The Investment Policy Statement is where endowment governance begins. It converts the donor’s trust into operating instructions that every future board can follow.
An IPS tells your board, your advisor, and your future leadership what this fund is for, how it should be managed, and how decisions get made. Without it, every investment question becomes a new debate. With it, your board has a framework that outlasts any individual member.
A first IPS doesn’t need to be long, but it needs to be clear enough to guide decisions when the people who wrote it are no longer in the room.
The eight core areas of a first IPS
What belongs in your Investment Policy Statement.
1. Purpose of the Fund
Why does this fund exist? Summarize the donor’s intent. If instructions were informal, capture them in writing now.
2. Fund Type
Is this a traditional endowment (donor-restricted principal) or a board-directed quasi-endowment? State it explicitly; this determines what your board can and cannot change.
3. Investment Objectives
Define success. Most endowments aim to preserve purchasing power and generate enough return to support the annual spending policy. Include a target, for example, “a net annualized return of at least 5% over a full market cycle.”
4. Risk Tolerance
How much volatility can the organization absorb? A first endowment at a small nonprofit often warrants a moderate risk posture until the board becomes more familiar with investment management.
5. Asset Allocation
Specify the target mix of stocks, bonds, and cash, along with acceptable ranges around each. For example: 60% equities (50–70%), 35% fixed income (25–45%), 5% cash (0–10%). This gives your advisor a clear mandate and prevents drift.
6. Spending Policy
How much will the endowment distribute each year? Most nonprofits use 4–5% of a rolling average of market value. Set it too high, and you erode principal. Set it right, and the fund supports the mission indefinitely.
7. Rebalancing and Review
How often will the portfolio be reviewed and rebalanced? Quarterly review with annual rebalancing is standard. Name who is responsible and what triggers an out-of-cycle review.
8. Roles and Responsibilities
Name every party with fiduciary responsibility and define what each is accountable for. Clarity here protects every individual board member.
The process of building an IPS is valuable in itself. It surfaces disagreements and creates institutional knowledge that protects the fund long after any individual board member’s term ends.
The most common mistake first-time stewards make is waiting until they feel ready. Governance doesn’t require certainty. It requires commitment to a process.
Andrew Tudor, CAP, CFP® | Zenith Wealth Partners
All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.