Policy 7205 — Endowment Management

Policy section:
Section 7200-7299 Budgets, Investments and Expenditures
Policy number:
Endowment Management
Approved By:
The Executive Committee of the Board of Regents
Approved date:
June 1, 2001
Effective date:
July 1, 2001
February 10, 2012
April 27, 2011
April 23, 2010
August 31, 2007
April 13, 2007
March 31, 2006
April 8, 2005
May 14, 2013
May 17, 2016
November 1, 2016
October 1, 2017
March 8, 2019
August 23, 2021
Administered by:
Vice -President (Finance and Administration)


1.1 Purpose

It is the purpose of this Policy to ensure that the University's General Endowment Fund (the “Fund”) is invested in a way that a) will protect its purchasing power over the long term, thus ensuring that future generations of students and faculty will receive at least as much benefit from the Fund as the current generation, and b) provide a stable and significant level of support for the University.

1.2 Philosophy

It is the University’s philosophy to pursue above average expected returns net of expenses. In this pursuit, return volatility that is moderately higher than average is expected and is acceptable.

1.3 Beliefs

The University has from time to time reviewed and confirmed the investment beliefs which guide it when decisions are made concerning this Policy and under the authority of this Policy. Currently, the University believes 

  • that it is prudent to diversify the Fund both within and across asset classes and that alternative asset classes may further improve diversification reducing volatility risk and improving the efficiency of the risk budget;
  • that debt securities do not provide a sufficient real return to be as significant an asset class as equities if the Fund is to meet the dual purposes of protecting the purchasing power of the Fund for future generations and of providing a significant level of support;
  • that given attractive and diversifying sources of return available in illiquid asset classes should be accessed through private markets;
  •  that a greater allocation to equity investments than in the median balanced fund will provide greater long- term returns than the median balanced fund will return, although with greater short -term volatility and with returns that will vary significantly (positively and negatively) from median balanced fund returns;
  • that a significant allocation to foreign equities increases portfolio diversification and thereby decreases the volatility of returns;
  • that debt securities have a role in the Fund because they reduce the volatility of returns, provide a hedge against deflation and help maintain the Fund’s ability to support the University’s spending policy during periods when equity prices decline;
  • that active management of Canadian bonds and US equities has a low potential to add value (net of fees) relative to index returns over the long term;
  • that active management of Non-North American Equities has the highest potential to add value (net of fees) relative to index returns over the long term;
  • that even though foreign currency exposure at lower levels decreases the volatility of returns, at higher levels such exposure begins to increase volatility; nevertheless, because of the cost of
    currency hedging, of the benefit from actively managing non North American equity asset classes, and of the benefit in being in physical index funds, normally the Fund will not benefit over the long term by requiring its managers to engage in currency hedging unless there is a reasonable expectation that there will be a significant adjustment in currency values; and
  • that investment managers with active mandates can reduce portfolio risk below market risk and can potentially add value through security selection strategies.
  • that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time).


2.1 Board of Regents

The Board of Regents has delegated by by-law its responsibilities concerning the management of the Fund to its Executive Committee.

2.2 Executive Committee

The Executive Committee has the following responsibilities:

  • to approve policies related to the investment of and disbursements from the Fund;
  • to review these policies periodically to ensure that they are effective in protecting the purchasing power of the Fund over the long-term and in providing a stable and significant level of support for the University; and
  • to appoint managers to invest the Fund's assets and custodians to hold those assets.

2.3 Investment Committee

The Board of Regents has established an Investment Committee to advise and make recommendations to the Executive Committee concerning the above matters, and to review the Fund’s performance at least annually and advise the Executive Committee of the results of that review. The Investment Committee shall also carry out the responsibilities assigned to it under this Policy, including adopting targets for each asset class under section 3.6 below and establishing manager mandates as provided in section 5.1 below.

2.4 Vice-President (Finance and Administration)

It is the responsibility of the Vice-President (Finance and Administration) to assist the Investment Committee in its work, to perform specific responsibilities specified in this Policy and to ensure the proper administration of this Policy.

2.5 Managers

Managers have the following responsibilities:

  • to manage the portion of the fund under their management according to the law and University policy including their mandates;
  • to provide the University with periodic reports including valuations and a summary of the performance of funds under their management;
  • to select investments within each asset class under their management;
  • to act with the care, diligence, and skill of a professional investor in dealing with the property of another;
  • to comply with the standards of professional conduct and the code of ethics administered by the CFA Institute; and
  • at the discretion of the Investment Committee, to meet with the Committee to discuss the manager's investment performance, investment strategies, expectations of future rates of return, pertinent changes in organization, compliance with the requirements of this Policy, and any changes they may recommend for their mandates or this Policy.

