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Investment Management Procedure

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Section 1 - Preamble

(1) This Procedure is effective from 24 April 2024.

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Section 2 - Purpose

(2) This Procedure outlines how the University will effectively manage and incorporate investment principles and responsible investment into its investment function.

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Section 3 - Scope

(3) This Procedure applies to the investment function of the University monitored by the Investment Committee.

(4) This Procedure does not apply to any equity investments in controlled or associated entities of the University.

(5) This Procedure does not apply to the management of financial risks addressed by Treasury policy.

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Section 4 - Policy

(6) This Procedure is pursuant to the Investment Policy.

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Section 5 - Roles and Responsibilities

(7) Council

  1. Deciding, reviewing and monitoring the purpose of the Operational Fund, Future Fund and the Endowment Fund.
  2. Deciding, reviewing and monitoring the investment objectives of the Operational Fund, Future Fund and the Endowment Fund, at least annually.
  3. Approving transfers into and instructing transfers out of the Future Fund.

(8) Investment Committee

  1. Recommending the purpose and investment objectives of the Future Fund to Council.
  2. Deciding, reviewing and reporting on the Investment Policy and Investment Management Procedure to Council.
  3. Deciding, reviewing and monitoring the Strategic Asset Allocation (SAA) of the Future Fund.
  4. Deciding, reviewing and monitoring the Dynamic Asset Allocation (DAA) and rebalancing of the Future Fund.
  5. Reviewing the Future Fund’s level of liquidity relative to the SAA.
  6. Deciding, reviewing and monitoring the Responsible Investment Principles as set out in the Investment Policy.
  7. Deciding and reviewing the portfolio construction of the Future Fund.
  8. Deciding external investment manager appointments and terminations.
  9. Deciding, reviewing and monitoring of external investment managers and other service providers (including the fees paid to service providers).
  10. Determining matters escalated from the Office of the Chief Financial Officer relating to operational management of investments. 
  11. Considering updates from the Vice-Chancellor and or the Deputy Vice-Chancellor, University Services on the University strategies where they may have an influence over decisions relating to the Future Fund.
  12. Deciding and reviewing the impacts of instructed Permanent Strategic Opportunity Transfers from the Future Fund. 

(9) Office of the Chief Financial Officer

  1. Implementing the Operational Fund, Future Fund and the Endowment Fund’s purpose and reporting to Council.
  2. Implementing the Investment Committee's decisions with regards to investment objectives, SAA and DAA, Responsible Investment Principles, portfolio construction and reporting to the Investment Committee.
  3. Advising on the operational implications for Deakin when implementing external investment manager appointments and terminations and rebalancing decisions, with reporting to the Investment Committee.
  4. Deciding matters related to the operational management of investments. The following issues must be escalated to the Investment Committee for approval:
    1. Proposed changes to Future Fund investment management fees (quantum or structure).
    2. Any proposed changes requiring University action or approval that may have a financial impact to the Future Fund.
    3. Any other proposed changes as deemed necessary by the Chief Financial Officer.
  5. Implementing decisions made in relation to performance reviews, including service provider reviews and fees paid, with reporting to the Investment Committee.
  6. Advising on implications of strategic decisions in conjunction with the annual budget process to Council regarding valuation impacts on the Future Fund and the Endowment Fund.
  7. Deciding, reviewing and monitoring the use of Future Fund cash for University operating purposes.
  8. Advising on the impacts of Permanent Strategic Opportunity Transfers from the Future Fund.
  9. Reviewing advice and reports, including responsible investment from the external investment advisor prior to submission to the Investment Committee.
  10. Reporting to the Investment Committee on responsible investment progress and activities.
  11. Assessing and reporting of the external investment adviser’s capabilities in providing responsible investment research and advice to the Investment Committee.

(10)  External Investment Advisor

  1. Recommending SAA and DAA positions (via rebalancing) for the Future Fund to the Investment Committee.
  2. Recommending portfolio construction, external investment manager appointments and/or terminations, including implementation considerations to the Investment Committee for approval.
  3. Reviewing and monitoring external investment managers and DAA/rebalancing decisions.
  4. Reviewing and monitoring the performance of external investment managers.
  5. Reviewing implementation considerations and provision of advice to the Office of the Chief Financial Officer.
  6. Reviewing, reporting and providing advice on the University’s incorporation of responsible investment.
  7. Reviewing and monitoring the incorporation of responsible investment by external investment managers.
  8. Reviewing the investment universe and providing recommendation on investment manager selection, appointment and terminations, which includes where appropriate, the assessment of the investment manager’s approach and incorporation of responsible investment philosophy.

