Bad news, good ideas
William C. Fisher
There is bad news about nonprofit investment returns. Organizations made changes to their asset allocation policies in 2012 that reduced returns. It is thought such changes were a reaction to market trends rather than changes made for strategic needs.
While nonprofits generally have sound reserve ratios, overall returns lagged traditional indexes. These are according to the results of Raffa Wealth Management's survey of 150 nonprofits.
One of the biggest surprises in the survey was how many organizations lacked clear investment guidelines on benchmarking, diversification and investment responsibilities. Timing the markets can be expensive and is often the result of not having clear investment policies and decision making procedures.
Two-thirds of the respondents reinvested all their dividend income. Some nonprofits held more reserves in cash and other fixed income assets resulting in under-performance compared to other nonprofits.
So what are the appropriate action steps for chief financial officers at nonprofits?
Step one is to review your investment policy statement for appropriate benchmarks, realistic rates of return and investment responsibilities. Regardless of whether your organization had these clearly described and delineated, it is time to review them, because future market expectations will change based on the last few years' portfolio returns. Make the changes that need to be made so the investment advisor can select the best investments for your portfolio.
Encourage your foundation staff to keep up the good work. Inform residents that they can select the nonprofit in their wills with an outright gift, an annuity or an endowment.
If the CFO addresses these issues now, the nonprofit organization will be likely to receive more good news than bad in the future.