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H. Investment Guidelines

1.ÌýÌýÌýThis statement should be read in conjunction with the BOT Investment Policy (BOT IV.H) and is subject to periodic review and modification by the Investment and Capital Planning Committee. State law RSA 292-B, also known asÌýthe Uniform Prudent Management of Institutional Funds Act ("UPMIFA"), forms the conceptual framework forÌý×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û investment policies, guidelines and procedures for both endowment and non-endowment funds.

2.ÌýÌýÌýGeneral Guidelines

2.1ÌýÌýÌýCash Collection and Concentration. The Treasurer will ensure that cash will be collected throughout ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û and concentrated into central demand deposit account(s) as quickly as practical to assure effective custodianship of assets and to enable productive use of cash to pay expenses and/or to maximize investment opportunities.

2.2ÌýÌýÌýCash flow Projections. The Treasurer will forecast working capital needs on a rolling basis by reviewing actual cash flows for the past 24 months and forecasting projected cash flows for the next 24 months, taking into account all available information and assumptions regarding trends, capital projects, debt self-liquidity commitments, anticipated internal borrowing, anticipated uses of reserves, and similar sources and uses of cash.ÌýAdditional cash forecast details should be communicated, if applicable, between the Treasurer and the Investment Advisor/OCIO as agreed upon to ensure liquidity needs are met.

2.3ÌýÌýÌýLiquidity Needs. The Treasurer,Ìýin conjunction with theÌý Investment Advisor/OCIO if applicable,Ìýwill maintain adequate liquidity to meet expenses when due and will manage the maturity of investments to maximize investment opportunities consistent with forecasted working capital requirements described in 2.2 above. The probability of various extraordinary liquidity needs (e.g. capital calls on alternative investments in the endowment fund) will be considered through stress tests so that reasonable risks are factored into liquidity forecasts.

2.4ÌýÌýÌýDue Diligence – Combined Endowment Pool. TheÌýInvestment and Capital Planning CommitteeÌý("Committee") will perform due diligence in the selection and monitoring of the endowment investment advisor, investment managers and investment vehicles. If the Committee selects an advisor to serve in an Outsourced Chief Investment Officer (OCIO) capacity, primary due diligence responsibilities will be performed by the OCIO with monitoring and periodic oversight performed by the Treasurer’s Office and the Committee.ÌýThe investment advisor meets with the Committee several times each year. Major investment managers will meet withÌýthe designated OCIO as needed and on a periodic or as-needed basis; and, in a non-OCIO model, meet withÌýmembers of the Treasurer’s Office and/or the Committee on aÌýperiodic or as-needed basis.

Due Diligence – Other Than The Combined Endowment Pool. The Treasurer's Office will perform due diligence in the selection and monitoring of the investment advisor/OCIO, if applicable. The Treasurer's Office, or the Investment Advisor/OCIO,Ìýif applicable, will perform due diligence in the selection and monitoring of investment managers and investment vehicles.Ìý

2.5Ìý ÌýInvestment Brokers. If applicable, agreements with all brokers, if applicable,Ìýdefining scope of services and responsibilities will be updated annually and kept on file. Brokers will be asked annually to (a) sign a statement that they have received and reviewed the ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û investment policy and guidelines, and (b) provide a copy of their firm’s audited financial statements and insurance certificate.

2.6Ìý ÌýReporting and Monitoring. Detailed reports and analyses of the most recent investment results of the Combined Endowment Pool are presented to the Committee by the investment advisors on a quarterly basis, and summary reports are provided to the Treasurer on a monthly basis. Quarterly detailed reports are reconciled by ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û Controller's Office staff. Monthly monitoring and reconciliation of investment account statements and analytical reports by the manager is conducted by ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û staff.

Downgrades of Investments Below Minimum Ratings. If any security or other investment that requires a minimum rating is downgraded below that minimum after purchase, it will no longer be considered a "permitted investment." Prudent measures shall be taken to liquidate the investment in an orderly fashion to reduce loss of principal.

2.7Ìý ÌýImplementation of Committee Actions. For investment transactions approved by the Committee, theÌýresolution of any significant post-approval implementation details will be delegated to the Treasurer andÌýthe Committee Chair.

2.8Ìý ÌýOperating under an OCIO model, authority is granted to the Chair of the Investment and Capital Planning Committee and the ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û Treasurer to authorize a change in the existing strategic asset allocation ranges as outlined in section 3.4.3.3Ìýin an amount up to $10 million between meetings if circumstances in their judgement warrant immediate action.ÌýIf not operating under an OCIO model and using a traditional advisoryÌýmodel, authority is granted to the Chair of the Investment and Capital Planning Committee and the ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û Treasurer, in consultation with the Investment Advisor, to make changes in the existing portfolio investments in an amount up to $10 million between meetings if circumstances in their judgment warrant immediate action.ÌýAny action taken is to be communicated concurrently to the other members of the Investment and Capital Planning Committee.

