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Investment Policy

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Section 1 - Purpose and Context

(1) This Policy sets out the steps for monitoring and reporting the investment and performance of all monies (including monies held in trust) that are subject to the control of Western Sydney University.

(2) The policy is complemented by a Credit Risk Policy which establishes eligible counterparties and limits for the cash investments of the Short Term Assets Portfolio (Part H).

(3) Under the Western Sydney University Act, the University can only invest its funds via an "approved Funds Manager".

(4) This investment policy aims to:

  1. establish a clear understanding of the University's investment goals and objectives;
  2. define and assign responsibilities for investing activities;
  3. offer guidance and define limitations regarding the investment of University assets;
  4. manage University assets according to prudent standards and consistent with the laws of the State of NSW;
  5. establish the relevant investment horizon for which the assets will be managed; and
  6. establish a basis of reporting and evaluating investment results.

(5) This policy includes guidelines for:

  1. asset allocation;
  2. responsible investment;
  3. allowable investments; 
  4. excluded investments;
  5. spending policy.
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Section 2 - Definitions

(6) Investment risk is the risk that invested funds are adversely affected in any of the following ways:

  1. Capital/credit risk of an investment - where the capital which has been invested may be lost.
  2. Liquidity risk of an investment - where investments may not be readily saleable on the open markets and may therefore not be readily convertible or where liquidating an investment may result in significant cost.
  3. Market risk - is the risk that the value of an investment will decrease due to the change in value of the market risk factors, such as equity price, interest rates or commodity prices.
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Section 3 - Policy Statement

Part A - Finance and Investment Committee

(7) The Finance and Investment Committee is a committee of the Board of Trustees and is charged with advising and making recommendations to the Board (or the Vice-Chancellor and President as appropriate) on matters concerning University financial policy, budget and investments and monitors outcomes and performance.

Part B - Surplus Cash

(8) Surplus cash is funds available in the cash portfolio that arise from surplus working capital. The amount of funds available for investment is limited by the demands on funds for financing and operating activities of the University. Financing or operating decisions may therefore significantly increase or decrease the level of the cash portfolio and hence the potential investment returns to the University.

(9) Management decisions significantly impacting on operating cash flows will be evaluated to determine if alternative financing arrangements (e.g. borrowing) may be of advantage to the University.

Part C - Investment Goals and Objectives

(10) The University pursues a policy of maximising the investment return on cash balances and investments in an economic and efficient manner, subject to an overriding commitment to financial prudence and responsible investment in managing investment funds, and in accordance with the investment criteria outlined in this Policy. Investments are also to be managed to ensure that sufficient funds are available to meet liabilities as and when they fall due.

(11) Investment returns should meet agreed benchmarks which should, unless inappropriate for some reason, be medium or long term and not short term.

Goals

(12) In managing its investments the University must take account, inter alia, of cash requirements in both the short and longer term. The investment strategy will therefore take into account:

  1. the expected time horizon of the cash requirements;
  2. the expected return outcomes of the available asset classes;
  3. the volatility or variability of the returns of these asset classes;
  4. the time span of the University's investment horizon;
  5. the environmental, social and governance (ESG) impacts of the University's investments; and
  6. the income tax status of the University.

Criteria for Investment

(13) The general principles underlying the above goals are:

  1. investments shall be made solely in the interest of the University;
  2. investments shall be made with care, skill, prudence and diligence;
  3. investment of funds shall be diversified in order to minimise the risk of large losses, unless under the circumstances it is clearly prudent not to do so;
  4. the criteria for selecting investments will take account of the requirements set out in the Credit Risk Policy and the University's commitment to Responsible Investment (Part I);
  5. the University may employ one or more investment advisors to attain its investment objectives or may combine strategic consulting advice with funds management via an Implemented Consulting agreement; and
  6. cash is to be employed productively at all times, by investment in short-term cash equivalents to provide safety, liquidity and returns.

(14) The criteria to be applied in any investment decision are:

  1. Safety of Capital - Safety of capital is a dominant consideration in all investment decisions;
  2. Liquidity - Investments are managed to ensure that sufficient funds are available to meet liabilities as and when they fall due;
  3. Returns - Long term investments reflect the objective of maximising returns in excess of the inflation rate consistent with the appropriate risk exposure and to provide positive real returns consistently over the longer term; and
  4. The University's investment objectives require a disciplined, consistent management philosophy which protects the assets of the University and maintains sufficient liquidity to meet expected future needs.

