Anne: Hi. I’m Anne Bucciarelli, Director in Bernstein’s Wealth Strategies Group. I’m joined here today by Andrea Kushner Ross, who’s also a director in the Wealth Strategies Group. Today we’re talking about investment policy statements.
In the not-for-profit world today, there’s a lot of scrutiny around governance,. So, Andy, can you tell me, why should someone have an investment policy statement?
Andrea: Well, an investment policy statement, or an IPS, is a document that outlines how a nonprofit’s assets are going to be managed. It’s important to have, because it ensures that the nonprofit is managing its investments consistent with its mission.
Anne: So, if I was to create an investment policy statement, what kinds of things should I include?
Andrea: An IPS should outline the roles and responsibilities of the major stakeholders, namely the officers, directors, and the investment manager. It should also state the time duration of the fund. Is it going to last for one or two years, or are the funds going to be invested in perpetuity? And the time horizon is going to affect the allocation, strategies, and other considerations.
Anne: That’s a really important point that’s often overlooked. What are some other components of an investment policy statement?
Andrea: The IPS should set forth the investment goals, so we know what we’re managing for. Any applicable restrictions or constraints on investments, but also for spending and liquidity. And, finally, the benchmarks for measuring performance and risk should be outlined.
Anne: Andy, you’ve seen a ton of investment policy statements. What are some best practices, or “dos,” that you would recommend?
Andrea: Do include your mission statement as directors come and go. It’s important to have institutional memory of the mission and why you’re managing the investments the way that you are. Do review your IPS annually. You may not change it annually, but at least by reviewing it annually, you make sure that you’re aligning your investments with your mission. Include your spending rate. If you’re not sure what sustainable spending is for your organization, make sure that you have analytics to determine an appropriate rate.
And finally, make sure that your IPS is available to all stakeholders who have to manage to it, especially any external managers.
Anne: Great. And so, we talked about the “dos.” What are some “don’ts” that you would recommend?
Andrea: Don’t be too rigid with your IPS. It should be flexible enough that investments can be changed without having to rewrite the entire document. Don’t gloss over or admit risk guidelines. A statement such as, “Investments should be managed to a long-term horizon,” could mean different things for an investment manager or a board member.
And finally, don’t be afraid to ask for help. The Bernstein philanthropy team has a long history of working with nonprofits to craft and refine their investment policy statements using very sophisticated modeling tools.
Anne: Well, thank you so much, Andy.