Statement on Investment Policy and Procedures (SIP&P)

Purpose

To provide a framework and guidelines to ensure Seneca’s investments are managed in accordance with the Ontario Trustee Act for endowment funds, comprised of donor funds and government matched funds, and the Minister’s Binding Policy Directive on Banking, Investments and Borrowing for operating funds.

Scope

Seneca is a registered charitable organization with the Canada Revenue Agency. As such, it is exempt from income tax, and the fiscal year-end is March 31. This policy applies to Seneca’s endowment and operating funds held internally or managed externally by Seneca’s independent certified investment manager(s).

Key Definitions

Donor funds

Consist of accumulated external contributions from individuals, corporations and other gifts which are not designated to fund Seneca operations.

Endowment fund

An endowment fund is a kind of investment fund that is held by a non-profit organization, and amounts are withdrawn frequently from the fund in order to meet general as well as specific needs. The fund consists of the number of investments made and income earned on such investment.

Operating funds

Funds that are generated by and used for day-to-day operations of Seneca. Investments of these funds must comply with the Ontario Colleges of Applied Arts and Technology Act, 2002, including the Minister’s “Binding Policy” Directive on Banking, Investments and Borrowing.

Government-matched funds

Funds that are provided by the Province of Ontario under the Ontario Student Opportunities Trust to allow universities and colleges to assist academically qualified students facing financial barriers to access post-secondary education.

Policy

1. Endowment assets

2. Roles and responsibilities

  1. Seneca Board of Governors (BOG) is responsible for safeguarding the financial assets of Seneca and has ultimate responsibility and decision-making authority for the assets.
  2. Finance and Administration Committee (FAC) is responsible for:
    • reviewing and recommending changes to the investment policy, investment strategies and disbursement policies for Seneca’s funds
    • reviewing the performance of Seneca’s investment manager(s)
    • implementation of this policy, including monitoring and regularly report on the investment results of the Endowment and Operating Funds to the BOG
    • ensuring that all investments follow this policy and comply with the Federal Government of Canada and the Province of Ontario legal requirements
    • retaining the services of an investment manager(s) to manage the funds in accordance with the objectives and guidelines established in this policy.
  3. From time-to-time, the FAC may use the services of an independent investment consultant to assist with its duties, in particular, investment manager oversight, assets allocation, and the appropriateness of asset classes for inclusion or exclusion. See Section 8 – Investment Policy Review.
  4. In carrying out its mandate, the Finance and Administration Committee (FAC) has recommended, and the Board of Governors has agreed, that Seneca financial investments be managed by an external, independent professional investment manager(s). The firm must meet all the requirements to operate as a Portfolio Manager and be registered with the Securities Commission.
  5. Investment managers are responsible for:
    • selecting securities within the asset classes assigned to them, subject to the guidelines set out in this policy
    • providing the FAC with quarterly compliance reports of portfolio holdings and annual performance reports, or more frequently if required – refer to section 7
    • attending meetings of the FAC to review performance and to discuss proposed investment strategies
    • informing the FAC of any investments that fall outside the constraints and actions that will be taken to remedy this situation
    • advising the FAC of any factors that could prevent attainment of the investment objectives
    • ensuring that the Endowment Fund is invested in accordance with the Trustee Act, Ontario, and this policy
    • certifying that Operating Funds are invested in accordance with the Government of Ontario Binding Policy Directive on Banking, Investments and Borrowing, and this policy
    • overseeing proxy voting rights on fund securities where applicable
    • maintaining a record of how voting rights of securities in the funds are exercised, and provide a quarterly report on proxy voting results with specifics on how the firm voted on Environmental, Social and Governance related shareholder resolutions.

