Gwaii Trust
Statement of Investment Policies and Procedures

This Statement of Investment Policies and Procedures ("the Statement") has been written in order to assist the Board of Directors of the Gwaii Trust Society ("the Board") in establishing the investment procedures and guidelines for the investment of the assets of the Gwaii Trust Society ("the Society") and in monitoring and evaluating the investment performance achieved on such assets. This Statement contains:

  • investment policies and procedures of the Society established by the Board;

  • guidelines to be followed by the Society's Investment Manager(s) that are consistent with the investment policies and objectives established by the Board for the Society; and

  • investment performance objectives and other criteria to be used by the Board to review and evaluate the investment results of the Society's Investment Manger(s).
It is anticipated that the current investment policy strategy will be reviewed regularly (at least annually) and may be changed based on altered economic conditions. The Board may amend or modify the statement at any time, and shall notify the Investment Manager(s) of any such amendment or modification.

The Investment Objectives

Asset Classes Eligible for Investment 

Risk Profile

Measurement of Performance

Fund Return Objectives

Dismissal of Investment Manager

Investment Manager Return Expectations

Budgeting

Asset Mix and Eligible Investments

 

Section 1

The Investment Objectives
The Society is to be managed on a going concern basis. All aspects of fiduciary conduct in respect of the Society’s investments will be undertaken in a prudent manner.
The investment of the Society’s assets will always comply with the requirements of the relevant legislation.
The Society’s current investment objective comprises of the following components:
a.  capital/income requirements sufficient to compensate for the erosion in capital value of the Society’s funds, as a result of price inflation;
b.  income requirements sufficient to meet commitments to current programs and administrative expenses.
These objectives have been taken into account in setting the Society’s asset profile

 

Risk Profile
Longer Term Risk Profile
The major long term risk to the Society is the possibility of not meeting the objectives set out in
a) and b) above, over the longer term.

In addition to meeting the ongoing income requirements, the Society has to maintain the real value of its capital in order to maintain spending ability.

This risk is defined as the probability of not maintaining the real value of the Society’s capital over 5 year and longer periods of time, on a market value basis.
Short Term Risk Profile
Program spending and administrative costs need to be met on an annual basis. In the shorter term, it is desirable to meet these expenses out of current income (coupons and dividends) as opposed to realized gains.

This risk can be defined as the probability of not earning sufficient dividend and coupon income on an annual basis.

Fund Return Objectives
The basic goal underlying the establishment of the Society’s investment policy is to ensure that the assets, along with the expected future net cash flows, are invested in a prudent manner to preserve the purchasing power of the fund and to meet the society’s anticipated cash flow requirements, without the need for external financing or reductions in program spending.

Subject to the above requirement, the secondary objective is to maximize the yield on the assets over the longer term, taking into account the restrictions on allowable investments.

Over shorter time periods the administration on ongoing program costs of the Society should be met out of current investment income.

 

Investment Manager Return Expectations
The Investment Manager(s) are expected to achieve returns that:
a.  net of investment expenses, exceed the return that would be achieved on a benchmark portfolio with an asset mix inaccordance with the Target Allocations and Duration requirements listed under Strategic Asset Mix over moving 5 year time periods;

The returns assumed on the benchmark portfolio will be the composite of indices chosen by the Board as set forth in Appendix II.
b.  net of investment expenses, exceed the return that would be achieved on a portfolio of Real
Rate Bonds over moving 5 year time periods. This is a proxy for meeting the program and administration expenses of the Society over time

 

Asset Mix and Eligible Investments
Strategic Asset Mix
The asset mix has been set so as to achieve the investment objectives of the Society within the restrictions of the regulatory environment. 

A Benchmark Portfolio consisting primarily of Bonds, Real Rate Bonds and Equities will form the basis of the investment strategy. The Investment Manager(s) will be entitled to make use of the other acceptable securities as set out herein, in order to enhance returns, as a substitute for this Benchmark Portfolio.

The investment policy of the Society is restricted to the regulatory environment and, specifically, the Trustee Act of British Columbia. This Act restricts the exposure of the fund to equities, which would otherwise be a desirable asset class for generating high long term rates of return in order to meeting stated investment objectives.

As a result, the fund is required to have a significant exposure to fixed income investments. Traditional Fixed Income assets, by their nature, perform poorly in times of rising and high inflation. Thus, the capital value of the fund is at risk of being eroded by inflation.

