Whether you are an individual or an organization, investment policy statements are a great way for you to establish guidelines for your investment decision-making and monitoring processes. It is a good idea to review your investment processes. Because of fiduciary responsibility, establishing clearly defined guidelines is especially important for trusts and organizations. Surprisingly, many older boards lack thorough or have have out-dated investment policy statements. Instead of feeling ashamed about not having good policies in place, recognize that you can’t undo the past, and take the time to review what documents you do have in place. Doing so will help provide guidance to the board when things go wrong and expectations aren’t met.Typically making investment choices is a four part process. First, establish the goals of the endowment. Next, Create an Investment Policy Statement (IPS). Then interview investment managers, the people who you delegate to manage and invest your portfolio. Finally, monitor the portfolio and the investment manager. Today I’m just going to focus on establishing the goals for your endowment and why an Investment Policy Statement (IPS) matter.
Every organization has goals. What questions should a board ask when establishing investment-related goals? Here are some examples:
- How much will be distributed (a flat dollar amount or a percentage of the endowment)?
- How often the distribution will take place? Annually, quarterly, etc
- Who will be the beneficiaries?
- How long they’ll continue making distributions? Is this a limited term or for perpetuity?
These goals are combined with any restrictions, such as the amount of risk they can handle, or the types of investments allowed (is it against their policy to invest in tobacco stock?). Now, that you have a clear understanding of your goals, you can move onto the next step, developing an investment policy statement.
You can read more here.
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