(11) External Investment Managers

  1. Implementing investments to the asset classes and sub-sector strategies specified by Deakin.
  2. Implementing the responsible investment practices in accordance with responsible investment objectives.
  3. Reporting on the performance of the investments and integration of RI progress as requested by Deakin.
  4. Undertaking stewardship activities on Deakin’s behalf in an appropriate manner for the particular investment strategy and to report on these activities.
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Section 6 - Procedure

Investment Funds

(12) The University will establish three distinct Investment Funds: 

  1. The Operational Fund, whose purpose is to provide funding support to the University’s operating budget and which is managed under the University’s Treasury Policy and Treasury Management procedure.
  2. The Future Fund, whose purpose is to enhance the achievement of the University's strategic ambition, by enabling its strategic innovation agenda. The Future Fund will be invested into perpetuity and create a strong financial foundation to support Deakin’s strategic ambition.
  3. The Endowment Fund, whose purpose is to support the University’s fundraising activity through reasonable and predictable returns to attract philanthropy and support programs. The Endowment Fund will be invested to generate sufficient returns to support both annual cash distributions and maintain the real value of endowments to support programs into perpetuity.

Management of the Future Fund

(13) Objectives

  1. The University has established the Future Fund with the following objectives:
    1. Targeted investment return, net of fees and taxes, of at least CPI inflation plus 3.5% per annum. 
    2. Probability of at least two thirds (66.6%) of achieving this return target over rolling ten-year periods.
    3. Probability of a negative annual investment return being less than one in four years (25%) over rolling ten-year periods.
    4. Support the achievement of the objectives of the Endowment Fund.
    5. Maintain sufficient liquid assets to enable the Future Fund to vary its asset allocation without being constrained by existing investments in illiquid assets; and to minimise the risk of being a forced seller of assets during exceptional market circumstances.
    6. Maintain a sufficient minimum value and generate returns to provide a source of funding for strategic opportunities to meet the University’s strategic ambition.

(14) Target Value Range

  1. The target value for the Future Fund will be determined by Council and measured annually as at 31 December. The current minimum guide value is $200 million with a current target value of $1 billion.
  2. The minimum and target value guides should be taken into account when considering Future Fund transfers, target SAAs, investment decisions and monitoring.

(15) Transfers and Income

  1. Transfers into the Future Fund
    1. Council approves all transfers into the Future Fund. The annual budget, as set out in the Financial Plan, must set out any proposed transfers to or from the Future Fund. Council's approval of the annual budget is also an approval for any Future Fund transfers contained within.
  2. Transfers out of the Future Fund
    1. Temporary Cash Investment Transfers: Cash transfers between the Future Fund and the Operational Fund or other cash holdings for investment purposes are approved by the Investment Committee. Future Fund cash must be separately identified, reported and should not be used for University operating purposes unless approved by the Chief Financial Officer to support short term (less than six months) purposes. The principal should be repaid within six months if there are sufficient funds available.
    2. Permanent Strategic Opportunity Transfers: Council may instruct a withdrawal from the Future Fund to pursue a strategic opportunity, with notification provided as soon as possible to enable management of liquidity. 
    3. An instruction for a strategic opportunity transfer should:
      1. be for a minimum of $50 million
      2. be consistent with Deakin’s strategic direction
      3. provide notice at the earliest opportunity considering the liquidity of the Future Fund, with guidance on minimum notice period set out in the following table:
Transfer amount Minimum notice period
Up to $100 million 3 months
$100 million or above (either once off or cumulative annual amount) 6 months
  1. Income
    1. All income derived from investments held in the Future Fund is to be credited to the Future Fund. Income derived from investments related to the Future Fund cash is to be credited to the Future Fund each month based on the following calculation:
(Opening balance + closing balance of Future Fund cash held in Operational Fund) / (Opening balance + closing balance of total Operational Fund) x Operational Fund total interest  (including accrued interest) for the current month
  Plus  
(Opening balance + Closing balance of Future Fund cash held in cash holdings) / (Opening balance + Closing balance of total cash holdings) x Cash holdings total interest (including accrued interest) for the current month
  1. The Endowment Fund is to be credited income annually as set out in clause 23b.

