Donors are watching how you manage your money

Second Half First Drusilla Modjeska
Cat Fay

Caitriona Fay

General Manager, Community & Social Investments

The latest Giving Australia Report indicates that donors see organisational governance and competence as critical factors in determining where their grants flow. It’s a mindset shift that all NFPs need to understand.

Working within the philanthropic advisory space has given me a front row seat to the changes, some subtle, some obvious, in what drives donor decision-making in giving. An important part of my role is to help the philanthropists I work with feel confident they’re making good decisions. A component of gaining that confidence focuses on governance, and ultimately, the organisation’s capability to deliver on its mission.

It’s rare that a philanthropist I work with will ask specifically about ‘governance’. Rather, they’ll ask questions around the quality and experience of the board, the networks those boards possess, the organisation’s track record and increasingly how that non-profit manages its resources.

It’s not just the philanthropists I am working with who are focusing on issues of governance. Last year, the release of the Giving Australia report examined multiple factors that motivate individuals and families to establish foundations and what ultimately influences their giving practices. A resounding 92 percent of philanthropists who responded indicated that non-profit governance and competence were critical to deciding where they directed their funds.

In the report, one philanthropist highlighted the themes at play, “When it boils down to it, as a trust we’re not going to give a grant of some hundreds of thousands of dollars to an organisation that we have concerns about their organisational capabilities.”

Like handing a wallet to a stranger

For those philanthropists considering a major gift, the capacity of the charity to manage money is increasingly important. This is, perhaps, most apparent among those individuals with whom I work with who are seeking advice on bequests. The philanthropists I speak with, who intend to use their estate to create a lasting community legacy, want confidence that the charity they are going to support has the know how to manage the gift as a legacy.

The idea of the funds being squandered, poorly invested or mismanaged is of critical concern. Many of those philanthropists are examining the investment strategy of their potential charity of choice with the intention of understanding the board philosophy on how to manage risk. Others seek out the policy to understand more about the ethical overlay applied to portfolios. Others delve into the broader asset allocation.

"Non-profits need to remember many of those considering a significant gift have done well from asset markets and, as a result, have high expectations when it comes to an organisation’s capacity to manage the gift."

I recall a recent discussion with a client who had been intending to leave a very large gift to a non-profit organisation until he learned that their board managed their portfolio directly. The client explained that in their personal investments, they put the managers they use through the wringer examining years of performance across multiple assets classes and understanding the size and quality of the research teams sitting behind that performance.

Regardless of the experience of individual board members, this client felt that handing money over to a non-profit board to manage would be akin to giving a wallet to a stranger and asking them to look after the money.

"The board managing those funds couldn’t point to performance over five years. They couldn’t indicate the impact that losing a particular board member might have on their investment strategy or stock selection and without a financial services licence, the client was concerned that the board would not be held to the same standards as a professional investment manager."

It was true that with the board investing directly the upfront costs of investment would be cheaper - but that guaranteed nothing in terms of overall returns or performance. Suffice to say, that client’s substantial estate will be heading to a different charity.

This focus on finding organisations with the capacity to govern and manage resources is, in my view, only going to increase. As we sit at the beginning of this mass intergenerational wealth transfer, we’re seeing a fascinating cross section of lenses applied to investments. Our elders are examining closely how the wealth they have established can be used for good and which organisations have the capacity to manage their gifts effectively.

For the next generation behind them, there’s a growing appetite to use capital for good, not only through the application of an ethical lens but also via impact investing. The millennial generation are applying that ‘impact’ lens not only to how they use their investable resources but on where they spend their money, which organisations they work for and which charities they support.

"The future for non-profits will likely see donors of all types asking more about how they use and manage their resources. There will be increasing requests for investment and bequest policies, details on portfolio performance and use of capital around impact investments."

The organisations that thrive and get funds flowing to the communities they support will be those that can articulate, not only how they use their resources for good, but also how they steward those resources so they can continue to have impact into the long term.


Our not-for-profit investment specialists can help you with your financial governance.

Speak with one of our not-for-profit and philanthropy investment specialists to find out how you can align your investment strategy with your values.

Privacy laws apply to our handling of personal information and we collect, use and disclose your personal information in accordance with our privacy policy.

Follow us

Perpetual Private advice and services are provided by Perpetual Trustee Company Limited (PTCo), ABN 42 000 001 007, AFSL 236643. This publication has been prepared by PTCo and may contain information contributed by third parties. It contains general information only and is not intended to provide you with advice or take into account your personal objectives, financial situation or needs. The information is believed to be accurate at the time of compilation and is provided by PTCo in good faith. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional advice. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. PTCo does not warrant the accuracy or completeness of any wording in this document which was contributed by a third party. Any views expressed in this document are opinions of the author at the time of writing and do not constitute a recommendation to act. Past performance is not indicative of future performance.