Schola Foundation Investment Policy

December 14, 2023

The Trustees of an endowed institution are the guardians of the future against the claims of the present. Their task is to preserve equity among generations. The trustees of an endowed institution like my own assume it to be immortal. They want to know, therefore, the rate of consumption from endowment that can be sustained indefinitely… in formal terms, the trustees are supposed to have a zero subjective rate of time preference.

--James Tobin, Nobel Prize Economist

INTRODUCTION

The Board of Directors (“Board”) of the Schola Foundation (the “Foundation”) is cognizant that the Foundation’s central philanthropic purpose is to provide financial assistance for Loyola Catholic School (“LCS”). Consistent with this purpose, the Foundation has been organized to raise money, invest it, and disburse it to support LCS, as determined by the Board, from time to time.

The objective of the Schola Foundation Investment Policy is to establish guidelines in the operation and management of the Foundation’s investment assets. In this regard, the Investment Policy will provide:

Reasonable expectations, objectives, and guidelines in the investment of the portfolio assets of the Foundation
A framework for a well-diversified portfolio that can be expected to generate acceptable long-term returns at a level of risk and volatility suitable to the Foundation while also providing support to LCS. This framework will:

Identify an appropriate risk level
Specify a target asset allocation policy
Establish guidelines regarding the selection of mutual funds, separate account investment managers, permissible securities, and diversification of assets
Itemize appropriate criteria in the evaluation of portfolio performance

The roles of the Schola Finance Committee
A document to facilitate constructive communication among the Board of Directors, the Finance Committee, and as a reference document to support discussion with future donors regarding the Schola Foundation’s investment program and goals
The spending policy of the Foundation

The Schola Foundation uses this investment policy at its own discretion. The policy has not been reviewed by legal counsel. The policy is intended to summarize present investment philosophy and procedures and should evolve according to the goals, circumstances and mission of the Schola Foundation. The Investment Policy should adapt to changes in sound investment practice over time. The Schola Foundation acknowledges that there can be no guarantee about the attainment of the goals or objectives outlined in the Investment Policy.

FINANCE COMMITTEE AND INVESTMENT MANAGERS

The investments of the Foundation will be managed by the Board in accordance with the policies established by the Foundation’s Board, including this Investment Policy, with input from the Finance Committee.

The Finance Committee shall provide recommendations on, among other things, investment policy with regard to asset allocation, manager selection, manager performance, and proposed amendments to this Investment Policy.

Investment managers and advisors shall be selected from established and financially sound organizations that have a proven and demonstrated record in the management of similar funds or assets.

Investment managers shall perform such duties as reasonably determined by the Board, to include by way of example:

Insure that all investments included in the Foundation’s investment portfolio are consistent with this Investment Policy
Monitor, manage, quantify, and measure investment performance and risk in accordance with the standards contained in this Investment Policy
Supply the Board and Finance Committee with reports, at least monthly, outlining the performance, activity, and portfolio holdings of the Foundation’s investments
Make recommendations to the Finance Committee concerning the allocation of funds and selection of appropriate investment vehicles consistent with this Investment Policy

INVESTMENT POLICY BACKGROUND

The Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) completed by the Uniform Law Commissioners in 2006, revises the Uniform Management of Institutional Funds Act of 1972 and has been enacted by 47 states. It went into effect August 1st, 2008 in the State of Minnesota. The Schola Foundation seeks to establish and maintain an investment program consistent with the guidelines of the UPMIFA.

Key provisions of the UPMIFA include:

Management and investment decisions about an individual asset must be made, not in isolation, but rather in the context of the fund’s portfolio of investments as a whole, and as a part of an overall investment strategy having risk and return objectives reasonably suited to the fund.
The Board is responsible for managing and investing the fund in good faith and with the care with which an ordinarily prudent person in a like position would exercise under similar circumstances.
The fund may invest in any kind of property or type of investment as long as it is consistent with the other UPMIFA guidelines.
Within a reasonable time after receiving property, an institution shall make and carry out decisions concerning the retention and disposition of property or to rebalance a portfolio.
In managing and investing funds, the following factors, if relevant, must be considered: general economic conditions, the possible effect of inflation or deflation, the role that each investment or course of action plays within the overall investment portfolio, the expected total return of the investments, other resources of the institution, the needs of the institution, distribution needs, and to preserve capital.
The fund may incur costs that are appropriate and reasonable in relation to the assets, the purposes of the institution, and the skills available to the institution.

INVESTMENT PHILOSOPHY

Modern Portfolio Theory, as recognized by the 1990 Nobel Prize awarded to Harry Markowitz and William F. Sharpe, influences portfolio structure and decision making. The Schola Foundation accepts the concepts of Modern Portfolio Theory as a basic part of its investment philosophy.

The Foundation is risk averse and accepts additional risk only when compensated by additional expected portfolio return.

The construction of the portfolio as a whole is significantly important and emphasis will be placed on appropriately allocating capital to major asset classes. The Schola Foundation seeks to capture the long-term returns exhibited by major asset classes such as stocks, bonds, cash, and real estate.

Portfolio structure will be developed and maintained by both portfolio optimization and functional diversification. Portfolio optimization seeks to create a portfolio with the least amount of risk for any expected level of return. Functional diversification seeks to include asset classes that respond differently under varying economic and financial market conditions including inflation, deflation, and general market variances. The Schola Foundation seeks to combine asset classes in the portfolio with low or negative correlations in an effort to manage risk.

FUND MANAGEMENT OBJECTIVES

In establishing portfolio objectives, the purpose and mission of the Schola Foundation is at the forefront of spending and investment decisions. An overall objective of the fund is to provide for a predictable, stable and sustainable level of annual support to Loyola Catholic School to support its operations and scholarships for its students. Assets are to be managed in a manner that upholds the confidence and trust of the Schola Foundation constituency.

