Investment Policy

The material shown here is the Investment Policy Statement (IPS) adopted by Silicon Valley Community Foundation in 2021 to guide the management of our donor advised investment pools. If we may help answer questions about the IPS, please contact us at investmentpools@siliconvalleycf.org.

This Investment Policy is intended to provide meaningful guidance in the management of Silicon Valley Community Foundation’s (the “Foundation”) donor advised investment pools, including the Long-term Pool, the Medium-term Pool, and the Short-term Pool (each a Pool and collectively, the “Pools”).  The purpose of this Statement is to establish a clear understanding between all parties involved as to the objectives, investment policies, and goals of the Foundation for the Pools.  The guidelines are designed to allow flexibility given changing economic, business and investment conditions, while establishing reasonable risk control parameters to ensure prudence and care in the execution of the investment program.  In that regard, the basic investment standards shall be those of a prudent investor as articulated in applicable state laws.

The Board of Directors of the Foundation (the “Board”) has granted the Investment Committee the responsibility to oversee the execution of this policy with the support of staff (“Staff”) and the investment advisor (“Advisor”).

I.  Objectives

The three Pools covered by this Investment Policy Statement (IPS) are donor advised pools.  The Foundation’s donor recommends, for their donor advised fund, an allocation among the Pools based on their intended grantmaking horizon and their investment objectives.  The funds are also spent down at the donor’s recommendation to support charitable programs.  The objective of the Pools is to give donors the choice among funds that are invested under this IPS assuming three different spending time horizons as described below and ranging from a year to a donor’s lifetime.

Long-Term Pool

The Long-Term Pool is for funds with a long-term spending horizon of seven or more years and is generally appropriate for funds intended to be fully expended over the donor’s lifetime.  It is the intention that the total return (interest income, dividends, realized gains and unrealized gains), above and beyond the amount for expenditure or distribution, will be reinvested in the Pool.

The financial objective is to generate a level of long-term growth consistent with the Pool’s spending horizon, while attempting to provide donors predictable stream of funding for donor recommended charitable programs supported by the Pool.  To meet this financial objective, the Pool seeks to earn an annual total return, net of all fees and expenses, consistent with the Pool’s risk profile, represented by a simple stock/bond portfolio comprised of 75% MSCI All Country World Index (net) / 25% Bloomberg Barclays Aggregate Bond Index.  It is recognized that this objective may be difficult to attain over every period and is contingent upon market conditions during the period.

In addition to the primary financial objective, the Pool will seek competitive performance relative to a policy benchmark comprised of a simple stock/bond portfolio representing the approximate risk profile of the investment strategy allocation as referenced above, and a strategic allocation benchmark representing aweightedaverage of the policy allocation targets outlined in Appendix A and relevant capital market indices.  This objective shall be measured primarily (but not exclusively) over rolling three- and five-year periods.

The Pool should be invested in a manner that is expected to maximize its long-term total return, net of fees and expenses, with reasonable and acceptable levels of investment risk consistent with the financial objective and Pool risk profile.  Investment risk is defined as: (1) the probability of total Pool assets declining in value; (2) the expected return volatility of total Pool assets; and (3) the ability of the Pool to generate liquidity to fund donor programs.  Like the investment objectives, it is recognized that these risk objectives may be difficult to attain over every period.

Medium-Term Pool

The Medium-Term Pool is for funds with a spending horizon of three to seven years or for funds seeking less exposure to equities and alternatives. It is the intention that the total return (interest income, dividends, realized gains and unrealized gains), above and beyond the amount for expenditure or distribution, will be reinvested in the Pool.

The financial objective is to generate a level of growth consistent with the Pool’s spending horizon, while attempting to provide donors a predictable stream of funding for donor recommended charitable programs supported by the Pool.  To meet this financial objective, the Pool seeks to earn an annual total return, net of all fees and expenses, consistent with the Pool’s risk profile, represented by a simple stock/bond portfolio comprised of 50% MSCI All Country World Index (net) / 50% Bloomberg Barclays Aggregate Bond Index.   It is recognized that this objective may be difficult to attain over every period and is contingent upon market conditions during the period.

In addition to the primary financial objective, the Pool will seek competitive performance relative to a policy benchmark comprised of a simple stock/bond portfolio representing the approximate risk profile of the investment strategy allocation as referenced above, and a strategic allocation benchmark representing aweightedaverage of the policy allocation targets outlined in Appendix B and relevant capital market indices.  This objective shall be measured primarily (but not exclusively) over rolling three- and five-year periods.

