A well-crafted nonprofit investment policy template is crucial for nonprofit organizations to effectively manage their investment assets. This policy document outlines the organization’s investment goals, risk tolerance, asset allocation, spending policy and other important details. By adopting a thoughtful nonprofit investment policy, nonprofits can align their investments with their charitable mission and remain compliant with all applicable laws and regulations. This article will explore the key elements that a nonprofit investment policy template should contain in order to promote responsible stewardship and growth of assets. Proper implementation of such a policy also demonstrates to donors and other stakeholders that the nonprofit takes its fiduciary duties seriously.
Specifying the organization’s charitable purpose and investment objectives
The investment policy template should begin by stating the nonprofit’s overall charitable mission, vision and purpose for holding investment assets. This grounds all investment decisions in the context of how they will further the organization’s philanthropic goals. The document should also clearly define the primary financial and impact objectives for the investment portfolio. Typical investment goals include preserving capital, achieving reasonable returns, ensuring liquidity for distributions, managing risk, and aligning investments with program initiatives.
Defining roles and responsibilities
A key section of the nonprofit investment policy template outlines the division of duties between the board of directors, investment/finance committee, executive staff, investment advisors/managers and any other relevant parties. This delineation of responsibilities promotes accountability and oversight of investment activities. For example, the board may retain ultimate authority over the policy while delegating implementation to staff and outside experts.
Setting an appropriate asset allocation
The investment policy should establish a strategic asset allocation that is suitable for the nonprofit’s specific circumstances. This outlines the investment portfolio’s percentages allocated to various asset classes such as equities, fixed income and alternatives. The asset allocation will depend on factors like the organization’s risk tolerance, time horizon, liquidity needs and projected returns. Nonprofit investment policies often utilize a mix of growth and income-oriented assets to achieve portfolio objectives.
Choosing acceptable investments
Another key section of the nonprofit investment policy template specifies allowable investments that align with the organization’s goals and preferences. This includes defining any prohibited investments or strategies deemed overly risky or inappropriate. For example, a nonprofit may exclude private equity, hedge funds, non-SEC regulated investments or securities related to alcohol, tobacco or gambling.
Establishing benchmarks and performance standards
In order to evaluate investment results, the nonprofit investment policy should define appropriate benchmarks for the total portfolio and each asset class component. Benchmarks based on common market indexes allow performance to be measured objectively. The policy also sets standards for when and how the investment manager will report results and be reviewed by the nonprofit.
In summary, a carefully crafted nonprofit investment policy template provides crucial guidance for making prudent investment decisions aligned with an organization’s philanthropic mission. Key elements include stating investment objectives, defining responsibilities, setting asset allocation, delineating acceptable investments, and establishing performance benchmarks. With these core sections in place, nonprofits can ensure their assets are managed responsibly for the benefit of their charitable programs.