Wealth: What are some of the most significant
challenges the boards of nonprofits currently face?
Kendall Kay: There are challenges on which
nonprofit boards are always focused:
- Overseeing the financial stability of the organization – not just keeping the lights on right now and paying the staff, but also the financial responsibility for sustaining its long-term mission and vision.
- Balancing resources in a way that fulfills the current demands on the organization while staying within its spending policy.
- Attracting new donors.
But in this economy, it’s gotten very complicated. Over
the last three years, many have seen an increase in the demand for
their services. At the same time, organizations’ own assets
have been impacted by the market turmoil, and there has been an
overall decline in philanthropic donations.
Donors are making thoughtful decisions about the organizations with
which they share their wealth. It’s more important to them
now – more so than ever before – that the organizations
are demonstrating responsible governance and financial stewardship
while fulfilling their philanthropic goals.
Wealth: How can board members overcome these
challenges?
Kay: It’s about governance and
financial best practices to help sustain the
mission of the organization. That’s one of the things
Northern Trust’s Foundation & Institutional Advisors
(FIA) tries to help our clients with.
Today, finding the right financial provider with which to partner
is critical. Board members should ask themselves:
- Does our financial provider act as a fiduciary?
- Are we partnering with an institution that recognizes the importance of our mission?
- Is our provider putting the interests of our organization first?
Wealth: What are the top criteria nonprofits
should look for in a financial services provider?
Kay: The number one thing is that the institution
acts with integrity and fiduciary responsibility. Nonprofits need
to work with a provider that has demonstrated not only that it has
the investment expertise, but also that it seeks cost-effective
solutions. Nonprofits are very sensitive about their expenses
because they want their dollars to go toward supporting their
mission.
Nonprofits also need to ensure they’re working with an
institution that has demonstrated it is collaborative and can
provide strategic advice. The financial services provider should
demonstrate a focus on the nonprofit community and be able to share
best practices from their experiences.
Wealth: How does Northern Trust’s FIA assist
its nonprofit clients?
Kay: Our focus at FIA is on smaller to mid-size
nonprofits. Larger, complex nonprofit organizations typically have
a chief investment officer with an investment staff. Smaller
organizations generally have neither and are often led by the
board.
Most boards consist of dedicated and passionate volunteers. Often
the individuals may not have the time necessary nor the depth of
investment expertise required to manage
investment portfolios in a day-to-day environment.
At best, boards meet monthly – more likely they meet only
quarterly. Successfully managing the nonprofit’s assets over
the long term requires the oversight and expertise of an
organization that is proactively and objectively monitoring their
portfolios.
We offer our clients a fully outsourced investment service and act
as the nonprofit’s chief investment officer. We focus on
investment strategy, asset allocation, risk
management, governance, transparency and cost efficiencies.
Questions we will ask an investment committee include:
- Are you adequately balancing the needs for returns with spending and cost controls to ensure financial stewardship?
- Are you analyzing your liquidity requirements against growing assets for the long-term sustainability of your mission?
- Does your governance structure ensure disciplined decision-making, consistent methodology and documentation?
Wealth: What are current investment trends in
the nonprofit sector?
Kay: Given today’s challenges, many of our
nonprofit clients are seeking ways to do things differently. Some
are looking for a more collaborative advisor to support the board
in making strategic investment decisions. Others are pursuing
superior investment results and are looking for strategies that are
more sophisticated and incorporate alternative investments. A key
concern for almost all of our clients is a cost-effective approach
and the need for transparency.
At Northern Trust, our fiduciary responsibilities guide our
investment management decisions. We seek to add value through an
investment process that is driven by the organization’s goals
and includes a wide spectrum of investment capabilities that can be
tailored to its needs. We also recently partnered with a premier
investment firm, Makena Capital Management, to provide our
qualified institutional investors with direct access to an
exclusive endowment-style investment model similar
to that pioneered by the largest university endowments. The Makena
investment approach is based on broad portfolio diversification,
with a specific emphasis on alternative and private market
investments. This strategy is best suited for long-term investors
with generational and/or perpetual capital investment
objectives.
The bottom line is that we are committed to supporting nonprofit
organizations as they serve our community, and we work hard to help
them achieve both their financial and philanthropic goals.
Kendall Kay is the national director of Foundation & Institutional Advisors at Northern Trust
