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How to find an investment manager for your nonprofit’s portfolio

January 5, 2017

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Say that your not-for-profit’s investment portfolio has recently grown in size and complexity due to a new endowment. Yet your staff doesn’t have the time or expertise to wisely invest and monitor these funds. This is probably the time to hire an investment advisor — but how do you find the best person to make prudent investments while meeting your investment goals?

Where to start

Finding an advisor starts with identifying a pool of qualified candidates with proven track records. Experience working with nonprofit endowments is key.

Request detailed proposals on how each candidate would manage your investments. Also ask for referrals from local private foundations (possibly ones that have funded you in the past) or other area nonprofits.

Compensation issues

Compensation is a critical issue when engaging an investment advisor. Ask candidates to outline in their proposals how they’ll be compensated for their services. Generally, investment managers charge clients based on one (or a combination) of three structures:

  1. Fees or commissions on trades,
  2. A percentage of the asset values they’re managing, or
  3. An hourly rate.

Many nonprofits insist that their investment manager’s compensation be based on asset value or hours, rather than commission. Trade commission structures can give investment managers an incentive to make trades — even when they’re not in the best interests of the nonprofit.

Conducting interviews

Once you’ve narrowed your list to a few individuals, interview them. Look for someone who closely follows market movements and trends, has a thorough understanding of different types of investments, and is capable of creating and managing a balanced portfolio that can grow without incurring excessive risk.

Understanding the candidates’ investment processes, along with their long-term results, is essential, too. Other desirable qualities include experience assisting investment committees in drafting and changing investment policies and an ability to clearly explain the processes and considerations behind their investment decisions.

Proceed carefully

Select your investment manager carefully — particularly if your nonprofit depends on its endowment to generate monthly revenue. For help finding the right advisor, contact us.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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