The community of nonprofits and foundations in the Philadelphia region is vast, diverse, and strong. With more than 200 institutional clients at Haverford Trust, over the past several weeks we have held conversations with many nonprofit clients and their senior executive teams, investment committees, and board members. From funding and the current investment environment, to cash flow and legislative action, we are here to share the best practices we have been speaking about with these organizations.
Cash Flow
Cash flow analysis is paramount during any market environment and becomes even more crucial during challenging times. The unprecedented social and business impacts from the pandemic, combined with an exceptionally swift market contraction, have made income and expense forecasting a major challenge. Understanding the unique needs and challenges of your organization is critical to managing cash in a situation where all sources of liquidity are not created equal.
Funding Sources
When our clients review and share their current projected cash flow models with us, together we have identified gaps that may require immediate funding. For those nonprofits that rely on diversified funding sources, the best have been proactive and reconfirmed the stability of ongoing support and grants. Understanding that nonprofits may need funding immediately, a positive trend that we have seen with our private and community foundation clients is the acceleration of their grant process to help recipient organizations to provide services and programs to those in need.
Liquidity Management
The decision of how best to access needed cash is not always straightforward. There are various sources of liquidity within each organization’s financial framework, including bank deposits, money market funds, short term fixed income instruments, and portfolio income generated by both fixed income coupons/call/maturities and equity dividend payments. Additional flexibility can be achieved through the access of credit markets and loan options, with the added complexity of evaluating the interest and covenants that accompany them. Our conversations with clients focus on short-term cash flow needs balanced against the long-term cost of accessing this cash by utilizing the most productive sources of capital.
Investment Policy Statement
Your Investment Policy Statement (IPS) is a guiding document that was most likely written during less volatile times to help fiduciaries stay focused on the long-term investment objectives and time horizon for the organization. Most of our nonprofit client calls right now start with an IPS review to ensure that the objectives and strategies described within continue to align investment assets in this market environment with their short- and long-term goals. The decisions made prior to the bear market are meant to guide your organization through periods of extreme volatility – like we face now. Well-managed institutional clients know that risk is not just about volatility, it is also about long-term objectives. Risk mitigation should take many forms in a portfolio, both inherent in the investment philosophy as well as expressly covered in the IPS.
Asset Allocation
The IPS review naturally leads to a discussion about the asset allocation targets established in that document. Market movements shift the asset allocation, and as a result, many nonprofits today find it prudent to rebalance back towards the target weights for each asset class. Rebalancing in today’s environment could potentially include short-term uncertainty and should be considered only after a detailed discussion around cash flow and potential liquidity needs. By understanding your goals through all market cycles, we are able recommend the appropriate asset allocation that aligns with your balance for risk and return.
Education and Support
It is the close communications you will have with your trusted advisors during these unprecedented times that will best position your organization to successfully weather this storm. Having trusted advisors is invaluable, but they can often be hard to find. As a strategic partner, we are dedicated to educating our clients and providing the tools and guidance to succeed in achieving their missions. At Haverford, we have built a strong network outside of our firm of experts in accounting, law, insurance, benefits, commercial banking, who can become an important resource to your organization. The nonprofit clients who get the most from their relationship with us continue to utilize Haverford as a resource to help find solutions to their organization’s needs.
Institutional clients of Haverford Trust have the full strength of our partnership, experience, and expertise at their disposal. Now, more than ever, that partnership is here to serve your financial needs and answer questions for you and your board. During our over 40 years of investing, Haverford Trust has helped shepherd our clients through challenging periods, and we are doing so again.
The last year has been punctuated by the health and economic crisis we are currently experiencing. While the markets may remain volatile for the short-term, you should not hesitate to contact us with your questions, concerns, and to talk about your organization’s needs. Consider us an extension of your team – one with a deep bench of financial professionals with the experience of forty years and thousands of clients behind you.
The information provided is not intended to be and should not be construed as legal or tax advice or a legal opinion. Haverford does not provide legal or tax advice. You should contact your legal or tax advisor regarding your specific tax situation prior to taking any action based upon this information.
Investments in securities are not FDIC insured • Not bank guaranteed • May lose value
