The State University of New York’s (University) Board of Trustees' (Board) Finance and Administration Committee (the "Committee") has been entrusted by the Board with the responsibility of determining the University’s investment policies and practices, subject to the general supervision of the Board.

The Statement of Investment Objectives and Guidelines (Guidelines) apply to the University’s Productive Endowment Fund (SUEF), which is comprised primarily of funds that have been donated over the years to the University and its constituent campuses, and the accumulated earnings on these sums, and such other funds that the University has authority to invest, manage, and oversee.

A cash equivalent portfolio is managed for the University by the New York State Comptroller, which by agreement with that office, represents the cash income earned (i.e., interest and dividends) that is transferred to the state treasury at the beginning of each quarter sufficient to meet the budgeted expenditures under the SUEF spending plan relative to the ensuing quarter.

The Guidelines represent the formal document governing the investment of SUEF assets, which is communicated to the investment managers for their use in developing an appropriate investment program, and to the Board and Committee for their use in exercising fiduciary responsibility in overseeing the SUEF. This document will also be used as the basis for future investment performance measurement and evaluation. The objectives are formulated in response to the following:

• The anticipated short-term and long-term financial needs of the University, its present and anticipated financial requirements, expected total return on investments, price level trends, and general economic conditions.
• Consideration of risk tolerance.
• The need to document and communicate objectives, guidelines, and standards to the investment managers.

The primary investment objective of the SUEF is to preserve the real (inflation-adjusted) purchasing power of fund assets while providing a relatively predictable, stable, and constant (in real terms) stream of earnings in line with spending needs.

Financial objectives for the SUEF are established to provide for sufficient income to meet the income requirements of the beneficial interests of the SUEF, as well as to provide for continued capital appreciation of the SUEF. While there cannot be complete assurance that the defined objectives will be realized, the parameters that have been established are reasonable and attainable.

The SUEF is expected to generate a return of the Consumer Price Index (CPI) plus 5% over a 7 to 10 year horizon to preserve the spending power of the SUEF. Relative performance of the total portfolio will be measured as follows:

Horizon	Index	Universe
Rolling 3 and 5-year periods	Exceed a blended index according to target allocation: 40% Russell 3000, 27% MSCI ACWI Ex-U.S., 5% MSCI Emerging Markets, 20% Lehman Aggregate Bond, 4% NCREIF Property, 4% DJ-AIG Commodity	Rank in the upper half of the NACUBO Universe Rank in the upper half of the Russell/Mellon Endowment and Foundation Universe

The SUEF shall be diversified both by asset class (e.g., equities, bonds, and alternative investments) and within asset classes (e.g., within equities by investment style, economic sector, industry, and size). The purpose of diversification is to provide reasonable assurance that no single security or class of securities will have a disproportionate impact on the total SUEF.

I. Responsible Parties and Fiduciary Duties

A. Board Authorization

The State University of New York’s (University) Board of Trustees (Board), approved and authorized the retention of services of investment advisors, consultants, and custodians to provide services in relation to the investment management of the University’s Productive Endowment Fund (SUEF). Services of a consultant may also be retained to provide advice on specifically defined projects, and to perform periodic evaluative reviews in connection with the portfolio. Pursuant to contracts entered into with the investment advisors, consultants, and custodians, services are to be rendered for stated periods of up to five years, after which the University will solicit proposals for such service through a competitive process in accordance with procurement policies and procedures of the University and the State of New York. Such contracts may be terminated upon 30 days written notice by either the University or the other party (investment advisor, consultant or custodian), with the consent of the University.

B. Finance and Administration Committee

The University Board’s Finance and Administration Committee (Committee) has been entrusted by the Board with the responsibility of determining the University’s investment policy, subject to the general supervision of the Board. Specifically, the Committee’s responsibilities encompass the following:

• Establishing overall objectives, subject to Board approval.
• Selecting appropriate investment options and ranges, subject to Board approval.
• Selecting qualified service providers such as investment managers, a custodian, and an investment consultant, subject to Board approval.
• Reviewing the asset allocation mix on a regular basis to ascertain not only that the existing portfolio conforms to the desired targets and ranges, but also that the targets and ranges remain suitable and represent the optimal asset allocation mix for the SUEF.
• Reviewing the portfolio structure on a regular basis to assure optimal capital market exposures for the long-term.
• Monitoring performance on a quarterly basis to determine whether or not the rate of return objectives are being met and that guidelines are being followed; any other material events affecting each investment manager, such as significant changes in a investment manager’s organization, including investment philosophy, personnel changes, the acquisitions or losses of major accounts, etc.
• Taking appropriate action if investment objectives are not met or if guidelines are not followed.

1. Review of Spending and Fund Value

All spending requirements are subject to a formula approved by the Board. The current formula, adopted by the Board by Resolution No. 99-54, is as follows:

The spending allocation will increase 5% of the prior year’s allocation on a per unit basis, except under the following circumstances. If the SUEF performs poorly, so that SUEF spending (calculated at 5% more than the prior year’s spending) would exceed 6% of average market value per unit for the three prior calendar years, spending would be frozen at the prior year’s amount. If the SUEF performs well, so that spending (calculated at 5% more than the prior year’s spending) would be less than 4.5% of average market value per unit for the three prior calendar years, spending would be increased to equal 5% of the average market value per unit for the three prior calendar years.

The university controller shall submit to the Committee a report which compares spending levels for the ensuing fiscal year calculated in accordance with the SUEF spending formula (1) against spending levels calculated at 5% of the average of twelve quarterly market values for the most recent three calendar years, (2) at 4% of the average market value of the SUEF portfolio for the five fiscal years ending prior to the year of calculation, and (3) against spending levels calculated at 5% of the average market value of the SUEF for the three and five fiscal years ending prior to the year of calculation.

At least annually, the Committee will review the growth of the SUEF in nominal and real dollar terms as well as the level of income generated by the SUEF, to determine the performance of the SUEF in light of the spending requirements of the University to be supported by the SUEF.

2. Review of Investment Objectives

The achievement of investment objectives will be reviewed on an annual basis by the Committee. This review will focus on the continued feasibility of achieving the objectives and the continued appropriateness of the investment strategy for achieving the objectives. It is not expected that the investment strategy will change frequently; in particular, short-term changes in the financial markets should not require an adjustment in the investment strategy.

C. University Oversight of SUEF

The Board shall designate a senior University official to assist in the daily oversight of the SUEF’s investments and related activities, including the following duties:

• Administering the SUEF consistent with the policies, objectives, procedures and guidelines approved by the Board and all applicable federal and state laws.
• Providing input to the Board and Committee on SUEF-related issues to facilitate their decision-making.
• Managing the SUEF’s relationships with external service providers including conducting at least annual meetings with each SUEF investment manager and custodian.
• Working with the investment consultant to conduct assigned special projects (e.g., manager searches, asset allocation studies, etc.), prepare performance reports, and to prepare for Committee meetings.

Currently, the Board has assigned this responsibility to the vice chancellor for finance and business, or designee, which is the university controller.

D. Investment Managers

Each appointed investment manager will do the following:

• Have discretion and authority for determining investment strategy and implementation of security selection and timing consistent with the SUEF Guidelines.
• Comply with all federal and state laws and regulations that involve the SUEF as it pertains to the investment manager’s duties, functions, and responsibilities as a fiduciary.
• Vote the proxies on the securities in the SUEF’s portfolio in accordance with the manager’s own guidelines, and in the best interests of SUEF. On or after June 30 of each year, each investment manager shall provide the university controller with a report detailing the results of the proxy voting.
• Meet with the Committee and/or the university controller at least annually, and on request, to report on current portfolio status, performance, current investment policy, and future prospects.
• Provide the University with such reports at such frequencies as may be required.
• Meet or exceed performance standards as established by the Committee.
• If the investment manager is a mutual fund, commingled fund, or fund of fund investment strategy, the investment manager will provide for custodial services for the funds under management and will provide the SUEF’s custodian with valuation, transaction, and performance reports.

