This statement of investment policy has been adopted by the Board of Directors of the Internet Corporation for Assigned Names and Numbers (ICANN) to provide guidelines for the investment of cash on hand (funds).
For the purposes of managing investment risk and to optimize potential returns within acceptable risk parameters, the investment of funds will be divided into two pools of assets.
- The Operating Fund,sometimes called the Working Capital Fund, is used to fund day to day operations of ICANN including all items in the ICANN Board approved annual budget. In general, the Operating Fund is set at a level necessary to fund a maximum of three months of expected operating expenses. Amounts in the Operating Fund that exceed this limit shall be transferred to the Reserve Fund.
- The Reserve Fundis only used for emergencies. The Reserve Fund is a “rainy day fund.” The use of any Reserve Fund is restricted by actions of the Board of Directors. The Board of Directors has delegated to the Board Finance Committee (BFC) the authority to act on behalf of the Board of Directors to release funds from the Reserve Fund to pay for items of an emergency nature.
The purpose of the ICANN Investment Policy is to:
- Describe the philosophy of the Investment Policy that will guide investment management decisions.
- Define and assign the responsibilities of all involved parties including the ICANN Board of Directors, the ICANN Chief Financial Officer (CFO) and staff, and the Investment Management Company (as defined below).
- Describe the general investment principles for investment of the funds including the size of the funds, the suggested levels of risk, the expected return on investment, the suggested liquidity level, the expected asset allocation strategy, the expected global focus, and suggested allowable and restricted asset classes.
- Establish a basis for evaluating and reporting investment results and compliance with the Investment Policy.
- Clarify the methods by which the Reserve Fund will be funded as well as the process by which the Reserve Fund can be accessed for emergency requirements.
The philosophy of the ICANN Investment Policy is to:
- Ensure that funds held by ICANN are invested wisely with due fiduciary care.
- Ensure that funds are safe and held securely to minimize risk of loss to the full extent possible.
- Ensure that funds earn appropriate returns commensurate with the level of risk.
- Ensure that funds remain liquid enough to be accessible to handle the needs of ICANN's operations (Operating Fund) and the needs of ICANN in case of an emergency, if any, (Reserve Fund).
- Ensure clarity on the amounts to be held in the funds.
- Ensure clarity on the method(s) to access the funds for expenditure.
Board of Directors
The Board of Directors of ICANN shall direct the ICANN Investment Policy, including:
- Create and approve the ICANN Investment Policy.
- Maintain and update the Investment Policy periodically (at least annually).
- Delegate to the Board Finance Committee (BFC) specific duties and responsibilities related to the monitoring of the Investment Policy, including:
- Approve of the Investment Management Company.
- Direct the CFO to monitor the Investment Management Company, monitor the performance of the funds, and the compliance with the Investment Policy.
- Periodically monitor the performance of the Reserve Fund and Operating Fund.
- Monitor the compliance with the Investment Policy.
- Periodically evaluate the current risk tolerances and investment objectives.
- Periodically report to the full board the compliance with the Investment Policy.
- Approve disbursements from the Reserve Fund.
ICANN Staff and CFO
ICANN's CFO, with the assistance of ICANN staff, shall oversee the administration of the Investment Policy, including:
- Monitor and direct all activities related to the Operating Fund including funding daily operations.
- Recommend the Investment Management Company.
- Monitor the activities of the Investment Management Company.
- Ensure that any amounts not required for the Operating Fund are transferred to the Reserve Fund.
- Respond to monthly status reports on the performance of the Reserve Fund.
- Periodically report to the Board of Directors on the performance of the Reserve Fund.
- Periodically report to the Board of Directors on compliance with Investment Policy.
The Investment Management Company
The Investment Management Company shall oversee the Reserve Fund including:
- Hold fiduciary responsibility for all assets in the Reserve Fund.
- Comply with all guidelines and limitations set forth in the Investment Policy.