The Pool should be invested in a manner that is expected to maximize its long-term total return, net of fees and expenses, with reasonable and acceptable levels of investment risk consistent with the financial objective and Pool risk profile.  Investment risk is defined as: (1) the probability of total Pool assets declining in value; (2) the expected return volatility of total Pool assets; and (3) the ability of the Pool to generate liquidity to fund donor programs.  Like the investment objectives, it is recognized that these risk objectives may be difficult to attain over every period.

Short-Term Pool

The Short-Term Pool is for funds with a spending horizon of one year or less or for funds seeking stability.  It is the intention that the total return (interest income, realized gains and unrealized gains), above and beyond the amount for expenditure or distribution, will be reinvested in the Pool.

The financial objective is to generate a level of growth consistent with the Pool’s spending horizon, while attempting to provide donors a predictable stream of funding for donor recommended charitable programs supported by the Pool. To meet this financial objective, the Pool seeks to preserve capital and liquidity, while generating income, net of fees and expenses, consistent with liquidity needs, with reasonable and acceptable levels of investment risk.  Details on the strategic asset allocation of the Short-term Pool are included in Appendix C.  It is recognized that this objective may be difficult to attain over every period and is contingent upon market conditions during the period.

The Pool should be invested in a manner that is expected to preserve capital and liquidity, while generating income. Investment risk is defined as: (1) the probability of total Pool assets declining in value; (2) the expected return volatility of total Pool assets; and (3) the ability of the Pool to generate liquidity to fund donor programs.  Like the investment objectives, it is recognized that these risk objectives may be difficult to attain over every period.

II. Diversity and ESG

The Foundation’s vision is a community where all can lead financially secure, safe and fulfilling lives. The Foundation believes individuals and families should have a path to financial security and equal opportunity to improve their economic well-being.  However, despite tremendous growth and economic expansion, poverty and extreme inequality persist in Silicon Valley – specifically in communities of color.  One of the Foundation’s most important strategic goals is to address the structural systems that have created the social and economic inequities that exist in our region.  The Foundation’s commitment to diversity, equity and inclusion is reflected in its strategic priorities to address systemic disparities, foster a strong and engaged community, build a culture and practice of effective philanthropy, and become a trusted and enduring institution in the community.

All the Foundation’s work is centered on creating equitable communities and systems that will allow all Silicon Valley residents to thrive. This commitment extends to the management of the Pools. Therefore, the Foundation will seek to make investments that meet the financial and investment objectives enumerated in this Investment Policy Statement and align with or increase Pool alignment with the Foundation’s mission and values.

With respect to diversity, the Foundation believes it is essential to consider racial and gender diversity and inclusion factors in Pool management because consideration of these factors should enhance returns and reduce risk, while promoting alignment between the Foundation’s management of capital and its donors’ values.

Accordingly, the Foundation will make best efforts to hire diverse investment managers owned or principally led by women and/or people of color.  Diverse investment managers are defined as firms with 33% or more ownership by women and/or people of color, with special consideration given to majority-owned diverse firms.  The Foundation will also include in its definition of diverse managers strategies focused on diverse entrepreneurs and/or strategies investing in companies addressing the needs of diverse populations, and it will consider firms or strategies principally led by women and/or people of color, while prioritizing firms that are owned by women and/or people of color as defined above.  The Foundation will consider the approach of all Pool investment managers to diversity in its evaluation criteria and ongoing monitoring, prioritizing partnership with managers that demonstrate a commitment to diversity and inclusion in their culture and/or improving their diversity practices over time.

Staff and the Advisor will establish metrics to measure progress in achieving Pool diversity objectives and report to the Investment Committee on these metrics regularly.  Such metrics should demonstrate sustained progress in expanding research coverage and diligence of diverse investment managers and meaningful engagement with investment managers on diversity to promote greater diversity in the investment management industry.  Specific metrics will include but not be limited to the number of diverse investment managers sourced, interviewed and diligenced by the Advisor’s research team, the level of client assets held with diligenced managers, and information on efforts to advance diversity and inclusion within the Advisor’s firm and the Pool’s investment managers, including the hiring and retention of diverse professionals across varying levels of function and seniority.  In addition to reporting on these metrics to the Investment Committee regularly, Staff and the Advisor will report the Pools’ exposure to diverse managers as defined above. The Investment Committee and Advisor will establish additional benchmarks to measure progress against diversity objectives as relevant and appropriate.

The Foundation also believes that awareness of environmental, social and governance (ESG) factors, and, where possible, the integration of such factors into the management of the Pools can help improve risk management and identify potential new value added opportunities by capitalizing on the linkages between corporate social impact and profitability.  Accordingly, the Advisor will incorporate into the diligence of all prospective Pool investments an analysis of ESG factors material to the strategies and include ESG-aware and/or ESG-integrated investments that are consistent with or increase alignment with the Foundation’s mission and values.  ESG themes of relevance to the Foundation include environmental sustainability, education (e.g. education technology and early childhood education), and economic development and social equity (e.g. affordable housing).

