Helping Advisors Blog

Many smaller non-profits suffer from a lack of adequate investment resources, and can benefit greatly from the expertise of a financial advisor. I continued my conversation with Heather Myers, managing director, non-profits for Russell Investments, about trends she’s seeing in the large non-profit space. Let us know if these trends get you thinking about ideas you can apply to your endowment and foundation clients, or if sharing Heather’s observations has given you a successful segue into a financial planning conversation with your individual clients.

Q. As we are helping non-profits work toward specific outcomes, what are the most common end results clients want to see?

A. We are primarily focused on helping our clients build intergenerational equity such that they can remain in perpetuity and continue to support their organizational mission by meeting their spending requirements for years to come. It is important for organizations to balance their spending today with what they would like to spend in the future.

Having conversations with clients about the impact of these decisions is important, as it involves taking an inflation-adjusted look at the purchasing power of today’s dollars. Non-profits want to know if their organization can continue to have the same impact going forward based on where inflation is headed, so we talk a lot about spending in nominal and real dollars. It can be a very different conversation from client to client. For instance, a university endowment has money coming in from alumni and other donors. A private foundation, however, may not have a steady source of contributions.

Q. Non-profits tend to be ahead of the curve in terms of using innovative investment options. What are some of the more popular approaches? 

A. Non-profits have embraced the multiple dimensions of portfolio construction for longer than many investors and were among the first to look beyond the traditional buckets of equity and fixed income. They have been pioneers in creating buckets for inflation and growth assets, looking at deleveraging and recognizing liquidity concerns. In our conversations with clients we regularly talk about risk management, risk parity, inflation protection, volatility and governance, including the increased focus on fiduciary responsibilities.

In terms of specific investment areas, many non-profit clients are actively considering multi-asset investments in China and Africa, investments in real assets and natural resources such as timber, opportunities in microcap and hedge fund portfolio segmentation. They really explore the next level of investment strategy beneath those you see in broad industry headlines.

Many non-profits are also active in mission-related investing and finding opportunities that align well with the purposes of their organizations. For this reason, there is a lot of direct investment, such as direct private equity investment, even among the smaller non-profits. For instance, we have clients that are focused on environmental issues and want some parts of their portfolios invested in efforts that support related causes. We also work with religious-based organizations that have socially responsible criteria. We have to be highly attuned to our clients’ missions and interests, their peer groups and which investments are the best fit for them.

Series: Thoughts on the non-profit space