By Stewart Darrell, CFA

After working with nonprofits for more than two decades, we’ve experienced first-hand how challenging it can be to create a focused investment approach. Interweaving the right elements into a strategy that marries your organization’s particular financial needs with the philosophical aspects of its charitable aims is a formidable task. As a starting point, here are three questions that can help shape your thinking around this critical process.

          1.  What’s your purpose?

It’s important to start an investment conversation by defining your organization’s purpose, values and overall mission. Every board or committee member should have a shared understanding of what the organization stands for and how its guiding principles will inform decision-making. After clearly articulating these essential elements, focus on developing an investment philosophy. This will serve as the foundation for your investment framework. The philosophy should express how you’ll invest in pursuit of your mission and outline the high-level investment objectives for your nonprofit’s pool of assets.

          2.  How should you invest to best support your mission?

Every nonprofit is different, and there isn’t a one-size-fits-all investment strategy. Therefore, when building an investment framework, you should consider its unique needs, its risk-return appetite and the long-term growth desired from its investments. These factors will form the basis for an Investment Policy Statement (IPS), which is a formal expression of the organization’s purpose, investment philosophy and underlying strategies. An IPS typically includes these key sections:

  1.   Purpose and scope
  2.   Roles and fiduciary responsibilities of those executing the IPS
  3.   Conflict of interest policy
  4.   Asset allocation framework
  5.   Spending policy and portfolio constraints
  6.   Monitoring and rebalancing policies

Your time is precious, so it’s crucial to develop an IPS that’s concise and easy-to-digest, even for committee members without an investment background. The IPS should be specific enough to provide adequate guidance, but include enough flexibility to adapt to market declines and/or unexpected expenses. You can also customize your organization’s investment portfolio further by adding a socially-aware edge to align with a stated purpose.

          3.  Is the organization well-positioned to sustain its mission?

Creating an Investment Policy Statement is just one of the many pillars of good governance. It’s important to have a broader framework for assessing your overall progress and investing back into your organization to increase efficiency and profitability. There are planning and investment strategies that you can explore to support your growth needs.

Distributing leadership and knowledge across the organization can also be a critical factor in determining your success. Be prepared to fully engage and level the playing field for all decision-makers with the right educational tools. For those without an investment background, the IPS is a great place to start, but going further by fostering a culture of learning can be tremendously beneficial. Share relevant articles or books and attend industry conferences on a regular basis. Holding workshops or lunch-and-learn programs on investment topics and fiduciary requirements is also a great way to keep everyone up-to-date and on the same page.

Taking the Next Step
Many successful nonprofits have worked through the questions above and gone on to build the internal infrastructure needed to achieve their missions and transform the communities around them. If your organization would benefit from a fresh perspective on your investment approach or need help with fiduciary education, reach out to us. We can evaluate the long-term financial longevity of your organization and help you meet your fiduciary duties with a holistic investment strategy targeted toward your unique mission and goals.