Adopted 20 December 2012
- PURPOSE OF THIS DOCUMENT
- ICANN's OBJECTIVES
- USE OF EXTERNAL RESOURCES
- INVESTMENT GUIDE LINES
This documents sets out the Investment Policy agreed by the ICANN Board of Directors for the investment of cash on hand (funds) pertaining to the New gTLD program. This document has been prepared jointly with ICANN's external financial advisors.
The ICANN Board of Directors has set out the following three main objectives:
- First, ensure that funds are safe and the capital is preserved.
- Second, ensure that funds remain liquid to meet the needs of ICANN's new New gTLD operations.
- Third, ensure that funds earn appropriate returns commensurate with the level of risk.
In order to meet the above objectives, ICANN will retain external investment expertise to hold (custodian bank) and invest (investment manager) funds. A firm can be both a custodian bank and an investment manager for ICANN, if the separate criteria for each role are all met at the same time and no conflict between the role of manager and the role of custodian is identified.
ICANN will not borrow funds from any institution to leverage the portfolio or for speculative purposes. ICANN may enter reverse repurchase agreements with prior approval from the Chief Financial Officer to provide short-term liquidity, if necessary.
ICANN will at all times use a sufficient number of custodian banks so that no one custodian bank holds more than 80% of the insurance amount that such bank has in place.
If 80% of the insurance amount in place at a custodian exceeds $75m, the amount of funds held by any custodian will not exceed $75m.
Provided that the above conditions are met, ICANN will not use more than 5 different custodian banks, for practical purposes. This last limit was determined assuming that most custodian banks have in place an insurance amount at or above $100m.
Until such time that the new gTLD funds invested under this Investment Policy exceed in aggregate $150m, ICANN will use at least 3 different investment managers. When the amount of new gTLD funds invested will be less than $150m, the CFO will consult an advisor, and will recommend a reduction of the number of investment managers if deemed appropriate.
External investment manager(s) utilized must meet the following criteria:
- Must be an SEC-registered investment advisor with SEC Form ADV readily available and in good standing with regulators.
- Manage a minimum of $1 billion in institutional fixed income portfolios.
- Have a verifiable fixed income performance record for the prior five years that complies with the CFA Institute's GIPS (Global Investment Performance Standards).
The external Investment Manager(s) will have the following responsibilities:
- Comply with all guidelines and limitations set forth in the Investment Policy.
- Analyze, oversee, direct the execution of investment decisions
- Report monthly to the CFO on the performance of the Processing Fund and compliance with the Investment Policy and the overall credit quality, duration and cash flow of the portfolio.
- Communicate any major changes to economic outlook, market conditions, investment strategy, credit downgrades or any other factors, which affect the portfolio(s).
- Be available to report periodically to the Board of Directors on the performance results and cash flow projections of the Processing 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 CFO (or CEO) regarding any significant changes including changes to the investment management firm, its financial strength, significant changes in assets under management, SEC investigation, material litigation, changes in portfolio management personnel, ownership structure, investment philosophy, and investment processes.
- Provide ICANN with all requisite monthly and quarterly reports, including, but not limited to:
- Credit ratings, downgrades/upgrades
- Sector allocations
- Maturity/Duration distribution
- Total rates of return (CFA Institute's GIPS)
- Reports of any realized and unrealized capital gains/losses
- Benchmark comparisons
All investments managed by external investment managers must be held in bank custodial account(s) that are segregated from the firm's assets. All transactions will be reconciled to the custody account statements on a monthly basis.
Custodian bank(s) must meet all of the following criteria:
- Minimum long-term debt credit rating of Investment Grade (A4/A-) as determined by any two of the NRSROs (Nationally Recognized Statistical Rating Organizations).
- Must have an unqualified SSAE 16 (formerly SAS 70) audit by an independent audit firm that is registered with PCAOB (Public Company Accounting Oversight Board created by Sarbanes-Oxley)
- Must maintain insurance: Financial Institutions Bond that covers losses from employee theft, loss of securities on premises/in transit, forgery, etc. and Professional Liability (Errors & Omissions).
The custodian bank(s) will have the following responsibilities:
- Hold fiduciary responsibility for all assets in the Fund.
- Comply with all guidelines and limitations set forth in the Investment Policy.
- Complete all actions instructed by the investment managers including buying, selling, and holding of individual securities for all asset types in all asset classes.
- Must provide accounting reports that are consistent with FAS 124.
- Must provide a complete and detailed listing of all securities held for this account, fair market values, amortized cost values of each security, realized and unrealized gains/losses, accrued and earned interest and a detailed transaction report on a monthly basis.
