Statement of Investment Policies and Objectives

Background

1. Donations and legacies form the capital base or “General Corpus”. 

2. The primary principles underlying investment decision-making by the Foundation are: 2.1. to ensure that the Foundations’ General Corpus funds are invested prudently to ensure real capital preservation over the longer term and in a manner consistent with the Foundation’s Purpose and values; 

2.2. to maintain and grow the Foundation’s General Corpus at above the rate of inflation, investing the General Corpus in accordance with the investment strategy and targets adopted by the Trustees and informed by independent investment professionals (Investment Managers); 

2.3. to ensure that sufficient cash and/or liquidity is available to make distributions and meet the granting policies and commitments of the Foundation; and 

2.4. to maximise the funds available for distribution over the long-term. 

3. The Trustees recognise their investment responsibilities will at times extend beyond pure financial considerations reflecting the Foundation’s community purpose and underlying values. 

4. Of the General Corpus $10 million of value is based on the WEL Energy Trust loan which was utilised as the initiator of the endowment, with the investment proceeds contributing to the growth of the fund and covering the operating and grant making of Momentum Waikato. 4.1. The loan is interest free and is to be repaid on 28 August 2073 (a 60 year term). 

4.2. The loan is be invested (in whole) with prudent investment practises and the Foundation must not otherwise expend or deal in any portion of the Fund, and must apply the proceeds from investing the fund as set out in the purpose and in compliance with Momentum’s Trust Deed. 

5. Each year the General Corpus is adjusted by the general inflation rate to ensure that the capital base is maintained and preserved in real terms. 

6. The Foundation expects to receive donations and legacies with specific management and distribution instructions. Specially “tagged” donations and bequests will be managed according to the specific wishes of the donor, where practicable managing these funds closely in accordance with the Foundation’s investment principles. This policy will not apply to pass through or today funds as they are not held for investment purposes. 

7. Over the Long term (20+ years) 7.1. a real return after investment and operating expenses, on average, of at least 5.0% per annum, and 

8. Over the Short term (rolling 2-3 years) 8.1. a cash yield (i.e. cash flow income return) of 5.0% of the General Corpus per annum (noting that the Foundation is a non-taxpayer). 

9. The General Corpus will be invested based on the following long-term strategic asset allocation and will generally be maintained within the allowable ranges indicated: 

10. External Investment Managers have been appointed to oversee and undertake the day-to-day investment management of the Foundation’s investments. 

11. Grants approved but not paid, and other distribution commitments pending within 12 months will be held in highly liquid cash/fixed interest, as appropriate. 

12. Investments will be managed on a predominately “buy and hold” basis, and the investment portfolio diversified across a minimum of 25 investments, without undue concentration in any one company, sector or asset class. 

13. The Foundation has NZ dollar distribution objectives and commitments. As such, the majority of liquidity and income assets should be NZ dollar assets. Where overseas investments are made, the currency risks of overseas investments may be hedged, if recommended by the Investment Managers and approved by the Trustees. 

14. The Foundation and its Investment Managers will have a period of 6 months to integrate newly received bequests (whether cash, financial assets or other) into the Investment Strategy. 

15. The investment guidelines and restrictions summarised in this Investment Policy are in place for prudential reasons and departures from these require the written approval of the Investment Committee, and approval must not be inconsistent with the overall strategic intent of this Investment Policy. 

Governance 

16. The responsibility for the oversight of the Foundation’s investments and adherence with this Investment Policy rests with the Investment Committee. The Trustees have determined that the Investment Committee will be a committee of all Trustees, given that investment decisions are fundamental to the achievement of the Foundation’s purpose and as such any investment policy should be mission aligned. Decisions to depart from this Investment Policy require the unanimous approval of the Trustees. Trustees will meet under an Investment Committee agenda at least once per year. 

17. If the Investment Managers make investment recommendations (eg Share Purchase Plans) seeking Trustee approval, so long as the recommendation is aligned to this Investment Policy and all other investment criteria, the recommendation can be approved via the CEO (as authorised person) and two Trustees one being the Treasurer where possible. 

