Crafting an Investment Policy Statement for Your Nonprofit

In a constantly evolving financial landscape, nonprofit organizations must manage their investments with both discipline and purpose. When the market is unstable, costs increase, or board priorities change, an Investment Policy Statement (IPS) provides clear guidance. It helps keep your portfolio aligned with your nonprofit’s long-term mission.

For nonprofits, an IPS is not just a financial document. It is a strategic framework and roadmap that helps nonprofit organizations preserve and thoughtfully grow their capital. They can use this growth to fund short-term projects and pursue long-term growth opportunities, all in support of their mission.

What is an IPS?

An IPS is a written document that describes your nonprofit’s investment goals, risk tolerance, time frame, liquidity needs, and special considerations. This document helps leaders manage investments consistently over time. This is important because board and committee composition changes over time, and the IPS serves as the investment guidepost.

In short, an IPS acts as a living roadmap. It is clear enough to guide actions, flexible enough to adapt, and comprehensive enough to support accountability.

Key components of a strong IPS

Every organization’s IPS should fit its mission and needs. Good statements should have these main sections:

1. Governance and oversight
   Defines responsibilities and lays out the roles of the board, finance or investment committee, staff, and any external advisors. It also establishes how often the policy will be reviewed and updated.

2. Investment objectives and constraints
   Includes return targets, risk tolerance levels, time horizons, spending needs, and any liquidity requirements. For example, a nonprofit with high annual grantmaking needs may prioritize liquid investments. This section will also outline both permitted and prohibited investments.

3. Strategic asset allocation
   Outlines how the portfolio will be diversified across asset classes, including target ranges and rebalancing guidelines. This helps ensure asset allocation remains intentional rather than reactionary and accurately reflects the organization’s risk profile.

4. Performance monitoring and risk management
   Specifies benchmarks for evaluating success, as well as procedures for measuring performance, reviewing results, and mitigating risks.

Tailoring your IPS to reflect your mission

Your IPS should be as unique as your organization. Factor in mission-specific values, operational cash flow needs, and long-term goals. For example:

• A nonprofit that focuses on social justice may include a guideline to consider ESG (environmental, social, and governance) factors in investment choices.
• An organization with short-term capital needs may need a certain percentage of its portfolio in liquid assets.
• A foundation with a long-term endowment can invest in alternatives like private equity, private credit, or real estate since liquidity isn’t a high priority. This can help diversify and improve results.

Using mission-aligned investing can enhance your values-driven strategy. However, it is important to balance these choices with fiduciary duties. This includes managing costs, reducing risks, and maintaining portfolio performance.

Common additions to consider

In addition to investment guidelines, many nonprofits choose to integrate or append related governance policies, such as:

• Spending policy: Establishes how much of the portfolio can be withdrawn annually and under what conditions.
• Gift acceptance policy: Outlines how to handle complex or non-traditional donations.

Review your IPS at least once a year

Markets, leadership teams, and strategic priorities change. That’s why your IPS should be reviewed at least once a year, and more frequently after significant events, including:

• A large donation or bequest
• A shift in operating model
• Changes in regulatory policy

A well-crafted IPS is one of the most valuable tools a nonprofit can have. It keeps your investment strategy rooted in purpose, even as people, markets, and priorities evolve. It’s more than a compliance document. It is a guide that helps your organization stay financially strong and focused on its mission.

If your organization doesn’t have an IPS, or if it’s time for a refresh, now is the right moment to start, and we are here to help.

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