San Bruno Community Foundation

Investment Committee Pak Lin, Chair • Anthony C lifford, Mark Hayes, T im Ross, and Belinda W ong, Members Leslie Hatamiya, Executive Director www.sbcf.org PUBLIC COMMENT: Attendees who want to provide public comment will be asked to fill out a speaker card and submit it with the SBCF Executive Director. Public comment may also be emailed to info@sbcf.org. Comments received via email will not be read aloud during the meeting. Materials related to the agenda distributed after it is published will be available for public inspection at San Bruno City Hall, 567 El Camino Real, San Bruno, in compliance with the Brown Act. ACCESSIBILITY: In compliance with the Americans with Disabilities Act, individuals requiring special accommodations or modifications to participate in this meeting should contact the SBCF Office 48 hours prior to the meeting at (650) 763-0775 or info@sbcf.org. AGENDA SAN BRUNO COMMUNITY FOUNDATION Regular Meeting of the Investment Committee May 15, 2024 4:30 p.m. Meeting Location: San Bruno City Hall, 567 El Camino Real, Room 101, San Bruno 1. Call to Order 2. Roll Call 3. Public Comment: Individuals are allowed three minutes at this time to comment on items within the jurisdiction of the Committee that are not on this agenda. It is the Committee’s policy to refer matters raised in this forum to staff for research and/or action where appropriate. The Brown Act prohibits the Committee from discussing or acting upon any matter not agendized pursuant to State Law. 4. Approval of Minutes: February 21, 2024, Regular Investment Committee Meeting 5. Executive Director’s Report 6. Conduct of Business a. Receive Report from Sand Hill Global Advisors, LLC (SHGA) regarding SHGA’s Investment Outlook and SBCF’s Investment Portfolio Performance Page 1 of 2  Investment Committee Pak Lin, Chair • Anthony C lifford, Mark Hayes, T im Ross, and Belinda W ong, Members Leslie Hatamiya, Executive Director www.sbcf.org b. Discuss and Provide Direction Regarding Future Cash Flow Strategies Related to Funding of Recreation and Aquatic Center Project c. Adopt Resolution Recommending to the SBCF Board of Directors the Quasi-Endowment Payout Rate for Fiscal Year 2024-2025 d. Conduct Annual Review of SBCF’s Investment Policy Statement and Investment Operating Plan 7. Committee Member Comments 8. Adjourn: The next regular meeting of the Investment Committee will be held on Wednesday, August 21, 2024, at 4:30 p.m. Page 2 of 2  Investment Committee Pak Lin, Chair • Anthony C lifford, Mark Hayes, T im Ross, and Belinda W ong, Members Leslie Hatamiya, Executive Director MINUTES SAN BRUNO COMMUNITY FOUNDATION Regular Meeting of the Investment Committee February 21, 2024 4:30 p.m. Meeting Location: San Bruno City Hall, 567 El Camino Real, Room 101, San Bruno 1. Call to Order: Committee Chair Lin called the meeting to order at 4:30 p.m. 2. Roll Call: Committee Members Lin, Clifford, Ross, and Wong, present; Hayes, excused. 3. Public Comment: None. 4. Approval of Minutes: November 15, 2023, Regular Investment Committee Meeting: Committee Member Wong moved to approve the minutes of the November 15, 2023, Regular Meeting, seconded by Committee Member Ross, passed unanimously by roll call vote (Hayes absent). 5. Executive Director’s Report Executive Director Hatamiya gave an update on the Foundation’s activities, first summarizing recent program highlights: • Community Grants Fund: The Foundation Board approved 26 Community Grants totaling $300,000 in December. The Board has been busy presenting grant checks to the community groups, some still virtually but increasingly in person. She shared some photos of various grant check presentations. • Crestmoor Scholarship: The 2024 Crestmoor Scholarship program launched in December, with a March 5, 2025, application deadline. The Foundation plans to award $160,000 in scholarships this spring. • Recreation and Aquatic Center (RAC): Ms. Hatamiya noted that the project has continued to experience some hiccups in recent months, due to weather and power issues. She noted that Page 1 of 4  Investment Committee Pak Lin, Chair • Anthony C lifford, Mark Hayes, T im Ross, and Belinda W ong, Members Leslie Hatamiya, Executive Director the best case scenario is completion of construction by the end of April, with a grand opening in June, but that timeline could be pushed out. She said the City of San Bruno is moving forward to staffing and program plans and it is likely that the full $1.5 million in additional construction contingency will be utilized. • Centennial Plaza: With regard to the Centennial Plaza Improvement Project, which the Foundation is helping fund with a $500,000 grant to the City of San Bruno, Ms. Hatamiya noted that the City received two construction proposals, both more expensive than expected. Despite concerns about the escalating cost, the City Council approved the project, the project budget of nearly $1.6 million, and the additional funding (beyond the SBCF funding) to complete the project. She noted that there has been considerable community support for the project and that the City anticipates construction being completed by the end of 2024. • Downtown Beautification Project: Ms. Hatamiya reported that the City came to the February Board meeting to request funding for a downtown beautification effort. She explained that with the urging of the downtown business community, the City has been exploring additional ways to enhance and beautify segments of San Mateo Avenue and the surrounding streets, in conjunction with the renovations at Centennial Plaza and planned improvements at Posy Park at the northern end of the downtown portion of San Mateo Avenue. She noted that the City’s next set of projects are relatively modest but would include some necessary upgrades to enhance the overall atmosphere downtown, including planter revitalization, tree planting, median landscape improvements, street pole banners, and a new marquee sign on the south end of San Mateo Avenue, for a total project budget of $350,000. She reported that the Board created an ad hoc committee charged with reviewing the City’s written proposal and making a funding recommendation to the full Board at its March meeting. Ms. Hatamiya noted that the Board conducted a second post-RAC strategic planning session at the February Board meeting. She said she provided an overview of the three main options being considered – (1) spending down the remaining funds (approximately $25 million) in the near-to-mid term on one or two large legacy projects and winding down all other programs, (2) spending down the remaining funds over a set period of time (e.g., 10-25 years), or (3) following an endowment model, under which the Foundation is sustained in perpetuity at a lower annual budget level – and the pros and cons of each option. She also noted large capital projects that the City of San Bruno and the San Bruno Park School District are separately considering, which could potentially serve as major legacy projects to which the Foundation may want to contribute. The Board had a robust discussion of the three options, ultimately agreeing to set aside the endowment model (option #3), which would result in a relatively modest annual payout to support the Foundation's programs and operations in order to maintain the purchasing power of the endowment's corpus. Instead, the Board decided to focus its deliberations on the other two options and potentially wait until after the November 2024 election, as both the City and the school district may be placing revenue measures on the ballot, to make a final decision. Therefore, she noted that it is most likely the Board will not be ready to amend the program and investment strategies until late 2024 (or later), so the Foundation will continue on its current path for fiscal year 2024-2025 and the Page 2 of 4  Investment Committee Pak Lin, Chair • Anthony C lifford, Mark Hayes, T im Ross, and Belinda W ong, Members Leslie Hatamiya, Executive Director Investment Committee will not be asked to work on an updated Investment Policy Statement this spring. Ms. Hatamiya reminded Investment Committee members to turn in their completed Conflict of Interest annual statements and to submit their Form 700s to the San Bruno City Clerk’s office. Ms. Hatamiya reviewed the schedule of transfers from the Quasi-Endowment and Strategic Pool accounts to the Liquidity Pool, but noted that the schedule may be modified based on actual cash needs. Transfers from the Quasi-Endowment to Liquidity-Operating include: (a) $200,000 scheduled for December 2023, and (b) $172,843 scheduled for May 2024. All funds needed for the remaining RAC grant payments have already been transferred from the Strategic Pool to the Liquidity Pool. Transfers from Strategic to Liquidity for non-RAC purposed are budgeted at $1,441,576; $500,000 was transferred in August, and another $350,000 was transferred at the beginning of February. She said the remaining funds will be transferred as needed to cover expenses and other strategic grant payments. Finally, Ms. Hatamiya reminded the Committee of its upcoming meetings: May 15, August 21, and November 20, 2024. All meetings will be held in person at San Bruno City Hall Room 101. 