Unitarian Universalist Association
Investment Policies And Guidelines
Updated at Sept 7, 2001 Investment Committee Meeting
Issued Sept 24, 2001
The Unitarian Universalist Association is a religious Association incorporated
in the Commonwealth of Massachusetts. In the course of its activities, the
Association receives gifts, trusts, and endowments that require investment
management. These consist of monies and items of value converted to monies
as follows:
1. Held in trust for the benefit of the Association
2. Held in trust for member Congregations
3. Held in trust for Associate or Affiliate organizations.
These funds, managed on behalf of the beneficiaries, are a major source of
income for them. Their successful management is vital to the current and future
success of the Association and its constituencies.
I. RESPONSIBILITY AND AUTHORITY
The Board of Trustees of the UUA has full authority and ultimate responsibility
for the management and safekeeping of all funds entrusted to it, including
funds provided for management to the Investment Committee of the UUA.
The Board of Trustees is responsible for the charge to the Investment Committee
and elects members and a chair. The Financial Advisor and the Treasurer serve
as voting members, ex officio. The Board of Trustees appoints five additional
members; such additional members are nominated by the Committee on Committees
for Board approval. At least one appointed member shall be a trustee and none
shall be a member of the Finance Committee of the UUA. The President of the
UUA serves as a non-voting member of the Investment Committee.
The Committee on Committees is responsible for the nomination of members
for appointment to the Investment Committee for two-year terms, with the right
of replacement of vacancies for unexpired terms. No appointment can exceed
four (4) terms.
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II. OPERATION OF THE COMMITTEE
The Committee is responsible for establishing the frequency, duration, and
agenda of its meetings. In accord with the charge to all Board Committees,
meetings outside of Boston must be authorized by the Moderator. Meetings will
be scheduled to permit the most timely review of performance data.
Expenses of the Investment Committee are the responsibility of the Investment
Committee and include fees for services, printing, travel, sleeping room rentals
- and other charges related to the committee and its functions. The expenses
of the Committee are reported with the Board of Trustees' expenses. Expenses
related to its investment functions (such as legal, consulting and custody
fees, investment management services, audit and administrative fees, etc.)
are charged against investment earnings. Compensation and other expenses of
the support staff including the Treasurer, the Director of Accounting and
the Endowment Fund Manager are reported with the financial services expenses.
Minutes of each meeting are recorded, circulated and submitted for approval
by committee members. The style of minutes (such as recording of notes, extent
of discussion or inclusion of reference material) is the prerogative of the
Committee. Minutes are distributed to each member of the Investment Committee
as promptly as possible after each Committee meeting.
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III. CONFLICT OF INTEREST POLICY
No person appointed to a UUA committee may continue in office if that committee's
deliberations are likely to result in a recommendation or decision that could
be of personal financial benefit to the member. In the event of a dispute
resulting from this rule, the Committee on Committees shall act as arbiter
and make a final recommendation to the UUA Board of Trustees.
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IV. SUPPORT STAFF
The Treasurer and the Treasurer's staff are responsible for providing the
support services that are necessary to implement the work of the Committee.
This includes scheduling appointments, providing liaison with the Interfaith
Center for Corporate Responsibility, reproducing reports, answering routine
questions about UUA investments, soliciting the investment management of endowments
from member congregations and affiliated organizations, and other tasks as
appropriate from time-to-time.
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V. DEVELOPMENT OF POLICY: REVIEW OF PERFORMANCE
The Board of Trustees has delegated to the Investment Committee the ability
to initiate or develop policies for the guidance of the Investment Committee
subject to the approval of the Board of Trustees.
The Board of Trustees or the Moderator may request investment reports for
distribution to the Board of Trustees. The Moderator may also request the
chair or other member(s) of the Investment Committee to report directly at
an assembled meeting of the Trustees.
At a minimum, the Treasurer and the Financial Advisor are available to report
on investment activity at every meeting of the Board of Trustees. If a member
of the UUA Board is appointed to the Investment Committee, he/she may also
report Investment Committee activities to the Board and, if the President
attends Investment Committee meetings, additional reporting channels are available.
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VI. RESPONSIBILITY FOR THE MANAGEMENT OF INVESTMENTS
The purpose of this statement of Investment Policies and Guidelines is to
outline the approach utilized by the Investment Committee in the management
of the UUA's assets. The statement will be reviewed periodically and modified
based on the decisions reached by this Committee.
A. The Investment Committee:
The Committee has responsibility for the following with respect to investment
policy:
1. Initiate, secure approval, interpret and implement overall investment
policy, including performance objectives.
2. Oversee the asset allocation of the funds to ensure adherence to guidelines.
The asset allocation policy is outlined below in Exhibit 1.
Exhibit 1
In order to have a reasonable probability of achieving the target return
at an acceptable risk level, the Committee has adopted the asset allocation
policy outlined below. The actual asset allocation will be reviewed on a
quarterly basis and will be readjusted when an asset class weighting is
outside of its target range
Exhibit 1
Asset Class |
Target % |
Range % |
Index |
Equities |
60% |
53 – 67% |
|
Domestic – Large Cap |
30 |
25 – 35 |
S&P 500 |
Domestic – Small Cap |
15 |
12 - 17 |
Russell 2000 |
International – Established |
15 |
12 – 17 |
SSB EPAC |
|
|
|
|
Fixed Income |
40 |
35 – 45 |
|
Core Bonds |
28 |
23 – 33 |
Lehman Aggregate |
High Yield Bonds |
7 |
0 - 9 |
Merrill Lynch High Yield |
Global Bonds |
5 |
0 - 7 |
Salomon World Government |
|
|
|
|
Cash |
0 |
0 - 10 |
|
The Policy Index is constructed by using the targeted asset class percentages
applied to market rates of return. The Fund's Policy Index is a custom benchmark
designed to indicate the returns which a passive investor would earn by
consistently following the asset allocation targets set forth in this investment
policy statement. The Policy Index is useful in separating the impact of
investment policy from execution of the investment strategy in evaluating
the performance of the Fund's investment program. The Policy Index is calculated
by multiplying the target commitment to each asset class (stocks, bonds,
etc.) by the rate of return of the appropriate market index (S&P for
stocks, Lehman Brothers Aggregate for bonds, etc.). The resultant average
represents investment return which the overall investment program would
have earned if the fund structure were identical to the policy targets and
the component returns identical to market index levels.
3. Establish guidelines for rebalancing asset classes and manager allocation.
The rebalancing policy is outlined below.
It is the responsibility of the Investment Committee, with the assistance
and support of the Treasurer and the Endowment Funds' Manager, to maintain
the GIF within the asset allocation policy ranges described above.
The Treasurer or Endowment Funds' Manager will review the allocations on
a monthly basis. The monthly and quarterly funds' flows into and out of
the GIF shall be directed so as to ensure that no manager or style allocation
exceeds the ceiling of the range, and indeed to maintain investments near
the target allocation.
Priority as to receipt of funds shall be given to a manager or style that
is, on a relative basis, most significantly below its target;
Priority as to distributions of funds shall be made from the manager or
style that is, on a relative basis, most significantly above its target.
In the event that such careful management of cash flows is insufficient
to maintain all managers and/or styles within their permissible ranges,
the Treasurer or the Endowment Funds' Manager will withdraw from the manager
or style above the prescribed range so as to reduce the allocation to be
within the range.
The funds shall be transferred to the manager or style most significantly
below its target so as to be within the range.
At each scheduled meeting of the Investment Committee, the Treasurer and/or
the Endowment Funds/ Manager will report all such activity to the Committee.
4. Hire an investment consultant, if desired, or terminate the services
of an investment consultant.
