ICANN Investment Policy | Adopted November 2007 | Updated July 2009 | Updated September 2011 | Updated April 2014 | Updated March 2016
Adopted November 2007
Updated July 2009
Updated September 2011
Updated April 2014
Updated March 2016
10 March 2016 - 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 Fund is 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.
PURPOSE OF THE ICANN INVESTMENT POLICY
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.
PHILOSOPHY OF THE ICANN INVESTMENT POLICY
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 fullest extent possible.
- Ensure that funds earn appropriate returns commensurate with the level of risk and real rates of return that can offset the effects of inflation as measured by the CPI over a market cycle.
- 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.
AREAS OF RESPONSIBILITY
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, its financial strength, significant decline in assets under management, SEC investigations, material litigation, changes in portfolio management personnel, ownership structure, investment philosophy, and investment processes.
GENERAL INVESTMENT PRINCIPLES
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. The Reserve Fund is expected to reach and maintain a level of funds to maintain a minimum of 12 months of expected expenditures.
Investment Horizon and Objectives
The Operating Fund has a short-term horizon and a principal preservation objective to meet working capital needs. The Reserve Fund has a medium investment horizon and a conservative-moderate investment objective to enhance return on assets.
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. Historical performance and volatility measures are indicators of its risk profile. A fund with 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 conservative risk profile focusing on capital preservation with minimal principal fluctuation.
The Reserve Fund will have a conservative-moderate risk profile that is 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. Historical performance and volatility measures are indicators of its risk profile and how the fund may perform under different market conditions.
The Operating Fund is expected to earn rates of return commensurate with a principal preservation fund. The three-month US Treasury Bill is therefore considered an appropriate benchmark for a nominal rate of return.
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 provide a total investment return in excess of the performance of the agreed upon composite benchmark. 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.
The Reserve Fund should preserve the real (inflation-adjusted) purchasing power of the Reserve Fund's assets while maximizing real income. Real income is defined as the sum of dividends, interest, and realized gains/losses less the inflation rate as measured by CPI (Consumer Price Index) over a market cycle or rolling 10- year period.
Guidelines: Liquidity Level of Funds
Liquidity is a measure of whether the assets of the fund can be sold for cash without a significant realized principal loss. 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, cash equivalents, or money market instruments (including certificates of deposits, commercial paper or SEC 2a-7 money market funds.) All funds are daily valued and 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. The Reserve Fund may invest in money market instruments and SEC 2a-7 money market funds. 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% realized loss. Losses in excess require BFC and Board approval.
Permissible Investment Vehicles
The Investment Management Company may recommend investments in actively managed and/or passive strategies that invest in marketable securities. These strategies may be institutional mutual funds, collective trusts or commingled funds. The underlying security holdings must be transparent. The strategies must be non-lending portfolios.
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 within a risk-controlled framework and should avoid market-timing changes. Rebalancing should not incur losses or administrative burdens. Portfolio rebalancing is required at least semi-annually and may be as frequent as quarterly or monthly.
The Operating Fund's asset classification is 100% cash, cash equivalents, money market instruments or SEC 2a-7 money market fund. The constraint is zero.
The Reserve Fund's Normal Asset Allocation is 65% Global Bonds and 35% Global Equities and Real Estate. The Asset Allocation is a long term asset allocation target. The Investment Management Company will manage a Tactical Asset Allocation Non-Lending Portfolio consistent with the allocations within the Allowable Investment Range. The portfolio will be rebalanced generally to maintain the allocations. The Investment Management Company may also rebalance in response to changes in economic and market conditions, liquidity requirements or provide defensive positioning to improve downside protection. Market timing is not permissible. The table below indicates the asset allocation ranges:
|Asset Class||Normal Asset Allocation||Allowable Investment Range|
|Global Fixed Income||65%||45%-85%|
|Global Equities & Real Estate||35%||15%-55%|
Guidelines: Global Focus of Funds
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 may be denominated in its functional currencies to meet operating needs but does not require a significant global focus.
The Reserve Fund is suggested to have a significant global focus. The Investment Policy enables the Reserve Fund to invest in global 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 active and/or index fund managers, institutional mutual funds, collective trusts or commingled funds, categories of investments, etc., that comply with the Investment Policy principles and guidelines.
Operating Fund Allowable Assets
Cash, Cash Equivalents, and Money Market Instruments
- Checking accounts in acceptable investment grade financial institutions
- Certificates of Deposit – issued by acceptable investment grade financial institutions
- US Government Treasury securities
- US Agency securities – obligations issued or guaranteed by an agency of the US government
- Commercial Paper – issued by corporations possessing the highest rating issued by Moody's or Standard & Poor's (A1/P1)
- Money market funds – SEC 2a-7 money funds
Reserve Fund Allowable Assets
Investment Grade Fixed Income Securities
- US Government and Agency Securities (e.g., GNMA and FNMA)
- Corporate Notes and Bonds
- Mortgage Backed Bonds
- Asset Backed Securities (e.g., Auto and Credit Card)
- Sovereign Governments, Agencies and Supranationals
- Local Authorities
- Institutional mutual funds or commingled funds which invest in fixed income securities
- Money market instruments, and SEC 2a-7 money market funds
Investments shall be made in fixed income securities that are liquid, marketable and may include notes, bonds, 144A, fixed rate and floating rate securities with minimum investment grade ratings as defined by Moody's (Baa3), Standard & Poor's (BBB-), Fitch (BBB-) or DBRS (BBB Low).
Non-Investment Grade Fixed Income Securities
No more than 10% of the total portfolio may consist of US marketable securities rated below investment grade (limited to BB and B rated), and may include high yield, notes, bonds, 144A, fixed rate and floating rate securities. In the event that registered mutual funds, collective trusts or commingled 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.
Average Portfolio Credit Quality
The minimum weighted average credit quality of the portfolio shall be A2/A.
- Common Stocks
- Preferred Stocks
- Convertible Notes and Bonds
- Convertible Preferred Stocks
- Stocks of Non-US Companies (Ordinary Shares)
- Stocks of REITs
- Non-Lending Institutional Mutual Funds, Collective Trusts or Commingled Funds which invest in securities as allowed in this statement
There shall be no direct investments in non-marketable securities.
Prohibited Assets and Transactions
- Exchange traded or OTC Commodities and Futures Contracts Private Placements
- 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, institutional mutual fund, collective trusts or commingled fund investments may engage in transactions that include prohibited transactions for the purpose of hedging operations to minimize transaction costs, rebalancing and replicating the benchmark.
In the event that institutional mutual funds or commingled 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. The institutional mutual funds, collective trusts or commingled funds must be non-lending portfolios.
Fair Value of Investments
The Investment Management Company must make all investments in securities and funds that have readily determinable fair values. All fair value measurements must be consistent with ASC 820 (FAS 157) which defines fair value and establishes a framework for measuring fair value (market value).
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.
APPROVAL OF DISBURSEMENTS FROM THE RESERVE FUND
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.
PERIODIC REVIEW/APPROVAL OF POLICY AND EXCEPTIONS
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.