Investment strategies for foundations and not-for-profits

Our team has decades of experience working with foundations and not-for-profits. Broadly, there are three types of foundations and not-for-profits, each with a different investment objective.

1) Operating institutions take in donations, grants and other funds and use the money to fund their current operations. Typically, they invest via low risk cash management strategies with some funds allocated to other investments in line with their expected expenditures.

2) Institutions that provide grants to other (operating) entities. These may distribute annually a specific percentage of asset values. For this type of foundation or not-for-profit, a targeted return approach may be most appropriate.

3) Funders with long term commitments, including capital project funders. These usually have predictable distribution requirements over time and therefore the assets can be managed against that schedule of liabilities.

Foundations, not-for-profits, and management of assets versus distributions

We help operating entities to manage their assets versus their expenditures to extract investment yields while retaining spending flexibility.

For the organizations that fund operating entities, we can help them develop an investment strategy that is responsive to their commitments and that helps them to support crucial budget items and/or capital improvements for their grantees.  As a team, we help grant providers help grant recipients.

Given the projected distributions, our team will develop an investment strategy that balances the rewards of longer-term investments with the needs for flexibility in case commitments change.  We use simulations to illustrate the impact that different asset allocations may have on the foundation’s or not-for-profit’s asset values after making cash flow distributions.

Private foundations not-for-profits and target return investment strategies 

Some foundations and not-for-profits calculate their distribution amounts as a percent of total assets. For example, in order to maintain their charitable tax status, private foundations are required to distribute 5% of their assets each year. If the foundation assets return less than the target return rate, then the asset principal may be needed to pay the required distribution. Target rate foundations and not-for-profits often have two competing goals:

  1. Preserve asset principal
  2. Maximize long term distributions

Our team will build an investment strategy that balances a possibly increased likelihood of achieving the asset target return rate against the chance of a larger potential asset loss. We use simulations to illustrate the impact that different asset allocations may have on the foundation’s asset value and cumulative cash flow distributions over time.

Contact us today to learn more. 

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