5. Appoint one or more qualified investment managers and delegate to such
investment managers the responsibility for implementing investment policy.
6. Take its direction from the Board of Trustees and work with the Committee
on Socially Responsible Investing (CSRI) to develop standards and implement
practices designed to achieve and maintain the Association's leadership
position in the socially responsible investing movement.
7. Review the performance of the investment manager(s) to assure that objectives
are being met, and that guidelines and procedures are being followed.
8. Take appropriate action if objectives are not being met and if guidelines
and procedures are not being followed.
9. Report regularly to the Board of Trustees on all relevant matters, including
investment performance.
B. Investment Managers: (See Also VIII)
The investment managers will be responsible for managing the funds allocated
to them and for selecting investment strategy and implementing security
selection within policy and guideline limitations. The Committee has the
following expectations of the investment managers:
1. That the primary emphasis in managing the funds will be on adherence
to the investment objectives and on following investment policy guidelines.
2. Each investment manager should describe the methods of discipline that
will be followed in adhering to the investment philosophy.
3. Each investment manager should advise the Treasurer, Investment Committee
members, and the investment consultant in writing of any significant changes
in the firm's policy, process, personnel, management structure or ownership
within ten days of said change.
4. Each investment manager will provide whatever information the Committee
requests from time to time with respect to the firm's character, policies
and procedures, especially relating to issues of import to the UUA. Each
investment management firm is encouraged to establish a program seeking
to become a diverse organization that refrains from and prohibits discrimination
based on race, color, sex, disability, affectional or sexual orientation,
age, or national origin, and without requiring adherence to any particular
interpretation of religion or to any particular religious belief or creed.
C. Investment Consultant: (See Also X)
The investment consultant shall provide the following:
1. Annually review overall soundness of the investment objectives and recommend
any necessary changes related to investment policy.
2. Provide a quarterly performance measurement system and quarterly review,
which will include risk and performance analysis.
3. Provide screening and introduction of other investment managers where
the Investment Committee deems appropriate.
4. Provide asset allocation or other studies as required by the Investment
Committee.
5. Provide general information relevant to the responsibilities of the
Investment Committee, including economic outlook, market activity, changes
in Investment Manager operation or personnel and other relevant matters.
6. Perform such other services as may be requested by the Investment Committee.
7. Develop a program seeking to become a diverse organization that refrains
from and prohibits discrimination based on race, color, sex, disability,
affectional or sexual orientation, age, or national origin, and without
requiring adherence to any particular interpretation of religion or to any
particular religious belief or creed.
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VII. INVESTMENT OBJECTIVES
AND PORTFOLIO COMPOSITION
All UUA administered trusts and endowments, for investment purposes, are
assigned to the General Investment Fund (GIF), unless otherwise restricted
(as with Holdeen Trusts held by First Union Bank, other outside trusts or
where the Trustee is specifically designated) or as directed by the Investment
Committee. The GIF was created to improve diversification, oversight and control
and to enable maximum efficiency of operations. The GIF is invested on a total
return basis.
This combination of funds in the GIF is designed to address several needs:
- Diversification among investment types. With the combination of funds,
individual endowment and trust accounts have the benefit of diversification.
- Improved oversight and control. The UUA can make modifications to the
investment structure to reflect changes in the economic environment more
efficiently and effectively.
- Efficiency. Having one fund permits more effective concentration of attention,
and provides for improved clarity and ease of reporting.
- Cost savings. Through continuing diligence in further developing concise,
clear and readable investment reporting and seeking efficiencies from the
pooling of the resources of the Association, member congregations and affiliates.
New monies coming into the General Investment Fund for management by the
Investment Committee will be invested in the GIF unless otherwise directed.
A. Investment Objectives
The investment objective of the General Investment Fund (GIF) is to increase
the asset base in order to maintain the real purchasing power of the endowment
after distributions. Any change in the spending rule should only be given
consideration when performance has exceeded both inflation and the long-term
average spending rate over a full market cycle.
The Fund's nominal return objective is 8.50%, net of investment management
fees and real return objective of 5%. In order to have a reasonable expectation
of meeting the Fund's goals and objectives, the Committee adopted the asset
allocation policy in Exhibit 1.
The total return for the overall Fund shall meet or exceed the Fund's Policy
Index (as described in Exhibit 1).
Total portfolio risk exposure and risk-adjusted returns will be regularly
evaluated and compared with a universe of similar funds for the Fund and
each investment manager. Total portfolio risk exposure should generally
rank in the mid-range of comparable funds. Risk-adjusted returns are expected
to consistently rank in the top-half of comparable funds.
Investment managers shall exceed the return of the designated benchmark
index noted below and rank in the top-half of the appropriate asset class
and style universe.
|
|
|
Asset Class |
Style |
|
Asset Class |
Benchmark |
Universe |
Universe |
|
Domestic Equity Composite |
Russell 3000 |
Equity Funds |
NA |
|
Domestic Large Cap Equity
Domestic Large Cap Growth
Domestic Large Cap Value |
S&P 500
Russell 1000 Growth
Russell 1000 Value |
Large Cap Equity Funds |
NA
Large Growth Large Value |
|
Domestic Small Cap Equity
Domestic Small Cap Growth
Domestic Small Cap Value |
Russell 2000
Russell 2000 Growth
Russell 2000 Value |
Small Cap Equity Funds |
NA
Small Growth Small Value |
|
Global Equity
Established Int'l Equity Value |
MSCI All World Country
SSB EPAC Index |
Global Equity Funds
Established Int'l Equity |
NA
Int'l Value |
|
Domestic Fixed Income |
Lehman Aggregate |
Fixed Income Funds |
Core Bonds |
|
High Yield Fixed Income |
Merrill Lynch High Yield |
Fixed Income Funds |
High Yield Bonds |
|
Global Fixed Income |
Salomon World Gov't |
Global Bond Funds |
NA |
The Committee is aware that there may be deviations from these performance
targets. Normally, results are evaluated over a three to five year time
horizon, but shorter-term results will be regularly reviewed and earlier
action taken if in the best interest of the Plan.
B. Portfolio Composition
1. Equity and fixed income specialist managers shall normally be fully
invested, subject to the guidelines contained in the following paragraphs.
Overall Fund structure shall be targeted to the ratios reflected in Exhibit
1, but may vary on a short-term basis within prescribed limits.
2. Equity investments, i.e., common stocks, convertibles, warrants and rights
are permitted, subject to the guidelines reflected in Exhibit 1. Equity
specialists may vary equity commitment from 90% to 100% of assets under
management. American Depository Receipts (ADRs), which are dollar denominated
foreign securities traded over the counter or on the domestic U.S. stock
exchanges may be held by each domestic stock manager in proportions, which
each manager shall deem appropriate.
3. International equities are permitted, subject to the guidelines reflected
in Exhibit 1.
4. Domestic fixed income investments are permitted, subject to the guidelines
reflected in Exhibit 1, and may include U.S. Government and Agency obligations,
corporate bonds, debentures, commercial paper, CDs, Yankee bonds, collateralized
mortgage obligations and other instruments deemed prudent by the investment
managers.
5. International or global fixed income securities are permitted, subject
to the guidelines reflected in Exhibit 1 (Exhibit 1 refers to the target
and asset allocation ranges)
6. Illiquid Investments are to be given special and very careful consideration
under special circumstances. Liquidity is defined as the ability to convert
the investment to cash within 90 days without causing a distress sale.
7.
It is the aspiration of the UUA that investment funds will be invested in a manner consistent with the UUA Socially Responsible Investing Guidelines (See Appendix). It is understood that commingled funds such as some mutual funds do not permit control over security selection and will require more frequent scrutiny and diligent review to preclude violations of our social investment objectives.
