NFP Investing White Paper Targets Boards

Australian Not for Profits have lost more than $880 million in interest income since 2011, according to a new discussion paper which warns the sector, and in particular NFP Boards, to rethink their money management.

Releasing Koda Capital's Investing for Non-profits: Essential Questions for Board and Committee Members White Paper, Partner and Head of Philanthropy & Social Capital, David Knowles said NFP leaders need to address a number of issues if they are to manage their money more effectively.

“In the past four years Australian charities and other Not for Profits have been hit hard by declining interest rates, with the drop reducing income by more than $880 million per annum,” Knowles said.

“Australian Not for Profits must reconsider cash investments and move toward building endowments that provide a sustainable base and more stable income to support their work.

“As rates continue to fall there is an urgent need for Not for Profits to reconsider how they invest.

“Inflation is the silent enemy and NFPs need to rethink their definition of risk.

“Our analysis shows Australian Not for Profits are holding around $32 billion in cash and deposits in an historically low return environment. Cash is simply unable to deliver the medium or long term returns Not for Profit investors need to carry out their work in the community.

“Cash offers no opportunity to grow capital, in fact it erodes the purchasing power of capital over time and to make matters worse, Not for Profits have suffered a dramatic decline in income from cash holdings as interest rates have dropped from 4.75 per cent to 2 per cent since late 2011.

“Building an investment fund can help NFPs to achieve better returns and better long term outcomes.

“Endowments strengthen (NFP) balance sheets, create passive income streams and put  Not for Profits on the path to autonomy."

Knowles said financial self-sufficiency is becoming increasingly critical for NFPs who are currently at the apex of Government funding, which increased from 33 per cent to 38 per cent between 2006-7 and 2012-13.

The White Paper considers what it says are the ten essential questions for Board and Investment Committee Members around mission, accountability and performance.

“Mission is all-important for a non-profit. So, board and investment committee members must be able to articulate why they are investing and how their approach to investing supports the mission of their charity,” the paper concluded.