Alternative investments and not-for-profit portfolios

Published: November 2, 2026 |

As Not-For-Profit (NFP) investment portfolios become more sophisticated, boards need a clear understanding of the assets they hold, particularly where investments are private, complex or difficult to sell.

For NFP organisations, an investment portfolio can play an important role in supporting long-term financial sustainability. Surplus capital may be invested to generate income, preserve purchasing power and help ensure an organisation has the financial resources to continue pursuing its purpose over time.

But with this opportunity comes responsibility. We are increasingly seeing NFP investment portfolios include assets described as ‘alternative investments’, such as private credit, private equity, and hedge funds. Private credit generally involves lending directly to businesses or development, while private equity involves investing directly in privately held companies. Depending on their structure, alternative investments may introduce greater complexity, less transparent pricing, and restrictions on accessing capital.

Alternative investments are not necessarily inappropriate for an NFP investment portfolio. However, the central question for a board is not simply what return an investment may generate, but whether the board understands the investment, its risks and liquidity characteristics, and why it belongs in the organisation’s portfolio.

Understanding what you own

Directors don’t necessarily need to be investment experts. Collectively, however, a board should have sufficient understanding of its portfolio to oversee it effectively. This becomes increasingly important as investment structures become more complicated.

A listed share, bond or managed fund will generally have observable pricing and established mechanisms through which it can be bought or sold. By contrast, some private or alternative investments may have less frequent valuations, limited liquidity, more complicated structures or restrictions on accessing capital.

For an NFP, investment capital ultimately exists to support the organisation and its purpose. While an investment might offer attractive prospective returns, those returns need to be considered alongside the organisation’s potential need to access its capital. Investment decisions should therefore reflect not only return potential, but also the organisation’s objectives, anticipated funding requirements and the role of the portfolio in supporting its broader purpose.

What should boards be asking?

What equity or project does the investment actually own or finance?
How is it valued, and how frequently is that valuation updated?
How and when can we access our capital?
Could withdrawals be restricted, delayed or subject to market conditions?
What role does this investment play within the broader portfolio?
What are the fees, risks and reporting requirements?
Is this investment consistent with our organisation’s objectives and expected cash requirements?

These are fundamental governance questions, not simply investment questions.

Investment decisions and board succession

There is another consideration particularly relevant to NFPs: over time, boards change.

An investment committee may spend considerable time assessing a private investment. The directors involved may understand its rationale, risks and place within the wider portfolio. However, those directors will not necessarily remain on the board indefinitely.

New directors inherit the investment decisions made by their predecessors. Where an organisation holds complex or illiquid investments, a future board may be responsible for overseeing assets it did not select, may not fully understand, and cannot readily exit.

Private assets may be appropriate for some organisations. The important question is whether an investment is likely to remain appropriate through changing market conditions, funding requirements, and board composition, rather than only appearing attractive at the point it is first considered. At BDO, we believe the additional complexity and illiquidity these investments can introduce needs to be considered carefully in an NFP context.

The Investment Policy Statement should set the rules

One of the most effective ways for an NFP to manage these issues is through a rigorous Investment Policy Statement (IPS). An IPS establishes the governance framework for how the organisation’s capital is invested and provides continuity when directors, executives, committee members or investment advisers change.

Rather than allowing decisions to be driven solely by the opportunities available at a particular point in time, the IPS should establish the parameters within which recommendations and approvals are made. It should provide clear, practical guidelines for those responsible for overseeing and managing the organisation’s investments, whether that is the board, an investment committee, management or an external investment adviser.

In doing so, the IPS provides a consistent framework for assessing new opportunities against the organisation’s objectives, risk appetite, liquidity needs and broader purpose.

An effective IPS should address:

Purpose and objectives
Why the organisation is investing, the role of the portfolio, required return, and investment timeframe.

Liquidity
Minimum cash levels, expected withdrawals, and access to capital.

Asset parameters
Strategic ranges and permitted, restricted or prohibited investments.

Alternative investments
Clear limits for private, unlisted, illiquid or complex assets.

Responsibilities
Who recommends, approves, implements, and monitors investments.

Oversight
Performance, risk, compliance reporting, and the review cycle.

For alternative investments, the IPS should distinguish between listed and unlisted assets, liquid and illiquid investments, and public and private markets. Any limits should reflect the organisation’s actual circumstances and capacity for risk rather than allowing a broad asset-class label to determine what is acceptable.

Good governance continues after an investment is made

Investment reporting should go beyond performance and give boards the information required to oversee the portfolio effectively.

Boards should be able to assess whether the portfolio remains consistent with the IPS, appropriate for the organisation’s financial requirements, and capable of supporting its purpose. Reporting should cover asset allocation, liquidity, portfolio risk, upcoming cash requirements, and compliance with investment restrictions.

An IPS should not be treated as a set-and-forget document. It should be reconsidered periodically, and whenever the organisation experiences a material change. A shift in financial position, strategy, funding arrangements, spending requirements or board composition may change the type of portfolio that is appropriate.

How BDO can help

BDO works with NFP organisations to strengthen their investment governance and decision-making frameworks. Our Private Wealth team can review your investment governance processes, including your portfolio and Investment Policy Statement, to help assess whether your current approach remains aligned with your organisation’s objectives, liquidity requirements and broader governance framework.
Our aim is to help boards establish a clear, practical and enduring framework for deciding what the organisation should own, why you should own it and how those investments should be governed over time.

Understand what you own. Understand why you own it. Ensure there is a clear framework governing what comes next.

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