We live in a world of institutions that have a variety of profit, altruistic, social, religious, economic, political and environmental missions. Frequently the profit motive, the basis for most for-profit institutions, is passed up as the primary mission for an entity in favor of other non-economic purposes. Such entities are known as non-profit (NP) institutions or corporations. Yet an NP entity must still sustain itself economically both in the short and long term if it is to fulfill its embraced primary mission. Thus cash management, business systems, promotional outreach, and investment management are key to enabling a NP entity to maintain its economic viability. This article briefly describes the fundamental aspects of NP investment management.
There is a legal framework for incorporating or forming an NP institution, and thus an attorney specializing in NP law is advisable. This framework includes filing articles of incorporation, developing a mission statement, by-laws and policies, developing appropriate record keeping and management systems, selecting officers, and registering with the local, state and federal agencies associated with taxation, oversight, employment and mission cooperation. One of the most important of these registrations is with the Internal Revenue Service of the US government, or IRS. The IRS has specific and detailed requirements known as 501(c) tax exempt organization code. This code defines various types of NP organizations, and the rules and special tax benefits which apply or result from these registrations.
Many NP's depend on external sources for fundraising, support, and even staffing, though some, such as cooperatives, target a zero profit as a means of benefiting its members, providing low cost services or remittances to members. The money in-flows and the expense out-flows are managed by officers in cash management accounts which can vary substantially. Frequently the organization will maintain two accounts, a cash management account for more immediate needs and an endowment account for longer term planning, expansion goals or rainy day funding.
Managing an NP Endowment
An NP endowment is an investment fund with a number of characteristics:
- A risk profile that suits the risk tolerance of the institution based on officer and key stakeholder or benefactor input;
- A fee structure that is consistent with good management but also not excessive when considering the mission, values and goals of the NP;
- Fund managers that are trusted and are accessible to the board and key stakeholders to implement financial transactions and funds transfers;
- A diversified, low cost, selected set of securities that is not overly diversified, not overly concentrated, not overly traded, and not at variance with the core values of the NP institution.
In conclusion, non-profit organizations and their financial well-being are important elements of our society. If you find yourself or your organization in need of non-profit financial advice or endowment management, please contact KENETEX Wealth Management via this site.