INVESTMENT POLICY STATEMENT
THE ORDER OF AUSTRALIA ASSOCIATION FOUNDATION
INVESTMENT POLICY STATEMENT (IPS)
- Investment Policy Overview
- Investment Framework
- Risk Tolerance and Investment Risk
- Governance and Administration of the IPS
- Governance of the IPS
- Administration of the IPS
- Investment Advisers
- Monitoring and Reviewing Performance
- Appointment of Other Specialist Advisor(s)
- Objectives and Strategies for the Fund
- Investment Objectives
- Time Horizon
- Ethical Investment
- Investment Guidelines
- Prohibited Securities
- Off-market Share Buyback Offers
- Share Purchase Plans
- Rights Issues
- Hedging Policy
- Strategic Asset Allocation
- Asset Category Benchmarks
- Breaches of IPS
- Review of IPS
The Order of Australia Foundation (Foundation) was formed on 29 April 1999, pursuant to a Deed of Trust settled by five founders, who were former Presidents of the Order of Australia Association, namely Rt Hon Sir Zelman Cowen PC, AK, GCMG, GCVO, KStJ; the Hon Sir Charles Court AK, KCMG, OBE, Sir Eric Neal AC, CVO; Sir James Gobbo, AC; and General Sir Phillip Bennett AC, KBE, DSO, KStJ.
The founding fathers initially formed a Foundation via a Public Trust Fund, which is a Deductible Gift Recipient (DGR) under Item 2 of Section 30-15 of the Income Tax Assessment Act 1997. It is classified as an Eligible Charity and a Public Ancilliary Fund and is subject to the obligations imposed by the Australian Charity and Not-for-Profit Commission (ACNC).
The Foundation is administered by a corporate trustee, The Order of Australia Association Foundation Limited (“Trustee”), through its Board of Directors (“Directors”). The Trustee was incorporated as a company limited by guarantee on 16 September 2003. The Deed was revised on 13 July, 2006.
The Foundation receives gifts from members of the Order of Australia Association and the general public.
The Foundation’s principal activity is to support selected students progress through university with financial support through the funding of scholarships, as well as by providing mentors, typically from awardees of the Order of Australia.
To this end, the entity’s principal activities are to give grants to universities for awards of The Order of Australia Association Foundation Prize, and to engage in fundraising efforts to enable sponsorship and payment of such grants.
This objective can be achieved through donations of specific scholarships or through the development of a corpus. In the latter case, the Foundation aims, in the near term, to build a corpus of $5 million.
1.2. Investment Policy Overview
This Investment Policy Statement (IPS) describes the investment policy, objectives and constraints of the investments (The Fund) of the Order of Australia Association Foundation (the Foundation).
As a registered charity with DGR status, the Foundation is subject to obligations imposed by the ACNC. The Foundation is not a taxable entity. As a Public Ancillary Fund (PAF), the Foundation is also subject to the Taxation Administration (Public Ancillary Fund) Guidelines 2022, as issued by the Australian Government.
This Investment Policy Statement is set forth by the Foundation’s Directors to:
- Establish a framework for the management of the Fund, including principles and risk tolerance.
- Define and assign responsibilities for the governance and administration of the IPS.
- Outline objectives and strategies for The Fund.
- Outline the approach for dealing with any breach of the IPS.
- Define the approach for reviewing the IPS.
This Investment Policy Statement (IPS) should be read with reference to the Definitions as defined below.