6. Conduct of Business a. Receive Report from Sand Hill Global Advisors, LLC (SHGA) regarding SHGA’s Investment Outlook and SBCF’s Investment Portfolio Performance SHGA Chief Executive Officer Brian Dombkowski, Senior Portfolio Manager Meghan DeGroot Daters, and Analyst George Angelopoulos represented SHGA at the meeting. Mr. Dombkowski gave an overview of the firm’s investment outlook, as well as a summary of the firm’s current economic forecast, commenting on global risk factors, economic growth, interest rates, inflation, commodity markets, the employment market, corporate earnings, international developed markets, emerging markets, the housing market, and valuation. He noted that recessionary fears have generally been abated, inflation has decreased, and the Federal Reserve Bank has indicated that interest rates have peaked. Ms. Daters then reviewed the Foundation’s Investment Dashboard for the fourth quarter of 2023, including December 31, 2023, balances of $22,179,248 for the Quasi-Endowment, $6,025,944 for the Strategic Pool, and $3,149,964 for the Liquidity Pool, for a total of $31,355,156. She also discussed the performance of the underlying funds in the Foundation’s Quasi-Endowment, Strategic, and Liquidity pools. She noted that the firm maintained the portfolio’s positioning in the fourth quarter of 2023. Page 3 of 4  Investment Committee Pak Lin, Chair • Anthony C lifford, Mark Hayes, T im Ross, and Belinda W ong, Members Leslie Hatamiya, Executive Director b. Discuss and Provide Direction Regarding Future Cash Flow Strategies Related to Funding of Recreation and Aquatic Center Project The Committee briefly discussed cash flow strategies related to the San Bruno Recreation and Aquatic Center (RAC) grants. Ms. Hatamiya reported that since early 2018, the Foundation has made grant payments totaling $49,254,841 related to the eight grants supporting the design and construction of the RAC. The remaining balance of RAC grant payments to be paid is $2,245,159, of which $1.5 million is the additional amount that the Board approved for construction contingency earlier this year. She noted that all funds committed to the RAC grants have already been transferred to the Liquidity Pool. 7. Committee Member Comments Committee Member Ross asked about the timing of any investment policy changes in light of the Board’s strategic planning deliberations. Executive Director Hatamiya explained that the Board is unlikely to make any decisions about the Foundation’s program and investment strategies until late 2024 at the earliest, with the Investment Committee being asked to make recommendations about changes to the Investment Policy Statement after that. 8. Adjourn: Committee Member Ross moved to adjourn the meeting at 5:12 p.m., seconded by Committee Member Wong, approved unanimously. Respectfully submitted for approval at the Regular Investment Committee Meeting of May 15, 2024, by Investment Committee Chair Pak Lin. Pak Lin, Investment Committee Chair Page 4 of 4  Memorandum DATE: May 10, 2024 TO: Investment Committee, San Bruno Community Foundation FROM: Leslie Hatamiya, Executive Director SUBJECT: May 17, 2023, Investment Committee Regular Meeting The Investment Committee of the San Bruno Community Foundation will hold its regular quarterly meeting at 4:30 p.m. on Wednesday, May 15, 2024, at San Bruno City Hall, Room 101. 1. Executive Director’s Report At each meeting, I will report on any follow-up items from the last Committee meeting as well as provide updates on the Foundation’s programs and operations. Key items I will report on at the May 15 meeting include: • Program highlights and updates on the Community Grants Fund, the Crestmoor Neighborhood Memorial Scholarship program, and strategic grant initiatives, including the San Bruno Recreation and Aquatic Center (RAC) project. • Schedule of transfers from the Quasi-Endowment and Strategic Pool accounts to the Liquidity Pool account for FY2023-2024 to cover the Foundation’s cash needs through June 30, 2024, consistent with the FY2023-2024 budget passed by the Foundation Board in June 2023. • A reminder of upcoming Investment Committee meetings in 2024: August 21 and November 20, both at 4:30 p.m. at San Bruno City Hall. 2. Report from Sand Hill Global Advisors (SHGA) Regarding SHGA’s Investment Outlook and SBCF’s Investment Performance Representing SHGA at the Committee meeting will be Co-Chief Investment Officer Mark Strahs, Senior Wealth Manager Kristin Sun, and Analyst George Angelopoulos. The SHGA team will give a presentation to the Committee that will cover (a) SHGA’s investment outlook, and (b) the performance of the Foundation’s investment portfolio. Page 1 of 6  Memorandum a. SHGA’s Investment Outlook In this portion of the presentation, the SHGA team will provide an overview of SHGA’s current economic forecast, particularly for the second quarter of 2024, including the firm’s perspective on economic growth, interest rates, employment market, corporate earnings, international market, housing market, inflation, commodity markets, and valuation. b. SBCF’s Investment Performance The second part of SHGA’s presentation will review the performance of the Foundation’s investment portfolio for the first quarter of 2024 (third quarter of the fiscal year). The SHGA team will walk the Committee through the attached Investment Dashboard for March 31, 2024, a one-page summary of the Foundation’s portfolio. At the meeting, the SHGA team will also provide more detailed and up-to-date information about the Foundation’s investment holdings, including performance data of underlying funds. 3. Discussion Regarding Future Cash Flow Strategies Related to Funding of Recreation and Aquatic Center Project The Foundation’s original commitment to the design and construction of a new San Bruno Recreation and Aquatic Center consists of eight grants totaling $50 million. In April 2023, at the request of the City of San Bruno, the SBCF Board approved additional funding for RAC construction (RAC Grant #8) in an amount not to exceed $1.5 million, which will go toward the project's construction contingency and will only be utilized if needed. (Any portion needed is expected to be paid out in the 2023-2024 fiscal year.) The increase in grant amount for the construction grant raises the Foundation's overall commitment to the RAC project to an amount not to exceed $51.5 million. As of May 2023, the Foundation had moved all funds needed to cover the remaining balance on the $51.5 million commitment from the Strategic Pool to the Liquidity Pool. Through May 6, 2024, the Foundation has made grant payments totaling $49,254,840.79 related to the eight grants supporting the design and construction of the RAC. The remaining balance of the original $50 million commitment to be paid is $745,159.21. None of the $1.5 million committed for construction contingency has yet been disbursed. We are in the process of consolidating the remaining active RAC grants into the construction grant in order to streamline the reporting and disbursement processes. Once the paperwork to do so is executed, we will consider the City’s next quarterly grant payment request. Page 2 of 6  Memorandum I will provide an update on RAC grant payments and cash flow needs at the Committee meeting. 4. Resolution Recommending to the SBCF Board of Directors the Quasi-Endowment Payout Rate for Fiscal Year 2024-2025 Section VII of the Foundation’s Investment Policy Statement sets forth the spending policy. Section VII.1. states: The SBCF Board will determine the spending policy for the Quasi-Endowment with input from the Investment Committee. The SBCF Board will use the following guidelines in approving a fixed payout amount each year. The SBCF Board will review this policy annually. The payout amount will be determined once annually, prior to the conclusion of the Foundation’s fiscal year for the subsequent fiscal year. The payout rate will range up to 7%, as determined by the Board, multiplied by the average of the latest available twelve (12) prior quarter-ending Quasi-Endowment values. Section VI.1.d. of the Investment Operating Plan provides pool-specific operating guidelines for payout or other withdrawals. Last June, upon recommendation from the Investment Committee, the Board amended the payout guidelines for the Quasi-Endowment Pool: Payout amount will be determined once annually, prior to the conclusion of the Foundation’s fiscal year for the subsequent fiscal year. The payout rate will range up to 7%, as determined by the Board, multiplied by the average of the latest available twelve prior quarter-ending Quasi-Endowment values. From the initial funding of the Quasi- Endowment Pool through the end of fiscal year 2016-2017, the payout rate will be 0%. During fiscal year 2017-2018, the default payout rate will be 2.25%, multiplied by the simple