§ 552 — Standard of conduct in managing and investing an institutional fund

§ 552. Standard of conduct in managing and investing an institutional\nfund.\n (a) Subject to the intent of a donor expressed in a gift instrument,\nan institution, in managing and investing an institutional fund, shall\nconsider the purposes of the institution and the purposes of the\ninstitutional fund.\n (b) In addition to complying with the duty of loyalty imposed by law\nother than this article, each person responsible for managing and\ninvesting an institutional fund shall manage and invest the fund in good\nfaith and with the care an ordinarily prudent person in a like position\nwould exercise under similar circumstances.\n (c) In managing and investing an institutional fund, an institution\nconsistent with section 717 (Duty of Directors and Officers):\n (1) may incur only costs that are appropriate and reasonable in\nrelation to the assets, the purposes of the institution, and the skills\navailable to the institution; and\n (2) shall make a reasonable effort to verify facts relevant to the\nmanagement and investment of the fund.\n (d) An institution may pool two or more institutional funds for\npurposes of management and investment.\n (e) Except as otherwise provided by a gift instrument, the following\nrules apply:\n (1) In managing and investing an institutional fund, the following\nfactors, if relevant, must be considered: (A) general economic\nconditions; (B) the possible effect of inflation or deflation; (C) the\nexpected tax consequences, if any, of investment decisions or\nstrategies; (D) the role that each investment or course of action plays\nwithin the overall investment portfolio of the fund; (E) the expected\ntotal return from income and the appreciation of investments; (F) other\nresources of the institution; (G) the needs of the institution and the\nfund to make distributions and to preserve capital; and (H) an asset's\nspecial relationship or special value, if any, to the purposes of the\ninstitution.\n (2) Management and investment decisions about an individual asset must\nbe made not in isolation but rather in the context of the institutional\nfund's portfolio of investments as a whole and as a part of an overall\ninvestment strategy having risk and return objectives reasonably suited\nto the fund and to the institution.\n (3) Except as otherwise provided by law other than this article, an\ninstitution may invest in any kind of property or type of investment\nconsistent with this article.\n (4) An institution shall diversify the investments of an institutional\nfund unless the institution prudently determines that, because of\nspecial circumstances, the purposes of the fund are better served\nwithout diversification. An institution shall review a decision not to\ndiversify as frequently as circumstances require, but at least annually.\n (5) Within a reasonable time after receiving property, an institution\nshall make and carry out decisions concerning the retention or\ndisposition of the property or to rebalance a portfolio, in order to\nbring the institutional fund into compliance with the purposes, terms,\nand distribution requirements of the institution as necessary to meet\nother circumstances of the institution and the requirements of this\narticle.\n (6) A person that has special skills or expertise, or is selected in\nreliance upon the person's representation that the person has special\nskills or expertise, has a duty to use those skills or that expertise in\nmanaging and investing institutional funds.\n (f) Each institution shall adopt a written investment policy setting\nforth guidelines on investments and delegation of management and\ninvestment functions in accord with the standards of this article.\n