Not-for-profit organizations hold millions of dollars in grants, endowments, and other funds that are necessary to keep the lights on and continue offering needed programming. Benchmarking against fiduciary best practices – both within the Investment Policy Statement (IPS) and the investment committee – helps to ensure that all those assets are carefully monitored throughout the year and in any market fluctuation.
Benchmarking the IPS
There are two common ways to define and measure success for an investment portfolio: relative benchmarks and absolute benchmarks.
Relative benchmarks compare the organization’s investment portfolio to an index or blend of indices. For example, a relative benchmark may compare fund performance against a blend of the S&P 500® and a bond market index.
Absolute benchmarks measure an actual rate of return and calculating performance against specific objectives. The IPS would need to define target annual rates for distribution, inflation, and fees. Investment returns would be measured against that calculation.
Not-for-profit organizations should exercise caution if their benchmarks compare performance against peers. This method has been shown to produce artificial performance metrics and often don’t consider unique circumstances.
About the Authors:
Bradley C. Wilks, LACP
Senior Wealth Advisor
Bradley Wilks provides wealth management advice, risk management, and comprehensive financial planning to his clients. He holds a Life and Annuity Certified Professional (LACP) license from the National Association of Insurance and Financial Advisors (NAIFA) Commission.
Jon-Michael “Jonny” Rosch, CPA
Partner
As a partner with our parent firm, PBMares, LLP, Jonny manages audit and assurance engagements for not-for-profit organizations, including public charities, social welfare organizations, trade associations, business leagues, non-profit childcare centers, private schools, independent research organizations and 527 political action committees.
