Study on Nonprofit Investing Survey Analysis
Produced: May 2014
B y D e n n i s G o g a r t y , A I F ®, C F P ®
A Peer Benchmarking Study on Nonprofit Investment Policies and ROI
Professional or Trade Associations - Budgets of $5-25 Million
DC . 1899 L Street, NW, Suite 900 . Washington, DC 20036 . T:202.955.6734 . RaffaWealth.com
Raffa Wealth Management Presents:
SONI Study on Nonprofit Investing
EXECUTIVE SUMMARY
The Study on Nonprofit Investing (SONI) creates a community where nonprofits of various sizes
and types can learn from each other about how to best manage their nonprofit’s investments. In
2014, approximately 300 nonprofit finance executives participated in a survey about their
investment polices and portfolio management practices. The results are segmented into twelve
cohorts separated by size and nonprofit type.
The Professional or Trade Associations segment of the survey responses is comprised of 110
organizations with an average budget size of $13 million and average investable assets of $12.1
million.
Association Responses
Average Performance
60
16.0%
50
40
54
45
14.0%
56
14.9%
12.0%
44
13.4%
10.0%
30
8.0%
20
6.0%
7.9%
4.0%
10
11
0
2.0%
10
0.0%
$0‐5M
$5‐25M
Portfolio Size
$25M+
$0‐5M
Budget Size
$5‐25M
$25M+
Portfolio Return
Professional or Trade Associations - Budgets of $5-25 Million
In the following pages, we examine those Professional or Trade Associations with budgets of
between $5-25 million. This cohort is comprised of 56 organizations with an average budget size
of $11.1 million and average investable assets of $13.5 million.
The following core areas are examined:
•
•
•
•
•
Segmentation of total cash assets
Decision making authority
Long term portfolio asset allocation policy
Investment fees
Long term portfolio 2013 investment performance
Additional best practices are sited at the overall level. They include:
•
•
•
Guidelines and restrictions contained in investment policies
Maintaining asset allocation targets
The potential impact of not knowing investment fees
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Raffa Wealth Management Presents:
SONI Study on Nonprofit Investing
Breakdown of Total Reserves
Mid-sized Associations kept a majority of their assets in longer term investment reserves, with
36% held in cash. This is a great reference point for nonprofits seeking to gauge how much of
their assets it might be prudent to invest. Nonprofits are pressured to make the best use of all of
their assets – yet they may be discouraged from putting cash at risk. Balancing these competing
priorities is difficult. Knowing how you compare to your peers helps.
Short/Interm & Long
64.3%
Cash & Ops Reserve
35.7%
0%
20%
40%
60%
80%
100%
Percentage of Total Assets
Decision Making Authority
A large majority (70%) of Associations gave discretion
to their financial advisors to make investment
decisions when managing their portfolios. While this
year’s study didn’t find a material performance
difference, there is a difference in liability. Granting
discretion
to
investment
professional
when
accompanied by other governance practices can limit
Trustees liability related to investment decisions.
30%
70%
Fiscal Committee Approves
Discretion to Advisor
Asset Allocation Targets
Those Associations who had formal asset allocation targets listed in their investment policy
statements had much better returns in 2013. Of the 94% of responses who had targets listed had
an average return of 13.12% - compared to 6.00% for those that don’t. Having and maintaining
formal asset allocation targets can remove some guess work from decision making and reduce the
inclination to try to time the markets. When it comes to investing, anything that brings discipline
to the process is likely to help.
14%
Portfolio Performance
12%
94%
6%
Formal Allocation Targets
13.12%
10%
8%
6%
6.00%
4%
2%
Manager Determined
Page 3
0%
Formal Allocation Manager Determined Targets
Targets
Raffa Wealth Management Presents:
SONI Study on Nonprofit Investing
Average Long Term Portfolio Allocation
The average portfolio breakdown for Mid-sized Association Long Term Reserves was
approximately 54% Stock, 46% Bond. This balance between growth and stability is typical and is
in line with broad asset allocation averages seen in 2012. Portfolios typically contained a roughly
11% allocation to international stocks and a small allocation (6%) to alternative investment—
which were primarily commodities and real estate .
