​​Nonprofit Executives and their boards often wonder if their investment policies are lacking. Through his work on the Study on Nonprofit Investing (SONI), Dennis Gogarty of Raffa Wealth Management has developed an easy-to-follow investment policy framework which will assist nonprofits in developing or strengthening their organization’s policy and procedures.

1. Thrive. Grow. Achieve.
Considerations for
Developing and Reviewing
Investment and Reserve
Policies and Procedures
Dennis Gogarty, CFP®, AIF®
Copyright Raffa Wealth Management, LLC . All Rights Reserved.

2. Page
DISCLAIMER
2
This presentation summarizes the results of an
informal, non-scientific study compiled by analyzing
the results of 722 surveys completed by nonprofit
finance executives.
This presentation is for information purposes only.
Participant responses have not been verified. Data
analysis was performed by Raffa Wealth
Management.
When stating “nonprofit” responses it should be
noted that all responses are limited to the nonprofits
that participated in the survey. No broader
implications should be assumed.

3. Page
AGENDA
3
Considerations for
Reserve and
Investment Policy
Development and
Review
• High Level Goals and Objectives
• Governance Procedures
• Reporting Requirements
• Investment Policy Components
• Key Takeaways

4. Page
INTRODUCTION
4
In February of this year, over 700 nonprofit finance executives
completed a survey about their organization’s investment
policies and results.
Raffa Wealth Management has analyzed the results of the
survey and prepared the 2016 SONI report for review.
Fourth
Annual
Study On
Nonprofit
Investing
(SONI)

5. Page
HIGH LEVEL GOALS & OBJECTIVES
5
What is your
nonprofit
organization's
current total annual
operating budget?
What are your
organizations total
cash assets:
•Cash in checking,
•Excess operating
cash,
•Short/intermediate
term investments,
•Long term
investments?
Association
Public Charity

6. Page
HIGH LEVEL GOALS & OBJECTIVES
6
Do Reserve
Policies Align with
the Strategic Plan?
How are reserves defined?
• The unrestricted net assets as reported on the Statement of Financial Position.
• The accumulated net surpluses of the organization.
• Liquid cash and investments held in a reserve fund investment account.
What is the Purpose?
• To ensure that the organization has adequate funds available in the event of an
unanticipated catastrophic event or business situation that reduces reserves and
threatens the financial viability of the organization.
• To cover unbudgeted and extraordinary expenditures brought about by
unanticipated challenges and as a source for emergency funding.
• To provide a source of capital for the research and development of new products and
services.
• To enhance the purchasing power of funds held for future expenditure and to
maintain the financial stability of the association.

7. Page
HIGH LEVEL GOALS & OBJECTIVES
7
Do Reserve
Policies Align with
the Strategic Plan?
What is the Objective of the
Investments?
• To preserve capital and provide liquidity
• Long term growth of assets
• Optimize return while minimizing risk through diversification and asset
allocation

8. Page
HIGH LEVEL GOALS & OBJECTIVES
8
How Much do We
Need to Maintain
in Reserves?
• The target of the reserve fund is to maintain a balance equal to three/six/twelve
months of the annual general operating expenditures.
• The target will be achieved by contributing a minimum of 50% of unrestricted net
income before depreciation at year-end.
• Target may be based on quantifying potential risk and opportunities.
Risks
Approximate
cost
Likelihood of
occurring
Contribution
to reserves
Revenue shortfall
Dues $1,000,000 10% $100,000
Meeting attendance $1,000,000 20% $200,000
Staffing change $1,000,000 50% $500,000
Legal action $1,000,000 10% $100,000
Pension plan shortfall $1,000,000 25% $250,000
Total resave needed $1,150,000
Opportunities
Technology $1,000,000 20% $200,000
Programming $1,000,000 50% $500,000
Facilities $1,000,000 10% $100,000
total reserves needed $800,000
Grand total $1,950,000

9. Page
HIGH LEVEL GOALS & OBJECTIVES
9
How Much do We
Need to Maintain
in Reserves?
What happens after target is met?
• Range around target:
– Target is six months operating expenses. Max is 12 months, minimum is 3 months.
• Trigger at upper limit:
– Reduce portfolio risk
– Increase member/charitable benefits
– Return to members
• Trigger at the lower limit:
– Budget implications

10. Page
HIGH LEVEL GOALS & OBJECTIVES
10
Are we Making the
Best Use of Our
Assets
Segmentation based on timing of
various objectives
• Operating reserve – 3 months of budgeted expenses
• Short term reserves – dollar amount based on need
• Long term reserves – excess not needed in operating or short term

11. Page
HIGH LEVEL GOALS & OBJECTIVES
11
For this question,
we are asking
about your
organization's
total cash assets.
Please enter a
dollar amount in
each of the
following
categories,
segmented by
distinct
investment
objectives /
projected time
until use.
Public Charity
Association

