Non Profit NewsPod: Endowments and Foundations Sustainability Report

What role do endowments and foundations play in ensuring the financial health of nonprofits? Scott Thomas, Principal and Financial Advisor at CapTrust Sacramento, joins us to share. Drawing from the 2024 CapTrust report, Scott sheds light on the current trends shaping the nonprofit sector, including inflation concerns and the strategic involvement of outsourced chief investment officers. He explains how these trends are transforming investment strategies, emphasizing the necessity for nonprofits to maintain a balance between present operations and future planning.

With 35 years of experience in the field, Scott offers a wealth of knowledge on sustainable strategies for nonprofits. He underscores the value of leveraging past experiences to foster organizational growth and longevity. By sharing practical advice and forward-thinking strategies, he provides nonprofit leaders with the tools they need to refine their approach to managing financial resources. To get the report you can either call: 916-924-7927 or email Scott at 

scott.thomas@captrust.com

Thank you so much for listening! We appreciate you. Please visit the website to sign up for our email updates. https://www.nonprofpod.com/ And if you like, leave me a voicemail to comment on the program, leave a question for us to ask in the future or a message for me, Jeff Holden. I may even use your voice mail message in a future episode. https://www.nonprofpod.com/voicemail. Thanks again for your support in listening, commenting and sharing the great work our local nonprofits are accomplishing.

Transcript

00:08 - Jeff Holden (Host)
Welcome to this nonprofit news pod. I'm speaking with Scott Thomas, Principal and Financial Advisor at CapTrust Sacramento. Scott Thomas, welcome to this nonprofit news pod.

00:19 - Scott Thomas (Guest)
Thanks for having me. I appreciate it.

00:21 - Jeff Holden (Host)
We're talking because every few years, CAPTRUST releases a report or a survey on endowments and foundations, and the most recent report, completed last year, is now available. Before we start, let's touch on what really is the definition or value of endowments and foundations as they relate to an individual nonprofit. 

00:40 - Scott Thomas (Guest)
Yeah, great question. I think you could take it a couple different ways. With a foundation, nonprofit could be used intertwined or quasi-endowment, really lets the nonprofit look longer term, look at sustainability of the assets. So we have clients that will open up a foundation for the goal of a building in so many years, of a building in so many years. But it's really trying to look beyond today maybe one have a rainy day fund in the future when things are a little more difficult but also to try to grow. And I think from a donor standpoint, many organizations nonprofits with endowments tend to add some stability to them and the donor will look at it and understand too that every dollar they give has a chance to grow. So trying to look at nonprofits kind of how they have things set up, obviously short-term money, but if there's a way to start growing a longer-term asset pool for an identified need or to produce income in the future can make a big difference. 

01:46 - Jeff Holden (Host)
And certainly endowments and foundations are invested very differently than the money that would be sitting in a bank, correct? 

01:52 - Scott Thomas (Guest)
They are. We definitely suggest that short-term we call tier one capital sit at the bank money they need over next six months to a year. But then there's also certain things you can do beyond that tier one capital, depending on the type of frames and the, you know, the risk tolerance of the committee or the board and really what comes down to the individual goal. 

02:15 - Jeff Holden (Host)
As most nonprofits now are rightfully so a little concerned about budget revisions and what it may all look like in so many different areas of their funding that actually could impact some of the operations. What's relevant for them in this report? 

02:30 - Scott Thomas (Guest)
Yeah, I mean there's a lot of different things in the report. I think what we look at are certain trends. So we've been doing this for 14 years. So every other year we put out a report. This is 2024. And obviously things can change, as we've seen in the global environment. But I think you look at longer term trends and it's great. So we had 180 respondents, half from private, half from public foundations, different demographics. You really hear what concerns them or what challenges they have, whether it's a certain organization, for example, in arts and culture that maybe doesn't get the planned in and legacy giving, and they got to respond. We got to really require more individual donors to looking at, you know, asset management, whether it's discretionary versus non-discretionary. What's the advantage of each. So I think just kind of looking through and hearing what other organizations are doing and seeing in those trends can be very valuable. 

03:34 - Jeff Holden (Host)
And I saw a couple of them that struck me as valuable. Part of this conversation is what we want to address with this is term limits on boards was discussed in the report outsourced chief investment officers, which I know you want to address with this is term limits on boards was discussed in the report outsourced chief investment officers, which I know you want to touch on in just a second where the investments are being directed, as well as just the general consensus of inflation in the economy. And you know, with this coming prior to the introduction of tariffs, the impact on any nonprofit is something that they have to anticipate, regardless of if it changes or not to their benefit, but they have to anticipate that it could be to their detriment. So maybe address a couple of those points for us if you could. 

