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New WIRE series: Investing issues for Not for Profits and Charities

by Andrew Frankling | Jun 17, 2014

They provide us with some of Australia’s best known brands, such as the Red Cross, World Vision and the Salvation Army, and help to make Australia a more socially prosperous place rather than simply a wealthier one.  But as the June 30 deadline for making deductible donations approaches yet again, have you ever stopped to think about what your charity is doing or perhaps should be doing to manage its financial assets?

But firstly, how many NFPs and charities are there and what do they do?  In 2010 it was estimated there were about 600,000 NFPs in Australia1.  (Currently there are also around 23,000 charities2 which the ATO describes as “deductible gift recipients”, most of which are also not for profits.  No wonder many of us find the process of making effective donations every June somewhat daunting.)

NFPs do a pretty diverse range of things, including helping to protect the environment, providing health services and supporting the arts.  They also vary massively in size, from the local tennis club run by part time volunteers all the way through to some of the aged care operators, who can have thousands of staff and budgets bigger than many listed companies.

So what are some of the general themes around NFP investing?  Organisations with a greater level of financial assets typically have more complex investing needs, as well as usually a greater level of internal governance, for example a Board Investment/Finance Committee, internal finance staff and an investment policy statement.  In some NFP sub-sectors a regulator may require specific things.  A particular financial focus for charities should be “don’t be stupid”: today’s investment mistake could lead to next month’s newspaper headline which could end up causing next year’s “donor drought”.

I’ll finish up with a question for those responsible for governing and/or running an NFP: Do the expected returns from your investments broadly match the liabilities to your beneficiaries?

Many NFPs have an “inflation + X%” per annum return target, yet have various investments such as shares and property, which have very different return profiles.  Particularly for shorter term investments, say less than 7 years, NFPs have a greater need for investments which more closely match the stated return goals each year.  FIIG can provide access to investment grade inflation linked bonds for investments as small as $50,000, and can manage a full fixed interest portfolio against a mandate for larger amounts.

Please contact our NFP team Justin McFarland, Tim Smith or Casper Wolski on (02) 9697 8721 for more information.

1.  Productivity Commission, “Contribution of the Not for Profit Sector” January 2010 page XXIII

2.  Australian Charities and Not-for-Profits Commission, Website