Objectives

(15) The primary objectives of the investment in assets shall be:

  1. to invest the University's funds to maximise real returns within appropriate risk and liquidity constraints, so the University can meet its funding and cash flow requirements;
  2. to invest strategically across investment asset classes to increase the real value of the University's portfolio so it can serve the University's long term needs;
  3. to invest in a manner consistent with the University’s commitment to, and reputation for sustainability;
  4. to obtain adequate insurance for those investments for which insurance is required or is appropriate;
  5. to provide absolute security and accessibility for regular transactions (bank accounts);
  6. to provide a high degree of security and accessibility and a competitive interest rate (cash portfolio);
  7. to grow and maintain the real value of the Managed portfolio in order to achieve regular investment income for the Foundation Fund’s needs; and
  8. to grow and maintain the real value of the Endowment portfolio in order to achieve regular investment income which is available for distribution at the discretion of the Board of Trustees.

Target Rate of Return

(16) The University aims to achieve returns on investments to equal or exceed a return (before fees) of:

  1. Bank Account - a competitive rate relative to similar banking facilities in the market;
  2. Cash Portfolio - a competitive rate relative to the weighted term of the investment. e.g.: for investments with a one year weighted term the Bloomberg AusBond Bank Bill Index over rolling one-year periods;
  3. Managed Portfolio - a grossed up yield aiming to exceed the S&P ASX 300 Accumulation Index by 2% to 3% per annum over rolling three year periods;
  4. Endowment Portfolio – a rolling five year portfolio return of the Australian Consumer Price Index plus 3% p.a. on the 70% Growth/30% Defensive Strategic Asset Allocation. This may then transition to a Consumer Price Index plus 4% p.a on the 80% Growth/20% Defensive Strategic Asset Allocation on the advice of the Finance and Investment Committee and approval of the Board of Trustees, and
  5. The Asset Class Benchmark return determined for each strategic asset allocation of the portfolio over rolling five-year periods described in Part D(19) Volatility of Returns.

Part D - Control over Investments

Records

(17) A full and accurate record of all investments made in the name of the University and its controlled entities including up-to-date details of dividends, other income and current market values shall be maintained by the Finance Office. All security documents shall be properly controlled and safeguarded.

Reporting

(18) A schedule containing all current investments shall be placed before the Finance and Investment Committee at least quarterly and reported to the Board of Trustees at least annually.

Volatility of Returns

(19) The rate of return for Managed Funds and Endowment Funds is designed to achieve a balanced return of current income and modest growth of principal in the medium term, and to emphasise long term growth of principal while avoiding excessive risk. In order to achieve its objectives it is understood that investment will experience volatility and fluctuations in market value. The University will tolerate volatility as measured against the volatility of a comparable market index in each asset class and a composite index based on the strategic allocation to each asset.

(20) The indices used as a measure of an Funds Manager's performance will also be used to benchmark what is allowable volatility. These indices will be:

  1. Australian Shares: S&P/ASX 300 Accumulation Index;
  2. Australian Shares (Tax Exempt Investors): S&P/ASX 300 Accumulation Index grossed up for franking credits;
  3. Socially Responsible Global Shares Fund (Unhedged): MSCI World (NRD) Index in A$;
  4. Socially Responsible Global Shares Fund (Hedged): MSCI World (NRD) in A$ (Hedged)
  5. Global Small Companies: MSCI World Small Cap Index in A$;
  6. Direct Property: CPI + 4%;
  7. Listed Infrastructure: FTSE Global Core Infrastructure 50/50 Index in A$ (Hedged);
  8. Diversified Alternatives: HFRI Market Defensive Index in A$ (Hedged);
  9. Australian Sovereign Bonds: Bloomberg Australian Treasury Bond Index 0+ (All Maturities)
  10. Overseas Sovereign Bonds: JP Morgan Global Sovereign Bond Index in A$ (Hedged)
  11. Global Credit:
    1. 60% Barclays Global Aggregate – Corporate Index (A$ Hedged)
    2. 40% Barclays Capital Global Aggregate ex Government ex Treasuries Index (A$ Hedged);
  12. Emerging Markets Debt: JP Morgan GBI-EM Global Diversified Index (Unhedged);
  13. Absolute Return Bond: Bloomberg AusBond Bank Bill Index +2%; and
  14. Cash: Bloomberg AusBond Bank Bill Index.