average of all quarter-ending Quasi-Endowment values available at the time of the annual payout decision. Cash proceeds will be deposited in the SBCF Liquidity Pool on an as-needed basis. Each June, with guidance from the Investment Committee, the Board passes a resolution setting the next fiscal year’s Quasi-Endowment payout rate. For the past seven years, the Committee decided to recommend – and the Board subsequently adopted – a Quasi-Endowment payout rate sufficient to meet the cash flow needs for the Crestmoor Scholarship and the Community Grants Fund in the upcoming fiscal year. The Board has approved the annual payout rate as follows: Page 3 of 6  Memorandum Average QE Balance of Past Fiscal Year QE Payout Rate 12 Quarters Approved QE Payout FY2017-2018 2.25% $15,685,369 $352,921 FY2018-2019 1.95% $16,409,212 $319,980 FY2019-2020 1.90% $16,711,034 $317,510 FY2020-2021 1.70% $17,392,997 $295,681 FY2021-2022 1.70% $18,407,790 $312,932 FY2022-2023 1.41% $20,279,185 $285,937 FY2023-2024 1.78% $20,946,234 $372,843 Because the Board has yet to make any changes to the Foundation’s program and investment strategies as part of its post-RAC strategic planning processes and may not do so until the second half of the next fiscal year, I recommend that the Committee continue to follow this practice for FY 2024-2025, which is consistent with the original long-term vision for the Quasi- Endowment (to fund those two programs plus support costs on an ongoing basis) and allows for some continued growth of the Quasi-Endowment, especially while the Foundation still has the Strategic funds to help support operational expenses. Strategic funds would cover cash needs for all strategic grants plus all support costs. This option has been a reasonable compromise position – it draws from the Quasi-Endowment but at a low rate, and it taps into the Strategic Pool for all support costs but also leaves some amount for additional strategic grantmaking. With the assistance of Accounting Consultant Frank Bittner, I am in the process of developing the FY 2024-2025 operating budget. Cash needs for the Crestmoor Scholarship and Community Grants Fund programs are estimated at $351,947. These cash needs are based on a reconciliation of all restricted donations for the Community Grants Fund and the Crestmoor Scholarship, annual Quasi-Endowment payout amounts, and Community Grant and Crestmoor Scholarship payments disbursed since FY 2017-2018 (the first year we began using Quasi- Endowment payout to fund the two programs). For Quasi-Endowment payout calculation purposes, we use the quarter-ending balances on our Fidelity statements rather than those provided by SHGA (the two differ slightly based on different methods for recording transactions near the end of the quarter). The average of the latest 12 quarter-ending Quasi-Endowment values (Q2 2021 to Q1 2024) is $21,476,720. A payout rate of 1.64% would result in a Quasi-Endowment payout of $352,218. Therefore, I recommend that the Committee adopt the attached resolution recommending to the SBCF Board of Directors the Quasi-Endowment payout rate (1.64%) for fiscal year 2024- 2025. Page 4 of 6  Memorandum 5. Annual Review of SBCF’s Investment Policy Statement and Investment Operating Plan The Foundation’s Investment Policy Statement was approved by the Foundation Board on April 6, 2016, and by the San Bruno City Council on April 26, 2016. The Investment Operating Plan was approved by the Foundation Board and signed by the Treasurer and Executive Director on May 4, 2016, and signed by the SHGA CEO on May 11, 2016. Following the May 2017 meeting of the Investment Committee and subsequent action of the Board of Directors in June of that year, an amendment to the Quasi-Endowment payout provision in the Investment Operating Plan was executed by SHGA and the Foundation on June 7, 2017. Under Section II.2.a. of the Investment Policy Statement, the Investment Committee is tasked to “review at least annually the Investment Policy Statement and Investment Operating Plan and monitor compliance with both documents.” At the May 15 meeting, the Committee will review the two documents as amended, which I have attached. As a reminder, the Investment Policy Statement is intended to serve as a high-level policy document governing the Foundation’s investment practices. Its goals include: • Outlining the purpose and goals of the Foundation’s investment portfolio, including three separate pools of funds • Defining the roles and responsibilities for the Foundation’s Board of Directors, Investment Committee, External Investment Manager, and the San Bruno City Council • Setting investment goals, objectives, and target asset allocations for each pool of funds • Establishing asset guidelines and investment procedures • Outlining the spending policy • Establishing guidelines to monitor performance • Providing continuity across changes in the Board of Directors, Investment Committee, and Foundation staff Under the Foundation’s Bylaws, the City Council is to approve the adoption, amendment, or repeal of the Foundation’s Investment Policy Statement. While the Investment Policy Statement is a high-level policy document, the Investment Operating Plan is the more detailed operating agreement between the Foundation and its investment adviser. Drafted jointly by the Committee and the SHGA team, the Investment Operating Plan follows the principles outlined in the Investment Policy Statement and provides detailed instructions to Sand Hill regarding ongoing management of the three pools of money, Page 5 of 6  Memorandum including specific asset allocation targets and ranges, as well as guidelines regarding payout and withdrawals. Upon review of the two documents, I am not recommending changes to either document at this time. Of particular note, the asset allocation of the Strategic Pool has served us well as originally structured. In order to protect the value and ensure the liquidity of the funds as they will need to be paid out, the three investment pools were structured so that as funds are needed, they can be shifted from the Strategic Pool to the Liquidity Pool, which has a more conservative risk tolerance and higher liquidity requirement. Moreover, the Investment Operating Plan also provides SHGA with asset allocation ranges that allows SHGA to make reasonable and sufficient adjustments to the Strategic Pool to accommodate the payment schedule. A year ago, we expected that the Foundation would have adopted post-RAC program and investment strategies for the Foundation by the end of this fiscal year. The Board’s strategic planning process is currently on hold as the Foundation waits for the City of San Bruno and/or the San Bruno Park School District to make decisions about large capital projects that are being considered and in which the Foundation might be interested in investing. Those decisions may depend on the outcomes of revenue measures both entities are considering putting on the November 2024 election ballot. As a result, the Board may not make any adjustments to the program and investment strategies until 2025, and it is possible that the Investment Committee will be tasked next spring with recommending potentially significant changes to the Investment Policy Statement and the Investment Operating Plan consistent with the new strategy. I encourage Committee members to review both documents before the meeting and come with questions and suggestions for possible amendments, either now or in the future. Attachments: 1. SBCF Investment Dashboard, as of March 31, 2024 2. Resolution Recommending to the SBCF Board of Directors the Quasi-Endowment Payout Rate for Fiscal Year 2024-2025 3. San Bruno Community Foundation Investment Policy Statement 4. San Bruno Community Foundation Investment Operating Plan with Sand Hill Global Advisors 5. Amendment #1 to the San Bruno Community Foundation Investment Operating Plan with Sand Hill Global Advisors Page 6 of 6  The San Bruno Community Foundation Investment Dashboard As of March 31, 2024 Current Outlook: Economic Environment: The economy has continued to exhibit strength as unemployment has remained historically low, corporate earnings growth is projected to normalize, inflation is approaching the Federal Reserve’s target, and the manufacturing industry is returning to normal following several years of pandemic distortions. This outcome is in keeping with a “soft landing” which means inflation is returning to the Federal Reserve’s target without triggering a recession. Even though the economy is healthy, the Federal Reserve is planning to start lowering interest rates this year. The impact of higher interest rates will become more apparent as loans and bonds mature and are reissued at higher rates. This is especially true in the commercial real estate sector of the economy where it is estimated that 20% of the outstanding loans will be coming due this year. Consumption has been a major driver of stronger than expected economic growth and is being supported by a combination of a strong job