Working group reviewing reserve and investment policies recommends range-based equity target; CapTrust review next

The Budget and Finance Committee’s investment-policy working group presented a progress update on Jan. 21, telling the committee it had completed 20‑year capital-outflow modeling and asked the committee to consider a less-restrictive investment mix for the association’s long-term reserve fund.

Why it matters: the reserve fund supports multi‑year capital work across the association, and an investment policy that is too conservative can erode purchasing power over decades; the working group’s analysis is intended to inform a policy the Governing Board will eventually approve.

What the working group presented

- Objectives and current policy: Micky (Mickey) Jacobs summarized the investment-policy objectives as “preservation of capital, liquidity and rate of return in that order.” The current RCSCW policy limits equity exposure to a strict 10% (not a range), with the balance in fixed income and treasuries.

- Modeling and results: the working group modeled a 20‑year capital schedule using staff projections and a baseline allocation of 15% treasuries, 10% equities, 75% bonds. That baseline produced an average modeled annual return of about 3.6% across 20 years; the group said returns of that magnitude risk losing ground to higher long‑term inflation and offer little ability to grow a reserve for strategic capital investments beyond replacement and repair.

- Risk and timeline nuance: the group emphasized reserve liquidity needs for the next 5–10 years (projects and irrigation work) and said equities are most appropriate for capital not needed for at least 10 years. The first 10 years of the model included heavier capital demands (golf‑related projects), while the later 10 years showed lower average outflows.

- Recommendations and next steps: the working group proposed moving from a single fixed equity cap to a target plus an operational range, and recommended a phased implementation plan and a requirement that any change be accompanied by guidance on tolerance for market volatility and a commitment to “stay the course.” The group asked CapTrust (investment advisor) to review modeled scenarios and provide professional input; a working-group meeting with CapTrust feedback is scheduled (Jan. 27) and the committee will review results in February.

Committee response

Members discussed risk tolerance for an association with a largely retired membership, the need to balance short-term liquidity for upcoming projects with long-term growth, and the importance of a clear communication plan to members if policy changes are recommended. The working group said it would present specific alternative mixes and phased options after CapTrust feedback.