We begin by asking a simple question: Do you understand the risk in your investment portfolio?

 

Nonprofits typically apply a 60% equities, 40% fixed-income asset allocation. This is a generic asset allocation for an average organization. But is your organization average?

 

The risk-based model utilized by Lancaster Pollard Investment Advisory Group addresses the financial viability of the organization for the life of the mission. Instead of focusing solely on maximizing investment returns, we seek to ensure that your investments work in concert with your organization’s fiscal realities and never put the organization’s financial health at undue risk. Hence, the goal is to stay within a well-defined and calculated risk tolerance, while maximizing the returns of the portfolio.

 

This goal cannot be effectively achieved without knowing where risk resides. Organizations with existing liabilities, or those contemplating an opportunity to finance growth or other change in capital structure, should use the occasion to review their investment policies. These nonprofit investors should recognize the need to understand the inextricable link between the individual components of the investment portfolio and their effects on the organization’s overall health.

 

Portfolio optimization, then, becomes a function of the risk that the organization can, or is willing to, take. Optimizing the portfolio encompasses returns analysis, including correlations and scenario analysis of the approved investment opportunities. This tactical asset allocation is monitored and updated on a regular basis – because not only is every organization unique, but each undergoes different financial cycles.