Russell Goldstein, senior vice president of U.S. Trust, Bank of America Private Wealth Management, suggests nonprofits do their homework before embarking on an investment management relationship. Ask potential partners:
• What investment model is best for our organization (Outsourced Chief Investment Officer, Consultant, Broker, Investment Advisor, Custody)?
• How will you engage our investment/finance committee members to “the highest and best use” of their time?
• How are decisions made in manager selection, economic and market forecasts?
• What is the investment management process at your firm: Who do you work with, report to and rely on for information, ideas and investment perspective?
• How can we easily understand we are on track via your reports?

Though they are only one part of a nonprofit’s cash equation, endowments provide a predictable source of income and may be a lifeline during economic downturns. They allow nonprofit entities to produce income as well as growth. But who should manage the assets in an endowment?

It might seem a single executive or executives seated at the boardroom table are best suited. After all, they might share decades of investment leadership experience and understand the current endowment theory of drawing a 4-percent income stream from assets.

But not so fast. Imagine the potential conflict of interest and difficulties. The board as a whole, after all, has the fiduciary responsibility to fire that person if investments consistently perform poorly or if problematic choices are made that decrease the organization’s assets. The role of the board, rather, is to ensure the nonprofit has the financial resources it needs to fulfill the mission, including, as a best-case scenario, a large enough endowment.

That means, first, selecting an oversight committee — either an already established finance committee or a separate investment committee consisting of those board members with finance and investment knowledge. This group will work to create an investment policy for the organization, spelling out the types of investments favored and rejected, as well as determining the oversight role of the committee and its members.

Beyond that, the board must ensure the endowment is well managed by the investment fund. Most often, this means hiring an advisor to assist the nonprofit as it looks to diversify its endowment dollars among fixed-income instruments and equities investments.


Especially for small-to-midsize nonprofits with modest endowments ($5 million or smaller), community foundations offer high-quality money management services. Because they almost exclusively manage endowments (and often many of them), community foundations offer broad investment diversification options for the nonprofit that it otherwise couldn’t access.

Executive Director JoAnn Turnbull of Handi-Dogs Inc., a dog-training assistance program in Tucson, lauds the work of community foundations. “Having our endowment fund at the Community Foundation for Southern Arizona means it is invested by trusted experts, allowing us to benefit from pooled funds to maximize our investment outcomes.” Turnbull also cites the community foundation’s planned giving services as invaluable. “That support has helped us secure and manage future planned gifts to build our endowment.”

According to Clyde Kunz, vice president of development and donor services at the Community Foundation for Southern Arizona, many nonprofits have turned to the Foundation to help with the administrative, investment and accounting of their endowed funds.


Organizations with larger endowments may seek investment management from private investment counselors or banks. Selected for their expertise in endowment, long-term asset management and fiduciary oversight, these partners often work only with nonprofits of sizeable endowments ($5 million or larger).

Russell Goldstein, senior vice president of U.S. Trust, Bank of America Private Wealth Management, says that before larger nonprofits seek an investment management partner, they first need to ask, “Would we hire ourselves as an investment manager?” This question invariably leads to an introspective look at the nonprofit’s resources and its committee and investment process to determine strengths and weaknesses. With today’s greater dependence on the investment portfolio as a funding source for nonprofits, the general consensus after these discussions is often a need for third-party investment management.

“Once a partner is selected,” says Goldstein, “reporting is key for board members to adhere to their fiduciary responsibilities and to best understand the important questions of ‘How are we doing?’ and ‘Are we on track?’”

While every organization will require customized reporting and detail, Goldstein says nonprofits should expect, at a minimum, online access to retrieve reports on any given day and quarterly in-person investment meetings. “Reporting should be tailored to each committee report,” he cautions. “The finance committee may need more detail on money flow in and out of accounts versus the reports for board members.”

Because nonprofits have a fiduciary responsibility and public duty to manage endowment funds appropriately, they must be diligent when assessing an institution’s tolerance for investment risk. They also must be cognizant of charitable fund law. Consider, for instance, Arizona’s Management of Charitable Funds Act, which permits nonprofits to expend or accumulate endowment or other charitable funds in a “prudent manner.” Investment professionals familiar with the law are often the most skilled at making these prudent decisions.


Investment Policy Template. Consider this template when drawing up an investment policy, provided by the Council of Nonprofits: (Use “investment policy” in search field.)

Deborah Whitehurst is a senior consultant for The Phoenix Philanthropy Group, an Arizona-based international consulting firm serving nonprofit organizations as well as institutional and individual philanthropists.

April 2016