A nonprofit organization has no exit strategy. It does not intend to sell out, cash out or cease operations. A nonprofit organization is intended to last as long as its mission remains necessary, and that can mean forever. Therefore investments—and the way those investments are managed—mean something very different to a nonprofit organization than its for-profit counterpart.
Most investors define investment management in terms of managing the investment portfolio to maximize returns over time. Risk is seen simply as a byproduct of participation in the securities markets. Common attempts at risk mitigation focus exclusively on portfolio holdings. While such risk is indeed part of the overall risk model, there are other elements that are significant, but are frequently overlooked.
Narrowly focusing on reaching investment return objectives involves unforeseen dangers. There are financial risks associated with any level of investment returns, and nonprofit organizations, who strive for ongoing financial stability, can be particularly vulnerable when risks become reality.