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VIII. INVESTMENT MANAGERS
The investments may be placed with one or several portfolio managers with
different investment strategies. Varying styles and strategies are intended
to reduce the risk implicit in having one manager, or all managers with the
same approach. Investment objectives apply to a longer term, (i.e. three to
five year) strategy. The Investment Committee will review routinely the distribution
of the percentage of the portfolio's assets among managers.
A. Guidelines for Transactions and Fees
1. The Investment Committee shall ensure that all fees and expenses applied
against investment income are appropriate and commensurate with the services
rendered. Transactions should be entered on the basis of best execution,
which is interpreted normally to mean best-realized price. Notwithstanding
the above, commissions may be paid for services rendered to the portfolio
in connection with investment management. Additionally, arrangements to
direct commissions shall only be implemented by specific authorization of
the Investment Committee.
2. All participants in the GIF will share in the common investment expenses,
pro-rata, based on their asset size and according to their unitized value.
3. The Managers, for their roles as Investment Managers, shall be compensated
at a rate stated in their respective Investment Management Agreements with
the Investment Committee of the UUA.
B. Monitoring Objectives and Results
1. These guidelines remain in effect until modified by the Investment Committee
and approved by the UUA Board of Trustees. The Committee will review these
guidelines and policies annually for their continued appropriateness and,
as needed, may make recommendations for their modification to the Board
of Trustees.
2. Each manager's portfolio will be monitored periodically through the year
for consistency of each manager's investment philosophy, return relative
to objectives, and investment risk as measured by asset concentrations,
exposure to extreme economic conditions, and market volatility. Portfolios
and their results will be reviewed by the Investment Committee on a quarterly
basis. Results will be evaluated over an appropriate period of time, generally
a full market cycle. The Committee will regularly review managers to ensure
that they continue to be suitable for the UUA.
3. Each investment manager will report performance results at least quarterly
as well as annually. . Manager quarterly reporting guidelines are in Appendix
D. The Manager will communicate major strategy changes immediately. Moreover,
the Committee should be familiar with how the manager operates and be comfortable
that the manager, in turn, understands the needs of the UUA.
4. The managers may be asked to make periodic oral presentations to the
Investment Committee subsequent to submission of their written report. Managers
should make every effort to accommodate requests of this kind.
5. When an investment manager's performance lags behind relevant stated
targets or experiences significant personnel turnover or a significant change
in philosophy or process, the Investment Committee will conduct a review
process to examine the circumstances. The manager may be terminated at the
Committee's discretion for any reason.
6. Investment Managers are expected to forward quarterly results of performance
to the Investment Committee and to the Committee's consultant promptly after
the close of each period. The consultant will compile comparative results
to facilitate the Committee's review. This comparative data shall be distributed
promptly after it is prepared.
C. Investment Manager Selection
The Investment Committee has responsibility for the selection of Investment
Managers according to its mode of operation. Managers may be brought before
the Committee based on recommendations of Committee members or at the recommendation
of an Investment Consultant. Selection of a manager is generally made from
among a panel of three or more candidates. The Committee will seek firms
that reflect the UUA's principles and purposes, in particular with respect
to inclusiveness, anti-racism and active commitment to workplace diversity.
Some useful criteria for consideration in the selection of an Investment
Manager, equity or fixed income, are enumerated in Appendix A.
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IX. GUIDELINES FOR INVESTMENTS
A. Fixed Income Investments
1. Money market instruments, cash equivalents, bonds, and derivative investments
(derivative investments shall not be made except as detailed in item IX.C.3
and IX.C.4. below) may be used. Fixed income managers are expected to employ
active management techniques. Interest rate futures and options as well
as currency forward futures and options can be used.
2. The minimum quality rating of any fixed income issue held in an investment
grade portfolio shall be B as rated by Standard and Poor's, or an equivalent
rating agency, and the overall weighted average quality shall be A or higher.
The overall quality of the high yield fixed income portfolio shall be B
or better. The ratings in this Policy Statement are for guidance only; the
investment managers are responsible for making an independent analysis of
the credit worthiness of securities and their suitability as investments
regardless of the classifications provided by rating agencies.
The average duration (interest rate sensitivity) of an actively managed
fixed income portfolio shall not exceed seven years
3. Inasmuch as non-taxable investments are not suitable for religious not-for-profit
institutions, issues of state or municipal agencies will not be purchased
except when the risk / return characteristics are attractive versus taxable
investments.
4. In general, investments will be well diversified with respect to type
of industry, and issuer in order to minimize risk exposure. No security,
excepting issues of the U.S. (and Canadian) Government or its agencies,
shall comprise more than 5% of total Fund assets, measured at market value.
Further, no individual portfolio shall hold more than 8% at market value
of its assets in the securities of any single entity, excepting issues of
the U.S. Government or its agencies, or in the case of international bonds,
the issues of sovereign nations or their agencies.
5. There will be no concentration of corporate bonds in any one industry
exceeding 20 percent of the Bond Portfolio, nor more than 10 percent in
any one issuer.
6. Global fixed income managers may enter into forward exchange contracts
to manage their currency.
7. Global fixed income managers may employ an active currency management
program and deal in futures and options within the discipline of that currency
management program. The use of futures and options to establish a leveraged
position is prohibited.
B. Equity Investments
1. Decisions as to individual security selection, security size and quality,
number of industries and holdings, current income levels, turnover, and
other tools employed by active managers are left to broad manager discretion,
subject to the usual standards of fiduciary prudence and UUA investment
guidelines.
2. Equity investments are limited to equities listed on the NYSE, AMEX or
Nasdaq National Market and foreign exchanges of equivalent national stature
Derivative investments shall not be made except as detailed in item IX.
D. 4. below.
3. No security shall comprise more than 5% of total Fund assets, measured
at market value. Further, no individual portfolio shall hold more than 8%
at market value of its assets in the securities of any single. Portfolio
turnover will be reviewed regularly by the Investment Committee.
C. General Comments on Investment Manager Guidelines
1. The UUA, through the Committee on Socially Responsible Investing (CSRI)
and the Investment Committee, will direct the voting of all proxy statements.
However, the Manager may be asked to vote under unusual circumstances.
2. If at any time the Manager believes that any policy guideline inhibits
investment performance or causes the Manager to handle the account differently
from the accounts of the manager's other clients, this view will be communicated
to the UUA Investment Committee. Managers are required to inform the Investment
Committee of any material change in their fundamental investment philosophy
(including turnover rate), ownership, organization structure, professional
personnel, or clientele structure.
3. Prohibited Assets and/or Transactions: The manager shall have powers
of investment discretion within the guidelines. However, the following assets
and/or transactions are prohibited and these may not be changed without
prior written approval of the Investment Committee.
a. Commodities
b. Lettered Stock, Private Placements, and Limited Partnerships
(with the exception of 144A securities)
c. Selling uncovered calls
d. Conditional sales contracts
e. Warrants (unless acquired when attached to purchased common stock
or bonds)
f. Lease-backs
g. Securities of the Trustee or Investment Manager, its parent or subsidiaries
h. Unless specifically approved by the Committee, the Manager shall
not buy securities on margin, engage in the short sale of securities,
or maintain a short position, unless at all times when a short position
is open, the portfolio either owns an equal amount of such securities
or owns securities which are convertible into or exchangeable for securities
of the same and equal in amount.
i. The Manager shall not engage in any transaction where it acts as principal.
j. The Manager shall not deal with the assets of the portfolio in its
own interest or for its own account.
k. The Manager shall not act in any capacity in any transaction involving
the portfolio on behalf of a party (or represent a party) whose interests
are adverse
to the interests of the portfolio or the interests of the Investment Committee
of the UUA.
l. The Manager shall not receive any compensation for its own account
from any third party dealing with the portfolio in connection with a transaction
involving assets of the portfolio.
m. All investments must be consistent with the prudent investor rule.
