Traditional Investing Strategies Serve Nonprofits Poorly, Report Finds
Nonprofit organisations can use goals-based strategies to adapt to new market realities: an era of lower returns, ongoing market volatility, higher inter-asset class correlations and increasing fiduciary responsibilities with greater scrutiny from regulators, government agencies and donors, claims a report.
Entitled ‘The Endowment Challenge’, the report is issued by US Trust’s institutional investments and philanthropic solutions group, which is ultimately part of Bank of America (BoA). It outlines how, with donor funding in stress, increasing needs of beneficiaries, and rising costs, nonprofits are increasingly relying on investment returns to fund their operations and spending mandates.
The analysis finds that it will be challenging to generate sufficient returns to support historical spending levels if organizations continue to invest as they have in the past.
“For the first time in years, perhaps decades, foundations, endowments and other nonprofit organizations question whether they will have the financial resources to continue to fulfill their missions,” said Keith Banks, president of US Trust.
“To meet current and future needs, nonprofit organizations are urged to reach beyond traditional strategies and realign their approach to investing, spending and governance around the distinct mission and goals of their organisation.
According to Christopher Hyzy, chief investment officer (CIO) of US Trust: “Hospitals, colleges and universities, charitable foundations and other nonprofits have a distinct need for cash to fund current spending needs and, at the same time, a need to grow the purchasing power of their principal. These needs are typically reflected in a traditionally conservative 60/40 percent mix of stocks and bonds.
“The typical nonprofit portfolio lost one-quarter of its value in 2008, the height of the financial crisis. While other individual and institutional investors have recouped much of their losses, many nonprofits continue to struggle. By adhering to traditional strategies that have not kept pace with changing market dynamics, many have been unable to benefit from emerging and rebounding growth opportunities.”
Joe Curtin, head of US Trust’s institutional investments group, added: “The implications of negative return years and market volatility on spending are particularly problematic for mission-driven organisations.
“Nonprofits are finding ways to do more with less, but if they want to expand their mission and sustain it for future generations, they need to embrace more creative responses to new market realities.”
The US Trust report outlines a new roadmap, with goals-based strategies nonprofit for organisations to consider in order to add long-term value and build resources that will support its mission. Among its key advice for nonprofits: