An Investment Policy Statement for a Changing World

In a world where markets shift quickly and investment thinking continues to evolve, having a clear framework for how assets are managed is very important. For foundations and endowments, that framework is the investment policy statement (IPS), a document that translates mission and goals into practical investment strategies.

A well-crafted IPS provides discipline in good times and guardrails in volatile ones. It helps boards and committees remain steady when emotions run high and ensures that decision-making reflects the organization’s long-term purpose, not short-term market noise.

Purpose and principles

At its core, an IPS is both a roadmap and a covenant. It defines how the organization’s assets will be managed in support of its mission and values. The policy sets expectations for risk and return, clarifies who is responsible for what and ensures that everyone—from board members to investment advisors—is working from the same playbook.

The IPS also demonstrates fiduciary prudence. By documenting a consistent approach to investment decisions, it helps the organization meet its legal and ethical duty to manage assets responsibly and transparently.

Governance and oversight

Strong governance is the backbone of an effective investment policy. The IPS should clearly outline the roles and responsibilities of each party involved. This typically includes the board of directors, an investment or finance committee, and external advisors or managers.

It should specify how often the policy and portfolio performance will be reviewed (usually at least once a year) and describe the process for making updates. This ensures accountability and continuity, even as leadership changes over time.

An IPS should never be written and filed away. It should live alongside the organization’s ongoing financial management, evolving as circumstances and objectives change.

Defining objectives and risk

Every IPS should begin by articulating the organization’s financial objectives. These typically include supporting annual spending needs, preserving the long-term purchasing power of the portfolio and growing capital at a rate that outpaces inflation.

Just as important is defining risk tolerance. A nonprofit’s willingness and ability to accept volatility should reflect its time horizon, liquidity needs and reliance on portfolio income. A clear statement of risk helps the board and its advisors align investment strategies with the organization’s financial realities and mission priorities.

Asset allocation and diversification

The IPS serves as a guide for how the organization will balance growth and stability. It outlines the strategic mix of asset classes such as equities, fixed income, alternatives and cash, and often includes allowable ranges for each category.

Diversification across asset classes, sectors and geographies helps manage risk and smooth returns over time. The IPS should also provide rebalancing guidelines to ensure the portfolio remains aligned with its targets, especially after periods of significant market movement.

Flexibility and professional judgment

While structure and discipline are essential, the IPS should not be overly rigid. Flexibility allows the investment advisor to make tactical adjustments in response to market conditions, evolving opportunities and shifts in investment thinking, while also staying on track with the long-term plan.

Flexibility does not mean abandoning discipline, but rather recognizing that the world changes. New asset classes emerge, interest rate environments evolve, and client priorities shift. Donations can expand the capital base, and new giving missions may emerge. The IPS should empower advisors to act prudently within its parameters, ensuring the portfolio remains positioned for both resilience and growth.

Spending policy and sustainability

For endowments and other long-term funds, the IPS typically defines a sustainable spending rate, which is often calculated as a percentage of the portfolio’s average value over a multi-year period. This helps balance current support for programs with the need to preserve capital for future generations.

A clearly defined spending policy also simplifies planning, providing predictable funding for operations while maintaining intergenerational equity.

Legal and ethical framework

Every IPS should reference relevant laws and standards, such as the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which governs endowment spending and investment prudence. This ensures the policy aligns with fiduciary best practices and regulatory expectations.

Beyond compliance, a well-designed IPS reflects the organization’s values. It provides a transparent structure for making investment choices that are consistent with mission and ethics.

A living document for long-term stewardship

Ultimately, an IPS is both a financial tool and a governance document that connects the organization’s mission to its money. It builds confidence among donors, board members, and beneficiaries that assets are being managed with purpose, prudence, and professionalism.

In a changing world, an effective IPS balances structure with flexibility. It establishes clear guardrails, yet allows the investment advisor room to adapt—ensuring that the organization’s portfolio remains aligned with both its mission and the realities of the market.

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