Investment Policy and Endowment Basics

📖 Reading· ~15 min

What UPMIFA requires of boards, how to build a sound Investment Policy Statement, and how Faith Foundation's fossil-free portfolios work.

Key Takeaways

✓Every organization managing invested funds needs a written Investment Policy Statement (IPS).
✓UPMIFA requires boards to act as a reasonably prudent person, considering the organization's charitable purposes and liquidity needs.
✓An IPS must define asset allocation targets, spending policy, screening criteria, and roles.
✓Faith Foundation's fossil-free portfolios allow your organization to align investments with mission.

Why every organization needs an IPS

An Investment Policy Statement (IPS) is a written document that governs how your organization's invested funds are managed. It protects the board by establishing clear guidelines, risk tolerance, and decision-making authority — so individual board members are never making ad hoc investment decisions. The IPS should be reviewed annually and updated whenever your financial situation changes significantly.

Key components of an IPS

IPS components at a glance

Component	Description	Example
Investment objectives	Purpose and time horizon of the fund	Long-term endowment growth with 4% annual spending
Asset allocation	Target mix of stocks, bonds, and alternatives	60% equity / 35% fixed income / 5% alternatives
Spending policy	How much can be distributed annually	4% of trailing 12-quarter average market value
Screening criteria	Exclusions based on values or ESG	No fossil fuels, tobacco, or weapons manufacturers
Roles & responsibilities	Who decides, who monitors, who reports	Investment committee recommends; board approves
Review process	How and when the IPS is updated	Annual review; immediate review after major market events

4–5%

UPMIFA Spending Rate Guideline

Annual distribution from endowment — this is the commonly used prudent threshold to preserve corpus over time

60 / 40

Classic Balanced Allocation

Equity / Fixed Income split — a starting point; adjust based on your time horizon, risk tolerance, and mission alignment

3 Years

IPS Review Cycle

Revisit and update your Investment Policy Statement at least every 3 years, or immediately after major market events

UPMIFA: what boards must understand

Under UPMIFA, the board must act in good faith with the care of a reasonably prudent person. This means the board cannot simply maximize short-term yield — it must balance return against risk, mission alignment, and long-term sustainability.

Faith Foundation's fossil-free investment approach

Faith Foundation Northwest offers fossil-free investment portfolios that screen out holdings in fossil fuel companies while targeting market-competitive risk-adjusted returns. This approach allows your organization to align its investments with its values — a growing priority for faith-based and mission-driven nonprofits. Faith Foundation provides quarterly reporting, attends board meetings on request, and helps committees draft or update their IPS.

Knowledge Check

Your endowment is $500,000 and your IPS allows a 5% annual spending rate. What is the maximum distribution for the year?