- Manage, analyze and oversee the execution of investment decisions including buying, selling, and holding of individual securities for all asset types in all asset classes.
- Report monthly to the CFO on the performance of the Reserve Fund and compliance with the Investment Policy.
- Communicate any major changes to economic outlook, investment strategy, or any other factors which affect implementation of investment process.
- Be available to report periodically to the Board of Directors on the performance results of the Reserve Fund including comparisons with approved industry benchmarks.
- Be available to report periodically to the Board of Directors on the compliance with the Investment Policy.
- Inform the Board of Directors regarding any significant changes including changes to the investment management company, changes in portfolio management personnel, ownership structure, investment philosophy, and investment processes.
Pools of Funds
ICANN’s investment funds will consist of two pools of funds: the Operating Fund and the Reserve Fund.
The Operating Fund, sometimes called the Working Capital Fund, is the pool of funds that is used for ICANN’s day-to-day operations. The Operating Fund will not be Board restricted and will be used to fund operating expenses of ICANN, including payroll and accounts payable. All disbursements at ICANN comply with Board-approved disbursement guidelines and financial controls. The Operating Fund will be replenished by ICANN’s revenues, and can also be replenished by the Reserve Fund if the Board determines that there is an emergency requirement.
The Reserve Fund is the pool of funds held by ICANN for “rainy day” emergencies. Disbursements out of the Reserve Fund are restricted by the Board.
Size of Funds
The size of the Operating Fund and the Reserve Fund shall be evaluated and established on an annual basis as part of the budget preparation process.
The Operating Fund shall contain enough funds to cover ICANN’s expected expenditures for three months. Periodically, any funds in excess of this will be transferred to the Reserve Fund.
The Reserve Fund shall contain any amounts not contained in the Operating Fund. Any surplus funds will be used to build up the Reserve Fund to a balance sufficient to cover an emergency requirement. As of the adoption of this policy, the Reserve Fund is expected to reach a level sufficient to fund approximately 12 months of expected expenditures.
Guidelines: Risk Level of Funds
Although there are many ways to measure risk, this investment policy primarily measures risk as the possibility of losing nominal asset value in a fund over a given period of time. Past results are not a guarantee of future results, but historical performance is an indicator of its risk profile. A fund with no risk or very little risk would never incur losses as measured over any historical period. A fund with moderately low risk would not incur losses over most historical periods. A fund with greater risk might have incurred losses in certain historical periods.
The Operating Fund will have a suggested risk profile of no risk or very little risk.
The Reserve Fund will have a suggested risk profile of moderately low risk. The historical performance of the fund should have a very low probability of losses over any given five year period.
Expected Investment Return (%) of Funds
Funds shall be invested in assets that are expected to yield the greatest investment return given the risk profile and other parameters of the fund. Past performance is not a guarantee of future performance but it may provide some guidance on the expectations of how the fund may perform.
The Operating Fund is expected to earn rates of return commensurate with a no risk or very little risk fund. Under the current interest rate and inflation rate environment a nominal rate is not unreasonable to expect. The three-month US Treasury Bill is therefore considered an appropriate benchmark.
The Reserve Fund is expected to earn rates of return commensurate with a moderately low risk portfolio. The performance objective of the investments is to exceed the benchmark return. A comparison shall be made with relevant market benchmarks as well as the composite returns for other peer groups with similar philosophies. The appropriate benchmark is a function of the asset classification currently in place and may consist of a balanced or weighted average index underlying such asset classes. The total return is expected to rank above the median versus a manager universe with a similar asset mix.
Guidelines: Liquidity Level of Funds
Liquidity is a measure of whether the assets of the fund can be sold for cash without significant loss of value. A highly liquid fund would not suffer losses even if there were an immediate sale of the assets of the fund. A moderately liquid fund would not suffer significant losses even if the assets were sold over a period of time of less than one year.
