Make A Payment Client Portal Contact
Let's Talk
How to Choose an Investment Manager for Your Nonprofit Organization

How to Choose an Investment Manager for Your Nonprofit Organization


If your nonprofit has significant endowments, you likely need an investment manager — unless you have that expertise in house.

Choosing a great investment manager can be one of the most important decisions your nonprofit organization makes.

Build a Pool of Qualified Candidates

Experience working with other nonprofit endowments is paramount when considering an investment manager. Ask for referrals from local private schools and foundations (possibly ones that have funded you in the past) and other nonprofits. Board members might also know investment managers.

Request proposals from investment managers who have the right expertise. After reviewing proposals, select at least two or three candidates to interview.

Questions to Ask Prospective Investment Advisors

Members of your investment or finance committee should interview investment manager candidates thoroughly. Important questions to ask the candidates include:

  • How do you evaluate our risk tolerance and develop a customized investment approach?
  • How do you help us develop an investment policy or integrate our existing policy into your investing strategy?
  • How do you communicate with management or the investment committee regarding investment strategies?
  • How much time do you anticipate spending each month on our account?
  • Will you be available for meetings outside the business day?
  • What licenses, credentials or other certifications do you have?
  • What services do you provide?

Perhaps most importantly, request a detailed description as to how they would manage your organization’s investments.

What the Search Committee Should Consider

As they interview prospective investment managers, the search committee should ask themselves the following questions about each candidate. Does this person:

  • Understand trends in investment resources, stocks, commodities, bonds, international finance, currencies and so on — so that he or she can offer balanced advice?
  • Express empathy toward the kinds of problems facing your organization and suggest investment solutions tailored to them?
  • Generate common sense ideas that make you ask, “Why didn’t we come up with these ourselves?”
  • Have experience assisting investment committees in drafting or changing investment policies?

Also, consider whether the candidate has the ability to educate. Your investment manager should be able to clearly explain the processes and considerations involved in investment decisions. Your investment team will become more effective going forward as a result.

Determine Which Fee Structure Is Best for Your Organization

Committee members should ask candidates to outline how they’ll be compensated for their services, because this can have a major impact on trust. Do they charge fees or commissions on trades? Or, are their fees based on the asset values they’re managing or the time they spend managing the assets?

Many nonprofits insist that their investment manager’s compensation be based on asset value managed or time spent rather than commission. A commission structure can put a strain on the relationship between the nonprofit and the investment manager; questions can come up regarding whether trades are truly in the best interest of the nonprofit or made just to generate revenue for the manager. On the other hand, if there are not a lot of transactions or your require committee approval of all trades, commission-based compensation could keep fees lower.

Past Performance Is No Indication of Future Results

It’s been said that “Past performance is no indication of future results.” Of course, past performance should always be considered, but if you are choosing a manager primarily on past performance, you should know that:

  • Managers that outperform do not always stay on top over time
  • Growth in a fund’s size can make success much harder to replicate going forward
  • There are a range of other factors that might matter more than past performance in projecting future returns

Why Does Having a Qualified Investment Manager Matter So Much?

When every dollar counts, it is important to manage investment risk in order to minimize any future losses if they were to occur. This can be accomplished by adding new asset classes to your portfolio, or by increasing allocations to inflation protection strategies, such as Treasury Inflation Protected Securities and commodities.

Your investment manager doesn’t need to beat Wall Street or exceed every benchmark. But that person does need to protect your assets while meeting your investment or finance committee’s investment targets. Make sure that you select an individual who can accomplish both goals.

Need Help?

Contact us online or call 800.899.4623.

New call-to-action

Published on July 01, 2013