Board Resolution
Purpose
This Investment Policy provides guidance to the Finance Committee, the Director, and others who have been given authority to invest L’ Arche Nehalem’s financial assets. This policy governs the investment of cash balances in both the Operating and the Endowment Funds.
Background
The goal of the Endowment Fund is to provide long-term financial stability, security and growth for L’ Arche Nehalem. Planned gifts are the major source of revenue for this Fund. All or a portion of the Fund’s investment earnings are spent each year in support of L’ Arche Nehalem’s special needs, programs and mission causes. Spending is limited to investment earnings only; the principal, or "corpus", of gifts is retained indefinitely in the Fund and reinvested continuously. (See Endowment Fund Policy.) The paramount investment goal of the Endowment Fund is preservation of capital.
The Operating Fund provides funding and financial tracking for day-to-day operations of the L’Arche Nehalem homes and community. Revenues include resident-related (governmental), outright cash donation, small grant, and fundraising revenues. Expenses include home operations and maintenance, core member care, personnel compensation, training and development, administrative support, and interest and depreciation expenses. The paramount investment criteria of the Operating Fund are liquidity and preservation of capital. See attached chart showing flow of funds.
Responsibilities
Board of Directors:
Finance Committee:
Director and staff:
Responsibilities for an investment manager and investment advisor will be established in this policy at such time as L’ Arche Nehalem acquires these professional services.
Investment policy - Endowment Fund
Endowment Fund assets may include cash, securities, mortgages and notes, and real property and personal property converted to cash. The Endowment Fund policy requires that investment earnings be reinvested in full until the Fund balance reaches $100,000 on an unrestricted or undesignated basis. Once that threshold is reached, annual expenditures will be limited to all or a portion of investment earnings, in particular, limited to no less than 5 percent and no more than 8 percent of the Fund’s total assets. (See L’ Arche Nehalem Gift Acceptance Policy and Endowment Policy.)
Preservation of capital is the paramount investment objective, meaning that security and stability take priority over investment potential. Cash in the Fund shall be invested only in highly reputable, largely risk-free money market funds, mutual funds that are fully invested in US Treasury securities, and/or in FDIC-insured fixed or callable Certificates of Deposit. As a faith-based, social service charity, L’ Arche will avoid investing in funds, securities, or other instruments that support activities inconsistent with our mission and charter.
The Endowment Fund has relatively low liquidity requirements because expenditures are limited to a fraction of Fund assets each year. Unlike the Operating Fund where liquidity is essential, the Endowment Fund may invest a relatively large portion of its assets in long-term, fixed investments, such as non-callable CDs with maturities of 1 year or longer.
Assets shall be invested in a manner that is consistent with generally accepted standards of fiduciary responsibilities. Safeguards that guide a prudent investor shall be observed.
Once the Fund balance grows to at least $150,000, professional investment advice and management services may be obtained. At that time, this policy will be reconsidered and and updated by the Board. The revised policy may allow greater diversification and risk-taking consistent with the objective of preserving capital and achieving stable, predictable rates of return on a total portfolio basis.
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Note: A money market fund generally invests in high grade debt instruments that must be repaid within a short period of time, usually no longer than a year. Corporations, the government and other financial institutions are examples of entities that issue short-term instruments to raise money. Returns are earned from interest, and the quality of these investments is generally very high. However, in exchange for high quality and low volatility, money market funds generally earn a lower long-term rate of return than stock and bond funds.
Investment policy - Operating Fund
The Operating Fund is a revolving fund that supports the day-to-day operations of the homes and community. The investment objective for the Operating Fund is a high level of income consistent with preservation of capital and the need for liquidity.
Generally, cash in excess of 1 month’s expenses should be invested in:
As a matter of course, Operating Fund revenues and expenses are fairly stable and predictable. Net revenues are not without significant risks, however. Care should be taken to ensure that investment liquidity is adequate. Investments should not be unduly weighted in favor of non-callable CD’s, CD’s with terms to maturity exceeding 6 months, or callable CD’s with significant penalties for early withdrawal. As a rule, such fixed investments should be limited to 40 percent of the Fund balance, or $40,000, whichever is less.
The Board’s goal is to build and maintain an Operating Fund balance equivalent to at least 4 month’s expenses (as of the time this policy is approved, $80,000). Under the Endowment Policy, the Board may elect to transfer cash assets from the Operating Fund to the Endowment Fund. Generally, the Board will make such transfers only to the extent that this goal for the Operating Fund balance is met.
Approved by Board of Directors
October 16, 2000
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Kate Marshall
Board Chair
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Jerry Deas
Board Secretary