market, real wage growth, easing inflation, and the baby boomer generation spending their retirement savings. The prospect of growth from two potentially transformational technological innovations – artificial intelligence and GLP‐1 drugs – is also fueling optimism. Even with this positive backdrop, we are well aware that geopolitical risks are elevated and that higher interest rates will have a greater impact on the economy over time and feel it is important to stay disciplined as a result. Market Environment: The stock market rally that began in Q4 of last year continued with the S&P 500 appreciating another 10.5% during Q1. The rally was broad based with energy, communication services and financials generating the best returns. Small and midcap stocks as well as international developed and emerging markets were also positive during the period. Bonds were down slightly as expectations for rate cuts became more aligned with the Federal Reserve's projections. REITs were down modestly while commodities appreciated a little more than 2%. Portfolio Response: Early in the quarter we reduced the duration of the fixed income allocation as yields had fallen considerably and the market was pricing in six rate cuts which we felt was unrealistic. We also replaced the active small cap manager in your allocation with a new manager. Late in the quarter, we completed a traditional rebalance by trimming large cap equity, which was overweight when compared to our target, and invested the proceed into bonds. Custom Custom Quasi‐Endowment Pool Growth/Capital Quasi‐Endowment Blended Blended Portfolio Action Increased Decreased Preservation Performance Pool Benchmark +/‐ Strategic Pool Benchmark +/‐ Q1 2024 Repositioned Following Market Moves 62/38 Q1 2024 4.87% 4.00% 0.87% 0.94% 0.74% 0.20% Intermediate Duration Bond Long Duration Bonds Q4 2023 9.21% 9.32% ‐0.11% 7.66% 7.60% 0.06% Large Cap Stocks Quarterly Q3 2023 ‐3.55% ‐3.18% ‐0.37% ‐3.68% ‐3.08% ‐0.60% Q2 2023 3.28% 3.19% 0.09% 0.57% 0.51% 0.06% Q4 2023 Maintained Positioning 62/38 2023 13.99% 14.08% ‐0.09% 8.03% 8.31% ‐0.28% 2022 ‐15.16% ‐14.49% ‐0.67% ‐11.84% ‐13.12% 1.28% Annual 2021 13.21% 12.81% 0.40% 4.47% 3.42% 1.05% 2020 14.55% 11.61% 2.94% 8.79% 8.48% 0.31% Balances Quasi‐Endowment Strategic Liquidity Total ITD ‐ 03/31/24 7.21% 7.18% 0.03% 2.91% 2.87% 0.04% Q1 2024 $23,259,971 $5,726,928 $3,018,937 $32,005,836 Q4 2023 $22,179,248 $6,025,944 $3,149,964 $31,355,156 Quasi‐Endowment Strategic Strategic Q3 2023 $20,457,608 $5,592,674 $4,388,202 $30,438,485 Asset Allocation Pool 31‐Mar‐24 Target Strategic Pool 31‐Mar‐24 Target Q2 2023 $21,225,679 $6,309,009 $9,010,671 $36,545,359 Large Cap Equity $7,189,161 31% 30% $528,745 9% 9% SMID Cap Equity $2,607,175 11% 9% $216,726 4% 3% Net Cash Flows Quasi‐Endowment Strategic Liquidity Total International/EM Equity $3,586,897 15% 13% $282,640 5% 4% Q1 2024 $0 ‐$350,000 ‐$172,500 ‐$522,500 Fixed Income $7,429,644 32% 30% $4,203,438 73% 70% Q4 2023 ‐$200,000 $0 ‐$1,283,000 ‐$1,483,000 Real Assets $1,196,416 5% 8% $169,501 3% 4% Q3 2023 $0 ‐$500,000 ‐$4,692,000 ‐$5,192,000 Market Neutral $965,711 4% 8% $252,955 4% 8% Q2 2023 ‐$85,937 ‐$1,500,000 ‐$5,856,063 ‐$7,442,000 Cash $284,967 1% 2% $75,924 1% 2% Total $23,259,971 100% 100% $5,729,928 100% 100% Illiquidity as of 3/31/24 < 1 Yr 1‐3 Yrs > 3 Yr Total Quasi‐Endowment Pool 0.00% 0.00% 0.00% 0.00% Governance Checklist OK Quasi‐Endowment Pool Strategic Pool Asset allocation within target range: All weights are in compliance.  9% 1% 7% 1% Equity No direct investments in any equity or debt securities of Pacific Gas & Electric.  Quasi‐Endowment Equity Strategic Pool 18% No individual equity securities (stocks) will be held in any direct account.  Equity 58% Equity 18% Fixed Income Fixed Income No below investment grade allocation > 5% of portfolio value.  32% Fixed Inc 32% Other Fixed Inc 73% Other 58% With the exception of U.S. government securities, no more than 5% at cost of the portfolio may be invested in the Investments Investments  securities of a single issuer. Other In 9% Cash Other Inv 7% Cash Quasi‐Endowment Pool can maintain up to 10% illiquidity.  Cash 1% Cash 73% 1%  RESOLUTION NO. 2024-__ RESOLUTION OF THE SAN BRUNO COMMUNITY FOUNDATION INVESTMENT COMMITTEE RECOMMENDING TO THE SBCF BOARD OF DIRECTORS THE QUASI-ENDOWMENT PAYOUT RATE FOR FISCAL YEAR 2024-2025 WHEREAS, under Section II.2.a. of the Investment Policy Statement of the San Bruno Community Foundation, the Investment Committee is tasked to “review at least annually the Investment Policy Statement and Investment Operating Plan and monitor compliance with both documents”; WHEREAS, Section VII.1 of the Investment Policy Statement sets forth the spending policy for the Quasi-Endowment as follows: The SBCF Board will determine the spending policy for the Quasi-Endowment with input from the Investment Committee. The SBCF Board will use the following guidelines in approving a fixed payout amount each year. The SBCF Board will review this policy annually. The payout amount will be determined once annually, prior to the conclusion of the Foundation’s fiscal year for the subsequent fiscal year. The payout rate will range up to 7%, as determined by the Board, multiplied by the average of the latest available twelve (12) prior quarter-ending Quasi-Endowment values. WHEREAS, Section VI.1.d.i. of the Investment Operating Plan with its investment adviser, Sand Hill Global Advisors, as amended, states, with regard to the Quasi-Endowment payout: Payout amount will be determined once annually, prior to the conclusion of the Foundation’s fiscal year for the subsequent fiscal year. The payout rate will range up to 7%, as determined by the Board, multiplied by the average of the latest available twelve prior quarter-ending Quasi-Endowment values. From the initial funding of the Quasi- Endowment Pool through the end of fiscal year 2016-2017, the payout rate will be 0%. During fiscal year 2017-2018, the default payout rate will be 2.25%, multiplied by the simple average of all quarter-ending Quasi-Endowment values available at the time of the annual payout decision. Cash proceeds will be deposited in the SBCF Liquidity Pool on an as-needed basis. WHEREAS, a Quasi-Endowment payout rate of 1.64%, multiplied by the simple average of the latest twelve quarter-ending Quasi-Endowment values available at the time of the annual payout decision ($21,476,720), would result in a payout of $352,218 and provide the necessary funds to cover cash flow needs for the Crestmoor Neighborhood Memorial Scholarship and the Page 1 of 2 Community Grants Fund in fiscal year 2024-2025, consistent with the original long-term vision for the Quasi-Endowment; and WHEREAS, the Foundation’s Board of Directors will consider the Foundation’s fiscal year 2024-2025 budget, including transfers from the Quasi-Endowment to the operating budget, at its June 5, 2024, meeting. NOW, THEREFORE, BE IT RESOLVED that the Investment Committee recommends that the Board of Directors approve, for fiscal year 2024-2025, a Quasi-Endowment payout rate of 1.64%, multiplied by the simple average of the latest twelve quarter-ending Quasi-Endowment values available at the time of the annual payout decision ($21,476,720), resulting in a payout of $352,218, to provide the funds to cover cash flow needs for the Crestmoor Neighborhood Memorial Scholarship and the Community Grants Fund in fiscal year 2024-2025, consistent with the original long-term vision for the Quasi-Endowment. Dated: May 15, 2024 ATTEST: _______________________________________ Pak Lin, Investment Committee Chair I, Pak Lin, Chair, do hereby certify that the foregoing Resolution No. 2024-__ was duly and regularly passed and adopted by the Investment Committee of the San Bruno Community Foundation on this 15th day of May, 2024, by the following vote: AYES: Committee members: NOES: Committee members: ABSENT: Committee members: Page 2 of 2  INVESTMENT POLICY STATEMENT Approved by the SBCF Board of Directors, April 6, 2016 Approved by the San Bruno City Council, April 26, 2016 April 2016 1 Investment Policy Statement  INVESTMENT POLICY STATEMENT This Investment Policy Statement (“Policy”) is intended to govern the investment practices of the capital assets of the San Bruno Community Foundation (“SBCF” or “Foundation”). It is to allow all parties who interact directly or indirectly with SBCF’s investment assets full understanding of how the assets will be managed. This policy addresses the following areas:  The general goals of the Foundation  The structure and purpose of the separate pools of funds  The roles and responsibilities of all parties involved in the investment process  Investment goals and objectives for each pool of funds  Investment process including asset allocation framework and rebalancing policies  Measurement and evaluation of investment performance  The Foundation’s spending policy and how it interfaces with the investment management of each pool of funds I. FOUNDATION’S PURPOSE AND GOALS The San Bruno Community Foundation was established in 2013 by the San Bruno City Council to administer, for the long-term benefit of the San Bruno community, approximately $70 million in restitution funds resulting from the devastating 2010 gas pipeline explosion in San Bruno’s Crestmoor neighborhood. SBCF has been charged with determining the use of the funds and administering them to benefit the San Bruno community through enduring and significant contributions to, and investments in, charitable and community programs, and publicly owned community facilities, over the long term. The SBCF Board has approved the establishment of three separate pools of funds with varying purposes, time horizons and withdrawal requirements. 