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Investment Policy

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Section 1 - Audience

(1) The Council, Finance Committee, Executive Committee, CFO, Financial Services and Controlled Entities.

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Section 2 - Executive Summary

(2) UON's economic capital is principally invested in its current strategy in the form of property, plant and equipment and working capital requirements. In addition, a portion of economic capital is held for endowments and other restricted purposes. All remaining economic capital is Discretionary capital that is available for investment in future strategy and in UON's investment portfolio.

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Section 3 - Purpose

(3) This policy:

  1. sets out the principles underpinning the management UON's investment portfolio, including its real property investments;
  2. supports compliance with legal and regulatory requirements;
  3. supports UON's goal of enhancing the overall wealth and fiscal capacity of the University; and
  4. states UON's intention to incorporate Environmental, Social and Corporate Governance (ESG) factors in the management of the investment portfolio.
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Section 4 - Scope

(4) This Policy applies to UON and its staff and controlled entities. Controlled entities are included in this Policy's scope due to the impact they have on UON's consolidated financial position, financial performance, cash flows and reputation.

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Section 5 - Principles

(5) All amounts invested will be invested:

  1. in accordance with the Strategic asset allocation target sectors; and
  2. in a manner consistent with the University Ethical Framework, Environmental Sustainability Plan and ESG framework set out in Section 6 of this Policy.

(6) Investments in Defensive investments will be managed in accordance with an approved Credit risk framework.

(7) Investments with the Investment Portfolio Manager or External Investment Managers may comprise both Individual investment mandates and Co-mingled investment vehicles and:

  1. where it is feasible to do so, UON will seek to facilitate the implementation of relevant ESG considerations and to target tax efficiency where appropriate
  2. where Co-mingled investment vehicles are used, UON will integrate ESG considerations into the due diligence and evaluation processes for selecting the Investment Portfolio Manager and the External Investment Manager, and for the purpose of ongoing monitoring of each manager.

(8) UON will seek to maximise the investment returns of the investment assets within specified risk profiles, consistent with international best practice for institutional and Endowment capital investment.

(9) The management of the investment portfolio will be consistent with UON meeting its contractual obligations and, when applicable, meeting its duties and obligations as trustee.

(10) The investment returns and risk measures will be regularly assessed against Benchmark indices and return objectives, consistent with the investment Strategic asset allocation target sectors.

(11) Investment in real property will be undertaken either:

  1. where it supports UON's strategic plan and statutory object (as defined in the University of Newcastle Act 1989);
  2. where it is required to be undertaken by the terms upon which UON acquired or received property.

(12) Separate target returns may be set for real property.

(13) The net investment return on amounts invested in the LTP should exceed the average percentage rate of inflation plus 3.5% to 4.5%, over a full investment cycle exceeding 5 years. The LTP investment portfolio Strategic asset allocation target sectors will comprise a mix of Growth investments, Alternative investments and Defensive investments consistent with achieving its investment return objective.

(14) The net investment return on funds invested in the STP should match the Bloomberg AusBond Bank Bill Index return over 12 monthly periods. The STP investment portfolio Strategic asset allocation target sectors will consist of liquid, short term money market instruments denominated in Australian dollars, which is in accordance with the Credit risk framework and consistent with meeting its investment return objective.

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Section 6 - ESG Framework

(15) UON believes that ESG factors including climate change and public health and safety can impact investment risk and returns and should be considered when choosing investment funds and managers.

(16) As a University committed to leadership in sustainability, UON will seek to understand any material ESG risks embedded in its investments and manage them accordingly. This includes managing any risks that could jeopardise the University's reputation.

(17) UON will only engage an Investment Portfolio Manager and External Investment Managers who will incorporate ESG factors in their investment processes.

(18) The Investment Portfolio Manager will report on and rate the ESG capabilities and performance of the investment managers, including the Investment Portfolio Manager, the External Investment Managers and Co-mingled investment vehicles. This will include:

  1. benchmarking managers to encourage improvement of their ESG ratings over time; and
  2. measuring and monitoring the carbon footprint of the University's listed equity investments, with the aim of keeping the carbon footprint below the relevant market indices, and investing in a manner that is consistent with the University's broader sustainability commitments, and the targets underpinning the Paris Agreement to limit global warming to no more than 2 degrees centigrade by 2100.

