UPDATE: JANUARY 1, 2016
© 2016 Legacy Global Foundation, Inc.
The purpose of this investment policy is to maximize resources available for current charitable needs and to sustain the long-term charitable aims of the organization while preserving the real spending power of investments.
Legacy recognizes that its fiduciary responsibility does not end with maximizing return and minimizing risk.Short term economic growth may come at considerable cost to community and environment. Legacy acts on the principle that fiduciary responsibility demands the combination of prudent financial management practices with social, environmental, and economic practices consistent with Legacy’s mission.
Legacy considers “growth” in making all investment or disbursement decisions.Growth is from many sources:
- Through current and deferred gifts from donors.
- Through retention of some portion of total returns.
- Investments in Social Impact & Program Related causes and organizations.
- Growth from the advancement of Legacy’s Mission.
The investment objectives of Legacy are:
- The primary objective is to generate enough income and capital gains necessary to support Legacy’s operations and charitable purposes over the long term.
- Set spending/disbursement levels based primarily on an assessment of current need and of current and projected investment returns.
- Preserve, to the extent possible and consistent with Legacy’s spending/disbursement levels, the real value of its assets over the long term, adjusted for inflation.
- The specific objective for assets is to achieve an average annual real total rate of return (net of investment fees, operating allocations, and program disbursements) equivalent to a minimum of 2% real principle growth, adjusted for inflation.
There are numerous risks associated with an investment:
- The risk of negative market fluctuations.
- The risk of programs needing support longer than expected (or in greater amounts).
- The risk of bad investment decisions.
- The risk of inappropriate management or administrative decisions.
- The risk that investment objectives or plans may detract from the philanthropic mission of Legacy or the associated charitable fund/program.
The risk that the timing of investment cash flows and program spending will differ.
Such risks, if realized, could have substantial negative consequences for both Legacy and Legacy’s donors.It is the intent of Legacy’s Board of Directors to minimize investment risks and to protect Legacy’s charitable mission and objectives. Investments which increase Legacy’s exposure to such risks may be rejected by Legacy.
This Investment Policy is in place to protect Legacy, Legacy’s donors, and Legacy’s assets. Individual investment policies for accounts, funds, assets and associated entities of Legacy are subject to compliance with the most current version of this Investment Policy.
Investment Managers & Advisors
Legacy’s staff and board members may be actively involved in the management and oversight of investments. Legacy’s staff and board members are prohibited from participating in transactions that may result in private inurement or in commissions.
Legacy hires qualified and credentialed third-party investment advisors. Third-party individuals or firms proposed to manage certain funds under Legacy’s control must submit their credentials including licenses (Series 6 or 7) and status as a Registered Investment Advisor for approval by Legacy. This information is required to be updated annually. Legacy may perform additional due diligence on any party involved in the management or investment of Legacy’s assets.
Individuals or firms lacking credentials such as those specified above will be subject to more rigorous due diligence. Credentials that may be acceptable include a history of managing similar assets in compliance with the associated legal requirements and comparably good historical performance of specified duties.
Responsibilities for Managing Assets
These responsibilities include (but are not limited to):
- Managing the assets in accordance with the policy guidelines and objectives expressed herein. Or as expressed in a separate written agreement when a deviation is deemed prudent and desirable.
- Exercise a high degree of professional care, skill, prudence and diligence in the management of assets under their direction.
- Perform thorough professional analysis and judgment with respect to all investments held in the account.
- Equity managers shall be responsible for voting proxies in accordance with Legacy’s values and mission. The manager will be responsible for asking the Board of Directors for Clarifications and instructions where they are not clear. Voting materials and proxies may be forwarded to Legacy’s offices.
- Promptly inform the Board of Directors regarding all significant matters pertaining to the investment of the assets.
- Fully comply with all provisions of any governmental regulations and decisions when dealing with the management and investments of Legacy.
- Provide timely, regular, accurate, and complete information to Legacy and Legacy’s representatives.
- Inform Legacy of donor communications, requests, and concerns.
- Act in compliance with Legacy’s legal and tax compliance requirements.
- Take direction regarding the management of assets from Legacy’s Board of Directors, or from Legacy’s authorized representatives.
Process & Monitoring
On a regular basis, Legacy’s employees and Board of Directors will review each manager and advisor’s performance and adherence to the policies and procedures of Legacy. The review will include:
- Market and Total fund returns
- Total portfolio volatility
- Asset allocation
- Transaction costs
- Compliance with Policies and Procedures
- Donor Charitable Intent
- Use of Funds
- Private inurement & risk possibilities
- Conflicts of Interest
Donors associated with a specific fund, program, organization or investment are authorized to receive information regarding the specified assets and to be involved in investment discussions and recommendations.
Legacy’s donors are not authorized to direct the investment of Legacy’s assets.
Donors are not permitted to act as manager or investment advisor for assets they may have donated to Legacy unless the following criteria are met:
- Donor is a qualified investment professional
- Assets under management by the donor include a diverse client portfolio
- Legacy’s assets invested under the management of a Legacy donor are treated the same as:
- other similar assets under the management of comparable investment professionals
- other assets under the management of the donor
- There is no quid pro quo or private inurement to donor
Investment advisors and managers may donate assets to Legacy. When such donations are not under the management of the involved advisor or manager, the restrictions on Donor management do not apply.
