Eastern Illinois University Investment Guidelines
Section 1 - General Investment Guidelines
These guidelines recognize that investment strategies will evolve over time as market conditions and interest rates change. Eastern Illinois University’s investment committee has the responsibility of formulating strategies for the University's investment program and ensuring material, relevant and decision-useful sustainability factors have been or are regularly considered within the bounds of financial and fiduciary prudence, in evaluating investment decisions. Such factors include, but are not limited to corporate governance and leadership factors; environmental factors; social capital factors; human capital factors; and business model and innovation factors, as provided under the Illinois Sustainable Investing Act. All investments and strategies will be consistent with the investment objectives and goals of each fund type. All investments must meet standards specified by applicable State Statutes and Board of Trustees Regulations. Those documents are incorporated as part of these investment guidelines. Any other restrictions (such as indentures of trust, etc) on specific investments must also be observed.
Revised Dec. 22, 2021
The Board of Trustees has designated the Vice President for Business Affairs as the chief investment officer for the university. The Vice President is responsible for establishing internal controls and written procedures for the operation of the investment program to assist investment personnel in the management of the university's investment program. The Vice President appoints an investment committee to provide advice for investment decisions. These guidelines, in conjunction with other internal control policies and procedures, have been established to safeguard university investments.
The university's policy on internal control is described in the university Internal Governing Policies. The Department of Internal Auditing (and the university's external auditors) is responsible for reviewing compliance with the university's internal control policies and procedures.
Revised Dec. 22, 2021
Investment personnel will prepare quarterly reports on the university’s investment portfolio. These reports shall include the total investment portfolio, the types of investments, the cost of each investment class in the portfolio, the aggregate market value of the portfolio, and a summary of investments matured and purchased for the period just ended. The aggregate portfolio rate of return shall also be reported. Annually, a comprehensive investment report shall be presented to the Board of Trustees. In addition, the university will develop and maintain a website to provide investment information in accordance with the Accountability for the Investment of Public Funds Act.
The university will provide investment information in its audited financial statements in accordance with standards of the governmental accounting standards board.
Selection of Financial Institutions, Money Managers and Advisers
The university, at its discretion, may utilize the services of external advisors to assist in the management of investments. Periodically, the Request for Proposal (RFP) process, in compliance with the Illinois Procurement Code, shall be used to select both banking institutions and investment advisors. The university may also choose to participate in agreements negotiated by the State of Illinois. Any investment firm chosen may provide both investment advice and services for the purchase and sale of securities. Financial institutions providing depository and or investment services will provide an annual certification that they do not engage in predatory lending practices.
Standard Of Care
Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the possible income to be derived.
The standard of prudence to be used by investment personnel shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment personnel, acting in accordance with these investment guidelines and exercising due diligence, shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported, in a timely fashion and appropriate action is taken to control adverse developments.
Conflict Of Interest
Investment personnel are subject to the Illinois Procurement Code and the State Officials and Employees Ethics Act. University investment personnel in policy making positions for the investment portfolio shall refrain from personal business activity that conflicts with proper execution of the investment program or which impairs their ability to make impartial investment decisions. Such individuals shall disclose to the university any material financial interest in financial institutions or brokers/dealers that conduct business within the State. They shall further disclose any personal investments that are related to the performance of the investment portfolio. In addition, such individuals shall subordinate their personal investment transactions to those of the investment portfolio, particularly with regard to the time of purchase and sales.
Section 2 - Operating Funds Investment Guidelines
The operating funds of Eastern Illinois University represent operating and gift funds available for current use in support of the university’s academic and support functions. Operating funds are pooled to provide for continuity, investment flexibility and efficient administration. These funds may include unrestricted current funds (e.g., income fund, designated funds, auxiliary enterprise funds), restricted current funds, loan funds, plant funds and agency funds.
The primary goals for operating funds are to preserve the university's investment capital and to maintain necessary liquidity when funds are needed for expenditures. The secondary goal is to invest according to an investment strategy that will provide the highest possible return within the conservative parameters dictated by the primary goal.
These guidelines broadly limit risk inherent to investment by addressing the issues of permissible investments, interest rate risk, credit risk, custodial risk, foreign currency risk, and securities lending. Additional specific written guidelines shall be established by the chief investment officer of the university.
Acceptable investments for University operating funds according to the Illinois Public Funds Investment Act include the following:
- Securities of the United States government or its agencies which are guaranteed by the full faith and credit of the United States and securities of corporations created by an act of Congress.
- Any investment constituting direct obligations of any bank, as defined by the Illinois Banking Act, including certificates of deposit and interest-bearing checking or savings accounts.
- Commercial paper and bankers' acceptances, as defined by state statutes.
- Money market mutual funds, as defined by state statutes.
- Repurchase agreements.
Interest Rate Risk
Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. To limit interest rate risk the asset allocation plan shall establish maximum maturity lengths for investments and maintain sufficient short term investments to meet cash flow needs.
Credit risk is the risk that an issuer or other counterparty to a debt investment will not fulfill its obligations. The Illinois Public Funds Investment Act defines acceptable credit rating levels from various rating agencies for all state entities. The university will utilize the rating requirements in the act to minimize credit risk.
Custodial Credit Risk
Custodial credit risk is the risk that when, in the event a financial institution or counterparty fails, the university would not be able to recover the value of deposits, investments or collateral securities that are in the possession of an outside party. The Public Funds Investment Act requires banks or financial institutions to pledge securities to cover the amount of cash on deposit in excess of the insurance level appropriate to the financial institution. Securities used in collateralization agreements associated with depository accounts shall be held by either a Federal Reserve Bank, or a third party custodian. The university will develop procedures to identify acceptable investments and market value fluctuations of the collateral when collateralization accounts are used.
