How NFP Boards can manage cashflow through COVID-19
As markets responded to the developing coronavirus (COVID-19) situation, we’ve seen a wall of monetary and fiscal countermeasures being deployed by central banks and the Australian Government. This included two rate cuts by the Reserve Bank of Australia (RBA) in March 2020 (the official cash rate is now 0.25%) and saw the government introduce a range of economic stimulus measures aimed at supporting economic activity, employment and the ongoing work of many not-for-profits (NFPs).
With the immediate outlook unclear and the inevitable emergence of new issues arising from both the medical and economic responses, Andrew Garrett, National Investment Specialist, Perpetual Private discusses the investment implications for NFPs. He asserts that while it’s hard to foresee the full effects of the pandemic, having a good solid plan in place will help ensure that NFP boards maintain cashflow and preserve the value of investment portfolios.
Impact of the covid-19 pandemic and the 'Great Lockdown'
Undeniably COVID-19 has significantly impacted the way we can now live as well as the performance of financial markets, which go hand-in-hand. What we've seen is the genesis of a medical crisis. The impact of the virus was first seen in China in November 2019; it has now developed into a widespread economic crisis as governments around the world have restricted travel and implemented a range of measures to stimulate growth and minimise the economic and social impact of the rising pandemic. |
Planning for liquidity and cashflow requirements is a critical part of developing an effective investment strategy
Within our not for profit segment, we're seeing some questions come from our clients broadly around liquidity. NFPs all have unique missions, structures and stakeholders but what unites them is the need to do some sort of good on a continuing basis. In order to achieve this purpose, they need to have liquidity; that is, cash in the bank ready to go. Clients can be confident that the liquidity that they believe is in their investment portfolio is there because this requirement has been built into the investment strategy and portfolio’s asset allocation. We believe that when a NFP board first start looking at investing, it’s crucial to spend time on understanding what they need to achieve; so really understanding the demands of the investment mission. That’s why we do a lot of work with our clients on spending policy and getting a clear picture of cashflow requirements; what can be saved or locked away for a rainy day and what can be invested. Once NFPs have built an investment policy statement or investment management statement they need to incorporate a legal structure and importantly, stick to that plan. An investment policy statement should be designed to last indefinitely into the future – through good and bad times. Once NFPs have built an investment policy statement or investment management statement they need to incorporate a legal structure and importantly, stick to that plan. An investment policy statement should be designed to last indefinitely into the future – through good and bad times. How NFPs can manage cashflow requirements In order to plan for liquidity, NFP boards need to address:
An effective plan can then be developed to last for the long term. This stands true at any point in the investment cycle.
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Investment considerations for NFP boards
We are fortunate that history may provide some guidance on how to navigate the coming months and years. Though the current situation is unique in many ways, the behaviour of markets during periods such as these bear many similarities across time. When NFP boards think about how to respond in times such as these, the following rules can serve them well:
Having a solid investment policy statement or investment management statement means that many NFPs can be feel confident that they’re in a strong position to weather the impact of the COVD-19 crisis; this plan serves as the bedrock for a strategic investment mindset throughout time. |
More information
If you would like to discuss your organisation’s investment needs contact Scott Hawker, Perpetual’s National Manager for Not-for-Profit Endowments on email: scott.hawker@perpetual.com.au or phone 02 9229 9319 or Andrew Garrett, National Investment Specialist, Perpetual Private on email: andrew.garrett@perpetual.com.au or phone 03 8628 0448.
Visit our COVID-19 Insights Hub for economic and market updates to keep you informed as the situation evolves.
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