This Statement of Investment Policy and Objectives (“the SIPO”) is prepared by the Trustees of Momentum Waikato Community Foundation (“the Trustees”) and sets out the objectives, policies and beliefs governing investment decisions in relation to the Foundation’s assets.

This SIPO takes account of the requirements of;

• The Trust Deed (as amended) constituting Momentum Waikato Community Foundation;

• The Trustees Act 2019;

Momentum Waikato Community Foundation (“Momentum Waikato” or “the Foundation”) is a Community Foundation and one of the country-wide network of Community Foundations across New Zealand. Momentum Waikato was established in 2013 as a Charitable Trust with its first 5-year strategy established in in 2015.

Momentum Waikato acts to grow, invest and mange a regional endowment fund for the Waikato region through working with donors who leave a bequest, establish funds and/or transfer trust assets to the stewardship of Momentum Waikato to support causes and grow the corpus in perpetuity. Untagged funds are utilised as Impact Investment to drive projects that create transformational, intergenerational, strategic outcomes across the Waikato.

Our vision is a “Better Waikato for Everyone Forever”.

Strong governance and well-defined decision-making structures enable sound investment decision-making.

The investment horizon of Momentum Waikato is long-term and setting an Asset Allocation that is appropriate to its investment horizon, objectives and risk-tolerance is the most important decision to be made by the board as it is the primary driver of long-term success.

A broadly diversified portfolio both across and within asset classes improves the “risk to return” ratio over time.

Momentum Waikato seeks to responsibly manage the resources that are held in trust for present and future generations in the Waikato region. It believes that integrating Environmental, Social and Governance (ESG) factors impacting on society and planet into its investment decision-making will improve the long-term performance of its investment portfolio and is fundamental to exercising its fiduciary duty and organisational purpose.

Background

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

2: The primary principles underlying investment decision-making by the Foundation are (in no particular order or priority):

2.1: ensuring that the Foundations’ General Corpus funds are invested prudently to ensure real capital preservation over the longer term and in a manner consistent with the Foundation’s Purpose and values;

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

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

2.4: maximising the funds available for distribution over the long-term.

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

4: Of the General Corpus $10 million of value is based on the WEL Energy Trust loan which was utilised as the initiator of the endowment, with the investment proceeds contributing to the growth of the fund and covering the operating and grant making of Momentum Waikato.

4.1: The loan is interest free and is to be repaid on 28 August 2073 (a 60-year term, no inflation indexation).

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

5: Each year the General Corpus is adjusted by the general inflation rate to ensure that the capital base is maintained and preserved in real terms. The CPI for the end of financial year 2022 was 7.3% and as at September 30th 2022 the fund value sat at $27,870,499

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

Governance

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

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

Role of Investment Committee

9: The Investment Committee will meet at least annually to review the Foundation’s financial position and performance of the Investment Managers, and to review this SIPO.

10: The Investment Committee is responsible for appointing appropriately qualified Investment Managers to manage the General Corpus in accordance with this SIPO.

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

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

Investment Management

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

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

Portfolio risk and investment return expectations for the General Corpus

15: Based on the benchmark Strategic Asset Allocation set out in the Investment Strategy below, the General Corpus is expected to earn a gross total return of 5.6%-6.4% before inflation, tax and investment expenses, over the long-term, with a standard deviation of 10%. This expected risk-return profile is based on long-term capital market expectations as at November 2022. Capital market expectations change over time and the expected risk-return profile of the General Corpus will also vary.

16: Based on a long-run inflation assumption of 2.0% p.a. this translates to a real total return of 3.6%-4.4% before tax and investment expenses, over the long-term.

17: The performance of the General Corpus vs the long-term return expectations will be measured over rolling five-year periods. The Trustees recognise that the return objective is a long term one that may not be achieved in every measurement period and in some years, the return may be negative.

The General Corpus will be invested consistent with a ‘Balanced’ strategy of 65% Growth Assets and 35% Income Assets (the “Strategic Asset Allocation”).

18: External Investment Managers are appointed to oversee and undertake the day-to-day investment management of the Foundation’s investments. There are currently three Investment Managers. Each Investment Manager manages its portfolio according to the benchmark allocations and allowable investment ranges proposed by the Investment Managers and approved by the Trustees, as set out in Appendix A.

19: Sufficient short-term liquidity should be maintained to be able to fund grants and operating costs for 12 months on a rolling basis, and currency hedge losses and uncalled commitments, without the need to incur unacceptable losses through selling assets. There must be sufficient flexibility in liquidity to allow for changes in the Foundation’s requirements and to take advantage of opportunities in the investment environment.

20: Liquid assets are defined as those assets that can be readily converted into cash within 30 business days and where conversion within that period is not expected to have a significant adverse effect on their realisable value.

21: The investment portfolio will be diversified across a minimum of 25 investments, without undue concentration in any one company, sector or asset class.

22: The Trustees recognise that an asset allocation that is materially different to the Strategic Asset Allocation represents a departure from the agreed risk-return profile for the General Corpus. The Investment Managers are expected to periodically rebalance their respective portfolios towards the Strategic Asset Allocation, taking into account any tactical over- or under-weight positions.