Each investment manager will advise the Committee, university controller, and the investment consultant promptly of any event that is likely to adversely impact, to a significant degree, the management, professionalism, integrity, or financial position of the funds under management, including events such as the following:

• A loss of one or more key investment people.
• A significant change in investment philosophy.
• The appointment of a new portfolio manager(s) to the managed account.
• A change in ownership or control (whether through acquisition, disposition, spin-off, merger, consolidation, or otherwise) of the investment manager.

E. Custodian

The assets of the SUEF will be held by an institution designated as the custodian, which shall manage, control, collect, and use the assets of the SUEF in accordance with the terms of a separate custodial agreement, as well as the terms of these Guidelines.

The University recognizes that accurate and timely completion of custodial functions is necessary for effective investment management and accurate records. The basic duties of the custodian are as follows:

• Providing complete custody and depository services for the designated accounts;
• Providing for investment of any idle cash balances in approved short-term vehicles, to avoid un-invested amounts;
• Implementing in a timely and effective manner the investment actions as directed by the investment manager(s);
• collecting all income and principal realizable and properly report on the periodic statements;
• Providing monthly and annual accounting statements for the SUEF, including all transactions; these should be based on accurate security values for both cost and market value. These reports should be provided in a timeframe acceptable to the Committee;
• Calculating time-weighted returns each month for requested time periods by the University;
• Reporting to the Committee or university controller situations where security pricing is either not possible or subject to considerable uncertainty; and
• Providing assistance to the Committee, university controller or designated staff to complete such activities as the annual audit, transaction verification, or unique issues.

The Committee, the university controller, and the investment consultant will be advised promptly of the listed events occurring within the custodian's organization:

• A loss of one or more key people associated with the account.
• The appointment of a new account manager(s) to the account.
• A change in ownership or control of the organization.

F. Investment Consultant

The Board may retain the services of a third-party investment consultant to provide expert advice and recommendations to help the Board and the Committee discharge its fiduciary responsibilities in furtherance of the SUEF’s goals and objectives. Such services provided by the investment consultant will include the following:

• Monitoring long-term capital market trends and assets relative to objectives and suggest broad-based asset-allocation policies to be approved by the Board and the Committee and implemented by the investment managers, as well as, general advice concerning periodic asset allocation rebalancing.
• Reviewing periodically investment policies and objectives, and suggesting appropriate changes.
• At the Committee’s direction, researching and recommending investment management firms which are appropriate to implement the SUEF’s investment policies and objectives.
• Maintaining contact with and reporting on changes within the investment managers’ organizations (including the gain or loss of key individuals and accounts).
• Measuring, evaluating, and reporting the investment managers’ performance results on a quarterly basis.

II. Asset Allocation

The State University believes that the best measure of performance can be achieved on a total return basis by investment discipline. This means that the investment portfolio will be broken down into clearly identified, separate investment strategies that include seven distinct roles for publicly traded securities: equity – large cap equity-active, large cap equity – passive index, small cap equity - active, non-style specific US equity - active, international equity - active, emerging markets equity – passive index, and fixed income – core opportunistic – active. The purpose of this structure is to maintain a diverse range of asset classes in the total SUEF portfolio, especially with respect to the equity style and market capitalization spectrum. Additionally, to capitalize on a more diversified range of investments, several alternative asset strategies with lower correlations to the publicly-traded equity strategies in the portfolio will be employed. These alternative strategies will be hedge fund of funds, real estate, and commodities.

Each asset class strategy will be assigned to one or more investment managers with the requisite expertise, and a specific dollar amount will be allocated to these investment managers for this purpose in conformance with the target percentages on Chart A below. Each specific investment strategy will be measured against an appropriate performance benchmark.

At times the portfolio may not have an investment manager dedicated to each asset class strategy (i.e., large, mid, and small cap; value and growth, etc.). In these periods, the underlying holdings of all of the managers will be reviewed in aggregate to ensure that the overall investment portfolio maintains broad diversification across the market capitalization spectrum (i.e., large, mid and small cap), industry sectors, and styles (i.e., value, growth).

Chart A

Equity Strategy

Strategy	% Equity	Target %Aggregate Fund	% Sub-Asset Class Target Range (Aggregate)	% Asset Class Target Range
Large Cap-Active	22	14	9-19	23-43
Large Cap-Index	5	3	0-8
Small Cap-Active	9	6	1-11
Alpha/ Non-Core-Active	15	10	5-15
International-Active	41	27	N/A	17-37
Emerging Markets-Index	8	5	N/A	0-10

Fixed Income Strategy

Strategy	% Equity	Target % Aggregate Fund	% Sub-Asset Class Target Range (Aggregate)	% Asset Class Target Range
Fixed Income Core Opportunistic - Active	100	20	N/A	10-30

Alternatives Strategy

Strategy	% Alternatives	Target %Aggregate Fund	% Sub-Asset Class Target Range	% Asset Class Target Range
Hedge Fund of Funds	46	7	2-12	5-25
Real Estate	27	4	0-9
Commodities	27	4	0-9

A. Cash Holdings

Investment managers may hold idle cash balances arising from investment income and to satisfy transactional needs in the normal course of purchasing and selling securities. In all other respects, the investment managers must strive to be fully invested. Idle cash balances shall be invested by the custodian in money market mutual funds selected by a review of the individual mutual fund’s prospectus by the university controller.

B. Exchange-Traded Funds

Exchange-traded funds, which are passively managed funds traded on leading stock exchanges, may be used to maintain asset class exposure during periods of manager transition or investment strategy implementation. In general, the use of exchange-traded funds will not be recommended if the transaction costs (brokerage commissions) would outweigh the potential benefits. Exchange-traded funds will be executed through the brokerage services of SUEF’s custodian bank.

C. Rebalancing

The equity, fixed income, and alternatives portions of the SUEF should normally represent approximately 65% (33% US, 27% international, 5% emerging markets), 20%, and 15% respectively, of total SUEF assets at market value. Although the actual percentage may fluctuate with market conditions, fluctuations in excess of plus or minus 5% of the target percent for the sub-asset classes (e.g. large cap equity, small cap equity), and plus or minus 10% for the broad asset classes (US equity, international equity, emerging markets equity, fixed income, alternatives) (see Chart A above) will be reallocated by the university controller among the affected investment strategies to reestablish an appropriate balance. [For the sub-asset classes that have a target percentage less than 5%, the minimum target range is zero.] This should be accomplished first by distributing future additions and withdrawals necessary to bring the allocation within tactical ranges but not necessarily back to the strategic target. If the tactical ranges can not be accomplished through the distribution of additions and withdrawals, shifting of assets across portfolios may be required. In general, rebalancing will not be recommended if the imbalance is expected to be short-lived or the transaction costs would outweigh the benefits. These asset allocation ranges and strategies as detailed in Chart A above are subject to change by the Board based on recommendations from the Committee; however, it is anticipated that changes will generally be infrequent.

D. Review

The Committee shall review the asset allocation mix of the SUEF portfolio on a periodic basis and will ascertain that the SUEF not only conforms to the desired target and ranges, but also that the target and ranges remain suitable and represent the optimal asset allocation mix for the SUEF going forward.

III. Manager Specific Investment Guidelines and Performance Standards

The following are specific guidelines and performance standards for each mandate within the SUEF. Each investment manager shall invest SUEF assets in accordance with its stated investment philosophy/strategy and the specific guidelines stated in this section, and is expected to meet or exceed the performance standards as recommended by the Committee and established by the Board.

Investment vehicles that may be considered for each mandate include separately managed accounts, commingled pooled funds, mutual funds, exchange-traded funds and alternative investment vehicles such as fund of funds strategies and limited partnerships. The providers of investment funds selected by the Committee and the Board may include banks, insurance companies, and regulated investment companies.