2.6 Custodians

Custodians have the following responsibilities:

  • to maintain Investments in safekeeping;
  • to complete transactions;
  • to maintain accounting records with respect to the assets in its safekeeping including purchase and sales transactions and maturity, dividend and investment payments and to provide the University with periodic reports thereon; and
  • to fulfil other duties of a custodian as required by law or by contract.


3.1 Return Objective

The University’s return objective is over rolling four-year periods to earn, net of expenses, a real (net of inflation) annual rate of return of 5%, including dividends, interest and both realized and unrealized capital gains. However, in any one year the annual real return may be significantly above or below this objective.

3.2 Risk Definition and Tolerance

Risk has been defined as the probability that the real rate of return (net of inflation) will average less than 5% over a 10 year period.

Since less than 1% of the revenues of the University’s general operations come from the Fund, and since the Fund has a long investment horizon, a moderately high level of risk is acceptable.

The University used the above definition of risk in the analysis that resulted in the establishment of the Asset Mix set out in this Policy with its heavy equity weighting compared to the median balanced fund. The University is aware that returns will vary significantly (positively and negatively) from median balanced fund returns.

3.3 Portfolio Diversification

It is desirable that the Fund’s volatility be controlled. Therefore, to reduce the Fund’s overall volatility, debt securities will remain as an asset class, the Fund will be diversified within asset classes and the Fund will be diversified across a number of asset classes which are not perfectly correlated.

3.4 Asset Mix

In order to achieve the return objective of the Fund at an acceptable level of volatility, the Fund will be invested in the following asset classes, as those asset classes are defined in section 4.1, subject to the following limits based on market value:

Asset class Minimum Maximum Normal target
Equity and Alternatives 85% 95% 90%
Debt 5% 15% 10%

The Fund will have a significant US and Non-North American equity component since foreign equities are not perfectly correlated with Canadian equities.

Other investments, such as real estate, infrastructure and hedge funds, also have high long term expected real rates of return and reduce the volatility of the Fund since they are not perfectly correlated to equities.

Different asset classes can also be used as a hedge against inflation, real return bonds for example, or deflation, bonds for example.

For these reasons, and to maintain a significant investment in Canada, the Fund will be invested in the following asset classes, subject to the following limits based on market value:

a) Equity & Alternatives:

Asset class Minimum Maximum Normal target
Canadian Equity 5% 15% 10%
U.S. Equity 10% 14% 12%
Non-North American Equity 10% 14% 12%
Global Small Cap 4% 8% 6%
Global Low Volatility 6% 9% 7%
Emerging Markets 5% 9% 7%
Global Infrastructure 0% 15% 10%
Hedge Funds / Absolute Return Strategies 4% 11% 5%
Private Equity and Real Estate* 0% 25% 20%

*Includes investments in venture capital, buyouts, subordinated or mezzanine debt, distressed securities, energy and mining and real estate properties. Investment in these categories are included in the equity category because their expected long term rate of return is closer to the performance of equity than of debt.

b) Debt:

Asset class Minimum Maximum Normal Target
Money Market Securities 0% 5% 0%
Bonds, debentures, term loans, mortgages and real return bonds* 5% 30% 10%

*Cash used as part of a bond duration strategy shall be deemed to be bonds for the asset mix purposes.

3.5 Passive Management

Because of the University’s investment beliefs, 100% of Canadian investment grade bonds and 50% of US equities will normally be under passive management, and the remainder of the Fund will normally be under active management.

3.6 Changes in Asset Mix, Normal Targets and Passive/Active Splits

The Investment Committee may adopt targets for asset classes that differ from the normal targets provided the targets are within the ranges specified above. The Investment Committee may also change the proportion of an asset class under passive management. However, in both cases the change and the reason therefore must be reported to the Executive Committee at its next meeting.

It is not the University’s intention that the Investment Committee will actively manage asset mix, since the University does not have the resources to assist the Committee in such an effort and there is little evidence that such management adds value. However, asset mix will be reviewed at least annually and the asset mix may be varied from time to time because of changes in risk tolerance for the Fund or changes in the expected relative returns of asset classes over some significant period. Targets for the private equity and real estate asset class would only be established after a careful review taking into account governance issues and fees.