|Board||The Board of Directors of the Order of Australia Association Foundation Ltd that acts as Trustee for the Order of Australia Association Foundation.|
|The Fund||Any of the monies invested by the Foundation|
|Foundation||The Order of Australia Foundation|
|Investment Adviser||The organisation engaged to provide advisory service, including advice on investment objectives and/or asset allocation, manager search, and performance monitoring.|
|Investment Committee||A Committee of the Board with delegated authority by the Board under its Constitution to deal with matters as designated in relation to investments.|
|Investment Manager||The organisations employed to manage the investments of all or part of The Fund’s assets in various asset categories.|
|Investment Horizon||The time period over which the investment objectives, as set forth in this statement, are expected to be met.|
|IPS||Investment Policy Statement|
|PAF||Public Ancilliary Fund which needs to Operate in accord with Taxation Administration (Public Ancillary Fund) Guideliness 2022, as defined by the Australian Government.|
|SAA||Strategic Asset Allocation.|
|Securities||Marketable investment securities, that might include equities or fixed interest.|
|Sub-Fund||Monies held as a gift from a particular donor or group of donors held as a Sub-Fund of the Fund in accord with Clause 4A of the Deed of Trust of the Order of Australia Association Foundation.|
- Investment Framework
The following sections outline the principles for managing The Funds as well as the approach to be taken to risk.
- Investments shall be made solely in the interests of The Fund.
- Investments should be made to maximise returns within an acceptable level of risk over a longer time frame, recognising that The Fund is to be held in perpetuity, and that investment returns can fluctuate from year to year.
- The Fund shall be invested with care, skill, prudence and diligence.
- The Fund is to be managed in a way that recognises the value of diversification, while recognising that, in circumstances of extreme financial stress, asset returns might be correlated.
- Cash is to be employed productively at all times, while recognising the value of diversification, safety and liquidity.
- Investment decisions will be guided by a professional Investment Adviser and Fund Managers who should act in accord with the IPS.
- The Board has ultimate responsibility for overseeing the appropriate investment of The Fund.
2.2. Risk Tolerance and Investment Risks
Analytic data shows that a relationship exists between the level of risk assumed and the returns that can be expected. Given this relationship, in formulating its investment strategy, the Foundation adopts a conservative approach as befits its charitable status. As a result, it has a moderate tolerance to risk, notwithstanding its longer-term perspective. The Foundation will, in general, seek to protect its capital rather than simply maximise capital profits.
All aspects of risk are to be considered and prudently managed in the investment process. In this context, risk factors to be considered include the following:
2.2.1 Market risk: the overall risk that the value of market invested securities will fluctuate significantly.
2.2.2 Business risk: the risk that a particular company in which securities are invested becomes insolvent or suffers a major downturn.
2.2.3 Interest rate risk: the risk of a significant movement in interest rates.
2.2.4 Liquidity risk: the risk that any investment held in the Investment Portfolio can be sold quickly and with minimal price change.
2.2.5 Diversification risk: the risk that there is an insufficient spread of securities in different asset categories. It also refers to there being an insufficient spread of shares in different companies across different sectors to offset the loss or decline in value of one or more shares in the Investment Portfolio. This equally applies to investments in fixed interest securities.
2.2.6 Currency risk: the risk of an adverse movement in currencies.
2.2.7 Inflation risk: the risk that an outbreak of inflation may unexpectedly reduce real returns.
2.2.8 Political risk: the risk of government instability, or that a company may be adversely affected by or become subject to adverse government regulation.
2.2.4 Operational risk: the risk of system/internal control failure by a particular fund manager or investment advisor.
- Governance and Administration of the IPS
3.1 Governance of the IPS
The Board of the Foundation or its delegated authority has ultimate responsibility for overseeing the appropriate investment of funds.
More specifically, it is responsible for:
- Reviewing investment policies, including objectives and guidelines that will direct investment activities.
- Ensuring adequate liquidity exists to meet the Foundation’s commitments at a given point in time.
- Establishing the SAA.
- Agreeing the appointment of external investment professionals.
- Monitoring the performance of The Fund.
- Monitoring Investment Advisers and Managers compliance with the IPS and their control procedures.
- Agreeing to the establishment of any sub-funds as defined in Clause 4A of the Deed of Trust of the Foundation.
- Ensuring, to the maximum extent possible, that funds are invested in line with donors wishes.
Consistent with Clause 13.14 and 13.15 of the Constitution of the Order of Australia Association Foundation Ltd, the Board may delegate any of its powers to either a Committee of Directors or to an individual Director, but those powers can only be exercised in a way that is consistent with the delegation.
