The easiest place to solidify your investment process is with an investment policy statement (IPS). An IPS states in writing your foundation’s mission and goals, and how your investment policy and practices will help to achieve those goals. The basic purposes are:
- To state in writing the board’s attitudes, expectations, objectives, and guidelines for investing
- To set forth an asset allocation and diversification plan for the foundation’s assets;
- To establish criteria to monitor, evaluate, and compare the performance results of any investment managers the board chooses to use; and
- To encourage effective communication between the board and any investment advisors.
It's never too soon to create an investment policy for your foundation. If the founder is still active in the foundation, it may be a particularly opportune time to make the decisions that lay the groundwork for your IPS, particularly with regard to spending policy and time horizon.
Ideally, you will be able to develop the IPS during a relatively stable market period, but in a dynamic and rapidly changing economy, this may not always be possible. Remember that you will probably be tweaking and revamping your IPS for years to come, although your key strategy decisions probably will not change in the short term.
The one exception to “the sooner the better" rule is if your foundation has not yet been fully funded. In this case, it may be difficult to develop an asset allocation policy that is appropriate for your long-term mission and needs. Even so, it's worthwhile to plot an interim strategy for investing foundation assets while you await final funding.