1. A Quasi-Endowment Pool to support the annual operating and program expenses of the Foundation over the long term. 2. A Strategic Pool earmarked to cover the costs of major strategic grant making projects, including capital improvements of community facilities, over a 7-10 year period. The Strategic Pool will be fully exhausted either at the completion of those strategic projects, or by consolidation into the Quasi-Endowment Pool at the Board’s discretion. 3. A Liquidity Pool to act as a holding account for expenditures planned in the subsequent 0-24 months. The purpose of this pool is to mirror the Foundation’s operating accounts. This account may be funded by both the Quasi-Endowment and the Strategic Pool. II. ROLES AND RESPONSIBILITIES 1. The SBCF Board of Directors is responsible for the following: a. Formation of the Investment Committee, including appointment of a sitting Board Member as the Committee Chair. The Committee can consist of a mix of SBCF Board April 2016 2 Investment Policy Statement  Members and non-Board Members. For non-Board Members, a preference will be given to individuals with experience and/or expertise in finance and investment management. b. Approval, termination, or replacement of the External Investment Manager. c. Approval of this Investment Policy Statement and subsequent modifications to it. d. Approval of an Investment Operating Plan executed with the External Investment Manager. e. Approval of the Foundation spending policy, as defined in section VII of this document. f. Approval of any transfer of funds to or from the Quasi-Endowment Pool or the Strategic Portfolio, as defined in section IV, beyond that specified in the Board- approved spending policy. g. Maintain guidelines for the External Investment Manager to ensure that Foundation assets are invested in a manner consistent with the mission of the Foundation. It is at the Board’s discretion to implement specific restrictions on how the assets of the Foundation shall be invested. Such restrictions may include but are not limited to Socially Responsible Investing known as Environmental, Social and Governance (ESG). Any active restrictions will be detailed within the Investment Operating Plan. 2. The Investment Committee, with support from the Executive Director, is responsible for providing guidance to the Board on all aspects of the investment management process. The Investment Committee is not empowered to approve decisions, as that power lies with the full Board. As part of its guidance to the Board, the Investment Committee will: a. Review at least annually the Investment Policy Statement and Investment Operating Plan and monitor compliance with both documents. b. Review the long-term asset allocation of each pool of funds. c. Monitor the performance and risk profile of the investment assets of the Foundation as a whole, including each pool of funds. d. Review and address all potential conflicts of interest in accordance with the SBCF Conflict of Interest Policy. e. Monitor the External Investment Manager. 3. The External Investment Manager (the “Investment Manager”) is responsible for the following: April 2016 3 Investment Policy Statement  a. Discretion to select, evaluate, and terminate the underlying fund managers and investments, as well as discretion to make tactical shifts within the parameters of the asset allocation established for each pool. b. Monitor the appropriateness of each investment given the Foundation’s risk tolerance and objectives. c. Oversee the Foundation’s investment assets and report on the status of the investments to the Investment Committee and Board of Directors. 4. The San Bruno City Council is responsible for the following: a. Approval of the initial Investment Policy Statement, including the Foundation’s spending policy, as articulated in Section VII of this document, for the Foundation. b. Approval of all future modifications to the Investment Policy Statement. III. POLICY REVIEW This Statement shall be reviewed annually by the Investment Committee and any recommendations for modification shall be presented to the full Board of Directors. Updates to this Policy must be approved by both the SBCF Board and the San Bruno City Council. IV. INVESTMENT GOALS AND OBJECTIVES The primary goal of the Foundation is to administer these funds for the long-term benefit of the San Bruno community. The specific goals for these funds include but are not limited to supporting SBCF’s annual operating expenses and the three categories of program activities outlined in SBCF’s Program Strategy Framework (strategic grant making, responsive grant making, and Foundation programs). The risk tolerance of each pool of funds is dictated by the time horizon and liquidity needs, and as directed by the Board of Directors. The specific goals and objectives, risk tolerance, and time horizon for each pool of funds is as follows: 1. Quasi-Endowment Pool: The Foundation seeks to meet the current payout objectives while maintaining the total purchasing power of these assets for the San Bruno community in the future. As such, Capital Appreciation is the primary objective, with Capital Preservation as the secondary objective. The risk tolerance of the Quasi-Endowment can be described as Moderately Conservative and the time horizon as Long-Term. 2. Strategic Pool: The Foundation seeks to achieve growth of the portfolio at a conservative rate in excess of inflation. As such, Capital Preservation is the primary objective. The risk tolerance of the Strategic Pool can be described as Conservative. The goal of the Strategic Pool is to be drawn down to zero over a 7-10 year period. As such, the time horizon can be described as Mid-Term. 3. Liquidity Pool: The Foundation seeks to preserve the principal balance of all funds directed into this pool. As such, Capital Preservation and Liquidity are the primary objectives. The risk April 2016 4 Investment Policy Statement  tolerance of the Liquidity Pool can be described as Conservative. The goal of the Liquidity Pool is to cover Foundation expenditures that will be withdrawn within the succeeding 24 months from initial funding. As such, the time horizon can be described as Short-Term. V. INVESTMENT POLICY AND ASSET ALLOCATION 1. Asset Guidelines: a. No individual equity securities (stocks) will be held in any Direct Account. A Direct Account is defined as any investment account registered in the name of the Foundation. b. Direct investments in any securities, including equity and fixed income, of Pacific Gas & Electric Corporation (Symbol: PCG) is prohibited. c. Individual fixed income securities (bonds) may be held in Direct Accounts. These include, but are not limited to, municipal bonds, U.S. government securities, federal government agency securities, corporate debt (limited to U.S. or multinational corporations), and high-yield debt. d. Commingled funds, mutual funds, and index funds may be held in Direct Accounts. The fund selection process will incorporate criteria such as investment style and process, experience of the investment team, organizational stability, and performance analysis such as long-term, risk-adjusted returns, manager tenure, relative performance in up and down markets, consistency of management style, and the associated cost to own (expense ratio). e. Other investments may be held in Direct Accounts. Other investments will be broadly defined as, but not limited to, investments in market-neutral funds, commodities and gold, real return strategies, venture capital, and real estate. These categories are to be implemented only through diversified investment vehicles. f. Cash and cash equivalents may be held in Direct Accounts. Cash equivalent positions will be high-quality instruments such as U.S. Treasury Bills, Eurodollar Certificates of Deposit, time deposits (CDs), money market funds, and repurchase agreements. 