More specifically, in relation to the functions outlined above, the Board has delegated its authority to an Investment Committee (IC), consisting of the current Chairman, the former Chairman, the Secretary and the Treasurer to oversight the above responsibilities. The Investment Committee will report back to the Board at least once a year and will seek the formal approval of the Board for any change in the IPS.
3.2 Administration of the IPS
3.2.1 Investment Advisers
The IC may appoint an Investment Adviser to recommend a Strategic Asset Allocation and investment portfolio, including specific fund managers, and to implement the investment strategy in line with the policy described in this document.
The IC will appoint Investment Advisers and/or specific managers who can provide a well-established custodial service and provide superior investment insights and service. Such a service will record receipt of dividends and distributions and will attend to all settlement requirements and corporate actions. Investments shall be registered in the name of the custodian and held solely on trust for The Fund.
The Investment Adviser will recommend to the IC, fund managers who are in a position to meet the investment objective and they will implement the investment of funds on behalf of the Foundation. The Board will approve the selection of a manager or managers using information and research provided by the Investment Adviser and from other appropriate sources.
The Investment Adviser, including their nominated fund managers, must be able to meet the Foundation’s investment objectives.
The Investment Advisor should be mindful of managing conflicts of interest in an appropriate way.
The appointed Investment Adviser will be required to comply with authority and responsibilities, as follows:
|Authority to Operate||
· Hold an appropriate Australian Financial Services Licence;
· Provide evidence of being in a sound financial position and be able to show a minimum of three years measured financial performance;
· Have appropriate professional indemnity insurance cover and provide evidence of such cover upon request.
|Compliance & Conflict of Interest||
· Comply with the IPS at all times. Any exceptions are to be approved by the IC;
· Report all compliance breaches promptly to the Board;
· Ensure appropriate management of conflicts of interest that arise in performing its role.
|Reporting, Responsiveness & Management||
· Report to the IC fund manager performance;
· Prepare and provide portfolio reporting in a reasonable timeframe to the IC;
· Provide input to the asset allocation benchmarks and tolerance bands that will deliver the requirements of the IPS for approval by the IC;
· Respond to all other requests for information from the IC within a reasonable timeframe;
· Implement recommendations once approved by the IC;
· Actively manage the investment fund managers;
· Have strong communication skills and processes together with effective reporting to allow the IC to carry out its responsibilities.
|Assumed Knowledge & Credentials||
· Be a high-quality Adviser at a reasonable price, but not necessarily the lowest cost Adviser;
· Demonstrate a strong understanding of the requirement of not-for-profit organisations generally and specifically the Foundation;
· Have appropriate skill in the selection of fund managers;
· Demonstrate a strong understanding of the requirements of a fiduciary and manage according to ‘prudent investment’ principles;
· Demonstrate they are able to deliver an appropriate service to the Foundation;
· Demonstrate a long-term track record in selecting potential fund managers and constructing portfolios (in asset classes relevant to the proposal). Particular attention is to be paid to risk management and return;
· Quote transparent fees on a ‘total cost of investing’ basis (including adviser, platform and underlying investment expenses).
3.2.2 Monitoring & Reviewing of Performance
The IC will review the performance of the investment portfolio, at a minimum on a quarterly basis, using the performance benchmarks outlined in the IPS.
The performance of the Investment Adviser will be reviewed at a minimum on an annual basis. In assessing the Investment Adviser’s performance, consideration will be given to the following:
- investment performance relative to approved benchmarks;
- investment style;
- proactive approach to investment opportunities;
- value adding customer service; and
- flexible, accurate and timely reporting and compliance with this IPS.
The IC may appoint other advisers in a number of areas including:
- IPS, including asset allocation, manager research and specialist asset classes;
- legal, including advice on the statutory obligations of the Funds and assistance with contract negotiations with external parties;
- tax, including ensuring any tax and/or reporting obligations of the Funds are met and advising on the tax implications of particular investment structures.
Selection of other Advisers for these roles may take into account, among other criteria specific to the role:
- demonstrated commitment to best-practice SAA construction and portfolio management;
- the skills and experience the Adviser brings to the role;
- the substance and viability of the Adviser; and
- the costs that can be expected to be incurred.
