Public University Fund Investment

University Policy: 03-115 Public University Fund Investment
Adopted:
Last Revised:
Responsible Executive: Board Chair
Responsible Office: Board of Trustees
**The PDF is the official text of the policy. If there are any incongruities between the text of the HTML version and the text within the PDF file, the PDF will be considered accurate and overriding.**

The PDF of this policy may be found at this link on the Board of Trustees' website. The policy number has been designated solely for codification and tracking by the Policy Program; it does not imply formal classification by the Board of Trustees.

 

I. Purpose

The purpose of this document is to identify the policies for prudent investment of the Public University Fund assets by providing guidelines for suitable investments consistent with the objectives identified in the "Objective."

The investment policies and practices are based on state law and prudent money management. All funds will be deposited and invested in accordance with this Policy and all statutes and policies governing the Designated University, Public University Fund, Oregon State Treasury and the Oregon Investment Council.

II. Scope

These rules apply to the investment of funds from all eligible and approved Public University Fund (PUF) participants, and are established under the authority of, and shall not supersede, the requirements established under ORS Chapter 293, ORS 352.450 and the Oregon Investment Council Common University (OIC) Policy INV 407.

III. Objective

The PUF seeks to provide a moderate and sustainable level of current income by investing in quality fixed income securities. Assets shall be invested into intermediate-term fixed income securities with the objective of maximizing total return over the long term.

IV. Portfolio Allocation

Portfolio allocation parameters listed in the following table are intended as general guidelines and subject to review by the Designated University staff and their delegates including investment consultants and investment managers.

  • Portfolio - Core
  • Objective - Actively managed to achieve a diversified portfolio of investment grade bonds invested over intermediate-term periods. Based on historical market performance, total returns generated over extended periods are anticipated to be greater than returns realized in shorter- maturity strategies.
  • Allocation - Investments with a maturity or weighted average life from three years and above.

V. Permitted Holdings

The term “Rating Agencies” is defined as any of the Securities and Exchange Commission (SEC) approved Nationally Recognized Statistical Rating Organizations (NRSROs). Each such Nationally Recognized Statistical Rating Organization (NRSRO) individually a “Rating Agency.”

  1. Securities included in the designated performance benchmark(s) unless explicitly restricted in this policy.
  2. The Oregon Short-Term Fund (OSTF). Underlying investments of the OSTF are excluded from restrictions in this policy. The OSTF is governed by the OIC and OST-adopted policies and guidelines as documented in OIC Policy INV 303.
  3. Obligations issued or guaranteed by the U.S. Treasury or by U.S. federal agencies and instrumentalities, including inflation-indexed obligations.
  4. Non-U.S. government securities and Instrumentalities with a minimum long- term rating of Aa2/AA/AA as rated by two or more Rating Agencies at the time of purchase.
  5. Municipal debt with a minimum rating of A3/A-/A- as rated by one or more of the Rating Agencies, at the time of purchase.
  6. Corporate indebtedness with minimum investment grade ratings by one or more of the Rating Agencies. For avoidance of doubt, no rating from any of the Rating Agencies may be non-investment grade at the time of purchase.
  7. Asset-backed securities with minimum investment grade ratings by one or more of the Rating Agencies (Baa3/BBB-/BBB-). For avoidance of doubt, no rating from any of the Rating Agencies may be non-investment grade at the time of purchase.
  8. Commercial mortgage-backed securities (CMBS) with minimum investment grade ratings by one or more of the Rating Agencies (Baa3/BBB-/BBB-). For avoidance of doubt, no rating from any of the Rating Agencies may be non- investment grade at the time of purchase.
  9. U.S. agency residential mortgage-backed securities (MBS), U.S. agency commercial mortgage-backed securities (ACMBS) and U.S. agency commercial mortgage-backed obligations (CMO).
  10. Collateralized loan obligations (CLO) rated AAA (or equivalent rating by one or more of the Rating Agencies) at the time of purchase.