3.7 Rebalancing Policy

The asset classes shall be rebalanced to their targets as follows.

For the purpose of this rebalancing provision, each of the passively managed and the actively managed portions of an asset class shall be considered separate asset classes.

Contributions and withdrawals will be made so as to maintain asset classes as close as reasonably possible to the targets established according to this policy.

In addition, prior to the end of each quarter the market values of each asset class will be determined. If any publicly traded asset class that has a target value of at least 20% of the value of the Fund is more than 5% over or above that value, or if any other asset class is more than 2% over or above that value, the entire Fund will be rebalanced at the end of the quarter.

For additional clarity, this means that if the target value for an asset class is 20%, the entire portfolio will be rebalanced at the end of a quarter if the market value of the asset class is below 15% or above 25%; and if the target value for an asset class is 12% then the entire portfolio will be rebalanced at the end of a quarter if the market value of that asset class is below 10% or above 14%.

Each manager who is responsible for more than one asset class shall be responsible for rebalancing its portion of the Fund as provided above without reference to the assets held by the other managers.

The Vice-President (Finance and Administration) shall be responsible for rebalancing between managers.

Notwithstanding this Policy, the Vice-President (Finance and Administration) may authorize temporary asset mix positions outside those ranges to accommodate the funding of private market asset classes (e.g. global infrastructure and private equity), a Fund restructuring, a Manager restructuring, or a Manager request submitted in writing and providing the rationale for the request. However, such authorizations and the reasons therefore must be reported to the Investment Committee and to the Executive Committee at their next meetings.

3.8 ESG Factors and Active Ownership

Environmental, social and governance (ESG) factors have the potential to affect the Fund’s long-term investment performance. Consequently, ESG considerations are integrated into investment analysis and decisions with the aim of avoiding potential volatility and more reliably predicting long-term financial performance.

Examples of ESG factors that investors may consider as part of their analysis of companies and industries include (but are not limited to):

  • Environment – Climate change; greenhouse gas (GHG) emissions; resource depletion, including water; waste and pollution; deforestation.
  •  Social – Working conditions, including slavery and child labour; local communities, including indigenous communities; conflict; health and safety; employee relations and diversity.
  •  Governance – Executive pay; bribery and corruption; political lobbying and donations; board diversity and structure; tax strategy.

ESG issues are incorporated into the selection of investment managers and other service providers. Performance and disclosure on ESG issues for companies within the Funds’ portfolios are monitored and investment managers are encouraged to actively vote by proxy at all company meetings and engage with investee companies in order to improve corporate ESG performance.

Investment managers are evaluated with the assistance of external consultants. During selection and monitoring processes, investment managers are evaluated as to the extent to which ESG and active ownership practices are integrated into a manager’s investment process and decision making. The extent to which ESG information is integrated across idea generation, portfolio construction, implementation and firm-wide commitment is assessed.


4.1 Categories and Subcategories of Investments

Investments that are permitted shall be classified within the following general categories.

(a) Equity
Public and private equity securities, including common shares in companies of domestic, foreign and emerging markets, ADR’s, warrants, convertible bonds, initial public offerings and equivalent exposures using derivatives, but not including income trusts.

(b) Debt

i) Money Market Securities
Money market securities, including cash on hand in Canadian and other currencies, demand and notice deposits, treasury bills, secured and unsecured promissory notes and term loans, banker’s acceptances, commercial paper, swap deposits, call loans, repurchase
agreements and reverse repurchase agreements, foreign pay bills, other money market securities and equivalent exposures using derivatives.

ii) Bonds, debentures, term loans, mortgages and real return bonds. Bonds, debentures, term loans, mortgages, real return bonds, including short and long dated publicly-traded debt securities, foreign pay bonds, preferred shares, private placement debt and equivalent exposures using derivatives.

(c) Private Equity, Real Estate and Other Investments

Real estate equity and debt, managed futures, venture capital and private equity, distressed securities, resource properties, leveraged buyouts, mezzanine financing, oil and gas, and hedge funds (market neutral and long/short strategies).

Investment managers may utilize pooled or mutual funds or limited partnerships that include any of the above categories and subcategories provided they are authorized to do so by their investment mandates.

4.2 Investment Restrictions

Investment restrictions apply within the context of overall Fund objectives and the asset mix policy described above.