12. Page
HIGH LEVEL GOALS & OBJECTIVES
12
How much
investment
risk are we
willing to
take?
Ability
• Current financial condition (Review Financials)
• Future financial outlook (Interview Key Personnel)
Willingness
• High level risk survey
– Objective
– Time frame
– Tolerance for volatility
– Consider sample portfolio’s (likely, best, worst case)

13. Page
ASSET ALLOCATION STRATEGY
13
How much
investment
risk are we
willing to
take?
Association
Public Charity

14. Page
ASSET ALLOCATION STRATEGY
14
How much
investment
risk are we
willing to
take?
Association
Public Charity

15. Page
AGENDA
15
Third
Annual
Study On
Nonprofit
Investing
(SONI)
• High Level Goals and Objectives
• Governance Procedures
• Reporting Requirements
• Investment Policy Components
• Key Takeaways

16. Page
GOVERNANCE PROCEDURES
16
Roles and
Responsibilities
Staff
• Communicating financial condition and recommended reserve levels
• Facilitating volunteer policy discussions
• Reporting to make volunteer oversight easy
• Verifying policy compliance
Volunteers (Committees and Boards)
• Establishing reserve and investment policies
• Verifying policy compliance
• Assessing reasonableness of fees
• Hiring consultants
Advisors/Managers
• Portfolio management (asset allocation strategy & mutual fund or manager selection)
• Trading
• Reporting (performance and policy compliance)

17. Page
POLLING QUESTION 7
17

18. Page
PORTFOLIO INVESTMENT POLICY
18
Who is given
authority
over
investment
decisions?
Association
Public Charity

19. Page
POLLING QUESTION 7
19

20. Page
ASSET ALLOCATION STRATEGY
20
How do
nonprofits
decide
when to
rebalance
their
portfolio?
Association
Public Charity

21. Page
AGENDA
21
Third
Annual
Study On
Nonprofit
Investing
(SONI)
• High Level Goals and Objectives
• Governance Procedures
• Reporting Requirements
• Investment Policy Components
• Key Takeaways

22. Page
REPORTING REQUIREMENTS
22
Policy Compliance
Stock Allocation Diversification
Requirements
• Industry/Sector
• Geography
• Company
Fixed Income Requirements
• Credit Quality Restrictions
• Average Maturity
Asset Allocations In-line with Targets
Performance Reasonableness

23. Page
POLLING QUESTION 8
23

24. Page
ASSET ALLOCATION STRATEGY
24
What
nonprofits
maintain a
target asset
allocation?
Public Charity
Association

25. Page
PORTFOLIO INVESTMENT POLICY
25
Does your
Investment
Policy
Include a
Formal
Portfolio
Benchmark?
Association
Public Charity

26. Page
REPORTING REQUIREMENTS
26
Global
Equity
Markets
Portfolio Benchmarking
• How much of the total global equity market does the US comprise?

27. MARKET CAP DATA IS FREE-FLOAT ADJUSTED FROM BLOOMBERG SECURITIES DATA. MANY NATIONS NOT DISPLAYED. TOTAL MAY NOT EQUAL 100% DUE TO ROUNDING. FOR EDUCATIONAL PURPOSES; SHOULD NOT BE USED AS INVESTMENT ADVICE.
CHINA MARKET CAPITALIZATION EXCLUDES A-SHARES, WHICH ARE GENERALLY ONLY AVAILABLE TO MAINLAND CHINA INVESTORS.
THE GLOBAL EQUITY MARKET
PERCENT OF WORLD MARKET CAPITALIZATION AS OF DECEMBER 31, 2014
A REPRESENTATIVE GLOBAL EQUITY MARKET INDEX IS THE MSCI ALL COUNTRY WORLD INDEX
2

28. Total United States Stock Market
Russell 1000
Index: top 1000
largest US publicly
traded companies
Russell 2000 Index: remaining
2000 mid-sized and small US
publicly traded companies
S&P 500: top 500 largest US
publicly traded companies
Value Stocks Growth Stocks
Russell 3000
Index: all publicly
traded US
companies
Russell
1000
Index:
Russell
2000
Index:
For Illustration purposes only. Indices are not available for direct investment and performance does not
reflect expenses of an actual portfolio. Past performance is not a guarantee of future results.

