E&F Advice & Administration
October 04, 2021
Top 5 Best Practices for Investment Committees
Effective investment committees are critical to the philanthropic mission of endowments and foundations. Through extensive experience, Glenmede’s dedicated Endowment & Foundation team has learned that strong investment committees follow the five best practices outlined below.
1. Create a clear and comprehensive investment strategy
Strong investment committees use an investment policy statement (IPS) to create investment goals for an organization’s endowment and clear guidelines for its investment manager. An effective IPS is consistently enforced by the committee and reviewed annually. The policy should provide a holistic approach to the organization’s investment strategy, including:
• Risk controls and parameters
• Key investment guidelines
• Asset allocation framework
• Performance evaluation
• Spending needs
• Impact investing policy if relevant
2. Discuss, define and distribute a committee charter
A clear charter is an important tool used to outline and reinforce the roles and responsibilities of the investment committee, the board and investment advisors. The charter should coincide with the IPS and include expectations about the committee’s meeting schedule, duties of members, tenure rules, objectives for assets and the importance of avoiding conflicts of interest. Each member should have the opportunity to discuss and review this document before joining the committee.
3. Committee diversification is paramount
Effective committees often attribute the diversity of their members as a key component of their success. Committees should discuss the level of experience and investment knowledge members need to carry out their duties. Research has shown that committees of 5 to 9 members operate most efficiently. This number allows for diverse thinking but is agile enough to make effective decisions.
4. Strong committees have strong leaders
A strong chair will contribute significantly to the committee’s success. The chair manages productive meetings and communicates effectively with members, the board and staff. The chair also works closely with the investment manager to identify areas of interest and specific concerns or questions for the committee to discuss. Organizations should include a description of the chair’s roles and responsibilities in the charter so expectations are clear and each member is set up for success.
5. Common Sense, collaboration and communication are critical
The ability to work together and collaborate as a group determines the committee’s success. Committees can suffer if one individual dominates meetings or new members are hesitant to share opinions and views. Well-run committees make clear decisions as a group, are led by an effective chair, and remember to reflect upon their fiduciary responsibility to be good stewards of the assets they oversee.
This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.