3.ÌýÌýÌýCategories of Pooled Investments

3.1ÌýÌýÌýCash and Daily Liquidity Investments

3.1.1Ìý ÌýInvestment objectives in order of importance. (1) safety of principal, (2) same day liquidity, and (3) consistent with the first two objectives, less regard for rate of return.

3.1.2ÌýÌýÌýPermitted investments. Investments with daily liquidityÌýwill be maintained in AAA-rated money market funds complying with SEC Rule 2A-7 (setting strict standards for quality, diversification, and maturity) with the largest national fund managers. Other permitted investments with same-day or next-day liquidity include US Treasury Bills; securities of US Government-backed or guaranteed Agencies and Government Sponsored Enterprises (including but not limited to Federal Home Loan Bank, Federal National Mortgage Association, Government National Mortgage Association) securities with maturities of 3 years or less; overnight repurchase agreements with appropriate collateralization (Treasuries @ 102% or Agencies @ 103%) or other means of mitigating custodial credit risk; and bank deposits.

3.2ÌýÌýÌýNear-term Operating & Capital Obligation Investments

3.2.1ÌýÌýÌýPurposes. To meet the anticipated near-term operating and capital cash obligations of ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û for (including funds needed for anticipated plant construction commitments, etc.) up to approximately 12-18 months, and to provide a liquid source of funds in the event the Cash and Daily Liquidity Investments are insufficient to meet ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û's cash needs.ÌýFor the combined sections 3.1 and 3.2, ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û will target at total of approximately 60 days cash and short-term investments on hand.

3.2.2ÌýÌýÌýInvestment objectives in order of importance. (1) reasonable safety of principal, (2) same day to 30 day liquidity, and (3) consistent with the first two objectives, an above-market rate of return, mostly in the form of dividends and interest income.

3.2.3ÌýÌýÌýPermitted investments. These balances may be maintained in securities permitted in the Daily Liquidity InvestmentsÌýas well as the following: securities of US Government-backed or guaranteed Agencies and Government Sponsored Enterprises (including but not limited to Federal Home Loan Bank, Federal National Mortgage Association, Government National Mortgage Association) securities with maturities of greater than 3 years; high quality bond mutual funds with the largest national fund managers and with up to an average of 3 years duration for the portfolio; high quality domestic fixed income securities and other fixed or floating rate securities of domestic corporations or municipalities with long-term investment ratings by Standard & Poor's and Moody's of AA/Aa or better and maturities of up to 365 days; commercial paper and other securities of domestic corporations or municipalities with investment ratings by Standard & Poor's and Moody's of A1/P1; negotiable certificates of deposit, bankers' acceptances, commercial paper and other floating or fixed rate notes or instruments issued by banks with a similar high rating by an independent rating service, FDIC or FSLIC Insurance, and a demonstrated record of profitability; and similar securities that can be readily converted to liquid cash with a minimal fluctuation of principal value that are domestic, dollar-denominated, non-leveraged, non-derivative, marketable securities registered with the Security and Exchange Commission.

3.2.4Ìý ÌýUse of Reserves. The use of reserves impacts the amount of available Operating and CapitalÌýfunds and therefore requires careful evaluation and planning. Unbudgeted use of reserves as defined in BOT IV.B.2.6 must be approved in advance by the Financial Affairs Committee. Planned use of reserves on any campus greater than $1 million must be communicated as far in advance as possible with the Treasurer's Office to aid in preparing accurate cash flow and fund balance projections.

3.3ÌýÌýÌýExcess Cash, Daily Liquidity Investments and Near-Term Operating & Capital Investments

3.3.1ÌýÌýÌýPurpose. To optimize earned income on long-term funds which will be expended by ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û only in the event of severe financial emergency or unusual capital and/or operating needs.

3.3.2ÌýÌýÌýInvestment objectives in order of importance. (1) an above-market total rate of return averaged over a number of years, and (2) consistent with the first objective, a measured tolerance for risk and adequate liquidity.

3.3.3ÌýÌýÌýPermitted investments. These balances will generally be maintained in diversified fixed income securities with maturities of over 365 days and equity or bond mutual funds with intermediate to long durations. Alternatively, these funds may be invested alongside the endowment in the Combined Endowment Pool (below), or with appropriate Chancellor or Financial Affairs Committee approval, may be added to the CEP as a quasi-endowment (see BOT IV.G.3), with or without adoption of the standard spending formula.