2. Investment Procedures: a. Diversification: All portfolios will be managed as diversified portfolios. The goal of diversification across various asset classes, sectors, and security types is to minimize risk while improving performance. b. Investment Vehicles: Within the constraints of the target asset allocation of each portfolio, investments will be allocated across various asset classes, either directly or through pooled or commingled investment accounts (mutual funds and index funds), that might include domestic and foreign equities, bonds, real estate, other investments, and cash or cash equivalents. With each asset class, the Investment Manager will weigh factors including expense, market efficiency, transparency of information, and April 2016 5 Investment Policy Statement  diversification to determine whether direct investments or commingled investments are in the Foundation’s best interests. c. Rebalancing: Rebalancing is designed to minimize portfolio deviations from allocation targets. The portfolio will be reviewed regularly by the Investment Manager and rebalanced whenever the weighting of a major asset class deviates materially from the target asset allocation, or a tactical opportunity presents itself. d. Custody of Assets: The Foundation’s assets shall be held at a third-party custodian recommended by the Investment Committee and approved by the Board. The Investment Manager shall have discretion and authority to trade on behalf of the Foundation via the custodian’s trading platform. e. Custodian’s Margin Loan Option: A Margin Loan allows a brokerage account holder to gain access to cash by borrowing against the invested securities in the account. The margin loan option on any Direct Accounts shall be disabled. 3. Asset Allocation: The Investment Manager shall invest the funds per the strategic asset allocation parameters established for each pool of funds. Investments will be categorized as either Capital Appreciation or Capital Preservation. Capital Appreciation can be generally defined as a strategy where the primary goal is to grow the capital base over time. Investments in this category include, but are not limited to: equities (stocks), real estate, commodities, and natural resources. Capital Preservation can be generally defined as a strategy where the primary goal is to preserve capital and prevent loss of principal. Investments in this category include, but are not limited to: high-quality fixed income (bonds), market-neutral investments, cash equivalents, and cash. a. Quasi-Endowment Pool: In accordance with the Foundation’s risk tolerance, as well as the goals, objectives, time horizon, and liquidity needs of the Quasi-Endowment, management of this pool will target a 60/40 allocation: 60% Capital Appreciation and 40% Capital Preservation. b. Strategic Pool: In accordance with the Strategic Pool’s goals, objectives, time horizon and liquidity needs, management of this pool will target a 20/80 allocation: 20% Capital Appreciation and 80% Capital Preservation. c. Liquidity Pool: In accordance with the Liquidity Pool’s goals, objectives, time horizon and liquidity needs, management of this pool will target a 100% Capital Preservation allocation. VI. INVESTMENT MANAGER REPORTING AND EVALUATION The Investment Manager shall provide the Investment Committee with quarterly performance and holdings reports to allow the Committee to review the overall investment performance of the April 2016 6 Investment Policy Statement Investment Manager and the individual securities in each portfolio with respect to the risk and return objectives established for the Foundation. At a minimum, the reports shall include the following:  An accounting of all securities held in the investment accounts for the Foundation.  Comparative returns for each pool of funds against their respective benchmarks. Additionally, the Investment Manager shall present to the Board of Directors on an annual basis. VII. SPENDING POLICY 1. Quasi-Endowment Pool The SBCF Board will determine the spending policy for the Quasi-Endowment with input from the Investment Committee. The SBCF Board will use the following guidelines in approving a fixed payout amount each year. The SBCF Board will review this policy annually. The payout amount will be determined once annually, prior to the conclusion of the Foundation’s fiscal year for the subsequent fiscal year. The payout rate will range up to 7%, as determined by the Board, multiplied by the average of the latest available twelve (12) prior quarter-ending Quasi- Endowment values. 2. Strategic Pool The Strategic Pool has been earmarked by the Board to fund strategic projects, including but not limited to capital improvement projects of community facilities, that benefit the San Bruno community. As such, withdrawals will be determined by the timing of project expenditures, as well as guidance from the SBCF Board. The Investment Committee and SBCF staff will provide direction to the Investment Manager regarding liquidation of investments to fund the withdrawals. Cash proceeds will be deposited in the SBCF Liquidity Pool on an as-needed basis. 3. Liquidity Pool The Liquidity Pool will contain funds that have been earmarked for disbursement by the SBCF Board, with the guidance from the Investment Committee. As directed by SBCF staff, withdrawals will take place in the subsequent 0-24 months following initial deposit into the Liquidity Pool. VIII. CONFLICTS OF INTEREST In accordance with the SBCF Conflict of Interest Policy, all employees, members of the Board of Directors, and members of the Investment Committee are expected to use good judgment, adhere to high ethical standards, and act in such a manner as to avoid any actual, perceived, or potential conflict of interest. April 2016 7 Investment Policy Statement San Bruno Community Foundation Investment Operating Plan Approved by the SBCF Board of Directors, May 4, 2016  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN SUMMARY INVESTMENT OPERATING PLAN QUASI‐ENDOWMENT POOL Investment Objective: Generate a return in excess of the specified blended portfolio benchmark over a complete market cycle. Risk Tolerance: Moderately Conservative Target Return: Over the long‐term, exceed the blended portfolio benchmark, net of fees with similar risk. Evaluation Benchmark: The passive indices in similar weights to the target asset allocation as detailed in Appendix 1. Withdrawal Requirement: Up to 7% annual withdrawals, as determined by the SBCF Board. Time Horizon: Long‐Term Target Allocation: Balanced Strategy (see specific allocation guidelines in Section IV.1 of this plan document) STRATEGIC POOL Investment Objective: Generate a return in excess of the specified blended portfolio benchmark over a complete market cycle. Risk Tolerance: Conservative Target Return: Over the long‐term, exceed the blended portfolio benchmark, net of fees with similar risk. Evaluation Benchmark: The passive indices in similar weights to the target asset allocation as detailed in Appendix 1. Withdrawal Requirement: 100% withdrawn over 7‐10 years, dictated by the timing of capital projects and as determined by the SBCF Board. Time Horizon: Mid‐Term Target Allocation: Conservative Strategy (see specific allocation guidelines in Section IV.2 of this plan document) 2  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN LIQUIDITY POOL Investment Objective: Generate a return in excess of the specified blended portfolio benchmark over a complete market cycle. Risk Tolerance: Conservative Target Return: Over the long‐term, exceed the blended portfolio benchmark, net of fees with similar risk. Evaluation Benchmark: The passive indices in similar weights to the target asset allocation as detailed in Appendix 1. Withdrawal Requirement: 100% withdrawn within 24 months, as determined by the SBCF Board. Time Horizon: Short‐Term Target Allocation: Short‐Term Cash and Short‐Duration Fixed Income Strategy (see specific allocation guidelines in Section IV.3 of this plan document) 3  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN This Investment Operating Plan outlines the assumptions and understandings under which Sand Hill Global Advisors, LLC (the “Investment Manager” or “SHGA”) is to manage the assets of the San Bruno Community Foundation (“SBCF” or the “Foundation”). The content herein has been composed based upon meetings with the Board of Directors and staff in which discussions covered SBCF’s goals, attitudes, expectations, risk tolerance, desires for liquidity, and present and future cash flow requirements. It is agreed that SHGA will meet with the Investment Committee on a quarterly basis to report on the status of the portfolio and to receive and provide information that will aid in the management of the portfolio. This Investment Operating Plan will be reviewed at least annually as to its appropriateness given any significant changes in SBCF’s needs or in light of significant shifts in the economy or the investment markets. Day‐to‐day contact with SBCF will be made via the telephone and e‐mail. This Investment Operating Plan shall adhere to the policies set forth in SBCF’s Investment Policy Statement, originally approved by the SBCF Board of Directors and San Bruno City Council in April 2016. I. FOUNDATION’S PURPOSE AND GOALS The San Bruno Community Foundation was established in 2013 by the San Bruno City Council to administer, for the long‐term benefit of the San Bruno community, approximately $70 million in restitution funds resulting from the devastating 2010 gas pipeline explosion in San Bruno’s Crestmoor neighborhood. SBCF has been charged with determining the use of the funds and administering them to benefit the San Bruno community through enduring and significant contributions to, and investments in, charitable and community programs, and publicly owned community facilities, over the long term. The SBCF Investment Policy Statement establishes three separate pools of funds with varying purposes, time horizons, and withdrawal requirements: 1. A Quasi‐Endowment Pool to support the annual operating and program expenses of the Foundation over the long term. 2. A Strategic Pool earmarked to cover the costs of major strategic grantmaking projects, including capital improvements of community facilities, over a 7‐10 year period. The Strategic Pool will be fully exhausted either at the completion of those strategic projects, or by consolidation into the Quasi‐Endowment Pool at the Board’s discretion. 