Management of Trust & Endowment Funds
A Trust Investment Committee was established many years ago and has general authority over the investment of the assets of the Trust and Endowment Fund. This includes the investments of the University Investment Trust (the “UIT”) and the Specific Trusts. Members of the Trust Investment Committee are appointed under the authority of the Board of Governors. The Board’s power includes the power to ensure the investment of University money based on prudent person principles. The Finance, Administration and Human Resources Committee is a Board Committee established under the Board of Governors, and this Committee makes recommendations to the Board on the general investment policy and the management of University investments.
The Trust Investment Committee is accountable to the Board of Governors through the Finance, Administration, and Human Resources Committee. The Chair of the Trust Investment Committee is Vice President (Administration), who also is a non-voting member of the Finance, Administration and Human Resources Committee.
The current membership of the Trust Investment Committee is as follows:
University Staff and Members of the Board of Governors (voting members)
• Lynn Zapshala-Kelln, Vice-President Administration, Chair
• Carla Buchanan, Manager, Financial Reporting
• David Collins, Vice-Provost (Academic Planning & Programs)
• Norman Halden, Dean, Faculty of Environment
• Tom Hay, Comptroller
• Jeff Lieberman, Board of Governors
• Lance McKinley, Director, Treasury Services
Community Members (voting members)
• Wayne Anderson, President, St. Boniface Pallet Co. Ltd.
• Alan Brownridge, retired, Managing Partner, I. G. Investment Management Limited.
• Norman Long, retired, Comptroller, University of Manitoba
• John Smith, retired, President, GLC Asset Management Group Ltd.
• Carleigh Collier, Assistant to the Comptroller
Investment Policy Statement
The Investment Policy Statement (“IPS”) is the governing document of the Committee, and all content and changes to the IPS is done through approval by the Board of Governors. The current IPS was approved by the Board on January 26, 2016. The IPS covers: the Trust Investment Committee and responsibilities; conflict of interest; investment objectives; investment risk; spending policy; permitted investments; asset allocation; rebalancing policy; monitoring; and review. The IPS is formally reviewed at least annually by the Committee.
A Long-Term Investment Philosophy Statement, and Individual Asset Mandates, are supplemental documents that further support the investment objectives and asset allocation objectives of the IPS.
Investment Objectives - The UIT (Endowment Fund)
The endowment fund is a permanent fund established to support specific purposes at the University of Manitoba. Each year, a portion of the investment return is used to support current year programs and therefore contributes to the quality of teaching, student accessibility, research, athletics, and public service at the university. The fund is currently comprised of over 2,200 individual accounts, each with a specific purpose.
Each individual endowed account is pooled for investment purposes and tracked with unit accounting, similar to a mutual fund. The unitized pool is referred to as the University Investment Trust (“UIT”), and the use of a pooled fund concept ensures new gifts purchase units and receive a pro-rata share of earnings, while existing account holders maintain their equitable ownership in the pool. The pooled fund concept also allows all endowment account holders to take advantage of the diversification benefits available to large institutional investors like the University of Manitoba.
The basic investment objective of the UIT is to provide a total investment return (income plus capital appreciation) necessary to meet annual spending requirements and to preserve, in real dollar terms, the capital of the UIT. This objective is achieved by ensuring that the annual distribution of income for spending purposes does not exceed the real rate of return (total investment return less inflation) over a period of years. To ensure that this is the case, the spending policy is subject to an annual re-evaluation by the Vice-President (Administration) on the advice of the Committee. Growth in capital, as opposed to preservation of capital, is made possible in two ways. When beneficiary faculties and schools, libraries and support units choose to spend less than their annual distribution, their unspent funds remain as part of their endowment. Further, if the real rate of return exceeds spending over the long term, real growth in capital is experienced. When a beneficiary unit spends less than its allocation, unspent funds are automatically capitalized to the endowment accounts at the end of each year.
Investment Risk - The UIT
Investment risk has been addressed by the Committee through various diversification strategies as follows:
• Permitted investment guidelines have been established. For example, shares must be traded on a recognized stock exchange, the types of stocks and fixed income securities have been specified, minimum bond ratings have been established, etc.
• Asset allocation guidelines have been established, based on a rigorous review of various asset allocation scenarios by the Committee, taking into consideration the level of risk associated with each asset class and the relative risk between asset classes and how they perform in the marketplace. Accordingly, diversification has been achieved by permitting investments in different asset classes and in different geographical markets.