(16) Permitted Investments

  1. The Future Fund is permitted to invest in the asset classes set out in the SAA, subject to the Other Investment Restrictions (refer clause 19). The funds (or sub funds thereof), in which the Future Fund invests, may hold derivative instruments (including futures contracts, options and forwards over a range of underlying assets) and physical assets (e.g. unlisted property or infrastructure assets) to achieve their stated investment strategy.
  2. All Future Fund investment decisions must be approved by the Investment Committee and should consider the recommendation or advice of Deakin’s external investment advisor. Investment decisions to appoint a new or fully withdraw from an external fund manager must be supported by appropriate investment due diligence.
  3. All cash asset class investments must be made through the Operational Fund or Deakin’s other direct cash holdings. All other asset class investments must be made via external investment managers demonstrating satisfactory risk and governance protocols.

(17) The table below details the target SAA and the permitted ranges for the Future Fund’s investments within each asset class.

Future Fund Strategic Asset Allocation      
  Minimum (%) Target SAA (%) Maximum (%)
Australian equities 23.0 33.0 43.0
International equities (unhedged) 15.0 14.0 35.0
International equities (hedged)   11.0  
Infrastructure (unlisted) 5.0 10.0 15.0
Property (unlisted) 4.0 8.0 12.0
Alternative debt 3.0 8.0 13.0
Fixed interest 3.0 8.0 13.0
Private equity 0.0 6.0 10.0
Cash 0.0 2.0 10.0
Growth assets 65.0 81.5 95.0
Illiquid assets 0.0 28.0 40.0
Foreign currency (via unhedged international investments) for total Future Fund 0.0 20.0 30.0
  1. Actual asset allocation is calculated excluding committed investments that are yet to be drawn.
  2. The Target SAA is a guide only and investment rebalancing is not required if an asset class’ actual allocation varies from the Target SAA. However, rebalancing of an asset class should be considered if actual allocation varies during a quarter from the Target SAA:
    1. by 5 percentage points or more for Australian equities, international equities or foreign currency; or
    2. by 3 percentage points or more for all other asset classes.
  3. The Target SAA and permitted ranges above for growth, illiquid assets and foreign currency are applied to the total Future Fund and not individual asset classes. It is a guide only and investment rebalancing is not required to meet it.

(18) Asset Class Benchmarks

  1. Investment managers are benchmarked against their relevant sub-sector index.
Asset Class Assset Class Benchmark
Australian equities S&P/ASX 300
International equities MSCI All Country World ex-Australia
Infrastructure (listed) FTSE Global Core Infrastructure 50/50 Index (Hedged)
Infrastructure (unlisted) 9.0% per annum net
Property (listed) FTSE EPRA/NAREIT (Hedged)
Property (unlisted) Mercer Direct Property Index
Private equity MSCI All Country World ex-Australia + 5.0%
Alternative debt Bloomberg AusBond Bank Bill Index +3.0%
Fixed interest 50% AusBond Composite 0+ Year Index / 50% Bloomberg Barclays Global Aggregate Composite (Hedged)
Cash Bloomberg AusBond Bank Bill Index

(19) Other Investment Restrictions - preferred minimum initial investment amount for new investments:

  1. For listed infrastructure and listed property, the greater of $10,000,000 and 2% of the total value of the Future Fund.
  2. For unlisted infrastructure, unlisted property, private equity, Australian and international equities (per sub-sector), fixed income and alternative debt, 3% of the total value of the Future Fund.
  3. The actual amount of individual initial investments will be determined on a case-by-case basis by the Investment Committee.
  4. This guideline does not apply to initial investments in the cash asset class, nor to any subsequent investments.

(20) Breach Process and Reporting

  1. Breaches of the SAA minimum or maximum asset class range, or breaches of the other investment restrictions must be immediately reported to the Chief Financial Officer once identified and a mitigation plan agreed.
  2. The breach must be reported and mitigation plan endorsed at the next Investment Committee meeting.