4. Derivative securities are not permitted unless specifically approved
by the Investment Committee. Where appropriate, investment managers may
be given permission to use derivative securities for the following reasons:
a. Hedging. To the extent that the portfolio
is exposed to clearly defined risks and there are derivative contracts
that can be used to reduce those risks, the investment managers are permitted
to use such derivatives for hedging purposes, including cross-hedging
of currency exposures.
b. Creation of Market Exposures. Investment
managers are permitted to use derivatives to replicate the risk/return
profile of an asset or asset class provided that the guidelines for the
investment manager allow for such exposures to be created with the underlying
assets themselves.
c. Management of Country and Asset Allocation Exposure. Investment
managers charged with tactically changing the exposure of their portfolio
to different countries and/or asset classes are permitted to use derivative
contracts for these purposes.
d. Futures and options can be used to initiate positions.
By way of amplification, it is noted that the following two uses of derivatives
are prohibited:
a. Leverage. Derivatives shall not be used
to magnify overall portfolio exposure to an asset, asset class, interest
rate, or any other financial variable beyond that which would be allowed
by a portfolio's investment guidelines if derivatives were not used.
b. Unrelated Speculation . Derivatives
shall not be used to create exposures to securities, currencies, indices,
or any other financial variable unless such exposures would be allowed
by a portfolio's investment guidelines if created with non-derivative
securities.
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X. ROLE OF CONSULTANT
The Investment Committee may retain a consultant to help it decide, implement,
and monitor its investment strategy.
A. The consultant will assist in identifying and enumerating investment
policies and strategies with
an emphasis on the investment policies and strategies of other institutions,
especially those
that the consultant expects will provide the UUA with superior long-term
performance. The
consultant will also help tailor adopted policies and strategies to meet
UUA goals and objectives.
B. The consultant may review the existing statement of investment
objectives and guidelines and suggest necessary changes. In addition, the
consultant is expected to provide research information on capital markets
relevant to the Association's needs, suggest asset allocation changes, evaluate
existing investment managers, and suggest to the Committee changes in the
manager group (names of individual managers) including terminations as appropriate.
C. The consultant will provide the following performance information
and review it quarterly with the
Investment Committee:
- Performance results in relation to stated objectives and policy guidelines.
This review will include not only a display of return, but an examination
of the risk assumed to achieve the return.
- Performance versus various relevant indices for the most recent quarter,
year, three years, and five years (or such shorter period as an Investment
Manager has been engaged).
- Review and discuss any changes in conditions or policy guidelines that
might affect or improve the performance of the managed funds.
- All performance measurement shall be consistent with applicable Association
for Investment Management and Research (AIMR) standards.
D. The consultant is expected to assist the Committee in developing
appropriate investment
policies by fully informing all Committee members of the basis for its recommendations.
E. The consultant is expected to help the Committee achieve its
investment goals by providing
continuity and perspective gained through cumulative experience with the
UUA and other
clients, and with insight into the economy and financial markets.
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APPENDIX A
Socially Responsible Investing Guidelines
(1997 Appendix A)
A. HISTORY
The UUA's Committee on Socially Responsible Investing was first considered
by the UUA Board in June of 2000 in response to the recommendations of the
“Task Force on Socially Responsible Investing” established in
November of 1999, which stated that:
Socially Responsible Investing (SRI) allows the UUA to harness the power
of its financial resources to live out and express UU values. Resolutions
passed by the UUA Board and the General Assembly between 1967 and 1986 are
among the earliest manifestations of the evolving trend to invest assets
for the combined purposes of investment return and to advance a specific
social or environmental agenda.
At its meeting on October 21-22, 2000, the Board of Trustees voted to establish
a Committee on Socially Responsible Investing with the mandate found below
as “B. Mandates.” In April 2002, the Board approved a “Comprehensive
Social Analysis and Guidelines” found below as Appendix B.
B. MANDATES1
The Charge to the Committee on Socially Responsible Investing is to:
- Maintain and assist with implementation of SRI policies and practices
with respect to funds over which the Trustees have responsibility (including
alternative and community development investments) that reflect UU values,
especially as expressed by the GA resolutions and Statements of Immediate
Witness, Board resolutions and UU Principles and Purposes.2
- Assist the Investment Committee in the implementation of the UUA's SRI
responsibilities as set forth in the Investment Guidelines adopted by the
Board and amended from time to time.
- Utilize shareholder activism to express UU values to the corporations
in which our funds are invested, including dialogues with corporate managers,
proxy voting, and filing resolutions on specific issues.
- Broaden coalitions with other like-minded faith-based organizations, coordinating
with the Washington Office, the Office of Public Witness, and other UUA
departments and constituencies, as appropriate.3
- Communicate SRI policies and activities to the Board, staff, member congregations,
and other constituencies. Expand services to the member congregations and
individual UUs with respect to the implementation of SRI programs and establishment
of more powerful coalitions in pursuit of shareholder activism and positive
social change.
- Develop an ongoing process of assessment and audit of the effectiveness
of the SRI policies and practices.
This mandate establishes the Committee on Socially Responsible Investing
as a resource to the UUA which supports both the goals of the UUA and any
transitional planning towards those goals, as approved by the Board of Trustees
at their April 21-22, 2001 meeting.
C. AUTHORITY
Specific sources of authority for socially responsible investment guidelines
are found in the General and Business Resolutions, Statements of Conscience,
and Actions of Immediate Witness voted by UUA General Assembly and statements
from the UUA Board of Trustees. General Resolutions, Business Resolutions,
and Statements of Conscience carry the most weight, followed by Actions of
Immediate Witness and statements from the Board of Trustees in making judgments
of applicability. The Committee on Socially Responsible Investing will keep
abreast of developments in the SRI field. The Committee on Socially Responsible
Investing will work with the current conceptual framework of the “Triple
Bottom Line” i.e., social, environmental and financial return.
When the Board created the CSRI it made a long term commitment to support
and affirm the values of the Association through its financial assets and
to strive to deepen the Association's social impact through the power of its
financial assets.
All of the UUA’s principles apply to the work of socially responsible
investing, which includes screening, shareholder activism, and community development.
1st: Affirm and promote the inherent worth and dignity of every person;
2nd: Justice, equity, and compassion in human relations;
3rd : Acceptance of one another and encouragement to spiritual growth in
our congregations;
4th: A free and responsible search for truth and meaning;
5th: The right of conscience and the use of the democratic process within
our congregations and in society at large.
6th: The goal of world community with peace, liberty and justice for all;
7th: Respect for the interdependent web of all existence of which we are
a part.
Resource lists of organizations, publications, and websites which provide
social investment research and shareholder activism information are located
on the web pages of the Committee on Socially Responsible Investing: uua.org/finance/sri.
D. STRUCTURE
1) Overview
In 1968, the UUA General Assembly directed the UUA Investment Committee to
“concern itself with social implications of our corporate investments.”
As it stated in 1997, the Board recognizes “the UUA's responsibility
does not end with maximizing return and minimizing risk, and that economic
growth can come at considerable cost to community and the environment.”
The UUA Investment Committee is charged with the responsibility to manage
the Association’s investments in alignment with UUA Principles and
Purposes and resolutions adopted by the General Assembly, as well as the
requirements of fiduciary law. While the purpose of the Investment Committee
is investment, and not advocacy, it operates in the context of the Association's
values.
