Many small and midsize nonprofits, foundations, and endowments recognize the value of periodically reviewing their investment providers but may be uncertain about how to begin a Request for Proposal, or RFP, process. Unlike larger institutions, these organizations may not have dedicated investment staff, extensive industry contacts, or prior experience conducting an institutional investment search.
In our view, a successful RFP begins before prospective firms are contacted. The organization should first clarify why it is conducting the review, what it expects its investment assets to accomplish, and what support it needs from an investment provider. This includes considering spending and liquidity requirements, investment restrictions, risk tolerance, reporting needs, internal resources, and the responsibilities the board or investment committee wishes to retain or delegate.
Organizations may manage the RFP in several ways. The full board or investment committee can oversee the search, a smaller working group can manage the detailed process, an independent investment or outsourced chief investment officer (OCIO) search consultant can be engaged, or outside specialists can assist with selected areas such as fee analysis, due diligence, or contract review. The appropriate route depends on the organization's internal expertise, available time, budget, and the complexity of its investment program.
Potential RFP participants can be identified through peer nonprofits, board and committee networks, attorneys, accountants, auditors, independent research, preliminary conversations with investment firms, or a search consultant. Referrals can be valuable, but they should serve as a starting point rather than replace an objective selection process. Prospective providers should be screened for experience with similarly sized nonprofit organizations, suitable minimum portfolio requirements, relevant services, and the ability to support the organization's governance and reporting needs.
To make proposals comparable, each firm should receive consistent background information and respond to a common set of questions. The RFP should examine the provider's organization, assigned team, investment approach, governance model, level of discretion, performance, reporting, fees, potential conflicts of interest, and transition plan. Evaluation criteria and their relative importance should be established before proposals are reviewed.
Finalist interviews should focus on how the relationship would operate in practice. Scenario-based questions can help the committee assess how each provider would respond to market declines, spending-policy changes, liquidity needs, and differing levels of investment experience among committee members. Reference checks, appropriate legal review, and documentation of the committee's evaluation and final rationale should complete the process.
An investment RFP does not need to begin with a lengthy questionnaire or a large universe of providers. For an organization with limited resources, we believe a practical starting point is to answer four questions:
- Why are we conducting a search?
- What do we need from an investment provider?
- Who will manage the process?
- How will we identify and evaluate candidates?
Ultimately, an RFP is more than a method for choosing an investment firm. It gives a nonprofit organization the opportunity to clarify the purpose of its assets, improve investment governance, define decision-making responsibilities, and select a relationship that supports its mission and long-term financial objectives. This summary reflects the guidance developed in our Nonprofit Investment RFP Starting Guide. Index Fund Advisors offers an RFP builder to assist boards and committees in the process.
