A nonprofit investment policy provides important guidelines for how a nonprofit organization should manage its financial assets and investments. Having a clear policy ensures the nonprofit’s funds are invested wisely to support its charitable mission. This document typically covers the objectives, strategies, procedures and oversight for nonprofit investments. Key sections may include the purpose and scope, delegation of authority, standards of prudence, asset allocation, rebalancing, risk tolerance, reporting requirements, and policy review schedule. When drafting a nonprofit investment policy, it is crucial to align it with the organization’s financial needs, time horizon, and risk appetite. The policy aims to maximize returns within appropriate risk constraints. Referencing a sample investment policy can help nonprofits benchmark against best practices when formalizing their own guidelines. This provides a template for permitted investments, due diligence processes, and monitoring responsibilities. Adopting a prudent investment policy is vital for upholding a nonprofit’s fiduciary duties and maintaining public trust.
Purpose and objectives in nonprofit investment policy
A key component of a nonprofit investment policy is defining the purpose and investment objectives. The policy should state the reason for investing institutional funds and what the organization aims to accomplish. Common goals are preserving principal, ensuring adequate liquidity, and generating returns to support operations and programs. The objectives establish clear direction for how the investment portfolio should be managed. Quantitative metrics could include target returns or risk tolerances. Having agreed-upon objectives is crucial for evaluating investment performance.
Standards of care in nonprofit investment policies
Nonprofit investment policies usually contain standards of care that apply to those overseeing investments. These standards reinforce legal and fiduciary responsibilities to act prudently in managing the organization’s assets. The policy states the degree of judgement, care, and due diligence required by law. Key factors are acting in good faith, with the care an ordinarily prudent person, and in the best interest of the nonprofit. Standards for delegated authority are also provided to outline the ethics, responsibilities, and prohibitions for investment advisors or managers.
Asset allocation and rebalancing in nonprofit investments
A nonprofit’s investment policy provides guidance on asset allocation and portfolio composition. The mix of asset classes such as equities, fixed income, and cash reserves should align with the organization’s time horizon, liquidity needs, and risk tolerance. The policy states any limits on allocations to specific asset classes or sectors. Rebalancing procedures are also outlined to keep the portfolio aligned with target allocations as market values fluctuate. Standard rebalancing thresholds are 5-10% deviations from the policy targets.
Nonprofit investment monitoring and reporting
Ongoing due diligence, monitoring, and reporting enables responsible oversight of a nonprofit’s investment portfolio. The investment policy defines the frequency of reviews and required reports to decision-makers. Investment advisors may have to provide holdings, transactions, performance metrics, and commentary at set intervals. Internal staff are also tasked with monitoring policy compliance, asset allocation, fees, and risk exposures. Periodic portfolio reviews involve verifying alignment with guidelines and objectives. The policy delineates steps for correcting any deficiencies or realigning investments.
Investment policy reviews in nonprofit governance
To remain relevant, a nonprofit’s investment policy must be regularly reviewed and updated as needed. The frequency of revisiting the policy is specified, such as annually or when objectives change. Reviews validate that the current policy is optimal based on the organization’s financial position, risk profile, and market conditions. Policy revisions require approval by the nonprofit Board of Directors. Posing key questions during reviews helps determine if modifications are warranted. This governance process sustains an investment program aligned with the nonprofit’s best interest.
A sample nonprofit investment policy provides a template for crafting guidelines tailored to an organization’s needs. It covers defining objectives, asset allocation, standards of care, reporting procedures, and policy reviews. Adopting prudent investment policies and procedures enables nonprofits to uphold their fiduciary duties when managing institutional funds. This promotes effective stewardship and accountability in support of the nonprofit’s charitable mission.