Investment Committees

Foundations are free to decide how they will develop and implement a prudent investment process. This work will take some time and even small foundation boards can benefit from developing an investment committee with just a few members so it is clear who is leading the charge.

Foundations with more assets are more likely to have dedicated investment committees, as well as to have slightly larger investment committees with more investment professionals serving on them.

In any case, the board or committee should meet regularly (e.g., quarterly) to review its decisions and make adjustments due to market and foundation changes.

Structuring an Investment Committee

Selecting Investment Committee Members

Effective Investment Committee Meetings

How Committees Can Work Effectively With Outside Advisors

Structuring an Investment Committee

Whereas board members who understand investing make natural choices for an investment committee, they should serve alongside board members who are not as experienced. (Be sure there is more than one experienced person to alleviate bias that comes with one dominant decisionmaker.) In addition, investment committee members should be elected to certain terms, preferably staggered terms. This approach can be effective for many reasons:

  • The committee will better serve the foundation if it has members with an expertise in investments balanced by members whose affinity is to support and strengthen the foundation's overall mission.
  • Over time, most, if not all, of the board can benefit and learn from the experts' knowledge, fulfilling one of the committee's main responsibilities.
  • It is less likely that the investment committee will become distant from the full board, which may otherwise take its expertise for granted.
  • Finally, arranging things this way may help the board deal more swiftly and openly with any possible conflicts of interest around investments.
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Selecting Investment Committee Members

Potential members should have:

  • Commitment to the foundation’s mission and fields of interest, and ability to make decisions in concert with other trustees and staff.
  • Broad knowledge of the investment world including, if possible, previous experience overseeing investment managers. (Less experienced members could fulfill the role simultaneously with experienced members so as to educate the entire board.)
  • Ability to devote a substantial amount of time to committee work, particularly for a small foundation with limited staff support. This is particularly true for the committee chair.
  • Skill in describing policies, actions, and results to other board members, whose investment experience may be quite varied.
  • Familiarity with federal and state laws.
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Effective Investment Committee Meetings

  • Meet regularly and consistently: at minimum 2–4 times per year, perhaps more depending on the current investment climate and specific portfolio of your foundation. Allow enough time for calm discussion of all agenda items.
  • Create agendas that are decision-oriented rather than subject-oriented.
  • Allow time for open discussion and review of the committee’s risk tolerance, particularly in times of crisis or extreme market shifts.
  • Require regular attendance and preparation for meetings by committee members; members should be available by phone or in person for every committee meeting.
  • Prepare adequate background materials for meetings, including current performance reports and asset allocation trends, as well as sufficient and accurate minutes from past meetings. 
  • If you work with an outside consultant, meet privately as a committee at least once a year to discuss the performance of that consultant in a confidential setting.

Resource:

How the Brain’s Wiring Can Hurt Investment Returns

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How Committees Can Work Effectively With Outside Advisors

  • Provide a clear mandate to your outside consultants and managers which can all be detailed in an investment policy statement.
  • Develop shared expectations regarding benchmarks to be used in measuring performance of individual managers (and the total portfolio, if a consultant is used to monitor overall investments).
  • Keep on the lookout for style drift and staff turnover at the firms managing the foundation's assets. This should be more cause for concern than a temporary drop in overall performance.
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