L’chvod Harabanim Hachashuvim Shlit”a,
I run a gemach mostly based on deposits with a small amount of donations.
I invested money from the gemach to try to make money for tzedaka (for the gemach itself or others). The investment ultimately failed and even the principal money is lost.
As the responsible party for the gemach money, am I obligated to pay back the gemach from my own money, or can I rely on donations to the gemach to cover the loss?
Agav, was I allowed to invest this surplus money of the gemach to begin with?
A gabbai tzedakah who is negligent with moneys is nonetheless exempt from paying it back.
This applies to a fund that is not intended for specific individuals or a specific group (Choshen Mishpat 301).
It appears that this ruling will apply to the case of the question (assuming that the money was not kept on behalf of specific people), in which case you will be exempt from paying back the money.
In Siman 290 (8) the Shulchan Aruch writes that investments on behalf of orphans etc. should only be made if there are proper guarantees that ensure the principal money will not be lost (see also Nesivos 7 and Biurim 2; Noda Biyhuda, Tinyana 34), and these principles should be applied to all cases of charity money.
Therefore, it appears that the investment was a mistake, but that nonetheless you are not obligated to pay the losses.