Role of Investment Committee 

18. The Investment Committee will meet at least annually to review the Foundation’s financial position and performance of the Investment Managers. 

19. If the return on capital is below the level targeted by the Trustees, specific advice will be taken from the Investment Managers regarding the investment outlook to determine if any action needs to be taken. 

20. If the assets comfortably exceed the return on capital targeted by the Trustees, such surplus shall be taken into account by the Trustees in setting the Foundation’s distribution policy.

Investment Management 

21. Detailed investment mandates provide a clear delegated authority to invest funds, in a manner consistent with this Investment Policy, and include operating guidelines as well as the Investment Managers’ reporting requirements. 

22. The overall performance of the Foundation’s investments and of its Investment Managers will be evaluated on a regular basis, against the objectives set out in this Investment Policy and by reference to the returns available from cash assets and achieved in investment markets over the relevant evaluation period. 

General 

23. Borrowing to invest is prohibited, except in relation to property assets with written consent of the Trustees. 

24. Total holdings (bonds and shares) in any one organisation, other than government bonds, shall not exceed 7.5% of the value of the Foundation endowment excluding new funds awaiting investment. 

25. Other than hedging foreign currency risk on overseas investment, no financial derivatives may be used. 

26. Investments in companies in the liquor, gambling, tobacco, pornography, arms and ammunition sectors are considered incongruent with the purpose and values of the Foundation and are precluded. 

Shares 

27. Investments must generally be confined to publicly listed, widely-held securities trading in recognised markets. Investments in NZ or Australian private equity funds may be permitted with the prior written consent of the Investment Committee. 

28. The Foundation should not hold more than 2.0% of the equity of any one company and no individual holding should be over 5.0% of the value of the Foundation endowment. 

29. No more than 20% of the Foundation’s endowment may be invested in securities that are non-investment grade or perpetual. 

Property 

30. Property assets will be confined to listed securities. Direct property investments may only be made with the unanimous consent of the Trustees.

Bonds 

31. The average credit quality of the portfolio should be equivalent to at least a Standard & Poors investment grade (BBB) credit rating. 

32. With the exception of New Zealand government stock, no holding of an investment grade bond should exceed 5.0% of the value of the Foundation endowment and no holding of a non-investment grade or perpetual bond should exceed 3.0% of the value of the Foundation endowment.  

Cash 

33. Cash includes bank deposits and bank bills up to 365 days from a registered New Zealand bank (or equivalent financial institution) and shall have a level of security equal to, or better than, a Standard and Poors A1 rating. 

1. The focus of the Foundation will be to build the General Corpus such that the Foundation has sufficient scale to commence the making of distributions out of investment income on an enduring basis. It will not in the ordinary course make distributions for grants out of the corpus itself. 

2. Once sufficient scale has been achieved, the Foundation envisages being able to make distributions each year equal to a minimum of 5% of the respective funds’ capital base per annum. 

3. There will be return to the value of the annual rate of CPI back to the Fund to protect the value of the fund against inflation. 

4. The Trustees recognise that investment markets are prone to short-term volatility, which in turn can result in fluctuations in the General Corpus. To help ensure the capacity of the Foundation to consistently make annual distributions to deliver on its Purpose, the Trustees will seek to build a reserve fund and in the ordinary course will target making grants up to a maximum level equivalent to two-thirds of investment income. 

5. The remainder of the proceeds (ie the return on capital, less the five percent distribution to beneficiaries, less the rate of CPI that year) will be directed to the Reserve Fund. 

6. In years where there is less than a 5% return on capital base, there may be a transfer to beneficiaries from the reserve fund to make up the difference. 

7. The targeted level of distributions may be reviewed reflecting the growth of the General Corpus, the nature and extent of opportunities to deliver on the Foundation’s purpose, and changes in investment market conditions (e.g. should expected investment income increase or decrease markedly).