The reference to “portfolio” in this section only applies to the specific guidelines for each mandate.
If a strategy is invested in a mutual fund, exchange-traded fund, or commingled pooled vehicle, the investment guidelines stated within the mutual fund’s prospectus, the exchange-traded fund’s prospectus or commingled fund’s investment guidelines, respectively, will supersede the specific guidelines in this section.

U.S. Large Cap Index

Performance Standard

Horizon	Index1	Universe
Rolling 3 and 5-year periods	Match the S&P 500 Index	N/A

¹Net of effect of expense ratio.

Some tracking error may occur as a result of rebalancing, corporate actions, reconstitution of the index, and management fees.


Permissible Investments

Permissible investments shall be defined as the following:

1. Common or preferred shares of U.S. corporations and Real Estate Investment Trusts (REITs) in the S&P 500 Index which are listed and traded on nationally recognized exchanges or over-the-counter markets.
   
   
2. Depository receipts and exchange traded funds listed and traded on nationally recognized exchanges or over-the-counter markets.
   
   
3. Futures, covered options, or any other derivative investments may be used for hedging or defensive purposes only. Use of these investments to leverage the portfolio is prohibited.

Prohibited Investments

Securities specifically prohibited from purchase are the following:

1. Stock in non-public corporations, private placement, or any other non-marketable issues.
   
   
2. Letter or restricted stock.
   
   
3. Short sales of any type.
   
   
4. Share purchases involving the use of margin.

U.S. Large Cap Growth Equities

Performance Standard

Horizon	Index	Universe
Rolling 3 and 5-year periods	Exceed the Russell 1000 Growth Index	Rank in the upper half of the U.S. Large Cap Growth Equity Universe

While not explicitly stated as a performance standard, risk-adjusted performance of the portfolio will be measured by the information ratio over the periods specified above. The information ratio is calculated by dividing the portfolio excess return (alpha) by the portfolio’s tracking error relative to the index. It is expected that if the volatility of the portfolio (a measure of risk) is greater than that of the benchmark then a commensurate amount of value added above the benchmark is achieved. This will be reflected by an improvement in the portfolio’s information ratio.

Permissible Investments

Permissible investments shall be defined as the following:

1. Common or preferred shares of U.S. corporations listed and traded on nationally recognized exchanges or over-the-counter markets (including American Depository Receipts or ADRs), including securities of U.S.-based companies that are incorporated outside the U.S.

2. Convertible bonds, debentures, or preferred shares, which are convertible into corporate stock.

3. Futures, covered options, or any other derivative investments may be used for hedging or defensive purposes only (use of these investments to leverage the portfolio is prohibited).

4. Publicly-traded Real Estate investment Trusts (REITs).

Prohibited Investments

Securities specifically prohibited from purchase are the following:

1. Stock in non-public corporations, private placement, or any other non-marketable issues.

2. Letter or restricted stock.

3. Short sales of any type.

4. Share purchases involving the use of margin.

5. Securities of foreign issuers unless specifically authorized by contract to do so.

Other Investment Guidelines

1. Concentration per equity issuer can not exceed 7.5% of the portfolio market value, with the exception of cash, cash-equivalent, U.S. Treasury or Agency securities.

2. All securities must be U.S.-dollar denominated. No foreign currency denominated instruments are allowed.

3. No more than 5% of the portfolio may be held in listed ADRs.

4. No more than 10% of the portfolio may be held in publicly-traded Real Estate Investment Trusts (REITs).

5. No individual holding shall comprise more than 2% of the outstanding voting stock or more than 2% of all outstanding shares of all classes of stocks, of the issuer (assuming all conversions have been made).

6. Investments at the time of purchase must have a market capitalization within the range of companies in the Russell 1000 Growth Index.

7. Commitments to each industry sector defined by Frank Russell Company shall be within 15 percentage points of the index benchmark weight. For those sectors that have a benchmark weight less than 15%, zero exposure is permissible.

8. The portfolio should be well diversified and contain a minimum of twenty different securities.

U.S. Large Cap Value Equities

Performance Standard

Horizon	Index	Universe
Rolling 3 and 5-year periods	Exceed the Russell 1000 Value Index	Rank in the upper half of the U.S. Large Cap Value Equity Universe

While not explicitly stated as a performance standard, risk-adjusted performance of the portfolio will be measured by the information ratio over the periods specified above. The information ratio is calculated by dividing the portfolio excess return (alpha) by the portfolio’s tracking error relative to the index. It is expected that if the volatility of the portfolio (a measure of risk) is greater than that of the benchmark then a commensurate amount of value added above the benchmark is achieved. This will be reflected by an improvement in the portfolio’s information ratio.

Permissible Investments

Permissible investments shall be defined as the following:

1. Common or preferred shares of U.S. corporations listed and traded on nationally recognized exchanges or over-the-counter markets (including American Depository Receipts or ADRs), including securities of U.S.-based companies that are incorporated outside the U.S.

2. Convertible bonds, debentures, or preferred shares, which are convertible into corporate stock.

3. Futures, covered options, or any other derivative investments may be used for hedging or defensive purposes only (use of these investments to leverage the portfolio is prohibited).

4. Publicly-traded Real Estate investment Trusts (REITs).

Prohibited Investments

Securities specifically prohibited from purchase are the following:

1. Stock in non-public corporations, private placement, or any other non-marketable issues.

2. Letter or restricted stock.

3. Short sales of any type.

4. Share purchases involving the use of margin.

5. Securities of foreign issuers unless specifically authorized by contract to do so.

Other Investment Guidelines

1. Concentration per equity issuer can not exceed 7.5% of the portfolio market value, with the exception of cash, cash-equivalent, U.S. Treasury or Agency securities.

2. All securities must be U.S.-dollar denominated. No foreign currency denominated instruments are allowed.

3. No more than 5% of the portfolio may be held in listed ADRs.

4. No more than 10% of the portfolio may be held in publicly-traded Real Estate Investment Trusts (REITs).

5. No individual holding shall comprise more than 2% of the outstanding voting stock or more than 2% of all outstanding shares of all classes of stocks, of the issuer (assuming all conversions have been made).

6. Investments at the time of purchase must have a market capitalization within the range of companies in the Russell 1000 Value Index.

7. Commitments to each industry sector defined by Frank Russell Company shall be within 15 percentage points of the index benchmark weight. For those sectors that have a benchmark weight less than 15%, zero exposure is permissible.

8. The portfolio should be well diversified and contain a minimum of twenty different securities.

U.S. Small Cap Value Equities

Performance Standard

Horizon	Index	Universe
Rolling 3 and 5-year periods	Exceed the Russell 2000 Value Index Russell Mid Cap Growth	Rank in the upper half of the U.S. Small Cap Value Equity Universe

While not explicitly stated as a performance standard, risk-adjusted performance of the portfolio will be measured by the information ratio over the periods specified above. The information ratio is calculated by dividing the portfolio excess return (alpha) by the portfolio’s tracking error relative to the index. It is expected that if the volatility of the portfolio (a measure of risk) is greater than that of the benchmark then a commensurate amount of value added above the benchmark is achieved. This will be reflected by an improvement in the portfolio’s information ratio.

Permissible Investments

Permissible investments shall be defined as the following:

1. Common or preferred shares of U.S. corporations listed and traded on nationally recognized exchanges or over-the-counter markets (including American Depository Receipts or ADRs), including securities of U.S.-based companies that are incorporated outside the U.S.

2. Convertible bonds, debentures, or preferred shares, which are convertible into corporate stock.

3. Futures, covered options, or any other derivative investments may be used for hedging or defensive purposes only (use of these investments to leverage the portfolio is prohibited).

4. Publicly-traded Real Estate investment Trusts (REITs).

Prohibited investments

Securities specifically prohibited from purchase are:

1. Stock in non-public corporations, private placement, or any other non-marketable issues.

2. Letter or restricted stock.

3. Short sales of any type.

4. Share purchases involving the use of margin.

5. Securities of foreign issuers unless specifically authorized by contract to do so.

Other Investment Guidelines

1. Concentration per equity issuer can not exceed 7.5% of the portfolio market value, with the exception of cash, cash-equivalent, U.S. Treasury or Agency securities.