(a) Minimum Quality Standards for the Debt Asset Allocation.

Credit rating of individual securities in passively managed accounts will be in accordance with the construction of major Canadian fixed income indices. Corporate bonds, debentures and other debt securities purchased for the Fund in actively managed mandates may have a rating below “BBB” subject to the average rating requirement noted below.

Passive exposure is designed to replicate the composition of a particular bond index as closely as possible, whereas active exposure involves greater deviations in the structure of the portfolio relative to the benchmark index.

In the case of private placements not rated by a recognized bond rating service, the manager shall apply standards consistent with a minimum average rating of “A”.

In total, the bond portfolio shall be managed in such a way as to ensure its average rating is "A" or better according to a recognized bond rating service.

Short-term notes and other evidences of indebtedness of corporations, banks and trust companies shall have a rating of R-1 or the equivalent thereof according to a recognized bond rating service.

(b) Limitations on Securities of any Single Issuer

A maximum 10% of the market value of the Fund is to be loaned to any person, partnership or association.

A maximum 5% of the market value of the Fund is to be invested in any single holding categorized as private equity, real estate and other investments. This restriction does not prevent the University from investing more than 5% of the market value of the Fund in units of a pooled private equity, pooled real estate or other pooled investment.

A maximum 10% of the market value of the Fund is to be invested in any single corporation.

A maximum of 10% of the market value of any fixed income asset class is to be invested in BBB bonds.

(c) Investment Manager Constraints

Investment managers may

  • not make loans to or invest in persons who are covered by the Conflict of Interest section of this Policy;
  • only with the written consent of the Investment Committee, purchase or sell pre-specified derivative financial instruments;
  • only with the written consent of the Investment Committee, invest more than 30% of the market value of the common stock portfolio under his control in any single sector of a major market index;
  • only with the written consent of the Investment Committee, borrow money to purchase securities, purchase securities on margin or short-sell securities.

4.3 Use of Derivatives

Derivatives include debt, equity, commodity and currency futures, options, swaps and forward contracts and pooled, mutual or segregated funds that employ derivatives and synthetic products for purposes consistent with the investment objectives of the Fund.

Derivatives may be used for hedging and volatility management including the hedging of foreign currency exposure.

Derivatives may also be used as a substitute for more traditional investments if they are based on and consistent with achieving the Fund’s long-term asset mix goal and rate of return objective.


5.1 Pooled Fund Mandates

The Fund may be invested in pooled funds (the "Pooled Funds") to achieve the Fund's rate of return objectives. In such cases copies of the Managers' investment policy statements for these Pooled Funds are attached as Appendix A, and the University adopts the guidelines of those statements. These guidelines do not have to meet all of the
restrictions set out above in Section 4.

5.2 Performance Evaluation

The performance of the Fund as a whole will be measured against the performance objective specified in section 3.1 above.

Unless a different benchmark index or performance objective is specified in the manager’s mandate, the performance of a manager with respect to any asset class under its management will be measured against the objective specified below in this section for that asset class.

Asset class Benchmark index Objective(s)
Canadian Universe Bonds (core plus management) FTSE Canada Universe Bond ±0.50%
Canadian Equities (active management) S&P/TSX Capped* +1.00%
US Equity (active management) S&P 500 +1.00%
US Equity (index management) S&P 500 ±0.30%
Non-North American Equity (active fund) MSCI EAFE +1.00%
Global Small Cap (active management) MSCI World Small Cap Net +1.00%
Global Low Volatility (active management) MSCI World Net See below
Emerging Markets (active management) MSCI Emerging Markets Net +1.00%
U.S. Real Estate Income Trusts Dow Jones U.S. Select Real Estate Securities Index +0.30%
Global Infrastructure Consumer Price Index Net return over 10 years of at least 8% p.a.
Opportunistic Fixed Income FTSE Canada 91-Day T-Bills +2% over 4 years with volatility of Bloomberg Barclays Global Aggregate Index ±2.25%
Real Estate MSCI/REALPAC Property Index Outperform Index
Private Equity Consumer Price Index

Net return over 10 years of at least 8% p.a.

Hedge Funds (Managed Futures and Global Macro) US 3-Month T-Bills

1) Low correlation with equity markets, especially in down markets

2) Volatility less than MSCI World Index

3) ±2.0% over MSCI World Index over 8 year rolling periods

* Prior to October 1, 2012, the benchmark was the S&P/TSX Equity index.