- Objectives and Strategies for the Fund
4.1 Investment Objectives
Under its constitution, the Foundation is a fund in perpetuity. This perpetual timeframe implies that the Foundation may tolerate a level of volatility in market cycles.
Consistent with this background, the objective is to grow the long-term corpus of the funds, while having due regard to risk, recognising the Foundation’s charitable status.
4.2 Time Horizon
The Foundation favours allocating funds towards investments with a long (5 years plus) time horizon to enhance the portfolio’s capital returns, consistent with the Foundation’s risk tolerance.
Because it is a PAF, in line with Section 15 of the Taxation Administration (Public Ancillary Fund) Guidelines 2022, The Foundation must annually distribute at least 4 percent of the market value of its net assets or corpus.
There must be adequate liquidity to allow distributions to occur, in line both with the requirements of Sub-Funds as well as the wishes of other donors.
4.4 Ethical Investing
The Foundation is committed to the community in which it operates and seeks to act as a responsible community member. At the same time, it is recognised that the Foundation is small and investment returns are only to be used to further the benevolent purposes of the Foundation. These purposes are normally best served by seeking the maximum return commensurate with the risk tolerance, as defined. Such risks need to include emerging societal values.
For this reason, and given the size of the Funds under management, no explicit ethical overlay is defined, although it is expected that Funds will be invested in a way that has due regard to societal values and the associated reputation risk that might exist by deviating from such a norm.
4.5 Investment Guidelines
In line with the principle of diversification and a moderate risk tolerance, while seeking to maximise returns, the following approach is taken to investments.
|Specific Guideline||Allowable Investments|
-Separate accounts for income and capital
– Sufficient cash held to cover needs in each account
– Maximise yield, while diversifying and minimising risk
– cash deposits
– Cash management Trusts/Investments backed by Australian licensed and regulated Banks and deposit taking institutions (ADIs)
– Held in investment grade issuers as defined by S&P or Moody’s
– No single holding to be >5% of the Foundation’s investment value
– Can be held via Management Investment vehicles.
– Can be domestic or International
– Direct Government Bonds
– Semi-Government Bonds
– Managed Investments that are predominantly invested in these assets
Held in investment grade issuers as defined by S&P or Moody’s
-No single holding to be >5% of the Foundation’s investment value
-Can be held via Managed Investment vehicles
-Direct securities within this class
-Direct Hybrid capital notes
– Managed investments that are predominantly invested in these assets
No single holding to be >5% of the Foundation’s investment value
-Can be held via Managed Investment vehicles
– Listed Real Estate Investment Trusts
– Property Trusts
-Managed Investments that are predominantly invested in these assets
-Either Australian or International
– No one equity holding >10% of Trust’s market value*
– No one equity holding >5% of issued capital of a specific company
– Convertible securities to be considered as equity
– Willing to pay a competitive brokerage rate on shares that are traded to balance the cost of funds management with access to best research and analysis,
– Direct equities
– Listed invested companies
– Private Equity/Venture Capital
|Uncorrelated Strategies||Any investment that demonstrates clear uncorrelated characteristics||Managed Investments that are predominantly invested in these assets.|
* Unless otherwise specifically approved by IC.
4.5.1 Prohibited Securities
For the avoidance of doubt, the following additional categories of investment are prohibited.
|Additional Prohibited Securities|
|Put and call options|
|Unlisted Australian equities|
|Unlisted Australian property trusts|
|Short selling of shares|
|Purchasing under margin lending arrangements|
|Warrants listed on ASX|
Alternative Assets, as listed above, including
– Mortgage securitisations
– Hedge funds
|No liability mining companies|
|Direct international bonds, as outlined above.|
4.5.2 Off-Market Share Buyback Offers
The Foundation’s policy on off-market share buyback offers is:
- To participate fully in acceptable buyback offers on existing corporate holdings being where there is a large component of franked dividends, and a satisfactory overall investment return to the Foundation.
- To purchase either more stock in an existing holding which is the subject of a buy-back offer, or to replenish a new holding of quality stock which has been subject to a buyback offer.
