As the Great Wealth Transfer between Baby Boomers and the following generations marches on, challenges are emerging for nonprofits, both in the near- and long-term. Those challenges will require leadership from a new generation, and new tactics to ensure that nonprofits have the necessary resources to serve their communities.
Just as the economy has experienced its ebbs and flows over the last few years, so too has giving to nonprofit organizations. Following record levels in 2021, giving to nonprofits fell by 10% in 2022, in lockstep with market volatility and a dip in the S&P 500. As experts anticipate a rebound in giving, there are considerations for nonprofits to consider to maximize fundraising efficiency and effectiveness in the years ahead.
Be Versatile
Nonprofits are entering an era when not only wealth, but responsibility for leadership, will be changing hands. In PNC Institutional Asset Management’s 2023 State of Nonprofits webinar, CJ Orr, president of the nonprofit consulting firm the Orr Group, noted that in during the expected demographic shift of this transition period, nonprofits should be open to new and diverse board leadership and donor pools.
“This has been an important factor for many organizations over the past few years, and I’m confident that it will be a continued priority for board leadership going forward,” Orr said. “We expect to see a pursuit of diversity on the boards for years to come.”
Additionally, Orr said, nonprofits need to revise their acceptance policies to take advantage of emerging forms of grants and gifts. He cited the growing popularity of Donor Advised Funds as well as the emergence of different types of planned gifts like real estate, insurance, or annuities that many nonprofits may not be prepared to receive.
As new trends in gifting emerge, so too will the role that artificial intelligence (AI) plays in the fundraising process for nonprofits. AI has security risks that will require specific oversight for ensuring the privacy of donors and beneficiaries. Despite its risks, though, Orr noted that AI provides tremendous opportunity to make fundraising more efficient for nonprofits by helping organizations to reach more donors, reduce material production time, and more effectively deliver messaging.
“We’re hopeful that versatility will open the door to more productivity in fundraising that ultimately funds more programs and improves impact for nonprofits,” Orr said. “I’m bullish and excited for the next couple of years.”
Plan Ahead
With markets in flux and expenses unpredictable, it can be hard for nonprofits to coordinate spending in a way that protects their portfolio while still creating impact in the community. It’s important that all groups and individuals involved in investing, expenses, or financial planning for a nonprofit’s resources be on the same page.
“I think we can all agree that today's decisions affect tomorrow's outcomes,” said Kimberlene Matthews, managing director of pension and enterprise solutions at PNC Institutional Asset Management. “So, how do we take those future outcomes and feed into the decisions that we're making today?”
Matthews’ team helps nonprofits through an exercise called Enterprise Financial Modeling that provides multi-year projections of how various decisions may impact an organization’s ability to meet their mission. The modeling can help stakeholders evaluate different financial scenarios, evaluate the effect of proposed spending, or project the value of future investments. Aside from the tangible results offered at the conclusion of the modeling, the exercise includes extensive input from a variety of stakeholders, which Matthews says may help build necessary communication habits within an organization that can help incubate better long-term decision making.
“A process that provides support for enterprise risk management leads to better decisions while arming nonprofit leaders with the data and documentation that they can share with stakeholders to provide even more impact to the community,” Matthews said.
Consider Adjustments to Your Portfolio
Just as important as continually forecasting spend, is considering updates to how a nonprofit’s portfolio is allocated. While basing long-term investment decisions on short-term reactions to the market is not advisable, there are shorter-term market indicators that can make longer-term impacts to the value of a portfolio.
Stacy Herndon, national investments director for PNC Institutional Asset Management, said corporate earnings projections and consumer spending measures are always key indicators that nonprofit board members and executives should monitor as they consider portfolio allocations. Most important, though, is to work with an investment advisor who can provide the necessary analysis and trends to make educated adjustments to investments when necessary.
“Two-way ongoing communication between a board and executives and their investment manager is key to managing an investment portfolio successfully over time,” Herndon said. “Depending on the specific goals of an organization, an investment advisor really can help inform long-term decision making.”
She noted that with interest rates at near 20-year highs and with current forecasts predicting a mild recession in the early part of 2024, there may be opportunity to hedge risk and realize better gains from heavier investment in the bond market. Still, Herndon said, no two organizations will benefit from the same approach. Much depends on their existing portfolio, their appetite for risk and their need for liquidity in the near term.
As nonprofits move forward into a new era of leadership and fundraising, they’ll need to do so with an enhanced focus on collaboration, versatility, and agility to ensure that their community impact extends to the next generation and beyond.
Learn more about PNC’s tailored solutions for nonprofits.
