Key Takeaways
- An Investment Policy Statement (IPS) provides a clear governance framework for NFP investment decisions.
- NFP Boards have a fiduciary responsibility to protect assets and align investments with the organisation’s mission.
- A well-structured IPS defines risk appetite, asset allocation and constraints, including ethical and SRI considerations.
- Clear monitoring, reporting and adviser involvement help ensure long-term investment discipline.
- A robust IPS supports better use of reserves and working capital in a challenging funding environment.
Why NFPs Need an Investment Policy Statement (IPS)
Many Not-for-Profit (NFP) Boards face the increasing challenge of delivering on their mission with less operating cash flow. There are many reasons for the reduction in cash flow including lower funding/donations, rising operating costs and many more.
Often, a focus on more efficient use of working capital and reserves can be part of the solution. As Boards search for a better return on funds, it’s a good reminder of what the ACNC requirements are. You can read a full copy of the Guide on the Australian Charities and Not-for-profits Commission website.
All NFP organisations are unique and regardless of their size, cause or association, should develop an Investment Policy Statement (IPS) that is robust and functional, as well as flexible enough to cater for both Board and organisational change and to meet the long-term goals of the organisation in an ever-changing environment.
The Board of a NFP has a fiduciary responsibility to protect the organisation's assets and ensure that its operations and activities use the assets to further the NFPs mission. Therefore, an IPS is critical.
What Is an Investment Policy Statement?
An IPS is essentially a roadmap for funds management; it sets the ground rules for investing and outlines how investment decisions will be made and what steps must be taken to ensure good governance.
It also helps link values, mission and operational needs to the organisations’ financial resources. A good IPS is clear and functional and does not need to be overly complicated nor legalistic.
It should articulate the governance of the funds, define how the funds are to be invested and confirm what outcomes are expected in terms of returns. It should also clarify any constraints that need to be in place.
Many NFPs have ethical and SRI overlays that restrict investment in certain sectors, activities or companies, for example alcohol and tobacco; these restrictions need to be included in the IPS.
A robust IPS will provide certainty that investment decisions are being made in-line with the NFP’s stated risk appetite. Stakeholders should be able to go to the IPS, understand exactly how funds are invested and the governance structure in place.
What Needs to Be Considered in an IPS?
Purpose of the Investment Assets
- What is the purpose for the investment assets?
Roles and Responsibilities
- Who does what?
- Risk profile
Investment Framework
Types of securities in which the organisation can invest:
- Cash
- Bonds
- Shares
- Managed Funds
Quality and maturity of fixed income securities
SRI – Socially Responsible Investing
Target return e.g. a total return on investments of CPI + 3% (risk profile dependent)
Types of investments in which the organisation may not invest:
e.g. XYZ Organisation will not invest in securities purchased on margin, options, futures or other derivative instruments
Asset diversification including a Strategic Asset Allocation (SAA)
Investment Monitoring and Reporting
- The use of professional financial advisers
- Reporting framework and cycle
- Portfolio monitoring and rebalancing to SAA should be adopted as a risk-management strategy.
Supporting NFP Investment Outcomes
There is a lot to consider for a NFP Board when designing, implementing and managing an investment portfolio.
Morgans works with clients in the NFP sector helping them navigate the road to higher returns. We have considerable experience working with large and small organisations and will tailor solutions specific to the NFP’s needs and circumstances.
Get Professional Support for Your NFP Investment Strategy
Designing and managing an investment strategy for a Not-for-Profit requires clarity, discipline and the right advice.
To learn more about how NFP organisations can earn a greater return while understanding and managing risk, speak with a Morgans adviser who understands the unique governance and investment needs of the NFP sector.
FAQs About Investment Policy Statements for NFPs
What is an Investment Policy Statement (IPS) for a Not-for-Profit?
An IPS is a formal document that outlines how an NFP’s funds are managed, including governance, risk tolerance, asset allocation, ethical constraints and reporting requirements.
Is an IPS required for NFP organisations in Australia?
While not always legally mandatory, an IPS supports ACNC governance expectations and helps Boards demonstrate they are meeting fiduciary duties and acting in the best interests of the organisation.
How does an IPS support good governance?
An IPS provides clarity around decision-making, accountability and risk management. It ensures investment decisions are consistent, transparent and aligned with the organisation’s mission.
Should ethical or SRI restrictions be included in an IPS?
Yes. If an NFP has ethical, social or mission-based investment restrictions, these should be clearly documented in the IPS to guide investment decisions and adviser recommendations.
How often should an IPS be reviewed?
An IPS should be reviewed regularly and whenever there is a significant change in the organisations' objectives, financial position, Board composition or market conditions.