2. All securities must be U.S.-dollar denominated. No foreign currency denominated instruments are allowed.

3. No more than 5% of the portfolio may be held in listed ADRs.

4. No more than 15% of the portfolio may be held in publicly-traded Real Estate Investment Trusts (REITs).

5. No individual holding shall comprise more than 2% of the outstanding voting stock or more than 2% of all outstanding shares of all classes of stocks, of the issuer (assuming all conversions have been made).

6. Investments at the time of purchase must have a market capitalization within the range of companies in the Russell 2000 Value Index.

7. Commitments to each industry sector defined by Frank Russell Company shall be within 15 percentage points of the index benchmark weight. For those sectors that have a benchmark weight less than 15%, zero exposure is permissible.

8. The portfolio should be well diversified and contain a minimum of twenty different securities.

U.S. Non-Core Stock Selector Equities

Performance Standard

Horizon	Index	Universe
Rolling 3 and 5-year periods	Exceed the Russell 3000 Index	Rank in the upper half of the Broad U.S. Equity Universe

While not explicitly stated as a performance standard, risk-adjusted performance of the portfolio will be measured by the information ratio over the periods specified above. The information ratio is calculated by dividing the portfolio excess return (alpha) by the portfolio’s tracking error relative to the index. It is expected that if the volatility of the portfolio (a measure of risk) is greater than that of the benchmark then a commensurate amount of value added above the benchmark is achieved. This will be reflected by an improvement in the portfolio’s information ratio.

Permissible Investments

Permissible investments shall be defined as the following:

1. Common or preferred shares of U.S. corporations listed and traded on nationally recognized exchanges or over-the-counter markets (including American Depository Receipts or ADRs), including securities of U.S.-based companies that are incorporated outside the U.S.

2. Convertible bonds, debentures, or preferred shares, which are convertible into corporate stock.

3. Futures, covered options, or any other derivative investments may be used for hedging or defensive purposes only (use of these investments to leverage the portfolio is prohibited).

4. Publicly-traded Real Estate Investment Trusts (REITs).

Prohibited Investments

Securities specifically prohibited from purchase are:

1. Stock in non-public corporations, private placement, or any other non-marketable issues.

2. Letter or restricted stock.

3. Short sales of any type.

4. Share purchases involving the use of margin.

5. Securities of foreign issuers unless specifically authorized by contract to do so.

Other Investment Guidelines

1. Concentration per equity issuer shall not be restricted due to the mandate, however prudent diversification measures should always be considered.

2. All securities must be U.S.-dollar denominated. No foreign currency denominated instruments are allowed.

3. No more than 5% of the portfolio may be held in listed ADRs.

4. No more than 15% of the portfolio may be held in publicly-traded Real Estate Investment Trusts (REITs).

5. No individual holding shall comprise more than 2% of the outstanding voting stock or more than 2% of all outstanding shares of all classes of stock, of the issuer (assuming all conversions have been made).

6. Investments at the time of purchase must have a market capitalization within the range of companies in the Russell 3000 Index.

International Growth Equities

Performance Standard

Horizon	Index	Universe
Rolling 3 and 5-year periods	Exceed the MSCI ACWI Ex-U.S. Growth Index	Rank in the upper half of the International Growth Equity Universe

While not explicitly stated as a performance standard, risk-adjusted performance of the portfolio will be measured by the information ratio over the periods specified above. The information ratio is calculated by dividing the portfolio excess return (alpha) by the portfolio’s tracking error relative to the index. It is expected that if the volatility of the portfolio (a measure of risk) is greater than that of the benchmark then a commensurate amount of value added above the benchmark is achieved. This will be reflected by an improvement in the portfolio’s information ratio.

Permissible Investments

Permissible investments shall be defined as the following:

1. Common or preferred shares of foreign corporations listed and traded on nationally recognized exchanges or over-the-counter markets.

2. Convertible bonds, debentures, or preferred shares which are convertible into corporate stock.

3. Futures, covered options or any other derivative investments may be used for hedging or defensive purposes only. Use of these investments to leverage the portfolio is prohibited.

Derivatives

Derivatives may be used for the following purposes:

• Hedging purposes
• Equitizing cash
• Effecting asset allocation changes
• Enhancing return
• Reducing volatility
• Reducing transaction costs
• Reducing or eliminating exchange rate risk

Derivatives may not be used for the following purposes:

• Providing leverage
• Gaining exposure to interest rates
• Increasing volatility

Prohibited Investments

Securities specifically prohibited from purchase are:

1. Stock in non-public corporations, private placement, or any other non-marketable issues.

2. Letter or restricted stock.

3. Short sales of any type.

4. Share purchases involving the use of margin.

Other Investment Guidelines

1. Concentration per equity issuer cannot exceed 7.5% of the portfolio market value, with the exception of cash, cash-equivalent, U.S. Treasury or Agency securities.

2. Currency hedging for defensive purposes is permitted. Total currency hedging may not exceed 50% of the total value of the portfolio and no more than 100% of any individual currency exposure.

3. The fund will not invest more than 10% of its assets in securities which are not readily marketable.

4. Forward contracts may be used to defensively hedge currency risk of existing exposure.

5. No individual holding shall comprise more than 2% of the outstanding voting stock or more than 2% of all outstanding shares of all classes of stock of the issuer (assuming all conversions have been made).

6. The investment style of the international equity portfolio will focus on growth-oriented investments.

7. At least 80% of assets, valued at market, should be invested in the equity securities of companies in developed countries other than the U.S. Investment in emerging market countries is limited to 20% of the total market value of the portfolio. The portfolio should be broadly diversified by country. Investment in a single country or geographic region is not permitted.

8. The portfolio should be well diversified and contain a minimum of twenty different securities.

International Value Equities

Performance Standard

Horizon	Index	Universe
Rolling 3 and 5-year periods	Exceed the MSCI ACWI Ex-U.S. Value Index	Rank in the upper half of the International Value Equity Universe

While not explicitly stated as a performance standard, risk-adjusted performance of the portfolio will be measured by the information ratio over the periods specified above. The information ratio is calculated by dividing the portfolio excess return (alpha) by the portfolio’s tracking error relative to the index. It is expected that if the volatility of the portfolio (a measure of risk) is greater than that of the benchmark then a commensurate amount of value added above the benchmark is achieved. This will be reflected by an improvement in the portfolio’s information ratio.

Permissible Investments

Permissible investments shall be defined as the following:

1. Common or preferred shares of foreign corporations listed and traded on nationally recognized exchanges or over-the-counter markets.

2. Convertible bonds, debentures, or preferred shares which are convertible into corporate stock.

3. Futures, covered options or any other derivative investments may be used for hedging or defensive purposes only. Use of these investments to leverage the portfolio is prohibited.

Derivatives
Derivatives may be used for the following purposes:

• Hedging purposes
• Equitizing cash
• Effecting asset allocation changes
• Enhancing return
• Reducing volatility
• Reducing transaction costs
• Reducing or eliminate exchange rate risk

Derivatives may not be used for the following purposes:

• Providing leverage
• Gaining exposure to interest rates
• Increasing volatility

Prohibited Investments

Securities specifically prohibited from purchase are:

1. Stock in non-public corporations, private placement, or any other non-marketable issues.

2. Letter or restricted stock.

3. Short sales of any type.

4. Share purchases involving the use of margin.

Other Investment Guidelines

1. Concentration per equity issuer cannot exceed 7.5% of the portfolio market value, with the exception of cash, cash-equivalent, U.S. Treasury or Agency securities.

2. Currency hedging for defensive purposes is permitted. Total currency hedging may not exceed 50% of the total value of the portfolio and no more than 100% of any individual currency exposure.

