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Rachele's bolg on making investment choices
Endowments – Making Investment Choices
Part 1 of 4
Establishing Goals
A primary function of Endowment boards is to establish investment decision making and monitoring processes. It is a good idea to review your investment processes. Both new Endowments and established boards need to have clearly defined investment guidelines. Doing so will help provide guidance to the board when things go wrong and expectations aren’t met.
Typically making investment choices is a four part process. First, establish the goals of the endowment. Next, Create an Investment Policy Statement (IPS). Then interview investment managers, the people who you delegate to manage and invest your portfolio. Finally, monitor the portfolio and the investment manager. Today I’m just going to focus on establishing the goals for your endowment and why an Investment Policy Statement (IPS) matter.
Every organization has goals. What questions should a board ask when establishing investment-related goals? Here are some examples:
- How much will be distributed (a flat dollar amount or a percentage of the endowment)?
- How often the distribution will take place? Annually, quarterly, etc
- Who will be the beneficiaries?
- How long they’ll continue making distributions? Is this a limited term or for perpetuity?
These goals are combined with any restrictions, such as the amount of risk they can handle, or the types of investments allowed (is it against their policy to invest in tobacco stock?). Now, that you have a clear understanding of your goals, you can move onto the next step, developing an investment policy statement.
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