As we bid farewell to 2019 and welcome in 2020, it seems like a good time to reflect on the trends of 2019 and offer some perspective to nonprofit organizations preparing for 2020.

By way of background, I serve as an outsourced chief investment officer (OCIO) for nonprofits, endowments, and foundations across PNC Institutional Asset Management’s® national footprint. Additionally, I have served on the boards of both grant-makers and grant-seekers. It is from these perspectives that I offer my thoughts below. 

Farewell, 2019

In 2019, if you asked a random group of individuals, “How do you think the economy is doing?”, you would likely get a range of responses from “horrible” to “the strongest it has ever been.” Without a strong consensus, we believe there are several factors that were underappreciated in their effect, or lack thereof, on the investment markets, including the unemployment rate, wage growth, negative interest rate policy (NIRP), and political uncertainty.

For a more complete analysis of our view on the markets, please ask your investment advisor for a copy of our The Good, The Bad, and The Ugly slide and our Global Market Snapshot. 

Indifference to the Unemployment Rate

The unemployment rate is a strong indicator of the state of the economy.

The unemployment rate points to a positive trend over the last 10 years as the United States recovers from the Great Recession. By 2017, the unemployment rate dropped below the pre-Great Recession low of 4.4% in 2007. Through 2019, it has continued to drop, stabilizing in the 3.5–3.7% range across the end of the year. On the surface, this unemployment rate would suggest to us an economy that is back to work, with consumers having jobs and the ability to drive the economy. While the market has largely priced in this trend, we note the low unemployment rate does not spend much time being appreciated in the current 24/7 news cycle.

US Unemployment Rate, U-3 As of 10/31/19

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Wage Growth

Wage growth is a significant concern to economists, investors, and labor participants.

Consumer expenditures form the largest portion of GDP in the United States, and GDP is one of the most visible indicators of an economy’s financial health. Connecting the points, higher wages allow for the possibility of higher consumer expenditures, which in turn allow GDP to grow at a quicker pace. If GDP is growing at a reasonable rate, the idea is that investors will continue to have confidence in the economy and invest in it, allowing the markets to continue to generate positive returns. While wage growth sometimes receives negative attention, it is worth noting that since September 2009, wage growth has been positive in 92 out of 120 months. We believe a tight labor market, as seen in the low unemployment rate, should help keep wage growth, consumer expenditures, and GDP trending in the right direction.

Average Hourly Earnings of All Employees, Inflation Adjusted As of 9/30/19

Average Hourly Earnings of All Employees, Inflation Adjusted

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Negative Interest Rate Policy

The current distortions created by some central bank monetary policies, specifically through the introduction of NIRP, takes already unconventional monetary policy even further to help reinvigorate economic growth and stimulate low inflation. However, from a rational investor’s perspective, we have entered a new paradigm, one that challenges traditional time-value-of-money theories. (Time value of money: Traditionally, saving accounts pay a positive yield, not negative.)

For example, in this new reality, mortgage borrowers in Denmark are effectively being paid interest to borrow money, bank depositors in Switzerland are being charged interest on their savings accounts, and pension funds in Japan are buying negative-yielding bonds. Perhaps the most visible consequence of NIRP adoption by “select” (a subgroup of) developed country central banks is the over $16 trillion of negative-yielding global bonds, representing more than 29% of the global tradable bond universe. (The global tradable bond universe defined as the Bloomberg Barclays Global Aggregate Index.)

Percent of Tradable Bonds with Negative Yields As of 8/31/19

Percent of Tradable Bonds with Negative Yields

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We expect NIRP in certain parts of the globe to remain for some time.

However, with ample options still left on the table, NIRP appears to be a distant, last resort domestically for the Federal Reserve (Fed). Regardless, the result has made it difficult to justify the tradeoff between low (or negative) returns and any diversification benefits that fixed income offers in an investment portfolio. In turn, this is driving many investors further out on the risk curve and deeper into other asset classes, particularly dividend-paying stocks and private equity, debt, and real estate strategies. We think this new paradigm will continue to have profound consequences on future portfolio construction and could increase the downside exposure that many institutional investors have to the next crisis.

For more information on NIRP, please see our fourth-quarter 2019 Strategy Insights, The “Upside Down” of Negative Interest Rates. 