Part E - Measurement of Rate of Return

(21) Investment Returns are measured on the basis of total performance which captures in a single measure:

  1. changes in the capital value of assets held (where applicable);
  2. income from managed investment portfolio assets;
  3. proceeds of sales of assets; and
  4. cost of assets acquired.

Part F - Operation of Responsibility

Finance and Investment Committee

(22) The specific responsibilities of the Finance and Investment Committee are outlined in the Committee's terms of reference.

Vice-President, Finance and Resources

(23) The Vice-President, Finance and Resources provides information and reporting to the Finance and Investment Committee with respect to all aspects of the investing activities including but not limited to:

  1. investment strategies;
  2. policies and procedures;
  3. investment performance;
  4. responsible investment; and
  5. external investment advisors.

Investment Consultant

(24) The Finance and Investment Committee may retain the services of an asset consultant to advise on the strategic asset allocation, Fund Managers and to assess performance. An alternative engagement of the asset consultant may be via Implemented Consulting where consulting advice is combined with portfolio management.

Funds Managers

(25) Funds Managers are designated external entities appointed under contract and delegated the discretion to purchase or sell, in the University's name, the specific securities which will be used to meet investment objectives. The contract can be terminated at any time with penalties limited to any outlined in the contract and based upon the conditions specified below. The application and redemption procedures and timing of payments will also be stipulated in relevant Fund Managers’ Product Disclosure Statements. Funds Managers appointed by the University will be provided with a copy of this policy and must acknowledge, in writing, acceptance of responsibility for investing University funds and agree to comply with the requirements of University policy and procedure. The terms of appointment of each Funds Manager will allow them discretion to make investment decisions for the assets placed under their jurisdiction while observing and operating within this procedure.

(26) Specific responsibilities of the Funds Manager contained in the contract include:

  1. discretionary investment management including decisions to buy or sell individual securities, either directly and/or via specialist investment managers, within the asset allocation limitations set out in this procedure;
  2. a requirement to integrate material environmental, social and governance (ESG) factors into the investment process, and to execute on any shareholder rights and responsibilities, including proxy voting rights, associated therein;
  3. reporting, on a timely basis, of monthly investment performance results;
  4. providing monthly (or as required) valuation of the investment portfolio based on the month (or relevant period) end closing prices;
  5. disclosing details of any fees, trails, commissions or the like, earned from other than the University by virtue of the investment holdings (past or current) of the University;
  6. communicating any major changes to the economic outlook, investment strategy, responsible investment approach, or any other factors that may affect investments, or investment objectives; and
  7. informing the University, in writing, of any qualitative change in the investment management organisation.  Examples include changes in portfolio management personnel, ownership structure and investment philosophy.

Part G - Performance Reporting, Review and Evaluation

Reporting - Funds Managers

(27) Performance reports shall be provided at least monthly by Funds Managers. The report, including commentary, will, as a minimum, be required to contain the following:

  1. asset allocation information - Asset market values and asset class percentages versus target allocation and ranges;
  2. investment performance - Investment returns versus performance benchmarks (both at fund and asset class level);
  3. an appendix containing a summary of Cost and Market values of each asset class within the portfolio; and
  4. performance of the Cash Portfolio against the Target Rate of Return.

(28) On an annual basis, Funds Managers will be required to report on their Responsible Investment performance in line with the University’s Responsible Investment approach outlined below. Specifically, Fund Managers wil be required to report on:

  1. their approach to and progress in integrating material environmental, social and governance (ESG) factors into the investment process and portfolios;
  2. how they have demonstrated their commitment to responsible investment through active proxy voting and engagement on material ESG issues with portfolio companies;
  3. compliance with the Excluded Investments criteria outlined below. Compliance will be monitored quarterly; and
  4. how they have considered both the investment risks and opportunities associated with a global transition to a low carbon, sustainable, economic growth model, in line with the UN Sustainable Development Goals.