3. A Liquidity Pool to act as a holding account for expenditures planned in the subsequent 0‐24 months. The purpose of this pool is to mirror the Foundation’s operating accounts. This account may be funded by both the Quasi‐Endowment and the Strategic Pool. II. INVESTMENT GOALS AND OBJECTIVES The primary goal of the Foundation is to administer these funds for the long‐term benefit of the San Bruno community. The specific goals for these funds include but are not limited to supporting SBCF’s annual 4  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN operating expenses and the three categories of program activities outlined in SBCF’s Program Strategy Framework (strategic grant making, responsive grant making, and Foundation programs). The risk tolerance of each pool of funds is dictated by the time horizon and liquidity needs, and as directed by the Board of Directors. The specific goals and objectives, risk tolerance, and time horizon for each pool of funds is as follows: 1. Quasi‐Endowment Pool Investment Objectives: The Foundation seeks to meet the current payout objectives while maintaining the total purchasing power of these assets for the San Bruno community in the future. As such, Capital Appreciation is the primary objective, with Capital Preservation as the secondary objective. a. Portfolio Return Objectives i. Total Portfolio Return: Achieve a time‐weighted, real rate of return of 3‐4%, after fees and program costs. This return will be sought using a diversified style of investment management, providing an average annual return that will be measured over a complete market cycle assumed to be five years. ii. Blended Benchmark Return: Over rolling five‐year cycles, to achieve a return that exceeds the Blended Benchmark, net of fees with similar risk. b. Portfolio Risk Tolerance ‐ The risk to the portfolio must be moderately conservative, since the portfolio provides a source of funds that allows SBCF to perpetuate its mission. c. Withdrawal Requirements ‐ Up to 7% Annual Withdrawals as determined by the SBCF Board. The SBCF staff will provide Sand Hill Global Advisors with guidance in this area. d. Time Horizon ‐ Long‐Term. e. Tax Considerations ‐ None, since this organization is tax exempt. f. Illiquidity ‐ The overall portfolio can maintain up to 10% illiquidity. 2. Strategic Pool Investment Objectives: The Foundation seeks to achieve growth of the portfolio at a conservative rate in excess of inflation. As such, Capital Preservation is the primary objective. a. Portfolio Return Objectives i. Total Portfolio Return: Achieve a time‐weighted, real rate of return of 1‐2%, after fees and program costs. This return will be sought using a diversified style of investment management, providing an average annual return that will be measured over a complete market cycle assumed to be five years. 5  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN ii. Blended Benchmark Return: Over rolling five‐year cycles, to achieve a return that exceeds the Blended Benchmark, net of fees with similar risk. b. Portfolio Risk Tolerance ‐ The risk to the portfolio must be conservative. c. Withdrawal Requirements ‐ 100% withdrawn over 7‐10 years, determined by timing of SBCF’s strategic grant making projects. The SBCF staff will provide Sand Hill Global Advisors with guidance in this area. d. Time Horizon ‐ Mid‐Term. e. Tax Considerations ‐ None, since this organization is tax exempt. f. Illiquidity ‐ The overall portfolio can maintain up to 5% illiquidity. 3. Liquidity Pool Investment Objectives: The Foundation seeks to preserve the principal balance of all funds directed into this pool. As such, Capital Preservation and Liquidity are the primary objectives. a. Portfolio Return Objective ‐ Achieve a time‐weighted, real rate of return of above the prevailing rate of the U.S. 90 Day T‐Bill, after fees and program costs. b. Portfolio Risk Tolerance ‐ The risk to the portfolio must be conservative. c. Withdrawal Requirements ‐ 100% drawdown within 24 months, as determined by the SBCF Board. d. Time Horizon ‐ Short‐Term. e. Tax Considerations ‐ None, since this organization is tax exempt. f. Illiquidity ‐ The overall portfolio must maintain 100% liquidity. III. INVESTMENT AND ASSET GUIDELINES Sand Hill Global Advisors will utilize an appropriate combination of individual securities in direct accounts and specialized third party, commingled fund or mutual fund alternatives to implement the asset allocation. Implementation will include passive strategies such as index funds or exchange‐traded funds (ETFs) and active strategies. Third‐party offerings will be used to enhance the portfolio’s diversification in certain asset classes that require specialized expertise or where liquidity may be limited. In each case, the potential for added value, institutional share class fees and cost effectiveness will be a major consideration. A Direct Account is defined as any investment account registered in the name of the Foundation. 6  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN 1. Individual Equity Securities in the Direct Account: a. No individual equity securities (stocks) will be held in any Direct Account. b. Direct investments in any equity securities of Pacific Gas & Electric Corporation (Symbol: PCG) are prohibited. 2. Individual Fixed Income Securities in Direct Accounts: a. Individual fixed income securities (bonds) may be held in Direct Accounts. These include, but are not limited to, municipal bonds, U.S. government securities, federal government agency securities, corporate debt (limited to U.S. or multinational corporations), and high yield debt. b. With the exception of U.S. government securities and federal government agency securities, no more than 5% at cost of the portfolio may be invested in the securities of a single issuer. c. Up to 5% of the total account may be invested in below investment grade securities, commonly referred to as “high yield debt,” but only through adequately diversified investment vehicles. d. Direct investments in any fixed income securities of Pacific Gas & Electric Corporation are prohibited. 3. Commingled Funds, Mutual Funds and Index Funds: a. Commingled funds, mutual funds, and index funds may be held in Direct Accounts. b. The fund selection process will incorporate criteria such as investment style and process, experience of the investment team, organizational stability and performance analysis such as long‐term, risk‐adjusted returns, manager tenure, relative performance in up and down markets, consistency of management style, and the associated cost to own (expense ratio). When appropriate, negotiations will occur with custodians for the waiver of loads, minimums, and transaction fees. 4. Other Investments: a. Other investments may be held in Direct Accounts. b. Other investments will be broadly defined, but not limited to, as investments in market‐ neutral funds, commodities and gold, real return strategies, venture capital, and real estate. These categories are to be implemented only through diversified investment vehicles. c. In the case of market neutral private partnerships, the diversification should be achieved through the use of a “fund of funds.” d. The real estate portion may be comprised of private and publicly held real estate investments. 7  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN 5. Cash and Cash Equivalents: a. Cash and cash equivalents may be held in Direct Accounts. b. Cash equivalent positions will be high quality instruments such as U.S. Treasury Bills, Eurodollar Certificates of Deposit, time deposits (CDs), money market funds, and repurchase agreements. 