Income from Investments, Is it time for a Review?

Nonprofit executives come to us because they need assistance in raising major gifts.  We hear about the need for cash, either to sustain an existing program, provide for an unplanned need,  begin a new program or to build a new facility.  Rather than rush into a discussion of strategies for obtaining major gifts, we encourage the prospective client to obtain an immediate major gift for these purposes by first — reducing expenses. Keep in mind that a $25,000 cost cutting/savings is the equivalent of a major gift that comes from within the organization.

Second, we ask the CEO and board how the organization is earning income.  Is there something they can do to generate more “retail” dollars? (Not another special event.) Sell more products, for example, or expand services, review their fee structure, as most organizations set their fees too low and they can often be increased.

Third, we ask about income from investments from the organization’s savings, reserves or endowments.  If returns are poor, we suggest that a review might be in order.  Given the present economy, many organizations are trying to augment the decrease in giving with an increase in investment income.  No small task given the swings in the stock market of late.

In the early 80′s, when I was the Executive Director of the UCF Foundation, I remember when the President of the University wanted me to hire more staff so we could raise more money.  I disagreed.  I felt it was time for the Foundation to establish an investment committee, as I was concerned about the stewardship of the endowed professorships we were obtaining through a combination of donor gifts and state matching funds — keeping it safe, doing a better job of investing.  Fortunately he agreed with me and we hired our first ever Business Manager who later took a leadership role in enlisting an investment committee that did a remarkable job.

In this Blog I thought it would be timely to discuss enhancing your investment returns.  So I turned to Tom Carhart of South Street Advisors in New York with whom we have collaborated over the years.  The firm, established in 1996, is independent and specializes in managing endowments of nonprofit organizations including some here in Florida.  Here are four suggestions from Mr. Carhart for improving your investment income.

1. Research, identify and enlist investment committee members who have a strong background in endowment management with a nonprofit organization similar in size to your own. Be sure they know and understand that the dollars you invest are donor dollars and you have a special obligation of stewarding donor gifts.
2. Prepare a policy statement that clearly describes the organization’s investment goals and expectations for return on investments.
3. Select an investment manager with a proven track record who will tailor investments to your organization’s financial requirements.
4. Insist on frequent “face time” update meetings with your investment advisors so your investment committee can have all your questions and concerns addressed.

Today, the competition among investment managers to obtain new accounts is quite competitive.  The recent decline in endowment portfolios has resulted in many nonprofits issuing new RFP’s in hopes of finding a firm that will get them back or close to pre-market decline levels.

We always encourage clients to keep their selection process wide in scope.  For example, don’t limit your RFP to just local firms. Resist the pressure to keep the local donated money invested locally.  Go where you get the best advice, return and service as the bottom line is just that, the bottom line.

Finally, we suggest that your organization be clear and forthright about investing donor dollars.  It is surprising how many nonprofit websites have little information on how their investments are handled.  We suggest a page, tab or click that includes these headings and a subsequent statement for each:

• Stewardship of Donor Gifts

Why is it so important to your organization?

• Investment Committee Oversight

What’s their purpose?

• Investment Committee Members and Affiliations

What are their qualifications and credentials?

• Investment Management Firm

What’s their track record with nonprofits, returns and service?

What distinguishes them from other firms?

• Investment Strategy

What investment products are being used?

What is the strategy for asset allocation?

In two weeks we will begin the final quarter of 2009.  Take time now to review your investment income so far this year.  Make plans now to maximize your investment income in 2010.  You owe it to your donors, organization and those you serve be they — people, pets or the planet.

Please let me hear from you, especially about our revised website.

All the best for continued success.

Jim Donovan

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