Investment reserves practices are an important component of an association board's stewardship. They provide additional revenue, fund capital expenditures and initiatives, and can anchor the organization during economic challenges. Volunteer leaders, executive management, and often (but not always) outside financial advisors must make ongoing short- and long-term decisions on investment reserves, including the how much is held, how the accounts are managed, and when to draw from them. They must also practice transparency to stakeholders when it comes to these choices.

ASAE's Association Investment Policies, Practices, and Performance, 2016 Edition examines current trends in association investment reserves practices, serving as a resource for leaders to gain insight on how their peers manage these resources and providing a point of inquiry from which to evaluate themselves.

Associations typically draw on reserves to counterbalance unexpected revenue declines or economic downturns and to support capital expenditures targeted at increasing long-term growth.

Written Policies Improve Satisfaction

A written investment policy provides leaders with a strategic foundation for future decisions. More than 90 percent of the organizations surveyed maintain a written investment policy, and, of those, 80 percent reported satisfaction with their investment performance. Of those who did not have a written policy, only 39 percent reported being satisfied.

Most respondents reported having multiple formal reserve objectives outlined in their policies. Achieving a desired premium over a market data point was the most commonly identified specific goal, cited by 35 percent of associations with reserves less than $1 million, 49 percent with reserves in the $1 million to $9.99 million range, and 52 percent for associations with $10 million or more in reserves. An investment return tied to a formal spend rate was also common.

Know When to Use Reserves

Deciding when to draw on reserves requires careful consideration. Associations typically draw on reserves to counterbalance unexpected revenue declines or economic downturns and to support capital expenditures targeted at increasing long-term growth. Drawing on them too frequently can erode the overall stability of an association's finances, but an overabundance of caution may result in a lost opportunity for organizational growth.

Often board members and executives need to make these decisions on a case-by-case basis. Sixty-three percent of associations did not have a predetermined formula to decide when to draw on reserves, but rather did so "as determined by the board, a committee, or staff." Decision makers need to be able to show that any draw on reserves is necessary and serves the organization's best interests in the long term, both financially and in strategic alignment to mission.

Outside Advisors Can Help

Another marker of performance satisfaction related to the use of an outside investment advisor. Associations who used the services of an advisor were 30 percent more satisfied with the performance of their portfolio. The selection of an investment advisor should be undertaken with a thoughtful and judicious vetting process to ensure that the oversight of the association's reserves is managed with integrity.

Of course, associations with greater revenue are more able to engage an investment advisor. Only 52 percent of associations with a reserve size of less than $1 million reported using an outside advisor, compared with 83 percent in the $1 million to $9.99 million category and 97 percent in the $10 million and above category. Instead of an advisor, smaller organizations can benefit from the use of benchmarking against their peers, as their boards and executives often have to make complex investment decisions with less guidance from investment experts.

Whatever resources they use, association executives need to work closely with their governing boards to ensure that investment reserves are managed in the best interests of the association. They need to conduct oversight with good stewardship and transparency in partnership with trusted advisors, engendering stakeholder confidence.