Cash Portfolio

(29) All major cash flows arising from financing or operating decisions which impact (favourably or adversely) on available funds for investment are to be reported.

Review and Evaluation

(30) The investment performance of total portfolios, as well as asset class components, will be measured against performance benchmarks specified by NSW Treasury guidelines in addition to the Asset Class Benchmarks agreed with the Funds Managers.

(31) The Finance and Investment Committee will consider the extent to which the investment results are consistent with the investment objectives, goals and guidelines set forth in this policy.

(32) Funds Managers shall be reviewed over at least a three-year rolling period regarding performance, personnel strategy, research capabilities, responsible investment capabilities, organisational and business matters, and other qualitative factors that may impact their ability to achieve the desired investment results. The University reserves the right to terminate a Funds Manager for any reason including but not limited to the following:

  1. investment performance that is significantly outside the agreed performance benchmarks taking into account the risk and volatility parameters or unacceptable justification of poor results;
  2. failure to comply with any aspect of this procedure, including communication and reporting requirements; and
  3. significant qualitative changes to the investment management organisation: for example staffing; ownership; research capabilities etc.
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Section 4 - Guidelines

Part H - Asset Allocation

(33) Asset Allocation refers to a mix of investment classes, for example, the mix of investments between cash, fixed term bonds, property, equities etc. It is used in this policy to describe a preferred mix of classes of investments toward which the portfolio is aimed.

Short Term Assets Portfolio

(34) Short term assets will be invested in short term cash or fixed interest investments, or short term cash investment vehicle(s) with the allocations to various securities at levels that comply with the ratings from Standard & Poors as shown in the following table.

Credit Rating Long Term Credit Rating Short Term Benchmark % Range % Minimum Range % Maximum
AA to AAA A -1+ 60% 50% 100%
A to A+ A -1 25% 0% 40%
BBB+ to A- A -2 15% 0% 20%

Total

 

100%

   

Long Term Assets Portfolio

(35) The strategic asset allocation ranges within which the University's sector exposures will be maintained and the benchmark portfolio against which the University's returns will be monitored is as follows, in Tables 1, 2 and 3.

Table 1 - Strategic Assets Allocation - Restricted Investments: Foundation Fund and Long Service Leave

Asset Class Benchmark % Range % Minimum Range % Maximum
Australian Shares 70% 60% 100%
Fixed Interest Securities and Debt Instruments 30% 0% 40%
Cash 0% 0% 10%

Total

100%

   

Table 2 - Strategic Assets Allocation - Restricted Investments: Tied Grants, Capital Grants, Research Grants and Whitlam Trust.

Asset Class Benchmark % Range % Minimum Range % Maximum
Fixed Interest Securities and Debt 80% 70% 100%
Cash 20% 0% 30%

Total

100%

   

Table 3 – Strategic Assets Allocation – Investments: Endowment Fund

Asset Class Benchmark %  Range % Minimum Range % Maximum
Australian Shares 25% 15% 35%
International Shares (unhedged) 10% 5% 20%
International Shares (hedged) 5% 0% 15%
International Small Companies (unhedged) 5% 0% 10%
Australian Direct Property 10% 0% 15%
Global Listed Infrastructure (hedged) 10% 0% 15%
Alternatives (Diversified Hedge Funds) 5% 0% 15%

Growth Assets

70%

55%

85%

Australian Sovereign Debt 6% 0% 15%
Global Sovereign Debt (hedged) 5% 0% 15%
Global Credit Fixed Income Securities (hedged) 6% 0% 10%
Emerging Market Fixed Income Securities 5% 0% 10%
Absolute Return Fixed Income 5% 0% 15%
Cash* 3% 0% 20%

Defensive Assets

30%

15%

45%

Total

100%

   
NB. Cash may be increased beyond benchmark due to pending approved expenditures/projects.

(36) The Finance and Investment Committee will formally assess the appropriateness of the benchmark portfolio at least annually with a view to ensuring that the portfolio reflects fundamental changes in the investment environment and/or changes to the Investment Policy.

