Investment Governance – a key issue for NFPs

Not-For-Profit & Philanthropy

Perpetual Private Insights

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Investment governance is becoming a key issue for Not-for-Profit (NFP) board directors and finance committees as they adjust to an uncertain economic environment where there is ever more pressure on funding sources. Perpetual and the Australian Institute of Company Directors examined the issues in a recent discussion paper.

The NFP sector is incredibly diverse and each organisation has very different funding needs. For some, donations, grants and government funding will far outweigh the income generated from invested funds. Yet many NFPs are finding that how they invest their funds has a direct influence on their ability to receive donations and bequests.

“Being able to demonstrate good investment governance can help NFPs attract funds from donors who want to make sure their resources will be well managed and from people looking to make a bequest who are concerned about the long-term viability of the NFP”, says Caitriona Fay, National Manager, Philanthropy and Non Profit Services at Perpetual Private.

What is good governance?

Good investment governance allows NFPs to align their investment policy with their mission, and covers a range of issues, including:

  • managing risk and liquidity
  • setting appropriate long term investment targets
  • setting asset allocations and
  • managing investment managers.

Importantly, it provides a record of the board’s robust consideration of the responsible and sustainable management of donations and endowments.

For many NFP boards – even those with substantial financial experience - these issues can be challenging. Further to the Perpetual and Australian Institute of Company Directors discussion paper, a roundtable was held to hear first-hand from NFP directors’ about the future of their organisation.

Some of the key issues discussed included:

  • The investment environment
    Today, NFPs and their directors are living in a world where cash and fixed income – traditional mainstays – are delivering lower returns. This affects the income these funds generate and in turn, what activities NFPs can fund from their investments. Whilst some are comfortable taking on more risk by investing into equities it has risk management implication, which many NFP directors acknowledge they need help with.
  • Aligning investment with mission
    While most NFPs understand the value of a clearly articulated investment strategy, that doesn’t make it easy to pull one together, especially when NFPs have to juggle issues such as greater demand for services, volatile funding flows, working capital considerations, ethical and compliance issues.
  • Director responsibilities
    Investment decisions are complex and not all NFPs – or their directors - have the required skills. How to acquire those skills internally – or whether to buy them in – is on the agenda at many NFP boards.
  • Investment governance takes time to develop
    Perpetual is a major manager of NFP endowments. But before we invest a dollar of an NFPs’ money, we help them create a comprehensive investment governance structure. The graphic below highlights just how rigorous and comprehensive that process can be.

“Good investment governance is crucial to the long-term future of any NFP,” says Scott Hawker GAICD, National Manager, Not-for-Profit Endowments at Perpetual Private. “We work closely with NFPs – sometimes over a period of years, to help them get it right. It’s worth it because the payoff – long-term sustainability and more ‘money for the mission’ - is so high.”

> Download a copy of the discussion paper

> Find out more about how Perpetual can help your organisation.