3.3.4ÌýÌýÌýAllocation of available Excess Cash & Daily Liquidity Investments funds. Amounts above the minimum specified in section H.3.3.1 may be moved to Near-Term Operating & Capital InvestmentsÌýat the discretion of the Treasurer, or directed on an annual basis to the Long Term Treasury Investments quasi-endowment fund in the Combined Endowment Pool at the recommendation of the Investment and Capital Planning Committee and the approval of the Financial Affairs Committee.

3.4ÌýÌýÌýCombined Endowment Pool ("CEP")

3.4.1ÌýÌýÌýPurpose. To maximize total returns over a very long time horizon and to support intergenerational equity by employing spending levels which will maintain market value in real terms (i.e., adjusted for expected inflation in the cost of the supported programs and services) in perpetuity, balancing current and future needs specified by the individual endowment fund. Individual endowments purchase units in the CEP monthly based on the current market value per unit.

3.4.2ÌýÌýÌýInvestment objectives in order of importance. (1), an above-market rate of total return using a five year planning horizon and (2) consistent with the first objective, a measured tolerance for risk and adequate liquidity.

3.4.3ÌýÌýÌýPermitted investments. These balances will generally be maintained in equities, fixed income, and alternative investments with varying maturities.

3.4.3.1ÌýÌýÌýAsset allocation. Target asset allocations are designed to provide broad diversification of asset categories and investment styles with the objective of minimizing downside risk while capturing upside returns. Expected returns and risks are modeled on a periodic basis by the investment advisor to determine an appropriate target asset allocation given the Committee's risk/return objectives. The Committee will review the actual and target allocations at least annually and affirm or revise specific allocation targets.

3.4.3.2ÌýÌýÌýLiquidity. Increased investment returns often come at the price of illiquidity. Liquidity allocation parameters therefore seek to permit potentially higher yielding illiquid investments while managing certain key risks: diminished marketability of endowment assets, reduced transparency of fund manager decisions, and delayed release of investment performance and valuation information. The target allocation for illiquid investments is 20%, with a maximum limit of 25%.

3.4.3.3ÌýÌýÌýStrategic asset allocation targets. The following table reflects the current allocation targets.

3.4.3.4ÌýÌýÌýTargets for alternative assets. It is understood that because some of the targeted allocations include alternative investments the actual investment allocation may not precisely align with the respective target allocation. Private equity and venture capital investments in particular often have long lead times to completely fulfill committed capital draws, and can make capital distributions which contribute to imprecise target allocations. Allocation ranges, as specified in H.3.4.3.3 above, allow for such timing and valuation variations.

3.4.3.5ÌýÌýÌýValuation of alternative assets. Every attempt will be made to obtain timely and accurate valuations each month/quarter from alternative asset managers. Where estimated valuation reports are not received within 30 days of period end, the ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û Controller's Office, in conjunction with the investment advisors, will roll forward the previous period’s amounts by reflecting any additional investments, capital calls, return of capital, etc., and will contact the manager to obtain oral or other evidence of the appropriate value. Stated valuations for the major funds or funds-of-funds will be tested for reasonableness by conferring with the fund manager and/or investment advisor to review significant events or economic conditions which may have had a material effect on the fund value. With the assistance, as needed, of the investment advisor, the ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û Controller's Office is responsible for understanding the valuation methods and accounting principles used by each major fund and for assigning its best, objective estimate of valuations in the year end audited ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û financial statements.

3.4.3.6ÌýÌýÌýAllocation Ranges and Rebalancing. Depending on the asset type, actual allocations typically are allowed to vary within a stated range, as specified in H.3.4.3.3 above. This is acceptable for tactical over or under-weighting, for changes in market values of various components over time, and to allow for the investment and valuation idiosyncrasies of certain alternative investments as discussed in H.3.4.3.5 above. The advisor is responsible for rebalancing on a periodic basis to maintain actual asset allocations within acceptable ranges of the strategic targets approved by the Investment and Capital Planning Committee.

3.4.3.7ÌýÌýÌýTreasurer's management responsibilities. With respect to newly received gifts and other funds for endowment and non-endowment purposes as well as for cash holdings above the approved target, the Treasurer will cause all such funds to be invested in an orderly and timely fashion according to approved asset allocation targets and existing investment vehicles, giving due consideration to liquidity needs for payout distribution.

3.4.4ÌýÌýÌýStandard spending formula. Changes to the standard spending formula is recommended by theÌýInvestment and Capital Planning CommitteeÌýand approved by the Financial Affairs Committee.

