WHITE PAPER: INTEGRATING PORTFOLIO MANAGEMENT WITH FINANCIAL OBJECTIVES AND CONSTRAINTS

Authors: Grant Guyuron, CFA, Senior Managing Director and Anna Rathbun, CFA, CAIA, Director, Research

Overview:

Investments of an operating non-profit should not be invested in a vacuum. Our operating non-profit clients (colleges and universities, and hospitals, primarily) have a variety of investments – balance sheet assets, endowment and foundation assets, retirement plans, and self-insurance pools – invested in marketable and illiquid strategies. These assets are managed according to policies that set forth guidelines for asset allocation and selection of investments. Yet in addition to investment assets, and an organization’s concern that they are managed properly, operating nonprofits also have financial priorities such as cash flow and balance sheet debt. Market volatility can affect both investment assets and financial priorities, so it is imperative that trustees, staff, and advisors understand the relationship between an organization’s finances and investments, and the sensitivity to market volatility. Investment policy must be integrated with financial priorities, especially its liquidity needs, debt covenants, and other financial considerations.

This article shows the importance of integrating investments with financial priorities. It describes several ways markets affect finances and provides an example of how financial modeling can help explain the relationship between investments and finances.

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September 2019 Whitepaper