VI. Diversification

The portfolio should be adequately diversified consistent with the following parameters:

  1. No more than 3% of portfolio par value may be invested in a single security except for obligations issued or guaranteed by the U.S. Treasury or by U.S. federal agencies and instrumentalities; and
  2. No more than 5% of portfolio par value may be invested in the securities of a single issuer except for obligations issued or guaranteed by the U.S. Treasury or by U.S. federal agencies and instrumentalities.
    1. Maximum market value exposures shall be limited as follows: • U.S. Agency Obligations 50% • U.S. Corporate Indebtedness 50% • Municipal Indebtedness 30% • Asset-backed Securities (ABS) 25% • Mortgage-backed Securities (MBS) 25% • U.S agency commercial mortgage-backed securities (ACMBS) 25% • Commercial Mortgage-backed Securities (CMBS) 25% • Collateralized loan obligations (CLOs) 15% • Structured Securities (Combined ABS, MBS, ACMBS, CMBS, and CLOs) 50%.
  3. Issuer, security, and sector-level restrictions shall not apply to OSTF holdings.

VII. Counterparties

A list of all broker/dealer and custodian counterparties shall be provided upon request.

VIII. Risk

  1. Maintain a minimum-weighted, average long-term portfolio credit quality no less than A3/A-.
  2. Maintain an average modified duration level of +/-10% of the custom benchmark.

IX. Investment Restrictions

  1. All investments will be in U.S. dollar denominated securities.
  2. All investments will be non-convertible to equity. 
  3. Collateralized debt obligations (CDO) and Z-tranche investments are not permitted.
  4. Investments in Alt-A, non-agency, sub-prime, limited documentation or other “sub-prime” residential mortgage pools are not permitted. No derivative securities are allowed. Structured securities such as ABS, MBS, CMBS, ACMBS and CLOs shall not be considered as using leverage.
  5. Investments in issuers identified by the Carbon Underground 200 published by the Fossil Free Indexes LLC (FFI).
    1. This restricted security list will be updated annually at calendar year-end and enforced for all new security purchases.
    2. Exposures to issuers added to the Carbon Underground 200 subsequent to purchase may be held to maturity.

X. Policy Compliance

  1. OST Investment Staff will submit a written action plan to the Designated University (as defined in ORS 352.450(3) (a)) regarding any investment downgraded by at least one rating agency to below investment grade within 10 business days of the downgrade. The plan may indicate why the investment should continue to be held and/or outline an exit strategy.
  2. If the average credit quality of the investment portfolio falls below A3/A-, the investment manager shall have 60 days to bring the average credit quality back to A3/A- or above. However, should the average credit quality of the portfolio decline below A3/A- as a result of a downgrade of U.S. Treasury or federal government agency securities, the investment manager will contact the PUF Administrator to discuss strategies which may include a waiver of the average credit quality requirement. The PUF Administrator will determine the appropriate course of action and report this activity to the Finance & Administration Committee of the Board of Trustees. 
  3. OST Investment Staff will consult with the Designated University, on a pre- trade basis, if an investment trade or trades will result in a cumulative net loss greater than 1% over 3 months prior to trade settlement date.

XI. Safekeeping and Custody

The assets held in the PUF shall be secured through third-party custody and safekeeping procedures. Bearer instruments shall be held only through third-party institutions.

XII. Performance Expectations and Reviews

  1. The Core allocation is expected to perform in-line with the following custom benchmark:
    1. Bloomberg Barclays Intermediate Government/Credit Total Return Index.
  2. OST will provide the Designated University with a monthly report of all non- passive compliance violations of this policy’s guidelines.
  3. Investment reviews between OST investment staff and the Designated University will occur quarterly and focus on the following elements:
    1. Performance relative to objectives;
    2. Adherence to this policy; and
    3. Trading activity.
  4. OST will provide the Designated University with timely notification of material changes in the fund and/or firm operations under consideration or about to be implemented, including organizational or strategy changes that may impact asset management.

XIII. Exceptions

None.

XIV. Failure to Comply

Failure to comply with this policy may be cause for disciplinary action up to and including dismissal.