We believe that efforts to mitigate environmental degradation, address issues
of social justice and promoting community development will be successful
to the extent they are successfully brought into consideration as a part
of our investment decision making. (1997
Appendix A)
The creation of the Committee on Socially Responsible Investing provides
the UUA Board of Trustees with a means to monitor and assess all its fiduciary
responsibilities with a view toward “the integration of prudent financial
management practices with principles of environmental stewardship and corporate
citizenship.” (1997 Appendix
A). The work of these committees aims to bend finances toward justice,
and further the maturation of capitalism.
2) Accountability:
Both the Committee on Socially Responsible Investing and the Investment Committee
report to, and are accountable to, the Board of Trustees. The relationship
between the two committees is one of collaboration.
3) Staff Liaisons:
The Treasurer of the UUA is an ex-officio non-voting member of the Committee
on Socially Responsible Investing.
A staff liaison is appointed by the administration.4
4) Scope of Financial Jurisdiction:
The Committee on Socially Responsible Investing makes recommendations to
the Investment Committee and to the Board of Trustees regarding all monies
under their purview. The Committee on Socially Responsible Investing will
respond to all requests from the UUA or its affiliates for assistance.
CSRI, in cooperation with the Treasurer, makes recommendations about other
monies which have been authorized by the Board for investment in community
development and in marginalized communities, including a “building loan
guaranty reserve” held on behalf of the Congregational Properties and
Loan Commission, and a separate account within the GIF for the sole purpose
of shareholder activism.
E. TOOLS
The primary tools used by the UUA to implement its socially responsible
investing policies are:
- screening,
- shareholder activism (including proxy voting),
- and investing in community development.
The UUA is committed to an investment program which utilizes available, appropriate
tools of social investment to optimize the alignment of its financial assets
with its values and its social change agenda.
1. Screening:
a. Introduction
Screening is the practice of including or excluding investments from portfolios
based on social and/or environmental criteria. Generally, social investors
seek to own financially strong companies that make positive contributions
to society. This is often termed "positive" social screening.
The UUA actively favors investing in companies with outstanding employee and
community relations, excellent environmental practices, safe and useful products,
and respect for human rights in all countries where they operate. The UUA
also actively avoids investing in companies whose products and business practices
are harmful or unethical. This is termed “negative” screening.
The UUA will not invest in tobacco products, in companies that produce nuclear
weapons, nor in the top 50 major weapons manufacturers or those companies
where weapons represent over 5% of revenue. The UUA also avoids investing
in companies with poor employee or community relations or harmful environmental
impacts.
b. Screening Skills
Screening is both a science and an art, and in the context of an imperfect
world, competent social screening takes into account both qualitative and
quantitative factors. It is at the same time both subjective and value-based.
The Committee on Socially Responsible Investing will review investment portfolios
with attention to social and environmental screens. Desirable skills and attributes
for socially responsible investing include:
- Commitment to standards of absolute value as expressed by the Investment
Policy Guidelines (for example, the prohibition from investing in tobacco
or nuclear weapons)
- Skill in balancing the priorities of the UUA (weighing environmental and
human rights performances, for instance, into an aggregate judgment)
- Skill in perspective (that is, the depth and breadth of social research
capabilities in order to determine patterns of egregious or positive behaviors)
- Skill in proportion (e.g., weighing the seriousness of a single court
case or one aggrieved employee against positive systemic environmental programs
and their impact)
- Skill in the assimilation of unfolding information
- Discernment in the grey areas of companies with mixed records
An annual assessment of screening implementation will be forwarded by the
Committee on Socially Responsible Investing to the Investment Committee and
the Board.
c. Screening Criteria
The four categories of screening criteria are:
- Employee Impact
- Customer Impact
- Community Impact
- Environmental Impact.
Healthier corporate cultures are encouraged by shaping our investment portfolios
to “favor” or to “avoid” certain companies with respect
to the above For example, with respect to "Employee Impact", companies
that have strong awareness of affirmative action and firm non-discrimination
practices receive favorable consideration, and companies that are egregious
OSHA (Occupational Safety and Health Administration) offenders are to be avoided.
CSRI is developing a process by which UUA’s investment managers can
be evaluated based on their implementation of these favor / avoid investment
selection screens.
As the field develops, the CSRI may propose additional screens as the field
develops that will be brought to the Investment Committee and the Board of
Trustees for adoption.
d. Screening Review
To further guide the UUA’s investments, the Committee on Socially Responsible
Investing shall review and report on investments according to performance
factors in the following areas:
- Sectors (tobacco, for example) which are prohibited for UUA investments.
- Companies within problematic sectors, oil for instance, which nonetheless
exhibit the best social/environmental behaviors among their peers. This
is generally referred to as "Best in Class."
- Those companies without regard to sector which exhibit such egregious
behaviors that they are contraindicated for inclusion in any socially screened
portfolio.
The Committee on Socially Responsible Investing will recommend to the Board
and the Investment Committee a list of securities, updated semi-annually,
to be held in a separate account within the GIF for the sole purpose of shareholder
activism.
Screening performance will be reviewed and updated semi-annually by the
Committee on Socially Responsible Investing, in February and in October.
The screening reviews will be available on the CSRI website to the Board,
UU congregations, UUA Districts, affiliated organizations and individuals
for information and guidance purposes without the need for specific Board
action.
2. Shareholder activism
Shareholders, particularly institutional shareholders such as the UUA, can
influence decision makers—management and Boards of Directors—of
publicly traded corporations to engage in ethical and sustainable business
practices by:
- Proxy voting. The UUA engages a proxy voting service to research, analyze
and implement the voting guidelines provided by the CSRI. The UUA Treasurer
may on a case-by-case basis cast a proxy vote.5
- Engaging management in dialogue, usually by writing letters to corporate
management and directors, and following up when no response is received.6
- Filing or co-filing shareholder resolutions.
- Locating, encouraging and coaching UUs who are interested in presenting
shareholder resolutions at annual meetings of corporations.
- Joining with others in the ethical investment movement who have initiated
management dialogue such as socially responsible investment firms; and non-profits,
such as the Interfaith Center for Corporate Responsibility and the Social
Investment Forum.
3. Community Investing
The Board of Trustees adopted a Community Investing Policy on January 19,
2003, stating:
The Board recognizes Community Investing in areas underserved by traditional
sources of financing is a meaningful component of a social investment program.
The actions contained herein are intended to both consolidate and build
upon the actions of previous Boards of Trustees of the UUA in this area.
- Direct the Investment Committee to invest a minimum of 1% to a maximum
of 5% of unrestricted reserves in the Endowment Fund in assets of institutions
known as Community Development Financial Institutions (CDFI), as it deems
appropriate, based upon the prior review, acceptance and recommendation
of the Committee on Socially Responsible Investing (CSRI).
- Encourage congregations and districts to adopt a similar policy. As
an incentive, up to 75% of UUA's Community Investing assets may be used
to
match congregational and district CDFI investments up to one percent of
their endowment per congregation/district. It is desirable that full implementation
of this policy goal be achieved within five years after Board adoption.
- Maintain 25% of the Community Investing assets to support advocacy
and witness, as recommended to the CSRI by the Office of the President
of the UUA.
- Direct the CSRI to develop a plan to a) monitor the financial health
of the CDFIs in which UUA invests, as well as their social efficacy, and
b) encourage congregations and districts to remain vigilant in monitoring
the social efficacy of their matched investments. The CSRI may develop
a cadre of volunteer Socially Responsible Investing (SRI) Advocates to
assist with monitoring and publicity.