(21) Monitoring and Reporting

  1. The Future Fund is to be monitored as determined by the Investment Committee. Deakin’s external investment advisor is responsible for monitoring investments in the Future Fund and as a minimum must:
    1. Regularly monitor the Future Fund’s performance, including individual investment and external investment manager performance and immediately inform the Office of the Chief Financial Officer of any changes that are likely to materially impact the performance or valuation of the University’s investments. The Office of the Chief Financial Officer will consult with the Investment Committee Secretary, the Chair and Chief Financial Officer to determine a course of action for the change notification.
    2. Report on the Future Fund’s performance, including individual investment and external investment manager performance at each formal meeting (excluding meetings held by circular resolution unless specifically requested by the Investment Committee).
    3. Report on the investment return, after tax, for each investment within an asset class and for the entire asset class, which will be benchmarked against an agreed external benchmark(s) (refer clause 18)
  2. The Investment Committee must report to the University Council on the Future Fund after each meeting.

Management of Endowment Fund

(22) Objectives

  1. The University has established the Endowment Fund with the following objectives.
    1. Generate sufficient investment returns to support the University’s fundraising activities.
    2. Maintain sufficient liquid investments to support distribution of annual Endowment Spend Rate.
    3. Preserve the real value of the endowment into perpetuity.
    4. Targeted investment return, net of fees and taxes, of at least CPI inflation plus the endowment spend rate (4.0%) per annum.

(23) Transfers and Income

  1. Transfers
    1. All transfers into and out of the Endowment Fund are subject to the applicable provisions of the University’s policies and procedures.
    2. Endowment Funds held in the Future Fund must be separately identified, reported and must not be used for University operating purposes.
  2. Income
    1. Funds held in the Endowment Fund earn the actual rate of return achieved by the Future Fund.
    2. Investment returns are calculated and credited to the Endowment Fund principal balances on a quarterly basis of each year, based on the balance of the endowment funds as at each quarter and the Future Fund return rate as advised by Deakin’s external investment advisor.
  3. Distributions (endowment spend rate)
    1. Distributions are set at the endowment spend rate of 4.0% per annum, which is reviewed annually as part of the financial plan process.
    2. Distributions are calculated based on the three year average endowment balance, or the life of the endowment if less than three years.
    3. Distributions are made annually from the Endowment Fund assets held in the Future Fund into the University’s operating bank account. Any unspent funds at the end of the year are credited back to the Endowment Fund assets held in the Future Fund.
    4. The Chief Financial Officer may pause or reduce an annual Endowment Fund distribution if the actual Future Fund return is below the Endowment Fund target investment return and / or to preserve the real value of the Endowment Fund.

(24) Permitted Investments

  1. Endowment Funds are invested in the Future Fund and are therefore subject to the same permissions and restrictions as set out in clause 16.

(25) Monitoring and Reporting

  1. The Endowment Fund is to be monitored and reported as determined by the Chief Financial Officer.

Responsible Investment

(26) Objectives

  1. The articulation and incorporation of the Responsible Investment (RI) strategy is based on Deakin’s key investment objective which is to maximise the University’s long-term investment returns while minimising excessive risk. 
  2. The Investment Committee will be cognisant of Deakin’s Sustainability strategy in the implementation of the Responsible Investment strategy, including specific ESG factors:
    1. Environment: the University considers climate change a critical issue. It also takes seriously the issues with resource scarcity and efficiency, pollution and waste and biodiversity.
    2. Social: the rights of First Nations Peoples, human rights, labour standards, health and wellbeing, stakeholder position and social opportunities, diversity, equity and inclusion and assessment of modern slavery risk. The University expects to see comprehensive and effective policies and practices by our external advisers and investment managers on these factors.
    3. Governance: The University expects its investment managers to hold companies with quality management and governance. This is judged by the alignment with stakeholders’ interests, board experience and diversity, management’s accountability, considerations of cyber security risk and appropriate levels of transparency in accounting and disclosure.
  3. The Responsible Investment strategy applies to the University’s investments overseen by the Investment Committee including all asset classes and any external investment managers within the Future Fund and Endowment Fund.
  4. Responsible Investment issues will be incorporated into investment processes and decision making in a manner and to the extent practicable to each investment’s characteristics, including the relevant investment structure(s), asset class, objectives and constraints of each investment manager.
  5. Investments in companies and assets and held with investment managers that materially align with our responsible investment philosophy and approach, as well as illustrating strong and/or innovative responsible investment practices that include fit-for-purpose and systematic approaches to integrating ESG.
  6. Screening of investments should consider their approach to ESG and demonstration of alignment with a low carbon transition. 