3.4.4.1ÌýÌýÌýObjectives. The standard spending formula will be established such that the endowment funds can continue to pay out annual amounts in perpetuity, without a reduction in purchasing power. For example, if an endowment fund provides for one in-state tuition scholarship today it will be expected to provide for one in-state tuition scholarship 25 years from now. This contemplates increased tuition costs at levels which have historically increased slightly higher than the consumer price index. This increased level of future costs could be assumed to be 2% above the historical average CPI in recent years of 2.5%. In other words, ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û may target 4.5% growth in the invested balance of an individual endowment fund over a very long time horizon. Other objectives of the standard spending formula include (a) predictable and dependable annual payout amounts to support ongoing programs and services; (b) timely annual payout data to enable departments to incorporate estimated payouts in annual budget development; and (c) to the extent possible, maintenance of similar payout policies with the UNH Foundation.

3.4.4.2ÌýÌýÌý×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û institutional variances. The standard spending formula, both for purpose and for an administrative fee as provided under guidelines by the state Attorney General, may vary by ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û institution.

3.4.4.3Ìý ÌýPayout for purpose. To avoid a rebuttable presumption of imprudence per UPMIFA, RSA 292-B:4 VI, the standard spending formula for purposes specified by donors (restricted funds) will be calculated using the 12-quarter moving average of the endowment fund’s market value per unit for the period ending the preceding December 31 and consider the objectives outlined in 3.4.4.1.

3.4.4.4Ìý ÌýPayout for administration. Per State of NH Attorney General guidelines, the standardÌýspending formula for an administrative fee may not exceed 1% of the market value per unit. The Administrative fee is calculated on the trailing twelve quarter moving average market value per unit of the preceding December 31 without regard to the limitations in H.3.4.4.3 above.

4.ÌýÌýÌýMitigation of Credit Risk for the System is defined to include all Cash and Investments excluding the UNH Foundation (UNHF), Keene Endowment Association (KEA) and any other separately invested assets of the System.

4.1ÌýÌýÌýCredit Risk. Credit risk is the risk of loss of principal due to default of the security issuer. Credit risk will be mitigated by (a) due diligence in the selection and continuing review of competent investment managers, and (b) diversification of investments and investment managers, as follows:

4.1.1ÌýÌýÌý×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û's directÌýinvestment in any one entity's commercial paper may not exceed $10 million.

4.1.2ÌýÌýÌýWith respect to credit risk exposure, except in unusual circumstances, no more than 15% of total portfolio assets may be invested in any one actively managed strategy. If an investment manager is retained to manage more than one strategy, that manager will be limited to 20% of total portfolio assets. Passively managed investment strategies will not be limited within the portfolio, however, any one manager of passive strategies will be limited to 20% of total portfolio assets.

Any manager positions exceeding these limits will be reviewed by the Advisor who will take the appropriate course of action to bring active manager exposures back in line with the concentration limitÌýas soon as possible within the terms of redemption for the investment.ÌýIf ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û leadership and/or the Advisor wants to exceed the concentration limits beyond the reasonable amount of time required to rebalance the investments and bring the manager exposure back into alignment, committee approval should be requested.

4.1.3Ìý Ìý×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û investments as a percentage of an institution's total deposits may not exceed 5%.

4.1.4ÌýÌýÌý×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û investments as a percentage of an institution's net equity may not exceed 20%.

5.ÌýÌýÌýMeasurement of Investment Performance

5.1ÌýÌýÌýPerformance Evaluation Benchmarks

Benchmarks are useful to gauge the performance of ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û's investments, but they are best considered over longer periods, generally three-to-five years. The specific benchmarks and weighting for the CEP will be formalized in cooperation with the investment advisor. The performance of the Fund's investment managers will be actively monitored by the Investment and Capital Planning Committee, the Treasurer and/or the advisor, who will report any meaningful observations and performance deviations in a timely manner. Quarterly performance will be evaluated versus appropriate benchmarks and peer universities, but emphasis will be placed on relative performance over longer investment periods.

5.2ÌýÌýÌýQuarterly Reporting. Investment results are compared to stated indices no less frequently than quarterly.

6.Ìý ÌýCommittee Reporting

6.1Ìý ÌýAt each meeting of the Committee, the ×î¿ì¿ª½±Ö±²¥½ÁÖé½á¹û Treasurer’s Office and the OCIO, as applicable, will notify the Committee of any deviation to the policy or guidelines as stated and how the deviation was addressed/mitigated or seek approval for a change in the policy or guidelines.