Best practice for nonprofits is to issue a Request for Proposal (“RFP”) for an investment management partner every market cycle. Typically, that is at least every 7 to 10 years, or as it is explicitly defined in your Investment Policy Statement. Even if you hear angels sing every time you speak with your investment manager, it is important to maintain the discipline of issuing an RFP for a variety of reasons, including the following:
The Laws Change
The Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) continues to expand and evolve. It is the guiding principle for all investment policy statements and boards. Currently, 49 states have adopted some version of UPMIFA (Pennsylvania and Puerto Rico are the exceptions).
You Have More Options
A few years ago, there were only two basic investment management options: an outsourced chief investment officer (“OCIO”) which maintains full discretion approach, or a traditional non-discretionary consultant. Today, these roles have blurred, and non-profits can choose exactly how involved they want to be in oversight of their portfolio across a full spectrum of choices.
The Market Evolves
Tempered capital market expectations are contributing to more interest in private investment strategies and to the potential for earning the illiquidity premium. At the same time, concerns over high fees have reduced interest in hedge funds and increased the use of passive strategies. Are you getting the best thinking on these trends from your advisor?
Your Priorities Change
Socially responsible, diversity, divestment from carbon, and impact investing for example, have all taken center stage over the last decade. Some, or all of these may also be relevant to your own nonprofit and finding alignment through your investment portfolio could be additive.
Fees Have Compressed
You might be overpaying! Every dollar you save on manager fees and investment services can go to directly support your mission.
Take the opportunity to take a step back to gather second opinions for your nonprofit. Even if you decide to maintain your current advisor relationship, you may benefit from a fresh perspective or insight gained through the process to make your nonprofit and your investment partnership stronger!
A Fiduciary Responsibility
Finally, prudent stewardship can be demonstrated by adhering to the discipline of routinely evaluating the options available in the marketplace for your nonprofit.
Issuing an RFP can be a daunting and time-consuming process, but in the end, it is an important discipline. This is the first blog in a two-part series on the RFP process. Next up, 10 Tips for Better RFPs.