Minutes | Meeting of the Finance Committee of the Board (BFC) | 6 July 2022
BFC Attendees: Becky Burr, Avri Doria, Danko Jevtović (Chair), and Ihab Osman, Tripti Sinha
BFC Member Apologies: Harald Alvestrand and Mandla Msimang
Other Board Member Attendees: James Galvin, Patricio Poblete, and Katrina Sataki
ICANN org Attendees: Xavier Calvez (SVP, Planning and Chief Financial Officer), John Jeffrey (General Counsel and Secretary), Elizabeth Le (Associate General Counsel), Becky Nash (VP, Planning), Shani Quidwai (Sr. Director, Finance), and Amy Stathos (Deputy General Counsel)
Invited Guests: Representatives of State Street Global Advisors (SSGA) and Bridgebay Financial Inc.
The following is a summary of discussions, actions taken, and actions identified:
- BFC Workplan – The BFC discussed its Workplan, which is on target.
- Investments Overview and Presentation from ICANN's Fund Manager – The BFC discussed the current market volatility, which has translated into declines across all markets globally for the past several months. ICANN org and its banking partners have been evaluating the adequacy of current investment strategy in relation to the current market volatility and whether any changes to the strategy is warranted. The evaluation has resulted in no recommended changes to the investments for the Operating Fund, the Supplemental Fund for Implementation of Community Recommendations (SFICR), or funds for the New gTLD Program and Auction Proceeds given that the goals for these investments are capital preservation, liquidity, and returns on investment (listed in order of priority). For the Reserve Fund, ICANN org is recommending minor edits to the Investment Policy to expand the allowable investment options and better position the portfolio to address challenges, such as that the financial markets are currently experiencing. The recommended changes relate to expanding the investment options to include additional investment options of Emerging Market Bonds, Floating Rate Bank Loans, and Commodities. The recommended changes do not change the overall strategy and asset allocation of the Reserve Fund, which is recommended to remain unchanged. The BFC received a briefing from ICANN's fund manager, SSGA, on a proposed asset allocation adjustment. SSGA explained that the proposed changes would impact a small percentage (approximately nine percent) of the portfolio's overall asset classification of 65 percent Bonds and 35 percent Equities. SSGA noted that the proposed additional investment options will create greater diversification and would provide for more levers to be able to mitigate against a broader array of risks that ICANN faces today and in the future.
- Presentation from ICANN's Investment Advisor – The Committee received a briefing from ICANN's investment advisor, Bridgebay Financial, Inc. (Bridgebay), regarding the Reserve Fund asset allocation, particularly in light of the current volatility in the market due to rising interest rates and global inflation, and the recommended changes to the Reserve Fund's asset allocation. Bridgebay supported the proposed asset allocation changes, noting that the proposed changes are designed to address changes in market conditions, particularly the rapid rise in interest rates. Bridgebay noted that global inflation is the highest in 40 years. Bridgebay further noted that Floating Rate Bank Loans are a risk that is well protected from default since they are loans secured by first lien on company assets and are senior to other debt holders. From a credit risk perspective, Bridgebay indicated that Emerging Market Bonds are strong with an average credit rating of BBB. They are government bonds issued by emerging market countries in their local currency. Many of these countries are commodity exporters and there is diversification since the ETF (exchange traded funded) that is being recommended for investment has exposure to multiple countries. Bridgebay noted that Commodities are intended to address high inflation and benefit from the increase in rising commodity prices. Bridgebay suggested that the Committee review the Commodities allocations in a year because this is a very fast-moving unpredictable market.
BFC Decision – Following the presentations from SSGA and Bridgebay, and the upon further discussion by the BFC, the Committee approved a recommendation to the Board to approve an update to the ICANN Investment Policy to expand the allowable investment option for the Reserve Fund to include Emerging Market Bonds, US Floating Rate Bank Loans, and Commodities. The Revised Investment policy includes the targeted strategic asset allocation and the allowable investment ranges for the various assets that compose the Reserve Fund.
- Actions: ICANN org to prepare relevant Board materials.
Published on 25 August 2022