3. Endowment fund investment objectives

  1. Seneca’s objective is to generate a total investment return that achieves the granting objectives of the endowments on the following basis:
    • recovers the cost of managing and administering the funds
    • protects the long-term purchasing power of the capital component
    • establishes a reserve for future market declines
    • the portfolio requires sufficient liquidity to support Seneca’s disbursement requirements on a timely basis.
  2. Fund objectives are to protect the long-term purchasing power of the capital component, achieve granting objectives for endowments and maximize the rate of risk adjusted return.
  3. Performance expectation
    1. The Endowment Fund has established a target return of seven per cent on a rolling four-year basis, to protect capital in perpetuity, and distribute 3.5 per cent as outlined under Section 9. This 3.5 per cent distribution is in addition to inflation as measured by the Consumer Price Index (CPI) as well as operating costs.
    2. The investment manager(s) is expected to outperform the policy benchmark by at least one per cent on a rolling four-year basis, gross of fees. Shorter time periods will be considered until the four-year mark is reached.
    3. The policy benchmark is represented by a passive allocation to the target asset mix as follows:
      • 28 per cent of the S&P/TSX Composite
      • 15 per cent S&P500 (CAD)
      • 15 per cent MSCI EAFE (CAD)
      • five per cent Russel 2500(CAD)
      • 35 per cent of the FTSE Canada Universe Bond Index
      • two per cent FTSE Canada 91 Day Index

4. Risk tolerance

  1. Asset allocation
    1. The target asset allocation outlined in Section 5 has been determined with the objective of maximizing the long-term rate of return, subject to an appropriate level of risk, consistent with the goal of capital preservation and growth.
    2. Over shorter time periods, the investment manager(s) can use the permissible ranges allowed for each asset class to potentially enhance risk-adjusted return.
  2. Risk
    1. The level of risk to which portfolios are exposed will be controlled by diversifying the holdings, not only in terms of asset class, but also in terms of holdings within each asset class, sectors and geographies.

5. Authorized investments for the endowment fund

  1. Given the portfolio’s legal and regulatory requirements, investment time horizons, liquidity and income requirements, the asset mix range for the Endowment Fund is as follows:
    Long-term strategic asset allocation for the fund
    Asset class Minimum% Target% Maximum%
    Cash & Cash Equivalent 0 2 25
    Fixed Income 30 35 55
    Equities 45 63 70
  2. Cash and cash equivalents
    1. All short-term investments will be at least R-1 or equivalent as defined by a Nationally Recognized Statistical Rating Agency (NRSRO):
      • Cash
      • Demand or term deposits
      • Short-term notes
      • Treasury bills
      • Banker’s Acceptance
      • Commercial paper
      • Guaranteed Investment certificates
      • Bank term deposits and Banker’s acceptances
  3. Fixed income
    1. Minimum average credit rating of fixed income portfolio shall be single A or better.
    2. Minimum credit quality rating of any bond purchased shall be BBB or better.
    3. Bonds and debentures of the Canadian government, its agencies and crown corporations.
    4. Corporate bonds and debentures.
    5. 10 per cent maximum in any single issuer except Canadian government or Canadian government guaranteed and Provincial government securities.
    6. Mortgage (within a pooled fund), mortgage-backed securities, and other asset-backed securities.
    7. Derivatives may be used for currency hedging purposes to facilitate currency risk management or interest rate management. These derivatives will be used exclusively for managing investments in the Leith Wheeler Core Active Bond Fund.
    8. Derivatives use in the Core Active Bond Fund is limited by the duration constraint of +/- 2 years of the FTSE Canada Bond Universe duration.
    9. Any use of derivative instruments must always be subject to regulations outlined by the Ontario Securities Commission or by such other applied regulatory bodies.
  4. Equities will include:
    • Exchange-traded Canadian and foreign securities*
    • Common shares, convertible preferred shares
    • American Depositary Receipts
    • Global Depositary Receipts
    • Convertible and exchangeable debentures
    • Preferred shares (rated R-1 low or better).
  5. Diversification shall be achieved by limiting to five per cent or less the amount that can be invested in a single security as a percentage of the portfolio’s total equity value, with the exception of an exchange traded fund or a pooled fund.
  6. *Foreign securities may include US, International and Emerging Markets equities. They may be diversified by size (large cap, small and mid-cap), and/or style (value and growth).

