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New Market Realities Call for Realignment of Investment, Spending and Government With Goals
U.S. Trust’s Institutional Investments and Philanthropic Solutions Group, a provider of CIO outsourcing and fiduciary investment manager with over $25 billion in assets as of March 31, 2013 for nonprofit organizations and pensions, released a new report titled “The Endowment Challenge”.
In the new report, U.S. Trust outlines how nonprofit organizations can use goals-based strategies as they adapt to new market realities: an era of lower returns, ongoing market volatility, higher inter-asset class correlations and increasing fiduciary responsibilities with greater scrutiny from regulators, government agencies and donors.
With donor funding in stress, increasing needs of beneficiaries, and rising costs, nonprofits are increasingly relying on investment returns to fund their operations and spending mandates. U.S. Trust’s analysis finds it will be challenging to generate sufficient returns to support historical spending levels if organizations continue to invest as they have in the past.
“For the first time in years, perhaps decades, foundations, endowments and other nonprofit organizations question whether they will have the financial resources to continue to fulfill their missions,” said Keith Banks, president of U.S. Trust. “To meet current and future needs, nonprofit organizations are urged to reach beyond traditional strategies and realign their approach to investing, spending and governance around the distinct mission and goals of their organization.”
“Hospitals, colleges and universities, charitable foundations and other nonprofits have a distinct need for cash to fund current spending needs and, at the same time, a need to grow the purchasing power of their principal. These needs are typically reflected in a traditionally conservative 60/40 percent mix of stocks and bonds,” according to Christopher Hyzy, chief investment officer of U.S. Trust. “The typical nonprofit portfolio lost one-quarter of its value in 2008, the height of the financial crisis. While other individual and institutional investors have recouped much of their losses, many nonprofits continue to struggle. By adhering to traditional strategies that have not kept pace with changing market dynamics, many have been unable to benefit from emerging and rebounding growth opportunities.”
“The implications of negative return years and market volatility on spending are particularly problematic for mission-driven organizations,” said Joe Curtin, head of U.S. Trust’s Institutional Investments Group. “Nonprofits are finding ways to do more with less, but if they want to expand their mission and sustain it for future generations, they need to embrace more creative responses to new market realities.”
“While U.S. Trust’s mission-based investment approach is an important strategy for maximizing success, institutions must also focus on operational efficiencies and productivity. For the last few years in particular, institutions have been challenged in these areas due to uneven markets, growing competition for contributions and donor loyalty, increased demand for services and accountability to both their constituency and donor base. U.S. Trust Philanthropic Solutions has extensive experience working with nonprofits to navigate such complexities and draws on this experience to provide a unique, integrated set of portfolio management, strategic planning, administrative and governance advisory solutions to aid in each institution’s success,” according to Gillian Howell, head of U.S. Trust’s Philanthropic Solutions Group.
Roadmap for a changing market: Goals-based strategies
In its paper, U.S. Trust outlines a new roadmap, with goals-based strategies nonprofit for organizations to consider in order to add long-term value and build resources that will support the organization’s mission. Some key advice for nonprofits:
A full copy of U.S. Trust’s paper “The Endowment Challenge” is available for download at www.ustrust.com/endowmentchallenge.
U.S. Trust also achieved a successful five-year performance track record for its Global Portfolio Solutions models. Performance of the models is attributed to three key factors:
The performance track record for all models is available upon request.
U.S. Trust, Bank of America Private Wealth Management is a leading private wealth management organization providing vast resources and customized solutions to help meet clients' wealth structuring, investment management, banking and credit needs. Clients are served by teams of experienced advisors offering a range of financial services, including investment management, financial and succession planning, philanthropic and specialty asset management, family office services, custom credit solutions, financial administration and family trust stewardship.
U.S. Trust is part of the Global Wealth and Investment Management unit of Bank of America, N.A., which is a global leader in wealth management, private banking and retail brokerage. U.S. Trust employs more than 4,000 professionals and maintains 140 offices in 32 states as of March 31, 2013.
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