Study on Nonprofit Investing

Launched in 2012, the annual Study on Nonprofit Investing (SONI) seeks to meet the need for timely, relevant, actionable data about how nonprofits invest their reserves and how those investments perform.

The 2016 SONI revealed nonprofits have generally underperformed market benchmarks, but there is a silver lining: certain organizations have benefited by keeping things simple and establishing policies to instill discipline. This year’s results indicate that nonprofits with lower investment fees, those that limited investments to traditional asset classes, and organizations that manage investments to specific asset allocation targets generally fared better.

Participation in SONI increased substantially in 2016. More than 700 nonprofits participated (participants get free access to the full reports).

Three distinct SONI reports have been developed: SONI Associations, SONI Public Charities and SONI Foundations. The SONI reports provide peer benchmarks that enable nonprofits to make more informed decisions about their investments. SONI answers questions like:

  • ​How do nonprofits segment total cash assets among short and longer term objectives?
  • How much investment risk do nonprofits take with longer term investments?
  • How much do nonprofits pay for investment services?
  • How much are nonprofits earning from their investments – and what should they expect?
  • How can I strengthen my investment policy to most effectively guide decision making?

This preview offers some key findings from the SONI Associations and SONI Public Charities reports.


SONI Associations and Public Charities – Participation

193 associations participated in the 2016 SONI. 42% identified as Trade Associations and 28% identified as either Professional Societies or Accrediting Associations. More than 40% of the associations participating had portfolios greater than $5 million.​

SONI Associations Participants

SONIAssocG1

486 public charities participated in SONI. 50% identified as providing social services or community development and 20% identified as providing educational or religious services. 30% of the public charities had portfolios in excess of $5 million.

SONI Public Charities Participants

SONIPCGraph2

Investment Policy Guidelines

  • ​Larger associations outline portfolio rebalancing guidelines and portfolio benchmarks in their investment policies while smaller associations don’t. Fewer than half of the public charities participating outline portfolio rebalancing guidelines or portfolio benchmarks in their investment policies.
  • Approximately one-in-five participants reported having policy guidelines for socially responsible investing.
  • A majority of participating associations and public charities grant discretionary decision making authority to their investment advisors. Others retain final decision making authority internally, using advisors to make recommendations.
  • Most associations and public charities outline policy asset allocation targets. The median balance among stocks, bonds and alternatives varies by size with larger organizations maintaining more growth-oriented postures and allocating more to alternative investments.

Investment Performance*

  • ​The median investment performance in 2015 was negative across all three association size cohorts with the median large association performing worse than the median small association. Across the public charities, investment performance in 2015 was flat.
  • Over the last three years, larger organizations with more growth-oriented investment policies outperformed smaller organizations. This is expected given market conditions that favored stocks to bonds.
  • To give context to the SONI performance results, five blended portfolio benchmarks were developed ranging from conservative to aggressive. Each portfolio benchmark consists of four traditional broad market indexes reflecting a balanced allocation to U.S. Stocks, International Stocks, Bonds and Cash. SONI participants were separated into five groups based on their target asset allocation and the median performance of each group was compared to the corresponding portfolio benchmark. See important disclosure below regarding benchmark performance comparisons.
  • In relation to these blended portfolio benchmarks, investment returns for associations and public charities were mixed in 2015 and significantly trailed over the last three years. See important disclosure below regarding benchmark performance comparisons.

** All performance results have been compiled solely by Raffa Wealth Management based on information provided by survey respondents. Results
have not been independently audited or verified.


 

Raffa Wealth Management Analysis

The 2016 SONI results reveal meaningful opportunities for both associations and public charities to improve decision making by strengthening investment policies and procedures. Including a simple, clear portfolio benchmark to set performance expectations based on market conditions allows you to be clear about the level of underperformance that is tolerable and improves accountability. Having a simple, clear target asset allocation policy, with a relatively narrow rebalancing range, helps mitigate emotions from driving decisions when market volatility makes decision making difficult.

At Raffa Wealth Management, we believe risk and return are directly related. Rather than seeking to circumvent this fundamental relationship, we strongly encourage nonprofits to keep investing simply and act with discipline. Invest in stocks for the potential to earn long-term growth. Invest in high-quality bonds to hedge against the volatility of stocks. Diversify completely. Reduce expenses. Rebalance to specific targets.

The full in-depth SONI 2016 report is free to survey participants and is otherwise made available to nonprofits at a cost of $450.

If you have any questions about this report please contact us at SONI@raffawealth.com or @SONIstudy.


 

Disclosures

This report summarizes the results of an informal study compiled by analyzing the results of 722 surveys completed by nonprofit finance executives. All performance data cited is as of December 31, 2015. The views expressed herein are opinions reflecting the best professional judgment of Raffa Wealth Management, LLC. This report is for informational purposes only. Participant responses have not been verified or audited. The information contained has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information. Data analysis was performed by Raffa Wealth Management. When stating “nonprofit responses” it should be noted that all responses are limited to the nonprofits that participated in the survey. No broader indications should be assumed. Nonprofits from Raffa Wealth Management LLC’s internal marketing database and a national external nonprofit database were solicited by direct email to participate in the SONI survey.

Performance Disclaimer

Performance results have been compared to a balanced benchmark portfolio comprising four broad market indexes. The indexes were selected because we believe they are the most broadly diversified and/or most well known in each broad category.

By segmenting each participant’s performance returns by the respondent’s target asset allocation, we have sought to account for differences in a nonprofit’s risk posture and allow for a meaningful comparison across a variety of investment policy objectives. However, inconsistencies remain that may render comparing any particular association’s performance return to the SONI blended portfolio benchmarks inappropriate. It may be perfectly acceptable for an association to under-perform the SONI blended portfolio benchmarks.

Under-performance may be reasonable, for example, if an organization has experienced changes in asset allocation policy, if an organization takes a material different risk posture than any of the SONI blended portfolio benchmarks, or if the asset classes emphasized by the portfolio’s strategy have been out of favor.

The construction of the SONI blended portfolio benchmarks follow:

SONIG3

The Russell 3000 stock index seeks to represent the total return of US stocks—including Large, Mid, and Small cap as well as Value and Growth styles. The MSCI ACW Ex US stock index seeks to represent the total international stock market, including developed and emerging markets. The BarCap Agg Bond index seeks to represent the total US investment grade bond market. The 3 Month US T-Bill seeks to represent cash. These indexes were selected for comparison purposes only. They were selected because we believe they are the most broadly diversified and/or most well known in each broad category. You cannot invest directly in an index. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated.

There is no guarantee that any investment strategy, including portfolio rebalancing, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed above to your nonprofit’s unique situation, you are encouraged to consult with Raffa Wealth Management, LLC or the professional advisor of your choosing.