In pursuit of the Foundation’s diverse manager and ESG objectives, the Foundation recognizes that the Investment Committee and Advisor may need to expand evaluation criteria to consider compelling investment opportunities that align with these objectives but might not be considered otherwise due to increased organizational risk, lack of track record, tracking error potential, above market fees or other factors.

Finally, it is acknowledged that the investment management industry is rapidly evolving and the Foundation will need to be flexible and continually refine the approach to implementing this diversity and ESG strategy.  Accordingly, the Investment Committee and Advisor will review this strategy annually to ensure the Foundation remains a leader in driving best practices on these topics in non-profit investment management.

III.  Oversight

The Board has delegated certain responsibilities for the investment oversight of the Pools to the Investment Committee, Staff, and the Advisor, as follows:

Investment Committee

  • Adopt and review, at least annually, this Investment Policy Statement, which defines investment objectives, oversight, and investment guidelines and restrictions.
  • Recommend changes to this Investment Policy Statement, as necessary or desirable.
  • Establish the investment Pool structure offered to donors, including the number of and risk level of each Pool.
  • Oversee the implementation of the Pools’ investment strategy allocation within specified ranges approved by the Board with guidance and support from Staff and the Advisor.
  • Oversee and approve the selection and termination of investment managers in accordance with this Statement and consistent with the Foundation’s values with guidance and support from the Advisor.
  • Oversee the rebalancing of investment strategy allocations for each Pool within the context of each Pool’s strategic asset allocation targets and time horizon, with guidance and support from Staff and the Advisor.
  • Establish appropriate performance benchmarks and metrics of success for each Pool with guidance and support from the Advisor.
  • Monitor and report to the Board the performance of the Pools, on a quarterly basis.

Staff

  • Manage the Foundation’s relationship with the Advisor.
  • Support the Advisor in developing manager relationships including meeting with managers when helpful.
  • Monitor the Pools for adherence to the Investment Policy Statement guidelines.
  • Report any violations of the Investment Policy Statement guidelines to the Investment Committee as soon as reasonably possible and take actions to bring the Pools back within guidelines as quickly as prudently possible.
  • Administer the Pools’ day-to-day investment activities, including the movement of funds within the Pools, rebalancing, and inflows and outflows, with guidance and support from the Advisor.
  • Manage the Foundation’s relationship with the Pools’ custodian. 
  • Communicate investment information and results to donors and key constituents.

Advisor

  • Review, at least annually, this Investment Policy Statement to ensure its continued appropriateness in the context of macroeconomic and market environments and donor objectives.
  • Advise the Investment Committee on developing, reviewing, and (when appropriate) revising this IPS.
  • Recommend the selection and termination of investment managers in accordance with this Statement and consistent with the Foundation’s values.
  • Determine the amount of assets delegated to each investment manager.
  • Advise Staff and assist with all aspects of manager transitions, adding or withdrawing cash from the Pools, and rebalancing.
  • Report to the Investment Committee and Staff investment manager events of an organizational, legal or regulatory nature that in its judgment could bring reputational or headline risk or impact Pool performance.
  • Oversee and monitor investment managers, focusing on performance, fulfillment of stated investment objective, organizational strength and stability, and regulatory compliance.
  • Provide Staff and the Investment Committee with a “flash” report summarizing the performance of each manager, investment strategy, and Pool, as well as the Pool allocation by investment strategy, on a monthly basis.
  • Monitor and report to the Investment Committee and Staff the performance of the Pools, as well as Pool allocation by investment strategy, on a quarterly basis.
  • Support the Investment Committee and Staff on any ad hoc projects related to the Pools.

Appendix A
Investment Strategy Allocation
Long-Term Pool

Asset Class

Target

Range

Benchmark

Global Public Equity

55%

45% – 65%

MSCI All Country World Index (net)

Private Investments

20%

0% – 30%

MSCI All Country World Index (net)

Diversifying Strategies*

5%

0% – 15%

40% MSCI All Country World Index (net) /

60% BBG Barclays Aggregate Bond Index

Inflation-Linked Bonds

5%

0% – 15%

BBG Barclays U.S. TIPS 0-5 Years Index

Non-US Government Bonds

2.5%

0% – 10%

FTSE WGBI Index

Core Bonds

5%

0% – 15%

BBG Barclays Aggregate Bond Index

Treasuries

5%

0% – 15%

BBG Barclays 5+ Year Treasury Bond Index

Cash

2.5%

0% – 20%

BofA Merrill Lynch 91-Day Treasury Bills

 

As the Private Investment target is not immediately achievable, the Pool will have an adjusted policy target to Private Investments equal to the Pool’s current allocation to Private Investments.  Any difference between current Private Investment exposures and the Private Investment target will be allocated to the Global Public Equity target.  The range for the adjusted Private Investment target will be 0-30%, and the range for the adjusted Global Public Equity target will be +/-10%.  