  7. Pooled funds
    1. An investment manager may hold any part of the portfolio in one or more pooled funds or co-mingled funds managed by the manager(s), provided that such pooled funds operate within the constraints described in this policy.
    2. To accomplish the investment objectives of the Endowment Fund and to comply with the Trustee Act, as revised, it is suggested that this investment policy provide for flexibility whereby the proportion of the Endowment Fund invested in various asset classes may be varied.
  8. Exclusions include:
    • options
    • futures contracts
    • purchase of securities on margin
    • short sales
    • units of limited partnerships
    • private equity
    • venture capital
    • commodities
    • hedge funds
    • derivative products that expose the portfolio to potential losses greater than the amount invested.
  9. Investment in derivative instruments may be used for hedging purposes to facilitate the management of risk.
  10. Under no circumstances will derivative products be used for speculative purposes or to leverage the portfolio.

6. Authorized investments for the operating funds

  1. Subsection E, 6a. of the Government of Ontario Binding Policy Directive on Banking, Investments and Borrowing states the authorized investments for all operating funds, as follows:

    A college may only invest college funds not immediately required to operate the college in the following securities, expressed or made payable in Canadian dollars, subject to the ratings identified in section F.

    1. Bonds, debentures and promissory notes or other evidence of indebtedness, issued or guaranteed by:
      1. Canada or a province or territory of Canada, or
      2. an agency of Canada or a province.
    2. Bonds, debentures, promissory notes, or other evidence of indebtedness, issued or guaranteed by:
      1. a municipality in Canada
      2. a university in Ontario that receives ongoing operating and capital funding from Ontario
      3. the board of governors of a college established under the Ontario Colleges of Applied Arts and Technology Act, 2002
      4. a board of a public hospital within the meaning of the Public Hospitals Act
      5. a school board in Canada
      6. Ontario Infrastructure Projects Corporation; or
      7. the Municipal Finance Authority of British Columbia.
    3. Bonds, debentures, promissory notes, deposit receipts, deposit notes, certificates of deposit or investment, acceptances, commercial paper, or similar instruments, issued, guaranteed, or endorsed by:
      1. a bank listed in Schedule I or II or a branch in Canada of an authorized foreign bank under the Bank Act (Canada)
      2. a loan corporation or trust corporation registered under the Loan and Trust Corporation Act; or
      3. a credit union to which the Credit Unions and Caisses Populaires Act, 1994 applies.
    4. Bonds, debentures, promissory notes, or other evidence of indebtedness, issued by a corporation that is incorporated under the laws of Canada or a province of Canada; or
    5. Promissory notes or commercial paper, other than asset-backed securities, issued by a corporation that is incorporated under the laws of Canada or a province of Canada.
  2. Subsection F, 6b. of the Government of Ontario Binding Policy Directive on Banking, Investments and Borrowing states, “A college is not to invest in a security under subsection E.IV or E.V above unless the security has a minimum rating, at the time the investment is made by the college by at least one rating agency of:
    1. “R-1 (high)” or “AAA” by Dominion Bond Rating Service Limited
    2. “Prime-1” or “Aaa” by Moody’s Investors Services Inc.
    3. “A-1+” or “AAA” by Standard and Poor’s; or
    4. “F1+” or “AAA” by Fitch Ratings.

    In addition to minimum credit ratings established by the MCU directive, securities issued under Section 6 (III) must carry a minimum rating of “A”, as defined by a NRSRO.

