Why IPS Reviews Are Essential for Nonprofits and Foundations

For nonprofits, endowments, and foundations, an Investment Policy Statement (IPS) is more than a governance document. An IPS is the strategic backbone of your investment program. It aligns your portfolio with the investment philosophy of the organization, defines fiduciary responsibilities, and provides disciplined guidance through changing market cycles.

With inflation, rate volatility, and geopolitical risk constantly reshaping markets, nonprofits that rely on institutional assets to fund their missions are not able to uphold their fiduciary duty without a clear strategy. A well-constructed and regularly updated IPS can help ensure the investment strategy remains intentional, mission-aligned, and resilient.

What is an IPS?

An IPS is a formal document that defines the organization’s:

• Investment philosophy
• Long-term investment objectives and return targets
• Risk tolerance parameters
• Spending and distribution policies
• Strategic asset allocation guidelines
• Rebalancing procedures
• Governance roles and responsibilities for the board, investment committee, and advisors

For boards and investment committees, the IPS serves as both a governance framework and an operational blueprint. It promotes consistency, accountability, and continuity — especially as leadership evolves.

For organizations working with an Outsourced Chief Investment Officer (OCIO), the IPS establishes clear expectations and measurable benchmarks for performance and oversight.

The importance of regular IPS reviews

Designed to serve as a “health check”, an IPS review helps align your investment policy with your organization’s mission, governance structure, and long-term objectives — while helping to ensure it’s positioned for the years ahead by:

• Setting clear expectations for investment decision making
• Strengthening governance and fiduciary oversight
• Aligning board members and staff around shared objectives
• Providing discipline and clarity through changing market conditions

How often should an IPS be reviewed?

IPS reviews should be tailored to the organization’s scale, strategic priorities, and exposure to market fluctuations. That said, the best practice is to perform a thorough IPS review each year. Beyond the annual review cycle, specific developments should initiate reassessments, including:

• Pronounced instability in the capital markets
• Material changes in financial condition
• Significant changes in the programmatic financial needs of the organization in support of the mission
• Transitions in board or investment committee leadership

Periodic reviews also help ensure alignment between strategy and mission — and help boards avoid “drift” from stated objectives.

Common pitfalls to avoid

Even well-meaning nonprofits can reduce the value of their IPS statement. This can happen if they miss key governance and oversight practices, including:

• Infrequent reviews. Allowing the IPS to sit untouched for extended periods is a significant oversight. When the IPS is not revisited, it may not match current objectives. This can lead to inefficient portfolio construction, missed opportunities, and unnecessary exposure to risk.
• Failure to update financial priorities. As nonprofits expand programs, start new projects, or face unexpected financial pressures, their funding needs and long-term goals often change. If the IPS is not updated to reflect these developments, it may constrain progress rather than support it.
• Neglecting to reassess risk capacity. Changes in funding stability, revenue diversification, or market conditions can materially affect a nonprofit’s ability to absorb volatility. Without periodic reevaluation of risk tolerance and capacity, the portfolio may drift toward allocations that are either overly aggressive or conservative.
• Limited board and committee engagement. Effective governance requires active participation from the board and investment committee. Excluding these stakeholders from the review process can weaken oversight and reduce the depth of strategic input behind investment decisions.
• Excessive complexity. An IPS should provide clarity, not confusion. Overly technical language, unnecessary detail, or convoluted structure can hinder understanding and consistent implementation. The document should be precise, straightforward, and usable by all responsible parties.

The strategic value of an updated IPS

An updated IPS is critical to guiding long-term thinking, strengthening governance, and enhancing fiduciary oversight. For nonprofits, endowments, and foundations, an IPS is not merely administrative. It is strategic infrastructure — connecting mission, spending policy, and investment execution into one cohesive framework. Organizations that treat the IPS as a living document, rather than a compliance exercise, position themselves to sustain impact for generations.

If you’re not a Mercer Advisors client and you’d like to learn more, schedule a complimentary 30-minute IPS review with our team.