 

Total Portfolio Benchmarking

The following benchmarks shall be used for analyzing total portfolio performance:

Policy Benchmark: Simple stock/bond portfolio representing the approximate risk profile of the investment strategy allocation, defined as 75% MSCI All Country World Index (net) / 25% Bloomberg Barclays Aggregate Bond Index.

Strategic Allocation Benchmark: Weighted average of the policy allocation targets or adjusted targets, and market indices as defined above. Private investment allocations will receive a “0” return in the benchmark until the portfolio’s private investment returns have been reported – generally on a one quarter lag.

*May include, but not limited to, the following strategies: long/short equity; distressed securities; long/short credit; multi‐strategy; global macro; long only opportunistic credit; and private credit or income generating real estate strategies.

 

Appendix B
Investment Strategy Allocation
Medium-Term Pool

Asset Class

Target

Range

Benchmark

Global Public Equity

50%

40% – 60%

MSCI All Country World Index (net)

Inflation-Linked Bonds

7.5%

0% – 20%

BBG Barclays U.S. TIPS 0-5 Years Index

High Yield Credit

7.5%

0% – 20%

BofA ML U.S. High Yield Master II Index

Non-US Government Bonds

5%

0% – 15%

FTSE WGBI Index

Core Bonds

17.5%

0% – 30%

BBG Barclays Aggregate Bond Index

Treasuries

10%

0% – 20%

BBG Barclays 5+ Year Treasury Bond Index

Cash

2.5%

0% – 30%

BofA Merrill Lynch 91-Day Treasury Bills

 
 

Total Portfolio Benchmarking

The following benchmarks shall be used for analyzing total portfolio performance:

Policy Benchmark: Simple stock/bond portfolio representing the approximate risk profile of the investment strategy allocation, defined as 50% MSCI All Country World Index (net) / 50% Bloomberg Barclays Aggregate Bond Index.

Strategic Allocation Benchmark: Weighted average of the policy allocation targets and market indices as defined above.  

 

Appendix C
Investment Strategy Allocation
Short-Term Pool

Asset Class

Target

Range

Benchmark

Short-term fixed income*

---

0% – 100%

BBG Barclays 1-3 Year Treasury Index

Cash/Cash Equivalents

---

25% – 100%

BofA Merrill Lynch 91-Day Treasury Bills

 

Total Portfolio Benchmarking

The following benchmarks shall be used for analyzing total portfolio performance:

Policy Benchmark: Weighted average of individual manager benchmarks, determined at the time of hire, and any residual cash positioning.

Strategic Allocation Benchmark: Weighted average of the actual asset allocation and suitable market indices.

*Investments may include, but are not limited to, money market eligible instruments and funds, US treasury and agency obligations, investment grade corporate bonds, taxable municipal bonds, mortgage-backed securities, commercial mortgage-backed securities, asset backed securities, sovereign bonds, emerging markets debt, and currency.  These investments should generally be rated investment grade by at least one Nationally Recognized Statistical Rating Organization (NRSRO).


Appendix D
Investment Restrictions

Liquidity

  • 25% of total assets liquid within one month inclusive of notice
  • 35% of total assets liquid within six months inclusive of notice
  • 45% of total assets liquid within one year inclusive of notice

Manager Concentration

  • No more than 50% of the portfolio with any single investment manager*

Investment Concentration

  • No more than 35% invested in a single passive equity or fixed income fund*
  • No more than 35% invested in a single active fixed income fund*
  • No more than 20% invested in a single active equity fund
  • No more than 5% invested in a single fund within the Diversifying Strategies composite
  • No more than 5% committed to a single private investment fund (at time of commitment)

Policy Overlay Solutions

A futures-based total portfolio overlay solution is allowable in the Pools to:

  • Achieve a fully invested position while maintaining on-demand liquidity needs
  • Control risk through cost effective rebalancing
  • Minimize manager disruption and bridge cash positions during manager transitions
  • Execute tactical asset class views

Such a program must:

  • Be fully collateralized by cash equivalent assets in the Pools
  • Use only exchange-traded futures positions
  • Hold only long positions
  • Overlay no more than 35% of Pool assets

*Concentration limits apply to each pool and account for the potential use of the same firm across or within asset classes, primarily for passive exposure, as well as the use of fewer managers in the Short-term Pool. These limits will be most relevant for the Short-term Pool and to a lesser extent for the Medium-term Pool.  Notwithstanding, the Foundation will maintain appropriate diversification and seek to limit manager concentration risk wherever possible.