INVESTMENT POLICY STATEMENT
INTRODUCTION
The main purpose of this document of Investment Policy Statement is to define a business relationship leading to agreement between the investor John Nowak, the heir of Nowak’s Delaware Wooden Pallets and the advisors Investment Advisors Ltd. represented by James Tower. James Tower will in his function of financial adviser to John Nowak, be responsible for the updates to the Investment Policy, monitoring application and notification of the need for updates and violations in Policy implementations. Investment Advisors Ltd. represented by James Tower will act as a fiduciary in their capacity as advisers to the Tower Family and acknowledge that advice and decisions rendered will reflect the best interests of its clients. Investment Advisors Ltd. affirm their compliance as a company registered with the CFA Institute Asset Manager Code of Professional Conduct.
This particular Statement will:
clearly describe aims of the investment in the Client’s portfolio.
propose an investment system and legal structure defining target asset class and exposure of the Portfolio to risks.
formulate the investment framework that will generate for the client robust returns in the long term at the level of risk expected by the Clint.
This Statement does not represent a contract, rather it is a summary and concept of the portfolio guidance for both parties.
SCOPE AND PURPOSE
The assets of John Nowak trace back to the foundation of Nowak’s Delaware Wooden Pallets factory in 1936. The profits from this undertaking are regularly invested in stock exchange, managed by Nowak family and administered by professional advisors. The proceeds from the sale of the branch of the enterprise in Delaware are the subject of this Investment Policy Statement, which forms part of the assets belonging to Nowak family. Investment portfolio governed by this Investment Policy Statement is an individual asset management.
THE PORTFOLIO
The Portfolio assets, which correspond to 1,000,000 USD of liquid cash, will be managed actively and will be invested according to the following framework:
- 10% of the portfolio will be invested in mutual funds, with expected high liquidity
Investment managers of the targeted mutual funds will be selected, guided
and monitored on the basis of the following criteria:
- 10% of the portfolio will be invested in government T-Bills on 5 years terms.
- 10% of the portfolio will be invested into microfinance institutions in developing countries through investment portal Microplace.org at 12 months investment contracts renewed every year.
- 70% of the portfolio is to be invested in high yield short-term high yield bond funds, with the expected: absolute return of 18% p.a. risk-adjusted return of 23% p.s., measured by the Sharpe ratio
max. draw down of 23% during ten week period Number of days to recover from maximum draw down to high-water mark: 18%
Tab. 1 Allocation Range in percentage p.a.
INVESTMENT OBJECTIVES
The portfolio is targeting capital appreciation on a long-term basis in combination with low risk, with the social impact being a secondary goal. The investment program is intended to supplement increase the asset volume in units of percents within the targeted time, which is expected to reach 3.5% in the framework of five weeks’ time. These expectations are based on the overall expected portfolio return of 3.5 percent, fees of 0.5 percent, inflation of 0.5 percent and an effective tax rate of 31 percent of total appreciation, while retaining potential for capital
preservation or nominal growth.
POLICIES & GUIDELINES Time Horizon
The portfolio is suitable for capital with a time horizon of five weeks. The Investor recognizes the possibility of capital loss does exist in all investment classes selected.
Review and updates of IPS
James Tower is responsible for monitoring the investing requirements of John Nowak,
as well as monitoring investment and economic issues. Mr. Tower is responsible for suggesting changes to the IPS as necessary.
Responsibility for engaging and discharging external advisers
John Nowak delegates exclusive authority to his financial adviser, J. Tower to to retain and dismiss external advisors, whether individuals firms to manage the investment assets. The decision prior to hiring will be however disclosed in writing to the Investor.
Responsibility for determination of asset allocation, monitoring and reporting
On weekly basis, James Tower shall review the asset allocation and provide suggestions for
final approval by John Nowak. James Tower will be also responsible for identification of risk variances which have the potential of excess in risk positions and break of tolerable limits.
Risk Tolerance, Risk and Performance Expectation
The Investor agrees that the aims of the Portfolio cannot be reached without accepting a certain amount of risk. The Portfolio consists of an allocation of 20% of fixed income securities, 10% allocation to Latin American Microfinance sector intermediated by Microplace.com intermediary and 70% to high yield equities, international as well as domestic. No guarantees can be provided on the performance of this portfolio. The performance of each investment asset class will be monitored on three levels: employing inflation objectives, domestic index objectives regarding the domestic portfolio components and international domestic index objectives regarding the international portfolio components. The performance of investments shall be evaluated on quarterly with the impact on the net fees basis.
Rebalancing Processes
As market conditions may be a cause for variance of the investment from the established allocation, the recipient of the portfolio will re-evaluated on quarterly basis and rebalanced in case the be reviewed on a quarterly basis and rebalanced back to the targeted weighting in case of 3% divergence from the expected model, according to the Portfolio Diversification Theory.
Transfers of dividends and income
The dividends and interest income will be transferred to the John Nowak’s bank account on regular basis, at the end of each week. The payments of interest, dividends and principal will occur in US dollars. The investment adviser James Tower will be
fully responsible for conversion of the amounts in foreign currencies to US dollars.
Legal constraints
Management of the portfolio belonging to John Nowak is subject to the sum of provisions of the Uniform Prudent Investor Act.
DUTIES AND RESPONSIBILITIES
Investment Advisor
James Tower is responsible for assisting the Investor in best of the possible decisions in asset allocation respecting the risk profile of the Investor. James Tower will on a regular basis consult with the Investor the decisions and will review the Portfolio related decisions. As a trustee, James Tower is responsible for approval of the Investment Policy and any subsequent changes to it.
Investor
John Nowak will provide the Advisor with the available information on financial
condition, risk tolerance as well as net worth and will notify John Novak on any changes. John Nowak will analyze and understand the information in the prospectus of mutual funds as well as the information related to investments to microfinance institutions selected in the Portfolio.
ACCEPTANCE OF INVESTMENT POLICY STATEMENT
I have approved and adopted the above described Investment Policy Statement provided by Investment Advisors Ltd.
John Nowak Date
James Tower
Investment Advisors Ltd. Date
