By Stewart Darrell, CFA

For nonprofit leaders, managing an investment portfolio to support a charitable organization’s mission is a significant challenge. Proper investment stewardship requires the right blend of heart, dedication and expertise. Assessing whether an organization has the right elements in place for success is critical to ensuring its well-being. Here are three guideposts that are essential to building financial wherewithal within a nonprofit organization:

     1. People
People are the power and heart that drive an organization and serve as the primary source of connection within the community. No effort can be successful without a strong core of human capital to support it. This is especially important for an organization’s investment committee which is key to building and maintaining financial strength. After more than two decades of working with nonprofits, we’ve found that the most successful investment committees have chairpersons skilled at building consensus, and five to nine engaged committee members representing a diverse set of experiences and perspectives. The most impactful committees are able to find a balanced approach to navigating the complexities of both the nonprofit sector and the capital markets, all while pursuing their organization’s core missions and goals.

Continuity is also critical to success. High turnover within the committee can derail the group’s cohesiveness and take time and focus away from managing toward stated goals. When onboarding new members, getting them up to speed quickly with information on the organization’s mission, history, resources, policies and investment portfolio guidelines will pay-off in the long-run. Determine an investment committee’s engagement with this checklist:

Engagement Checklist
•    Strong, democratic leadership
•    Diverse expertise and viewpoints
•    Well-run, regularly-held meetings with a disciplined, systematic approach
•    Understanding of fiduciary best practices

     2. Process
An Investment Policy Statement (IPS) defines objectives, guidelines and formal criteria for selecting and monitoring investments. An effective IPS is well-conceived, consistently followed and articulates the organization’s purpose, investment philosophy, strategies and policies. Other key elements include risk and return expectations, spending policy, cash thresholds and asset allocations. An IPS should also be specific enough to provide guidance, but allow enough flexibility to address changing conditions and not handcuff the organization’s investment committee members, financial advisors or money managers. Check an organization’s process effectiveness below:

Effectiveness Checklist
•    Written Investment Policy Statement
•    Documented goals and objectives
•    Scheduled IPS reviews to ensure ongoing compatibility with an organization’s mission and purpose
•    Meeting minutes distributed to all committee members

     3. Portfolio Management
The lifeblood of a nonprofit’s financial health is building long-term financial reserves and a sound investment strategy to manage them. When building a portfolio, it’s important to consider how to best protect the value of the investment over time, grow it to further the mission, and provide sufficient access to cash and income to support the organization’s liquidity needs. Over time, it’s easy to stray from the portfolio’s initial guidelines, so it’s critical to assess the portfolio on a regular basis to ensure it’s still on track to fulfill long-term needs. Evaluate an investment portfolio’s health with this list:

Investment Health Checklist
•    Overall investment strategy and portfolio is evaluated regularly and adjusted as needed to pursue your organization’s goals and mission
•    Asset allocation and portfolio risk are defined
•    Appropriate liquidity is maintained
•    Portfolio management documents are retained and reviewed regularly

If you or your investment committee are considering a portfolio review for your organization, we can provide perspective and insight. By assessing your current strategy, we can help you serve the aims of your organization’s mission.