A well-structured investment governance framework aligns stakeholders, clarifies responsibilities, and ensures every investment decision supports both near-term priorities and long-term objectives. That framework typically begins with the board of directors or trustees—the group ultimately accountable for safeguarding institutional assets and ensuring they are managed prudently and in alignment with mission.
At Vistamark Investments, our advisors have spent nearly three decades working with nonprofit boards, endowments, and foundations on building and sustaining governance frameworks that withstand market cycles, leadership transitions, and the inevitable pressures of the day. Our experience has taught us that the organizations that thrive are those that invest upfront in clarity, process, and accountability.
The Board's Role: Chartering and Empowering the Investment Committee
A nonprofit's board sets the tone for financial stewardship. It defines the organization's risk tolerance, approves spending policies, and periodically reviews the Investment Policy Statement (IPS)—the cornerstone document that articulates investment objectives, target return assumptions, allocation boundaries, liquidity needs, and the roles of internal and external participants in the investment process.
Think of the IPS as a strategic roadmap: it provides direction on where the organization is going financially, sets boundaries for the journey, and installs guideposts to keep decisions aligned even when markets shift or leadership changes. In our work with nonprofit clients, we've seen firsthand how a thoughtfully crafted IPS becomes the reference point that prevents reactive decisions and emotional market timing—two of the primary drivers of underperformance.
Because thoughtful, ongoing investment oversight requires specialized expertise, boards typically establish an Investment Committee (IC) to act on their behalf. The committee becomes the central hub for daily and strategic investment matters, while the board maintains ultimate authority and accountability.
An effective board charter clearly defines:
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The purpose and scope of the IC.
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Authority delegated to the committee—such as hiring or terminating investment managers, rebalancing within approved ranges, or recommending strategic changes.
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The IC's responsibilities, including IPS review, performance oversight, and compliance monitoring.
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Committee composition, desired qualifications, and term limits.
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Reporting expectations back to the full board.
This delegation enables responsive, informed investment decision-making while maintaining strategic control at the board level. We often advise clients to treat the IC charter as seriously as the bylaws themselves—it is the foundational document that defines how investment stewardship will operate.
For a deeper dive into the nuances of committee composition, Vistamark's CIO Matthew Rice covers this extensively in his 2012 book, Nonprofit Asset Management: Effective Investment Strategies and Oversight. We specifically recommend the chapter on structuring an effective investment committee, which provides a detailed blueprint for selecting the right members and defining the committee's mandate to ensure long-term success.
Core Responsibilities of the Investment Committee
Once established, the Investment Committee becomes the engine driving the organization's investment program. Its responsibilities typically fall into three interrelated areas:
1. Asset Allocation Oversight
Asset allocation is the principal driver of long-term investment outcomes—and it is the first place we focus when working with a new nonprofit client. The IC ensures the portfolio remains aligned with IPS guidelines by:
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Recommending target allocations and permissible ranges to the board.
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Evaluating risk-return trade-offs across asset classes.
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Reviewing capital market assumptions and long-term expectations.
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Rebalancing or recommending adjustments as conditions evolve.
This requires discipline. We counsel boards to resist the temptation to chase performance or overweight the "hot" asset class. The organizations that compound wealth over decades are those that stick to a sensible allocation and execute with consistency.
2. Manager Selection and Monitoring
The IC manages a disciplined process of manager due diligence and performance oversight by:
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Evaluating and approving new managers or strategies.
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Reviewing results and risk characteristics regularly.
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Monitoring fees and negotiating competitive terms.
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Recommending changes when performance, process, or organizational fit declines.
Manager selection is both art and science. We have built detailed proprietary frameworks for evaluating institutional managers across equities, fixed income, alternatives, and real assets. We look beyond performance numbers to assess manager stability, organizational depth, and alignment of interests—qualities that matter when you are entrusting decades of endowment assets to a partnership.
3. Operational and Administrative Oversight
Even with staff or an external investment advisor supporting the process, the committee remains accountable for the total program. Responsibilities often include:
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Maintaining appropriate liquidity to support spending policies.