3. The fund will not invest more than 10% of its assets in securities which are not readily marketable.

4. Forward contracts may be used to defensively hedge currency risk of existing exposure.

5. No individual holding shall comprise more than 2% of the outstanding voting stock or more than 2% of all outstanding shares of all classes of stock of the issuer (assuming all conversions have been made).

6. The investment style of the international equity portfolio will focus on value-oriented investments.

7. At least 80% of assets, valued at market, should be invested in the equity securities of companies in developed countries other than the U.S. Investment in emerging market countries is limited to 20% of the total market value of the portfolio. The portfolio should be broadly diversified by country. Investment in a single country or geographic region is not permitted.

8. The portfolio should be well diversified and contain a minimum of twenty different securities.

Emerging Markets Index

Performance Standard

Horizon	Index1	Universe
Rolling 3 and 5-year periods	Match the MSCI Emerging Markets Index	N/A

¹Net of effect of expense ratio.

Some tracking error may occur as a result of rebalancing, corporate actions, reconstitution of the index, and management fees.

Permissible Investments

Permissible investments shall be defined as the following:

1. Common or preferred shares of foreign corporations and Real Estate Investment Trusts (REITs) or REIT equivalent structures in the MSCI Emerging Markets Index which are listed and traded on nationally recognized exchanges or over-the-counter markets.

2. Depository receipts and exchange traded funds listed and traded on nationally recognized exchanges or over-the-counter markets.

3. Futures, covered options or any other derivative investments may be used for hedging or defensive purposes only. Use of these investments to leverage the portfolio is prohibited.

Prohibited Investments

Securities specifically prohibited from purchase are:

1. Stock in non-public corporations, private placement, or any other non-marketable issues.

2. Letter or restricted stock.

3. Short sales of any type.

4. Share purchases involving the use of margin.

Fixed Income Core Opportunistic

Performance Standard

Horizon	Index1	Universe
Rolling 3 and 5-year periods	Exceed the Lehman Aggregate Index	For Mutual Funds: Rank in the upper half of the US Fixed Income Combined Mutual Fund Universe For Separately Managed Accounts or Pooled Commingled Funds: Rank in the upper half of the US Fixed Income Core Opportunistic Universe

¹Net of effect of expense ratio.

While not explicitly stated as a performance standard, risk-adjusted performance of the portfolio will be measured by the information ratio over the periods specified above. The information ratio is calculated by dividing the portfolio excess return (alpha) by the portfolio’s tracking error relative to the index. It is expected that if the volatility of the portfolio (a measure of risk) is greater than that of the benchmark then a commensurate amount of value added above the benchmark is achieved. This will be reflected by an improvement in the portfolio’s information ratio.

Permissible Investments

Permissible investments shall be defined as the following:

1. Cash equivalent securities include but are not limited to interest bearing or discount instruments such as money market funds; U.S. Treasury bills; corporate-issued commercial paper; bank-issued certificates of deposits; bankers’ acceptances; and repurchase agreements fully collateralized by U.S. Treasury or Agency securities.

2. U.S. Treasury notes, bonds, and STRIPs (e.g., zero-coupon bonds)

3. Government agencies and instruments (discount notes, debentures, mortgage-backed securities*)

4. Corporate bonds, notes, debentures, asset-backed securities, and “144A” bonds.

5. Yankee and Eurodollar bonds, notes, and “144A” bonds.

6. U.S. Non-Agency mortgage-backed securities*.

7. U.S. dollar denominated sovereign or supra-national fixed income securities.

8. Non-U.S. dollar denominated fixed income securities.

All of the above can be either fixed, variable, or floating rate.
*Mortgage-Backed Securities

1. Pass-through certificates either issued or guaranteed by GNMA, FNMA, or FHLMC.

2. Pass-through certificates issued by non-agency or commercial mortgage issuers.

3. CMOs/REMICs that pass the Federal Financial Institutions Examination Council (FFIEC) test.

Prohibited Investments

Securities specifically prohibited from purchase are:

1. CMO residuals and support tranches.

2. Stripped mortgage-related securities (interest-only strips- “IOs”, principal-only strips- “POs”) both generic and prepayment protected.

3. Leveraged floaters and inverse floaters, including money market obligations.

4. Tiered-index bonds range notes and all other forms of structured notes whose return characteristics are tied to changes in prepayments on mortgages or changes in a specified interest rate index or market rate.

5. The investment manager’s own securities or securities of any of its affiliates.

Other Investment Guidelines

1. Up to 20% of the portfolio may be invested in securities classified as non-investment grade, i.e., rated BB+ or lower by S&P, BB+ or lower by Fitch or Ba1 or lower by Moody’s, by two of the three rating agencies. If a security is rated by only two of the agencies, the lowest rating will apply. Securities rated below B- by S&P, B- by Fitch or B3 by Moody’s are prohibited.

2. If a purchased security is downgraded by two of the three rating agencies to below B- (S&P)/B- (Fitch)/B3 (Moody’s), the investment manager shall notify the university controller and investment consultant for consultations on possible disposition of such issue.

3. Securities denominated in foreign currencies are limited to 20% of the core opportunistic fixed income portfolio.

4. Concentration per fixed income issuer cannot exceed 7.5% of the portfolio market value, with the exception of cash, cash-equivalent, U.S. Treasury or Agency securities (discount notes, debentures, and pass-throughs). Furthermore, investment managers may not hold more than 5% of the outstanding debt of any single issuer within this portfolio with the exception of U.S. Treasuries or Agencies (discount notes, debentures, and pass-throughs).

5. Debt and other private placement issues are limited to a maximum of 5% of the fixed income portfolio market value.

6. No options or futures will be purchased or sold on debt instruments.

7. Rated cash and cash-equivalent securities must be rated in the highest short-term rating category by a majority of the NRSROs assigning a rating to that issue, such as “A1” by S&P, “F1” by Fitch or “P1” by Moody’s. In the case of two ratings, the lowest rating applies and must be in the highest short-term category.

8. All holdings should be of sufficient size and held in issues, which are traded with sufficient frequency to facilitate transactions at minimum cost and accurate market valuation.

Alternative Investments - Hedge Fund of Funds

Performance Standard

Horizon	Index1	Universe
Rolling 3 and 5-year periods	Absolute return goal of at least 8-10% annually while limiting standard deviation to that of the Lehman Aggregate Index	N/A

¹Net of effect of all fees.

Permissible Investments

Permissible investments shall be defined by the investment manager according to the strategy specified for the fund.

Prohibited Investments

Securities specifically prohibited from purchase are specified by the investment managers to include, but are not limited to:

1. Global/macro strategies.

2. Statistical arbitrage.

3. Commodities.

4. Leveraged currencies.

5. Non-predictable “black box” strategies.

Other Investment Guidelines

The investment manager will endeavor to invest in a diversified group of relative value and risk-controlled strategies. Upon full capital commitment to the Fund, 35-45 managers/different strategies are expected.

Alternative Investments – Real Estate

Performance Standard

Horizon	Index1	Universe
Rolling 3 and 5-year periods	Exceed the NCREIF Property Index	N/A

¹Net of effect of all fees.

While not explicitly stated as a performance standard, risk-adjusted performance of the portfolio will be measured by the information ratio over the periods specified above. The information ratio is calculated by dividing the portfolio excess return (alpha) by the portfolio’s tracking error relative to the index. It is expected that if the volatility of the portfolio (a measure of risk) is greater than that of the benchmark then a commensurate amount of value added above the benchmark is achieved. This will be reflected by an improvement in the portfolio’s information ratio.

Permissible Investments

Permissible investments shall be defined as the following:

A. Private real estate equity, equity-oriented debt, mortgages, construction loans, mezzanine debt on real estate, and private investment vehicles in such investments designed for tax-exempt investors. All investments will be located in the U.S.

Other Investment Guidelines

The emphasis of the fund will be on investments in the operating stage of their life cycle; however, equity investments in the development, leasing, and redevelopment stages may also be considered in minority positions in the portfolio. The investment manager will endeavor to invest in a group of properties diversified by sector type and geographical region.

