Approved by Council March 2021
Minor adjustment April 2022 as approved by the Investment aand Endowment Group
1. The University invests funds in several ways:
|Type of Investment||Explanation||Governance|
|General Funds||Surplus cash arising from the normal operations of the University, usually short-term in nature, managed to ensure working capital requirements are met, seeking a return while preserving capital.||Treasury Management Policy|
|Endowments||Funds managed in trust in accordance with any specified restrictions in use and/or in the preservation of capital or otherwise, determined by donors.
Endowments are either:
|Investment Policy (ie this document)|
|Subsidiary Undertakings||Investments in subsidiary companies undertaking non-primary purpose activity, in order to protect the University’s charitable status and for the efficient arrangement of the University’s tax affairs.||Case by case basis, driven by a business plan with Council approval.|
1.2 This policy does not cover investments made by the Exeter Retirement Benefit Scheme which is a legally separate trust created to manage the pension assets and benefits of certain University staff.
1.3 When the University receives gifts and donations it will classify them in combination of:
- University general income: an unrestricted donation or a restricted donation that is likely to be fully spent within 5 years
- University research income: a donation whose terms restrict the gift for a specific proposal that satisfies the Frascati definition of research
- Permanent Endowment: a restricted or unrestricted donation where the University is required to preserve the original capital gift in perpetuity
- Expendable Endowment: a restricted endowment that is unlikely to be spent in less than 5 years
1.4 This Investment Policy applies to funds classed as permanent or expendable endowments.
2.1 The University of Exeter is an exempt charity, establish by Royal Charter, whose purpose is the advancement of knowledge. The Royal Charter sets out and objective of the University:
To act as Trustees or Managers of any property, endowment, legacy, bequest or gift for purposes of education or research or otherwise in furtherance of the work and welfare of the University which can lawfully be transferred to the University and to invest any funds representing such property, endowment, legacy, bequest or gift if not immediately required in such stocks and securities including the purchase of land as the University may think fit.
2.2 University trustees act as stewards of endowment funds, undertaking to past, present and future donors to preserve and use funds in accordance with their wishes.
3.1 Council adopt a responsible approach to investment and take ethical considerations into account in investment decisions whilst ensuring there is no significant detrimental impact on the investment return.
3.2 Specifically the University will only invest in entities that exhibit best class standards of behaviour and performance in a broad range of environmental, social and governance (ESG) issues using both positive and negative screening methodologies developed and deployed by its fund managers. This approach signals the University’s ethical values whilst encouraging entities to adopt high and improving standards of ESG behaviour which the University believe will generate superior long-term financial returns.
3.3 Environmental, social and governance (ESG) is a term that embraces a basket of issues illustrated in the table below:
3.4 The University, or its appointed fund managers, will not invest in assets, stock or sectors which conflict with the University’s objectives set out in its Royal Charter.
3.5 The University will not invest in sectors or entities that Council may proscribe from time to time. Council have determined that it will exclude investment in entities that produce tobacco and entities that are involved in the extraction of fossil fuel.1
3.6 Absolute exclusions are kept to a minimum as it is Councils preference to adopt a progressive policy based on investing in entities that exhibit high standards of performance on a range of ESG issues, combined with a policy of engagement (via its appointed fund manager) to drive improvement in ESG performance.
3.7 The University’s fund managers will proactively engage with entities through direct engagement with companies on particular issues, for example via dialogue with company boards, proactively tabling resolutions and voting at AGMs. Fund managers are also expected to collaborate with other members of the responsible investment community to leverage impact on critical issues.
3.8 The University will publish a list of its full investments as an appendix to its Investment Policy in the interests of transparency, updating this each year.
3.9 Any member of the University (staff, students and alumni) may make representations to the University with respect to specific investments that they regard as being contrary to the University’s values or objectives. Such representation should be made in writing (or via e mail) to the Chief Financial Officer and Executive Divisional Director of Finance, Infrastructure and Commercial Services setting out an evidential based case. The Executive Director will present such cases to the University’s Investment and Endowment Group for consideration.