23: The Foundation has NZ dollar distribution objectives and commitments. As such, the majority of liquidity and income assets should be NZ dollar assets (in the case of international fixed interest, hedged to NZ dollars). Where overseas investments are made, the currency risks of overseas investments may be hedged, if recommended by the Investment Managers and approved by the Trustees.

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

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

Reserves Policy

26: The Foundation envisages being able to make distributions each year equal to a minimum of 4% of the respective funds’ capital base per annum. The actual amounts distributed are determined by respective Deeds of Gifts instructed by each donor however these percentages are used as usual benchmarks.

27: Within each fund there will be a return to the value of the annual rate of CPI back to the General Corpus to protect the value of the fund against inflation.

28: The Trustees recognise that investment markets are prone to short-term volatility, which in turn can result in fluctuations in the General Corpus. To help ensure the capacity of the Foundation to consistently make annual distributions to deliver on its Purpose, the Trustees will seek to build a reserve fund.

29: The remainder of the proceeds from each fund (i.e., the return on capital, less the distribution to beneficiaries, less the rate of CPI that year and net of taxes and investment costs) will be directed to the Reserve Fund.

Permitted Investments

30: Permitted investments include:

30.1: Cash and cash equivalents, in NZD and foreign currencies;

30.2: Term deposits;

30.3: Fixed income securities, both domestic and global, including central / local government bonds, non-government bonds, either directly or via investment funds;

30.4: Equities, i.e. shares in publicly listed companies on recognised stock exchanges, directly or via exchange traded funds (“ETF”) or investment funds;

30.5: Property, via listed property vehicles or investment funds; and

30.6: Alternative assets (including but not limited to private equity, venture capital, infrastructure, agriculture, horticulture, water, carbon, private credit, asset backed securities), via investment funds as standard practise (i.e. direct investment in Alternative assets is not permitted unless otherwise authorised by the Investment Committee).

General

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

32: Total holdings (bonds and shares) in any one organisation, other than government bonds, shall not exceed 20% of the value of the Foundation endowment excluding new funds awaiting investment.

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

Shares

34: Investments must generally be confined to publicly listed, widely held securities trading in recognised markets. The portfolio will be diversified across industry sectors and geographies.

35: The Foundation should not hold more than 2.0% of the equity of any one company and no individual holding should be over 5.0% of the value of the Foundation endowment, unless otherwise approved by the Investment Committee.

Alternative Assets

36: Investment in Alternative Assets may be permitted with the prior written approval of the Investment Committee. Investment in Alternative Assets is expected to be via a fund or other pooled investment vehicle. Each Alternative Asset investment must be assessed on its merits with regard to:

36.1: Transparency of process and purpose

36.2: Experience of the management team and track record of success

36.3: Appropriate governance

36.4: Investment mandate

36.5; Access to liquidity

36.6: Pricing and valuation methodology

36.7: Duration of the fund

36.8: Investment and reinvestment period

36.9: Distribution policy

36.10: Contribution to diversification of risk and return of the total portfolio

36.11: Fees and tax efficiency

Property

37: Property assets will be confined to listed securities via Investment funds. Direct property investments may only be made with the unanimous consent of the Trustees.

Bonds

38: The average credit quality of the portfolio should be equivalent to at least a Standard & Poor’s investment grade (BBB- or above) credit rating.

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

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

Cash

41: Cash includes bank deposits and bank bills or term deposits up to 365 days from a registered New Zealand bank (or equivalent financial institution) and shall have a level of security equal to, or better than, a Standard and Poor’s A- rating.

Responsible Investment

Momentum Waikato are the kaitiaki, or stewards, of the Momentum Waikato fund for the people of the Waikato region in perpetuity. As such, Momentum Waikato has a financial as well as social responsibility to its stakeholders. Investing responsibly and integrating Environmental, Social and Governance (ESG) factors about impact on society and planet into its investment decision-making (including those of the underlying investment managers) and ownership practices are aligned with the expectations of our stakeholders. As all investments create impact Momentum Waikato:

• aims to minimise harm,

• seeks positive impacts while generating wealth.

Impact investment is an evolving area and the Trustees intend to develop the Responsible Investment policy further in this regard. At present, the Investment Managers are expected to be ESG cognisant in making investment decisions and to be compliant with the specific exclusions set out below.

Direct investment in any organisation whose core business comprises any of the following activities is not permitted:

• Manufacture of cluster munitions

• Manufacture or testing of nuclear explosive devices

• Manufacture of anti-personnel mines

• Manufacture of tobacco

• Processing of whale meat

• Recreational cannabis

• Manufacture of civilian automatic and semi-automatic firearms, magazines or parts.

The Investment Managers will also exclude investment in businesses or industries that:

• Engage in illegal activity;

• Do not meet generally accepted ESG standards;

• Operate at the expense of the environment, human rights, health or public safety; or

• Are inconsistent with the mission of Momentum Waikato.

The Investment Managers will seek to give effect to the exclusions when investing in ETFs or investment funds. However, the Foundation recognises that it may not be practical or feasible to give full effect to the exclusions when investing in ETFs or investment funds. In this case, the ETF or investment fund should be as closely aligned as possible to the Responsible Investment Policy.

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

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

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

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

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

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

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