Peer Benchmarking Study on Nonprofit Investing (SONI)

Nonprofits plan every fiscal move with great caution, backed up with thorough analysis. Yet when it comes time to plan their investment policies and gauge their investment performance, they operate in a silo, without access to any information about how their peers — other nonprofit finance executives — manage their reserves and perform on their investments.

Now in its fourth consecutive year, the Study on Nonprofit Investing (SONI) is changing this. In 2015, approximately 400 nonprofit finance executives participated in SONI and over 700 nonprofits are expected to participate this year. Participation involves completing a short survey and participants receive the SONI analysis report at no cost.

About SONI

The SONI report provides 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 risk to nonprofits takes 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?

Last year’s report revealed significant challenges in performance, a lack of transparency around investment fees, and that many nonprofit investment policies are missing the critical guidelines necessary to direct decision making and force accountability.

How Nonprofits Invest

On the plus side, SONI has revealed a lot about how nonprofits invest. Nonprofits, for example, typically structure reserve policies based on the timing of various expenses and investments. Many nonprofits develop multiple fund pools, such as operating, short term, and long term, that correspond to the timing of various financial objectives. The key is balancing the liquidity needed to meet current and near-term obligations while maintaining the purchasing power of funds intended to meet strategic objectives that may not occur for many years – if at all.

We also know that shorter term or operating reserves are typically invested in cash, CD’s, or mutual funds that invest in high quality, short term bonds. Excess funds allocated to longer term reserves are typically invested in a balanced portfolio of stocks and bonds with specific targets to each based on cash flow expectations and risk tolerance.

The primary factors leading to either a more conservative or more growth oriented long term strategy are the size of the organization, the amount of time/experience the organization has maintained a long term portfolio, and the certainty/reliability of revenue. Diversification of revenue sources is a factor but the overall reliability of revenue is more critical. Tolerance for volatility is also a factor.

Fiduciary Responsibility

As it relates to investment reserves, the nonprofit fiduciary must make certain that the organization’s reserve and investment polices continuously reflect the changing needs and goals of the organization. Another key role for nonprofit Boards (or sub-finance/investment committees) is to effectively oversee the management of their assets. This means verifying that investments are compliant with policies and performing within an acceptable range based on market conditions.

The SONI report helps nonprofits know if they’re making prudent use of their cash assets, if their policies can be strengthened, if their investment performance is in-line with expectations, and if their investment fees are reasonable. I hope you agree that nonprofits deserve to know!

Click here to learn more and to participate in the 2016 Study on Nonprofit Investing.