- Request the CSRI to report back to the Board in one year regarding
implementation of this policy, particularly progress toward the 75% match
goal, and thereafter no less than every two years.7
The Committee on Socially Responsible Investing, in close cooperation with
the UUA Treasurer, makes decisions regarding the choice of community development
investments as well as the percentage allocation between 1% and 5%.8
Options for community investment include loans such as savings accounts,
certificates of deposit, other loan notes, equity investments in community
development, and socially responsible money-market funds offered by certain
community development banks.9
A schedule of the UUA’s current holdings in community development
financial institutions (CDFIs) —community banks and credit unions, and
community development loan funds—is available from the UUA Treasurer’s
Office. This table includes assets held as an informal guarantee reserve for
the Congregational Property and Loan Commission. Another table is available
from the Office of Advocacy and Witness Congregational Services. This table
includes percentages by type of investment, and is designed to highlight progress
toward the goal of a 75% congregational match.
Footnotes, Appendix A
- The bullet points are as recorded in "Abstract from the Minutes of
the UUA Board of Trustees Meeting of April 21-22, 2001.”
- The term "funds" is understood to mean all funds over which
the UUA Trustees have responsibility.
- The "Washington Office" is currently the Washington Office
for Advocacy.
- As of January, 2005, the appointed staff liaison of CSRI is the Director
of the UUA Office for Congregational Advocacy and Witness.
- Currently the UUA engages Institutional Shareholder Services (ISS) to
provide proxy voting services. The Committee on Socially Responsible Investing
reviews the proxy voting service guidelines on an annual basis. The Committee
may modify the guidelines pursuant to its judgment and guided by UUA principles,
resolutions and witness. Thus, specific guidelines for UUA votes are prepared
each year for use by the proxy voting service. In shareholder-proposed matters
where the Committee has no clear guidance from the UUA resolutions, principles
or Actions of Immediate Witness, the UUA abstains from the vote. In making
determinations, the Committee gives Statements of Conscience more weight
than Actions of Immediate Witness. Resolutions of the UUA Board of Trustees
may also serve as guidance for decisions regarding proxy voting. The Committee
on SRI may ask the UUA Board of Trustees to make a determination and judgment
on whether a specific issue has sufficient UUA “backing” for
the UUA to take a position.
- The first major letter writing campaign occurred in June 2004. Companies
held in the UUA Portfolio as of March 31.2004, were requested to provide
information about their practices with respect to sexual orientation and
gender identification in their employment policies, and encouraged them
to provide domestic partner benefits and to endorse the Equality Principles.
- Here ends the text approved by the UUA Board of Trustees, January 19,
2003.
- The Committee on Socially Responsible Investing will receive semiannual
reporting from the Treasurer detailing Community Investing, including the
building loan guaranty reserve held on behalf of the Congregational Properties
and Loan Commission. Supplement #3 supplies the Supplemental Schedules of
Assets, Liabilities and Net Assets by business segment from which the following
GIF amounts may be identified, as of end FY 2004, and the percentage of
assets in Community calculated:
Total Assets $106,763,653
Less: Current liabilities (3,801,061)
Assets Held in Trust for others (17,531,227)
UUA Assets from which to take % 85,431,365
June 30, 2004 Community Investments 1,543,778
Percent of funds invested in community 1.8%
- Currently, January 2005, community development investments are held primarily
in short-intermediate term debt notes at market or maximum interest rates
offered. No community investments are in equity.
Back to Top
APPENDIX B
UUA Screening Criteria and Implementation Guidance
(2001 Appendix B)
Introduction
Most companies, like most people, have a mix of strengths and opportunities
for improvement. Companies’ mixed records can make it challenging for
investors (and their managers) to determine whether particular companies meet
their social values, as well as their financial objectives. However, there
are a growing number of benchmarks that illustrate how values-based screens
can be used to meet clients’ social and financial objectives. These
include the Dow Jones Sustainability Indices (www.sustainability-indexes.com/),
the Calvert Social Index (www.calvert.com/funds_profile919.html),
and the Domini Social Index (www.kld.com/benchmarks/dsi.html),
all of which have generated strong financial returns while meeting various
social expectations. The annual Business Ethics list of 100 Best Corporate
Citizens provides another universe of companies widely recognized for aspects
of their corporate citizenship (www.business-ethics.com).
Reviewing the components of these benchmarks to see what companies are and
are not included may provide some helpful background in implementing the social
screens below.
In addition, while information from activist websites and the Internet in
general should be “taken with grains of salt”, lists like the
Multinational Monitor’s annual list of 10 “worst” corporations
of the year can also alert portfolio managers to companies facing particularly
high profile controversies and concerns among environmental, labor, and other
social groups. Profiles by the Interfaith Center for Corporate Responsibility
(ICCR), and other groups also report on recent controversies. For many social
investors, patterns of controversies, and whether a company reacts defensively
to a controversy rather than seeking proactive solutions are a more significant
indicator of concern than one particular incident. For instance, as of October
2004, certain companies such as ExxonMobil, General Electric, Monsanto, and
Wal-Mart face controversies on numerous fronts, and are excluded from most
social investors’ portfolios.
Here follows the four categories of UUA screening guidelines based on our
Purposes and Principles and UUA Resolutions and Actions of Immediate Witness:
community, environment, customer and employee. After each screen, there is
a brief discussion of some suggestions for implementation.
1. COMMUNITY IMPACT
AVOID COMPANIES THAT:
- Fail to invest adequately in local communities as evidenced by banks with
a “needs to improve” or “significant noncompliance”
Community Reinvestment Act (CRA) rating in a major banking subsidiary, or
failure to comply with equal credit opportunity regulations.
- Engage in predatory lending practices or redlining of communities in need
of services
- Have demonstrated a lack of regard by failing to communicate about important
corporate issues which directly involve the local community such as land
use, facility closings (Warn Act) and pollution concerns.
FAVOR COMPANIES WITH:
- “Outstanding" CRA ratings
- Formal communications structures with community groups and a high level
of public accountability
- Policies and programs that favor historically oppressed and marginalized
people
- Innovative community involvement such as paid time off or sabbaticals
for volunteers, employee recognition, company sponsored volunteer programs,
and generous corporate philanthropy.
Commentary:
Some of the benchmarks in this screen, such as compliance with the WARN act,
are relatively straightforward to implement. Others are more subjective. Some
rating services do provide reports on corporate records of community involvement.
In evaluating companies, community impact goes beyond mere philanthropy to
include issues such as site selection and supplier development programs for
women and minority businesses. Many U.S. companies will face concerns over
job outsourcing and plant shut downs, but managers should seek companies that
address these issues openly and in ways that demonstrates respect and concern
for their community impacts. Experience has shown that very few banks receive
anything other than satisfactory (or better) ratings from CRA, yet some of
those that get decent ratings also have serious incidents or litigation over
redlining or predatory lending.
2. ENVIRONMENTAL IMPACT
AVOID COMPANIES THAT:
- Show a pattern of serious environmental violations
- Have been negligent in handling significant environmental problems
- Are responsible for major environmental disasters
- Are significantly engaged in practices with negative global impacts such
as rainforest destruction and ozone depletion
- Are uncooperative in disclosing environmental information
- Are in "dirty" industries with below average records of performance
FAVOR COMPANIES WITH:
- Products or services that reduce waste generation or conserve natural
resources
- Significant progress in reducing volume and toxicity of waste, emissions
and effluents
- Innovative programs to reduce use of energy, water, materials and land
- Consistently good compliance records
- Strong environmental management systems including clear environmental
policies and regular audits (CERES)
- A commitment to standardized environmental reporting (CERES)
- A commitment to increase involvement in renewable energy sources
Commentary:
These screens go beyond legal compliance to encompass a company’s pattern
of environmental conduct, positive and negative. The screens encourage the
avoidance of companies in “dirty” (e.g., environmentally sensitive)
industries, which would include extractive industries (mining, timber, and
oil & gas), chemicals, heavy manufacturing (e.g., steel), and utilities.
