Sun City West working group recommends raising FI‑12 equity target to 25%; board agrees to move amended policy to regular meeting

The Sun City West Governing Board on May 9 heard a months‑long analysis from a resident working group and the Budget & Finance Committee that recommended changing the association’s reserve investment policy, FI‑12. The working group proposed defining short‑, medium‑ and long‑term liquidity buckets, putting near‑term funds into no‑risk instruments, and increasing the target equity allocation to 25% (with a recommended range of 15%–35%). The board reached consensus to place the amended FI‑12 on the May 22 regular meeting agenda for a formal vote.

Director Novella, the board treasurer and Budget & Finance chair, outlined the process: the working group began meeting in November 2024, presented its findings to the Budget & Finance Committee and then to the governing board in February 2025, and used a 20‑year modeling exercise to test different equity allocations. Working‑group lead Micki Jacobs told the board the group modeled the existing 10% equity allocation and alternatives at 20%, 25% and 30%, using historical market returns and independent CapTrust simulations to validate the results.

Jacobs said the modeling and CapTrust’s independent simulations produced similar outcomes and that the working group concluded a 25% equity target would raise the long‑term modeled annual return from about 3.9% to about 5.0%, increasing the fund’s modeled balance by roughly $11 million over the 20‑year projection (from about $58 million to about $69 million under the model). Jacobs summarized the recommendation: “where we’ve landed … at a 25% equity investment level that we are recommending.”

The proposed policy also formalizes liquidity definitions. The working group identified roughly $2.3 million as near‑term funds that should be invested in treasuries and cash equivalents so a dollar when liquidated remains a dollar. The group reported approximately $2.5 million of projected spending in the first 5 years and about $10 million in the first 10 years; the board’s reserve study and annual financial plan inform those cash‑flow determinations.

Under the recommended redline language, operating funds and net short‑term capital expenditures (less than five years) would be limited to cash equivalents and short‑term U.S. Treasury and federal agency obligations; medium‑term allocations (5–10 years) could include bond funds and certain ETFs; long‑term allocations (more than 10 years) could include equities. The redline keeps the existing 20% maximum exposure to any single security and sets a target of 25% equities with an allowable range (not less than 15%, not more than 35%). The working group said the policy would also require documenting the timing component of preservation of capital (short/medium/long) to clarify how funds are matched to liquidity needs.

Board members asked about implementation. CapTrust and the CFO described two operational options: implement the target immediately (one‑time rebalance) or phase the move over a set period (for example, systematic purchases over several months) to manage market timing and liquidity needs. CapTrust said it typically rebalances when tolerances are breached and can implement either approach; it noted that some existing holdings have favorable valuations relative to cost basis that should reduce the need to sell at a loss when funding the equity allocation.

Members of the board voiced both support and caution. Several directors praised the working group for the analysis and endorsed the 25% target as a reasonable way to improve long‑term purchasing power and avoid erosion from inflation. Other directors expressed concern about the breadth of the allowable range (15%–35%), calling it wide; CapTrust and staff explained the range provides operational flexibility to absorb large scheduled capital outlays without forced sales at inopportune times. The board asked staff to reformat one sentence for clarity (moving a cross‑reference to the annual financial plan earlier in section 3.1) and agreed the working group would post the redline incorporating legal counsel’s edits.

President Leary asked for a consensus to move the amended policy to the regular meeting for a formal vote; the board indicated no objections, and the item will appear on the May 22, 2025 regular meeting agenda for action.