Study on Nonprofit Investment Policies Released

Raffa Wealth Management just released results of the Study on Nonprofit Investing (SONI), the first of its kind to provide benchmarking data for nonprofits interested in measuring the success of investment portfolio polices and management strategies against their peers.

Results point to critical lapses in investment policies that could expose nonprofits to unnecessary risk and potentially depress returns on their investments. “We were most surprised by how many organizations lacked clear investment guidelines on benchmarking, diversification and even guidelines to address who is ultimately responsible for investment decisions,” said Dennis Gogarty, president, Raffa Wealth Management. “Timing the markets gets expensive and is something that is more likely to happen when you don’t have clear investment policies.”

While the nonprofit sector is generally sound in terms of reserve ratios, overall average returns on investments lagged traditional indexes by 1 to 2 percent; many organizations lack key investment guidelines; and many made changes to their asset allocation policies in 2012 – a possible reaction to short-term market trends and not the organization’s strategic needs, a move which likely caused dips in returns.

Key findings:

  • 38% of respondents lack guidelines that require sufficient levels of diversification.
  • 43% neglect to indicate the degree of discretion given to outside advisors.
  • About 30% of organizations surveyed made changes to asset allocations in 2012, most to be more aggressive. Those organizations reported lower ROI.
  • 70% of organizations reinvested all of their dividend income in 2012.
  • Charities held more reserves in cash and other fixed income assets, resulting in their portfolios under performing other nonprofits.
  • Smaller organizations held more reserves in cash than larger organizations; this correlated with a lower overall ROI.
  • Larger organizations were more likely to invest in alternative investments; real estate being the most common.
  • Shifts to alternative investments in 2012 were generally not advantageous.

More than 150 finance executives at associations, public charities and other nonprofits participated in the survey conducted February 2013 by a third-party research firm.

Learn more about Raffa Wealth Management and Raffa’s Investment Advisory Services.

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