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Ensuring compliance with IPS and regulatory guidelines.
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Overseeing custody, reporting accuracy, and operational safeguards.
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Coordinating with auditors, consultants, and other providers.
For organizations seeking more comprehensive support, delegation to an Outsourced Chief Investment Officer (OCIO)—or what we at Vistamark call an Integrated Chief Investment Officer—can deliver continuous oversight, more efficient execution, and access to institutional resources without expanding internal staff. Our model combines deep manager expertise, real-time monitoring, and a fiduciary commitment that aligns our success with yours.
Real-World Consequences: When Governance Fails
Governance is not theoretical; a lack of checks and balances can lead to catastrophic financial losses, legal battles, and erosion of public trust. The following public examples highlight the severe consequences of weak oversight—lessons we return to regularly when advising boards.
The "Asset Liability" Trap: Cooper Union (2013)
For over a century, Cooper Union was free for every student. But in 2013, the school was forced to begin charging tuition, sparking protests and a state investigation.
The Failure: The board approved the construction of a $175 million building, assuming the endowment's hedge fund investments would generate returns high enough to pay off the loan. It was a classic asset-liability mismatch: they bet the institution's future on aggressive market performance. When markets turned and returns didn't materialize, the model collapsed.
The Lesson: Hope is not a strategy. Governance requires stress-testing assumptions—asking "what if we are wrong?"—before committing to irreversible financial obligations.
Selling the Furniture to Pay the Rent: Fisk University (2005–2012)
Fisk University spent years in court fighting for the right to sell parts of its Alfred Stieglitz art collection (donated by Georgia O'Keeffe) to cover operating deficits.
The Failure: With an endowment that had been depleted by years of overspending, the board sought to liquidate restricted assets to keep the lights on—a direct violation of donor intent. The resulting legal battle with the O'Keeffe estate and the state Attorney General cost millions in legal fees and damaged donor relationships for years.
The Lesson: Spending policies must be sustainable. When governance fails to align spending with reality, boards are often forced into desperate measures that violate donor trust.
The "Rubber Stamp" Board: The National Rifle Association (NRA)
In 2024, a jury found the NRA's former CEO liable for millions in damages, following a lawsuit by the New York Attorney General alleging widespread financial mismanagement.
The Failure: The board's audit committee failed to review related-party transactions and whistleblower complaints, effectively allowing executives to use the nonprofit's assets as a "personal piggy bank" for lavish travel and suits. The board had ceased to be an oversight body and became a rubber stamp for management.
The Lesson: A board's primary duty is loyalty to the institution, not the CEO. Governance structures must ensure that no individual has unchecked authority over the organization's resources.
The Cost of Bypassing Due Diligence: University of Michigan Endowment (2018)
Even the largest and most sophisticated endowments are not immune to governance lapses. In 2018, it was revealed that the University of Michigan's endowment had invested nearly $95 million in funds connected to a broker who had been previously barred by the SEC for misconduct.
The Failure: Internal controls were bypassed. The investment office failed to perform basic background checks—a simple internet search would have flagged the broker's history—allowing the investment to proceed without the standard vetting that governance policies require.
The Lesson: No individual or opportunity should ever be above the process. When "standard procedure" is waived for special relationships, the organization is exposed to immense reputational and financial risk.
The Risk of Personal Liability: Lemington Home for the Aged
While board members are often shielded from liability, that shield is not absolute. In the case of the Lemington Home, a nonprofit nursing home in Pittsburgh, the board failed to remove ineffective management or attend meetings despite obvious financial distress.
The Failure: The court found that directors failed to exercise reasonable care, did not attend meetings, and lacked a functioning finance committee despite bylaws requiring one.
The Consequence: In a landmark ruling, the court held the volunteer directors personally liable for $2.25 million in damages, piercing the usual protections afforded to nonprofit boards. This case serves as a stark reminder that governance negligence carries legal risk.
