U.S. Trust’s Institutional Investments and Philanthropic Solutions Group, a provider of CIO outsourcing and fiduciary investment manager with over $25 billion in assets as of March 31, 2013 for nonprofit organizations and pensions, released a new report titled “The Endowment Challenge”
In the new report, U.S. Trust outlines how nonprofit organizations can use goals-based strategies as they adapt to new market realities: an era of lower returns, ongoing market volatility, higher inter-asset class correlations and increasing fiduciary responsibilities with greater scrutiny from regulators, government agencies and donors.
With donor funding in stress, increasing needs of beneficiaries, and rising costs, nonprofits are increasingly relying on investment returns to fund their operations and spending mandates. U.S. Trust’s analysis finds it will be challenging to generate sufficient returns to support historical spending levels if organizations continue to invest as they have in the past.
“For the first time in years, perhaps decades, foundations, endowments and other nonprofit organizations question whether they will have the financial resources to continue to fulfill their missions,” said Keith Banks, president of U.S. Trust. “To meet current and future needs, nonprofit organizations are urged to reach beyond traditional strategies and realign their approach to investing, spending and governance around the distinct mission and goals of their organization.”
“Hospitals, colleges and universities, charitable foundations and other nonprofits have a distinct need for cash to fund current spending needs and, at the same time, a need to grow the purchasing power of their principal. These needs are typically reflected in a traditionally conservative 60/40 percent mix of stocks and bonds,” according to Christopher Hyzy, chief investment officer of U.S. Trust. “The typical nonprofit portfolio lost one-quarter of its value in 2008, the height of the financial crisis. While other individual and institutional investors have recouped much of their losses, many nonprofits continue to struggle. By adhering to traditional strategies that have not kept pace with changing market dynamics, many have been unable to benefit from emerging and rebounding growth opportunities.”