Real Rate Bonds have been included in the Fixed Income component of the asset mix to partially mitigate this risk of erosion of capita.
Determination of Strategic Asset Mix
An analysis of the probable returns based on historical relationships between asset classes was undertaken. The strategic mix was chosen in a manner to maximize the expected long term return subject to the constraints of the regulatory environment. The inputs to this analysis are set out in The Value of Gwaii Trust Investment Portfolio.
Constraints
Two sets of constraints were imposed in setting the strategic asset mix:
a. All assets in the portfolio are in accordance with the Trustee Act of British Columbia;
b. Income tax considerations need to be taken into account in determining the asset mix and management of the portfolio.
It has been assumed in determining an appropriate policy that income smoothing and inflation proofing reserve funds will be permissible under the Income Tax Act.
Target Asset Mix
Taking account of the above mentioned constraints and expectations, a target, minimum and maximum allocation of assets has been derived as follows:

% of Portfolio
Minimum Target Maximum
Interest Bearing Instruments 45 55 100
Real Rate Bonds 0 15 20
Trustee Act Eligible Equities 0 30 35
For discussion purposes only

 
The portfolio can be altered within the bounds set out above to take account of shorter term fluctuations in the market and economic cycle.

The Investment Manager(s) shall notify the Board in writing in the event the manager believes that these Policies and Procedures are adversely affecting performance or are unattainable.

Asset Classes Eligible for Investment 
Guidelines in the Respect Thereof
The Investment Manager(s) is expected to exercise the due prudence in the management of the assets and diversity investments sufficiently to minimize the rise of large losses.
Eligible Securities
The Society’s assets must be invested in accordance with the trustee Act of British Columbia, the relevant sections of which are attached hereto as Appendix III.
Other Guidelines
1. Private placement may not be made without prior approval of the Board.
2. The following derivative instruments and their combinations are acceptable subject to compliance with the Trustee Act:
a. Forward Rate Agreements
b. Equity and Fixed Income Options
c. Financial Futures
d. Interest Rate Swaps
3. Lending of Securities, subject to the Trustee Act, is permitted pursuant to appropriate agreements and documentation and approval of the Board.
4. The voting rights on securities held in the portfolio are left to the discretion of the investment managers. The investment managers are expected to act in good faith and to inform the Board of an upcoming vote that may significantly affect the value of the securities.
5. All investments that are not regularly traded will be appraised and valued periodically but not less frequently than triennially by qualified independent professionals appointed by the Board.
Socially Responsible Investments
All other factors being equal, favorable consideration is to be given by the Investment Manager(s) to investment opportunities that may serve to benefit the environment and the local economy.

To the extent that these opportunities fall outside the acceptable asset classes set out herein, the Board reserves the right to invest in such investments subject to compliance with the Trustee Act. Any such investment shall be excluded from any measurement of the Investment Manager(s) performance.
Related Party Transactions
No related party transactions will be permitted. Related party transactions include any proposals made by such parties concerning any potential investment in which such related party has a material beneficial interest. A related party is any person responsible for holding or investing the assets of the Society or any person involved in setting policy related thereto, including officers, directors and employees with such involvement.
Investment Manager Responsibilities
The duties and responsibilities of each Investment Manager include:

• adhering to these policies and procedures.

• communication with the Board on a regular basis and notifying the Board in the event the manager believes that the guidelines are adversely affecting the performance or are unattainable.

• notifying the Board of any change in economic or market circumstances which may adversely impact on this investment strategy.

• notify of any change in investment personnel, ownership or other factors which may influence the investment process.

• investing the Society’s assets with the care, skill, prudence and diligence that a professional investment manager would exercise in the investment of client’s assets.

• ensuring at all times that investments are in compliance with any relevant legislation including the Trustee Act of British Columbia. Reporting on such compliance on a regular basis.

 

Measurement of Performance
Suitable benchmarks for the performance of the assets in the Benchmark Portfolio and those permissible for yield enhancement will be established by the Board in conjunction with the Investment Manager(s). These are set out in the Value of the Gwaii Trust Portfolio.

Dismissal of Investment Manager
Reasons for terminating the service of an investment manager include, but are not limited to, the following factors:

• Failure of the Investment Manger to meet the return expectations, specified under Section I, will result in the Trustees giving consideration to termination of the manager’s services.
• In addition the failure of the Investment Manager to meet the above noted benchmark less a margin of 1 % p.a. over moving 2 year periods will result in the Trustees giving consideration to termination of the manager’s services.
• Changes in investment professions, firm structure, or investment philosophy, style or approach which might adversely affect the potential return and/or risk level of the portfolio.
• Failure to adhere to the statement investment policies and procedures.
• Changes in the structure of the overall Fund which would no longer necessitate the use of a manager’s service.
Other Considerations
This investment policy has been established based on an assumption that the Society will remain a tax exempt entity

 

Budgeting
Each year, the Directors of the Society will develop a budget which is consistent with the current asset mix and investment policy. This budget will incorporate the Society’s anticipated spending plans in respect of programs and administration costs.

 

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