Violating Donor Trust: The Robertson Foundation v. Princeton University
Donors give with specific intent, and ignoring that intent is a governance failure. The heirs of the A&P supermarket fortune sued Princeton University, alleging that their $35 million gift (which had grown to nearly $900 million) was being used for general university spending rather than its designated purpose of training students for government service.
The Failure: The board failed to strictly segregate and oversee the restricted funds, allowing "mission drift" to divert assets to unauthorized uses.
The Consequence: After spending $40 million in legal fees, Princeton agreed to a settlement returning $100 million to a new foundation controlled by the family—a massive financial and reputational blow that chilled donor relations for years.
These cases underscore why we place such emphasis on documented decision-making, clear authority boundaries, and periodic review with our nonprofit clients. Governance failures are often not the result of malice, but of inattention to process.
The Three Most Common Governance Mistakes
While the examples above are extreme, they stem from everyday pitfalls that many boards encounter. In our decades of working with nonprofit committees, we have identified three patterns that appear again and again.
1. Treating the Investment Committee as a "Finance Subgroup"
Finance committees and investment committees serve distinct roles. The finance function focuses on short-term budgeting, cash management, and internal controls, while investment oversight demands a long-term, risk-based orientation. Combining the two often blurs accountability and limits the depth of investment expertise.
We consistently see boards that blur these lines struggle with governance. Strong organizations maintain separate charters and coordinate between the two groups, ensuring each focuses on its core mandate. The IC should have the freedom to think in terms of decades and capital markets; the finance committee should focus on monthly cash flow and compliance.
2. Updating the Investment Policy Too Infrequently—or Reactively
An IPS should not collect dust, but neither should it swing with each market headline. Many boards err by neglecting comprehensive review for years, or by rushing policy changes during volatile periods. The optimal approach is disciplined: reviewing the IPS annually for relevance, and after major organizational or market shifts, but maintaining enough stability to preserve continuity through cycles.
We recommend a formal IPS review cycle: annually for minor updates, and every three to five years for a comprehensive reassessment of return assumptions, risk tolerance, and spending policy. This rhythm keeps the document alive while preventing reactivity.
3. Relying on Personality Over Process
Committees often over-rely on one vocal member or legacy advisor instead of a structured, documented process. When decisions hinge on individual views rather than collective judgment, governance effectiveness erodes and institutional memory suffers during leadership transitions.
This is perhaps the most common mistake we encounter. A charismatic board member or long-serving investment advisor can become a bottleneck. Sound governance depends on documented rationale, clear minutes, and a well-defined process that outlasts any single volunteer or staff member. We help our clients build systems and documentation that preserve institutional knowledge and maintain consistency even as individuals rotate off committees.
Why Strong Governance Matters
Investment success in the nonprofit context rarely hinges on high-risk bets or market timing. Instead, strong organizations excel through clarity, discipline, and alignment across all levels of oversight. Effective governance builds:
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Transparent decision-making and accountability.
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Consistency of process through market cycles and leadership transitions.
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Fiduciary protection against legal and operational risk.
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Confidence among donors, beneficiaries, and stakeholders.
Strong governance is what transforms investment management from a technical exercise into a mission-driven discipline. It provides the clarity and cohesion that allow an organization to move with purpose—protecting endowed assets intended to last in perpetuity and ensuring that tomorrow's mission remains as vital as today's.
At Vistamark, our commitment to our nonprofit and endowment clients runs deep. We don't simply manage portfolios; we help build governance frameworks that enable your board to make confident, informed decisions. Whether through our Integrated Chief Investment Officer services or through ongoing advisory partnership, we bring decades of experience and institutional discipline to every engagement.
The organizations that endure—that compound wealth, adapt to change, and fulfill their missions across generations—are those that invest in governance today. We would welcome the opportunity to discuss how Vistamark can partner with your organization to strengthen your investment governance and position your endowment for long-term success.
For more information and personalized guidance, please feel free to reach out to Vistamark Investments LLC. You can contact us at
312-895-3001, visit our website at
www.vistamarkllc.com, or send us an email to
info@vistamarkllc.com.