The purpose of the global low-volatility strategy is to reduce volatility of the growth portfolio. It is expected that over longer term periods this strategy will provide returns near the MSCI World index with substantially less volatility than the index. Accordingly, the primary objective for this fund is to provide a reduction in total volatility of 20% in comparison with the MSCI World index over 4-year rolling periods. Secondarily, the strategy should provide returns within ±1% of the MSCI World index over 8-year rolling periods.

For the purpose of measuring rates of return of the Fund, all returns shall be measured before investment management fees, but after transaction costs. In the case of active mandates this shall be done over rolling four-year periods. In the case of passive mandates this shall be done over rolling one-year periods. All index returns shall be total returns. All foreign index returns shall be Canadian dollar returns.

At the end of each quarter the Administration will report to the members of the Investment Committee the returns on the Fund by manager and asset class, comparing those returns to the benchmark returns, and comparing the market value of each asset class to the market value assigned to that asset class by this policy.

Each year the Administration will have a consultant prepare for the Investment Committee analytical charts on the performance of the University’s managers.


5.3 Qualitative Evaluation of Managers

Every two years the Administration will engage consultants to report on any concerns that they may have about specific investment managers employed by the University or employed by the University’s mangers, and to report on any style offsets that are being used in multi-manager funds.

Each year the Administration shall report to the Investment Committee on the Managers using the following criteria, as may be appropriate for specific managers:

  • overall adherence by the Managers to this Policy;
  • consistency of the Managers’ respective portfolio activities, style and philosophy with their stated style and strategy;
  • quality of the Managers’ approach to identifying and incorporating material ESG issues where appropriate with their stated style and strategy;
  • retention of the Managers’ professional staff;
  • replacement of the Managers’ staff lost by retirement, resignation, etc.;
  • quality of the Managers’ communication with the University;
  • competitiveness of fees;
  • characteristics of the Managers’ (e.g., ownership, growth in assets under management, client retention/loss, etc.); and
  • consistency of key personnel and their role in the investment decision.


6.1 Application

These guidelines apply to the following parties: the University, members of the Board of Regents and University Committees; the Managers; the Custodians; and any employee, agent, or third party retained by any of the foregoing to provide services to the Fund.

6.2 Limitation on the Exercise of Powers

No party listed above may exercise his powers in his own interest or in the interest of a third person, nor may he place himself in a situation of conflict or potential conflict between his personal interest and his duties with regard to the investment of the Fund.

6.3 Duty to Disclose

Any party listed above shall disclose in writing, or orally if the knowledge of the duty to disclose arises in the course of discussion at a meeting, immediately upon first becoming aware of the association, interest or involvement, the nature and extent of any direct or indirect association or material interest or involvement that would result in any actual, potential or perceived conflict of interest with regard to the investments of the Fund.

6.4 Participation Following Disclosure

If the party disclosing the conflict has the capacity to participate in or to make decisions affecting the investment of the Fund, the party may only continue to participate with the approval of the University. The party may elect not to participate with respect to the issue in conflict. If the person disclosing the conflict has voting powers, he may continue to participate with respect to the issue only with the unanimous approval of the other participants with voting rights. His notification shall be considered a continuing disclosure on that issue for purposes of the obligations outlined by these guidelines.


7.1 Securities Lending

Pooled funds may enter into securities lending agreements if their policies so permit. In any other cases, the securities in the Fund may be loaned to investment dealers and banks as part of the manager’s, trustee’s or custodian’s program with the approval of the Investment Committee when the Investment Committee determines that such lending may add to the return on the Fund at minimal risk and provided the loan is collateralized in accordance with industry standards and marked-to-market and adjusted on a daily basis.

7.2 Exercise of Proxies and Voting Rights

The trustees of the Pooled Funds exercise all voting rights acquired through the investments of the Pooled Funds. In any other cases, the University retains the right to exercise proxy and other voting rights in the best interests of the Fund. However, in these cases unless advised by the Vice-President (Finance and Administration) that the University wishes to exercise this right, proxy and other voting rights associated with any of the Fund investments may be exercised by the investment manager in the best interests of the Fund.

7.3 Custody

To maintain a proper segregation of duties and adequate controls, all securities held must remain with third-party custodians.

7.4 Policy Review

The Policy shall be reviewed at least once per year and either confirmed or amended. Every three years consultants will be engaged to do an in-depth review of this Investment Policy.