04:17 - Scott Thomas (Guest)
Yeah, absolutely. I mean any nonprofit that we work with usually has an investment policy statement that really lays out the goals of each asset pool, the risk return profile that you're looking for. Within markets, we continuously see inflation economic growth as being the number one concern. So last year, coming off two years in upmarket, it was less of a concern than it was to the prior survey, but it still is on top of mind. You know, I know myself, I go into the grocery store and the price of cereal and avocados that go up constantly and you know the economic growth something changes every other day and everyone's seen it. 

05:01
It brings up a concern that you know you really need to take a longer term approach and identify and, you know, withstand these global markets and not having to sell at the wrong time. So, yeah, we definitely see the inflation economic growth as a concern. Term limits we touch on that a little bit. Looks like it's interesting that larger organizations tend to have longer term limits. You know, less turnover maybe as they have more people on the board and they could turn over one or two a year. But just really interesting trends that come up from this. That makes me think and obviously when that runs a nonprofit can probably be some valuable information probably be some valuable information. 

05:47 - Jeff Holden (Host)
Yeah, I do. I think, if nothing else, the report gives you an opportunity to at least start the process, the thought process of something maybe you weren't thinking about. You know, the outsourced chief investment officers outsourced anything at nonprofits is becoming a little more prolific as things change. 

06:03 - Scott Thomas (Guest)
Yeah, the Outsource Chief Investment Officer. Ocio is an acronym that probably goes over people's head. It just means discretionary, turning over the investment decisions to a fiduciary that has their best interests in mind, and we definitely see that I mean anyone running a business, running an organization like a nonprofit, has many things on their plate, and partnering with an investment firm or a fiduciary that can make these changes without having to get someone on the phone or wait for the next investment committee makes sense. So we see this across the board organizations at all different sizes really looking for that more ongoing discretionary management. 

06:46 - Jeff Holden (Host)
As people review the report, certainly one of the questions that's going to come up is maybe I do need an endowment or foundation, maybe I need to set up the structure of the organization a little bit differently, especially given the environment we're in and they're starting to see the impact of some of the changes with budgets and the uncertainty which is the greatest concern anybody's got. It's that uncertain element Setting up an endowment or foundation. What are the most critical things and what would you say, to get started, they should do? 

07:16 - Scott Thomas (Guest)
I think it starts just having a conversation. So we have conversation with newly startup nonprofits on their goals and you know, not only I mean looking for the next six months or a year, but looking three, five or 10 years out. 

07:32
I think it really starts with that. I think it's also including creating a committee, whether it's part of the board or investment committee. That can you know, get together and strategize around that? And I do think I mentioned at the beginning sustainability really looking long-term and making a difference within the community, within society. In my opinion, nonprofits are the backbone of our neighborhoods and how can you make sure that you're making a difference five or 10 years and a greater difference? And I think that's really where an endowment can come in to try to grow that capital to lead to better outcomes in the future. 

08:14 - Jeff Holden (Host)
Great explanation If somebody's interested in getting the report and for the benefit of those listening. This is not a cumbersome report. It's not 400 pages of documentation, it's what? Maybe 16, 18 pages at the most. But it's really salient information and it does dig into each one of these elements a little deeper than what we just scratched on the surface. How do they go about getting it, scott? 

08:36 - Scott Thomas (Guest)
Yeah, and to your point, it was 50, 60 pages. We tried to skinny it up a little bit more of the Cliff Notes version, which I think people appreciate. Welcome to give me a call, 916-924-7527, or email me, scott dot thomas at captrustcom. Happy to send it over. And if you'd like to have another conversation, our experiences. We've been in this community 35 years. We work with a lot of great organizations, both nonprofits, associations, and happy to pass along some of our experience. 

09:09 - Jeff Holden (Host)
Scott, great information, so much more in that report that I think people will benefit from, especially if they're looking at additional ways for sustainability, which is such a big topic and conversation in the nonprofit community today. Thank you so much for the valuable information and I will put that information of contact for you in the show notes as well. 

09:30 - Scott Thomas (Guest)
Thanks, jeff, appreciate your time. 

09:31 - Jeff Holden (Host)
Thank you.