(27) Restricted Investments

  1. Deakin will exclude investments in entities that are not consistent with our responsible investment philosophy or Deakin’s Sustainability Policy, including those:
    1. directly involved in the primary manufacture of complete tobacco products
    2. directly involved in the manufacture of cluster munitions, landmines, biological or chemical weapons. 
  2. Note: Anti-Personnel Mines Convention Act 1998 (Cwth), the 2008 international treaty, ‘Convention on Cluster Munitions’, the 1975 Convention Against Biological Weapons and the Chemical Weapons Convention of 1997.

(28) Monitoring and Reporting

  1. Deakin’s external investment advisor will provide regular reporting on the progress in incorporating Responsible Investment, including the Responsible Investment approach undertaken by the external investment managers which should include:
    1. assessment and regular monitoring of the integration of Responsible Investment by current and potential investment managers
    2. assessment and monitoring the appropriateness of our investment managers’ stewardship efforts
    3. annual reporting on the incorporation of Responsible Investment and monitoring of all investment managers.
  2. Deakin expects regular reporting by the investment managers on their own Responsible Investment activities, integration and enhancements. Where possible, reporting should include carbon footprint performance over time and other material ESG factors.
  3. Annual Responsible Investing progress will be reported to the Investment Committee.
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Section 7 - Definitions

(29) For the purpose of this procedure:

  1. Cash: Investments in 11am cash deposits, cash deposits, term deposits (and variants of term deposits with a maximum term of 365 days) or bank accepted bills.
  2. Consumer price index (CPI) inflation: The core rate of inflation as defined by the Reserve Bank of Australia.
  3. Defensive assets: fixed interest, cash, 50% alternative debt, 25% unlisted infrastructure and 25% unlisted property.
  4. Dynamic asset allocation (DAA): as defined in the Investment Policy.
  5. Endowment: a gift made with the intention that the funds are invested to support the beneficiary from investment income.
  6. Endowment spend rate:  The percentage of investment returns that may be expended annually on the outcomes the endowments are intended to support.
  7. Endowment spend forumla: The methodology used in calculating the distribution of annual Endowment income.
  8. ESG: as defined in the Investment Policy.
  9. ESG integration: the systematic and explicit inclusion by investors of environmental, social and governance factors into the investment decision-making process.
  10. Exclusions: use a set of filters to determine which companies, sectors or activities are eligible or ineligible to be included in a specific portfolio. These criteria might be based on an investor’s preferences, values, and ethics.
  11. Financial plan: Deakin’s three year financial plan forecast, including an annual budget.
  12. Fixed interest: Investments in instruments including term deposits beyond two year maturity; corporate, government, supranational and semi-government issued floating rate and fixed rate bonds.
  13. Growth assets: equities, listed infrastructure, listed property, private equity, 50% alternative debt, 75% of unlisted infrastructure and 75% of unlisted property.
  14. Illiquid investment: as defined in the Investment Policy.
  15. Institution: a rated financial institution, including all its related group entities.
  16. Income: includes, but is not limited to, distributions, interest, dividends, franking credit refunds and rebates.
  17. Negative and positive screening: the exclusion (or inclusion) from (in) a fund or portfolio of certain sectors, companies or practices based on specific ESG criteria, such as what goods and services a company produces, or how inadequate a company or country response is to emergent risks such as climate change impacts.
  18. Responsible Investment (RI): as defined in the Investment Policy.
  19. Stewardship or active ownership: use of influence to maximise overall long-term value in improving practice on an ESG factor, make progress on sustainability outcomes, or improve public disclosure (e.g., engaging with investee companies, voting at shareholder meetings, public reporting, etc.).
  20. Strategic asset allocation (SAA): as defined in the Investment Policy.