4.5.3 Share Purchase Plans
Companies are permitted by the ASX to issue up to $15,000 worth of shares per annum to each shareholder without having to produce a prospectus (Product Disclosure Statement or PDS). Commonly, such shares are offered at a discount to the market price, and are a means by which a company can raise modest amounts of capital at little cost, as the issue of a PDS is both onerous and expensive.
The Foundation will, in general, automatically apply for such issues, unless the market price falls below the application price.
To this end, the Foundation or its sharebroker will not send its application(s) to the share registrar of the company until near the end of the period when the risk of loss is largely eliminated.
4.5.4 Rights Issues
Australian companies regularly employ rights issues to raise substantial amounts of capital. Rights issues involve the issue of extra shares to each shareholder, in proportion to existing holdings, for example, on the basis of one ‘new’ share for every five already held. These shares are almost always issued at a discount to the current market price.
The Foundation will generally subscribe to such issues, subject to the application price remaining above the market price, after adjusting for any dividend differences.
Applications will not be lodged until near the closure of an issue to minimise the risk of loss.
4.5.5 Hedging Policy
The Foundation acknowledges that investments in non-Australian assets may be beneficial to the performance of the portfolio, both from a risk and return perspective. The Foundation also acknowledges that international investments may be hedged to protect against movements in the Australian dollar relative to the offshore currency that is being used to acquire international investments.
The Board will permit hedging of the foreign exchange components of the portfolio.
Currency transactions may only be used to hedge other international asset exposures in line with the IC’srecommendations, and currency exposures may not be established for a speculative purpose or to open up other exposures.
4.6 Strategic Asset Allocation
Consistent with its moderate risk appetite, the Foundation will invest in the various asset classes within the following parameters.
Strategic Asset Allocation (SAA)
In relation to Australian equities, the Foundation has determined that the majority of such investments shall be held in the top 200 leading stocks.
The mix of assets and acceptable minimum and maximum ranges shall be determined by the IC and shall represent a five-year view. Rapid and significant market movements may cause the Foundation’s actual mix of assets to fall outside the above policy range. Any such divergence should be of a short-term nature.
4.7 Asset Category Benchmarks
The following benchmarks are to be utilised for each relevant asset category.
Bloomberg AusBond Bank Bill Index
Bloomberg Barclays Global Aggregate Treasuries Total Return Index, Hedged AUD
Bloomberg Barclays Global Aggregate—Credit Total Return Index Hedged AUD
50% FTSE/NAREIT Global Index Total Return (Property), AUD, and
50% FTSE Developed Core Infrastructure 50/50 Total Return Index, AUD
S&P/ASX 200 Accumulation Index
MSCI World ex-Australia ($A) Index
ABS AUS CPI+ 2% pa
- Breaches of IPS
Where the Investment Manager or a specific fund manager is in breach of the terms of the IPS, the IC must conduct a review of the causes of the breach. The IC can approve the breach. Depending on the findings of the review, the Investment Adviser and/or specific fund manager may be terminated outside of the formal review cycle.
The Investment Adviser will provide immediate reporting of any breach to the IC. All breaches are to be reported on a quarterly basis along with the materiality of the breach.
- Review of Policy
The Review of the IPS is the responsibility of the IC, which should make a recommendation to the Board
The IPS will be reviewed at a minimum on an annual basis. It will also be reviewed if major changes occur in capital markets, regulatory environment, or the investment environment. Such changes may include:
- fundamental change in the long term inflation rate or in expected investment returns;
- emergence of new investment products or product offerings;
- significant changes in Government policy; and
- significant changes in the governance structure of the Fund Adviser and/or Managers.
The Investment Adviser will be expected promptly to provide relevant information with respect to such developments, as well as a view and a recommendation as to their impact on the portfolio.
Significant underperformance by the Investment Adviser and specific fund managers against both the investment objectives and/or the appropriate composite benchmarks for the agreed asset allocation may result in termination of the Investment Adviser or the specific fund manager prior to the scheduled review.