54.4%
45.6%
0%
Stock
10%
20%
US Equity ‐ 40.1%
Bond
30%
40%
Intl Equity ‐ 10.8%
50%
60%
70%
Fixed Income ‐ 37.1%
Overall Average Fees
The average fees shown here reflect the total advisory and
management fees reported by participants. We note that the
majority (56%) of respondents did not know their investment
fees. Other findings were that the lower the fees, the better the
results. This was in part because larger portfolios were more
aggressively invested. Investment fees detract directly from
bottom line results - but managers with proven track records
may be worth paying a higher fee. It may be difficult to know
how much emphasis to place on investment fees but this year’s
SONI suggests there is value in having lower fees.
80%
Cash ‐ 5.8%
90%
100%
Alternatives ‐ 6.2%
Association Average Fees
1.60%
1.40%
1.20%
1.45%
1.00%
1.13%
0.80%
1.02%
0.60%
0.40%
0.20%
0.00%
$0‐5M
$5‐25M
$25M+
Portfolio Size
Overall Performance
The most meaningful way to compare investment returns is to first segment respondents based on
their investment strategy (conservative, moderate, aggressive, etc.). The next step to a meaningful
comparison is to develop portfolio benchmarks using different mixes of broad market indexes (US
stock, Intl stock, Bond, and Cash) that reflect these different strategies. When comparing
respondent’s reported returns to the appropriate portfolio benchmark, the underperformance is
significant – particularly among those with more “growth” oriented strategies. (See important
disclosures at the end of this report for construction of these benchmarks and their limitations)
Overall Portfolio Performance
24%
20%
20.4%
16%
17.1%
12%
8%
4%
7.8%
9.8% 10.3%
11.8%
13.7%
14.7%
12.0%
6.9%
0%
Conservative (30/70) Mod Conservative (40/60
Balanced (50/50)
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Growth (60/40)
Aggressive (70/30)
Raffa Wealth Management Presents:
SONI Study on Nonprofit Investing
Best and Worst Market Segments in 2013
In 2013, if your strategy emphasized US stocks over Intl stocks – you enjoyed better results. If
you’re strategy emphasized international stocks and particularly emerging market stocks you
fared poorly. On the fixed income side, interest rates rose hurting those that held longer term
bonds – but those who sought-out risk in lower quality bonds were largely rewarded in 2013.
Understanding why your portfolio’s results over or under—performed the market benchmarks
empowers you to know whether or not changes should be considered. It may be that the best
course of action is to stay disciplined to your current strategy—even if you underperformed.
Chasing last year’s winning strategy is a bad idea. If, however, under—performance was due to
high fees or poor market timing judgments it may be best to seek out a different strategy.
Conclusion
When it comes to investing – simple is good. This is great news for nonprofits because anything
they can do to simplify the investing process is likely to make a positive impact on their bottom
line results. Here are three simple things nonprofits can do to simplify their investing process and
require discipline, transparency, and accountability:
•
Set clear, specific asset allocation targets and rebalance to them based on a predetermined
range. When it comes to investing, anything you can do to remove emotion and market timing
tendencies from the process is likely to add value.
•
Develop a simple, clear overall portfolio benchmark comprised of the traditional broad market
benchmarks that correspond to your asset allocation policy targets. An example of such a
benchmark is listed below and available on the SONI website at www.npinvesting.org
•
Know the fees you pay for the three levels of portfolio management (investment advisor,
separate account manager or mutual fund, and custodian) and have returns show both gross
and net of fees so you can see the impact of fees. Ask your advisor to outline these total
investment expenses.
Disclosure
This information was gathered from reliable sources but we cannot guarantee accuracy. Any
performance related information is based on participant responses and has not been verified.
Past performance is not an indication of future results and any investment can lose value.
Performance results have been compared to balanced benchmark portfolios comprised of broad
market indexes. The benchmarks were selected because we feel they are the most well known in
each broad category. They may or may not be suitable benchmarks for comparison to any
particular investor’s portfolio or for the average results reflected in this study. Indexes do not
reflect the fees associated with actual investments and such fees would reduce the performance
illustrated.
Blended Portfolio Sample Benchmarks
Traditional Market
Benchmarks
2013 Return
30/70
40/60
50/50
60/40
70/30
Russell 3000
MSCI AW ExUS
BarCap Agg Bond
1Month US T-Bills
HFRI Fund-of-Funds
33.55%
15.29%
-2.02%
0.02%
8.72%
20%
10%
65%
5%
0%
29%
11%
55%
5%
0%
38%
12%
45%
5%
0%
47%
13%
35%
5%
0%
56%
14%
25%
5%
0%
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