Alternative Investments - Commodities

Performance Standard

Horizon	Index1	Universe
Rolling 3 and 5-year periods	Exceed the DJ-AIG Commodity Index	N/A

¹Net of effect of all fees.

Permissible Investments

Permissible investments shall be defined by the investment manager according to the strategy specified for the fund but generally include commodity index futures contracts and swaps, individual commodity and short- to intermediate-term fixed income securities.

Prohibited Investments

• Use of leverage.
• Short sales of any type.

Other Investment Guidelines

• The investment manager will endeavor to invest in a group of commodity investments diversified by sector (e.g., agriculture, energy, livestock, and metals).
• The investment manager will fully collateralize each position.
• The collateral must be invested in a short- to intermediate-duration fixed income portfolio with an overall weighted average quality of A (S&P)/A (Fitch)/A2 (Moody’s) or better.

IV. Trading and Brokerage Policy

All trading of securities by investment managers will be placed with institutional broker-dealers, including the use of electronic crossing networks (ECNs), with the aim of obtaining the best price and best execution, taking into account all factors influencing pricing and execution, as well as the value of all brokerage services received for the benefit of the SUEF. The policy of best price and best execution is intended to mean that investment managers shall use professional judgment in the selection of brokers and the commissions paid. Investment managers should be prepared to provide evidence that they are attempting to deliver investment results at the lowest possible level of transaction costs, including the market impact of their trades, and considering the value of all services provided to the SUEF for its commission dollars. “Institutional broker-dealers”, as referenced herein, means firms which customarily perform larger trades for an institutional clientele. Such broker-dealers may trade on the floor of the various national and regional stock exchanges, or may trade in the third and fourth markets, performing transactions outside of normal market trading. In addition, the SUEF may use brokerage services of its custodian bank to effect the purchase and sale of exchange-traded funds or mutual funds to implement the investment polices of the SUEF.

On or after June 30 of each year, each investment manager shall provide the university controller with a report which details the names and addresses of the brokerage firms and/or ECNs used by the investment manager during the preceding fiscal year to execute purchases, sales, and exchanges of securities under management for the SUEF. This report shall also contain: the total number and percentage of all transactions directed to each such firm and/or ECN; the aggregate dollar amount and percentage of such activity by category; and the total fees paid to the brokerage firm and/or ECN and the average cost per transaction.

A. Soft Dollar Policy

No investment manager shall enter a soft-dollar arrangement for trades on behalf of the SUEF for the payment of third party services without the prior written approval of the university controller. In the event an investment manager receives soft dollars, these monies shall be used for the benefit of the SUEF and not for the benefit of the investment manager’s firm. Investment managers will be required to furnish to the university controller, upon request, a report detailing their soft dollar activity and must include: broker name, total commissions paid, effective aggregate commission rate, multiple or conversion ration, services acquired, uses of such services, and types of clients benefiting from these services. The investment managers shall be governed by the Soft Dollar Policy of the Chartered Financial Analyst (CFA) Institute.

B. Commission Recapture Policy

The Committee may require that investment managers participate in a Commission Recapture Arrangement. An investment manager may be exempt based on factors such as: ability to achieve best execution, investment style, assets under management and external research requirements. It is expected and understood that the specific target level of direction should not interfere with the investment managers’ ability to achieve best execution. Funds generated under the Commission Recapture Agreement will be applied to operating expenses incurred by the SUEF. Investment managers participating in a Commission Recapture Arrangement are required to send to the university controller, on a quarterly basis, reports detailing the level of commission recapture activity.

C. Transition Management

To minimize the transaction costs and market impact of the transfer of assets when terminating or hiring investment managers with separately managed accounts, the SUEF may use the services of a transition manager. The transition manager will seek to identify and manage the risks and costs of the asset transfer, providing an estimate in advance and a report after execution which outlines the actual transaction costs compared with the estimate.

D. Proxy Voting

Unless instructed otherwise by the State University, each investment manager is empowered to vote all proxies for securities held by the SUEF portfolio for which they are responsible. On or after June 30 of each year, each investment manager shall provide the university controller with a report detailing the results of the proxy voting.

E. Social Investing

The Board may, from time to time, restrict the investment (both direct and indirect) in companies that manage operations in a line of business or conduct business in geographic regions of the world that present social concerns to the Board (e.g., human rights, environmental issues, unfair business or labor practices, etc.).


V. Selection, Evaluation, and Review

A. Review of Overall Program

The Committee, with the assistance of the university controller and the investment consultant, will review the overall investment program on an ongoing basis. Key issues reviewed will include the following:

• Current trends and developments in the capital markets and manager community.
• Changes in the SUEF’s financial goals.
• The ongoing appropriateness of the objectives and guidelines included herein.
• Performance of investment managers, custodian, and investment consultant.

The university controller and the Committee will also review the performance of the investment managers, custodian, and investment consultant to determine whether they have performed in accordance with their stated investment approaches and responsibilities.

B. Reporting Requirements – Investment Managers

On a quarterly basis, each investment manager will be expected to provide the following:

• A written review of their investment performance and portfolio structure.
• A synopsis of their key investment decisions, their underlying rationale and expected future implications.
• An organizational update, including a report on any and all changes in organizational structure, staffing, investment processes and strategies, and asset base.
• A report on the compliance with SUEF guidelines.
• Spreadsheets of asset holdings.

Investment managers will be required to meet with the Committee, the university controller, or investment consultant, as requested. Additionally, managers need to report on any activity that would cause an inability to comply with these Guidelines.

C. Reporting Requirements – Custodian

On a monthly and annual basis, the custodian will be expected to provide the following:

• Written accounting statements for the SUEF, including summary and detailed asset positions and transactions, based on accurate security values both for cost and market value.
• Calculations of time-weighted returns each month for requested time periods by the University.

D. Reporting Requirements – Investment Consultant

On a quarterly basis, the investment consultant will be expected to provide a written review of the performance of the SUEF, which includes the following:

• A summary of the economic and market environment.
• The total market value of the SUEF and the portion of assets allocated to each investment manager as of the last business day of the most recent calendar quarter.
• Time-weighted rates of return on an absolute and risk-adjusted basis over various time periods and relative to the performance standards outlined in Section 4.
• Average portfolio characteristics for each investment manager as of the last business day of the most recent calendar quarter.
• Affirm investment managers’ adherence to stated investment policies, objectives and/or style; identify any material deviations from stated investment policies, objectives and/or style.
• Notification of any reported material changes affecting the investment managers’ firms.

E. Guidelines for the Selection, Review, and Termination of Investment Managers, Custodian, and Investment Consultant

1. Selection Process

In selecting investment managers, custodian, and investment consultant to meet the needs of the SUEF, a specific process of selection and evaluation of candidate firms is followed. In this process, the University will follow the State’s and its procurement policies, rules and practices. This includes a competitive process through the issuance of a request for proposal (RFP) to secure these services. Candidate organizations for a given role are identified according to criteria established by the Committee and the university controller. Evaluation of organizations includes an analysis of organizational structure, professional personnel, investment philosophy and process, portfolio characteristics, fees, and performance, as well as the ability to adequately serve the University’s specific needs.

The selection of an investment manager also considers the correlation with other existing investment managers in the program, and with the defining market index for the role. Consideration is given to the benefits of diversification within a role by investment style or focus.

Candidate organizations as identified, including those meeting minimum qualifications through the open bidding process, must pass through a due diligence and qualification process. Once qualified, scoring workbooks will be prepared by University staff for each candidate firm. A score will be developed for each firm based upon the specific factors as outlined in the University-prepared Request for Proposal. The university controller and University staff with the assistance of the investment consultant will nominate the highest scoring and most appropriate firm(s) for final consideration by the Committee, and generally after a formal presentation by one or more candidate organizations. The Committee will then recommend a firm or firms to the full Board for appointment.

