11. Business and Financial Operations

11.1. Financial Operations

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11.1.2. Investments

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Effective Date: 1-10-1966

Revision Date: 10-7-2014


Eastern Michigan University's investment objective shall be to preserve investment principal while deriving a reasonable return consistent with the prevailing market and economic conditions. Investment decisions shall be based on specific guidelines which incorporate quality, safety, diversity and liquidity of funds. 


The short-term investment pool guidelines are intended to cover the investment of university funds that are required for daily liquidity and normal operating needs. The intermediate-term investment pool guidelines are intended to cover funds that are earmarked for use in the next one to three years.  The remaining portion of the portfolio determined to be in excess of operational need and not expected to be needed as working capital funds may be designated long-term in nature and allocated to the long term investment pool.


1. The primary investment objective for the short-term investment pool accounts will be to provide for preservation of capital with a secondary emphasis upon maximization of investment income with prudent exposure to risk. Funds needed for expenditures in less than one year will be considered short-term.

2. The primary investment objectives for the intermediate-term investment pool accounts will be preservation of capital and maximization of income with prudent exposure to risk within the parameters specified in this investment policy statement.  Funds needed for expenditures within one to three years will be considered intermediate-term.

3. The primary investment objectives for the long-term investment pool accounts will be to provide for long-term growth of principal and income with prudent exposure to risk.  Funds not needed for expenditures within three years will be considered long-term.

4. Due to the inevitability of short-term market fluctuations that may cause variations in the investment performance, it is intended that the performance objectives will be achieved over a rolling five-year period net of investment management fees and transaction costs. Nevertheless, the University reserves the right to evaluate and make any necessary changes regarding the investment managers/funds over a shorter-term using the criteria established in the "Evaluation of Investment Manager" section of this statement.


Short-Term Investment Pool 

The short-term investment pool shall be managed by one or more short-term investment managers, each maintaining a portfolio with an average weighted maturity between one day and one year.

Intermediate -Term Investment Pool 

The intermediate-term investment pool shall be managed by one or more investment managers with the goal of preserving capital and liquidity while providing a moderate return.

Long-Term Investment Pool 

The overall long-term investment pool targets and permissible ranges for asset classes are detailed in Appendix A.  It is anticipated that the long-term investment pool will invest primarily in "commingled funds" (mutual funds, limited partnerships, limited liability companies, etc.) rather than separately managed accounts, in recognition of the benefits of commingled funds as investment vehicles (i.e., the ability to diversify more extensively than in a small, separately managed investment account and the lower costs which can be associated with these funds).  The Investment Committee recognize that they will not be permitted to give specific policy directives to a fund whose policies are already established; therefore, the Investment Committee are relying on the Investment Advisor to assess and monitor the investment policies of such funds to ascertain whether they are appropriate.

In some instances (likely long-only equity or fixed income mandates), a separately managed account may be deemed the optimal vehicle for the long-term investment pool.  In those cases, the individual manager guidelines are specified in each approved investment manager agreement (IMA) and will be evalutated and negotiated by the Investment Advisor.

The Investment Committee also realizes that certain types of derivatives are commonplace and acceptable investment securities for various types of strategies. Some of the investment managers will use derivatives to hedge, gain market exposure, gain/reduce currency exposure, etc.  The Investment Advisor will evaluate each manager's derivatives policy and determine if it is acceptable before making a recommendation.


The University representatives will monitor the asset allocation structure of the long-term investment pool and will attempt to stay within the ranges allowed for each asset class.  If an asset class falls outside the permissible range for that asset class, the University representatives will develop a plan of action, either for immediate rebalancing of the portfolio or a rebalancing that will occur over the subsequent few months. 


1. Market Benchmark

    a. The total return for the short-term investment pool and for each short-term investment manager shall exceed the rate of return on 3-month U.S. Treasury Bills.

   b. The total return for the intermediate-term investment pool shall exceed the Merrill Lynch 1-3 Year Government Bond Index.  Each investment manager is expected to outperform their designated benchmark index.

    c. The total return for the long-term investment pool shall exceed the designated Policy Index. 

Policy Index: Calculated by taking the asset class weights times the return of the respective passive benchmark (calculated monthly).  This measures the effectiveness of fund asset allocation structure.

3. Peer Group Ranking

    a. The total return for each intermediate-term investment manager shall rank in the top half of the appropriate universe.

    b. The total return for each long-term investment manager shall rank in the top half of the appropriate universe (Domestic Equity, International Equity, and Core Fixed Income).


The investment managers will be reviewed on and ongoing basis and evaluated based upon the following additional criteria:

    1. Ability to exceed the performance objectives stated m this Investment Policy Statement.

    2. Adherence to the philosophy and style which were articulated to the University at, or subsequent to, the time the investment manager was retained.

    3. Continuity of personnel and practices at the firm.

Each investment manager shall immediately notify the University representatives and the Investment Advisor in writing of any material changes in its investment outlook, strategy, portfolio structure, ownership, or senior personnel.


1. In today's rapidly changing and complex financial world, no list or types of categories of investments can provide continuously adequate guidance for achieving the investment objectives. Any such list is likely to be too inflexible to be suitable of the market environment in which investment decisions must be made. Therefore, it is the process by which investment strategies and decisions are developed, analyzed, adopted, implemented and monitored, and the overall manner in which investment risk is managed, which determines whether an appropriate standard of reasonableness, care and prudence has been met for these investments.

2. Although there are no strict guidelines that will be utilized in selecting investment managers, the University will consider the length of time the firm has been in existence, its track record, assets under management, investment philosophy, overall "fit" within the existing investment portfolio, and the amount of assets the University has already invested in the firm.