The Operating Fund will be highly liquid and only invest in cash or cash equivalents (including certificates of deposits, AAA rated Commercial paper or money market funds that are fully vested in cash instruments or US Government Treasuries). All funds can be accessed within 48 hours without any significant loss in value.
The Reserve Fund is suggested to be moderately liquid. Reserve Fund assets do not need to be sold for cash except in an emergency. It is suggested that the Reserve Fund be liquid enough to realize one-third of its value without significant loss within 30 days, two-thirds of its value without significant loss within two months, and all of its value without significant loss within six months. A significant loss is defined as more than 15%. Losses in excess require BFC and Board approval.
Expected Asset Classification/Portfolio Mix and Allocation Constraints of Funds
The asset classification/portfolio mix guides the Investment Management Company to create a portfolio that best reflects the risk posture, expected return, and other investment parameters described in The Investment Policy. The categories of classification described, and the measurements expected to be complied with, in this Investment Policy are a percentage of cash equivalents, a percentage of bonds, and a percentage of equities. In addition, the allocation constraints allow the Investment Manager to rebalance the portfolio at strategically advantageous times without incurring losses or administrative burdens. Portfolio rebalancing is required at least annually. The allocation constraints also allow the Investment Management Company to obtain higher investment returns and/or lower investment risks (within the constraints) in response to market conditions.
The Operating Fund’s asset classification is 100% cash or cash equivalents. The constraint is zero.
The Reserve Fund’s asset classification is 65% Bonds and 35% Equities. The allocation constraint is 10%. Thus, the strategic, most conservative, and most aggressive asset classification/portfolio mix allowed for the Reserve Fund is:
|Most Conservative Allocation||75%||25%|
|Most Aggressive Allocation||55%||45%|
ICANN’s funds are to be invested in well diversified assets that perform well in terms of return on investment and also are invested safely to reduce the risk of loss on the portfolio. Safety and performance are the most important priorities. The ICANN Investment Policy assumes that a well diversified portfolio designed for investment performance and safety should contain a significant amount of investments in non-US assets and are also based in non-US dollar denominated currencies.
The Investment Policy recognizes that ICANN is a US-based company, but it also must recognize that ICANN has a distinctly global focus. The funds that ICANN invests in should reflect the global nature of ICANN. The actual assets allocated to non-US–based assets and non-US dollar denominated investments shall be suggested by the Investment Management Company and approved by the CFO.
The Operating Fund does not require a significant global focus.
The Reserve Fund is suggested to have a significant global focus. The investment Policy expects at least 20% of the Reserve Fund to be invested in global (non-US) assets. Actual allocations are to be monitored by the Board and may be subject to further limitations between developing and emerging foreign markets consistent with ICANN’s risk profile.
Guidelines: Asset Classes of Funds
The Investment Policy requires the Investment Management Company to recommend particular fund managers, mutual funds, categories of investments, etc., that comply with the Investment Policy principles and guidelines. Here is one hypothetical investment mix that would comply with the Investment Policy:
|Asset Class||Strategic Allocation|
|Core US Fixed Income||Lehman Bros. Aggregate||46%|
|US High Yield||Lehman Bros. High Yield||6%|
|International Fixed Income||Citigroup Non-US Gov||13%|
|US Large Value||Russell 1000 Value||11%|
|US Large Growth||Russell 1000 Growth||8%|
|US Mid Value||Russell Midcap Value||3%|
|US Mid Growth||Russell Midcap Growth||2%|
|Global Allocation||Strategic Allocation|
Cash and Cash Equivalents
- Checking accounts in US federally insured banks and savings and loans
- US Government Treasury securities
- US Agency securities – obligations issued or guaranteed by an agency of the US government
- Commercial Paper – issued by domestic corporations possessing the highest rating issued by Moody’s or Standard & Poor’s (A1/P1)
- Banker’s Acceptances – issued by domestic commercial banks possessing the highest rating issued by Moody’s or Standard & Poor’s
- Certificates of Deposit – issued by acceptable investment grade financial institutions
- Money Market Funds – SEC registered funds in good standing with holdings solely composed of the assets within the category
Bonds or Fixed Income Securities
- US government and Agency Securities (e.g., GNMA and FNMA)
- Municipal Securities
- Corporate Notes and Bonds
- Mortgage Backed Bonds
- Asset Backed Securities (e.g., Auto and Credit Card)
- Fixed Income Securities of Foreign Governments and Corporations
- Mutual Funds which invest in fixed income securities
Investments shall only be made in fixed income securities with minimum investments grade ratings as defined by Moody’s (Baa3) and Standard & Poor’s (BBB-). The minimum weighted average credit quality of the portfolio shall be Aa/AA. No more than 10% of the fixed income portfolio shall comprise noninvestment grade rated securities.
