Understanding Your Organization’s Investment Policy Statement
The basics of an Investment Policy Statement (IPS) are important to understand, whether you are on the board of a multi-national non-profit organization or a trustee for your local church’s cemetery fund. An IPS insures your organization’s assets are managed effectively and in alignment with your group’s goals and objectives. But what should you be looking for?
Asset Allocation
How should your foundation’s assets be invested? Choosing asset allocation for an organization or endowment is not a one-size-fits-all solution. Many organizations benefit from having a mix of asset classes, and your IPS statement should reflect that. Our financial advisors can help you consider the risks and rewards of broad asset classes to determine a fit that matches your organization’s needs and goals.
Asset Class Basics
History shows that while interest-generating investments, such as bond portfolios, have the advantage of relative stability of principal value, they provide little opportunity for real long-term capital growth due to their susceptibility to inflation. On the other hand, equity investments, such as common stocks, have a significantly higher expected return but have the disadvantage of much greater year-by-year variability. From an investment decision-making point of view, this year-by-year variability may be worth accepting, provided the time horizon for the equity portion of the portfolio is sufficiently long (five years or greater).
Spend Policy
A successful IPS policy can help maximize funding for organizations by maintaining reserve levels and reinvesting returns to keep pace with cost increases. However, this can only be achieved if the organization also outlines a Spend Policy. A Spend Policy outlines how the organization will access funds, especially during changes or periods of uncertainty, either in the organization (new programs) or externally (market volatility). This policy can be flexible, but should be considered in advance, in order to make sure your accounts are allocated and invested in a way that matches how your team will respond to changes days, months, and years into the future.
Aligns with YOUR Missions and Goals
A foundation’s assets should be invested in ways that reflect the organization itself, whether that is focusing on your state’s fixed-income opportunities or investing in specific industries. This is why it is crucial to work with an advisor who understands your organization and ethics. Your foundation’s IPS statement should not just be a dry document outlining investing policy, it should reflect the mission and goals of the organization.
Greenwood Capital works with many foundations and endowments throughout the Southeast and we pride ourselves on assisting these organizations in effectively supervising, monitoring and evaluating asset management. We do this in two ways: directly through In-House Portfolio Management or indirectly through Outsourced Management Solutions.
Outsourced Management Solutions
- Utilizes a new wave of external management through Active ETFs and other actively managed funds
- Greenwood Capital screens and selects an external asset allocation manager, who is responsible for selecting the specific assets within the investment asset
- Greenwood Capital still determines allocation, utilizing the external asset management expertise of chosen managers within each asset class and category
In-House Portfolio Management
- Greenwood Capital manages and selects assets in-house, utilizing our top-down, quantitative process and a focus on macro-economic trends
- Greenwood Capital also determines asset allocation, based on our personalized team approach
For each option, we provide guidance in developing or modifying your organization’s Investment Policy Statement. We’ll help you plan investment goals and strategies, outline responsibilities, set asset class guidelines and choose appropriate investment benchmarks. Our team offers customized solutions regarding communications, reporting, compliance trading, asset allocation and tax planning issues. We can also help your organization decide whether the Outsourced Management Solutions or In-house Portfolio Management solution is the best option – or perhaps a combination of both.
Greenwood Capital brings a 40-year legacy of advising, managing and customizing investment portfolios for institutional clients. Like our approach to families and individual clients, we serve not only as a fiduciary, but also as stewards of the funds that we manage.
Questions? Reach out to our team today!
In his role as a Private Client Advisor, William provides personalized client service to high-net-worth individuals, corporations, endowments, and foundations. He works one-on-one with his clients on financial and estate planning, asset allocation, and assisting his clients’ understanding of the capital markets.
Greenwood Capital is an SEC registered investment advisory firm. This material has been prepared for information purposes only, and is not intended to provide, and should not be relied on solely for tax, legal or accounting advice. The information contained within has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy. The opinions expressed are subject to change from time to time and do not constitute a recommendation to purchase or sell any security nor to engage in any particular investment strategy. Investment Advisory Services are offered through Greenwood Capital Associates, LLC, an SEC-registered investment advisor.
