How to Build Your First IPS for a Small Foundation

The Story of a Party, a Conversation, and a Quiet Revolution in Giving

Earlier this year, I found myself at one of those unforgettable New Year gatherings in the Bay Area. Picture this: soft jazz from a live trio echoing through a warm, modern home nestled in the hills. Outside, a fire pit flickered. Inside, the dining table overflowed with artisanal dishes—miso-glazed sea bass, heirloom tomato burrata, and homemade mochi for dessert.

But what made the night truly memorable wasn’t the food. It was a conversation I had over a glass of Pinot Noir with two tech entrepreneurs who had recently exited their company and started a small family foundation. Their mission was clear: use their newfound wealth to fund underrepresented students in AI and climate innovation.

“We want to give meaningfully, not just throw money around,” one of them said. “But honestly, we don’t even know where to start when it comes to managing this capital.”

I smiled and said, “You need an Investment Policy Statement.”

They looked at me like I had just mentioned a rare wine varietal. “What’s that?”

And that’s how the night turned into an impromptu crash course on one of the most overlooked but powerful tools in philanthropy.

What Is an IPS, and Why Does It Matter?

An Investment Policy Statement (IPS) is not just paperwork. It’s the constitution of your foundation’s financial life. It outlines your foundation’s values, mission, financial goals, and—critically—how your assets should be managed.

For this couple, it wasn’t about beating the S&P 500. It was about ensuring that five years from now, they’d still be funding scholarships and clean energy startups with confidence and clarity.

The Starting Point: Purpose Before Percentages

I asked them the simplest but most important question:

“Why did you start this foundation?”

They paused. “To make sure the causes we care about continue—even when we’re not the ones writing the checks.”

That’s where every IPS begins: purpose. We wrote that down. It became the first line of their IPS. The mission drives everything—asset allocation, spending policy, and manager selection.

The Building Blocks of a First IPS (And What I Shared with Them)

We kept the IPS simple but strong. Here’s how we broke it down—using their language, not legalese.

1. Mission Statement

“The purpose of this foundation is to support young innovators in AI and climate solutions, particularly those from underrepresented backgrounds.”

This anchors the portfolio’s purpose.

2. Governance

They appointed themselves as the initial investment committee but agreed to bring in an independent advisor within 12 months. We clarified roles: who can make investment decisions, and how often they’ll review the portfolio.

3. Spending Policy

They didn’t want to spend down the capital too quickly. We set a 4% annual spending rate based on a 3-year moving average of the portfolio—giving room to grow while supporting annual grantmaking.

4. Asset Allocation

They chose a 70/30 mix:

• 70% in global equities (public and private)

• 30% in fixed income and cash equivalents for liquidity

Within that, we carved out 10% for impact investments in climate-tech funds—something close to their hearts.

5. Risk Tolerance

We discussed what it would feel like to lose 20% in a market downturn. Their answer: “If we know we’re still aligned with our mission and long-term goals, we can live with the volatility.” That became part of their risk profile.

6. Values Integration

We included a short section on ESG and DEI—stating a preference for investment managers who demonstrate diversity in leadership and commitment to sustainable practices.

A Moment of Clarity

As the night wound down, one of them turned to me and said, “I thought we were just here to celebrate. I didn’t expect to leave with a strategy for our foundation.”

That’s when it hit me: sharing this knowledge isn’t just about asset management—it’s about empowering others to build a lasting legacy.

They’re now on their way to becoming thoughtful capital stewards. And I realized, in that moment, this is one small way I can contribute to society—by helping families like theirs turn intention into action, with clarity and purpose.

Why This Matters

If you’re reading this and you’ve recently launched a foundation—or you’re thinking about it—don’t wait to draft an IPS. Even if your foundation is small today, the discipline you build now will serve you for decades.

And if you’re a student or young professional hoping to work with family offices or foundations, understanding the IPS is one of the most valuable things you can do. Because when capital meets clarity, real change begins.