- Must price the securities at each month end at fair market value using independent third party pricing services that are consistent with FAS 157.
Funds will be invested in assets that are expected to yield the greatest investment return given the risk profile, cash flow needs, and other parameters of the fund.
The Processing Fund is expected to earn rates of return commensurate with a capital preservation fund. The BOAML 3 Month LIBID is considered an appropriate performance benchmark for the short-term portion of the portfolio. The longer-term portion benchmark is to be determined.
The portfolio will maintain a minimum weighted average portfolio quality of A3 by Moody's and A- by Standard & Poor's.
Portfolio diversification will be a tool for minimizing risk while maintaining liquidity. No more than 5% of the portfolio will be invested with any one issuer, with the exception of the U.S. Treasury and its Federal Agencies for which no limit will be imposed.
Government Sponsored Enterprise (GSE) issued mortgage-backed securities will be limited to 5% per issue basis rather than per issuer. Each FNMA or FHLMC mortgage backed security must have different underlying mortgages and a different CUSIP number.
GSE debentures will be limited to 20% per issuer.
Asset backed securities will be limited to 5% per issue basis rather than per issuer. Each asset-backed issue must have a different trust, different underlying collateral and different CUSIP number.
Money market fund investments will be limited to a maximum of 5% of the specific fund's total assets.
Prohibited securities include auction rate securities, auction rate preferred stock and perpetual preferreds, securities with short-puts on bonds with long stated final maturities, collateralized bond obligations (CBOs), collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), collateralized trusts that have embedded leverage, interest only securities (IOs), super POs and principal only securities (POs), residuals, credit default swaps (CDS), tiered indexed bonds and two –tiered indexed bonds, mortgage backed securities. Floating rate securities with embedded interest rate caps, collars, inverse interest rate relationships, leverage floaters, and indices not directly correlated with money market interest rate movements are not permitted. Securities with deferred interest payments, extendible maturities at issuer's option, structured investment vehicles (SIVs), and subordinated issues are not eligible for the investment portfolio.
There will be no foreign currency or margin purchases; short sales; options, uncovered call options, puts, or straddles; futures or commodity futures; letter stock; illiquid securities; non-financial commodities such as precious metals; direct ownership of real estate or mortgages; international securities unless listed on a National Exchange and U.S. dollar denominated; or direct interest in gas, oil or other mineral exploration or development programs and hedge funds.
- All eligible securities must carry at least one credit quality rating from Moody's, Standard & Poor's, Fitch, or DBRS. In the case of split ratings, the lower of the ratings will be considered the overall credit rating.
- The Investment Manager's responsibility for assessing the credit quality of eligible securities is ongoing on a daily basis and is not limited to credit quality at the time of purchase.
- All eligible securities must be senior notes or senior classes of the capital structure of the issuer or the senior tranche or class of the collateralized issue. Notes, tranches or classes, preferred shares and equities that are all junior to senior notes of all eligible issuers are prohibited.
- Floating rate securities have a stated final maturity of up to 5 years. Floating rate securities have interest rates linked to a well-recognized money market index such as the Treasury Bill, LIBOR or Federal Funds with coupon resets weekly, monthly, quarterly, semi-annually or annually are eligible investments.
- Fixed rate securities are limited to 3.5 years stated final maturity or 3.5 year weighted average life (WAL).
- All investments will be U.S. dollar-denominated.
- The funds may be invested with a moderate global focus if the securities are USD, meet the principles of the investment policy, and are eligible assets.
a - United States Treasury Securities
Marketable securities which are direct obligations of the U.S.A., issued by and guaranteed as to principal and interest by the U. S. Treasury and supported by the full faith and credit of the United States.
b - United States Government Agency Securities
Federal Agency Securities
Certain corporations wholly owned by the U.S. Government such as Government National Mortgage Association (GNMA) or the Small Business Association (SBA) issue debt securities that are backed by the "full faith and credit" of the U.S. Government.
c - Government Sponsored Enterprises (GSEs)
Enterprises chartered by Congress to fulfill a public purpose, but privately owned and operated are not government agencies despite government sponsorship. GSEs include, but are not limited to the Federal Farm Credit Banks (FFCBs), the Federal Home Loan Banks (FHLB), the Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA).
d - Tri-Party Repurchase Agreements
Tri-party repurchase agreements (repos) will be transacted only with financial institutions that are rated a minimum of A3 by Moody's or A- by S&P. All transactions must be fully collateralized by U.S. Treasury, U.S. Federal Agency obligations, Government Sponsored Enterprises, money market instruments, or corporates eligible within this policy. Collateral must be market-priced greater than the invested amount on a daily basis (minimum of 102%). Up to a maximum of 10% of the portfolio may be invested with one counterparty. Transactions are limited to 15-day maturities.
