Developing an appropriate investment policy is crucial for not-for-profit organizations to effectively manage their assets. A well-structured investment policy clearly defines the objectives, constraints, and governance procedures. This article will elaborate on the key elements that should be included in an investment policy for not-for-profit organizations.
Specifying the Investment Objectives
The investment policy should clearly state the financial and non-financial objectives. Financial objectives typically relate to targeted returns, risk tolerance levels, time horizon, and liquidity needs. Non-financial objectives may cover alignment with mission, ethical considerations, and social responsibility. The policy should provide specifics on risk-return tradeoffs the organization is willing to make.
Defining the Governance Structure
The policy needs to specify the roles and responsibilities of key stakeholders involved in investment decisions and oversight. This includes the board, investment/finance committee, executive management, investment consultants, portfolio managers, custodians, and auditors. Clear delineation of duties enhances accountability.
Establishing Guidelines and Constraints
Parameters help guide investment activities in line with overall goals and risk appetite. This encompasses strategic asset allocation, benchmarks, rebalancing procedures, diversification requirements, restrictions on exposure to specific assets or sectors, and guidelines for socially responsible investing.
Specifying Monitoring and Reporting
Ongoing monitoring ensures investment activities comply with the mandated policy and performance benchmarks. The policy should define the frequency, content, and format for reporting to relevant stakeholders like the board, committee, and executive management.
An investment policy provides a framework for not-for-profit organizations to effectively govern investment activities aligned to their unique needs and circumstances. Key elements cover objectives, governance, guidelines, constraints, and monitoring procedures.