2. Review and Termination Process – Investment Managers

Investment managers may be placed on “watch” status, replaced or terminated whenever the Committee loses confidence in the management of the strategy, when the characteristics of the portfolio no longer satisfy the desired or expected elements of the mandate, or the current style is no longer deemed appropriate by the Committee. The following are some examples of reasons that may cause the Committee to lose confidence in a manager:

• Change in organizational structure or personnel
  A significant change in culture through a merger or acquisition that is likely to distort incentives and promote turnover; or if the investment team leaves the firm;
• Changes in strategy
  If the manager departs from the strategy and/or style that they were originally hired to implement; such as a switch from a quantitative process to a fundamental one; and
• Performance
  Continued performance shortfalls versus a peer group of managers with similar style and/or a market index.

The investment consultant will provide recommendations relating to investment managers, which may fall into any one of the following three categories:

• Retain
  The investment consultant or university controller has confidence in the investment manager’s ability to add value in the future. The investment manager’s investment performance is satisfactory and there are no organizational and strategy issues of significant concern.
• Place on Watch
  The investment manager’s investment performance is not satisfactory and/or issues relating to the organization or strategy are of concern. Should the investment manager’s strategy be specifically rated by the investment consultant, a downgrade would likely signal the need for a watch period. More detailed guidelines for placing investment managers on watch, beyond a downgrade by the investment consultant, are described in the following sections.
• Terminate
  The investment consultant or university controller does not have confidence in the investment manager’s ability to add value over a benchmark in the future. The investment consultant or university controller may recommend the termination of a manager if there are significant concerns relating to the organization or strategy.

The Committee will review the investment consultant’s or university controller’s recommendation to either place an investment manager on watch or terminate a relationship. Managers will generally be placed on watch status for a period of time before a decision to terminate the relationship is made. There may be, however, circumstances under which the Committee may determine to terminate a manager without placing them on watch first.
An investment manager may be placed on watch after consideration is given to the following factors:

• A downgrade in research rating by the investment consultant may not necessarily result in a recommendation to place an investment manager on watch. The recommendation will be made at the discretion of the investment consultant and university controller after consideration of additional factors such as market conditions, style cycles, transition costs, timing and circumstances relating to the rest of the SUEF portfolio.
• The investment manager or strategy may no longer fit the desired portfolio structure. This may reflect a revision of the desired portfolio structure due to other factors such as changes in asset allocation and/or risk profile.
• An investment manager that underperforms both the median in the peer universe and market index over the most recent three-year period may be considered for placement on watch status.
• The investment manager may also be placed on watch within a lesser period if the strategy deviates from the universe and benchmark dramatically and in a manner that would not have been expected given the tracking error expectations of the strategy.
• Any gross negligence, willful misconduct, investment policy violation or breach of federal and state securities laws.
• The investment consultant, university controller, and Committee’s conclusion for any other reason that a heightened review of the investment manager is warranted.

The watch period may be established for as many as three quarters, for a maximum one-year total watch duration.

• Within one quarter from the time an investment manager is placed on watch, the university controller or Committee may interview the investment manager to determine if performance is suitably explainable and may continue to watch performance over the remainder of the three quarters watch-period.
• If at the end of the watch-period, performance has improved to above-benchmark or above-median over a market cycle, the investment manager may be removed from the watch list.
• If at the end of the watch period the investment manager is under-performing both objectives, (in effect, four consecutive rolling time periods of non-compliance) the Committee may do the following:
  
  
  1. Immediately terminate the manager.
  2. Begin a search for a replacement manager and extend the watch period.
  3. Interview the investment manager again to determine if performance is suitably explainable and an upward trend in relative performance has developed, or is expected, and continue the watch-period for some specified number of quarters.

Other Considerations:
• The Committee may also consider the impact of the investment manager’s style and that style cycles can persist for periods longer than three years.
• Consistency of performance as represented by rolling three-year performance versus benchmarks and peer groups will be considered. The Committee may also consider an investment manager’s pattern of past performance in various markets in applying criteria for watch and termination.
• Risk-adjusted returns as represented by the information ratio, relative to an appropriate peer group may be considered in addition to absolute performance.

3. Review and Termination Process – Custodian

Custodians may be placed on “watch” status, replaced or terminated whenever the Committee loses confidence in the management of the SUEF’s custodial account or when the quality and/or level of service no longer satisfies the needs of the SUEF. The following are some examples of reasons that may cause the Committee to lose confidence in a custodian:

• Change in organizational structure or personnel
  A significant change in culture through a merger or acquisition that is likely to distort incentives and promote turnover.
• Performance
  Continued unsatisfactory levels of service including accuracy and timing of deliverables.

If the Committee or university controller loses confidence in the custodian, for any reason, the investment consultant may be retained to perform an evaluation/diagnostic on the custodian and its services to the SUEF. The investment consultant will provide recommendations in its report relating to custodians, which may fall into any one of the following three categories:

• Retain
  The investment consultant has confidence in the custodian’s ability to perform satisfactorily in the future. The custodian’s performance and service levels are satisfactory and there are no organizational issues of significant concern.
• Place on Watch
  The custodian’s performance and service levels are not satisfactory and/or issues relating to the organization are of concern. More detailed guidelines for placing custodians on watch are described in the following sections.
• Terminate
  The investment consultant or university controller does not have confidence in the custodian’s ability to perform or service the SUEF satisfactorily in the future. The investment consultant or university controller may recommend the termination of a custodian if there are significant concerns relating to the organization.

The Committee will review the investment consultant’s and/or university controller’s recommendation to either place a custodian on watch or terminate a relationship. A custodian will generally be placed on watch status for a period of time before a decision to terminate the relationship is made. There may be, however, circumstances under which the Committee may determine to terminate a custodian without placing them on watch first.

A custodian may be placed on watch after consideration is given to the following factors:

• The quality and/or level of service no longer satisfies the needs of the SUEF.
• Any gross negligence, willful misconduct, investment policy violation or breach of federal and state securities laws.
• The investment consultant, university controller, and Committee’s conclusion for any other reason that a heightened review of the custodian is warranted.

The watch period may be established for as many as three quarters, for a maximum one-year total watch-duration.

• If at the end of the watch period, performance and service levels have improved to a satisfactory level, the custodian may be removed from the watch list.
• If at the end of the watch period the custodian is under-performing its objectives or providing service at an unsatisfactory level, the Committee may do the following:
  
  
  1. Begin a search for a replacement custodian and extend the watch period.
  2. Interview the custodian again to determine if past concerns are suitably explainable, and continue the watch period for some specified number of quarters.

4. Review and Termination Process – Investment Consultant

Investment consultants may be placed on “watch” status, replaced or terminated whenever the Committee loses confidence in the investment consultant or when the quality and/or level of service no longer satisfies the needs of the SUEF. The following are some examples of reasons that may cause the Committee to lose confidence in an investment consultant:

• Change in organizational structure or personnel
  A significant change in culture through a merger or acquisition that is likely to distort incentives and promote turnover; or if the consulting team leaves the firm;
• Performance
  Continued unsatisfactory levels of service including accuracy and timing of deliverables and/or inability to provide value-added investment advice.

If the Committee or university controller loses confidence in the investment consultant, for any reason, the Committee will request the university controller meet with, review, and provide a recommendation on the investment consultant. The Committee will review the university controller’s recommendation to either place the investment consultant on watch or terminate a relationship. Investment consultants will generally be placed on watch status for a period of time before a decision to terminate the relationship is made. There may be, however, circumstances under which the Committee may determine to terminate an investment consultant without placing them on watch first.
An investment consultant may be placed on watch after consideration is given to the following factors:

• The quality and/or level of service no longer satisfies the needs of the SUEF.
• Any gross negligence, willful misconduct, investment policy violation, or breach of federal and state securities laws.
• The university controller and Committee’s conclusion for any other reason that a heightened review of the investment consultant is warranted.

The watch period may be established for as many as three quarters, for a maximum one-year total watch duration.

