Your Investment Policy Statement (IPS) is the cornerstone of sound institutional governance. It defines your organization’s financial objectives, risk tolerance, asset allocation targets, and the rules that guide every investment decision your board makes. But markets evolve—and so do your organization’s needs. If your IPS hasn’t been reviewed in the past 12–24 months, now is the time.
Why Review Your IPS Now?
Elevated interest rates, persistent market volatility, and shifting inflation expectations have fundamentally changed the risk-return landscape. For nonprofits, membership associations, and HOAs—organizations that depend on their portfolios for operational stability and long-term mission fulfillment—an outdated IPS can expose you to unintended risk or leave yield opportunities on the table. A proactive review also signals strong governance to your board, members, and stakeholders alike.
Five Areas to Examine
1. Return Objectives and Benchmarks. Are your stated return targets still realistic given current market conditions? With money market yields between 3-5% in recent years, even conservative short-term allocations deserve a fresh look. Confirm your benchmarks remain relevant and that spending rate assumptions align with expected investment returns.
2. Risk Tolerance. Your board’s composition may have changed, and with it your collective appetite for volatility. Document the maximum drawdown your organization can absorb without disrupting operations or reserve requirements, and make sure it’s written explicitly into the IPS—not just assumed.
3. Asset Allocation Targets. Policy ranges should reflect both your risk posture and today’s opportunity set. Review whether your equity/fixed income split and any cash equivalents remain appropriate. Consider whether duration targets in fixed income are aligned with the current rate environment.
4. Liquidity Needs. Associations and HOAs often have predictable cash flow cycles tied to dues, assessments, and capital projects. Your IPS should specify how much of the portfolio must remain liquid, in what vehicles, and over what time horizon. Misaligned liquidity provisions are one of the most common IPS gaps we identify. This is where cash management comes in to play, an area we have expertise in.
5. Governance and Review Cadence. Does your IPS define who has authority to make investment decisions, how often performance is reviewed, and under what conditions the policy itself is updated? Clear governance language protects your board and creates accountability at every level of the organization.
Ready to Take the Next Step?
At Capital Financial, LLC, we specialize in helping nonprofits, associations, and HOAs build and maintain investment frameworks that reflect their mission and protect their financial future. Whether you need a full IPS overhaul or a targeted tune-up, our team is here to guide you.