  3. Subsection G, 6c. of the Government of Ontario Binding Policy Directive on Banking, Investments and Borrowing states that “If an investment falls below the standard required in section F, the college is to sell the investment within 90 days after the day the investment falls below the standard.”
  4. Investment objectives, parameters and benchmarks for investment funds include:
    1. preservation of capital to minimize the risk to the principal of investments.
    2. the maintenance of liquidity to ensure funds are available to meet all the Seneca’s cash flow requirements.
    3. short-term yield enhancement. The Operating Fund’s goal is to attain a higher return than would otherwise be achieved by keeping funds in Seneca treasury account.
  5. Operating fund benchmarks
    1. Benchmarks should be established to evaluate the Investment’s performance on an ongoing basis.
    2. Benchmarks may change occasionally to reflect evolving market conditions, changes to the investment policy or changes in the Portfolio’s composition.
    3. The benchmark for measuring the portfolio’s performance is a blend of the 1-year Government of Canada T-Bill index (50 per cent) and the FTSE Short-term Government Bond index (50 per cent).

7. Reporting on endowment and operating funds

  1. The Vice President, Finance and Administration will provide an annual report to the Board of Governors, through the FAC, summarizing the performance results of the Endowment and Operating Funds investments of Seneca.
  2. The investment manager(s) will provide a quarterly and an annual report to the FAC, which will include:
    • a portfolio valuation, including the market value of each security or pooled fund
    • a compliance report confirming compliance with the investment policy guidelines
    • data and commentary on the investment performance against benchmarks and performance expectations
    • commentary on the manager’s/managers’ forward-looking views on the capital markets
    • information pertaining to changes of investment or senior management and/or ownership structure
    • information pertaining to changes to the manager’s investment process that may impact performance.
  3. The manager(s) will be responsible for reviewing the asset mix and for maintaining the portfolio within the permissible ranges as outlined in Section 5.
  4. The investment manager(s) will be available for meetings with the FAC on an annual basis, or more frequently if required by the FAC, and will be available for discussion and consultation as needed.
  5. Each manager is expected to comply, at all times and in all respects, with the Code of Ethics and Standards of Professional Conduct of the CFA Institute.

8. Investment policy review

  1. FAC is responsible for ensuring that this policy continues to be appropriate for the Endowment and Operating funds and meets the objectives of Seneca, while remaining responsive to changing economic and investment conditions.
  2. An independent consultant will review the investment policy annually and report its findings to the FAC.
  3. Any individual who becomes aware of an incident under this policy should not disclose the details of the incident outside of the appropriate reporting channels.

9. Endowment disbursements

  1. The current CRA requirement is for a minimum annual distribution of 3.5 per cent.
  2. Seneca’s Board of Governors has established an objective to distribute up to 3.5 per cent of the smoothed market value of the Endowment Fund each year.
  3. In years where the approved disbursement quota of 3.5 per cent of the smoothed market value of the Endowment Fund is not met, due to reduced demand, Seneca will add the disbursement shortfall to the accumulated capital base of the Endowment Fund.
  4. The smoothed market value will be calculated by taking an average of the market value of the assets over the previous two fiscal years, as of March 31 each year. Using this framework should allow Seneca to distribute a consistent, and hopefully rising, dollar amount from the endowment assets on an annual basis, regardless of the rate of return earned in the most recent year.

10. Responsible investing

  1. Seneca expects the investment manager(s) will ensure that Environmental, Social and Governance (ESG) factors are adequately addressed in the selection, retention, and realization of investments insofar as such factors may affect investment performance.
  2. Consideration of ESG factors is ultimately the responsibility of the investment manager and must be consistent with this policy.

11. Conflict of Interest

  1. No fiduciary, FAC member, or employee of the investment manager(s) will knowingly permit his or her interest to conflict with his or her duties or powers to affect the investment of the portfolio’s assets.
  2. Any actual or perceived conflict of interest must be reported to the FAC.
  3. The Committee will be the sole arbiter in determining whether the conflict or potential conflict of interest exists.
  4. The investment manager(s), independent investment consultant and all employees of the investment manager(s) will abide by the CFA Institute of Ethics and Standards of Professional Conduct.

12. Adoption of the investment policy

  1. The Board of Governors of Seneca adopted this Investment Policy Statement by way of resolution at its meeting on February 18, 2021.

Supporting Documentation

Related Seneca Policies

Related Materials

FAC Terms of Reference