Political Uncertainty

Political turmoil was perhaps the most constant part of 2019, in our view.

With elections looming, it is likely it will remain constant in 2020 as well. From progress (or lack thereof) on international trade agreements to other issues, political uncertainty was frequently pointed to as a key driver of market rises and market falls across 2019. Progress on trade deals was rewarded with markets moving up; impasses were punished by the markets moving lower. Confidence in the Fed engaging in rate cuts caused markets to rise, while uncertainty regarding the number of future rate cuts drove markets to fall.

At the core of this, in our view, was media sensationalism affecting national perception: Small factors helped drive big impacts because they brought reader engagement and sold stories. This, in turn, brought more of these stories to investors across the year, to the point that many have become numb to the hyperbole. To the extent that the markets struggled to find their identity or offer a compelling argument for why price levels should be moving up or down, these small numbers were able to influence short-term movements in the market to a much greater degree than a rational investor would expect. With 2020 being an election year, we fear there may be more of this in store on the road to November. 

Welcome, 2020

In preparing for operational and mission success in 2020, we believe nonprofit organizations should focus on the following to improve outcomes:

  • re-focusing and re-gearing fundraising efforts to the current philanthropic landscape;
  • setting realistic expectations for investment returns and increasing periodic evaluations of investment program policies; and
  • using a professional advisory board to help increase board effectiveness and add the potential for expanding your donor base (through introductions). 


In our November 2019 State of Nonprofits Webinar, 92% of nonprofit professionals said their outlook for future fundraising was “about the same as always” to “very optimistic” (PNC collected survey data from participants in the November 2019 Nonprofit Webinar referenced here). However, in answering the question, “What is the greatest challenge facing your organization,” those same professionals selected fundraising more than twice as often as any other option). So how do you reconcile the two? 

What Is Your Outlook Regarding Future Fundraising for Your Organization?

What Is Your Outlook Regarding Future Fundraising for Your Organization Chart

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Concern about the Next Recession: I am _________ concerned about the next recession:

Positioning Portfolios Chart

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Nonprofits may be optimistic because historically donors have been generous.

However, we believe they may also be the first to admit that staying relevant and differentiating their organization’s mission and impact in a way that helps to capture that generosity and drive donor stewardship is a challenge that requires a dynamic strategy. Toward this end, following are a few best practices: 

  • Understand that your donors have a mission, and understand what that mission is. Be aware that donor interests can change over time. For example, suppose you are raising money for a humane society in its campaign for a new facility. A donor might give to the cause of the new facility but may not want to donate on a recurring basis. In that case, your time would be best spent pursuing donors who like humane societies as a cause, not the specific donor who gave to the new facility. 
  • Avoid oversoliciting; keep in mind you are not the only organization asking donors for money. Each ask should be carefully considered and tactfully executed to make the most of a limited number of requests. 
  • Be honest, and sidestep “sob stories.” Donors want honesty about the difference their contributions could make. Further, and contrary to the old adage, misery does not sell. Nobody likes to be “guilted” into giving because of a problem. Instead, focus on your solution and how the donation is going to enable that solution. 

Setting Expectations: Market Performance and Proactive Policies 

One of the biggest challenges facing investors today is the possibility of low economic growth and below-average investment returns for most asset classes over the next 10 years. The reality of what we believe to be a lower-return environment has been consistently reflected in our Capital Market Assumptions. To this end, we believe this future return environment should factor into discussions around return expectations, asset allocation, and distribution policies. We encourage every nonprofit organization to meet more frequently with their investment advisor and board of directors to help confirm their investment programs remain oriented to achieve objectives while weathering potential turbulence. With this in mind, there are a few factors we believe are worth keeping in mind:

  • Portfolio performance has been robust, but future expectations are likely to be lower. That needs to play into spending policy and distribution discussions.
  • With 2019 equity returns shaping up to be one of the best of this business cycle, valuations have also ticked higher, suggesting moderating returns ahead.
  • With the Fed back in easing mode this year, we enjoyed strong double-digit returns across multiple fixed income asset classes. Now that the Fed is back “on pause,” fixed income returns should likely be much more muted.
  • We continue to see a better return environment for alternative strategies (private equity/ debt/real estate), though projected returns for private equity have started to come down marginally alongside public markets. In a subdued return environment, the illiquidity premium becomes that much more valuable.
  • At the end of the day, what other levers can an organization pull so it is not solely reliant on investment performance to achieve long-run goals and objectives? The more money that remains in the investment program, the greater the potential effect of compound interest. 