Concentration risk is the risk of investing an inappropriate portion of funds with one issuer. The investment portfolio shall be diversified to the extent possible to eliminate the risk of loss resulting from the concentration of assets in a specific maturity, a specific issuer or a specific class of securities. No single investment may represent more than 5 percent of the total value of cash and investments other than the U.S. Government, its agencies or sponsored corporations and state treasurer sponsored investment pools.
Foreign Currency Risk
Foreign currency risk is the risk that the exchange rate between the US dollar and other currencies will adversely affect an investment or cash position of the university. To eliminate foreign currency risk, the University will not hold investments denominated in a foreign currency.
The university shall not engage in securities lending on individual securities.
The university's asset allocation plan shall identify accepted industry benchmarks that best reflect each asset class included in the investment portfolio and will measure each asset class's performance against the benchmark over a market cycle. The benchmark will be periodically reviewed for suitability.
Section 3 - Endowment/Quasi-Endowment Investment Guidelines
University endowment funds are gifts received from donors with the restriction that the principal is not expendable and unrestricted funds designated as quasi-endowment funds on a temporary or permanent basis. Unless prohibited under restrictions established by the donor, all endowment funds will be pooled for investment purposes. The objective of the endowment pool is to preserve the real value of the pool assets and the annual support provided by these assets for an infinite period. These investment guidelines embrace the total return concept. The Illinois Uniform Prudent Management of Institutional Funds Act (UPMIFA) will guide investment of University endowment funds.
Quasi-endowments (funds functioning as endowments) are created from current gift accounts where the purpose of the gift matches more properly the investment program of endowments. Establishing a quasi-endowment transfers the funds from short-term (operating) investments to long-term (endowment) investments. Generally, a quasi-endowment should not be established unless the funds will remain in the endowment investment program for at least five years.
Any investment manager(s) selected by the university will invest the endowment assets in accordance with established guidelines, but will apply their own judgments concerning relative investment values. In particular, the investment managers are accorded full discretion, within established requirements and guideline limits, to select individual investments and diversify their portfolios.
The spending rate will apply to endowment funds managed by an investment manager. Endowment funds holding farm land or invested in saving accounts and certificates of deposit will be calculated under a different formula. The spending rate will consider total-return investing.
The spending rate adopted should remain fixed for a number of years with periodic review. A 5% spending rate based on the twelve (12) quarter moving average of the market value is recommended, of which, 4.25% is to be the base for awards and .75% for administrative fees, as the endowment agreement allows. No fees will be assessed on the farm accounts outside of the management fees paid directly from the farm account.
Current income, realized and unrealized gains (appreciation) will be spent, if necessary, to achieve the goals of 5% available for awards and administrative fees. Spending will be based either on language in the endowment agreement or as defined by the Illinois Uniform Prudent Management of Institutional Funds Act (UPMIFA) if not otherwise defined in the agreement.
Spending amounts are based on a twelve (12) quarter moving average. All newly created funds will be graduated into the 12-quarter moving average. New funds starting up will not be permitted to spend funds until they have had at least one (1) year's earnings. Therefore new funds must be invested for at least one full fiscal year. An award may be made if a supplemental gift for award purposes is made.
Revised April 17, 2021
Allocation Of Assets
The university will develop asset allocation plans that allow for the maximum rate of return. This will provide a stable income stream that keeps pace with inflation and does not degrade the real value of the corpus of the endowment over time.
The endowment portfolio will be broadly diversified across and within asset classes in order to minimize the impact of losses in individual investments. Multiple investment managers and indexed investments may be used to further this end.
Use of Pooled Funds
Investments in pooled funds (e.g., mutual funds and common trust funds) are permitted provided that their investment guidelines do not violate these guidelines.
University investment personnel will advise investment managers of any anticipated need for liquidity as such needs become known. The investment managers will not assume any liquidity needs other than those provided by the university.
The endowment portfolio will be rebalanced at least annually to keep asset classes within the approved asset allocation. The purpose of rebalancing is to control risk and maintain the asset allocation within the ranges approved by the university. Endowment cash flow will be utilized to implement rebalancing activities to minimize transaction costs.
The university's asset allocation guidelines for endowment funds shall identify accepted industry benchmarks that best reflect each asset class included in the investment portfolio and will measure each asset class's performance against the benchmark over a market cycle. The benchmarks will be periodically reviewed for suitability.
Section 4 - Separately Invested Funds
In certain instances, funds under the control of the university may have to be invested separately from the operating or endowment fund pools. Separately invested funds include, among others:
- Agency funds invested for the benefit of related organizations.
- Current funds that cannot participate in the short-term investment pool due to donor restriction or specific investment objectives which are not consistent with those of the short-term investment pool.
- Endowment funds where a donor has stated that the endowment fund may not be commingled or the gift is non-marketable. (The asset allocation should follow, as nearly as possible, the endowment pool investment program adopted by the University while following any special restrictions prohibiting participation in the pool.)
- Plant funds that must comply with an underlying bond issue resolution or gift agreement. (Funds designated for construction or generated through debt issuance are generally separately invested in order to meet bond covenant restrictions and to foster project accountability.)
Separately invested funds will be subject to the same investment guidelines as other comparable funds, but the asset allocations and maturity structure will be governed by projected cash requirements.
The Eastern Illinois University Foundation accepts funds for the benefit of the university and student scholarships. The foundation board has retained Fund Evaluation Group, LLC (FEG) as its investment adviser. The foundation has a separate investment policy and asset allocation for its portfolio. Please contact the foundation office at 217-581-3313 or visit its website at http://www.eiu.edu/found for additional information.