What are other associations doing with their investments? Until recently, when our clients asked us this question, we didn't have a clear answer.

Sure, we could share what our other association clients were doing, but their portfolios were shaped by the same firm view, which made them an imperfect benchmark. Much of the data that was already available was geared toward either larger institutional investors, endowments and foundations, or broad industry groups.

There wasn't anything specific to associations. That changed in 2014 when the ASAE Foundation published its inaugural edition of Association Investment Policies, Practices, and Performance [PDF], an association-specific survey on investment reserves.

More than 500 professional, trade, and combined professional/trade organizations participated in the inaugural effort. The report looked closely at three key areas:

1. Governance: How do our oversight procedures compare?
2. Investment strategy: Are other associations investing the same way ours is?
3. Performance: Is our performance in line with our peers?

The report just isn't tables and figures. An analytical and interpretive narrative has been included throughout the report to provide useful context. This was deliberate for readers that needed to know not only how to interpret the data, but also how not to interpret it.

Since the initial study, the survey has been conducted annually. "It was important to us that the data not only stay current, but that members are able to identify any emerging trends," says Sharon Moss, chief research officer at the ASAE Foundation. "The financial markets are ever-changing. The study would start to lose relevance if we only did it every few years. An annual survey also provides an opportunity to benchmark emerging areas of need."

Over the years, the studies have uncovered a number of interesting trends. For example:

In 2015, smaller associations on average produced higher investment returns than their larger counterparts. At first glance, this may seem counterintuitive. After all, conventional wisdom might suggest that larger organizations should have the resources and pricing power to outperform smaller ones. While this may be the case over time, larger organizations also tend to have a greater allocation to risk assets, such as equities, which works against them in years when those investments experience significant losses (2015 was a negative year for global equities).

While indexing association investments is a popular practice, associations tended to index just a portion of their reserve portfolio. Over the past few years, there has been meaningful investor interest in passively managed strategies (index funds). While fund flows suggest that money has moved from active to passive strategies, assets in active equity funds still outnumber assets in passive equity funds. The data in the study reflects the general marketplace. Many associations may be embracing the theory that actively managed strategies work better in certain asset classes, which would help explain why an organization would index just a portion of their assets.

Associations with an investment policy are twice as likely to be satisfied with investment results as those without a policy. In our experience, this is not surprising. The investment policy, among other things, sets the objectives, time horizon, measurement standards, and acceptable risk levels for an association's investment strategy. An association without a formal policy has likely not gone through an informed process to develop a consensus in these key areas. As a result, they are more likely to be dissatisfied with investment results, particularly during periods of market difficulty.

There is an observable correlation between an association's investment portfolio size and the use of outside investment advisors, the kind of advisors used, and the volunteer committee structure in place to oversee investments. Larger organizations—perhaps taking the view that more is at risk—have embraced their fiduciary responsibilities, while taking advantage of the greater level of human capital at their disposal.

Most associations engage in some form of portfolio rebalancing, but few do it on a predetermined schedule. The investment advisory industry has long promoted rebalancing as a prudent investment practice, often encouraging some sort of calendar-based approach. While rebalancing is important, an arbitrary schedule, such as rebalancing every quarter, does not allow the investor to fully benefit from the central premise of rebalancing (selling "winning" asset classes that have done well and appreciated beyond their target, and buying "losing" ones). It's more meaningful to rebalance when a drift in asset class values changes the risk characteristics of the portfolio—whether that happens in five years or five months is less important. It's good news that fewer associations are applying an arbitrary approach to rebalancing.

The content of this article has been obtained from a variety of sources that are believed, though not guaranteed, to be accurate. Opinions expressed do not necessarily represent the views of ORION Investment Advisors, a DiMeo Schneider & Associates, L.L.C. firm. The content does not represent a specific investment recommendation. Please consult with your advisor, attorney, and accountant, as appropriate, regarding specific advice.