• The Canadian equity portfolio is managed by Burgundy Asset Management through a segregated investment account. The Canadian bond portfolio is managed by AMI Partners through a segregated investment account. The US equity investments are being managed by J.P Morgan through a segregated investment account. The Non-North American (EAFE) equities are managed through a pooled fund by Burgundy Asset Management. Real Estate is managed through GWL Realty Advisors via an open-ended pooled fund.
• Market risk has been addressed though investment guidelines which restrict UIT holdings in any one company. Equity portfolios, for example, must include a minimum number of companies which statistically have proven to reduce risk and restrictions have been established to limit the investment in the securities of a single corporation.
Spending Policy - The UIT
On January 26, 2016, the Board of Governors approved the new spending policy for the endowment fund, as recommended by the Trust Investment Committee. The new policy is as follows:
The UIT will make available for spending an amount of 4.25% of the average of the four (4) preceding year’s market value, calculated on the basis of a rolling 48-month period. In addition, the Trust Investment Committee can recommend a change to the amount in any one year, with a floor set at 3.50% of the preceding 4-year period, and a ceiling of 5.00% of the preceding 4-year period. This change would only arise in circumstances where the net real rate of return of the fund had deteriorated or improved to the extent an adjustment to the rate of spending is warranted. This would depend on the net real return of the UIT over the past 5, 10 and 15 year periods; current investment market conditions; the outlook of future investment markets; and assessing the effect of such an adjustment on current and future beneficiaries of the fund. Any one-year adjustment to the spending rate would have to be recommended by the Trust Investment Committee, and approved by the University’s Board of Governors.
December 31 has been chosen as the date to establish spending allocations to facilitate planning for the new fiscal year beginning April 1 on the part of beneficiary faculties, schools, libraries and support units. The actual distribution to the accounts for spending purposes is therefore made on April 1 of each fiscal year. As a result, new trust and endowment accounts set up for new donations in the period from January 1 to March 31 will not receive an allocation of income for spending purposes until April 1 of the following fiscal year. For example, a donation is received from a donor on January 2, 2015 and a new account is set up as of that date. The allocation for spending purposes will be distributed to that account on April 1, 2016.
Monitoring and Review
The Trust Investment Committee meets, at a minimum, quarterly throughout the year. The agendas of these meetings address the following key areas: governance review; IPS review; quarterly performance review; compliance review; annual reviews with investment managers; performance review with third party measuring services; and spending policy review. Investment managers present to the Committee as part of the annual review process. On top of this, quarterly phone interviews with these managers are performed by the Investment Consultant, who then reports back to the Committee. A ‘sub-committee’ of the Trust Investment Committee also meets periodically throughout the year to work on a variety of projects in order to actively move forward on agenda items of the Committee.
Independent Evaluation & Custody of Assets
A reputable, independent measurement service is retained to report on the performance of each investment manager. Currently both BNY Mellon and Pavilion Advisory Group are used to provide such reporting. Reports are received and distributed to Committee members on a quarterly basis for review. Annually, as part of the previously mentioned meeting schedule, the Committee meets with a measurement service representative to review the investment managers’ performance. Segregated UIT assets are held in the custody of CIBC Mellon, an independent trust company.
Investment Policy - The Specific Trusts
The Specific Trusts are earmarked for funds received which will be expended over the short term (< 1 year) such as for major building projects or for funds in support of emergency student loans, where the fund balance is supported all or in part by a receivable and not cash. They include trust funds which may be endowments but which cannot be pooled for investment purposes because of restrictive conditions imposed by the original donor. They may include gifts received in kind such as real estate which may be held, subject to the approval of the Vice-President (Administration) on the advice of the University’s Gift Acceptance Committee. They may also include gifts of interest bearing securities which are being held to maturity, if the interest rate is favorable given current market conditions or the donor has requested that it be held to maturity.
The Investment Policy Statement also governs the Specific Trust investments. The primary investment objective of the Specific Trusts is the protection (safety) of capital and/or the selection of maturities that will be appropriate for anticipated cash flow needs, such as for building projects and loans. The Committee, as a result, has determined that Specific Trust investments will be limited to fixed income securities, unless a donor specifically wants equities in the portfolio.
Permitted investments include short-term securities, which are restricted to Canadian and provincially-backed debt instruments, short term debt instruments issued by Canadian chartered banks, promissory notes and commercial paper; mid to long-term securities; Canadian money market and bond pooled funds. These investments provide safety of capital and through the selection of appropriate durations, the required liquidity. Income producing real estate, which is donated to the University, may also be held for long term strategic purposes.