• If at the end of the watch period confidence in the investment consultant has improved, the investment consultant may be removed from the watch list.
• If at the end of the watch period confidence in the investment consultant has not improved the Committee may do the following:
  
  
  1. Immediately terminate the investment consultant.
  2. Begin a search for a replacement investment consultant and extend the watch period.
  3. Interview the investment consultant again to determine if past concerns are suitably explainable, and continue the watch period for some specified number of quarters.

There are no forms relevant to this procedure.

There are no related procedures relevant to this procedure.

There is no other information relevant to this procedure.

There is no authority relevant to this procedure.

 

State University of New York Board of Trustees Resolution No. 07-144, adopted May 13, 2008.

State University of New York Board of Trustees Resolution No. 06-140, adopted September 26, 2006.

State University of New York Board of Trustees Resolution No. 05-167, adopted November 9, 2005.

State University of New York Board of Trustees Resolution No. 05-167, adopted November 9, 2005 approved revision to the State University of New York’s Investment Objectives and Guidelines by adding Fitch Ratings as a rating service for the fixed income portfolios.

State University of New York Board of Trustees Resolution No. 05-69, adopted April 12, 2005 approved investment the S&P 500 Index strategy through the Vanguard Institutional Index Fund.

State University of New York Board of Trustees Resolution No. 05-68, adopted April 12, 2005 approved revision to the State University of New York’s Investment Objectives and Guidelines by placing a restriction on investments in U.S. equities portfolios.

State University of New York Board of Trustees Resolution No. 04-152, adopted December 14, 2004 approved revisions to the State University of New York’s Investment Objectives and Guidelines by placing restrictions on investments in U.S. equities portfolios and clarifying investments of Real Estate investment Trusts (REITs) and security trades.

State University of New York Board of Trustees Resolution No. 04-131, adopted September 14, 2004 retained the services of Lord Abbett & Company as manager of a large cap growth equity portfolio.

State University of New York Board of Trustees Resolution No. 04-130, adopted September 14, 2004 retained the services of Pzena investment management, LLC as manager of a large cap growth equity portfolio.

State University of New York Board of Trustees Resolution No. 04-129, adopted September 14, 2004 retained the services of Waddell & Reed Asset management Group as manager of a large cap growth equity portfolio.

State University of New York Board of Trustees Resolution No. 04-128, adopted September 14, 2004 retained the services of Ark Asset management Company as manager of a large cap growth equity portfolio.

State University of New York Board of Trustees Resolution No. 04-127, adopted September 14, 2004 approved revisions to the State University of New York’s Investment Objectives and Guidelines by changing the target allocation for the mid cap equity strategy and the target allocation for the S & P 500 Index.

State University of New York Board of Trustees Resolution No. 03-110, adopted October 28, 2003 approved revisions to the State University of New York’s Investment Objectives and Guidelines by eliminating the passive fixed income strategy and changing the measurement index for the international equity strategy from the Europe/Middle East, and Asia/Pacific Index to the All Country World Index.

State University of New York Board of Trustees Resolution No. 02-63, adopted May 21, 2002 authorized the chair of the Investment Committee and the vice chancellor for finance and business to take appropriate action to secure the services of Mercer Investment Consulting to provide investment management consultant services with respect to the administration and management of the State University Endowment Fund, the 403(b) (7) program and the optional retirement program.

State University of New York Board of Trustees Resolution No. 02-62, adopted May 21, 2002 approved revisions to the State University of New York’s Investment Objectives and Guidelines and the reallocation of Endowment Fund assets.

State University of New York Board of Trustees Resolution No. 00-57, adopted April 25, 2000 authorized the chair of the Investment Committee and the vice chancellor for finance and business to take preliminary action for the development, establishment, and administration of a custodial account program for the benefit of employees of the State University of New York and community colleges under the program of the State University.

State University of New York Board of Trustees Resolution No. 97-99, adopted June 24, 1997 approved continuation of current allocation of assets of the State University Endowment Fund through September 30, 1997 pending further consideration by the Investment Committee.

State University of New York Board of Trustees Resolution No. 97-98, adopted June 24, 1997 authorized the chair of the Investment Committee and the University controller to take appropriate action to secure the services of Mercer Investment Consulting, Inc.

State University of New York Board of Trustees Resolution No. 97-33, adopted February 25, 1997 revised the State University of New York’s Investment Objectives and Guidelines with respect to the reinvestment of Endowment Fund income and the credit classification of certain fixed income securities and to permit and regulate investment of a portion of the Endowment Fund in international equity securities.

State University of New York Board of Trustees Resolution No. 95-55, adopted April 25, 1995 approved the retention of a small cap value equity manager and a large cap value equity manager.

State University of New York Board of Trustees Resolution No. 94-186, adopted November 15, 1994 authorized the chair of the Investment Committee and the senior vice chancellor to take appropriate action to secure the services of Fidelity management Trust Company as growth equity investment manager.

State University of New York Board of Trustees Resolution No. 94-29, adopted March 15, 1994 approved recommendation of the Investment Committee to secure the services of United States Trust Company as master custodian for the State University of New York Endowment Fund.

State University of New York Board of Trustees Resolution No. 94-1, adopted January 27, 1994 approved the recommendation of the Investment Committee to remove the ban on investing SUNY endowments in securities and other financial instruments issued by South African governmental units, companies and other institutions doing business in South Africa.

State University of New York Board of Trustees Resolution No. 93-207, adopted September 23, 1993 approved recommendation of the Investment Committee to retain Alliance Capital management, L.P., and Bankers Trust Company to provide for fixed income investment management and revise the State University’s Investment Objectives and Guidelines.

State University of New York Board of Trustees Resolution No. 92-239, adopted November 18, 1992 approved revisions to the State University’s Investment Objectives and Guidelines, approved an “Addendum to The State University of New York Statement of Investment Objectives and Guidelines For International Securities,” and authorized the chair of the Investment Committee and the senior vice chancellor to secure the services of Scudder, Stevens and Clark as international equities managers.

State University of New York Board of Trustees Resolution No. 88-249, adopted November 16, 1988 approved revisions to the State University of New York Statement of Investment Objectives and Guidelines.

State University of New York Board of Trustees Resolution No. 85-215, adopted October 23, 1985, amends the State University of New York Statement of Investment Objectives and Guidelines to modify the limit on the percentage of stocks listed on the New York Stock Exchange and revise the sequence of information presented in fund reviews.

State University of New York Board of Trustees Resolution No. 82-143, adopted May 26, 1982, recommended adoption of comprehensive State University of New York Statement of Investment Objectives and Guidelines and the selection of new investment advisors.

State University of New York Board of Trustees Resolution No. 81-144, adopted September 27, 1981 approved the recommended review and assessment of endowment investment management.

State University of New York Board of Trustees Resolution No. 78-312, adopted December 20, 1978 replaced, but continued the responsibilities of, the Committee for investment management with the Committee on Budget, Investment and Capital Program including reporting to the Board of Trustees. Additionally, the vice chancellor for finance and business was authorized to take all actions to make and change investments of funds and to do such acts and to execute and deliver instruments and documents on behalf of the University pursuant to the administration of investment management.

State University of New York Board of Trustees Resolution No. 65-279, adopted October 14, 1965, amended and modified provisions of the Committee for investment management and authorized the vice president for business affairs, and assistant vice president, to execute and deliver instruments and documents on behalf of the University pursuant to the administration of investment management.

State University of New York Board of Trustees Resolution No. 65-71, adopted April 8, 1965 established a Committee for investment management to consist of three Trustees.

State University of New York Board of Trustees Resolution No. 63-131, adopted June 13, 1963, repealed Resolution No. 59-23 and authorized the Executive Committee, with a Sub-Committee for investment management, to act in name of the State University of New York and on behalf of the Board in management of endowment and other funds held on behalf of the State University or of any institution.

State University of New York Board of Trustees Resolution No. 59-23, adopted March 12, 1959 designated the Committee on investments as a standing committee of the Board of Trustees.

There are no appendices relevant to this procedure.