(19) Some products or services should be excluded from the investment portfolios if they are inconsistent with the University's Principles as outlined in its Ethical Framework, provided there is no significant additional investment risk that might jeopardise the investment objective. UON will not knowingly invest in:

  1. entities directly involved in the primary manufacture of complete tobacco products;
  2. entities directly involved in the manufacture of cluster munitions, landmines, biological or chemical weapons (see the 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);
  3. entities that are involved in proven, severe and ongoing abuses of human rights or corrupt business practices.

(20) UON will exercise its ownership rights, including share voting rights (or similar), in a manner consistent with its ESG framework and the principles of good stewardship of the assets in which it has invested. This will include:

  1. appointing a Specialist proxy voting firm to assist in this function, or ensuring that its Investment Portfolio Manager has done so, where appropriate;
  2. supporting the principles of good governance and a transition to a low carbon economy, which contribute to long term investment value and a sustainable economy;
  3. supporting disclosure by companies of any material exposure to economic, environmental and social sustainability risks and how they manage or intend to manage those risks;
  4. supporting engagement through collaborative initiatives or via its Investment Portfolio Manager or External Investment Managers with corporate entities in which UON is invested, where appropriate, on a range of ESG issues including climate change; and
  5. participating, directly or through agents or collaborative engagement, in the development of policy, regulation, and standard setting.

(21) UON will look to invest in the sustainable industries and businesses of tomorrow, provided these are consistent with its risk appetite and are expected to contribute to the University's long-term investment objectives.

(22) The Investment Portfolio Manager and External Investment Managers (including, as far as possible, managers of Co-mingled investment vehicles) will be required to report on ESG matters at least annually. These reports will address:

  1. ESG integration, as represented by the ESG ratings;
  2. Any material ESG risk factors, including climate change risks, which could impact investment performance or the University's reputation
  3. Compliance with the exclusions outlined in clause 19 above
  4. Carbon footprint performance over time;
  5. Engagement activities;
  6. Proxy voting activities.
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Section 7 - Risk Management

(23) Investments will be allocated to achieve appropriate diversification to reduce portfolio risk.

(24) Investments will be managed in accordance with the Strategic asset allocation target sectors. This framework will be reviewed in consultation with UON's Investment Portfolio Manager at least every three years.

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Section 8 - Procedures

(25) The Chief Financial Officer may, by written determination, determine procedures for the implementation of this Policy.

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Section 9 - Roles and Responsibilities

Finance Committee (FC) of the
(a) monitoring and overseeing the investment activities of UON;
(b) approving the appointment and termination of the Investment Portfolio Manager;
(c) approving the Strategic asset allocation target sectors, following consideration of advice from Management and the Investment Portfolio Manager;
(d) approving the ESG framework; and
(e) reviewing investment reports provided by Management.
Chief Financial Officer
The management of UON's investments, including:
(a) managing Traditional investments and Alternative investments;
(b) making recommendations to FC about the Strategic asset allocation target sectors;
(c) in consultation with the Investment Portfolio Manager, appoint and terminate External Investment Managers managing investments greater than $50 million;
(d) in consultation with the Investment Portfolio Manager, that the appointment and termination of External Investment Managers managing investments of $50 million or below:
  i) are within approved strategic asset allocation target sectors; and
 ii) have an investment grade rating of B+ or higher as assessed by the Investment Portfolio Manager;
(e) requesting investment advice from investment consultants;
(f) appointing an Investment Portfolio Custodian for the provision of services including investment performance reporting;
(g) developing an investment strategy for UON;
(h) in consultation with the Investment Portfolio Manager, setting sector benchmarks for performance measurement and evaluation; and
(i) providing investment reports and recommendations to FC;
(j) providing the financial scorecard detailing forecast and year to date results to Council at each Council cycle;
(k) providing lead indicators on a 6 monthly basis, consistent with the Long Term Financial Plan on the capital management subset of trend indicators; and
(l) providing regular updates on Management's understanding of the levers that influence investment outcomes.
Investment Portfolio Custodian
Subject to the terms of the relevant contractual arrangement, the Investment Portfolio Custodian will be engaged to be responsible for holding UON's investment assets in safe custody.
Investment Portfolio Manager
Subject to the terms of the relevant contractual arrangement, the Investment Portfolio Manager will be engaged to assist Management in:
(a) developing and refining the Strategic asset allocation target sectors;
(b) managing investments;
(c) identifying, selecting and monitoring external investment managers;
(d) specific portfolio modelling;
(e) performance monitoring;
(f) developing and implementing the integrated ESG framework;