Investment Policy Adoption

(Feb, 2011)


Effective with the enactment of the New York Management of Institutional Funds Act (NYPMIFA) on September 17, 2010, a not-for-profit that holds and invests institutional funds must now have a written investment policy. Institutional funds include not only endowment funds, but all funds held by an organization for charitable purposes. If your organization does not currently have an official investment policy in place, now is the time for one to be adopted. NYPMIFA mandates that an investment policy address the following four matters:

  1. Eight factors of the new enhanced prudent standard:
    1. general economic conditions;
    2. possible effect of inflation;
    3. expected tax consequences, if any, of investment decisions or strategies;
    4. the role that each investment or course of action plays within the overall investment portfolio of the fund;
    5. expected total return from the income and appreciation of investments;
    6. other resources of the organization;
    7. the needs of the organization and the fund to make contributions and preserve capital; and
    8. an asset's special relationship or special value, if any, to the organization's purpose.
  2. The Diversification Requirement - A fund's investments must be diversified unless the organization's governing board determines that, due to special cicumstances, the purposes of the fund are better served without diversification.
  3. Overall Investment Strategy - Management and investment decisions about a specific asset must be made in the context of the fund's portfolio of investments as a whole and as part of an overall investment strategy in light of return objectives "reasonably suited" to the charity and the fund.
  4. Delegation of Investment Management - Investment management authority may be delegated internally to an organization's committees, officers/employees, or to external agents. If the organization delegates such authority to an external agent, the governing board must exercise its duty of care in selecting, continuing or terminating such an external agent, including assessing the agent's independence (conflicts of interest); establishing the scope of the delegation; setting the agents compensation; and monitoring the agent's performance.

    Be a step ahead of your auditors and ensure that your organization is in compliance with the most recent laws covering institutional funds.

The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.