e - Money Market Funds
Institutional money market funds that comply with SEC 2a-7, offer daily liquidity and do not have a fluctuating net asset value (NAV). Enhanced cash, LIBOR Plus funds that are not SEC 2a-7 compliant and whose net asset value (NAV) may fluctuate are not permissible as money market funds.
f - Money Market Instruments
Short-term obligations of financial institutions and corporations including but not limited to commercial paper, asset-backed commercial paper (ABCP), time deposits, certificates of deposit (CDs). Instruments must have a minimum short term rating of A-1 by S & P or P-1 by Moody's.
g - Corporate Debt Instruments
Unsecured promissory notes issued by corporations or financial institutions including but not limited to Medium-Term Notes, Deposit Notes, 144(a) Securities, Eurodollar Notes and Yankee Notes and Bonds must be rated at least Baa3 by Moody's or BBB- by S&P or equivalent.
h - Non-US Sovereign, Supranational Organizations or International Agencies
Notes, bonds or debt instruments issued by non-U.S. sovereigns that are direct obligations of the sovereign or supported by the full faith and credit of that sovereign are eligible investments. Supranational organizations or international agencies including but not limited to World Bank (WLDB), Asian Development Bank, Inter-American Development Bank, Agency for International Development (AID) are eligible investments. All investments must have a minimum long-term debt rating of Aa3 by Moody's or AA- by S&P or equivalent. All securities must be U.S. dollar denominated.
i - Non-US Governmental or Federal Agencies
Senior debentures of any governmental or federal agency which obligations are guaranteed by the sovereign nation or represent the full faith and credit of the sovereignty must have a minimum rating of Aa3 by Moody's or AA- by S&P or equivalent. All securities must be U.S. dollar denominated.
j - Local Governments or Authorities
Debt obligations of provinces, states, municipalities or local governments guaranteed by a governmental body must have a minimum long term debt rating of Aa3 by Moody's or AA- by S&P or equivalent. All securities must be U.S. dollar denominated.
k - Asset-Backed Securities (ABS)
ABS are bonds, including commercial paper, backed by the monthly cash flows associated with consumer and business receivables that are packaged by a company and sold in the securities markets. Securities supported by assets, such as automobile loans, truck loans, credit card receivables, rate reduction bonds, floorplans and other loans or assets that are owned by the issuer and, usually, placed with a trustee. Assets that are second liens, home equity loans, manufactured housing with long stated final maturities and are sensitive to prepayment changes and extension risk are not eligible. Eligible securities must be senior notes, have a WAL (Weighted Average Life) of 3.5 years or less, must be rated at least Aa3 by Moody's or AA- by S & P or equivalent.
l - US Municipal Obligations or Local Authority
Direct obligations of or obligations fully guaranteed by a state, territory, or a possession of the United States must have a minimum rating of A3 by Moody's or A- by S&P or equivalent.
Pre-Refunded bonds or Escrowed to maturity for principal and interest by U.S. Treasury and/or U.S. Federal Agency securities are eligible investments.
Approved credit enhancements for securities when issuer's standalone credit rating is A3 by Moody's or A- by S&P or higher and subject to a 5% per issuer limit include:
- Bank Letter of Credit (LOC), irrevocable and unconditional, rated A-1 by S&P or P-1 by Moody's or equivalent. Limited to 5% of portfolio value per LOC provider.
- Insurance by any monoline insurer rated Aa3 by Moody's or AA- by S&P or equivalent. Limited to 5% of portfolio value per insurer.
Each Investment Manager will report results to ICANN monthly. In addition to the net investment performance detailed above, written reports will include a review of the credit quality and risk characteristics of the portfolio, portfolio cash flows and a synopsis of the Investment Manager's economic and investment outlook.
ICANN will monitor the Investment Manager(s) on a continual basis for compliance with the investment guidelines, liquidity and investment risk as measured by asset concentration and market volatility.
ICANN will communicate regularly as to its cash flow needs in order for the Investment Manager(s) to modify the portfolio accordingly. ICANN will be responsible for advising the Investment Manager in a timely manner of ICANN's distribution requirements from any managed portfolio or fund. The Investment Manager is responsible for providing adequate liquidity to meet such distribution requirements. ICANN's Chief Financial Officer will be responsible for communicating the cash flow requirements to the Investment Manager in a timely manner.
The Board of Directors of ICANN will direct the ICANN New gTLD Investment Policy, including:
- Approve the new gTLD Investment Policy and any suggested changes to it.