Near-Term Goals: The Schola Foundation will attempt to make disbursements to Loyola Catholic School annually as prudently approved by the Board. However, the Foundation acknowledges that such disbursements are discretionary given the Foundation’s asset values, market conditions, contributions to the Foundation, or other various factors.

Spending Policy: The Finance Committee shall make recommendations, at least annually, of disbursements to Loyola Catholic School which shall be approved by the Board. The annual distribution amount shall be determined by taking into account short-term and long-term performance of the investments, portfolio management fees, Foundation administration fees, and contributions to the Foundation.

At the current time, the Schola Foundation investment portfolio may make disbursements to Loyola Catholic School (for scholarships and general support) in the amount of 4.25% of the trailing 5-year average value of the Foundation’s investment assets on December 31st of each calendar year (using the annual balance before each annual disbursement). If the prior year’s level of disbursement was greater than the level of disbursement as calculated under the 5-year average, the Foundation, at its discretion, may maintain the previous year’s level of disbursement. The Schola Foundation acknowledges that withdrawals in excess of the 4.25% 5-year average may reduce the likelihood that the portfolio will maintain its purchasing power value over long periods of time. Conversely, the Schola Foundation acknowledges that in distressed market environments less than the 4.25% 5-year average may help preserve portfolio purchasing power value over long periods of time.

Portfolio Expected Return:

The Schola Foundation seeks to achieve an average annual rate of return over 10-year periods of the Consumer Price Index (CPI-U) plus 4.5%.

Portfolio Time Horizon:

The Schola Foundation has a long-term time horizon and intends to invest Foundation assets with the view that the Foundation will exist indefinitely, subject to its mission to provide financial support to Loyola Catholic School.

Target Asset Allocation:

The target asset allocation model is established in order to manage portfolio risk and volatility and attain the desired portfolio return. The Foundation seeks to maintain risk levels that are lower than those of equity markets in general. The Schola Foundation will maintain a portfolio policy consistent with the target asset allocation model:

The Board shall, at least annually, review and approve the appropriate asset classes and allocation of the Foundations investments upon recommendation of the Finance Committee and the Foundation’s Investment Advisor. In addition to reporting the time-weighted returns for the investment portfolio, the Foundation’s Investment Advisor should also provide a comparison of the performance of the various assets classes to market benchmarks, and other money managers with philosophies similar to those investing long-term assets.

Portfolio Contributions and Withdrawals:

Contributions to the Foundation made throughout the year shall be allocated to the investment portfolio per Board approval. Withdrawals made from the Schola Foundation throughout the year will be made per Board approval and request to the Financial Advisor. Withdrawals from the account will be made considering and adhering to the target asset allocation of the portfolio.

Rebalancing:

The portfolio should be rebalanced at least annually and as needed. Contributions to and withdrawals from the portfolio throughout the year will necessitate reallocation of portfolio assets to the target asset allocation.

Cash and Liquidity:

Cash balance levels held outside of the investment fund and maintained for the purpose of conducting day to day business on the part of the Foundation shall be set at the discretion of the Board with input from the Foundation Finance Committee. Balances in excess of amounts for the purpose of conducting day to day business of the Foundation should be added to the investment fund.

PERMITTED ASSET CLASSES

The Schola Foundation permits the following asset classes in the execution of its investment strategy:

Cash and cash equivalents, including T-bills, commercial paper and other money market instruments
Investment and non-investment grade domestic fixed income securities
Investment and non-investment grade non – U.S. fixed income securities
U.S. Equities
Non – U.S. Equities
Emerging Market Equities
Equity REITS
Mortgage backed securities
Private Equity
Hedge Funds
Managed Futures
Direct Real Property Ownership

SECURITY TYPES

The Schola Foundation permits the following security types in the execution of its investment strategy:

Mutual Funds (Open and Closed End)
Exchange Traded Funds
U.S. and Foreign Common Stocks
Individual Preferred Stocks
Individual Bonds
Unit Investment Trusts
Bank Certificates of Deposi

PORTFOLIO MONITORING, MAINTENANCE, AND ADMINISTRATION

Monitoring/Reporting

The Finance Committee will provide a quarterly financial report on the assets of the investment fund to the Board. The quarterly report will include

Summary and detail market value by asset class
Contributions to and withdrawals from the Foundation portfolio
Comparison of investment results to appropriate indices/benchmarks

Review of Investment Results

The Board, Finance Committee and Investment Advisor will review periodically, at least annually, the investment results of the investment fund in order to discuss, identify, and recommend any changes in practice or policy. Reviews should consider, among other things, investment results relative to portfolio weighted indices over three, five, and ten year periods of time.

Gifts Received

Substantial gifts of non-cash items or non-marketable securities must be reviewed by the Board of Directors prior to acceptance. The purpose of the review is to prevent the acceptance of gifts which may present liabilities or exposure to possible loss which exceeds the asset value of the gift.

The Foundation recognizes and values the wishes of donors, and consequently, pledges a good-faith effort to manage and apply proceeds of gifts as intended by donors. In order to uphold the Foundation’s good-faith commitment, the Foundation reserves the right to convert assets donated into investments as deemed necessary or appropriate to meet Foundation goals.

Investment Policy Exceptions

The Board may amend and authorize exceptions to the provisions of this Investment Policy as it deems appropriate to further the purposes of the Foundation.

The Board recognizes that there may be instances where investments not addressed herein may be appropriate for the investment fund. Accordingly, notwithstanding any contrary provisions of this Investment Policy, the Board, with input from the Finance Committee, may make investments not addressed herein.

**This Investment Policy Statement was revised by the Board of Directors of the Schola Foundation on December 14, 2023.