Nonprofits face unique challenges when it comes to investing and managing their assets. Unlike for-profit companies, nonprofits rely on donations and grants for funding, and have an obligation to direct money towards their mission rather than profits. At the same time, nonprofits need to generate returns on any reserve funds in order to support their operations and growth. This is where investment consulting can provide major value for nonprofits. By working with experienced investment advisors, nonprofits can develop customized investment policies and portfolios aligned with their specific needs. Key services that investment consultants offer include asset allocation, investment policy development, manager selection, performance monitoring, and risk management. With proper investment consulting, nonprofits can prudently steward their assets in order to advance their mission and community impact over the long-term.
Creating a formal investment policy is a critical first step
Before implementing any investment strategy, nonprofits should work with consultants to draft a formal investment policy statement. This document outlines the organization’s investment objectives, risk tolerance, asset allocation policies, spending rules, and other guidelines. With a thoughtful policy in place, nonprofits can ensure their investments align with their mission and support their programs appropriately. When crafting the policy, consultants gather input from key stakeholders like the board and finance committee. They also benchmark against peers and incorporate best practices. Periodic policy reviews help keep investment activities focused on strategic goals.
Asset allocation is key for managing risk and return
A major task for nonprofit investment consultants is advising on optimal asset allocation aligned with the organization’s goals. This involves determining the appropriate mix of asset classes like stocks, bonds, real estate, and alternatives in the portfolio. More conservative nonprofits may favor more fixed income, while those with higher risk tolerance can take on more equities. Asset allocation is a key determinant of investment returns over the long run and helps manage the risk profile. Consultants use sophisticated analytical tools to model various allocation scenarios and find the optimal blend. They also help rebalance the portfolio over time to maintain target allocations.
Manager selection taps into expert capabilities
Very few nonprofits manage investments entirely in-house. External investment managers with specialized expertise are usually engaged to handle portions of the portfolio. Consultants play a lead role in screening, selecting, and monitoring these outside managers. This allows nonprofits to tap into sophisticated investment capabilities far beyond what their internal staff can provide. Criteria for manager selection includes track record, risk-adjusted returns, firm stability, and fee structure. Ongoing oversight ensures managers adhere to guidelines and meet performance objectives.
Performance monitoring keeps investment activities on track
Nonprofit investment consultants provide regular performance monitoring to ensure the portfolio remains aligned with objectives. This includes benchmarking returns versus selected indexes and peer institutions. Performance is evaluated at both the total portfolio level and individual manager level. Consultants also monitor risk factors like volatility and drawdowns. If performance diverges significantly from expectations, they can recommend corrective actions like adjusting asset allocation or replacing underperforming managers. Their oversight and advice helps keep investment activities on track to meet long-term return goals.
Expert guidance optimizes impact of assets
Given the specialized nature of nonprofit investing, it is prudent for organizations to seek help from experienced consultants. Unlike commercial investment firms, nonprofit consultants understand unique constraints around mission, reputation, and spending rules. They can objectively guide key decisions to help nonprofits make the most of their assets. With proper policies and discipline enabled by consultants, nonprofits can confidently pursue their mission knowing their investments are working to support their programs and community impact.
In summary, investment consulting services allow nonprofits to implement prudent investment practices tailored to their specific needs and objectives. By creating effective policies, optimizing asset allocation, selecting skilled managers, monitoring performance, and managing risk, nonprofits can steward their assets to sustainably fund operations and advance their mission over the long term.