3.10 The University requires its fund managers to:
- be signatories to the United Nation’s Principles for Responsible Investments and to comply with the Financial Reporting Council’s UK Stewardship Code
- periodically report on the composition of the University’s portfolio, the fund managers ESG policies and engagement activities and compliance to the UN PRI principles.
1A revenue threshold of 5% will apply, meaning that entities, such as groups, will be excluded where their turnover exceeds 5% from the proscribed activity.
4.1 The investment objective of endowment funds will be to achieve an absolute rate of return deemed achievable in the market place and sufficient to fulfil the charitable objectives of the donation, taking into account the University’s ESG requirements, risk and any requirements to preserve capital.
4.2 The absolute return target is inflation+4% (net of fees) over a rolling five-year period. Inflation is defined as the Consumer Price Index.
5.1 The University operates a total return approach to the disbursement of permanent endowments, setting a spending rule based on total return, enabling income and capital gains to be applied to charitable purpose.
5.2 The current total return spending rule is 4% applied to the three-year historic average capital values of permanent endowments as at 31 July of each year. This rate of withdrawal is the rate deemed the sustainable withdrawal rate whilst preserving the real value of capital. The spending rule creates an annual budget allocation that is allocated to the relevant activity within the University’s budget.
6.1 The University relies on generating a defined level of financial return to fund charitable activity in fulfilment of the wishes of past, present and future donors. The three key risks are inflation, fluctuations in capital values and currency risks.
6.2 Inflation risk is addressed through setting an appropriate absolute return target and an appropriate spending rule (for permanent endowments) aimed only distributing (spending) sums that protect the real value of capital.
6.3 Permanent endowments, whether restricted or not, are expected to be preserved in perpetuity, allowing a long-term time investment horizon and accepting a higher degree of market volatility and therefore capital risk. The permanent nature of these endowments means short term capital volatility and is not considered a risk. However, permanent endowment balances may include an element of unapplied total return which can be spent and this element is exposed to capital risk.
6.4 Expendable endowments are generally intended to be spent over a shorter-term horizon (usually meaning under three years) so the investment of such funds needs to ensure they are not unduly exposed to capital risk.
6.5 The Chief Financial Officer and Executive Divisional Director of Finance, Infrastrucure and Commercial Services will determine what proportion of unapplied total return permanent endowment funds and expendable endowment funds that can be exposed to capital risk (eg invested in equities) taking into account expenditure and liquidity requirements.
6.6 Currency risk will be managed by the University’s Fund Manager who may elect to use currency hedging instruments if deemed appropriate.
7.1 The University will set its endowment funded expenditure budgets on the basis of the agreed spending rule set out in this policy. This will be funded from the total return – income and capital appreciation.
7.2 Permanent funds are intended to be held in perpetuity so liquidity requirements are not great. Expendable endowments are intended to be spent over a period of time (normally over 5 or more years) so require a higher level of liquidity.
7.3 At least 80% of the combined portfolio should be held in funds that have the capability of daily liquidity.
8.1 Council will delegate to Finance Dual Assurance the oversight and monitoring of the execution of its investment policy and the performance of its appointed fund managers. Finance Dual Assurance may make recommendations to Council to change fund managers if and when appropriate.
8.2 An Endowment and Investment Group assists Finance Dual Assurance in monitoring the performance of the University’s fund managers. This group will meet with Fund Managers at least twice a year to review ESG and financial performance and engagement activity. The group may have internal and/or external experts co-opted on to it, will include the Presidents of the two student unions (or their nominees).
8.3 The Chief Financial Officer and Executive Divisional Director of Finance, Infrastructure and Commercial Services will prepare an annual report to Council on endowment investments, setting out the value of investments, their performance, ESG characteristics and fund manager engagement activity, highlighting any issues Council are required to know so that they may fulfill their fiduciary duties, legal obligations with respect to investments as well as compliance with the policy.
8.4 The Chief Financial Officer and Executive Divisional Director of Finance, Infrastrcuture and Commercial Services will publish this Investment Policy, along with an annually updated list of all investments held by the University’s fund manager, to promote transparency.
8.5 The Chief Financial Officer and Executive Divisional Director of Finance, Infrastructure and Commercial Services will have responsibility for responding to questions and queries arising from members of staff, students or alumni.
Printable version of the The University Investment Policy