Reserve Strategy & Investment Policy Development for Nonprofits and Associations
Your reserve strategy and Investment Policy Statement (IPS) combined operate as the foundation of your nonprofit or association investment program. They define how each pool of capital is meant to be used and invested while providing your finance committee guidelines to govern against as board membership, market conditions, and organizational priorities change.
How We Manage Nonprofit and Association Investment Portfolios
Strong investment outcomes for nonprofits and associations start with documented policy, not with portfolio decisions. A well-defined reserve strategy and a comprehensive Investment Policy Statement (IPS) establish how your reserves and investment program are positioned to support your objectives and give your finance committee the basis for evaluating whether the strategy is operating as intended.
With both documents in place, each pool of reserves can be segmented and invested in line with its purpose, time horizon, and the level of risk your finance committee is willing and financially able to accept. The framework for measuring performance is documented in advance, so reporting can be consistently reviewed against benchmarks selected for their alignment with the portfolio’s structure. Our team has partnered with nonprofits and associations on their investment needs for over 20 years. We regularly work with finance committees to evaluate and align both their reserve structure and IPS with their long-term objectives. In doing so, boards and finance committees have a stronger foundation upon which to base their governance and fiduciary responsibilities.
What Nonprofit Investment Management Includes
Reserve strategy and Investment Policy Development each involve a defined process that produces a comprehensive policy your finance committee can use for governance purposes. This process typically starts with your reserve strategy, which is the work of categorizing reserves by purpose and time horizon and documenting that structure within a reserve policy. Your Investment Policy Statement (IPS) then brings together your reserve structure, organizational objectives, risk tolerance, liquidity requirements, and spending plans, specifying how each pool will be invested, measured, and overseen.
Reserve Strategy
Reserve Strategy
Investment Policy Development
Investment Policy Development
Why Reserve Strategy and Investment Policy Are the Foundation of Your Investment Program
Reserve strategy and investment policy each play a distinct role in a nonprofit or association investment program. Together they form the foundation the investment strategy is built on and the framework the finance committee governs against.
The Role Reserve Strategy Plays
Reserve strategy is the work of categorizing your nonprofit or association reserves by purpose and time horizon. In defining what each pool of capital is for and thus understanding the liquidity and general risk tolerance associated with each pool, more informed investment decisions can be made. A reserve set aside to protect against an unexpected disruption serves a different role than one earmarked for a planned initiative or one held for long-term flexibility. Without a well-defined structure, the investment approach can default to a single, blended view of risk and return that does not match how any one pool of reserves is intended to be used.
The Role Investment Policy Development Plays
An Investment Policy Statement (IPS) is the governing document that defines how your nonprofit or association invests and oversees its reserves. Developing an IPS involves integrating a number of inputs, including your reserve segmentation, organizational objectives, risk tolerance, liquidity requirements, and spending plans. The resulting policy specifies investment objectives, allocation targets and acceptable ranges, benchmarks, permitted and restricted investments, rebalancing parameters, spending guidelines, and the responsibilities of each party involved in oversight. Without a detailed IPS, investment decisions and performance reviews often lack a documented standard, creating inconsistencies in how the program is governed, especially as committee members are replaced.
Why the Reserve Structure & IPS are Critical to the Investment Program
The reserve structure and Investment Policy Statement together form the foundation of a nonprofit or association investment program, defining both how reserves are categorized and how each pool is invested and overseen. A nonprofit’s investment strategy is developed around clear guidelines set forth within the IPS, which are developed following a carefully defined reserve structure. If the IPS is lacking detail, or the reserve structure does not match the nonprofit’s short- and long-term objectives, it becomes challenging to match the investment approach to the nonprofit’s actual needs. In addition, the IPS defines policies related to investment reporting to track whether the reserves are performing in line with the policy guidelines and benchmarks. When the foundation is well-developed, the rest of the program operates against a coordinated framework that current and future committee members can understand, implement, and oversee to fulfill their governance and fiduciary responsibilities.
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Sample Investment Policy Statement
Download our Sample Investment Policy Statement to use as a reference point when evaluating your own policy or starting the conversation with your board.
What's Normal For Nonprofit Reserves?
Learn how to think about reserve structure, investment allocation, and what peer benchmarking data can tell you about where your organization stands.
Frequently Asked Questions About Reserve Strategy and Investment Policy Development
Where should a nonprofit start when building an investment program?
A nonprofit or association building an investment program should start by defining its reserve strategy and developing a corresponding Investment Policy Statement. Reserve strategy clarifies what each pool of capital is for and how it should be segmented. The Investment Policy Statement translates that structure, along with organizational objectives and risk tolerance, into investment guidelines, allocation targets, and oversight responsibilities. Together these two documents give your finance committee the governance framework required to evaluate every subsequent decision, from custodian selection to manager oversight to ongoing performance review.
What is the difference between a Reserve Policy and an Investment Policy Statement?
A reserve policy and an Investment Policy Statement serve different functions for nonprofits and associations. A reserve policy defines how much your organization holds in reserve, how those reserves are categorized, the rationale behind each category, and the rules for when and how each pool can be used. An Investment Policy Statement defines how each pool of reserves should be invested, including objectives, risk tolerance, allocation targets, benchmarks, permitted investments, rebalancing parameters, and oversight responsibilities. The reserve policy governs the structure and use of reserves. The IPS governs how those reserves are invested. Both should be coordinated to allow the investment approach designated for each pool to reflect its purpose and time horizon.
Does a nonprofit need both a reserve policy and an Investment Policy Statement?
A nonprofit or association generally benefits from having both a reserve policy and an Investment Policy Statement, though the two can be combined into a single document or maintained separately depending on governance preferences. What is important is that each fulfills its intended purpose: the reserve policy gives the board a documented record of how reserves are categorized and used, and the IPS gives the finance committee a documented record of how those reserves are invested and overseen.
Can a nonprofit invest its reserves without a formal Investment Policy Statement?
It is possible for a nonprofit or association to invest reserves without a formal Investment Policy Statement, though doing so is not recommended. Without an IPS to define investment objectives, risk tolerance, and asset allocation guidelines, the investment strategy may not align with the organization’s actual goals, time horizons, or capacity for risk. The finance committee also lacks a documented standard to evaluate performance against, since benchmarks and oversight responsibilities are not set in advance, and individual members may hold different assumptions about acceptable risk, liquidity, and return. A formal IPS provides that framework on both sides: guiding how reserves are invested up front and giving the committee a documented basis for evaluating whether the program is operating as intended. For organizations holding reserves of any meaningful size, an Investment Policy Statement is widely treated as a baseline expectation of fiduciary practice.
How long does it take to develop a reserve strategy and Investment Policy Statement?
The timeline for developing a nonprofit or association reserve strategy and Investment Policy Statement varies based on the complexity of the organization, the current state of any existing documentation, and the cadence of board and committee meetings. Raffa’s typical process can span a few weeks to a few months and includes financial document review, interviews with leadership and committee members, a risk tolerance survey, recommended changes, and final adoption by the appropriate governing body. Organizations starting from scratch may require additional time to align on reserve segmentation and investment objectives.
Who should be involved in developing a nonprofit's reserve strategy and Investment Policy Statement?
Reserve strategy and Investment Policy Statement development typically involve the executive director or CEO, the chief financial officer or finance lead, the finance committee or investment committee, and, depending on governance structure, the full board. An external investment adviser often facilitates the process by gathering financial information, surfacing differences in risk tolerance among committee members, and translating organizational priorities into documented investment parameters. Including the right voices early helps the resulting documents reflect the perspectives that will be required to govern against them over time.