Investments - Strategy

Managing in a Low Interest Rate Environment

By S. Joel Mittelman, CFA

Vice President

By Stacy K. Mullaney

Chief Fiduciary Officer

A survey completed by Fiduciary Trust Company and Associated Grant Makers in 2017 highlights that while many Endowments & Foundations (E&Fs) have had to increase fundraising or reduce charitable activities as a result of the low interest rate environment, a significant number of them may be overlooking important, additional considerations.

Among the findings:

  • Fundraising: Of the public foundations and other nonprofits polled, 83% indicated that they have increased fundraising in the past two years due to the low-return environment.
  • Investing – Asset Allocation: The majority of respondents (82%) recognize long-term strategic asset allocation as the most important driver of returns, and half indicated that their organizations have changed the allocation mix of their portfolios over the past two years. At the same time, a large number of respondents volunteered that their biggest challenge as a board/committee is not overreacting to short-term results, as one said, “sacrificing the permanent on the altar of the immediate.”
  • Investing Objectives: Over 50% of respondents cited “maximizing long-term total returns” as their organizations’ most important objective; conversely, only 12% identified “minimizing downside risk” as most important.
  • Investing – Total Return: Forty-three percent of respondents said their organizations have adopted a “total return” approach to portfolio management.
  • Grant-making: Of the public, corporate, family and private foundations polled, 42% have either reduced the level of grant-making over the last two years or are considering such an action.
  • Spending: Forty-six percent of the public foundations and other nonprofits surveyed have reviewed and potentially reduced spending to ensure it is at the lower end of the allowable range.
  • Governance – Training: Surprisingly, nearly one out of every five polled (19%) have never conducted training for the full board in regard to members’ obligations and fiduciary duties, while 37% only conduct training for new board members or trustees.
  • Governance – Requirements: Finally, of the public foundations and other nonprofits polled, 78% indicated that they were either not familiar or just somewhat familiar with the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Only 28% of the corporate, family and other private foundations were either not familiar or just somewhat familiar with the IRS rules and requirements related to the 5% distribution requirement.

 

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