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Foundation Operations: Finance-> Investment Policies-> What Should Go Into an Investment Policy

What should go into our investment policy?

An investment policy is a document that guides how a foundation's assets are invested. The policy is usually drafted by the board's finance committee, with assistance from outside investment advisors, and is approved by the full board. Some foundations review their investment policy annually to make sure it reflects the state of the economy and the foundation's financial needs.

Components of an investment policy include:

  • Investment philosophy that characterizes the foundation's investment goals (i.e., conservative growth to preserve capital; achieve aggressive growth);
  • Asset allocation or fund mix recommended to accomplish investment objectives (includes statements on length of time for investments, return expectations, liquidity requirements and risk);
  • Screens or investments and transactions that are not permitted; and
  • Reporting requirements for investment performance.

 

Resources

The Chronicle of Philanthropy, “Stock-Investment Policies at the 50 Wealthiest Private Foundations,” May 4, 2006.

Council on Foundations, The Guide to Small Foundation Management--From Groundwork to Grantmaking (Washington, DC: 2002). Examines trends in finances, portfolio composition, investment management, and administrative expenses in private foundations.

Council on Foundations, Spending Policies and Investment Planning for Foundations: A Structure for Determining a Foundation's Asset Mix, Third Edition (Washington, DC: 1999). This book analyzes how a spending policy of 5.5 percent, 6.5 percent and 7.5 percent would affect real and nominal values of assets and the long-term funding capabilities of endowed foundations.

Foundation Financial Officers Group is a nonprofit membership organization of financial and investment officers of large private foundations in the United States and abroad. The organization's mission is to facilitate networking among its members to further their development as financial professionals and foundation officers and to provide the opportunity for the exchange of ideas and information of common interest.

Fry, Robert P. Jr., Creating and Using Investment Policies: A Guide for Nonprofit Boards (Washington, DC: BoardSource, 1997). This booklet explains the basics of investing; how investing for nonprofits is unique; how to work with an investment manager; and ensuring appropriate board member involvement in investment management.

Kramer, Mark, “Foundation Trustees Need a New Investment Approach,” The Chronicle of Philanthropy, March 23, 2006.

Lipman, Harvy, “Meshing Proxy With Mission: Few Foundations Do Much to Influence Shareholder Votes,” The Chronicle of Philanthropy, May 4, 2006.

Viederman, Steve, “Why Foundations Should Care About Shareholder Votes,” The Chronicle of Philanthropy, June 1, 2006.

 

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