What’s Wrong With This Picture?
It’s that time of year, when the Wall Street Journal and New York Times devote entire sections to philanthropy, charitable giving, and nonprofits.
The Wall Street Journal Makes It Personal
Why is management advice to the philanthropic sector filed under personal finance?
This section includes commentary about foundation payout rates, general operating support, social enterprise, public-private partnerships, and corporate philanthropy – not personal finance. There is a related blog post on how financial advisers can help their clients maintain their charitable giving in a recession, but it’s not part of the special section.
At least the New York Times section on Giving is part of their US coverage.
Why It Matters
This might seem off topic, but when business leaders (and their publications) tell nonprofits how to behave, how to improve, how to be more efficient and effective, while also treating us as an afterthought, that’s a problem. It underscore how little time and energy they spend thinking about the challenges – and possible solutions – for our sector.
And I think it also explains why often the rallying cry is “be more like business,” even when that doesn’t make sense.
Philanthropic Investments
If you read about Goldman Sach’s Foundation’s unusual investment strategies, you might be curious about “traditional” investments. The ideas of prudence and risk management – because the funds are intended to benefit the community – underscore most philanthropic investment strategies.
In her blog post from last year, Jittery About Investments, Kate lays out some fundamental guidelines for nonprofits:
- Time Horizon – Funds that may be needed within a few months must be invested in highly liquid, safe investments. This is the most common type of investment fund for most nonprofits, composed of operating funds and reserves. In order to be assured that the funds will be available as needed, the investment choice must be readily available.
- Risk Tolerance – One of the fundamentals of investing is the balance of risk versus return. Investments with a higher return almost always also come with higher risk. The key question for nonprofit leaders and boards is to understand how much risk is involved and to decide if they can accept the risk. As an example, if the funds to be invested represent the balance of a large program grant that will be spent over the next year, then the organization can’t afford to risk the loss of any of the funds. A permanent endowment fund, on the other hand, is usually invested in a diverse portfolio that includes more risk in return for a higher long-term return.
- Responsibility – The nonprofit’s board of directors is responsible for overseeing this balance of risk and return for the health of the organization and any legal requirements. In order to fulfill this responsibility the board must act as prudent and loyal stewards of the organization’s assets.
Here are some additional resources:
- Notes from Endowment and Investment Policies
- The Chronicle of Philanthropy’s Special Report on Endowments
- The Care and Feeding of a Healthy Organization
- It’s 10 am, do you know where your cash is?
- Cash is Cash, Sometimes
Foundations can also use mission-related investments and program-related investments as part of their portfolio. Learn more about MRIs and PRIs:
- Aggregating Impact: A Funder’s Guide to Mission Investment Intermediaries
- Philanthropy’s New Passing Gear: Mission-Related Investing
- PRI Makers Network
- Program-Related Investing guide from Grantcraft
Nonprofit Harvest
- A four-part series from Nonprofit Capital Management’s blog on tax deductible business expenses
- Fiscal Sponsorship Revisited from the Nonprofit Law Blog
- MCF Research on Giving Trends Released
- The L3C: A new business model for socially responsible investing