Investment Policy and Objectives for Nonprofits, Endowments, and Foundations


As a non-profit, endowment, or foundation organization looking for the best ways to invest your  assets, it is crucial to create an investment policy and outline related objectives for how the  assets should be invested and monitored over time.

This is typically done with the use of an Investment Policy Statement that defines how  investments should be managed to achieve financial stability of the organization, while taking  into consideration risk management, returns on investments, tax implications, organization  values and principles, along with any legal requirements that should be taken into consideration.

The primary goal of such a policy is to provide guidelines to ensure the investment strategy of  the endowment aligns with the investment objectives and goals of the organization.

This blog post provides an overview of the major components of such a policy as well as  resources available from financial professionals that can help you craft an effective Investment  Policy for your organization’s investment objectives.

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Articulate Specific Parameters Reflecting the Board’s Investment Philosophy 

The Board’s investment philosophy should be centered around four key parameters:

  • A focus on long-term growth
  • Adherence to legal and ethical guidelines
  • A conviction in the decisions made
  • Collaboration with other stakeholders

Investment decisions should be based on comprehensive research of the market that can  pursue protection and potential growth for the organization over the long term.

Depending upon the values and principles of the organization, investment selection may need to  focus on specific social impacts within the community or address specific principles held by the  organization. All investment management decisions are expected to abide by all applicable laws  and regulations, as well as the ethical standards established by your organization.

Board members are responsible for overseeing the proper execution of the investment policy.

Define Risk Tolerance 

Risk tolerance refers to the capacity and willingness to accept greater volatility in exchange for  higher expected returns. For nonprofits, the definition of risk tolerance should be fully  understood by the Board of Directors, as well as the investment management consultant team  overseeing the organization’s assets. Low-risk portfolios usually have a focus on safety and  liquidity; meanwhile, high-risk portfolios favor capital appreciation. Generally, the higher the risk  capacity of an asset allocation, the more equity instruments, such as individual stocks, may be  incorporated into a portfolio.

Risk tolerance for a nonprofit should be consistent with its mission and objectives, as well as  guidelines set forth by its Board of Directors.

The Relationship Between the Board and Investment Manager is Critical 

Business people collaboration and teamwork concept. Your financial advisor in washington dc should work with you to achieve your organization's investment objectives.The relationship between a Board and an investment manager overseeing the organization’s assets is critical for the financial health and well-being of the organization. Having open communication and understanding the investment goals, performance targets, investment strategies, and risk tolerances helps ensure that investment decisions are made with the best interests of the organization in mind.

Working together, executive board members and the investment management team overseeing the assets, can create an overall financial plan that focuses on  pursuing growth opportunities for both current funding needs and future success for the  organization. These objectives should be established, taking into account the time horizon,  return objectives, risk tolerance, and liquidity requirements.

Maintaining a good relationship and ensuring that both the Board and investment manager’s  goals are aligned is imperative to the process. Furthermore, such an approach should ensure  alignment between the Board’s long-term strategic plans with that of the investment manager’s day-to-day activities resulting in higher growth opportunities for all stakeholders involved.

Bottom Line 

It is essential for nonprofits, endowments, and foundations to have a set of investment policies  and objectives to best manage their assets. The investment policy statement serves as the  roadmap for the organization as well as the investment manager to focus efforts on pursuing the  mission of their purpose, while addressing their financial needs and goals, both short and long  term.

By formulating an appropriate investment strategy with clear and actionable objectives,  organizations can pursue long-term sustainability. Ultimately, it is of utmost importance that your  nonprofit organization take the necessary time to construct an efficient investment strategy,  carefully select acceptable asset classes along with an adequate diversification level, and  monitor said investments accordingly in line with the defined goals set forth in the policy  statement.

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Author: Christopher W. Brown, CFP®, CIMA®

Christopher W. Brown is the Founder and Managing Principal at Brown | Miller Wealth Management.