[Dana-B-Forum-Moderator]

As a Board Treasurer and nonprofit consultant, I certainly understand the importance of having the right team/resources to manage to reserve funds to effectively manage risk and maximize returns, and that doing this often does require some type of professional help or expertise as noted above (particularly if you don’t already have it in-house or on your board). And while I’ve come across many money managers to help support this on some level, in my experience it’s been much more challenging to find professional support to help effectively ensure the alignment of your organizational values and investment strategy with the emphasis usually being on returns and the right type of diversification. Even as someone who operates with financial sustainability at the fore, I also believe that it’s important to make sure that investment choices don’t directly contradict an organization’s mission and values, particularly for organizations that are focused on achieving equity within their respective communities, teams and across the global landscape.

I’d love to hear from folks who’ve encountered and worked to address issues around values alignment within investment strategies. Have you found effective professional support around this area? Have you and your teams determined where your organization definitely will NOT invest it’s funds from a values perspective? Do you have experience developing criteria for ethical investment strategy? Any and all thoughts welcome!

[Kate.Barr]

I agree, Dana, this is an important factor for many nonprofits. I’ve seen it addressed at two points in the process – the selection of an advisor or money manager and then at the investment policy level. I read an RFP for money managers last year that included some good language and criteria about this. I’ll track that down and ask permission to share it.

[jennifer_t]

At our non-profit, we are pretty risk-adverse and don’t do investing beyond CDs and savings accounts, and while I know it’s barely bringing in any interest, at this point this is where our comfort level lies.
In order to ensure our cash reserves stay protected under FDIC limits, I encourage folks to consider a “sweep” account. You work with your bank and set a target balance, and anything outside that amount at the end of the day is moved into other banks, so no one balance exceeds FDIC limits, allowing cash to stay protected even if it’s beyond the FDIC limit. As an example, if we had one million in our bank account, we’d set our account to sweep anything beyond 250k. That 750k then goes to various banks overnight (with less than 250k in each account), protecting those extra funds. It allows us to earn interest, but we don’t have to manage having funds in multiple accounts/banks.
It takes a little while to grasp the concept (at least for me), but over time as my understanding has increased and it’s a relatively regular practice.

[Kate.Barr]

Thanks, Jennifer, this is a great example of an option that doesn’t require a while investment policy review and risk management. Banks offer sweep accounts and a few other cash investing options that aren’t top of mind for most of us. It’s a good reminder to probe and ask what they have available, and then to check around for other options. We had a sweep account as well and then when rates dropped so much in 2021 it wasn’t really worth it. As rates have gone back up this year it was worth reinstating the service.

[nancy-d]

I am the CEO of a nonprofit with a large endowment and a much smaller Board designated reserve fund, We have a Board investment committee made up of active and retired investment experts that hire several money managers. The results of each of the managers are compared and inform how much money is given to each of the money managers going forward. The Board investment committee members meet regularly with the money managers and provide consistent oversight without micromanaging. The full Board votes on the investment strategy annually and the Board investment committee members implement it. Equities generally make up 60-70% of the portfolio. The endowment is invested for growth with a set 4.5% payout for operations based on a five year average.of the funds. Using a five year average smooths out fluctuations of the payout. The smaller reserves come primarily from bequests or end of the year surplus. The reserve funds are invested but easily liquidated in case of an emergency or urgent need. In 1984, the endowment was about $8 million. It is now about $80 million. It is a true endowment with the majority of the funds donor restricted to using only interest and dividends. A smaller portion of the endowment has donor instructions to use interest, dividends and capital gains. The reserve fund is unrestricted.

[Mark_Hager]

I think this is a big point. Nonprofits that are willing to make standard investment risks (along the lines that people typically do with their retirement savings) make good returns over time. Nonprofits unwilling to invest more aggressively are stuck around 1% and won’t keep up with inflation.

[bruce]

We have a not-for-profit budget of $6.5 mil. We run an overnight camp and a day camp, as well as some mission run retreats.
Our board investment subcommittee of our Finance and Operations committee created an IPS (Investment Policy Statement) that then allowed us to hire money mangers for our endowment fund. The IPS provides for asset allocations of Equity = 30%; Fixed Income = 65% (investment grade is at 60% and below-investment grade is at 5%); 5% cash. We have a permitted variance of +/- 5%. The value if our endowment is $2.4 mil. We also leverage this towards a priority line of credit which allows a draw on 60% of the value of the fund if needed. The interest on this LOC is much less than traditional LOC’s and there is not mandated time horizon as long as the ratio is in tact. The interest/draw yields between 3-4% and is used for stipulated purposes as defined by the donors.

In addition, we have an annual capital/operational campaign to raise money for camp scholarships, programs, and capital projects. we budget for depreciation and, as long as we hit our budgetary mark, we have that depreciation to put away in a depreciation fund. We use this fund for its purposes. We also borrow from this fund before going to traditional LOC’s or PCL for cash flow needs. We replenish when able.

After the webinar, I made it a priority to budget for an unrestricted cash reserve fund. over and above our depreciation fund.

[Kate.Barr]

Thanks for sharing this great summary, Bruce. Do you have a designated amount of operating reserves in a more liquid account?

[bruce]

Not yet Kate. We carry a little over $200,000 in our Capital Depreciation fund. This is a liquid fund that depletes as needed, and replenishes as we hit our budgetary marks ($240,000 of depreciation is a budgeted expense on our P&L). Additionally, our annual campaign brings in between $400,000 and a million dollars, which is all raised as unrestricted. About $400,000 is used for annual scholarships; $200,000 for program support; $100,000 – $150,000 for new capital projects; and the rest for reserves.

The above is our best case scenario.

[Kate.Barr]

Thanks, I appreciate that there’s a strategy grounding your reserves.