We believe investment portfolios should be positioned well for the later innings of the business cycle.

During the State of Nonprofits Webinar, we asked participants their level of concern with regard to a future recession; 61% of respondents cited being “somewhat” or “very” worried about the next recession. With the market sitting at all-time highs, it is important for nonprofit organizations to start thinking proactively with regard to investment portfolios and mission-focused operations. Having a plan in place can help to make the next market downturn more bearable and allow your organization to continue to drive positive results for your organization’s mission.

Toward this end, we think there are actions an investment program can take to position portfolios to weather periods of heightened volatility.

What Is the Greatest Challenge Facing Your Organization?

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Professional Advisory Committees

A new development in some local nonprofit communities is the growth of professional advisory committees. These committees comprise local (and sometimes national) business and community leaders who share a commitment to a mission or cause and are willing to share their experience, time, and network in a volunteer capacity. At its core, an advisory committee can:

  • offer ideas on funding/capital structures available to fund your organization;
  • provide financial operations advice based on both nonprofit and for-profit experience; and
  • make introductions to personal and professional networks to engage potential donors or to provide a recommendation for your organization.

In putting together a professional advisory committee, it is prudent to look for people who are active participants in the community. These tend to be the most likely to be engaged with helping your organization to succeed in its mission.


While it might begin to feel like every year is “the most difficult time in nonprofit history,” it is easy to understand why consensus might agree that now, more than ever, is a time of challenge and change. For a nonprofit organization to succeed, it is important for its leaders to look to the lessons of the past, stay focused in the present, and always keep an eye on the future. We think there is still time left on the clock in this business cycle and market cycle, but volatility is likely to pick up, especially heading into an election year. Start to re-evaluate your portfolio positioning so that you are well prepared for what may lie ahead.

Please contact your PNC Representative or fill out a simple form and we will get in touch with you.


Text Version of Charts

US Unemployment Rate, U-3 As of 10/31/19

  US Unemployment Rate, U-3 Pre-Great Recession Low
11/04 5.4 4.4
11/05 5 4.4
9/06 4.5 4.4
9/07 4.7 4.4
7/08 5.8 4.4
7/09 9.5 4.4
5/10 9.6 4.4
4/11 9.1 4.4
3/12 8.2 4.4
3/13 7.5 4.4
1/14 6.6 4.4
11/15 5.1 4.4
9/16 5 4.4
9/17 4.2 4.4
8/18 3.8 4.4
7/19 3.7 4.4
10/19 3.6 4.4

Average Hourly Earnings of All Employees, Inflation Adjusted As of 9/30/19

Date Average Hourly Earnings
9/09 3.82
9/10 0.72
9/11 -1.87
9/12 0.08
9/13 0.94
9/14 0.39
9/15 2.27
9/16 1.13
9/17 0.61
9/18 0.71
9/19 1.28

Percent of Tradable Bonds with Negative Yields As of 8/31/19

2010 00.0
2011 00.1
2012 00.3
2013 0.00
2014 18.0
2015 09.0
2016 17.0
2017 16.0
2018 16.0
8/19 29.0

What Is Your Outlook Regarding Future Fundraising for Your Organization?

Answer Percent Count
Very Pessimistic 0% 0
Pessimistic 8% 20
About the Same as Always 32% 81
Optimistic 47% 121
Very Optimistic 6% 15

Concern about the Next Recession: I am _________ concerned about the next recession:

Not at All 4% 10
Mildly 29% 74
Somewhat 45% 115
Very 16% 40

What Is the Greatest Challenge Facing Your Organization?

Fundraising/Philanthropy 73%
Board Oversight/Succession Planning 25%
Spending/Distribution 25%
Asset Allocation 21%
Risk Management 13%
Cybersecurity/Fraud 12%
Responsible Investing 12%
Liquidity 8%
Active vs. Passive 8%
Regulatory 3%