Many nonprofit organizations have an investment policy.
Far fewer have a process to ensure the policy is regularly reviewed, updated, and actively followed.
That distinction may seem small, but for one museum, it became an important lesson in financial resilience.
The Challenge
The museum’s leadership believed they had the basics in place. An investment policy existed. Reserve funds had been established. Board members generally understood the purpose of the organization’s long-term assets.
On paper, things looked fine.
In practice, however, the policy had not been meaningfully reviewed in years. There was no dedicated investment committee, no formal process for regular evaluation, and no advisor providing ongoing guidance. The investments were largely being left alone, based on decisions made years earlier under very different market conditions.
Then the COVID pandemic came along.
Like many cultural organizations, the museum had to close for an extended period, dramatically reducing earned revenue and forcing difficult operational decisions. As leadership worked to stabilize the organization and plan for the future, they began taking a closer look at every aspect of their financial infrastructure.
One question quickly rose to the top:
Was their investment strategy still serving the organization’s mission and long-term needs?
Looking Beyond the Portfolio
When Fairlight Advisors was brought in to review the situation, the issue was not that the museum lacked an investment policy.
The issue was that the policy had become largely disconnected from day-to-day governance.
This is more common than many nonprofit leaders realize.
Policies are often created in response to a specific event, such as receiving a large gift, launching an endowment, or responding to a recommendation from a board member. Once approved, the document gets filed away. As board members rotate off, staff changes occur, and market conditions evolve, fewer and fewer people remain familiar with what’s actually in the policy.
Over time, the organization can find itself operating according to assumptions rather than strategy.
A Policy Frozen in Time
During the review process, another challenge became apparent.
Some of the museum’s investment assumptions reflected thinking from a very different investment environment.
Many older nonprofit investment policies were written when organizations focused heavily on generating income from conservative fixed-income investments. In some cases, spending decisions were based almost entirely on interest and dividend income rather than broader total-return approaches commonly used today.
The problem wasn’t that earlier leaders made poor decisions. They made decisions based on the information and economic realities of their time.
The problem was that no one had revisited those assumptions to see whether they still made sense.
Markets had changed. Spending practices had changed. Governance expectations had changed.
The policy had not.
Modernizing the Framework
The museum’s goal was not to pursue more aggressive investing.
Instead, the focus was on creating a governance structure that aligned investment decisions with the organization’s mission, risk tolerance, and financial needs.
Working together with leadership and the board, Fairlight helped the museum:
- Review and update its investment policy
- Clarify investment objectives
- Establish clearer oversight responsibilities
- Define a process for ongoing review
- Align financial assets with long-term organizational goals
The process took time, but it created something more valuable than an updated document.
It created accountability.
The Real Lesson
This case is not ultimately about investments.
It’s about governance.
A nonprofit can have a beautifully written investment policy and still be exposed to risk if nobody is responsible for implementing it.
The opposite is also true. Even a relatively simple investment program can be effective when leadership reviews it regularly, understands its purpose, and ensures it continues to support the organization’s strategy.
Too often, boards view investment policies as compliance documents.
The stronger approach is to view them as strategic tools.
When used correctly, they help organizations think through questions such as:
- How much financial flexibility should we maintain?
- What role should reserves play in supporting the mission?
- How do we balance today’s needs with future sustainability?
- When or how often should investment assumptions be revisited?
- Who is responsible for oversight?
These conversations often prove more valuable than the policy itself.
Questions Every Nonprofit Board Should Ask
If your organization has investment assets, reserves, or an endowment, consider the following:
- When was our investment policy last reviewed?
- Does it still reflect current market realities?
- Is there clear board or committee ownership?
- Are we actively following the policy?
- Would new board members understand how it works?
- Does the policy support our strategic goals?
If the answer to any of these questions is “I’m not sure,” it’s probably time for a closer look.
Key Takeaway
The museum’s challenge wasn’t a lack of planning.
It was assuming that planning completed years ago would continue working indefinitely.
Financial resilience doesn’t come from having an investment policy.
It comes from having a policy that evolves with the organization, is actively governed, and remains connected to the mission it is meant to support.
How Fairlight Advisors Can Help You
Not sure whether your investment policy is still serving your organization?
Many nonprofit boards inherit policies that haven’t been reviewed in years. A policy review can help identify outdated assumptions, clarify governance responsibilities, and ensure your investment approach aligns with your organization’s current goals and financial realities.
Fairlight Advisors works with nonprofit boards and leadership teams to review investment policies, strengthen governance practices, and build long-term financial resilience.
Contact us to discuss whether your investment policy reflects where your organization is today, not where it was 10 years ago.
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