Increase the value of invested assets taking inflation into account
Retain appropriate liquidity so that the non-profit can access cash when needed
Determine the purpose of the portfolio and allocate appropriately, for example, short-term investments versus endowments, i.e., perpetual portfolios
Invest in a manner that aligns with the mission, vision and values of the institution
The day-to-day management of investments typically falls to the portfolio manager. However, the board of directors of any non-profit has a fiduciary responsibility to oversee the organization’s assets—authorizing asset allocation and risk profiles based on regularly evaluated investment goals and performance.
We believe all these moving parts need to be organized in a well-structured policy statement.
6 Components of an Investment Policy Statement
The investment policy statement is a unique document that should include these key components customized to the needs of the organization.
Purpose and Scope
The first section of an investment policy statement summarizes the body of the document.
It broadly states the:
Scope and intended purpose of the document
General objectives of the non-profit organization
Fiduciary duty of the board of trustees and the investment committee
Delegation of Responsibilities
Investment programs have many moving parts and require clear and detailed guidelines on the roles and responsibilities of all the parties involved.
Board of Trustees—Appoint the investment committee, as well as establish their
Investment Committee— Develop the investment policy statement and implement the investment strategy by appointing and monitoring the investment managers
Investment Manager —has the fiduciary duty of actively managing the portfolio and report investment performance to the committee
The investment statement should set down the investment objectives based on the non-profit’s goals and constraints vis-à-vis the realities of the investment market. Elements mentioned in the objectives section include:
Objectives and time horizons of each asset pool
Long-term return targets that factor in inflation, fees, and annual spend
Time horizon of the investments which will affect the level of risk avoidance
Portfolio liquidity requisites
Constraints related to the mission of the organization
The investment philosophy of the non-profit which keeps decisions on track against short-term market fluctuations
Asset Allocation Strategy
Our goal behind asset allocation is to have a nimble portfolio that meets all the objectives.
The investment committee develops approved ranges for each target asset allocation to allow for strategic shifts in response to opportunities in the market in addition to natural shifts due purely to market behavior. These will depend on the risk tolerance of the non-profit.
Here’s an example of the parameters set within an investment policy statement
Rebalancing and Spending Policy
We believe rebalancing the portfolio is key to keeping asset allocations on target. The rebalancing policy gives guidelines on:
How often the portfolio is reviewed and/or rebalanced
What the maximum variance is between target and actual allocation for each invested fund
The maximum period within which the account rebalancing should occur
The spending rate policy may provide a relatively predictable revenue stream to meet the goals of the non-profit while preserving and growing the value of assets. There are various ways that the spending rate can be determined. The spending rate is subject to periodic review to curb volatility.
We believe objectives and guidelines are only as good as their implementation. Therefore, it’s crucial for an IPS to include monitoring and review processes. The monitoring mechanism may set out the frequency of :
Asset role guideline reviews
Portfolio objectives, monitoring and reporting
Investment program overall assessment
Get Started on Your Investment Policy Statement
We at Stonecrop believe a well-defined investment policy statement is the blueprint for non-profit organizations to meet their objectives and minimize portfolio risk.
Stonecrop works with your board of trustees of your non-profit to create an investment committee. We then work with the committee to draft an IPS that fits the DNA of the organization and that will guide them in fulfilling their fiduciary responsibilities.
To embark on the road to investment success, get in touch with Stonecrop today.
February 9, 2022
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