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Nonprofits’ ROI Lags Broader Markets

By The NonProfit Times - June 14, 2013

Organizations 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 that likely caused dips in returns.

And, nonprofits are generally sound in terms of reserve ratios, but overall average returns on investments lags traditional indexes by 1 to 2 percent. Many organizations lack key investment guidelines.

Those are among the results of a survey of 150 nonprofit financial managers by Raffa Wealth Management in Washington, D.C.

“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 of Raffa. “Timing the markets gets expensive and is something that is more likely to happen when you don’t have clear investment policies and decision making procedures. We hope going forward that SONI will provide actionable data that nonprofit leaders need to strengthen investment-related decision-making and policies.”

Other findings include:

  • 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 returns on investment than those that did not make changes;
  • 70% of organizations reinvested all of their dividend income in 2012;
  • Only 3% used it all for their operational budget; and,
  • Charities held more reserves in cash and other fixed income assets.  As a result, their portfolios underperformed other types of nonprofits.

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