6. Investment Procedures: a. Diversification: All portfolios will be managed as diversified portfolios. The goal of diversification across various asset classes, sectors, and security types is to minimize risk while improving performance. b. Investment Vehicles: Within the constraints of the target asset allocation of each portfolio, investments will be allocated across various asset classes, either directly or through pooled or commingled investment accounts (mutual funds and index funds), that might include domestic and foreign equities, bonds, real estate, alternative investments, and cash or cash equivalents. With each asset class, the Investment Manager will weigh factors including expense, market efficiency, transparency of information, and diversification to determine whether direct investments or commingled investments are in the Foundation’s best interests. c. Rebalancing: Rebalancing is designed to minimize portfolio deviations from allocation targets. The portfolio will be reviewed regularly by the Investment Manager and rebalanced whenever the weighting of a major asset class deviates materially from the target asset allocation, or a tactical opportunity presents itself. d. Custody of Assets: The Foundation’s assets shall be held at a third‐party custodian recommended by the Investment Committee and approved by the Board. The Investment Manager shall have discretion and authority to trade on behalf of the Foundation via the custodian’s trading platform. e. Custodian’s Margin Loan Option: A Margin Loan allows a brokerage account holder to gain access to cash by borrowing against the invested securities in the account. The margin loan option on any Direct Accounts shall be disabled. IV. ASSET ALLOCATION Generally, the allocations for each pool will be within the ranges shown below; however, SHGA is permitted to have a more defensive position that may result from significant cash inflows or outflows. Initial implementation of all three pools will be achieved over a three‐month transitional period involving staggered commitments. The initial funding of the three pools will be a combination of cash and fixed income securities (government bonds and CDs). 8  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN 1. Quasi‐Endowment Pool Bottom Top Range Target Range EQUITY 40% 52% 65% FIXED INCOME 20% 30% 40% REAL ESTATE AND COMMODITIES 0% 8% 15% MARKET NEUTRAL 0% 8% 15% CASH AND CASH EQUIVALENTS 0% 2% 15% 2. Strategic Pool Bottom Top Range Target Range EQUITY 12% 16% 20% FIXED INCOME 53% 70% 88% REAL ESTATE AND COMMODITIES 0% 4% 8% MARKET NEUTRAL 0% 8% 12% CASH AND CASH EQUIVALENTS 0% 2% 15% 3. Liquidity Pool Bottom Range Top Range SHORT DURATION FIXED INCOME 0% 100% CASH AND CASH EQUIVALENTS 0% 100% Duration is defined as an approximate measure of a bond’s price sensitivity to changes in interest rates. Shorter the duration means the less interest rate risk and longer duration means more interest rate risk. The average duration of the fixed income portion of the Liquidity Pool will range from 0 to 24 months, consistent with spending timeline described in Section VII.3 of the Foundation’s Investment Policy Statement. 9  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN V. BROKERAGE AND PROXY POLICY 1. All transactions effected for SBCF will be “subject to the best price and execution.” Securities and cash will be held in custody at Fidelity Investments. 2. Proxy voting has been delegated to SHGA. SHGA has retained Broadridge to vote proxies. VI. CONTROLS AND MONITORING 1. Payout and Withdrawals: a. For unplanned withdrawals from any SBCF pool, SBCF staff will notify SHGA a minimum of five business days in advance to allow time for trade execution, trade settlement and fund transfer through the Liquidity Pool (if necessary) and out to SBCF’s external operating account. b. Notice in excess of five business days will provide additional time for SHGA to manage the liquidation of securities. c. If notice is provided less than five business days in advance, SHGA will attempt to fulfill the withdrawal request on a best efforts basis. SBCF has restricted the use of margin on all accounts, therefore cash must be available to be withdrawn. d. Pool‐Specific Operating Guidelines: i. Quasi‐Endowment Pool Payout amount will be determined once annually, prior to the conclusion of the Foundation’s fiscal year for the subsequent fiscal year. The payout rate will range up to 7%, as determined by the Board, multiplied by the average of the latest available twelve prior quarter‐ending Quasi‐Endowment values. From the initial funding of the Quasi‐ Endowment Pool through the end of fiscal year 2016‐2017, the payout rate will be 0%. During fiscal years 2017‐2018 and 2018‐2019, the default payout rate will be 3%, multiplied by the simple average of all quarter‐ending Quasi‐Endowment values available at the time of the annual payout decision. One‐twelfth (1/12) of the annual payout amount will be withdrawn from the Quasi‐Endowment and deposited in the Liquidity Pool on a monthly basis. ii. Strategic Pool Withdrawals will be determined by the timing of project expenditures, per guidance from the SBCF Board. SBCF will provide a schedule of likely withdrawals to SHGA at the time of the annual budget planning process. Cash proceeds will be deposited in the SBCF Liquidity Pool on an as‐needed basis. iii. Liquidity Pool 10  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN The Liquidity Pool will contain funds that have been earmarked for disbursement by the SBCF Board, with the guidance from the Investment Committee. As directed by SBCF staff, withdrawals will take place in the subsequent 0‐24 months following initial deposit into the Liquidity Pool. 2. Quarterly Reviews – SHGA will provide the SBCF Investment Committee with quarterly performance and holdings reports to allow the Committee to review the investment performance of SHGA and the individual investments (retained by SHGA) in the portfolio with respect to the risk and return objectives established for SBCF. The review may include topics such as the overall business management, organizational changes and other relevant factors. 3. Annual Board Meeting – SHGA will present to the full SBCF Board of Directors on an annual basis. [Signature Page Follows] 11  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN APPENDIX 1. Benchmark Composition The Blended Benchmark will be used for the total portfolio review and to review SHGA. Individual asset classes will be reviewed using the indices most appropriate and assigned to each manager or investment style. The Blended Benchmark is composed as follows: Asset Class Index Weight QEP SP LP Equity Domestic Large Capitalization S&P 500 Index 30% 9% 0% Domestic Small Capitalization Russell 2000 Index 9% 3% 0% International MSCI All‐Cap World Index excl. USA 13% 4% 0% Fixed Income Barclays Capital Aggregate Index 30% 70% 0% Real Estate NAREIT Index 6% 4% 0% Commodities/Natural Resources Dow Jones UBS Commodity Index 2% 0% 0% Market Neutral Barclays 1‐3 Year Aggregate Index 8% 8% 0% Cash/Cash Equivalents U.S. T‐Bill 90 day Index 2% 2% 100% 13  SAN BRUNO COMMUNITY FOUNDATION INVESTMENT OPERATING PLAN 2. Benchmark Definitions EQUITY MARKET INDICATORS The market indicators included in this report are regarded as measures of equity or fixed‐income performance results. The returns shown reflect both income and capital appreciation. Standard & Poor's 500 Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index is capitalization‐weighted, with each stock weighted by its proportion of the total market value of all 500 issues. Thus, larger companies have a greater effect on the index. Russell 2000 Index is composed of the 2000 smallest stocks in the Russell 3000 Index, representing approximately 11% of the U.S. equity market capitalization. INTERNATIONAL EQUITY MARKET INDICATORS Morgan Stanley Capital International (MSCI) All Cap World Index (ACWI) Ex‐USA Index is composed of approximately 6,000 equity securities representing the stock exchanges of Europe, Australia, New Zealand, the Far East and Emerging Market nations capturing 99% of the global investable market outside of the US. The index captures large, mid and small‐cap companies. The index is capitalization‐weighted and is expressed in terms of U.S. dollars. FIXED‐INCOME MARKET INDICATORS Barclays Capital Aggregate Bond Index is a combination of the Mortgage Backed Securities Index and the intermediate and long‐term components of the Government/Credit Bond Index. OTHER INDICES National Association of Real Estate Investment Trusts (NAREIT) Index is the only REIT index to include all REITs currently trading on the New York Stock Exchange, the NASDAQ National Market System and the American Stock Exchange. It is also the first index to include monthly historical statistics from 1972. It is often used as a publicly traded approximation for the illiquid private real estate market. Dow Jones UBS Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. Commodities as an asset class have historically demonstrated returns that are negatively correlated with returns of stocks and bonds and that are positively correlated with inflation measures. Barclays 1‐3 Yr Aggregate Bond Index is a combination of the Mortgage Backed Securities Index and the shorter duration components of the Government/Credit Bond Index. U.S. T‐Bill 90 Day Index is the benchmark used to measure cash. It is also considered to be the “risk‐free rate” for the purposes of performance measurement. 14