Investment Committee Governance

Investment Committee Governance

Institutions and nonprofit organizations rely on members of their community and patrons for support. This is also true at the leadership level when forming boards and committees. While the majority of organizations are able to recruit experienced and thoughtful board members, a first-time board member may have questions about governance. The following are a few best practices specifically for finance and investment committees to ensure proper governance.

1) Understand the organization’s mission and consider its impact within the context of financial and investment decisions.

2) Develop an Investment Policy Statement (IPS). The IPS should be reviewed on annual basis to ensure the objectives are inline with fundamental assumptions for the portfolio. In addition to the asset allocation and allowable investments, the IPS should also include a discussion of:

o  Mission and goals

o  Return objectives

o  Risk tolerance

o  Lifespan (spend-down or perpetual)

o  Liquidity requirements

o  Process to work with outside advisors

3) Create a conflict-of-interest policy for board members. Avoid conflicts of interest when implementing the organization’s investment strategy whenever possible. Disclose all perceived and actual conflicts that cannot be avoided. This can also include developing a gift acceptance policy to maintain independence.

4) Develop an endowment spending policy. Review the document on an annual basis to ensure that operational needs are being balanced appropriately against the overall investment strategy. The Uniform Prudent Management of Institutional Funds Act (UPMIFA) provides guidelines to prudent spending.

5) Act with skill, competence, prudence and reasonable care. As outlined in UPMIFA, members of the committee must:

o  Dedicate sufficient time to implement and monitor investment objectives and policy

o  Maintain an appropriate level of understanding of investment strategies and products

o  Utilize external investment professionals when appropriate

6) Review tax returns. Finance/investment committee members should be allowed to review Form 990, Return of Organization Exempt From Income Tax, before it is filed. This also serves as a good review of the investments, investment performance and financial activity over the past year.

7) Document meeting minutes. Minutes should contain enough detail to determine the quality and extent of discussion, and they should be reviewed and approved at a subsequent board meeting.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2012, The BAM ALLIANCE

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