California Native Plant Society

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INVESTMENT POLICY

Introduction

The Board of Directors has fiduciary responsibility for the long-term financial sustainability of the Society.  The purpose of this policy is to prudently guide investment activities to provide short-term income, with long-term preservation or growth of principal, and overall returns above the rate of inflation.

General Guidelines

Short to medium term operating funds are held in accounts providing frequent access, minimal to no risk, and as much as reasonable, interest income. Examples of such accounts include checking, money market funds, and short term Certificates of Deposit.

Reserves, endowments, and other funds held for medium to long terms can be invested for higher average returns.  To balance risk and returns, these funds are invested in minimal risk accounts (for example longer term CD and US government securities) and other investment using a diversified asset allocation strategy.

Decisions to rebalance, sell, liquidate, or merge investments shall be made prudently with a preference for low turnover in long term investments (annually or less).  Any investment will be pre-arranged with the staff Finance Director to insure simple recording and tracking of investment accounts to intended use accounts.

Asset Allocation

CNPS has a medium to low tolerance for investment risks. Principal fluctuations are expected in most long term investments providing higher returns; however, the portfolio is managed with investments covering multiple asset categories (i.e. stocks, bonds, REITs) to decrease overall risk and volatility.

The strategy also recognizes allocations in sub-categories such as large vs. small cap and value vs. growth equities, and long vs. short-term bonds. Investments may be held in individual securities, but preference is given to mutual funds, including exchange traded funds, and especially to “asset allocation funds”. The asset allocated portfolio is managed to return less volatility than the benchmark S&P 500.

Acceptable Investment Categories

The investment strategy prefers readily marketable securities, readily ascertainable market values, widely recognized security categories, full disclosure, safety of principal, high returns, and decreased volatility.  While no single category satisfies all preferences, the following categories of securities are approved for investment:

  1. Money Market Funds
  2. Certificates of Deposit (CD)
  3. U.S. Government Securities
  4. Corporate Bonds
  5. Investment Grade Commercial Paper
  6. Common and Preferred Stocks
  7. Foreign Securities offered through US based exchanges or funds
  8. Mutual Funds
  9. Broadly based Exchange Traded Funds (ETF)
  10. Broadly based Real Estate Investment Trusts (REIT)

Investment decisions are made to minimize management fees and transaction costs. This strategy naturally prefers, but is not limited to, passively managed and no-load index funds.  Average expense ratios for the entire portfolio shall not exceed 1%.

The Board prefers “socially responsible” investments with an emphasis on “environmental responsibility.”

 Prohibited Investment Categories

Use of alternative investment vehicles and strategies contrary to the Accepted Investment Categories and guidelines are prohibited.  Examples of prohibited categories include, but are not limited to: narrow sector funds, hedge funds, managed futures, options, junk bonds, derivatives, short selling, market timing, buying on margin, limited partnerships, commodities or precious metals.  In addition, mutual funds that incorporate any significant use of these investment tools or practices are prohibited.

Oversight of Investment Funds

The Board is ultimately responsible for reviewing and overseeing the investment of CNPS funds. The Board assigns oversight duties and specific investment decisions to its Finance Committee and the Finance Committee may appoint a Subcommittee on Investments. The Committee or the Subcommittee shall, at least quarterly, review investments and take necessary action regarding redirecting, re-balancing, or in some other way changing CNPS investments as necessary to comply with these policies.

The Finance Committee shall monitor the performance of investment portfolios and investment managers and report quarterly to the Board. The Committee shall annually report how investment funds performed in comparison to appropriate benchmarks, to be determined by the Committee.

 

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