portion of the portfolio would serve as one of the primary sources of spending during such periods, when the prices of other assets in the portfolio may decline. These bonds should be held in a 10-year laddered structure of individual bonds to assure that there will be a regular and predictable source of cash to meet unexpected needs. This asset class should not include any bond ETFs or bond mutual funds, because of the lack of control over when bond purchases and sales are made within the fund and when cash comes available to the fund holder.
Real Assets – Strategic Real Estate Assets located near the current and projected campuses. No other real estate investments will be permitted (without explicit case-by-case approval by the Board) due to volatility, default, and liquidity risk.
Cash – The cash allocation will be used to provide liquidity for spending distributions and management fees. The cash allocation should never exceed 2.0%, and should be held in a flexible interest-bearing account such as a Money Market fund.
The Consultant and investment manager(s) will have full discretion to make all investment decisions for the assets placed under its management within the bounds of the above-stated Investment Policy, including the asset allocations and restrictions approved by KSU. Institutional pooled funds, such as mutual funds, and exchange traded funds, and alternative investment managers will be governed by their prospectus and offering memorandums.
Rebalancing is a term that describes the periodic movement of funds from one asset class or category to another for the purpose of realigning the assets with the asset allocation target. A rebalancing strategy is an important element of asset allocation policy. Systematic rebalancing will ensure that the portfolio's risk profile remains consistent with this Endowment Investment & Spending Policy. However, excessively tight ranges and frequent rebalancing can lead to unnecessary transaction costs.
The rebalancing policy is governed by allocation ranges rather than time periods. The ranges, specified in the table above, are a function of the volatility and liquidity of each asset class and the proportion of the total fund allocated to the asset category. While the allocation to all asset categories remains within these limits, staff will first use cash flows, as available, to prudently manage allocations relative to the target. When an asset category violates the lower or upper limits, public market funds will be actively rebalanced back within the target range.
When any one of the public market asset categories hits a trigger point, the entire fund may be rebalanced back within the target range. When rebalancing among the investment categories, qualitative considerations (e.g., transaction costs, liquidity needs, investment time horizons, etc.) should be considered in determining the potential timing and extent of rebalancing.
The Consultant is responsible for developing and implementing a rebalancing plan that is appropriate for existing market conditions, with a primary objective of minimizing transaction costs and portfolio disruptions. In the event an allocation trigger point is not reached, the Consultant, after consultation with KSU's investment officer (staff), may make minor changes among asset categories and within individual asset categories, as needed, to more effectively implement the program and to maintain proper exposure to the approved asset allocation and asset category portfolio structures. Staff will report the results of all rebalancing activity to the Board or its designated Committee at the regular meetings.