29. Total International Stock Market
Large International
Developed
Country Stocks
Stocks from
Emerging Market
Countries
MSCI All Country
World
Ex-US Index
MSCI
EAFE
Index
MSCI
Emerging
Markets
Index
For Illustration purposes only. Indices are not available for direct investment and performance does not
reflect expenses of an actual portfolio. Past performance is not a guarantee of future results.
Other: Canada

30. Total US Bond Market
BarCap 1-5yr
Gov/Credit Index:
Avg Duration ~ 2.7yrs
BarCap Long Term
Gov/Credit Index:
Avg Duration ~ 14.2yrs
BarCap
Aggregate Bond
Market Index:
Avg Duration ~
5yrs
BarCap
1-5yr
Gov/Credit
Index: Avg ~
2.7yrs
BarCap
Long Term
Gov/Credit
Index:
Avg ~
14.2yrs
For Illustration purposes only. Indices are not available for direct investment and performance does not
reflect expenses of an actual portfolio. Past performance is not a guarantee of future results.
BarCap 5-10yr
Gov/Credit
Index:
Avg ~ 6.5yrs
BarCap 5-10yr
Gov/Credit Index:
Avg Duration ~ 6.5yrs
BarCap US Credit Index:
Avg Duration ~ 6.8yrs
BarCap US Treasury
Index:
Avg Duration ~ 6yrs
US Government,
Agency &
Treasury Bonds
US Corporate &
Mortgage Backed
Bonds

31. Page
CUSTOM BENCHMARK
31
1. How much does your policy allocate to US stocks?
• 38% to the Russell 3000 index
2. How much does your policy allocate to international stocks?
• 12% to the MSCI All Country World Ex US
3. How much does your policy allocate to fixed income?
• 45% to the Barcap Aggregate Bond index
Or if your policy calls for a specific allocation to shorter term bonds
or a target maturity, you may split the fixed income
• 25% to the Barcap Aggregate bond index
• 20% to the 1-5 year government bond index
4. How much does your policy allocate to cash?
• 5% to the Barcap one month treasury bill index
5. Are you including alternatives in your portfolio benchmark?
• No

32. Page
2012 -2014 INDEX RISK AND RETURN
32
For Illustration
purposes only.
Indices are not
available for direct
investment and
performance does not
reflect expenses of an
actual portfolio. Past
performance is not a
guarantee of future
results.
International stocks
US Stocks
Cash
30/70 40/60 50/50 60/40 70/30
20% 29% 38% 47% 56%
10% 11% 12% 13% 14%
65% 55% 45% 35% 25%
5% 5% 5% 5% 5%
0% 0% 0% 0% 0%
Blended Portfolio Sample Benchmarks
3 Month US T-Bills
Traditional Market Benchmarks
Russell 3000
MSCI AW ExUS
BarCap Agg Bond
HFRI Fund-of-Funds
*Representative, sample portfolio benchmarks are intended to give context to
performance results. The benchmarks were selected because we believe they are the
broadest index available in each broad category (US stock, Intl stock, Bond, and Cash).
They may or may not be suitable benchmarks for comparison to any particular
investor’s portfolio or for the average results reflected in this study.
*Indexes do not reflect the fees associated with actual investments and such fees would
reduce the performance illustrated. Past performance is not an indication of future
results and any investment can lose value.
How do the
investment
results
compare to a
blended
portfolio
benchmark?

33. Page
PORTFOLIO RESULTS & ANALYSIS
33
What level of
under -
performance
is
acceptable?
What level of underperformance is acceptable?
• Most nonprofits (45%) believe advisors should be expected to
outperform their market benchmark gross of their fees
• A surprisingly large number (22%) of nonprofits “didn’t know” what
level of underperformance was acceptable.
0 20 40 60 80 100
Idon't know
Net of fees, trailing by 2% or less is
reasonable
Net of fees, trailing by 1% or less is
reasonable
Net of fees, trailing by 0.5% or less is
reasonable
Outperformgross of fees,but
underperformance netof feesis…
Over 5yrs,advisors are expected to
outperformnet of all fees
Advisor Performance

34. Page
AGENDA
34
• High Level Goals and Objectives
• Governance Procedures
• Reporting Requirements
• Investment Policy Components
• Key Takeaways

35. Page
INVESTMENT POLICY COMPONENTS
35
Check to make
sure you have
these guidelines
covered.

36. Page
CONCLUSION
36
Thank you
for
attending!
RWM is available to engage in Investment
Policy Development engagements at a fixed
hourly fee.
For more information:
• Visit www.npinvesting.org or
• Email info@raffawealth.com

37. Page
DISCLOSURE
37
This information was gathered from reliable sources but
we cannot guarantee accuracy. Any performance related
information is based on participant responses and have
not been verified. Past performance is not an indication of
future results and any investment can lose value.
Performance results have been compared to balanced
benchmark portfolios comprised of broad market indexes.
The benchmarks were selected because we feel they are the
broadest market benchmark available in each broad
category. They may or may not be suitable benchmarks
for comparison to any particular investor’s portfolio or for
the average results reflected in this study. You should
consult with your investment professional to determine
suitable benchmarks for your portfolio.
Indexes do not reflect the fees associated with actual
investments and such fees would reduce the performance
illustrated.
Past performance is not an indication of future results. Any investment can lose value.