In the event that mutual funds hold fixed income securities below investment grade, the Investment Management Company and CFO will monitor the percentage holdings and take the appropriate action to reduce exposures consistent with ICANN’s moderately low risk profile.
- Common Stocks
- Convertible Notes and Bonds
- Convertible Preferred Stocks
- Stocks of Non-US Companies (Ordinary Shares)
- Mutual Funds which invest in securities as allowed in this statement
There shall be no investments in non-marketable securities.
- Exchange traded or OTC Commodities and Futures Contracts
- Private Placements
- Credit default, interest rate and commodity swaps
- Exchange traded or OTC Options
- Limited Partnerships
- Venture-Capital Investments
- Real Estate Properties
- Derivative Investments
- Hedge funds
- Short Selling
- Margin Transactions
In certain circumstances, mutual fund investments may engage in transactions that include prohibited assets. In the event that mutual funds hold prohibited assets defined above, the Investment Management Company and CFO will monitor the holdings and take the appropriate action to reduce exposures consistent with ICANN’s moderately low risk profile.
This policy prohibits ICANN from undertaking a Securities Lending Program.
Ethics and Conflicts of Interest
All Board Members, the CFO, and the Investment Management Company staff shall comply with all applicable conflicts of interest policies and otherwise refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Any known or suspected violations must be disclosed to ICANN’s General Counsel.
The Reserve Fund is the pool of investments held by ICANN that is restricted for use for “rainy day” emergencies only. The Reserve Fund is funded by any assets not required for use by ICANN’s Operating Fund. Use of any funds from the Reserve Fund is restricted by action of the Board of Directors of ICANN. The Board at its sole discretion and judgment shall determine whether an emergency exists for purposes of releasing funds from the Reserve Fund. Here are some possible scenarios that may be considered by the Board as a qualified emergency:
- Urgent infrastructure investment required to address a new threat to the DNS.
- Major investment requirement to strengthen the infrastructure from a security point of view—in advance of increasing the revenue collection in the following financial year to pay for that investment.
- Loss (or slow payment) of revenue stream from a major customer or a number of other customers.
- Major unexpected unbudgeted operating expense such as a large legal settlement or a large uninsurable claim.
Due to the nature of an emergency requirement to release funds from the Reserve Fund, it may be necessary to make a rapid decision. For this reason, the Board of Directors has delegated to the Board Finance Committee (BFC) the authority to act on behalf of the Board of Directors of ICANN as it related to the disbursement of funds up to $5 million for emergency purposes from the Reserve Fund. Any such action by the BFC will be communicated to the full Board of Directors within seven days of any decision.
This policy will be subject to periodic review (at least annually) by the CFO and BFC. Specific elements to be reviewed include:
- Appropriate operating fund limits (currently three months’ operating expenses)
- ICANN’s investment objectives and risk tolerances
- Allowable and permitted investments
- Portfolio asset allocation and mix
- Portfolio benchmarks
- Portfolio rebalancing
Exceptions to this policy require BFC and Board approval as necessary. All exceptions should be communicated by the CFO to the BFC within a 48 hour period, or as soon thereafter as is practicable, including details of appropriate action to be taken.