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Non-Profit Boards: Exploring Best Practices
Published Date : April 21, 2014
For over 20 years, Sand Hill Global Advisors has been privileged to serve as an investment advisor to non-profit organizations and to assist in furthering the many admirable missions of these institutions. Our deep experience in this space has informed us of many best practices for boards, and specifically investment committees. This level of understanding allows advisors such as Sand Hill to better leverage their professional expertise beyond simple stock picking.
A known challenge for any non-profit is that membership turnover within the investment committee is a near certainty, which means that assets dedicated to the long-term mission are subject to the relative short-term tenure of those providing investment oversight. It is thus imperative that a thoughtful and robust Investment Policy Statement (IPS) be constructed to serve as a governing document and guidance for future committee members. An investment advisor, steeped in fiduciary principles and exposure to peer organizations, can very valuable in the collaborative process of creating an IPS.
At the heart of an IPS is the asset allocation, a key determinant of portfolio returns. Ranges around asset classes should be adopted allowing for discretionary decisions by an investment manager while at the same time protecting assets from emotional decisions in turbulent markets and accounting for risk. Allocation bands also prevent the personal preferences of committee members from seeping into the organization’s investments while also ensuring allocations are aligned with peers, a fiduciary best practice. An advisor plays an instrumental role in these allocation decisions by providing counsel backed by professional investment expertise and, upon adoption, overseeing the implementation and adherence to the allocation.
Withdrawal rates to fund vital programs today must be balanced against their potential to alter the long-term sustainability of the mission and be reasonable relative to the overall portfolio size and allocation. Armed with historical market data and a current economic outlook, an investment advisor can test a multitude of scenarios to arrive at optimal spending rates as judged against the asset allocation, risk tolerance, and constraints of the IPS. Once in place, the manager should continue to monitor market conditions and test the assumptions of the withdrawal plan to ensure long-term sustainability.
Asset allocation and withdrawal rates, combined with the short and long term aims of a non-profit, ultimately determine the overall size of an investment, or endowment, account. Generally, the larger the investment account, the more sustainable the mission. The investment account expands partnership opportunities, magnifies awareness and advocacy, and extends the impact of the mission. There is no established best practice, but typically most non-profits think about account size relative to their operating budget with investment accounts ranging from 1x to 20x an operating budget.
Regardless of asset allocation, withdrawal rates, or endowment size, all non-profits should be fee sensitive as fees, over the long-run, are a key deterrent to investment returns. It is important that an independent advisor, governed by the fiduciary standard, is enlisted to seek out cost efficient investment vehicles while generating minimal transaction fees.
Finally, those serving on investment committees must, at all times, meet the fiduciary standard with the actions they take. Investment advisors, well-versed in the intricacies of institutional money management with exposure to non-profit peers, can offer fiduciary training that not only protects the assets of an organization but those individuals volunteering as well.
If you serve on a non-profit board and the issues discussed here resonate with you, Sand Hill professionals would be happy to review your Investment Policy Statement, portfolio asset allocation, fees, performance and service standards.
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Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
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All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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