Nonprofits face unique challenges when it comes to investing and managing their financial assets. Unlike for-profit companies, nonprofits rely heavily on donations and grants, which can fluctuate significantly from year to year. At the same time, nonprofits need to maintain stable operations and keep expenses low. Conducting nonprofit investment surveys can provide valuable insights into how nonprofits are navigating these issues. Surveys reveal key data on nonprofits’ investment objectives, strategies, and performance. The data offers helpful benchmarking to guide investment policies and practices. With thoughtful survey design and in-depth analysis, nonprofit leaders can learn from their peers’ experiences and make more informed decisions about investing their organizations’ funds.
Top Objectives for Nonprofit Investments
Surveys consistently show that preservation of principal is the top investment objective for most nonprofits. Given their reliance on fundraising and unpredictability of donations, nonprofits are very risk-averse in their investing approach. After preserving principal, producing a stable source of income for operations ranks next in importance. Nonprofits do not have profits or shareholders, so they are focused on maintaining liquidity and funding their mission-critical programs on an ongoing basis. While growth of assets is desirable, it comes second to capital preservation and income generation.
Nonprofit Preferences for Conservative Investment Products
Reflecting their capital preservation objectives, nonprofit investment surveys reveal a strong preference for fixed income securities and cash equivalents. Money market funds, CDs, government bonds, and high-quality corporate bonds dominate nonprofit portfolios. Equities represent a much smaller allocation, typically through diversified mutual funds or ETFs. Complex alternative investments are avoided by most nonprofits, viewed as too risky or speculative. Though their conservative approach leads to lower returns, it provides downside protection and steady payouts nonprofits rely on.
Roles and Oversight for Investment Management
According to nonprofit investment surveys, day-to-day investment management is typically handled by executive directors, finance committees, outside advisors, or some combination thereof. Larger nonprofits tend to utilize specialized investment committees overseen by the board of directors. Membership on investment committees is highly valued, with retired financial professionals often volunteering their expertise. Regardless of structure, nonprofits emphasize prudence, transparency, and alignment with their organization’s social mission when investing assets.
Evaluating Performance of Nonprofit Investments
While financial return metrics are essential, nonprofit investment surveys indicate impact on mission and reputation also factor into performance assessment. Many nonprofits screen potential investments based on environmental, social, and governance (ESG) criteria. There is also greater tolerance for underperformance during periods of market volatility provided the nonprofit remains liquid. Benchmarks for success tend to be internal rate of return targets and peer comparisons rather than standardized market indexes.
Nonprofit investment surveys provide beneficial insights for organizations seeking to refine their asset management policies and outcomes. Prudent investing is crucial for nonprofits to sustain operations and fulfill their social purpose. Survey data enables nonprofits to learn from each other’s investment experiences and adopt practices that balance financial returns with their unique organizational needs.