Investing funds of a non-profit insitution

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grkmec
Posts: 192
Joined: Wed Jun 22, 2016 8:46 am

Investing funds of a non-profit insitution

Post by grkmec »

I sit on the board of the small educational non profit institution and I am currently trying to tackle a couple issues:

1) Our operating account funds must be invested in cash and cash equivalents - currently that's VUSXX - but that's only yielding 0.01%. There has to be a better option. Online savings banks like Marcus and Ally have online savings accounts yielding 0.50% but the risk profile is a bit different as we would be looking to park 3-5 million in funds and it looks like max FDIC protection is $250k per account for "unincorporated association". Picking up 50bps on 4mm = $20,000 which would help the school.

2) We have a small endowment that is also currently invested n VUSXX. Historically the interest on these funds has been used for scholarships. But with rates at 0%, there are no scholarships. I want to change the IPS of the school and institute a safe withdrawal rate so that the funds will last into perpetuity. For example something like Vanguard Balanced, or Vanguard Wellesley or Vanguard Wellington and then have a withdrawal rate of 3%. Any thoughts on this?

Appreciate any feedback.
livesoft
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Re: Investing funds of a non-profit insitution

Post by livesoft »

Organize a Finance Committee and have them come up with an Investment Policy Statement for the entire board to approve, then implement.

See also the book "Nonprofit Asset Management" by Rice, DiMeo, and Porter.

And Vanguard has a web page: https://institutional.vanguard.com/web/ ... ed-mission
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lazynovice
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Re: Investing funds of a non-profit insitution

Post by lazynovice »

If it is a real endowment and not a quasi-endowment, make sure you are familiar with UPMIFA (Uniform Prudent Management of Institutional Funds Act). There are rules on diversification, what percentage of spending is considered reasonable, etc. Putting everything in one balanced fund may or may not be considered diversified. It might be worth a legal opinion. As livesoft says you want an investment policy, but you’ll also need a spending policy.

If the school does not provide Directors and Officers’ insurance coverage for you, make sure you have an umbrella policy.

https://www.uniformlaws.org/HigherLogic ... ceDialog=0

Not sure how big the school is but is the operating fund the right size? The school is not subject to short or long term capital gains taxes so the costs of moving in and out of the market are just the transaction costs. Of course you don’t want to subject funds to risk of loss that can’t be replenished through tuition payments, etc.

Does the school have a financial officer?
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Topic Author
grkmec
Posts: 192
Joined: Wed Jun 22, 2016 8:46 am

Re: Investing funds of a non-profit insitution

Post by grkmec »

livesoft wrote: Sat Mar 27, 2021 8:14 pm Organize a Finance Committee and have them come up with an Investment Policy Statement for the entire board to approve, then implement.

See also the book "Nonprofit Asset Management" by Rice, DiMeo, and Porter.

And Vanguard has a web page: https://institutional.vanguard.com/web/ ... ed-mission
We already have a finance committee. I am on it. I have been tasked to make recommendation to the finance committee. I come from the hedge fund world and I am very familiar with how places like Harvard, MIT, Princeton manage their endowments. However, this is a small private school and I am looking for best practices in this space.

Yes the school has a financial officer... this all started by the CFO asking finance committee to revisit the IPS, and finance committee has tasked me to make recommendations given my background.
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