Particularly within these industries, managers should look for records of
“beyond compliance” environmental leadership, such as participation
in partnerships with EPA and nationally recognized environmental groups, voluntary
commitments to reduce pollution below required levels, and a demonstrated
willingness to address environmental challenges.
Managers can identify “leaders” and “laggards” in
different industries. For instance, some leading social indices include BP
and Royal Dutch Shell as “best of class” in the oil and gas sector
for their willingness to acknowledge the issue of climate change and begin
to address it, while excluding ExxonMobil for its aggressive stance against
any steps to address climate change and its pattern of seeking legal delays
to paying damages from the Exxon Valdez oil spill. Similarly, many screened
funds avoid investments in the Southern Company and other utilities that have
aggressively lobbied to weaken clean air act regulations and have longstanding
patterns of environmental violations.
In addition, some industry sectors (such as genetic engineering, pesticides,
extractive industries) generate such environmental controversy and concern
that they may not be appropriate for environmentally screened portfolios.
The semiconductor industry has a profound environmental footprint, which includes
microelectronics; some environmental impact is only felt long after production,
as in the case of automobiles. In addition to calling on investment managers
to avoid companies facing significant environmental problems and controversies,
the screens call for proactive investment in companies with strong environmental
records or product offerings, such as renewable energy.
Sources for information on a companies’ environmental performance can
include: (1) firsthand knowledge: asking for, and receiving (or not receiving!),
environmental information and (2) public knowledge: noting a companies’
response to public requests for information. Management recommending votes
against shareholder resolutions asking for disclosure of environmental practices
would be a discouraging factor.
3. CUSTOMER IMPACT
AVOID COMPANIES THAT:
- Are major weapons manufacturers (top 50) or with weapons sales 5% or more
of total sales
- Produce nuclear weapons
- Engage in the manufacture of tobacco based products
- Produce or sell handguns
- Manufacture or sell products known to have adverse public health consequences
whether or not in contravention of local standards have misleading or irresponsible
marketing of products and services such as stereotypical depictions of women
and minorities in advertising.
FAVOR COMPANIES WITH:
- Safe, useful, high-quality products or services that enhance the quality
of life for consumers
- Responsible pricing and marketing practices
- Good response systems to address product safety concerns
Commentary:
Many of these screens are clear to implement, such as screening out the top
fifty United States weapons manufacturers and companies that derive more than
5 percent of revenues from weapons sales. As one example of less clear-cut
corporate behavior that could trigger this screen, pharmaceutical companies
have increasingly faced a wide range of controversies including allegations
that they deliberately withheld clinical trial data that showed some products
were unsafe; for example, Merck withdrew Vioxx because of previously undisclosed
adverse effects of the drug. One looks for patterns of misleading or irresponsible
marketing. Companies facing credible allegations of such behavior, even if
they settle claims without admitting guilt, could violate this screen.
COMPREHENSIVE SOCIAL ANALYSIS AND GUIDELINES
4. EMPLOYEE IMPACT
AVOID COMPANIES THAT:
- Are egregious offenders or have patterns of Equal Employment Opportunity
(EEO) violations
- Have a pattern of serious National Labor Relations Board (NLRB)
cases or other anti-union actions or are on the AFL-CIO boycott list
- Are egregious offenders of Occupational Safety and Health Administration
(OSHA) regulations
- Are involved directly in violations of the most basic human rights
to survival and integrity
- Are known to use forced labor, child labor, sweatshops or violate
other international labor organizations standards
FAVOR COMPANIES WITH:
- Above average representation of women and ethnic minorities on Boards
of Directors an in senior management and pipeline positions
- Strong recruiting, Affirmative Action, diversity awareness and antiracism
identity and practices
- Inclusive nondiscrimination policies that include sexual orientation
- Positive union relations or employee participation relative to their
industry
- Above average compensation and benefits, including domestic partner
benefits
- A demonstrated commitment to work-life balance through options such
as flex-time, part-time benefits, job sharing, telecommuting and dependent
care
- Strong emergency training and on-going safety programs
- Explicit human rights principles or labor standards to guide global
operations in owned and contracted facilities, including independent monitoring
and reporting
- Transparency on issues related to challenges in the workplace
Commentary:
Implementation of this screen includes some issues that are clear-cut (e.g.,
is a company on the AFL-CIO boycott list?) and others that are more subjective.
Few companies have unions and a great many companies have violated laws on
Family Medical Leave, overtime, unfair labor practices, and the like. Many
apparel, consumer products, toy, and other retail companies have faced allegations
that their overseas manufacturing employs “sweatshop labor” either
directly or through contract suppliers. Many companies, such as Nike, have
put in place strong vendor codes of conduct to address such concerns, and
are monitoring their compliance, although they may still face allegations
of specific cases of abuse. Many screened funds choose not to hold Wal-Mart
because its vendor code of conduct is less stringent than many of its peers,
as well as for a host of controversies involving treatment of its retail workers
in the U.S. In determining whether a company meets this screen, it is important
to look at patterns of conduct over time, and whether companies have taken
proactive measures to correct problems that have occurred in the past.
Back to Top
APPENDIX C - INVESTMENT MANAGER
SELECTION CRITERIA
A. Some Investment Manager Selection Criteria
1. Investment Philosophy
a. Coherence
b. Faithfulness of execution
c. Fit with the Unitarian Universalist Association structure and objectives
2. Performance Record
a. Against the marker
b. Against other managers
c. Against other managers of similar philosophy
3. Personnel
a. Experience (in years) of professional personnel
b. Years that the group has been together
c. Financial incentives
d. Availability of key personnel
e. Interest in Unitarian Universalist Association
f. Empathetic with the objectives of the Unitarian Universalist Association
4. Organization
a. Appropriateness of asset size (current and planned) and philosophy
for the U U A
b. Degree of administrative complexity as evidenced by account size
and discretion
c. Similarity of clientele or familiarity with particular Unitarian
Universalist characteristics
d. Research capability (as required by philosophy)
5. Financial and Ethical Viability
B. Common Stock Manager Interview Questions
Organization
When was the firm founded? By whom?
Who owns the firm?
What are the present staffing levels (portfolio managers/analysts)?
What is the compensation plan for investment professionals?
Who are the key decision-makers?
How long has this group worked together as a team?
What are their professional backgrounds?
What has the turnover been in key personnel (portfolio managers/research
analysts) over the
last five years?
Describe how a stock gets into a portfolio: including the inception ofthe
idea, the research, and the final decision. Who is involved in each step?
Is your firm affiliated with a brokerage unit? If yes, can all brokerage
be handled externally?
Clients and Assets Under Management
What are the total assets under management by the firm (broken down by equity/fixed
income and taxable/tax-exempt)?
How many account relationships are there?
What is the firm's five year business plan?
What limit is planned for asset/client growth?
Describe your client base.
Do you manage any assets generated from wrap programs?
What institutions have hired your firm in the last year?
What institutions have fired your firm in the last three years?
Who are some of your eleemosynary clients?
Who is your largest client?
Investment Process
Bottom Up/Quantitative Analysis
What percentage of the decision-making process is bottom up/quantitative?
What universe of stocks is considered initially (e.g., number of stocks,
characteristics)? What is
the capitalization range of that universe?
What selection criteria or computer screens are applied to this universe
(e.g., price-earnings,
price-book, price-cash flow, dividend yield, dividend discount model)?
What databases are used?
How do you reduce the initial universe to a smaller working list (how
many names)?
Bottom-Up/Fundamental Analysis
What percentage of the decision-making process is bottom-up/fundamental?
What are the major sources of ideas?
What are the primary research sources (e.g., internal, Wall Street, regional
brokers)?
Do you visit companies? Talk to management? To competitors?
