager, to be the most appropriate, given the fund's long-term
objectives and short-term constraints. Portfolio assets will,
under normal circumstances, be allocated across broad asset
and sub-asset classes in accordance with the following guidelines:
|
Asset
Class
|
Sub-Asset
Class
|
Target
Allocation
|
| Equity |
|
70%
|
| |
U.S. |
54%
|
| |
Non-U.S.
|
16%
|
| Fixed
Income |
|
30%
|
| |
Investment
Grade |
30%
|
| |
Below-Investment
Grade |
0%
|
| Cash |
|
0%
|
6.
To the extent the Portfolio holds investments in non-traditional,
illiquid, and/or non-marketable securities including (but not
limited to) real estate investments, these assets will be treated
collectively as "alternative investments" for purposes
of measuring the Portfolio's asset allocation. While alternative
investments are not currently considered within this policy, to
the extent they may be owned, they will proportionately reduce
target allocations to the primary asset classes itemized above.
A. Diversification Policy
1. Diversification
across and within asset classes is the primary means by which
the Committee expects the Portfolio to avoid undue risk of large
losses over long time periods. To protect the Portfolio against
unfavorable outcomes within an asset class due to the assumption
of large risks, the Committee will take reasonable precautions
to avoid excessive investment concentrations. Specifically, the
following guidelines will be in place:
a)
With the exception of fixed income investments explicitly guaranteed
by the U.S. government, no single investment security shall represent
more than 5% of total Portfolio assets.
b) With the exception of passively managed investment vehicles
seeking to match the returns on a broadly diversified market index,
no single investment pool or investment company (mutual fund)
shall comprise more than 20% of total Portfolio assets.
c) With respect to fixed income investments, the minimum average
credit quality of these investments shall be investment grade
(Standard & Poor's BBB or Moody's Baa or higher).
2. The following
securities shall be deemed allowable for the Fund:
a)
Common stocks listed on major U.S. stock exchanges (NYSE, AMEX
and NASDAQ) or ADRs traded on those exchanges
b) Preferred stocks or convertible bonds listed on the above exchanges
c) Obligations of the U.S. government and its agencies
d) Bonds issued by U.S. corporations which are rated at least
investment grade
e) Foreign securities, with the restriction that foreign securities
shall not exceed 15% of the total market value of the Fund
f) SEC registered mutual funds
g) Investment grade money market funds and money market instruments
h) Certificates of deposit issued by financially sound banks or
savings and loans
B. Rebalancing Policy
It is expected
that the Portfolio's actual asset allocation will vary from its
target asset allocation as a result of the varying periodic returns
earned on its investments in different asset and sub-asset classes.
The Portfolio will be re-balanced to its target normal asset allocation
under the following circumstances:
1. Utilize incoming cash
flow (contributions) or outgoing money movements (disbursements)
of the portfolio to realign the current weightings closer to the
target weightings for the portfolio.
2. The portfolio will be reviewed quarterly by the investment manager
to determine the deviation from target weightings. During each quarterly
review, the following parameters will be applied:
a) If any asset class (equity or fixed income) within the portfolio
is +/-5 percentage points from its target weighting, the portfolio
will be rebalanced.
b) If any fund within the portfolio has increased or decreased
by greater than 20% of its target weighting, the fund may be rebalanced.
3. The investment manager may provide a rebalancing recommendation
at any time.
4. The investment manager shall act within a reasonable period of
time to evaluate deviation from these ranges.
C. Other Investment Policies
Unless expressly authorized
by the Committee, the investment manager of the Portfolio is prohibited
from:
1.
Purchases of securities on margin
2. Short sales
3. Commodities or commodity futures contracts
4. Oil and gas drilling properties and partnerships, private placements
and venture capital, subject to approval by the Board of Trustees
5. The buying and selling of puts, calls, futures contracts or
other derivative securities for speculating or leverage
6. Investing in alternative financing vehicles such as hedge funds,
direct investments or other investment strategies that have the
potential to amplify or distort the risk of loss beyond a level
that is reasonable, given the objectives of the portfolios
7. Pledging or hypothecating securities, except for loans of securities
that are fully collateralized
8. Making investment decisions with respect to the portfolio that
are inconsistent with applicable state or federal laws
VI.
Monitoring Portfolio Investments and Performance
The Committee
will monitor the Portfolio's investment performance against the
Portfolio's stated investment objectives. At a frequency to be
decided by the Committee, it will formally assess the Portfolio
and the performance of its underlying investments as follows:
A. The Portfolio's
composite investment performance (net of fees) will be judged
against an absolute long-term real return objective and a composite
benchmark consisting of the following unmanaged market indices
weighted according to the expected target asset allocations stipulated
by the Portfolio's investment guidelines:
1.
U.S. Equity: MSCI US Broad Market Index or similar broad domestic
index
2. Non-U.S. Equity: MSCI EAFE + EM Index
3. Investment Grade Fixed Income: Lehman Aggregate Bond Index
B. The performance
of professional investment managers hired on behalf of the Portfolio
will be judged against the following standards:
1.
A market-based index appropriately selected or tailored to the
manager's agreed-upon investment objective and the normal investment
characteristics of the manager's portfolio
2. The performance of other investment managers having similar
investment objectives
C. In keeping
with the Portfolio's overall long-term financial objective, the
Committee will evaluate Portfolio and manager performance over
a suitably long-term investment horizon, generally across full
market cycles or, at a minimum, on a rolling three-year basis.
VII. Account Reviews
Each investment
manager is expected to be available to meet with the Committee
at least once per year to review portfolio structure, strategy,
and investment performance. Investment reports shall be provided
on a (calendar) quarterly basis or as requested by the Institution.
These guidelines
are approved by the Committee and are provided to the investment
manager. It is the intention of the Committee to review these
guidelines formally with the investment manager at least annually
to confirm their continuing relevance or revise them as appropriate.
Either the
Committee or the investment manager may suggest revisions at any
time if it is felt to be in the best interests of the Portfolio.
In addition, it shall be the responsibility of the investment
manager to request a review by the committee if at any time these
guidelines would restrict the ability to utilize the full resources
of its organization or limit the application of the investment
approach felt to be appropriate given the outlook for the economy
or capital markets.
