New Survey Shows Many Nonprofits Lack Key Investment Policy Guidelines -Policy Lapses Put Institutions at Undue Risk and May Weaken ROI
For Immediate Release: May 21, 2013, Washington, D.C. – Raffa Wealth Management today
released results of its inaugural 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 from SONI point to
critical lapses in investment policies that could expose nonprofit institutions to unnecessary risk
and potentially depress returns on their investment portfolios. More than 150 finance
executives at trade associations, public charities and other nonprofit organizations participated
in the survey conducted February 2013 by a third-party research firm.
Of particular note in the SONI data, analyzed by Dennis Gogarty and Mark Murphy of Raffa
Wealth Management, 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.
“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 Gogarty. “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.”
Additional key findings from SONI include:
 Regarding Investment Guidelines:
o 38% of respondents lack guidelines that require sufficient levels of
diversification.
o 43% neglect to indicate the degree of discretion given to outside advisors.
 Timing the Markets:
o 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.
 Dividend Income:
o 70% of organizations reinvested all of their dividend income in 2012;
o only 3% used it all for their operational budget.
 Cash in Reserve:
o Charities held more reserves in cash and other fixed income assets. As a result,
their portfolios underperformed other types of nonprofits.
o Smaller organizations held more reserves in cash than larger organizations; this
correlated with a lower overall return on investment.
-continued-
SONI – page 2
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Larger organizations were much more likely to invest in alternative investments; real
estate being the most common alternative.
Portfolios with higher allocations to equity performed better in 2012.
Overall, shifts to alternative investments in 2012 were generally not advantageous.
SONI will be repeated annually. The SONI survey analysis report includes:
o how different size organizations segment reserves
o how frequently reserves are used to cover revenue shortfalls
o how long-term investments are allocated
o changes to asset allocation in 2012
o returns on long term investments
o comparison of investment policies
Survey results and analysis were presented to an audience of CFOs, Executive Directors and
senior finance executives for nonprofit organizations at an Association Trends LIVE event today
in Washington, DC. The event included a panel discussion with nonprofit CFOs, including:
Matthew R. D'Uva, FASAE, CAE, President and CEO, SOCAP International, Board Member of
ASAE; Ilana Esterrich, Chief Administrative Officer/Chief Financial Officer, Center for Strategic
and Budgetary Assessments; and James Lum, CFO, GuideStar.
“Data available for nonprofits pales in comparison to what is available in the private sector,”
said James Lum of GuideStar. “This survey provides needed transparency and comparability in
the area of investment strategy. I’d love to see similar efforts in other areas of nonprofit
operations.”
“I am grateful for this new tool that helps validate and improve our own investment policy,” said
Matthew D’Uva of SOCAP International. “This survey can help my Board remain strategic in its
focus by enhancing the partnership between our investment advisor and our finance
committee.”
Copies of survey results and analysis were made available to survey participants. Raffa Wealth
Management, LLC and Raffa, PC plan to commission the survey on an annual basis. Raffa Wealth
Management is an independent Registered Investment Advisor (RIA) offering nonprofit
organizations a wide range of investment consulting and portfolio management services.
Contacts for Media Registration and Other Media Inquiries:
Jan Hyland 703-801-8474 jankhyland@aol.com
Amanda Orr 202-248-6766 amandaorr@gmail.com
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Editor’s Notes: Snapshot of Survey Results follows. Full briefing report available upon request.
Snapshot of 2013 Survey Results
How much do organizations hold in reserve?
Budget of:
Median Total Reserve Balance for 2012
$0-5 mm
$1,597,500
$5-20 mm
$7,458,658
$20+ mm
$21,050,000
How do organizations segment reserves?
Budget of $0-5 mm
Cash
23%
Short Term/Operating
27%
Short Term/Interim
9%
Long Term
39%
Percentage of Budget Held in Reserve
79.9%
68.5%
63.8%
Budget of $5-20 mm
21%
15%
9%
53%
How do organizations invest long term reserves across asset classes?
Budget of $0-5 mm
Budget of $5-20 mm
# of organizations
63
31
with LT Reserves
Cash
8%
2%
Bond
38%
44%
US
40%
37%
Intl
10%
11%
Alt
2%
6%
Budget of $20+ mm
19%
15%
6%
60%
Budget of $20+ mm
19
Long Term Reserves ROI for 2012
ROI based on investment allocation
Budget of:
Overall
$0-5 mm
$5-20 mm
$20+ mm
Investment allocation
Growth oriented, 60% equity
Balanced between 40 and 60% equity
Conservative, less than 40% equity
ROI
8.29%
7.38%
8.55%
10.91%
3%
31%
46%
11%
10%
ROI
10.44%
8.57%
5.38%
How many organizations reinvest dividends/income vs. use it for operations?
Overall Association Trade Professional Charity
Reinvested Dividends
70%
77%
79%
75%
71%
Partial Reinvestment
27%
21%
17%
23%
29%
Used for Operations
3%
1%
3%
0%
0%
Other
45%
45%
9%
About the Survey: Survey of 156 nonprofit finance executives conducted by third-party research
firm. Responses were based on 2012 calendar year. Results analysis was performed by Dennis
Gogarty and Mark Murphy of Raffa Wealth Management and is for information purposes only.
Participant responses have not been verified.