3. The requirements stated below apply to investments in non-mutual and non-pooled funds, where the investment manager is able to construct a separate, discretionary account on behalf of the University.  Although the University cannot dictate policy to pooled/mutual fund investment managers, the University's intent is to select and retain only pooled/mutual funds with policies that are similar to this policy statement. All managers (pool/mutual and separate); however, are expected to achieve the performance objectives.

    a. Each investment manager must satisfy the performance objectives and asset allocation guidelines.

    b. Each investment manager shall have full investment discretion with regard to market timing and security selection, consistent with this Investment Policy Statement.

    c. The investment managers shall be evaluated on a quarterly basis and should be prepared to meet with the University at least annually.

    d. Short-term investment managers must invest at least 50% of the portfolio in U.S. Government Securities and/or U.S. Government Agency issues.

    e. No more than 10% of the portfolio, at cost, can be invested in any single issue, except the investments in U.S. Government Securities.

 The weighted average credit quality is to be no less than "AAA" (or its equivalent rating by two national rating agencies) for the short-term investment pool accounts.

    f. Portfolio holdings will be sufficiently liquid to ensure that 10% of the portfolio can be sold on a day's notice with no material impact on market value.

    g. Commercial paper must be, at the time of purchase, rated within the highest classification established by not less than two national rating services.

    h. The average weighted maturity for each short-term investment manager shall be between one day and one year.

    i. Bank Certificates of Deposit and Bankers' Acceptances are to be rated within the top two rating classifications by any one national rating service.  Foreign bank issues are capped at 10% of the total investment in this category.

    j. There shall be no investments in non-marketable securities.

    k. Each equity and fixed income investment manager must assure that no position of any issuer shall exceed 10% of the manager's portfolio at market value, with the exception of securities issued by the U.S. government and its agencies.

    l. The investment managers shall handle the voting of proxies and tendering of shares in a manner that is in the best interest of the University and consistent with the investment objectives contained herein.

    m. The equity and fixed income investment managers shall not effect a purchase, which would cause a position in the portfolio to exceed 5% of the issue outstanding at market value.

The University must explicitly authorize the use of  derivative instruments, and shall consider certain criteria including, but not limited to, the following:

        i. Manager's proven expertise in such category,

        ii. Value added by engaging in derivatives,

        iii. Liquidity of instruments,

        iv. Activity traded by major exchanges (or for over-the-counter positions, executed with major dealers), and

        v. Managers' internal procedures to evaluate derivatives, such as scenario and volatility analysis and duration constraints.



The Investment Consultant is responsible for assisting the University in all aspects of managing and overseeing the investment portfolio. The consultant is the primary source of investment education and investment manager information. On an ongoing basis the consultant will:

1. Provide the University with quarterly performance reports within 45 days following the end of the quarter;

2. Meet with the University at least quarterly, or more frequently as needed;

3. Provide the University with an annual review of this Investment Policy Statement, including an assessment of the University's current asset allocation and investment objectives; and

4. Supply the University with other reports or information as reasonably requested.

Appendix A

Eastern Michigan University Board of Regents

In order to have a reasonable probability of achieving the target return at an acceptable risk level, the Investment Committee has adopted the asset allocation policy outlined below.

Because asset classes do not move in concert, investment experience will cause the asset allocations to move away from targets.  The asset allocation table listed in Appendix A reflects minimum and maximum ranges that are designed to take into account risk, returns, correlation of asset classes, and transaction costs of rebalancing.


Equilty 35% 20-50%  
Domestic All Cap Equities 10% 5%-20% Russell 3000 Index
International Equities 5% 0%-10% MSCI EAFE Small Cap
Emerging International Equities 5% 0%-8% MSCI EM
Global Equity 15% 10%-20% MSCI ACWI-ND
Fixed Income 25% 20%-50%  
Core Fixed Income 5% 0%-10% Barclays Aggregate
Absolute Return Fixed Income 10% 5%-15% Barclays Aggregate
Emerging Market Debit 5% 0%-8% 50% JPM EMBI Global Div. / 25% JPM GBI-EM Global Div. / 25% JBM ELMI+
Global Multi-Sector Fixed Income 5% 0%-10% Barclays Multiverse Index
Global Asset Allocation / Risk Parity 20% 10%-30% 60% MSCI World / 40% Citi WGBI
Alternatives 20% 5%-25%
Hedge Funds 10% 0%-20% HFRI Fund of Funds Composite Index
Real Assets 10% 5%-15% Custom Benchmark (1)


At each quarterly Investment Committee meeting, NEPC will present a look-through asset allocation. This look-through will break out the underlying exposures of the Multi-Asset Class managers based on their most recent exposure reports.  Based on this analysis, if the underlying Equity exposure is greater than 60% of the total Portfolio, the Investment Committee and the NEPC will have a discussion to determine if this exposure is appropriate.

*Non-Core Bonds represents fixed income managers that are NOT benchmarked to the Barclay's Capital Aggregate Index.  Depending on the non-core bond manager's specific mandate, investable asset classes may include:  high yield corporate, developed global, and emerging market bonds.

**Each Multi-Asset Class manager will also have specific manager benchmarks

(1) Currently 40% BC Aggregate / 30% TIPS / 10% S&P 500 / 10% High Yield / 10 % JPM EMBI+

Authority for Creation and Revision

Minutes of the Board of Regents, January 10, 1966, para. .334M.
Minutes of the Board of Regents, March 15, 1972, para. .1086M and .1087M.
Minutes of the Board of Regents, May 17, 1978, para. .1941M.
Minutes of the Board of Regents, May 25, 1993, para. .4698M.
Minutes of the Board of Regents, September 15, 1998, para. .5412M.
Minutes of the Board of Regents, March 20, 2007, para. .6709M.
Minutes of the Board of Regents, September 22, 2009
Minutes of the Board of Regents, October 7, 2014