(37) From time to time the actual asset allocation mix may vary from that approved by the Finance and Investment Committee due to cash flows or dynamic asset allocation decisions. A variance of up to the minimum and maximum ranges for each asset class within the overriding 15% range (above or below) the cumulative Growth and Defensive asset class level will be tolerated.  Variances which continue for more than 2 quarters shall be reviewed by the Finance and Investment Committee for recommendation to the Vice-President, Finance and Resources to determine whether:

  1. to readjust back to the determined asset allocation as market conditions allow and prudence dictates; or
  2. to determine adjusted asset allocations taking into account the overall objectives of the fund.

(38) Any changes to the benchmark portfolio and asset allocation ranges will be referred to the Board of Trustees for formal adoption.

Part I - Responsible Investments

(39) The University believes Environmental, Social and Governance (ESG) factors, such as climate change, can impact investment risk and returns over the long term. Therefore, the University will:

  1. ensure the understanding of any material ESG risks and opportunities embedded in the portfolio’s investments and manage them accordingly. This includes climate change related risks and opportunities associated with the transition to a low carbon economy and the physical impacts of climate change;
  2. consider how material ESG factors are integrated into the investment process when choosing and monitoring investment funds and Funds Managers; and
  3. require reporting on any material ESG risk and opportunity exposures from its Funds Managers as part of an annual review.

(40) The University believes that being a sustainable University investor means using its influence as an investor, through proxy voting and engagement, to encourage good corporate governance and sustainable operating practices. The University delegates investment management to outsourced Funds Managers and expects its Funds Managers to vote its proxies and engage with portfolio companies to address any material ESG risks and drive sustainable performance. The University will require proxy voting and engagement reporting from its Funds Managers as part of an annual review process. Funds Managers should report on how their approach to proxy voting and engagement is aligned with the University’s investment objectives and the delivery of long-term sustainable returns.

(41) The University believes it is important to invest in sustainable industries and the businesses  of tomorrow, which may be identified in any asset class. The University will look to incorporate sustainability targeted and impact investments into its portfolio where possible, provided these investments are expected to deliver investment returns in line with its investment objectives and its risk tolerance threshold.

Part J - Allowable Investments

(42) The University's portfolio can be invested in the following areas:

  1. Bank and Financial Institution Deposits;
  2. Cash Securities;
  3. Fixed Interest Securities and Debt Instruments;
  4. Listed Australian Shares;
  5. Listed International Shares;
  6. Trusts and Portfolios managed by funds management organisations; and
  7. Other assets as approved by Finance and Investment Committee.

Part K - Excluded Investments

(43) The University believes that some products or services should be excluded from the investment portfolio due to ethical grounds such as the significant negative impact on society and/or the environment.

(44) Before excluding any companies or sectors, the University will assess the expected impact of exclusions on investment risk and returns. The University will not normally exclude companies or sectors where the exclusion is expected to have a material negative impact on investment returns.

(45) These will be registered as Excluded Investments and advice provided to Funds Managers. A register of excluded investments shall be maintained by the Associate Director, Treasury. The University has identified the following as Excluded Investments:

  1. Tobacco Companies: Companies identified under the General Industry Classification System as Tobacco (Industry Code 302030) or who derive 50% or more of revenue from tobacco-related business activities; and
  2. Controversial Weapons: Companies that manufacture whole weapons systems, components, delivery platforms or components that were developed or are significantly modified for exclusive use in cluster munitions, anti-personnel landmines, biological or chemical weapons.

Part L - Spending Policy for the Endowment Fund

(46) The primary objectives of the spending policy are to achieve a proper balance between present and future needs of Western Sydney University, whilst achieving a reasonable degree of stability and predictability of distributions.

(47) Each year as part of the budget process the spending policy will determine the annual amount of funding that can be accessed from the Endowment Fund.

(48) The spending rate is defined as the amount of money that can be accessed from the portfolio divided by the three year average fund size.  Until the fund has been operating for three years the average fund size will be the monthly average fund size since inception.

(49) The spending rate is initially set at 2% of the calculated average fund size until the portfolio transitions to the 80% Growth/20% Defensive asset allocation mix when the spending rate will move to 4% p.a.