What are the fundamental selection criteria?
Top-Down Analysis
What percentage of the decision-making process is top-down?
What variables are considered and over what time horizons (economic growth,
monetary policy, interest rates, fiscal policy, inflation rate, U.S. dollar,
industry trends, demographic trends, behavioral patterns)?
How do you incorporate the world economic situation into your analysis?
What is the "output" from the top-down part of the process (e.g.,
industry ideas, interest rate projections, inflation outlook, investment
"themes")?
What is your present outlook for the market and economy?
Even if you do not have an explicit macro-economic forecast, how do you
incorporate global competitive concerns in your stock selection process?
Sell Discipline
What would trigger a stock sale (e.g., price objective met, stock/industry
too large a percentage of the portfolio, deteriorating fundamentals, desire
to raise cash for other purchases)? Would you eliminate the position or
scale back?
What is the average annual portfolio turnover?
Portfolio Composition
What are the criteria for buying?
How are the different criteria weighted and do these weights change?
How many issues are held in a portfolio? Does this vary with market conditions?
What is the extent of over/under weights of sectors/industries?
What limits are placed on the holdings of any one security? Do you have
any liquidity constraints?
How are holdings weighted (e.g., equal-weighted, capitalization weighted)?
What is the frequency of portfolio rebalancing?
Do use bond or cash when permitted in equity portfolios? If so, how often,
to what extent, which instruments, and why?
How is risk evaluated and incorporated into this process?
What use do you make of futures and options?
What use do you make of convertible bonds, preferred stock?
What use do you make of non-U.S. securities, American Depository Receipts?
Average Portfolio Statistics
What are the Beta and R squared for the equity portion only and for the
total portfolio?
Price-Earnings (based on trailing earnings/prospective earnings)? Price-Book?
Dividend yield?
Average/median market capitalization of stocks? Largest cap stock? Smallest
cap stock?
Overall Investment Process
What is your investment time horizon?
When does your process work best/not work?
What is your competitive advantage over other managers with a similar
style?
How would you go about building a portfolio today if you were given $25
million in cash?
Are you willing to take on accounts with special restrictions (e.g., tobacco,
weapon free)?
Performance
Provide quarterly and annual performance data. Is the presentation of the
results consistent
with Association for Investment Management and Research (AIMR) standards?
What clients make up the equity performance composite?
What is the consistency of performance across portfolios with similar
objectives?
What percentage of the firm's total equity funds does the composite represent?
Do equity performance results include cash?
Are the results net of brokerage costs?
What trading costs do you typically incur (brokerage per share and market
impact per share)?
Are the results net of the firm's investment management fees?
Over the period in which performance is available, has the investment
philosophy changed?
Do the results include the performances of any accounts that have fired
you?
Are the results audited? By whom?
Do the results include any "carryover data" (from prior affiliations)?
Do the results include any simulated data?
What is the most appropriate market benchmark to use for measuring your
performance?
What is the expected out performance in the future?
What has the firm's performance been in up markets?
What has the firm's performance been in down markets?
Fees and Client Servicing
What is your fee schedule? Is there a discount for eleemosynary clients?
Are fees paid annually or in arrears? Quarterly or semiannually?
Will you agree to a performance-based fee?
What are the minimum account sizes for each product? Are these negotiable?
Is there a commingled product (e.g., mutual fund, partnership, trust)
that provides smaller clients
with access to your management?
Please describe your client servicing.
Will a portfolio manager be available to visit with the Investment Committee
semiannually?
C. Fixed Income Manager Interview Questions
Organization
When was the firm founded? By whom?
Who owns the firm?
What are the present staffing levels (portfolio managers/analysts)?
What is the compensation plan for investment professionals?
Who are the key decision-makers?
How long has this group worked together as a team?
What are their professional backgrounds?
What has the turnover been in key personnel in the last five years?
Clients and Assets Under Management
What are the total assets under management by the firm (broken down by
equity/fixed income
and taxable/tax-exempt)?
How many account relationships are there?
What is the firm's five year business plan?
What limit is planned for asset/client growth?
Describe your client base.
What institutions have hired your firm in the last year?
What institutions have fired your firm in the last three years?
Who are some representative eleemosynary clients?
Who is your largest client?
Who would be our portfolio manager and client service contract?
Investment Process
Within your investment process, what is the relative importance (as percentage
of total value
added) of each of the following:
- interest rate anticipation
- sectoral analysis
- credit analysis
- security swaps
What are the typical allocations of the portfolio:
- by quality
- by maturity/duration
- by sector
What is the most you would deviate from the benchmark with respect to
quality, duration, and
sector allocation?
What use do you make of below-investment grade ("junk") bonds?
Do you ever own foreign bonds? Hedged or un-hedged? Quality?
What is the source of your research and analysis on:
- economy
- interest rates
- individual securities
What is your investment time horizon?
When does your process work best/not work?
What is your competitive advantage over other fixed income managers with
a similar style?
Performance
Provide quarterly and annually performance data.
What clients make up the fixed income performance composite?
What percentage of the firm's total fixed income funds does the composite
represent?
Are the results net of the firm's investment management fees?
Do the results include the performance of any accounts that have fired
you?
Are the results audited? By whom?
Do the results include any "carryover data" (from prior affiliations)?
Do the results include any simulated data?
What is the standard deviation of returns?
What is the most appropriate market benchmark to use for measuring your
performance?
What is the expected performance in the future (in basis points, net of
fees)?
What has the firm's performance been in up markets?
What has the firm's performance been in down markets?
What is the consistency of performance across portfolios with similar
objectives?
Over the period in which performance is available, has the investment
philosophy changed?
Fees and Client Servicing
What is your fee schedule? Are discounts available for charitable organizations?
Are fees paid in advance or in arrears? Quarterly or semi-annually?
What are the minimum account sizes for each product? Are these negotiable?
Please describe your client servicing and provide samples of your reports.
Are these standard reports available monthly or quarterly?
Will a portfolio manager be available to visit with the Investment Committee
at least semi- annually?
Do you have any other clients who use ________ as a custodian? How is
their performance?
Appendix D: Investment Manager Reporting Requirements
Quarterly Report Due 30 Days After Quarter End
Quarterly
- Review of Organizational Structure and Investment Process
- Organizational Changes (i.e., ownership)
- Changes to the investment process
- Was the portfolio managed in adherence to the investment process?
- Departures/additions to the investment staff (please provide an explanation)
- Changes in assets under management:
Product assets under management : #___ $_______
Product asset growth Gains Losses
Year-to-date #__ $_____ #__ $_____
Prior Year #__ $_____ #__ $_____
2. Summary of Investment Guidelines
A. Were there violations to guidelines in the quarter? If yes, please discuss
steps to be in compliance.
B. Comments, concerns, or suggestions regarding the policy statement.
3. Performance Review
A. Present total fund and asset class returns for last calendar quarter,
year-to-date, last year, last three years, last five years and since inception
versus designated benchmarks.
B. Discuss performance relative to benchmarks and reasons for over- and
underperformance, provide attribution analysis which identifies returns
due to allocation and selection decisions, as appropriate.
C. Provide portfolio characteristics relative to benchmark.
4. Provide Portfolio Holdings
A. Present book value and current market value.
B. List individual securities by sector, asset class, or country,
as appropriate.
5. Other Comments or Information
6. Please have the quarterly report signed by a senior staff member in your
firm.
Annually
1. Review of Investment Process and Evaluation of Portfolio Management Process
A. Brief review of investment process.
B. Investment strategy used over the past year and underlying rationale.
C. Evaluation (in hindsight) of strategy's appropriateness.
D. Evaluation of strategy's success/disappointments.
E. Current investment strategy and underlying rationale.
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