In December 2016 and January 2017, Associated Grant Makers partnered with Fiduciary Trust on a survey to research how foundations, endowments and other nonprofits have been affected by the low interest rate environment. On June 19 at a lovely breakfast reception at the BC Club overlooking the Boston Harbor, my colleagues from Fiduciary Trust -- Joel Mittelman, Vice President, Endowments and Foundations, and Stacy Mullaney, Vice President & Chief Fiduciary Officer – and I presented findings from the survey which received 236 responses from nonprofit organizations including corporate, family, public and private foundations as well as other nonprofits from across the U.S. From the results, we shared insights on recommended best practices covering areas of fundraising, investing, grant-making, spending and board governance.
Looking back over the last 50 years, we have been in an unprecedented extended period of low interest rates. Given that we cannot change the circumstances, there are smart, informed ways to move forward – finding strategic approaches to operating in this environment. Particularly for trustees and others reliant on volunteers, sharing best practices and providing informed, professional perspectives can help you be more strategic in your work. Also in this particularly challenging time of low interest rates, there is an even smaller margin for error.
Not surprisingly, an increased effort in fundraising was cited as one of the primary actions being taken by organizations during this period. Easier said than done, and challenging to maintain during an extended low rate return environment. Additionally, while reducing spending and potentially reducing the level of grant-making seem to be the first line of defense (51% of respondents have or are considering doing so), there are other options to consider. To mitigate the challenges, Joel and Stacy shared some recommendations:
- As you address investments, look at long-term strategic asset allocations, diversifying, focusing on allocation and being balanced in your analysis
- Ensure that you have up-to-date knowledge of rules and regulations
- Explore a Total Return Approach
- Maintain an Investment Policy Statement – and review it periodically
- With grant-making and spending, understanding the Uniform Prudent Management of Institutional Funds Act (UPMIFA) can be a help in periods of low returns
- When private foundations are challenged to meet the 5% distribution threshold, be sure to include related expenditures and not just grant distributions
- Effective Board Governance is critical in confronting the low rate environment, so consider periodic board training to understand fiduciary obligations and regular review of key policies
Taking a multi-pronged and strategic approach can help during this challenging period. Seeking out professional, trusted guidance also may prove to be a prudent approach. A good first step – read the full paper authored by Joel and Stacy as it goes into greater detail on the survey findings and the above recommendations. You can find the paper here.
Jeff Poulos is Chief Executive Officer at Associated Grant Makers.