- 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:
- Ensure that an adequate process of selection of external resources is in place.
- Periodically review the compliance to the Investment policy and report to the full board the compliance with the Investment Policy.
- Periodically reviews the performance of the invested portfolio.
ICANN's CFO, with the assistance of ICANN staff, will oversee the administration of the Investment Policy, including:
- Monitors and direct all activities related to funding daily operations.
- Manages the selection process for selecting external resources
- Appoints external resources.
- Monitors the activities of the Investment Manager(s).
Periodically reports to the Board of Directors on the liquidity, performance of the Fund and compliance with the Investment Policy.
Any intended exceptions to this Investment Policy by an external manager must be documented by written approval from ICANN's Chief Financial Officer prior to execution of the transaction. In the event that any unintended exceptions to this Investment Policy do occur, it will be reported to ICANN as soon as the external Investment Manager becomes aware of the violation. Actions to eliminate any unauthorized exception to this Investment Policy will be cured immediately and at the expense of the external Investment Manager. If an investment rating for a security is reduced below the minimums set by this Investment Policy, the external investment manager will contact ICANN immediately and an action plan will be agreed upon by both parties.
Potential investments should be analyzed in light of ICANN's tax-exempt status as a nonprofit organization. This Investment Policy permits trading securities (realizing gains/losses) by the Investment Manager within specific constraints.
All portfolio managers must notify the Chief Financial Officer immediately to obtain pre-authorization in order to realize a net loss in any given month. Any material event that affects the value of the portfolio must be reported immediately.
If the portfolio's exposure to an individual issuer is increased in excess of 5% due to an unexpected cash withdrawal, the portfolio manager will contact the Chief Financial Officer within 48 hours to continue to hold the bonds or will have the discretion to sell bonds to reduce the exposure to below 5%.
For investment accounting purposes the portfolios will be subject to Statement of Financial Accounting Standards Board Statement No. 124, "Accounting for Certain Investments Held by Not-for-Profit Organizations."
All eligible securities must carry at least one credit quality rating from Moody's, Standard &Poor’s, Fitch, or DBRS. In the case of split ratings, the lower of the ratings will be considered the overall credit rating. The Investment Manager’s responsibility for assessing the credit quality of eligible securities is ongoing on a daily basis and is not limited to credit quality at the time of purchase.
All eligible securities must be senior notes or senior classes of the capital structure of the issuer or the senior tranche or class of the collateralized issue. Notes, tranches or classes, preferred shares and equities that are all junior to senior notes of all eligible issuers are prohibited.
Floating Rate Securities
Floating rate securities whose interest rates are linked to a well-recognized money market index such as the Treasury Bill, LIBOR or Federal Funds with coupon resets weekly, monthly, quarterly semi-annually or annually are eligible investments. Stated final maturities permissible up to 5 years.
Fixed Rate Securities
Fixed rate securities are limited to 3.5 years stated final maturity or 3.5 year weighted average life (WAL).
|Per Issuer||5% of portfolio per issuer; no per issuer limit for U.S. Treasury and Federal Agency Securities|
|Per Repurchase Agreement||10% maximum per counterparty|
|Per ABS, MBS, CMBS, CMO trust issue||5% of the portfolio per trust, different collateral, different CUSIP|
|Money Market Funds||5% of specific money fund’s assets|
|Per GSE Debenture Issuer||20%|
|Eligible Investments||Minimum Credit Quality||Additional Limits||Diversification
|US Treasury Securities||NA||100%|
Federal Agency Securities
|NA||20% per issuer||100%|
|Counterparty rated A3/A-||102% collateral; 15 days; 10% per counterparty||20%|
|SEC 2a-7 Money
|NA||5% of money fund's assets||25%|
(CP, ABCP, CD)
(MTN, 144a, notes, bonds)
|Baa3/BBB-||45% >A rated
15% BBB rated
|Aa3/AA-||U.S. dollar denominated||40%|
|Aa3/AA-||U.S. dollar denominated||30%|
or Federal Agencies
|Aa3/AA-||U.S. dollar denominated||30%|
|Local Governments or Authorities||Aa3/AA-||U.S. dollar denominated||25%|
|Aa3/AA-||Assets that are second liens, home equity loans, manufactured housing with long stated final maturities or extension risk are excluded.||15%|
|US Municipal Obligations Local Authority||A3/A-||15%|
- Bank Letter of Credit (LOC), Irrevocable and unconditional
- Monoline insurance
5% per issuer limit
|Currencies||- All eligible investments will be U.S. dollar-denominated.|
|Average Portfolio Quality||A3/A-|
|To be determined.|