Investment management for nonprofits

by Badgley Phelps | Mar 06, 2021

 

 

Investment management is extremely important for nonprofits because the organization’s assets are the lifeblood necessary to carry out their mission. It is imperative these entities have a well thought out investment plan and an investment manager who understands their mission, risk tolerance and cash flow needs.

The needs of a nonprofit organization are not necessarily dissimilar to individuals; however, every board member comes to the table with their own biases and experiences that may, or may not, be relevant to the organization.

How do I manage nonprofit investments?

To get the most out of your investment committee, and your investments, it is important to follow the four keys to a well-managed nonprofit investment program:

  1. Governance. Every nonprofit organization will benefit from experienced, knowledgeable and conflict-free leadership.
  2. Construction of a well thought Investment Policy Statement. This statement should accurately detail the investment parameters and goals of the entity.
  3. A carefully selected investment manager. It’s important that this person’s philosophy aligns with the goals of the organization.
  4. A systematic review and due diligence process. This helps ensure the manager is adhering to the guidelines set forth in the Investment Policy Statement.  

What is an Investment Policy Statement?

An Investment Policy Statement is a document that outlines a nonprofit organization’s investment parameters. It’s critically important because it:

  • Creates a defined record of the purpose and goals of the organization.
  • Eliminates emotion from the investment management process.
  • Establishes a benchmark on which to assess the success of the investment committee and the investment manager.

What are the steps of developing an Investment Policy Statement?

There are six key steps in developing an effective Investment Policy Statement. These include:

  1. Defining the investment purpose and strategy that meets the needs of the organization.
  2. Detailing portfolio construction parameters.
  3. Outlining risk management.
  4. Creating a spending policy.
  5. Outlining the manager selection process.
  6. Establishing a plan for ongoing monitoring and evaluation.

What are some benefits of an Investment Policy Statement?

A well thought out and defined Investment Policy provides objectivity, continuity, and assurance that the mission of the organization is not compromised. The development of this statement will also assist in the manager selection process because it provides clarity for the committee on what manager might be best positioned to assist them in achieving their goals.  

Factors to consider when selecting an investment manager for your nonprofit

Because the assets of a nonprofit are essential in achieving their mission, it is not unusual for committees to focus on the lowest-cost solution possible. However, in making the decision whether to self-direct, or hire a professional money manager or consultant, there are more important factors to consider, including:

  • The amount of time necessary to devote to the investments, the consumption of the organization’s resources, and if the committee possesses the required expertise.   
  • Potential conflicts of interest. Decisions should be made objectively, without personal bias, and that the parties involved should understand the liability of self-management.
  • Whether the organization is maximizing return potential.
  • The true costs to investment management. Costs are not just defined in fees—there is also a cost in lost opportunity.

Liability and nonprofit investment management

When it comes to investment management for nonprofits, liability is paramount but sometimes overlooked. It is important to alleviate the liability of the investment committee, and the organization, by working with a fiduciary. A fiduciary acts on behalf of their client, putting the clients' interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary requires being bound both legally and ethically to act in the client’s best interest.

The investment success of a nonprofit begins with a carefully selected investment committee, a well thought out and articulated investment policy, a manager selection process that is aligned with the philosophy of the organization, and strict procedures to review and evaluate the success of the investment portfolio. 

 

If you’d have questions about nonprofit investment management, contact us.

 

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Investment management for nonprofits

by Badgley Phelps | Mar 06, 2021

 

 

Investment management is extremely important for nonprofits because the organization’s assets are the lifeblood necessary to carry out their mission. It is imperative these entities have a well thought out investment plan and an investment manager who understands their mission, risk tolerance and cash flow needs.

The needs of a nonprofit organization are not necessarily dissimilar to individuals; however, every board member comes to the table with their own biases and experiences that may, or may not, be relevant to the organization.

How do I manage nonprofit investments?

To get the most out of your investment committee, and your investments, it is important to follow the four keys to a well-managed nonprofit investment program:

  1. Governance. Every nonprofit organization will benefit from experienced, knowledgeable and conflict-free leadership.
  2. Construction of a well thought Investment Policy Statement. This statement should accurately detail the investment parameters and goals of the entity.
  3. A carefully selected investment manager. It’s important that this person’s philosophy aligns with the goals of the organization.
  4. A systematic review and due diligence process. This helps ensure the manager is adhering to the guidelines set forth in the Investment Policy Statement.  

What is an Investment Policy Statement?

An Investment Policy Statement is a document that outlines a nonprofit organization’s investment parameters. It’s critically important because it:

  • Creates a defined record of the purpose and goals of the organization.
  • Eliminates emotion from the investment management process.
  • Establishes a benchmark on which to assess the success of the investment committee and the investment manager.

What are the steps of developing an Investment Policy Statement?

There are six key steps in developing an effective Investment Policy Statement. These include:

  1. Defining the investment purpose and strategy that meets the needs of the organization.
  2. Detailing portfolio construction parameters.
  3. Outlining risk management.
  4. Creating a spending policy.
  5. Outlining the manager selection process.
  6. Establishing a plan for ongoing monitoring and evaluation.

What are some benefits of an Investment Policy Statement?

A well thought out and defined Investment Policy provides objectivity, continuity, and assurance that the mission of the organization is not compromised. The development of this statement will also assist in the manager selection process because it provides clarity for the committee on what manager might be best positioned to assist them in achieving their goals.  

Factors to consider when selecting an investment manager for your nonprofit

Because the assets of a nonprofit are essential in achieving their mission, it is not unusual for committees to focus on the lowest-cost solution possible. However, in making the decision whether to self-direct, or hire a professional money manager or consultant, there are more important factors to consider, including:

  • The amount of time necessary to devote to the investments, the consumption of the organization’s resources, and if the committee possesses the required expertise.   
  • Potential conflicts of interest. Decisions should be made objectively, without personal bias, and that the parties involved should understand the liability of self-management.
  • Whether the organization is maximizing return potential.
  • The true costs to investment management. Costs are not just defined in fees—there is also a cost in lost opportunity.

Liability and nonprofit investment management

When it comes to investment management for nonprofits, liability is paramount but sometimes overlooked. It is important to alleviate the liability of the investment committee, and the organization, by working with a fiduciary. A fiduciary acts on behalf of their client, putting the clients' interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary requires being bound both legally and ethically to act in the client’s best interest.

The investment success of a nonprofit begins with a carefully selected investment committee, a well thought out and articulated investment policy, a manager selection process that is aligned with the philosophy of the organization, and strict procedures to review and evaluate the success of the investment portfolio. 

 

If you’d have questions about nonprofit investment management, contact us.

 

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