Assets & Investments
The following guidelines and restrictions apply to the investment of assets currently held by Legacy:
Donors may gift assets to Legacy which may not comply with the following guidelines. As long as such contributions are accepted by Legacy’s Board of Directors in compliance with Legacy’s Gift Acceptance Policy, such contributed assets may continue to be invested in the manner in which they were gifted.
All funds/programs are required to:
- Meet the individual investment account size for participation in any investment activities.
- Investments must meet and comply with applicable UBI (Unrelated Business Income) rulings for non-profits.
UBI – Unrelated Business Income.
Definition of UBI activities:
- It is a trade or business.
- It is regularly carried on.
- It is not substantially related to furthering the exempt purpose of the organization
Investments that meet the definition of UBI activities are not generally permitted by Legacy.
Publicly Traded Securities
With the exception of certain assets with associated liabilities (particularly those underlying charitable gift annuities), all funds/programs of Legacy’s are permitted to be invested in publicly traded securities and derivatives.
Annuities & Insurance Products
Permitted for all funds/programs of Legacy’s. Policies are to be paid in full or have associated assets owned wholly by Legacy which can support any additional payments needed.
Policies may not be owned by, or for the benefit of any private parties in part or in whole.
Privately Held Business Interests & Ongoing Business Concerns
Investments in privately held business interests or ongoing business concerns are subject to additional scrutiny by Legacy’s Board of Directors and the IRS. Such investments are only permissible upon proper and on-going due diligence by Legacy.
- Additional investment costs incurred by such investments will be charged to the associated fund/program. These costs may include the cost of additional due diligence required for the investment.
- Donors may not be involved in the ownership or management of the associated business or have related business dealings with them. Personal investment in the business may be permissible but comes under the scrutiny of Legacy.
- Investments are secured as First Lien debt to the business and/or owners OR are secured by specific underlying assets of the business.
- Funds held in Donor Advised Funds are not permitted to be invested in privately held business interests, except where such interests are:
- The original asset gifted to Legacy and accepted by Legacy’s Board of Directors
- Traded in a liquid market
- Meet the criteria for Program Related Investments
- Results in no quid pro quo or private inurement (or the appearance of such) to associated donors, donor relatives, or related parties
- Donor Advised Funds may permanently distribution principle amounts to endowments or programs of Legacy which are outside the scope of donor involvement. This distribution may allow for investment in such privately held business interests.
Impact Investing & Program Related Investments
With the exception of certain assets with associated liabilities (particularly those underlying charitable gift annuities), all funds/programs of Legacy’s are permitted to be invested in Program Related Investments.
Program Related Investments fall under the same scope and guidelines as Privately Held Business Interests with the following differences:
- Investments may be made in a variety of entity types including not-for-profit, low-profit, and socially conscious organizations.
- Investments are primarily made to further specific charitable programs. This means that the investment substantially relates to the philanthropic mission and purposes of Legacy.
- Investments typically receive lower returns than traditional investment vehicles. However, depending on the performance of the underlying and the agreement regulating the program related investment, such investments may receive equity or dividend earnings comparable to traditional equity investments.
This type of investment is typically used as an alternative to an outright gift or disbursement to a recipient organization or program.
Investment in real property is permitted subject to the UBI test. Investment in debt-encumbered real property is not permitted.
Legacy hires qualified third-party contractors to manage real property. Property management costs, maintenance & repair costs, taxes, etc. are all charged directly to the associated fund/program.
Legacy permits investment in domestic and foreign markets. Foreign investments are limited to publicly traded assets.
Exceptions to the limitation of Foreign Investments are required to submit necessary due diligence documentation in English to Legacy. Verifiable government registration of associated entities and parties will be required.
Typically, Legacy does not hold unusual assets (eg. horses, cars, art) on a long-term basis. Such assets will generally be immediately sold upon being gifted to Legacy unless a specific, current, charitable program need may be met by the unusual asset.
Investment in Unusual Assets is subject to additional scrutiny by Legacy’s Board of Directors and is permissible only on an individual basis.
Trading on margin triggers UBI (Unrelated Business Income). UBI may result in taxes due. Assets triggering UBIT will pay the associated tax directly out of the associated fund/program.
It is the policy of Legacy to not engage in margin trading. As some forms of derivative markets require margin accounts, investments involving the potential of margin accounts may be reviewed and approved or rejected by Legacy on an individual basis.
Restrictions & Limitations
- Investments shall be diversified by asset class (equities, fixed income, cash equivalents, etc.).
- Investment policies for individual accounts and funds shall be set to match the expected time horizon for the use of funds and the specific charitable purpose of the assets.
- Investments shall meet the specified criteria for the investment asset type (see Assets & Investments section).
- Legacy’s Board of Directors retains complete discretion over the investment and management of all assets of Legacy.
- Costs related to an investment will be directly paid for by the associated fund/program.
- All investments must comply with applicable law and tax regulations.
Legacy’s Board of Directors retains the right to make exceptions to these policies as needed, when such exceptions are permissible by law and in compliance with Legacy’s exempt purpose.